HUMBL, INC. - Quarter Report: 2023 June (Form 10-Q)
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 June 30, 2023
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission File No. 000-31267
HUMBL, Inc.
(Exact name of Registrant as specified in its charter)
| Delaware | 27-1296318 | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
101 W. Broadway, Suite 1450, 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 | OTC Pink |
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 shares of the Registrant’s $0.00001 par value common stock outstanding as of August 14, 2023.
HUMBL, Inc.
INDEX
| i |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
Table of Contents
| 1 |
| HUMBL, INC |
| CONDENSED CONSOLIDATED BALANCE SHEETS (IN US$) |
| JUNE 30, 2023 (UNAUDITED) AND DECEMBER 31, 2022 |
| JUNE 30, | DECEMBER 31, | |||||||
| 2023 | 2022 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 74,859 | $ | 483,251 | ||||
| Assets related to user cryptocurrencies safeguarding obligation | 169,900 | 665,738 | ||||||
| Accounts receivable | 143,996 | 73,974 | ||||||
| Inventory | 1,001,793 | 1,038,816 | ||||||
| Intangible assets - digital assets, current portion | 6,609 | |||||||
| Prepaid expenses and other current assets | 14,782 | 22,719 | ||||||
| Current assets of discontinued operations | 559,202 | |||||||
| Total Current Assets | 1,405,330 | 2,850,309 | ||||||
| Non-Current Assets: | ||||||||
| Fixed assets, net of depreciation | 16,537 | 20,549 | ||||||
| Intangible assets, net of amortization | 729,212 | 803,380 | ||||||
| Intangible assets - digital assets, net of current portion | 147,823 | |||||||
| Non-current assets of discontinued operations | 3,936 | |||||||
| Total Non-Current Assets | 745,749 | 975,688 | ||||||
| TOTAL ASSETS | $ | 2,151,079 | $ | 3,825,997 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,611,769 | $ | 3,805,410 | ||||
| Obligation to issue common shares | 903,936 | |||||||
| User cryptocurrencies safeguarding obligation | 169,900 | 665,738 | ||||||
| Contingent consideration | 1,697,445 | 2,829,075 | ||||||
| Derivative liabilities | 315,984 | |||||||
| Current portion of notes payable - bank | 4,976 | 4,380 | ||||||
| Current portion of notes payable | 32,853 | 440,000 | ||||||
| Current portion of notes payable - related parties | 259,964 | 10,341,320 | ||||||
| Current portion of convertible notes payable - related parties | 2,308,830 | 7,500,000 | ||||||
| Current portion of convertible notes payable, net of discount | 1,794,845 | 2,636,411 | ||||||
| Current liabilities of discontinued operations | 1,132,726 | |||||||
| Total Current Liabilities | 8,196,566 | 30,258,996 | ||||||
| Long-Term Liabilities: | ||||||||
| Notes payable - bank, net of current portion | 4,975 | 6,569 | ||||||
| Notes payable related parties, net of current portion | 6,150,000 | 8,700,000 | ||||||
| Notes payable, net of current portion | 1,675,000 | |||||||
| Non-current liabilities of discontinued operations | 150,000 | |||||||
| Total Long-Term Liabilities | 7,829,975 | 8,856,569 | ||||||
| Total Liabilities | 16,026,541 | 39,115,565 | ||||||
| Commitments and contingency | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock, shares Series A Preferred stock authorized, and Series B Preferred stock authorized (Series C Preferred stock was cancelled October 29, 2021) | ||||||||
| Series A Preferred, par value $, and shares issued and outstanding, respectively | 70 | 70 | ||||||
| Series B Preferred, par value $, and shares issued and outstanding, respectively | 4 | 4 | ||||||
| Common stock, par value, $, and shares authorized, and issued and outstanding, respectively | 41,077 | 21,823 | ||||||
| Additional paid in capital | 78,477,457 | 63,887,828 | ||||||
| Accumulated deficit | (92,341,638 | ) | (99,218,747 | ) | ||||
| Accumulated other comprehensive income (loss) | (52,432 | ) | 19,454 | |||||
| Total Stockholders’ Deficit | (13,875,462 | ) | (35,289,568 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 2,151,079 | $ | 3,825,997 | ||||
The accompanying notes are an integral part of these financial statements.
| 2 |
| HUMBL, INC |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN US$) (UNAUDITED) |
| SIX AND THREE MONTHS ENDED JUNE 30, 2023 AND 2022 |
| SIX MONTHS ENDED | THREE MONTHS ENDED | |||||||||||||||
| JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES | $ | 489,466 | $ | 85,003 | $ | 218,781 | $ | 54,914 | ||||||||
| COST OF REVENUES | 219,641 | 37,700 | 96,252 | 22,181 | ||||||||||||
| GROSS PROFIT | 269,825 | 47,303 | 122,529 | 32,733 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Development costs | 161,980 | 2,075,403 | 95,135 | 811,411 | ||||||||||||
| Professional fees | 775,024 | 1,611,598 | 368,433 | 693,904 | ||||||||||||
| Settlement | 1,120,400 | |||||||||||||||
| Impairment - intangible assets including goodwill | 1,008,642 | |||||||||||||||
| Impairment - digital assets | 151,409 | 1,211,882 | 149,414 | 1,166,564 | ||||||||||||
| General and administrative expenses | 5,630,738 | 11,422,156 | 2,273,677 | 5,004,800 | ||||||||||||
| Total Operating Expenses | 6,719,151 | 18,450,081 | 2,886,659 | 7,676,679 | ||||||||||||
| OPERATING LOSS | (6,449,326 | ) | (18,402,778 | ) | (2,764,130 | ) | (7,643,946 | ) | ||||||||
| NON-OPERATING INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | (513,585 | ) | (779,790 | ) | (243,974 | ) | (383,401 | ) | ||||||||
| Amortization of debt discounts | (29,101 | ) | (1,656,267 | ) | (16,693 | ) | (65,370 | ) | ||||||||
| Gain on sale of digital assets | 24 | 95,794 | 66,243 | |||||||||||||
| Change in fair value of derivative liability | 40,193 | 4,940 | ||||||||||||||
| Derivative expense | (79,351 | ) | (9,133 | ) | ||||||||||||
| Gan on conversion of convertible notes payable | 371,833 | 799,573 | ||||||||||||||
| Total Non-Operating Income (Expenses) | (209,987 | ) | (2,340,263 | ) | 534,713 | (382,528 | ) | |||||||||
| NET LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS AND PROVISION FOR INCOME TAXES | (6,659,313 | ) | (20,743,041 | ) | (2,229,417 | ) | (8,026,474 | ) | ||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||
| (Loss) income from discontinued operations | (149,223 | ) | 334,286 | 95,094 | 83,064 | |||||||||||
| Gain on disposal of discontinued operations | 13,685,645 | 2,108,398 | ||||||||||||||
| Total discontinued operations | 13,536,422 | 334,286 | 2,203,492 | 83,064 | ||||||||||||
| NET INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES | 6,877,109 | (20,408,755 | ) | (25,925 | ) | (7,943,410 | ) | |||||||||
| Provision for income taxes | ||||||||||||||||
| NET INCOME (LOSS) | $ | 6,877,109 | $ | (20,408,755 | ) | $ | (25,925 | ) | $ | (7,943,410 | ) | |||||
| Other comprehensive income (loss) | ||||||||||||||||
| Foreign currency translations adjustment | (71,886 | ) | 1,911 | (17,078 | ) | (1,131 | ) | |||||||||
| Comprehensive income (loss) | $ | 6,805,223 | $ | (20,406,844 | ) | $ | (43,003 | ) | $ | (7,944,541 | ) | |||||
| Net income (loss) per share - basic | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ) | $ | ) | $ | 1 | ) | ||||||
| Discontinued operations | $ | $ | $ | $ | ||||||||||||
| Net income (loss) per share - basic | $ | $ | ) | $ | ) | $ | ) | |||||||||
| Net income (loss) per share - diluted | ||||||||||||||||
| Continuing operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Discontinued operations | $ | $ | $ | $ | ||||||||||||
| Net income (loss) per share - diluted | $ | $ | ) | $ | ) | $ | ) | |||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||
| Weighted average common shares outstanding - diluted | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| 3 |
| HUMBL, INC |
| CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (IN US$) (UNAUDITED) |
| FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022 |
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Additional | Other | |||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common Stock | Paid-In | 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 | ) | |||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
| Services | - | - | 198,750 | 2 | 34,704 | 34,706 | ||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred to common shares | - | (22,451 | ) | 224,510,000 | 2,245 | (2,245 | ) | |||||||||||||||||||||||||||||||||
| Contribution of capital - NFT | - | - | - | 406,040 | 406,040 | |||||||||||||||||||||||||||||||||||
| Contribution of capital - digital assets | - | - | - | 500,000 | 500,000 | |||||||||||||||||||||||||||||||||||
| Stock-based compensation - warrants | - | - | - | 1,251,633 | 1,251,633 | |||||||||||||||||||||||||||||||||||
| Stock-based compensation - options | - | - | - | 208,460 | 208,460 | |||||||||||||||||||||||||||||||||||
| Stock-based compensation - restricted stock grants | - | - | - | 1,216,115 | 1,216,115 | |||||||||||||||||||||||||||||||||||
| Amortization of contingent consideration - restricted stock units | - | - | - | 565,815 | 565,815 | |||||||||||||||||||||||||||||||||||
| Change in comprehensive income (loss) | - | - | - | (1,131 | ) | - | (1,131 | ) | ||||||||||||||||||||||||||||||||
| Net income (loss) for the period | - | - | - | (7,943,410 | ) | (7,943,410 | ) | |||||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | 7,000,000 | $ | 70 | 495,344 | $ | 5 | 1,541,774,389 | $ | 15,417 | $ | 53,137,176 | $ | 1,911 | $ | (71,059,564 | ) | $ | (17,904,985 | ) | |||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||||
| BCF discount recorded on convertible notes | - | - | - | |||||||||||||||||||||||||||||||||||||
| 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 | $ | 72,833,825 | $ | (35,354 | ) | $ | (92,315,713 | ) | $ | (19,487,115 | ) | ||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
| Services (including settlement of obligation to issue common shares) | - | - | 76,916,666 | 769 | 461,156 | 461,925 | ||||||||||||||||||||||||||||||||||
| Cash | - | - | 147,500,000 | 1,475 | 358,575 | 360,050 | ||||||||||||||||||||||||||||||||||
| Vested RSUs | - | - | 3,350,000 | 34 | (34 | ) | ||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | - | - | 776,645,700 | 7,766 | 3,211,917 | 3,219,683 | ||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred to common shares | - | (9,795 | ) | 97,950,000 | 980 | (980 | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation - warrants | - | - | - | 958,765 | 958,765 | |||||||||||||||||||||||||||||||||||
| Stock-based compensation - options | - | - | - | 51,543 | 51,543 | |||||||||||||||||||||||||||||||||||
| Stock-based compensation - restricted stock grants | - | - | - | 36,875 | 36,875 | |||||||||||||||||||||||||||||||||||
| Amortization of contingent consideration - restricted stock units | - | - | - | 565,815 | 565,815 | |||||||||||||||||||||||||||||||||||
| Change in comprehensive income | - | - | - | (17,078 | ) | (17,078 | ) | |||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | (25,925 | ) | (25,925 | ) | |||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | 7,000,000 | $ | 70 | 390,380 | $ | 4 | 4,107,673,205 | $ | 41,077 | $ | 78,477,457 | $ | (52,432 | ) | $ | (92,341,638 | ) | $ | (13,875,462 | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| 4 |
| HUMBL, INC |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN US$) (UNAUDITED) |
| SIX MONTHS ENDED JUNE 30, 2023 AND 2022 |
| 2023 | 2022 | |||||||
| CASH FLOW FROM OPERTING ACTIVIITES FROM CONTINUING OPERATIONS | ||||||||
| Net income (loss) | $ | 6,877,109 | $ | (20,408,755 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
| Depreciation | 4,012 | 12,175 | ||||||
| Amortization | 74,168 | 275,414 | ||||||
| Impairment expense - intangible assets including goodwill | 1,008,642 | |||||||
| Impairment expense - digital assets | 151,409 | 1,211,882 | ||||||
| (Gain) on sale of digital assets | (24 | ) | (95,794 | ) | ||||
| Gain on conversion of convertible notes payable | (371,833 | ) | ||||||
| Expenses paid for by digital assets | 359 | 131,489 | ||||||
| Fee added to convertible notes | 12,757 | 9,000 | ||||||
| Sales commission received in digital assets | (1,410 | ) | ||||||
| Amortization of debt discounts | 29,101 | 1,656,267 | ||||||
| Foreign currency adjustment | (71,886 | ) | 1,911 | |||||
| Stock-based compensation | 4,040,627 | 6,795,647 | ||||||
| Gain on disposal of Tickeri | (11,577,247 | ) | ||||||
| Gain on disposal of Monster | (2,108,398 | ) | ||||||
| Derivative expense | 79,351 | |||||||
| Change in fair value of derivative liability | (40,193 | ) | ||||||
| Settlement | 1,120,400 | |||||||
| Changes in assets and liabilities, net of acquired amounts | ||||||||
| Accounts receivable | (70,022 | ) | 12,189 | |||||
| Intangible assets - digital assets | (983,890 | ) | ||||||
| Inventory | 37,023 | |||||||
| Prepaid expenses and other assets | 7,937 | 10,217 | ||||||
| Accounts payable and accrued expenses | 453,000 | 1,844,792 | ||||||
| Total adjustments | (9,349,859 | ) | 13,008,931 | |||||
| Net cash used in operating activities of continuing operations | (2,472,750 | ) | (7,399,824 | ) | ||||
| Net cash provided by (used in) operating activities of discontinued operations | 341,091 | (405,462 | ) | |||||
| Net cash used in operating activities | (2,131,659 | ) | (7,805,286 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of fixed assets | (8,510 | ) | ||||||
| Purchase of intangible assets | (275,020 | ) | ||||||
| Purchase of digital asset (non-fungible token) | (406,040 | ) | ||||||
| Cash paid in purchase of Ixaya, net of amounts received | (148,675 | ) | ||||||
| Net cash used in investing activities | (838,245 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Proceeds from the exercise of warrants | 2,000,000 | |||||||
| Proceeds from related party notes payable | 701,644 | 4,502,645 | ||||||
| Payments of notes payable - bank | (998 | ) | ||||||
| Payments of notes payable | (477,429 | ) | (804 | ) | ||||
| Contribution of capital CEO | 50,000 | 406,040 | ||||||
| Proceeds from notes payable | 50,000 | |||||||
| Proceeds from convertible notes payable | 1,040,000 | |||||||
| Proceeds from issuance of common stock for cash | 360,050 | |||||||
| Net cash provided by financing activities | 1,723,267 | 6,907,881 | ||||||
| NET (DECREASE) IN CASH AND RESTRICTED CASH | (408,392 | ) | (1,735,650 | ) | ||||
| CASH AND RESTRICTED CASH - BEGINNING OF PERIOD | 483,251 | 2,845,741 | ||||||
| CASH AND RESTRICTED CASH - END OF PERIOD | $ | 74,859 | $ | 1,110,091 | ||||
| CASH PAID DURING THE PERIOD FOR: | ||||||||
| Interest expense | $ | 990 | $ | |||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION - NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Assets and liabilities disposed for cancellation of debt in Tickeri transaction | $ | 11,496,095 | $ | |||||
| Assets and liabilities disposed for cancellation of debt and shares issued in Monster transaction | $ | 1,848,459 | $ | |||||
| Conversion of preferred stock into common stock | $ | 2,579 | $ | 4,451 | ||||
| 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 | $ | 8,446,655 | $ | |||||
| Exchange of convertible notes payable and accrued interest into common stock | $ | $ | 3,176,805 | |||||
| Contribution of digital assets by CEO | $ | $ | 500,000 | |||||
| Shares issued for vested RSUs | $ | 34 | $ | |||||
| Settlement of accounts payable for digital assets | $ | 2,688 | $ | |||||
| Reclassification of fixed assets to assets held for sale | $ | $ | 328,222 | |||||
| Vesting of contingent consideration | $ | 1,131,630 | $ | |||||
| Reclassification of convertible notes payable to derivative liability | $ | 356,177 | $ | |||||
| 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 | ) | ||||||
| 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 | |||||||
| 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.
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HUMBL, INC .
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN US$) (UNAUDITED)
JUNE 30, 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 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 shares, and preferred shares. On July 27, 2023, the Company increased their authorized common stock to 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 shares of Series A Preferred Stock as well as 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. Effective June 30, 2023, the Company and Phantom Power, LLC (the entity that sold Monster to the Company two years earlier) entered into a Securities Purchase Agreement whereby the Company sold back the membership interest they held along with 115,000,000 -year warrants priced at $0.05 in exchange for the cancellation of the remaining portion of the original $975,000 non-convertible note of which $300,000 remained outstanding, and the cancellation of $1,000,000 of the remaining $3,308,830 in convertible notes that remained outstanding. As part of the sale of the membership interest, Monster took back all assets and liabilities with respect to their company, and the intercompany advances between the Company and Monster were forgiven. The operations of Monster for the six months ended June 30, 2023 and 2022 are reflected in discontinued operations, and the result of the disposal of Monster is reflected as a loss on disposal in the consolidated statements of operations. For the full description of Monster, 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 common shares and restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the RSUs that vested during 2022. Pursuant to BizSecure’s request, the shares of common stock and the RSUs were rescinded effective December 30, 2022. The remaining 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.
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 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).
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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 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 million shares of our common stock of which Forwardly purchased million shares for $2,000,000 in 2021. Forwardly retained the 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. Upon payment of the last $440,000, the remaining 115,000,000 warrants were cancelled.
On May 10, 2023, we entered into an Equity Financing Agreement (the “EFA”) and a Registration Rights Agreement (“Rights Agreement”) with Pacific Lion. Although we are not mandated to sell shares under the EFA, the EFA gives us the option to sell to Pacific Lion up to $20,000,000 worth of our common stock over the period beginning on May 10, 2023, the execution date of the EFA, and ending on September 30, 2024. All such sales of common stock to be made under the EFA to Pacific Lion shall be referred to in this prospectus as the “Equity Line”.
On May 10, 2023, we also entered into the Rights Agreement with Pacific Lion whereby we are obligated to (i) file a registration statement (the “Registration Statement”) to register all shares of common stock to be sold to Pacific Lion under the Equity Line with the Commission; and (ii) use our best efforts to have the Registration Statement declared effective by the Commission at the earliest possible date.
Following effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the EFA, the Company shall have the discretion to deliver put notices to Pacific Lion and Pacific Lion will be obligated to purchase shares of the Company’s Common Stock based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to Pacific Lion in each put notice may not exceed 150% of the average daily share volume of the Common Stock in the five (5) trading days immediately preceding the put notice, and may not be less than an aggregate value of $25,000 or greater than an aggregate value of $200,000, unless such limits are waived by Pacific Lion. Pursuant to the EFA, Pacific Lion and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s Common Stock to Pacific Lion that would result in Pacific Lion’ beneficial ownership of the Company’s outstanding Common Stock exceeding 4.99%. The price of each put share will be equal to eighty-five percent (85%) of the Market Price (as defined in the EFA). Following an up-list to the NASDAQ, NYSE or an equivalent national exchange by the Company, the per-share purchase price under the EFA will change to ninety percent (90%) of the Market Price, subject to a floor agreed upon by the parties at the time of the up-list, below which the Company may not deliver a put notice. Put notices may be delivered by the Company to Pacific Lion until the earlier of (i) the date on which Pacific Lion has purchased an aggregate of $20,000,000 worth of Common Stock under the terms of the EFA; (ii) the period beginning on the execution date of the EFA and ending on September 30, 2024; or (iii) written notice of termination delivered by the Company to Pacific Lion, subject to certain equity conditions set forth in the EFA.
Beginning on May 15, 2023 and ending on May 17, 2023, we entered into Securities Purchase Agreements with five different investors (the “Purchase Agreements”). Pursuant to the Purchase Agreements, we sold shares of our common stock (the “Shares”) and warrants to purchase 125,000,000 shares of our common stock (the “Warrants”) for a total purchase price of $275,000. The Warrants are exercisable for a period of five years, have a cashless exercise provision and have an exercise price of $0.005 per share. Pursuant to the Purchase Agreement, we agreed to register the Shares in a Registration Statement.
On May 26, 2023 the Board of Directors agreed to increase the number of common shares authorized from shares to shares. The stockholders approved this action on May 29, 2023. This action became effective on July 27, 2023.
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On June 1, 2023, the Company amended their Certificate of Incorporation to amend the conversion terms of their Series B Preferred Stock as follows: (a) for the period beginning June 1, 2023 and ending on September 30, 2023, A Series B holder shall not have the right, whether by election, operation of law, or otherwise, to convert any shares of Series B Preferred Stock into common stock; (b) for each calendar month beginning October 2023 through June 2024, A Series B holder shall not have the right, whether by election operation of law or otherwise, to convert into common stock more than shares of Series B Preferred Stock per month; and (c) for each calendar month beginning July 2024 through December 2024, A Series B holder shall not have the right, whether by election operation of law or otherwise, to convert into common stock more than shares of Series B Preferred Stock per month.
On July 19, 2023, we entered into a Settlement Agreement (the “Settlement Agreement”) with BizSecure, Inc. (“BizSecure”). On February 12, 2022, we purchased substantially all of BizSecure’s assets pursuant to an Asset Purchase Agreement (the “APA”). Under the APA, we were obligated to register a certain number of shares for BizSecure with the Commission within 90 days. We failed to timely register those shares. Pursuant to the Settlement Agreement, BizSecure agreed to release its claims against us for failing to timely register the shares as well as all other claims it may have against us arising in connection with the APA. In exchange we agreed to issue shares of our common stock to BizSecure, register those shares in a Registration Statement, and release any claims we may have against BizSecure in connection with the APA.
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 (HBS). 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 Verified Commerce Platform
HUMBL delivers a digital wallet and website as our core services. HUMBL provides customers with the ability to connect with consumers and merchants that have all been fully verified.
| 1. | HUMBL Wallet | |
| 2. | HUMBL.com - Website | |
| 3. | HUMBL Commercial Services |
HUMBL Wallet
The HUMBL Wallet is a 4.9 star application that is available for download on major app stores. The HUMBL Wallet is the centerpiece of the consumer experience on the HUMBL platform. The HUMBL Wallet consolidates a variety of services for customers in one place and helps us to verify customers and merchants.
| - | Search Engine | |
| - | Social Media | |
| - | Marketplace | |
| - | Digital Payments |
The HUMBL Wallet is self-custodied by the individual; ensuring that the user has full control over their online identity, digital assets and private keys.
The HUMBL Wallet is also connected to the BLOCKS Registry, a product registry that allows customers to authenticate and track physical and digital items.
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HUMBL Wallet customers have the obligation to perform their own tax record keeping; 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. We do not store or have access to any biometric information related to our verified users.
The HUMBL Wallet uses SumSub, a third-party service provider, to perform know-your-customer/know-your-business services and authenticate customers. We do not capture or store consumers’ information on our servers, except for their corresponding name, wallet address and email address for basic communications with the verified user. We do not resell our customers data.
The HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries. The HUMBL Wallet no longer allows customers to buy, sell or swap digital assets.
HUMBL Website
i. 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 articles, news, images, videos and more. The search engine also serves as a discovery layer for consumers to search for verified merchandise and tickets.
ii. HUMBL Tickets
Primary - HUMBL is now the Official Technology Platform of the Arena Football League (AFL) through the 2028 season, and will be offering AFL tickets for sale, along with other major arena ticketing partners such as Ticketmaster and Seat Geek.
Secondary - HUMBL Tickets offers secondary (resale) tickets to thousands of live events across North America. HUMBL Tickets inventory listings and ticket fulfillment are provided by Ticket Evolution and we earn a commission for each sale through our 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.
iii. 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.
We are a software platform and do 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.
We previously offered an NFT marketplace and in an effort to ensure compliance with applicable regulations, we have terminated its use. HUMBL customers may no longer buy or sell NFTs on our platform.
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iv. HUMBL Social Media
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 and enhance consumer protection.
v. HUMBL Metaverse Stores
In addition to traditional marketplace listings, HUMBL has also created metaverse stores. Our first metaverse store was created for Major League Baseball (MLB) 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 - Commercial Division (HBS)
Our digital wallet and website can also be used as a white label or “Powered by HUMBL” solution for commercial clients.
| - | Government - HUMBL is one of the first government-approved digital wallets in the State of California. We are currently in the middle of rolling out a pilot program with the County of Santa Cruz, CA, that will deliver a digital wallet for Santa Cruz County citizens to help them interact more effectively with County government in areas of record keeping such as applications, permits and licensing. |
| - | Sports Leagues and Arenas - HUMBL is the “Official Technology Platform” of the Arena Football League (AFL) through the 2028 season. HUMBL will be providing a digital wallet, website and ticketing services for all 16 teams of this sports league, alongside other major ticketing providers such as Ticketmaster and Seat Geek. |
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 June 30, 2023, we had $74,859 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 $6,791,236 and $27,408,687 as of June 30, 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 $360,000 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 six months ended June 30, 2023 received net proceeds of approximately $1,740,000 from various debt financings and has received $360,050 in purchases of common stock and warrants. 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.
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In January 2023 and June 2023, we recognized a gain on disposal of $13,685,645 when we settled all claims with the former owners of Tickeri and Monster and sold them back their companies.
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. In addition, Wyre informed us they will no longer accept any cryptocurrency in our platform effective July 31, 2023. Any funds that remain as of that date will be considered unclaimed funds, and we expect no SAB 121 amounts to be reflected in the future.
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.
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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. All significant accounting policies related to Tickeri and Monster have been removed. We refer you to the Form 10-K we filed with the SEC on April 6, 2023 for a discussion of those policies.
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 Ixaya, and BM Authentics. The Company formed additional subsidiaries that are inactive and have no activity for future use. All operations of Tickeri and Monster are reflected in discontinued operations as these entities were sold back to the original owners on January 31, 2023 and June 30, 2023, respectively.
The Company applies the guidance of Topic 805 Business Combinations of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
For 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 six and three months ended June 30, 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 June 30, 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.
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.
The services related to Wyre and BitGo are no longer being offered as we have shut down our HUMBL Pay app. We currently hold no digital assets of June 30, 2023.
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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.
Wyre informed us they will no longer accept any cryptocurrency in our platform effective July 31, 2023. Any funds that remain as of that date will be considered unclaimed funds, and we expect no SAB 121 amounts to be reflected in the future.
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 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.
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.
| 13 |
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.
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.
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 June 30, 2023 and December 31, 2022, there was no allowance necessary.
Inventory
Inventory consisted of sports merchandise and memorabilia ranging from autographed jerseys, bats, balls, helmets, and photos being sold in the HUMBL Marketplace. Inventory is valued at the lower of cost or net realizable value. Management evaluates quantities on hand and physical condition as these characteristics may be impacted by anticipated customer demand for current products.
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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.
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.
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.
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.
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Currency Translation
Ixaya’s functional currency is the Mexican Peso and Humbl Chile SpA’s functional currency is the Chilean Peso. Their reporting currencies are both 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.
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
The Company no longer owns any digital assets or non-fungible tokens. Digital assets were initially recorded at cost and are subsequently remeasured at cost, net of any impairment losses on our consolidated balance sheets. We assigned costs to digital asset transactions on a first-in, first-out basis. Gains or losses were not recorded until realized upon sale(s).
We determined 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 performed 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 were not 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 $151,409 (including $147,823 related to our non-fungible token) and $1,211,882 related to digital assets during the six months ended June 30, 2023 and 2022, respectively. On June 30, 2023, we transferred the remaining digital assets out of our account to repay advances from related parties. As of June 30, 2023, the Company has $0 in digital assets.
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.
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Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial.
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. Wyre informed us they will no longer accept any cryptocurrency in our platform effective July 31, 2023. Any funds that remain as of that date will be considered unclaimed funds, and we expect no SAB 121 amounts to be reflected in the future.
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 | ) | |
| 17 |
The Company paid the refunds to the subscribers in the six months ended June 30, 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.
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 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 June 30, 2023 and December 31, 2022 – Discontinued Operations:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Cash | $ | $ | 154,159 | |||||
| Accounts receivable | 40,313 | |||||||
| $ | $ | 194,472 | ||||||
Current liabilities as of June 30, 2023 and December 31, 2022 – Discontinued Operations:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts payable and accrued expenses | $ | $ | 99,342 | |||||
| $ | $ | 99,342 | ||||||
Non-current liabilities as of June 30, 2023 and December 31, 2022 – Discontinued Operations:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Long-term debt | $ | $ | 150,000 | |||||
| $ | $ | 150,000 | ||||||
| 18 |
The Company reclassified the following operations to discontinued operations for the six months ended June 30, 2023 and 2022, respectively.
| 2023 | 2022 | |||||||
| Revenue | $ | 59,180 | $ | 908,623 | ||||
| Operating expenses | 137,934 | 775,157 | ||||||
| Other non-operating expenses | 2,398 | 1,160 | ||||||
| Net (loss) income from discontinued operations | $ | (81,152 | ) | $ | 132,306 | |||
The Company reclassified the following operations to discontinued operations for the three months ended June 30, 2023 and 2022, respectively.
| 2023 | 2022 | |||||||
| Revenue | $ | $ | 618,480 | |||||
| Operating expenses | 548,977 | |||||||
| Other non-operating expenses | (372 | ) | ||||||
| Net income from discontinued operations | $ | $ | 69,875 | |||||
The Company reflected the following gain on disposal for the six months ended June 30, 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 | $ | |||||
MONSTER
Effective June 30, 2023, the Company and Phantom Power, LLC (the entity that sold Monster to the Company two years earlier) entered into a Securities Purchase Agreement whereby the Company sold back the membership interest they held along with 115,000,000 -year warrants priced at $0.05 in exchange for the cancellation of the remaining portion of the original $975,000 non-convertible note of which $300,000 remained outstanding, and the cancellation of $1,000,000 of the remaining $3,308,830 in convertible notes that remained outstanding. As part of the sale of the membership interest, Monster took back all assets and liabilities with respect to their company, and the intercompany advances between the Company and Monster were forgiven. The operations of Monster for the six months ended June 30, 2023 and 2022 are reflected in discontinued operations, and the result of the disposal of Monster is reflected as a gain on disposal in the consolidated statements of operations.
Current assets as of June 30, 2023 and December 31, 2022 – Discontinued Operations:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Cash | $ | $ | 133,699 | |||||
| Accounts receivable | 224,275 | |||||||
| Prepaid expenses and other current assets | 6,756 | |||||||
| $ | $ | 364,730 | ||||||
Non-current assets as of June 30, 2023 and December 31, 2022 – Discontinued Operations:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Fixed assets | $ | $ | 3,936 | |||||
| $ | $ | 364,730 | ||||||
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Current liabilities as of June 30, 2023 and December 31, 2022 – Discontinued Operations:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts payable and accrued expenses | $ | $ | 370,574 | |||||
| Due to seller | 314,619 | |||||||
| Current portion of related party notes payable | 348,191 | |||||||
| $ | $ | 1,033,384 | ||||||
The Company reclassified the following operations to discontinued operations for the six months ended June 30, 2023 and 2022, respectively.
| 2023 | 2022 | |||||||
| Revenue | $ | 558,125 | $ | 1,558,512 | ||||
| Operating expenses | 699,601 | 1,383,526 | ||||||
| Other non-operating expenses | 7,747 | 9,775 | ||||||
| Net (loss) income from discontinued operations | $ | (149,223 | ) | $ | 165,211 | |||
The Company reclassified the following operations to discontinued operations for the three months ended June 30, 2023 and 2022, respectively.
| 2023 | 2022 | |||||||
| Revenue | $ | 366,806 | $ | 731,960 | ||||
| Operating expenses | 268,939 | 700,356 | ||||||
| Other non-operating expenses | 2,773 | 4,892 | ||||||
| Net income from discontinued operations | $ | 95,094 | $ | 26,712 | ||||
The Company reflected the following gain on disposal for the six and three months ended June 30, 2023 related to the sale of Monster:
| 2023 | 2022 | |||||||
| Forgiveness of related party notes | $ | 1,072,361 | $ | |||||
| Forgiveness of accrued expenses | 656,619 | |||||||
| Cash | (18,541 | ) | ||||||
| Accounts receivable | (414,412 | ) | ||||||
| Prepaid expenses and other current assets | (40,835 | ) | ||||||
| Fixed assets | (3,093 | ) | ||||||
| Accounts payable and accrued expenses | 541,680 | |||||||
| Due to seller | 314,619 | |||||||
| Net gain on disposal | $ | 2,108,398 | $ | |||||
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 common shares and restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the RSUs that vested during 2022. Pursuant to BizSecure’s request, the shares of common stock and the 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.
| 20 |
| Customer relationships | $ | 275,000 | ||
| Intellectual property - software | 2,500,000 | |||
| Goodwill | 3,981,000 | |||
| $ | 6,756,000 | |||
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.
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 |
| 21 |
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 six months ended June 30, 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 ( common shares) on January 10, 2023.
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The goodwill was not expected to be deductible for tax purposes.
The following table shows the unaudited pro-forma results for the six months ended June 30, 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.
| Six Months Ended | ||||
| June 30, 2022 | ||||
| (Unaudited) | ||||
| Revenues | $ | 492,481 | ||
| Net loss | $ | (20,155,746 | ) | |
| Net loss per share | $ | (0.02 | ) | |
The following table shows the unaudited pro-forma results for the three months ended June 30, 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 | ||||
| June 30, 2022 | ||||
| (Unaudited) | ||||
| Revenues | $ | 220,145 | ||
| Net loss | $ | (7,646,039 | ) | |
| Net loss per share | $ | (0.01 | ) | |
NOTE 5: REVENUE
The following table disaggregates the Company’s revenue by major source for the six months ended June 30, 2023 and 2022:
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue: | ||||||||
| Services - Ixaya | $ | 291,813 | $ | 55,893 | ||||
| Merchandise | 171,323 | 7,250 | ||||||
| Software | 20,000 | |||||||
| Tickets | 5,965 | 10,345 | ||||||
| NFTs | 1,410 | |||||||
| Rental income | 8,509 | |||||||
| Other | 365 | 1,596 | ||||||
| $ | 489,466 | $ | 85,003 | |||||
The following table disaggregates the Company’s revenue by major source for the three months ended June 30, 2023 and 2022:
| Three Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue: | ||||||||
| Services - Ixaya | $ | 100,203 | $ | 37,509 | ||||
| Merchandise | 95,964 | 5,877 | ||||||
| Software | 20,000 | |||||||
| Tickets | 2,468 | 5,146 | ||||||
| NFTs | 347 | |||||||
| Rental income | 5,667 | |||||||
| Other | 146 | 368 | ||||||
| $ | 218,781 | $ | 54,914 | |||||
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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. The Company has $40,000 in deferred revenue as of June 30, 2023.
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 June 30, 2023 and December 31, 2022, inventory is valued at $1,001,793 and $1,038,816, respectively.
NOTE 7: FIXED ASSETS
As of June 30, 2023 and December 31, 2022, the Company has the following fixed assets:
| 2023 | 2022 | |||||||
| Equipment – 5 year-life | $ | 14,282 | $ | 14,282 | ||||
| Furniture and fixtures – 5 year-life | 16,308 | 16,308 | ||||||
| Accumulated depreciation | (14,053 | ) | (10,041 | ) | ||||
| $ | 16,537 | $ | 20,549 | |||||
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 six months ended June 30, 2023 and 2022 was $4,012 and $12,175, respectively, as the property was placed into service on July 1, 2021.
NOTE 8: INTANGIBLE ASSETS AND GOODWILL
As of June 30, 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 | (2,673,335 | ) | (2,608,333 | ) | ||||
| Accumulated amortization – customer relationship | (275,000 | ) | (275,000 | ) | ||||
| Accumulated amortization - domain names | (22,473 | ) | (13,307 | ) | ||||
| $ | 729,212 | $ | 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 six months ended June 30, 2023 and 2022 was $74,168 and $275,414, respectively.
| 24 |
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 | 106,703 | |||
| $ | 729,212 |
As of June 30, 2023 and December 31, 2022, the Company has recorded goodwill as follows for our continuing operations:
| June 30, 2023 | June 30, 2022 | |||||||
| Balance – beginning of the period | $ | $ | ||||||
| Acquisition of BizSecure | 3,981,000 | |||||||
| Acquisition of Ixaya | 1,008,642 | |||||||
| Impairment for the period | (1,008,642 | ) | ||||||
| $ | $ | 3,981,000 | ||||||
As of June 30, 2023 and December 31, 2022, the Company had remaining goodwill recorded.
The Company evaluated ASC 350-20-50 for the goodwill associated with their acquisitions.
NOTE 9: INTANGIBLE ASSETS – DIGITAL ASSETS
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.
In the three months ended June 30, 2023, the Company reflected $149,414 in impairment of the intangible asset for digital currency and the non-fungible token of $147,823. The remaining $2,688 was transferred to a related party in repayment of the Company’s obligation on June 30, 2023. The Company no longer owns any digital assets.
The value of the digital assets as of June 30, 2023 and December 31, 2022 is $0 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 six months ended June 30, 2023:
Digital Assets Owned By HUMBL:
| Six Months Ended June 30, 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 | ) | ||||||||||||||||||
| Transfer | (6 | ) | (2,502 | ) | (177 | ) | - | - | (3 | ) | (2,688 | ) | ||||||||||||||||
| Impairment – digital assets | - | (3,562 | ) | (24 | ) | - | - | - | (3,586 | ) | ||||||||||||||||||
| Gain (loss) on disposal of digital assets | 24 | 24 | ||||||||||||||||||||||||||
| Balance – June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
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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.
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. Wyre informed us they will no longer accept any cryptocurrency in our platform effective July 31, 2023. Any funds that remain as of that date, will be considered unclaimed funds, and we expect no SAB 121 amounts to be reflected in the future.
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 June 30, 2023 and December 31, 2022, the Company has $9,951 and $10,949 outstanding under the loan. As of June 30, 2023, the Company has included $4,976 in current liabilities, and the balance of $4,975 in long-term liabilities.
NOTE 11: NOTES PAYABLE
The Company entered into notes payable as follows as of June 30, 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:
| June 30, 2023 | December 31, 2022 | |||||||
| Note payable entered into February 8, 2023 with a maturity date of February 8, 2024 at 12% interest per annum | $ | 34,857 | $ | |||||
| Note payable entered into May 11, 2023, with a maturity date of February 23, 2025 at 4% interest per annum (acquired from a related party lender (see Note 12)) | 1,675,000 | |||||||
| 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 shares previously issued in exercise of warrants | 440,000 | |||||||
| Total | 1,709,857 | 440,000 | ||||||
| Less: Discounts | (2,004 | ) | ||||||
| Less: Current portion | (32,853 | ) | (440,000 | ) | ||||
| Long-term debt | $ | 1,675,000 | $ | |||||
| 26 |
Interest expense for the six months ended June 30, 2023 and 2022 was $10,168 and $4,959, respectively. There was $154,066 in accrued interest as of June 30, 2023 as $144,888 of accrued interest was acquired along with the $2,700,000 related party note. The lender of the purchased note agreed to convert $1,025,000 of the note for shares of common stock which resulted in a $22,500 loss on conversion.
NOTE 12: NOTES PAYABLE – RELATED PARTIES
The Company entered into notes payable – related parties as follows as of June 30, 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:
| June 30, 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 connection with the sale of the membership interests back to the former owners effective June 30, 2023, $300,000 of these notes were cancelled and the remaining $33,000 were exchanged for warrants. | $ | $ | 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. These notes are now reflected in liabilities of discontinued operations at December 31, 2022 and have been sold back to the former owners as part of the sale effective June 30, 2023 | ||||||||
| 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 ($300,000 of this note was converted and the remaining $2,700,000 was sold to a third party (see Note 11) | 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) and one draw for $450,000 entered into on November 15, 2022) | 2,650,000 | 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 | 9,964 | 8,320 | ||||||
| Total | 6,409,964 | 19,041,320 | ||||||
| Less: Current portion | (259,964 | ) | (10,341,320 | ) | ||||
| Long-term debt | $ | 6,150,000 | $ | 8,700,000 | ||||
Maturities of notes payable – related parties as of June 30 is as follows:
| 2024 | $ | 259,964 | ||
| 2025 | 4,150,000 | |||
| 2026 | 2,000,000 | |||
| $ | 9,640,559 |
Interest expense for the six months ended June 30, 2023 and 2022 was $186,890 and $317,442, respectively. Accrued interest at June 30, 2023 was $233,274.
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.
On April 28, 2023, $300,000 of a related party note was exchanged for shares of common stock.
| 27 |
NOTE 13: CONVERTIBLE PROMISSORY NOTES
The Company entered into notes payable – related parties as follows as of June 30, 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:
| June 30, 2023 | December 31, 2022 | |||||||
| Convertible note at 10% interest, maturing July 14, 2022, extended to June 30, 2023 convertible into common shares | $ | $ | 1,410,146 | |||||
| Convertible note at 8% interest, maturing March 17, 2023 convertible into common shares at $1.00 per share | 620,000 | 1,020,000 | ||||||
| Convertible note at 2.5% interest, maturing March 1, 2024 convertible into common shares at $0.012 per share | ||||||||
| 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 and the second tranche of $55,000 on April 5, 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 9% interest, maturing April 5, 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 due April 28, 2024, net of discount convertible into common shares at $0.008, no interest unless there is an event of default | 65,000 | |||||||
| Convertible note payable entered into April 10, 2023, with a maturity date of April 10, 2024, no interest charged unless in default | 53,946 | |||||||
| Convertible note in the amount of $400,000 purchased from another convertible note holder (see above, formerly had a balance of $1,020,000) | 198,080 | |||||||
| Convertible note up to $800,000 at 6% entered into May 10, 2023 maturing May 10, 2024. Balance automatically converts upon an uplisting to a nationally recognized exchange (NYSE/NASDAQ) at 80% of the volume weighted average price of the common stock on the Senior Exchange during the first five trading days following the uplisting | 360,000 | |||||||
| 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 | ||||||
| 1,819,107 | 2,652,146 | |||||||
| Less: Current portion | (1,794,845 | ) | (2,636,411 | ) | ||||
| Less: Discounts | (24,262 | ) | (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. The note has been fully converted as of June 30, 2023.
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. The Company issued shares of common stock, which includes issued to a third party that purchased $300,000 of this note in the six months ended June 30, 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 $1,672,555.
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 months maturing March 17, 2023. The Company recognized a $20,000 original issue discount at inception of this convertible note. A $400,000 portion of this note was purchased by a third party who in turn converted $201,920, leaving a balance of $620,000 on the original note and $198,080 in the purchasers note. The Company recognized a gain on the conversion of $25,240. These are reflected in our current portion of convertible notes payable as of June 30, 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 $ per share. Should the Company be in default of this note, the conversion price would be equal to the lower of (a) $ 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, shares of common stock for this note.
| 28 |
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 $ 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) $ 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, 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, 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 June 30, 2023, the reserve equals 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. The entire note has been converted into shares of common stock. This conversion resulted in a gain of $1,314,750.
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, 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 30, 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, shares of common stock for this note.
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, shares of common stock for this note.
On April 28, 2023, we issued a convertible promissory note in the amount of $60,000, including a $ original issue discount and a $5,000 interest charge. The Company received net proceeds of $50,000. The note is convertible at the lender’s option at $ per share. After six months, the lender has the right to cause the Company to redeem the note. After receiving a redemption notice from the lender, the Company has the right to pay the redemption amount in cash or common stock. If we elect to pay in common stock, the conversion price will be 70% of lowest closing trade price of the common stock in the previous 20 trading days. The note may be prepaid at any time subject to a 15% premium.
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On May 10, 2023, the Company issued a convertible promissory note in the amount of up to $800,000 to Pacific Lion LLC (“Pacific Lion”). The amount of the initial tranche funded under the note was $. The lender has the right at its option to fund up to an additional $ under the note. The note bears interest at 6% per annum and is due on May 10, 2024. Upon completion of an uplisting to a senior stock exchange, the note will automatically convert into common stock at 80% of the uplisting offering price. In the event an uplisting does not occur by the maturity date or upon an event of default, the note will become convertible at 80% of the average of the closing trade prices during the five trading days preceding the date of conversion. The principal amount of the note may be prepaid at any time without penalty. The foregoing description of the note does not purport to be complete and is qualified in its entirety by reference to the note which is filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. In addition to the note, the Company also issued a Warrant to Purchase Shares of Common Stock to Pacific Lion on May 10, 2023. The warrant is exercisable for 500,000 shares for a period of five years at $0.10 per share. The Company valued the warrant at $2,145. In the event that an uplisting to a senior stock exchange does not occur within nine months of the issuance date, the warrant will automatically be cancelled.
On May 10, 2023, we entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with Pacific Lion. Pursuant to the EFA, the Company has the right, subject to certain conditions, to sell up to $20,000,000 in shares of its common stock to Pacific Lion. Pursuant to the Rights Agreement, HUMBL agreed to file a registration statement to register the common stock issuable under the EFA. Following the registration of the securities under the EFA, HUMBL has the right to cause Pacific Lion to purchase its common stock at 85% of the lowest closing trade price in the previous 10 trading days by submitting a put notice to Pacific Lion. HUMBL may choose the dollar amount of each put notice; provided, however, the maximum dollar amount of any put cannot exceed 150% of HUMBL’s average daily trading volume in the previous 10 trading days. In addition, the amount of the put notice must not be less than $10,000 or greater than $200,000, unless otherwise agreed to by the parties. HUMBL may only deliver one put notice to Pacific Lion in any given 10 trading day period. Following an uplist to Nasdaq, NYSE or an equivalent national exchange, the conversion rate would increase from 85% to 90%. The amount of HUMBL shares owned by Pacific Lion cannot exceed 4.99% of the issue and outstanding shares of HUMBL common stock following the purchase by Pacific Lion of HUMBL shares under a put notice.
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 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 June 30, 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 six months ended June 30, 2023 and 2022 was $150,061 and $262,872, respectively. Amortization of debt discount, and original issue discount was $24,805 and $405,739 for the six months ended June 30, 2023 and 2022, respectively. Accrued interest at June 30, 2023 was $190,697.
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 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 six months ended June 30, 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 June 30, 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:
| June 30, 2023 | December 31, 2022 | |||||||
| 2,308,830 | 7,500,000 | |||||||
| Less: Current portion | (2,308,830 | ) | (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 June 30, 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. During the six months ended June 30, 2023, the Company converted $361,413 of the $975,000 note and sold the remaining $613,587 to a third party, who since converted the entire amount. Of the $5,525,000 note, the noteholder sold $2,925,000 to a third party who since converted the entire amount, and converted $900,000 of this note. In the securities purchase agreement entered into effective June 30, 2023, $1,000,000 of the remaining balance of the note was cancelled, leaving a balance of $2,308,830.
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 six months ended June 30, 2023, the convertible noteholders and parties they sold their notes to converted the $4,889,080 into shares of common stock. These transactions resulted in a gain on conversion of notes payable in the amount of $2,046,648, which is reflected in the consolidated statements of operations for the six months ended June 30, 2023.
Interest expense for the six months ended June 30, 2023 and 2022 was $133,376 and $185,959, respectively.
NOTE 15: DERIVATIVE LIABILITIES
The Company entered into several convertible notes payable during the six months ended June 30, 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 June 30, 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 June 30, 2023 and at inception:
Six Months Ended June 30, 2023 | Inception | |||||||
| Expected term | 0.45 – 1.00 years | 0.75 – 1.00 years | ||||||
| Expected volatility | 118 - 125 | % | – 125 | % | ||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | 4.85 – 5.47 | % | 4.85 | % | ||||
| Market price | $ | – $ | $ | - $ | ||||
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The Company’s derivative liabilities as of June 30, 2023 and inception associated with the offerings are as follows.
| June 30, 2023 (unaudited) | December 31, 2022 | Inception | ||||||||||
| Fair value of conversion option on February 8, 2023 note (see Note 13) | $ | 73,688 | $ | 122,025 | ||||||||
| Fair value of conversion option on February 23, 2023 note (see Note 13) | 127,268 | 127,100 | ||||||||||
| Fair value of conversion option on March 6, 2023 note (see Note 13) | 56,766 | 47,919 | ||||||||||
| Fair value of conversion option on April 5, 2023 note (see Note 13) | 58,262 | - | 59,133 | |||||||||
| $ | 315,984 | $ | $ | 356,177 | ||||||||
Activity related to the derivative liabilities for the six months ended June 30, 2023 is as follows:
| Beginning balance as of December 31, 2022 | $ | |||
| Bifurcation of conversion option on convertible note payable | 356,177 | |||
| Change in fair value of derivative liabilities (restated) | (40,193 | ) | ||
| Ending balance as of June 30, 2023 | $ | 315,984 |
There were no derivative liabilities in the six months ended June 30, 2022.
NOTE 16: STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
As of June 30, 2023 and December 31, 2022, the Company has shares of Preferred Stock authorized, designated as follows: shares of Series A Preferred Stock authorized, and shares of Series B Preferred Stock authorized. All shares of preferred stock have a par value of $.
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.
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.
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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 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 () 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 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) of the total outstanding common shares; and (b) the average weekly reported trading volume for the previous four weeks.
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On February 26, 2021, the Company issued 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, Series B Preferred shares for services rendered. Of the shares issued, are vested immediately, are vested over one year, and 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.
Between May 3 and May 6, 2021, the Company’s CEO converted shares of common stock into 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 shares of Series B Preferred Stock ( if converted into common stock) for no consideration.
On November 19, 2021, the Company paid $215, to redeem Series B Preferred Shares.
In December 2021, there were Series B Preferred shares converted into common shares.
On March 17, 2022, the CEO of the Company cancelled shares of Series B Preferred Stock ( if converted into common stock) and on September 21, 2022, the Company’s CEO cancelled Series B Preferred shares (the equivalent of common shares) for no consideration.
During the year ended December 31, 2022, there were shares of Series B Preferred Stock converted into common shares.
For the three months ended March 31, 2023, there were shares of Series B Preferred Stock converted into common shares.
For the three months ended June 30, 2023, there were shares of Series B Preferred Stock converted into common shares.
As of June 30, 2023, the Company has shares of Series B Preferred Stock issued and outstanding.
On June 1, 2023, the Company amended their Certificate of Incorporation to amend the conversion terms of their Series B Preferred Stock as follows: (a) for the period beginning June 1, 2023 and ending on September 30, 2023, A Series B holder shall not have the right, whether by election, operation of law, or otherwise, to convert any shares of Series B Preferred Stock into common stock; (b) for each calendar month beginning October 2023 through June 2024, A Series B holder shall not have the right, whether by election operation of law or otherwise, to convert into common stock more than 500 shares of Series B Preferred Stock per month; and (c) for each calendar month beginning July 2024 through December 2024, A Series B holder shall not have the right, whether by election operation of law or otherwise, to convert into common stock more than shares of Series B Preferred Stock per month.
Common Stock
The Company has shares of common stock, par value $, authorized. The Company has and shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively. On May 26, 2023 the Board of Directors agreed to increase the number of common shares authorized from shares to shares. The stockholders approved this action on May 29, 2023. This action became effective on July 27, 2023.
In the three months ended March 31, 2022, the Company: (a) issued shares in a settlement; (b) shares in the exercise of warrants; (c) shares in the asset purchase of BizSecure (also granted restricted stock units in this acquisition); (d) shares in the acquisition of Ixaya; (e) shares for services rendered; (f) shares issued for the exchange of notes payable and accrued interest; and (g) shares issued in conversion of 22,064 Series B Preferred stock. In addition, the Company cancelled shares.
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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 $ 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 shares valued at $26,831. These shares were issued in April 2022.
In the three months ended June 30, 2022, the Company: (a) issued shares for services rendered; and (b) issued shares in conversion of Series B Preferred stock.
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 $ 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 shares valued at $10,236. These shares were issued in July 2022.
In the three months ended September 30, 2022, the Company: (a) issued shares for services rendered; (b) issued shares in conversion of Series B Preferred stock; (c) 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 shares of common stock in a settlement. In September 2022, the Company received $ from three investors as part of a total of $575,000 for shares and 76,666,666 warrants with a strike price of $0.03 and $0.04 ( 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 $ 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 shares valued at $4,969. These shares were issued in October 2022.
In the three months ended December 31, 2022, the Company: (a) issued shares for services rendered; (b) issued shares in conversion of Series B Preferred stock; (c) 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 shares of common stock with 11 different investors for $615,000, and issued 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 $ 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 shares valued at $1,585. These shares were issued in January 2023.
In the three months ended March 31, 2023, the Company: (a) issued shares for services rendered; (b) issued shares in conversion of Series B Preferred stock; (c) 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 shares of common stock in the acquisition of BM Authentics; and (e) 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 $ 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.
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In the three months ended June 30, 2023, the Company: (a) issued shares for services rendered valued at $1,925; (b) issued shares in conversion of Series B Preferred stock; (c) shares for conversion of notes payable and accrued interest valued at $3,219,683, and recognized a gain on conversion of these shares in the amount of $799,573; (d) sold shares of common stock for $360,050; (e) exchanged warrants for 76,666,666 shares of common stock for no consideration and recognized a charge to the consolidated statement of operations equal to the value of the common shares of $460,000; and (f) issued shares of common stock for vested RSUs to BizSecure.
During the three months ended June 30, 2023, the Company expensed $36,875 related to shares issued to consultants and advisors for services as noted above, leaving $ of stock-based compensation yet to be expensed as of June 30, 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 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.
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 shares of common stock (issued in October 2022) and granted three-year warrants expiring September 29, 2025 for warrants at $ per share and warrants at $ 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 36,176,471 shares of its common stock. The Warrants are exercisable for a period of three years, have a cashless exercise provision and have an exercise price of $0.017 per share.
On December 14, 2022 with 4 different investors issued warrants to purchase 38,333,333 shares of its common stock. The Warrants are exercisable for a period of three years, have a cashless exercise provision and have an exercise price of $0.012 per share.
On May 10, 2023, the Company issued 500,000 warrants with a term of five years at an exercise price of $0.10. The warrants were immediately vested and valued at $2,145.
On May 15, 2023, the Company issued 125,000,000 warrants with a -year term and $0.005 exercise price in connection with a common share issuance.
On June 30, 2023, the Company issued 115,000,000 warrants with the former partners of Monster to settle all claims upon the sale of Monster back to the original owners. These warrants have a term and an exercise price of $0.05 per share.
The following represents a summary of the warrants:
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
| Beginning balance | 347,234,804 | $ | 0.26265 | 283,650,000 | $ | 0.32627 | ||||||||||
| Granted | 240,500,000 | 0.05 | ||||||||||||||
| Exercised | (10,000,000 | ) | 0.20 | |||||||||||||
| Forfeited | (115,000,000 | ) | ||||||||||||||
| Expired | (17,000,000 | ) | ||||||||||||||
| Ending balance | 455,534,804 | $ | 0.23511 | 273,650,000 | $ | 0.33088 | ||||||||||
| Intrinsic value of warrants | $ | $ | ||||||||||||||
| Weighted Average Remaining Contractual Life (Years) | ||||||||||||||||
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As of June 30, 2023, warrants are vested.
For the six months ended June 30, 2023 and 2022, the Company incurred stock-based compensation expense of $ and $, respectively for the warrants in accordance with ASC 718-10-50-1 and ASC 718-10-50-2. The fair value of the grants were calculated based on the black-scholes calculation using the assumptions reflected in the chart below for both the service-based grants and the performance-based grants.
As of June 30, 2023, there remains unrecognized stock-based compensation expense related to these warrants of $ comprising of service-based grants through June 30, 2026.
Options
Options issued in 2023 and 2022 consisted of the following:
On May 26, 2022, the Company granted stock options to employees. These options have a term of years and are exercisable into shares of common stock at a price of $ per share.
As of June 30, 2023, of the May 26, 2022 options as well as options issued in 2021 have been forfeited. As of June 30, 2023, options are exercisable.
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
| Beginning balance | 4,005,000 | $ | 0.1501 | 630,000 | $ | 0.70 | ||||||||||
| Granted | 8,660,000 | 0.0983 | ||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ||||||||||||||||
| Ending balance | 4,005,000 | $ | 0.1501 | 9,290,000 | $ | 0.1391 | ||||||||||
| Intrinsic value of options | $ | $ | ||||||||||||||
| Weighted Average Remaining Contractual Life (Years) | ||||||||||||||||
For the six months ended June 30, 2023 and 2022, the Company incurred stock-based compensation expense of $ and $, respectively for the options in accordance with ASC 718-10-50-1 and ASC 718-10-50-2. The fair value of the grants were calculated based on the black-scholes calculation using the assumptions reflected in the chart below for the service-based grants.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each option/warrant is estimated using the Black-Scholes valuation model. The following assumptions were used for the periods as follows:
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||
| Expected term | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
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Restricted Stock Units (RSUs)
On February 12, 2022, the Company granted RSUs in the acquisition of the asserts of BizSecure that was recorded as contingent consideration. These RSUs commenced vesting on April 1, 2022.
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
| Beginning balance | 16,750,000 | $ | 0.1689 | $ | ||||||||||||
| Granted | 26,800,000 | 0.1689 | ||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | (3,350,000 | ) | ||||||||||||||
| Vested | (6,700,000 | ) | ||||||||||||||
| Ending balance | 10,050,000 | $ | 0.1689 | 23,450,000 | $ | 0.1689 | ||||||||||
On December 30, 2022, the Company and BizSecure negotiated a settlement of all claims resulting from the Company’s inability to timely register the shares of common stock issued February 12, 2022 and RSUs that vested during 2022. As a result, the shares of common stock and the RSUs were rescinded effective December 30, 2022. The remaining RSUs will continue to vest in accordance with the original terms and the Company will continue the process to get those RSUs registered for resale and re-negotiate the terms of the common shares to be issued to BizSecure. For the six months ended June 30, 2023, RSUs vested. In April 2023 of these shares were issued for the vested RSUs.
For the six months ended June 30, 2023 and 2022, the Company amortized $1,131,630 and $565,815, of the contingent consideration to additional paid in capital, respectively for the RSUs.
NOTE 17: RELATED-PARTY TRANSACTIONS
In March 2022, the Company’s CEO cancelled Series B Preferred shares and in September 2022, the Company’s CEO cancelled Series B Preferred shares. These shares are the equivalent of common shares. The cancellations were done for no consideration.
In May 2022, the Company’s CEO contributed $406,040 to pay for the purchase of the NFT that is reflected as a non-current asset on the Company’s consolidated balance sheet, as well as contributed 100 million BLOCKS valued at $500,000. In the six months ended June 30, 2023, the Company’s CEO contributed $50,000.
NOTE 18: COUNTRY RIGHTS OPTION
Aurea Group
On March 15, 2021 we entered into a Securities Purchase Agreement with HUMBL CL SpA (“HUMBL CL”), an affiliate of Aurea Group Ventures (“Aurea Group”), a Chilean multi-family office, under which Aurea Group purchased shares of our common stock in return for exclusive country rights to Chile of our HUMBL products for a purchase price of up to $7,500,000.
Under the terms of the Securities Purchase Agreement, HUMBL CL agreed to purchase shares of our common stock for $1,000,000. The payment for these shares was due on or before March 30, 2021 but as a result of restrictions imposed due to COVID-19 was paid in two tranches of $500,000 each on April 5, 2021 and April 6, 2021. In addition, HUMBL CL also received the right to purchase shares of HUMBL common stock for $6,500,000 by December 31, 2021 and to receive a 35% equity interest in a Chilean subsidiary HUMBL intends to form to conduct its operations in Chile.
The Securities Purchase Agreement provides that if HUMBL CL exercises its right to purchase the subsidiary interest, it will receive 35% of the profits from operations of the HUMBL family of products in Chile. In addition, HUMBL CL also received a right of first refusal with respect to regional or country rights sales in Latin America.
On January 3, 2022, the Company entered into a Settlement Agreement with HUMBL CL whereby HUMBL issued HUMBL CL shares of common stock and HUMBL CL agreed to waive its right to purchase the Latin America territory rights.
The Company is still working with Aurea Group on Latin American business development opportunities for their products in key verticals such as: banking, merchant and financial services, real estate, hospitality, tourism, sports, festivals, entertainment and ticketing services in the region.
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NOTE 19: SEGMENT REPORTING
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.
Less than 3-4% of the Company’s sales are from outside of 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.
The following represents segment reporting for continuing operations only:
| Six Months Ended June 30, 2022 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 29,460 | $ | 55,543 | $ | 85,003 | ||||||
| Cost of revenues | 1,292 | 36,408 | 37,700 | |||||||||
| Gross profit | 28,168 | 19,135 | 47,303 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 15,049,854 | 892,115 | 15,941,969 | |||||||||
| Depreciation, amortization and impairment | 1,105,376 | 1,402,736 | 2,508,112 | |||||||||
| Other expenses (income) | 2,349,689 | (9,426 | ) | 2,340,263 | ||||||||
| (Loss) from continuing operations | $ | (18,476,751 | ) | $ | (2,266,290 | ) | $ | (20,743,041 | ) | |||
| Segmented assets as of June 30, 2022 | ||||||||||||
| Property and equipment, net | $ | 24,560 | $ | $ | 24,560 | |||||||
| Intangible assets | $ | $ | 2,799,564 | $ | 2,799,564 | |||||||
| Intangible assets – digital assets | $ | 32,064 | $ | 406,040 | $ | 438,104 | ||||||
| Goodwill | $ | 3,981,000 | $ | $ | 3,981,000 | |||||||
| Capital expenditures | $ | 8,510 | $ | $ | 8,510 | |||||||
| Six Months Ended June 30, 2023 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 177,653 | $ | 311,813 | $ | 489,466 | ||||||
| Cost of revenues | 180,546 | 39,095 | 219,641 | |||||||||
| Gross profit (loss) | (2,893 | ) | 272,718 | 269,825 | ||||||||
| Total operating expenses net of depreciation, amortization and impairment | 5,450,858 | 1,038,704 | 6,489,562 | |||||||||
| Depreciation, amortization and impairment | 148,129 | 81,460 | 229,589 | |||||||||
| Other expenses (income) | 207,082 | 2,905 | 209,987 | |||||||||
| (Loss) from continuing operations | $ | (5,808,962 | ) | $ | (850,351 | ) | $ | (6,659,313 | ) | |||
| Segmented assets as of June 30, 2023 | ||||||||||||
| Property and equipment, net | $ | 16,537 | $ | $ | 16,537 | |||||||
| Intangible assets | $ | 252,545 | $ | 476,667 | $ | 729,212 | ||||||
| Capital expenditures | $ | $ | $ | |||||||||
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| Three Months Ended June 30, 2022 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 17,755 | $ | 37,159 | $ | 54,914 | ||||||
| Cost of revenues | 608 | 21,573 | 22,181 | |||||||||
| Gross profit | 17,147 | 15,586 | 32,733 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 5,873,998 | 434,056 | 6,308,054 | |||||||||
| Depreciation, amortization and impairment | 1,059,565 | 309,060 | 1,368,625 | |||||||||
| Other expenses (income) | 389,346 | (6,818 | ) | 382,528 | ||||||||
| (Loss) from continuing operations | $ | (7,305,762 | ) | $ | (720,712 | ) | $ | (8,026,474 | ) | |||
| Three Months Ended June 30, 2023 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 98,578 | $ | 120,203 | $ | 218,781 | ||||||
| Cost of revenues | 82,385 | 13,867 | 96,252 | |||||||||
| Gross profit | 16,193 | 106,336 | 122,529 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 2,436,842 | 261,312 | 2,698,154 | |||||||||
| Depreciation, amortization and impairment | 140,403 | 48,102 | 188,505 | |||||||||
| Other expenses (income) | (537,004 | ) | 2,291 | (534,713 | ) | |||||||
| (Loss) from continuing operations | $ | (2,024,048 | ) | $ | (205,369 | ) | $ | (2,229,417 | ) | |||
The HUMBL Financial sector as well as the operations of Tickeri and Monster are reflected in discontinued operations on the consolidated statement of operations for the six months ended June 30, 2023 and 2022.
NOTE 20: LEGAL PROCEEDINGS
On May 19, 2022, we were named as a defendant in a putative shareholder derivative class action lawsuit filed in the United States District Court for the Southern District of California styled Matt Pasquinelli and Bryan Paysen v. HUMBL, LLC, Brian Foote, Jeffrey Hinshaw and George Sharp, Case No. 22CV0723 AJB BLM. The complaint alleges federal securities law violations by the Company, including false or misleading statements regarding our business and operations, that the HUMBL Pay App did not have the functionality that it promised to investors and that several international business partnerships had a low chance of contributing material revenues to our bottom line, and sales of unregistered securities through our BLOCK Exchange Traded Index products, which plaintiffs allege caused a decline in the market value of our shares of common stock. Plaintiffs seek unspecified monetary damages. On October 27, 2022, through our attorneys, we filed a motion to dismiss the complaint for failure to state a claim, which is presently pending for resolution before the court. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims. On July 7, 2023, the United States District Court for the Southern District of California granted our Motion to Transfer Venue and transferred the case to the District Court of Delaware.
On July 14, 2022, we were named as ae defendant in a putative shareholder derivative class action lawsuit filed in the Delaware Chancery Court styled Mike Armstrong, derivatively on behalf of HUMBL, Inc. v. Brian Foote, Jeffrey Hinshaw, George Sharp, Michele Rivera, and William B. Hoagland (Case No. 2022-0620). This case alleges the same claims as the Pasquinelli litigation described above and also seeks unspecified monetary damages. The case is currently stayed by agreement of the parties. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
NOTE 21: COMMITMENT
On May 10, 2023, we entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with Pacific Lion. Pursuant to the EFA, the Company has the right, subject to certain conditions, to sell up to $20,000,000 in shares of its common stock to Pacific Lion. Pursuant to the Rights Agreement, HUMBL agreed to file a registration statement to register the common stock issuable under the EFA. Following the registration of the securities under the EFA, HUMBL has the right to cause Pacific Lion to purchase its common stock at 85% of the lowest closing trade price in the previous 10 trading days by submitting a put notice to Pacific Lion. HUMBL may choose the dollar amount of each put notice; provided, however, the maximum dollar amount of any put cannot exceed 150% of HUMBL’s average daily trading volume in the previous 10 trading days. In addition, the amount of the put notice must not be less than $10,000 or greater than $200,000, unless otherwise agreed to by the parties. HUMBL may only deliver one put notice to Pacific Lion in any given 10 trading day period. Following an uplist to Nasdaq, NYSE or an equivalent national exchange, the conversion rate would increase from 85% to 90%. The amount of HUMBL shares owned by Pacific Lion cannot exceed 4.99% of the issue and outstanding shares of HUMBL common stock following the purchase by Pacific Lion of HUMBL shares under a put notice.
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NOTE 22: SUBSEQUENT EVENTS
Between July 1, 2023 and August 14, 2023, the Company issued shares of common stock in conversion of $1,981,130 in convertible notes, in services rendered and shares in a settlement with BizSecure (see below).
On July 3, 2023, the Company issued a Promissory Note in the original principal amount of $200,000 to Sartorii, LLC. The note bears interest at six percent (6%) and is due on July 3, 2024.
On July 14, 2023, the Company entered into Technology Services Agreement dated July 15, 2023 (the “Agreement”) with Arena Football League Management, LLC (“AFL”). Under the terms of the Agreement, the Company will serve as, and be acknowledged in AFL’s marketing efforts as, the official technology ticketing platform for all AFL events. AFL is a professional indoor football league in the United States. The Company has agreed to allocate $10,000 per month to promote the AFL and AFL venues leading to the 2024 indoor football league season.
Under the compensation terms of the Agreement, the Company will receive a service fee of $5.00 that will increase by $1.00 each year through 2028 (plus the credit card fee charged in connection with the transaction by the credit card company) from which it will pay AFL $1.00 on all tickets sold and processed exclusively through the HUMBL Tickets platform. The service fee received by the Company from AFL for any venues that do not accept HUMBL Tickets as the exclusive provider will be reduced to $2.00 in 2024, $3.00 in 2025, $4.00 in 2026, $4.50 in 2027 and $5.00 in 2028.
On July 19, 2023, the Company entered into a Settlement Agreement and Mutual Release dated July 19, 2023 (the “Settlement Agreement”) with BizSecure, Alfonso Arana, Alfonso Rodriquez-Arana and Clement Danish to resolve matters arising under the Asset Purchase Agreement dated February 12, 2022 between the Company and BizSecure in which the Company purchased the assets of BizSecure. Under the terms of the Settlement Agreement, the Company agreed as follows: (i) within three (3) business days of the execution date, the Company will issue and deliver 127,000,000 restricted shares of its common stock (the “Shares”) (which were issued July 25, 2023) that the Company will register on SEC Form S-1 within 60 calendar days of the execution date of the Settlement Agreement; (ii) if, prior to and including the effective date of the Form S-1, and through the end of the 12th month following such effective date, the value per Share falls below $0.003, then the Company shall file an amendment to the initial Form S-1 filing to increase the number of Shares issued to BizSecure and the aggregate offering price of the Shares being registered (“|the “Registered Shares”), reflecting the public market value of the Shares within three (3) business days of the execution date, but in no event shall the Shares be valued less than $0.003 per share; (iii) if the Company fails to register the Shares, then the Company agrees to immediately pay BizSecure the cash equivalent of the public market value of the Shares based on (a) the value of the price of the Company’s common stock on the day the Company was obligated to register the Shares, multiplied by 127,000,000 or (b) $0.003 multiplied by 127,000,000 whichever is higher;.(iv) the public market value of the Shares on the execution date shall be equal to the number of Shares multiplied by $.0026 (the “Share Value”); (v) on the last day of the first year following the execution date (the “Anniversary Date”), the Share Value shall be no less than the per share value of the Shares on the Anniversary Date based on the closing price of the Registered Shares on the Anniversary Date (the “Anniversary Value”) (as may be adjusted pursuant to any reverse split). To the extent the Anniversary Value is lower than the Share Value, which in no event will be less than $0.003, the Company will register and issue and deliver additional shares to BizSecure equal to the amount necessary for the public market value of the total number of Shares issued to the Stockholders in accordance with this Agreement to equal the Anniversary Value; and (vi) the Company will transfer ownership of and title to the Vibe Board Pro 75 to BizSecure.
On July 26, 2023, the Company entered into Securities Purchase Agreements with three different investors (the “Purchase Agreements”). Pursuant to the Purchase Agreements, the Company issued three convertible promissory notes in the original principal amount of $125,000 (the “Notes”) and three warrants to purchase 187,500,000 shares of its common stock (the “Warrants”) for a total purchase price of $375,000. The Notes are due in 12 months from the issuance date, bear interest at the rate of 10% per annum and have a fixed conversion price equal to the lowest closing trade price of the common stock in the 10 days following the issuance date. The Warrants are exercisable for a period of five years, have a cashless exercise provision and an exercise price of $0.002 per share.
On August 1, 2023, the Company entered into a Master Consulting Agreement (the “Agreement”) and Promissory Note (“Note”) with BRU, LLC (“BRU”). Under the terms of the Agreement, BRU will provide information technology support to the Company for a three-year term. The Company has agreed to pay compensation in common stock and cash. The initial stock consideration is shares of common stock as compensation for past due invoices owed to BRU’s predecessor in interest with a 24-month price floor of $ so that additional shares of common stock will be issued to BRU if the aggregate value of the common stock is less than $ per share on the applicable measurement dates.
Additional shares of common stock will be issued to BRU based on milestones to be mutually agreed to by the Company and BRU by August 11, 2023. The Company will issue shares of its common stock (the “Additional Shares”) upon completion of the milestones that shall not be more than two years after execution of the Agreement. The value of the Additional Shares shall be equal to the number of Additional Shares multiplied by $ (the “Additional Share Value”). On each anniversary of the execution date (the “Anniversary Date”) until the milestones are met, but in no event more than two years from the execution date, the Additional Share Value shall equal the value of the common stock on the Anniversary Date, based on the closing price of the Company’s common stock on the Anniversary Date (the “Anniversary Value”) (as may be adjusted for any reverse split). To the extent the Anniversary Value is lower than the public market value of the Company’s common stock, the Company will issue additional shares to BRU equal to the amount necessary for the total number of common stock and Additional Shares issued under the Agreement to equal the Anniversary Share Value that in no event will be less than $ per share, or, at the Company’s election, pay in cash the difference between the public market value of the Company’s common stock and the Anniversary Share Value.
The Company has agreed to make two cash payments to BRU: $100,000 within 10 days following the execution of the Agreement and $400,000 through a Note with an 18-month term that bears no interest unless there is an event of default. The $400,000 cash payments under the Note are due and payable as follows: $100,000 within 45 days after the execution date; (b) $200,000 on the date that is one year from the execution date; and (c) $100,000 on or before the maturity date. The Company will also pay BRU $41,666.67 a month for the term of the agreement (subject to annual inflation adjustments) for ongoing technology development services provided by BRU.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Our executive offices are located at 101 W. Broadway, Suite 1450, San Diego, California 92101, telephone (786) 738-9012. Our corporate website address is www.humbl.com.
Overview
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. On July 27, 2023 the Company increased their authorized common stock to 12,500,000,000 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.
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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. Effective June 30, 2023, the Company and Phantom Power, LLC (the entity that sold Monster to the Company two years earlier) entered into a Securities Purchase Agreement whereby the Company sold back the membership interest they held along with 115,000,000 five-year warrants priced at $0.05 in exchange for the cancellation of the remaining portion of the original $975,000 non-convertible note of which $300,000 remained outstanding, and the cancellation of $1,000,000 of the remaining $3,308,830 in convertible notes that remained outstanding. As part of the sale of the membership interest, Monster took back all assets and liabilities with respect to their company, and the intercompany advances between the Company and Monster were forgiven. The operations of Monster for the six months ended June 30, 2023 and 2022 are reflected in discontinued operations, and the result of the disposal of Monster is reflected as a gain on disposal in the consolidated statements of operations. For the full description of Monster, 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. There is no requirement for the Company to cease using the intellectual property received in the February 12, 2022 transaction. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.
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. Upon payment of the last $440,000, the remaining 115,000,000 warrants were cancelled.
On May 10, 2023, we entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with Pacific Lion. Pursuant to the EFA, the Company has the right, subject to certain conditions, to sell up to $20,000,000 in shares of its common stock to Pacific Lion. Pursuant to the Rights Agreement, HUMBL agreed to file a registration statement to register the common stock issuable under the EFA. Following the registration of the securities under the EFA, HUMBL has the right to cause Pacific Lion to purchase its common stock at 85% of the lowest closing trade price in the previous 10 trading days by submitting a put notice to Pacific Lion. HUMBL may choose the dollar amount of each put notice; provided, however, the maximum dollar amount of any put cannot exceed 150% of HUMBL’s average daily trading volume in the previous 10 trading days. In addition, the amount of the put notice must not be less than $10,000 or greater than $200,000, unless otherwise agreed to by the parties. HUMBL may only deliver one put notice to Pacific Lion in any given 10 trading day period. Following an uplist to Nasdaq, NYSE or an equivalent national exchange, the conversion rate would increase from 85% to 90%. The amount of HUMBL shares owned by Pacific Lion cannot exceed 4.99% of the issue and outstanding shares of HUMBL common stock following the purchase by Pacific Lion of HUMBL shares under a put notice.
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HUMBL is a Web 3, digital commerce platform that was 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 Verified Commerce Platform
HUMBL delivers a digital wallet and website as our core services. HUMBL provides customers with the ability to connect with consumers and merchants that have all been fully verified.
| 1. | HUMBL Wallet | |
| 2. | HUMBL.com - Website | |
| 3. | HUMBL Commercial Services |
HUMBL Wallet
The HUMBL Wallet is a 4.9 star application that is available for download on major app stores. The HUMBL Wallet is the centerpiece of the consumer experience on the HUMBL platform. The HUMBL Wallet consolidates a variety of services for customers in one place and helps us to verify customers and merchants.
| - | Search Engine | |
| - | Social Media | |
| - | Marketplace | |
| - | Digital Payments |
The HUMBL Wallet is self-custodied by the individual; ensuring that the user has full control over their online identity, digital assets and private keys.
The HUMBL Wallet is also connected to the BLOCKS Registry, a product registry that allows customers to authenticate and track physical and digital items.
HUMBL Wallet customers have the obligation to perform their own tax record keeping; 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. We do not store or have access to any biometric information related to our verified users.
The HUMBL Wallet uses SumSub, a third-party service provider, to perform know-your-customer/know-your-business services and authenticate customers. We do not capture or store consumers’ information on our servers, except for their corresponding name, wallet address and email address for basic communications with the verified user. We do not resell our customers data.
The HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries. The HUMBL Wallet no longer allows customers to buy, sell or swap digital assets.
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HUMBL Website
| i. | 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 articles, news, images, videos and more. The search engine also serves as a discovery layer for consumers to search for verified merchandise and tickets.
| ii. | HUMBL Tickets |
Primary - HUMBL is now the Official Technology Platform of the Arena Football League (AFL) through the 2028 season, and will be offering AFL tickets for sale, along with other major arena ticketing partners such as Ticketmaster and Seat Geek.
Secondary - HUMBL Tickets offers secondary (resale) tickets to thousands of live events across North America. HUMBL Tickets inventory listings and ticket fulfillment are provided by Ticket Evolution and we earn a commission for each sale through our 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.
| iii. | 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.
We are a software platform and do 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.
We previously offered an NFT marketplace and in an effort to ensure compliance with applicable regulations, we have terminated its use. HUMBL customers may no longer buy or sell NFTs on our platform.
| iv. | HUMBL Social Media |
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 and enhance consumer protection.
| v. | HUMBL Metaverse Stores |
In addition to traditional marketplace listings, HUMBL has also created metaverse stores. Our first metaverse store was created for Major League Baseball (MLB) 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.
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HUMBL - Commercial Division (HBS)
Our digital wallet and website can also be used as a white label or “Powered by HUMBL” solution for commercial clients.
| - | Government - HUMBL is one of the first government-approved digital wallets in the State of California. We are currently in the middle of rolling out a pilot program with the County of Santa Cruz, CA, that will deliver a digital wallet for Santa Cruz County citizens to help them interact more effectively with County government in areas of record keeping such as applications, permits and licensing. | |
| - | Sports Leagues and Arenas - HUMBL is the “Official Technology Platform” of the Arena Football League (AFL) through the 2028 season. HUMBL will be providing a digital wallet, website and ticketing services for all 16 teams of this sports league, alongside other major ticketing providers such as Ticketmaster and Seat Geek. |
Results of Operations for the Six Months Ended June 30, 2023 and 2022
The following table sets forth the summary operations for the six months ended June 30, 2023 and 2022:
| For the Six Months Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
| Revenues | $ | 489,466 | $ | 85,003 | ||||
| Cost of Revenues | $ | 219,641 | $ | 37,700 | ||||
| Gross Profit | $ | 249,825 | $ | 47,303 | ||||
| Development Costs | $ | 161,980 | $ | 2,075,403 | ||||
| Professional Fees | $ | 775,024 | $ | 1,611,598 | ||||
| Settlement | $ | - | $ | 1,120,400 | ||||
| Stock-based compensation | $ | 4,040,627 | $ | 6,795,647 | ||||
| Impairment – intangible assets including goodwill | $ | - | $ | 1,008,642 | ||||
| Impairment – digital assets | $ | 151,409 | $ | 1,211,882 | ||||
| General and Administrative Expenses | $ | 1,590,111 | $ | 4,626,509 | ||||
| Interest Expense | $ | (513,585 | ) | $ | (779,790 | ) | ||
| Amortization of Debt Discounts | $ | (29,101 | ) | $ | (1,656,267 | ) | ||
| Change in fair value of derivative liabilities | $ | 40,193 | $ | - | ||||
| Derivative expense | $ | (79,351 | ) | $ | - | |||
| Gain on Sale of Digital Assets | $ | 24 | $ | 95,794 | ||||
| Gain on conversion of convertible notes payable | $ | 371,833 | $ | - | ||||
| Provision for Income Taxes | $ | - | $ | - | ||||
| Net Loss from Continuing Operations | $ | (6,659,313 | ) | $ | (20,743,041 | ) | ||
Revenues
Revenues for the six months ended June 30, 2023 were $489,466 as compared to $85,003 for the six months ended June 30, 2022, an increase of $404,463. The increase was due in large part to the sales of merchandise from our marketplace which included items from BM Authentics and from services rendered from our Mexican subsidiary, Ixaya.
Cost of Revenues and Gross Profit
Cost of revenues for the six months ended June 30, 2023 were $219,641 as compared to $37,700 for the six months ended June 30, 2022, an increase of $181,941. The increase was primarily due to increases in our marketplace for BM Authentics and our cost of labor for Ixaya. Our gross profit was consistent for both years.
Operating Expenses
Operating expenses for the six months ended June 30, 2023 were $6,719,151 as compared to $18,450,081 for the six months ended June 30, 2022, a decrease of $11,730,930. Operating expenses consists of development costs, professional fees and general and administrative expenses and non-cash charges for impairment expenses and stock-based compensation as fully described below. We expect our development costs and professional fees to continue to decrease in our next 12 months as we look to scale back on outside contract labor. Approximately 64% of our operating expenses relate to non-cash charges in 2023 and these charges comprise of approximately $4,283,000. Our non-cash charges have already declined from levels in 2022 as our stock-based compensation will be reduced and we have already impaired most of our intangible assets and all of our goodwill.
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Development Costs
Development costs which consist of salaried and outsourced technical consultants for the six months ended June 30, 2023 were $161,980 compared with $2,075,403 for the six months ended June 30, 2022. The decrease of development costs related to the roll out of various projects such as the HUMBL Wallet and Social in 2022.
Professional Fees
Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the six months ended June 30, 2023 were $775,024 compared to $1,611,598 for the six months ended June 30, 2022. The decrease in professional fees related to the professional fees incurred in regulatory filings including OTC compliance and reporting as well as increases in consultant costs in 2022 versus 2023. We expect that these costs will continue decreasing during 2023.
Settlement
The Company incurred $1,120,400 in settlement expenses which are included in our operating expenses for the six months ended June 30, 2022 related to agreements with individuals for liabilities incurred. We incurred no settlement expenses for the six months ended June 30, 2023.
Stock-Based Compensation
The Company incurred $4,040,627 in stock-based compensation expenses for the six months ended June 30, 2023 compared to $6,795,647 for the six months ended June 30, 2022 related to agreements with consultants, advisors, and directors for services rendered. We expect our stock-based compensation expenses to decline in the next 12 months due to the vesting terms of such grants. The awards provided were valued in accordance with ASC 718 at fair value.
Impairment of Intangible Assets including Goodwill and Digital Assets
The Company incurred $1,008,784 in non-cash charges related to impairment of intangible assets including goodwill in 2022, and $151,409 and $1,211,882 in impairment of our digital assets in the six months ended June 30, 2023 and 2022. The intangible asset impairment relates to the impairment on the goodwill incurred in the Ixaya acquisition. The impairment of the digital assets was based on the valuation changes in the digital assets we held. As of June 30, 2023, we hold no digital assets.
General and Administrative
General and administrative expenses for the six months ended June 30, 2023 were $1,590,111 compared with $4,626,509 for the six months ended June 30, 2022. The decrease in general and administrative expenses of $2,994,398 is related to the following approximate reductions in expenses as follows: salaries and wages ($1,396,000) advertising and business development expenses ($340,000), travel and conferences ($213,000), penalties ($700,000), recruitment ($54,000), insurance ($45,000), rent ($26,000), security ($124,000) and all other general and administrative costs (approximately $140,000).
Other Income (Expense)
In the six months ended June 30, 2023 we incurred $209,987 in other expenses, compared to $2,340,263 in other expenses in the six months ended June 30, 2022, a decrease of $2,130,276. The other expenses relate to amortization of discounts of $29,101 and $1,656,267, respectively for the 2023 and 2022 periods, as well as interest expense of $513,585 and $779,790, respectively. Gain on sale of digital assets of $24 and $95,794, and a gain on conversion of convertible notes payable of $371,833 and $0 for 2023 and 2022, respectively. In 2023, we had $79,351 in derivative expenses and a change in the fair value of derivative liabilities of $40,193 related to convertible notes entered into during this period. We expect to incur additional other income (expense) in the next 12 months related to our debt.
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Net Loss from Continuing Operations
Net loss from operations from continuing operations for the six months ended June 30, 2023 was ($6,659,313) as compared to a net loss of ($20,743,041) for the six months ended June 30, 2022. The $14,083,728 decrease in the net loss was due to the changes noted herein.
Segment Reporting
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.
Less than 3-4% of the Company’s sales are from outside of 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.
The following represents segment reporting for continuing operations only:
| Six Months Ended June 30, 2022 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 29,460 | $ | 55,543 | $ | 85,003 | ||||||
| Cost of revenues | 1,292 | 36,408 | 37,700 | |||||||||
| Gross profit | 28,168 | 19,135 | 47,303 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 15,049,854 | 892,115 | 15,941,969 | |||||||||
| Depreciation, amortization and impairment | 1,105,376 | 1,402,736 | 2,508,112 | |||||||||
| Other expenses (income) | 2,349,689 | (9,426 | ) | 2,340,263 | ||||||||
| (Loss) from continuing operations | $ | (18,476,751 | ) | $ | (2,266,290 | ) | $ | (20,743,041 | ) | |||
| Segmented assets as of June 30, 2022 | ||||||||||||
| Property and equipment, net | $ | 24,560 | $ | - | $ | 24,560 | ||||||
| Intangible assets | $ | $ | 2,799,564 | $ | 2,799,564 | |||||||
| Intangible assets – digital assets | $ | 32,064 | $ | 406,040 | $ | 438,104 | ||||||
| Goodwill | $ | 3,981,000 | $ | - | $ | 3,981,000 | ||||||
| Capital expenditures | $ | 8,510 | $ | - | $ | 8,510 | ||||||
| Six Months Ended June 30, 2023 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 177,653 | $ | 311,813 | $ | 489,466 | ||||||
| Cost of revenues | 180,546 | 39,095 | 219,641 | |||||||||
| Gross profit (loss) | (2,893 | ) | 272,718 | 269,825 | ||||||||
| Total operating expenses net of depreciation, amortization and impairment | 5,450,858 | 1,038,704 | 6,489,562 | |||||||||
| Depreciation, amortization and impairment | 148,129 | 81,460 | 229,589 | |||||||||
| Other expenses (income) | 207,082 | 2,905 | 209,987 | |||||||||
| (Loss) from continuing operations | $ | (5,808,962 | ) | $ | (850,351 | ) | $ | (6,659,313 | ) | |||
| Segmented assets as of June 30, 2023 | ||||||||||||
| Property and equipment, net | $ | 16,537 | $ | - | $ | 16,537 | ||||||
| Intangible assets | $ | 252,545 | $ | 476,667 | $ | 729,212 | ||||||
| Capital expenditures | $ | - | $ | - | $ | - | ||||||
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Results of Operations for the Three Months Ended June 30, 2023 and 2022
The following table sets forth the summary operations for the three months ended June 30, 2023 and 2022:
| For the Three Months Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
| Revenues | $ | 218,781 | $ | 54,914 | ||||
| Cost of Revenues | $ | 96,252 | $ | 22,181 | ||||
| Gross Profit | $ | 122,529 | $ | 32,733 | ||||
| Development Costs | $ | 95,135 | $ | 811,411 | ||||
| Professional Fees | $ | 368,433 | $ | 693,904 | ||||
| Stock-based compensation | $ | 1,509,108 | $ | 2,721,150 | ||||
| Impairment – digital assets | $ | 149,414 | $ | 1,166,564 | ||||
| General and Administrative Expenses | $ | 764,569 | $ | 2,283,650 | ||||
| Interest Expense | $ | (243,974 | ) | $ | (383,401 | ) | ||
| Amortization of Debt Discounts | $ | (16,693 | ) | $ | (65,370 | ) | ||
| Change in fair value of derivative liabilities | $ | 4,940 | $ | - | ||||
| Derivative expense | $ | (9,133 | ) | $ | - | |||
| Gain on Sale of Digital Assets | $ | 24 | $ | 66,243 | ||||
| Gain on conversion of convertible notes payable | $ | 799,573 | $ | - | ||||
| Provision for Income Taxes | $ | - | $ | - | ||||
| Net Loss from Continuing Operations | $ | (2,229,417 | ) | $ | (8,026,474 | ) | ||
Revenues
Revenues for the three months ended June 30, 2023 were $218,781 as compared to $54,914 for the three months ended June 30, 2022, an increase of $163,867. The increase was due in large part to the sales of merchandise from our marketplace which included items from BM Authentics and from services rendered from our Mexican subsidiary, Ixaya.
Cost of Revenues and Gross Profit
Cost of revenues for the three months ended June 30, 2023 were $96,252 as compared to $22,181 for the three months ended June 30, 2022, an increase of $74,071. The increase was primarily due to increases in our marketplace for BM Authentics and our cost of labor for Ixaya. Our gross profit was consistent for both years.
Operating Expenses
Operating expenses for the three months ended June 30, 2023 were $2,886,659 as compared to $7,676,679 for the three months ended June 30, 2022, a decrease of $4,790,020. Operating expenses consists of development costs, professional fees and general and administrative expenses and non-cash charges for impairment expenses and stock-based compensation as fully described below. We expect our development costs and professional fees to continue to decrease in our next 12 months as we look to scale back on outside contract labor. Our non-cash charges have already declined from levels in 2022 as our stock-based compensation will be reduced and we have already impaired most of our intangible assets and all of our goodwill.
Development Costs
Development costs which consist of salaried and outsourced technical consultants for the three months ended June 30, 2023 were $95,135 compared with $811,411 for the three months ended June 30, 2022. The decrease of development costs related to the roll out of various projects such as the HUMBL Wallet and Social in 2022.
Professional Fees
Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the three months ended June 30, 2023 were $368,433 compared to $693,904 for the three months ended June 30, 2022. The decrease in professional fees related to the professional fees incurred in regulatory filings including OTC compliance and reporting as well as increases in consultant costs in 2022 versus 2023. We expect that these costs will continue decreasing during 2023.
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Settlement
The Company incurred no settlement expenses which are included in our operating expenses for the three months ended June 30, 2022 related to agreements with individuals for liabilities incurred. We incurred no settlement expenses for the three months ended June 30, 2023.
Stock-Based Compensation
The Company incurred $1,509,108 in stock-based compensation expenses for the three months ended June 30, 2023 compared to $2,721,150 for the three months ended June 30, 2022 related to agreements with consultants, advisors, and directors for services rendered. We expect our stock-based compensation expenses to decline in the next 12 months due to the vesting terms of such grants. The awards provided were valued in accordance with ASC 718 at fair value.
Impairment of Intangible Assets including Goodwill and Digital Assets
The Company incurred $149,414 and $1,166,564 in impairment of our digital assets in the three months ended June 30, 2023 and 2022. The impairment of the digital assets was based on the valuation changes in the digital assets we held. As of June 30, 2023, we hold no digital assets.
General and Administrative
General and administrative expenses for the three months ended June 30, 2023 were $764,569 compared with $2,283,650 for the three months ended June 30, 2022. The decrease in general and administrative expenses of $1,519,081 is related to the reductions in expenses for salaries, penalties, advertising, rent, travel and insurance.
Other Income (Expense)
In the three months ended June 30, 2023 we incurred $534,713 in other income, compared to $382,528 in other expenses in the three months ended June 30, 2022, an increase of $917,241. The other income and expenses relate to amortization of discounts of $16,693 and $65,370, respectively for the 2023 and 2022 periods, as well as interest expense of $243,974 and $383,401, respectively. Gain on sale of digital assets of $0 and $66,243, and a gain on conversion of convertible notes payable of $799,573 and $0 for 2023 and 2022, respectively. In 2023, we had $9,133 in derivative expenses and a change in the fair value of derivative liabilities of $4,940 related to convertible notes entered into during this period. We expect to incur additional other income (expense) in the next 12 months related to our debt.
Net Loss from Continuing Operations
Net loss from operations from continuing operations for the three months ended June 30, 2023 was ($2,229,417) as compared to a net loss of ($8,026,474) for the three months ended June 30, 2022. The $5,797,057 decrease in the net loss was due to the changes noted herein.
Segment Reporting
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.
Less than 3-4% of the Company’s sales are from outside of 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.
The following represents segment reporting for continuing operations only:
| Three Months Ended June 30, 2022 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 17,755 | $ | 37,159 | $ | 54,914 | ||||||
| Cost of revenues | 608 | 21,573 | 22,181 | |||||||||
| Gross profit | 17,147 | 15,586 | 32,733 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 5,873,998 | 434,056 | 6,308,054 | |||||||||
| Depreciation, amortization and impairment | 1,059,565 | 309,060 | 1,368,625 | |||||||||
| Other expenses (income) | 389,346 | (6,818 | ) | 382,528 | ||||||||
| (Loss) from continuing operations | $ | (7,305,762 | ) | $ | (720,712 | ) | $ | (8,026,474 | ) | |||
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| Three Months Ended June 30, 2023 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 98,578 | $ | 120,203 | $ | 218,781 | ||||||
| Cost of revenues | 82,385 | 13,867 | 96,252 | |||||||||
| Gross profit | 16,193 | 106,336 | 122,529 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 2,436,842 | 261,312 | 2,698,154 | |||||||||
| Depreciation, amortization and impairment | 140,403 | 48,102 | 188,505 | |||||||||
| Other expenses (income) | (537,004 | ) | 2,291 | (534,713 | ) | |||||||
| (Loss) from continuing operations | $ | (2,024,048 | ) | $ | (205,369 | ) | $ | (2,229,417 | ) | |||
Liquidity and Capital Resources
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 June 30, 2023, we had $74,859 in cash. During the last two years we have 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 very minimal impact on the Company’s operations.
We had a working capital deficit of $6,791,236 and $27,408,687 as of June 30, 2023 and December 31, 2022, respectively. The majority of our current liabilities is in the form of related party notes, convertible notes and accounts payable. The decrease in working capital is the direct result of these notes as well as the debt incurred related to the cash necessary to continue the development of our mobile wallet. A majority of the Company’s operating expenses in the past two years were 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 six months ended June 30, 2023 received net proceeds of $1,741,644 from various debt financings, and has received $50,000 as a contribution from our CEO as well as $360,050 from the sale of common stock and warrants. In the six months ended June 30, 2022, the Company received $2,000,000 in warrant exercises, $406,040 in capital contributions from our CEO and $4,502,645 in related party debt proceeds, 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.
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.
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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.
Off-Balance Sheet Arrangements
As June 30, 2023 and December 31, 2022, we had no off-balance sheet arrangements.
Critical Accounting Policies
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.
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.
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.
Revenue Recognition
The Company accounts for a contract with a customer that is within the scope of ASC 606 only when the five steps of revenue recognition under ASC 606 are met.
We account for revenues based on the verticals in which they were earned, the three principal verticals being (1) HUMBL Wallet, (2) HUMBL Marketplace, and (3) HBS – Commercial division. See “Revenue Recognition” in Note 2 of our Financial Statements.
The Company has a core revenue focus on:
| 1. | HUMBL Wallet | |
| 2. | HUMBL.com – Web Platform | |
| 3. | HBS Commercial Division - (“Powered by HUMBL”) |
The Company plans to drive its revenues through the following channels:
HUMBL Wallet
| ● | The Company will drive consumer acquisition primarily through the digital wallet. Consumers can be monetized inside a digital wallet through the delivery of search advertising, social media advertising, loyalty advertising, credit card payment transactions, ticketing sales, certificates of authenticity and more. |
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HUMBL Web Platform
| ● | The Company has developed one of the first digital wallet and web platforms that are connected together. This means that any verified customers using the HUMBL.com web platform, are also connected to a digital wallet for consumer and merchant transactions. | |
| ● | The HUMBL.com platform can be used to drive search advertising, social media advertising, loyalty advertising, credit card payment transactions, ticketing sales, certificates of authenticity, authentic merchandise purchases and more. |
HBS Commercial Services (“Powered by HUMBL”)
| ● | HUMBL also packages its digital wallet and web platform for white-labeling by clients. | |
| ● | Government – HUMBL has secured approval to build a digital wallet for the County of Santa Cruz, CA. This digital wallet will be built in a modular way, that can be replicated for other cities, counties, states and national government transactions and record keeping in areas such as licensing, renewals and certificates. Once built, HUMBL will offer these digital wallets for government in exchange for flat fee, a percentage of transactions, or a mix of both. | |
| ● | Stadiums, Arenas and Leagues – HUMBL has secured approval to serve as the “Official Technology Platform” of the Arena Football League (AFL), which is currently comprised of 16 teams through the 2028 season. HUMBL will deliver digital wallet and web platform services, with the goal of maximizing ticket revenues, merchandise sales and advertising programs across league digital properties. HUMBL will be paid a percentage on every ticket sold by the league, with annual escalators through the end of the 2028 season. HUMBL will seek to replicate this model across other teams, sports leagues, stadiums, arenas and festivals. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of June 30, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 19, 2022, we were named as a defendant in a putative shareholder derivative class action lawsuit filed in the United States District Court for the Southern District of California styled Matt Pasquinelli and Bryan Paysen v. HUMBL, LLC, Brian Foote, Jeffrey Hinshaw and George Sharp, Case No. 22CV0723 AJB BLM. The complaint alleges federal securities law violations by the Company, including false or misleading statements regarding our business and operations, that the HUMBL Pay App did not have the functionality that it promised to investors and that several international business partnerships had a low chance of contributing material revenues to our bottom line, and sales of unregistered securities through our BLOCK Exchange Traded Index products, which plaintiffs allege caused a decline in the market value of our shares of common stock. Plaintiffs seek unspecified monetary damages. On October 27, 2022, through our attorneys, we filed a motion to dismiss the complaint for failure to state a claim, which is presently pending for resolution before the court. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims. On July 7, 2023, the United States District Court for the Southern District of California granted our Motion to Transfer Venue and transferred the case to the District Court of Delaware.
On July 14, 2022, we were named as ae defendant in a putative shareholder derivative class action lawsuit filed in the Delaware Chancery Court styled Mike Armstrong, derivatively on behalf of HUMBL, Inc. v. Brian Foote, Jeffrey Hinshaw, George Sharp, Michele Rivera, and William B. Hoagland (Case No. 2022-0620). This case alleges the same claims as the Pasquinelli litigation described above and also seeks unspecified monetary damages. The case is currently stayed by agreement of the parties. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
ITEM 1A. RISK FACTORS
Not applicable as we are a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 21, 2023, the Company sold 22,500,000 shares of common stock for $85,050. On May 12, 2023, Company issued, along with a Convertible Promissory Note, a Warrant to Purchase Shares of Common Stock to Pacific Lion, LLC. The Company received $100,000 in connection with the sale of the note and the warrant. The proceeds from the foregoing sales of equity securities will be used for general working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| * | Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The Company undertakes to furnish to the SEC a copy of any omitted schedule and/or exhibit upon request. |
| ** | This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at HUMBL Inc., 600 B Street, Suite 300, San Diego, CA 92101.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HUMBL, Inc. | ||
| Date: August 14, 2023 | By: | /s/ BRIAN FOOTE |
| Brian Foote | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 14, 2023 | By: | /s/ JEFFREY HINSHAW |
| Jeffrey Hinshaw | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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