UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ______ to ______
Commission
File No.
| (Exact name of Registrant as specified in its charter) | ||
| (State
or other jurisdiction of incorporation or organization) |
(IRS
Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(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:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| OTCQB |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.00001 per share
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 ☐
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).
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 | ☐ |
| ☒ | 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 ☐
There were shares of the Registrant’s $0.00001 par value common stock outstanding as of November 14, 2022.
HUMBL, Inc.
INDEX
| i |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
Table of Contents
| 1 |
HUMBL, INC
CONSOLIDATED BALANCE SHEETS (IN US$)
SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021
| SEPTEMBER 30, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Assets related to user cryptocurrencies safeguarding obligation | ||||||||
| Accounts receivable | ||||||||
| Intangible assets - digital assets, current portion | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets: | ||||||||
| Fixed assets, net of depreciation | ||||||||
| Intangible assets, net of amortization | ||||||||
| Intangible assets - digital assets, net of current portion | ||||||||
| Goodwill | ||||||||
| Total Non-Current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Obligation to issue common shares | ||||||||
| User cryptocurrencies safeguarding obligation | ||||||||
| Contingent consideration | ||||||||
| Due to seller | ||||||||
| Current portion of notes payable - bank | ||||||||
| Current portion of notes payable | ||||||||
| Current portion of notes payable - related parties | ||||||||
| Convertible notes payable - related parties, net of current portion | ||||||||
| Current portion of convertible notes payable, net of discount | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Notes payable - bank, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Notes payable related parties, net of current portion | ||||||||
| Convertible notes payable, net of discount and net of current portion | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingency | ||||||||
| STOCKHOLDERS’ EQUITY (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 | ||||||||
| Series B Preferred, par value $, and shares issued and outstanding, respectively | ||||||||
| Common stock, par value, $, shares authorized and issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ||||||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| 2 |
HUMBL, INC
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN US$)
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| NINE MONTHS ENDED | THREE MONTHS ENDED | |||||||||||||||
| SEPTEMBER 30, | SEPTEMBER 30, | SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Development costs | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Settlement | ||||||||||||||||
| Impairment - goodwill | ||||||||||||||||
| Impairment - digital assets | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NON-OPERATING INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Beneficial conversion feature | ( | ) | ||||||||||||||
| Amortization of debt discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sale of digital assets | ||||||||||||||||
| Loss on sale of assets | ( | ) | ( | ) | ||||||||||||
| Loss on conversion of convertible notes payable | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Total Non-Operating Income (Expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED | ||||||||||||||||
| OPERATIONS AND PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on disposal of discontinued operations | ||||||||||||||||
| Total discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| NET LOSS FROM CONTINUING OPERATIONS BEFORE | ||||||||||||||||
| PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss) | ||||||||||||||||
| Foreign currency translations adjustment | ||||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| 3 |
HUMBL, INC
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED) (IN US$)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Series A Preferred | Series B Preferred | Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance - January 1, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
| Adjustment | - | - | ||||||||||||||||||||||||||||||||||||||
| Reverse merger with HUMBL | - | - | ||||||||||||||||||||||||||||||||||||||
| Services | - | - | ||||||||||||||||||||||||||||||||||||||
| Members interest purchased for cash (timing difference from 2020) | - | - | - | |||||||||||||||||||||||||||||||||||||
| Recalssification from deferred revenue on warrant purchase | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - March 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
| Services | - | - | ||||||||||||||||||||||||||||||||||||||
| Acquisition - Chile Country Rights | - | - | ||||||||||||||||||||||||||||||||||||||
| Acquisition - Tickeri | - | - | ||||||||||||||||||||||||||||||||||||||
| Settlement | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of common shares to Series B Preferred | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Beneficial conversion feature on convertible note payable | - | - | ||||||||||||||||||||||||||||||||||||||
| Discount on convertible notes | - | - | ||||||||||||||||||||||||||||||||||||||
| Warrants - consultants | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
| Services | - | - | ||||||||||||||||||||||||||||||||||||||
| Shares cancelled for no consideration | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||
| Discount on convertible notes | - | - | ||||||||||||||||||||||||||||||||||||||
| Warrants - consultants | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Balance - January 1, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
| Services | - | - | ||||||||||||||||||||||||||||||||||||||
| Cancellation of shares | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Acquisition - Ixaya | - | - | ||||||||||||||||||||||||||||||||||||||
| Acquisition - BizSecure | - | - | ||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Settlement | - | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of notes payable and accrued interest | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred to common shares | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Shares canceled for no consideration | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation - warrants | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation - options | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation - restricted stock grants | - | - | - | |||||||||||||||||||||||||||||||||||||
| Change in comprehensive income | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net income (loss) for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
| Services | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred to common shares | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Contribution of capital - NFT | - | - | - | |||||||||||||||||||||||||||||||||||||
| Contribution of capital - digital assets | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation - warrants | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation - options | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation - restricted stock grants | - | - | - | |||||||||||||||||||||||||||||||||||||
| Amortization of contingent consideration - restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||
| Change in comprehensive income | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net income (loss) for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
| Services | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | - | - | ||||||||||||||||||||||||||||||||||||||
| Redemption of shares in settlement | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Settlement | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred to common shares | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Shares cancelled for no consideration | - | ( | ) | ( | ) | - | ||||||||||||||||||||||||||||||||||
| Investment received for shares and warrants (shares issued October 2022) | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation - warrants | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation - options | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation - restricted stock grants | - | - | - | |||||||||||||||||||||||||||||||||||||
| Amortization of contingent consideration - restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||
| Change in comprehensive income | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net income (loss) for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| 4 |
HUMBL, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN US$)
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| 2022 | 2021 | |||||||
| CASH FLOW FROM OPERTING ACTIVIITES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Impairment expense - goodwill | ||||||||
| Impairment expense - digital assets | ||||||||
| (Gain) on sale of digital assets | ( | ) | ( | ) | ||||
| Loss on conversion of convertible notes payable | ||||||||
| Expenses paid for by digital assets | ||||||||
| Fee added to related party notes for extension | ||||||||
| Sales commission received in digital assets | ( | ) | ( | ) | ||||
| Amortization of debt discounts | ||||||||
| Foreign currency adjustment | ||||||||
| Stock-based compensation | ||||||||
| Loss on sale of assets | ||||||||
| Bad debt | ||||||||
| Settlement | ||||||||
| Beneficial conversion feature on convertible note payable | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Intangible assets - digital assets | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Decrease in related party payable | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Total adjustments | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ||||||
| Purchase of digital asset (non-fungible token) | ( | ) | ||||||
| Proceeds from the sale of assets | ||||||||
| Cash received in purchase of Tickeri | ||||||||
| Cash received in purchase of Monster Creative | ||||||||
| Cash paid in purchase of Ixaya, net of amounts received | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Proceeds from sales of membership interests of HUMBL, LLC | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from related party notes payable | ||||||||
| Payments of notes payable | ( | ) | ( | ) | ||||
| Repayment of amount due to seller | ( | ) | ||||||
| Repayment of related party notes | ( | ) | ||||||
| Purchase of treasury shares and then cancellation of treasury shares) | ( | ) | ||||||
| Contribution of capital CEO | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Proceeds from issuance of common stock for cash (and to be issued for September 30, 2022) | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH | ( | ) | ||||||
| CASH AND RESTRICTED CASH - BEGINNING OF PERIOD | ||||||||
| CASH AND RESTRICTED CASH - END OF PERIOD | $ | $ | ||||||
| CASH PAID DURING THE PERIOD FOR: | ||||||||
| Interest expense | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION - NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of preferred stock into common stock | $ | $ | ||||||
| Conversion of common stock into preferred stock | $ | $ | ||||||
| Conversion of obligation to issue common stock into common stock | $ | $ | ||||||
| Exchange of convertible notes payable and accrued interest into common stock | $ | $ | ||||||
| Contribution of digital assets by CEO | $ | $ | ||||||
| Reclassification of deferred revenue to additional paid in capital | $ | $ | ||||||
| Recognition of discounts at inception of convertible notes payable | $ | $ | ||||||
| Vesting of contingent consideration | $ | $ | ||||||
| Acquisition of Ixaya: | ||||||||
| Accounts receivable | $ | $ | ||||||
| Goodwill | ||||||||
| Intellectual property - software | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Note payable - bank | ( | ) | ||||||
| Related party advances | ( | ) | ||||||
| Common shares issued | ( | ) | ||||||
| Net cash paid in acquisition of Ixaya | $ | $ | ||||||
| Acquisition of BizSecure: | ||||||||
| Customer relationship | $ | $ | ||||||
| Intellectual property - software | ||||||||
| Goodwill | ||||||||
| Common shares issued | ( | ) | ||||||
| Contingent consideration | ( | ) | ||||||
| Net cash paid in acquisition of BizSecure | $ | $ | ||||||
| Acquisition of Tickeri: | ||||||||
| Accounts receivable | $ | $ | ||||||
| Goodwill | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| EIDL Loan | ( | ) | ||||||
| PPP Loan | ( | ) | ||||||
| Notes payable issued | ( | ) | ||||||
| Common shares issued | ( | ) | ||||||
| Net cash received in acquisition of Tickeri | $ | $ | ( | ) | ||||
| Acquisition of Monster Creative, LLC: | ||||||||
| Accounts receivable | $ | $ | ||||||
| Goodwill | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Notes payable - officers | ( | ) | ||||||
| PPP Loan | ( | ) | ||||||
| Notes payable issued | ( | ) | ||||||
| Convertible notes payable issued | ( | ) | ||||||
| Net cash received in acquisition of Monster Creative, LLC | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these financial statements.
| 5 |
HUMBL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN US$)
SEPTEMBER 30, 2022 AND 2021
NOTE 1: NATURE OF OPERATIONS
HUMBL, Inc. (“Company” or “HUMBL”) was incorporated 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
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 $
On
June 3, 2021 we acquired Tickeri, Inc. (“Tickeri”) in a debt and stock transaction totaling $
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. Monster was founded by Doug Brandt and Kevin Childress. Monster will collaborate
with HUMBL in the production of NFTs and other digital content. The purchase price for all of the membership interests in Monster was
paid through the issuance of one convertible note and one non-convertible note to each of Doug Brandt and Kevin Childress in the aggregate
principal amount of $
| 6 |
In
the initial extension agreements through July 1, 2022, the Company added $
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 entered into employment agreements with two BizSecure employees as
part of the agreement to help integrate the Mobile ID technology into the Company’s larger suite of products and help operate the
blockchain services division. The assets acquired from BizSecure represented the majority of the operations of the entity and BizSecure
post-acquisition has only conducted nominal operations and has no employees. The Company issued to BizSecure common shares
and restricted stock units that vest quarterly commencing April 1, 2022 for a period of . The shares and restricted
stock units have a value of $
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 $
On
August 11, 2022 the Company executed a definitive agreement with Ecoark Holdings, Inc. (“Ecoark”) (NASDAQ: ZEST) to acquire
On September 26, 2022, the Company announced the formation of a strategic technology partnership with Great Foods2Go (“GF2GO”). The two companies will integrate HUMBL’s mobile application, search engine and marketplace technologies in support of GF2GO and its sub-brand, 1Delivery. The companies will use the initial San Diego, CA location as the first “HUMBL Hub” to determine the best technology mix of mobile payment applications, point of sale systems, search engine advertising and marketplace delivery technologies.
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 tokenized blockchain 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 that were formerly set up into three distinct segments prior to 2022. The majority of the Company’s operations prior to 2022 were focused on the Consumer division. With the acquisition of the Mobile ID technology from BizSecure and software capabilities from Ixaya, the development of our newly formed HUMBL Blockchain Services unit we anticipate that the Commercial division will provide opportunities across the governmental sector as well as businesses in search of enhancing their platforms.
HUMBL’s core products and services are as follows:
● HUMBL Mobile Wallet – A mobile app that allows consumers to buy, sell and hold digital assets;
● HUMBL Marketplace – A mobile marketplace that allows consumers and merchants to connect more seamlessly in the digital economy; and
● HUMBL Financial – Financial products and services, targeted for simplified investing on the blockchain.
● HUMBL Blockchain Services – Enterprise solutions for businesses and governments related primarily to credentialing and identity verification.
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HUMBL Mobile Wallet (formerly HUMBL Pay)
HUMBL continues the development of a mobile application that allows customers to migrate to and participate in the digital economy. The Company has integrated a variety of useful functionality such as buying, selling, sending and receiving digital assets, storing personal digital credentials and supporting various digital forms of payment. The Company is also working rapidly to integrate the use of search, discovery, peer-to-peer cash and ticketing around the world, as these services migrate into digital and blockchain-based modalities. The mobile application is designed to provide functionality to the following groups:
● Individuals - Consumers who want to participate in acquiring digital assets discover, pay, rate and review experiences digitally vs. paper bills and hardware point-of-sale (“POS”);
● Freelancers - Service providers and gig workers that want to get paid from anywhere they work vs. paper bills and hardware POS; and
● Merchants – Primarily brick and mortar vendors that want to get paid digitally vs. paper bills and hardware POS.
We can receive revenue from the mobile wallet in two ways. First, HUMBL can participate in any transactional fees generated from customers using the HUMBL Pay app. In these circumstances HUMBL can typically collect a percentage of the transaction for providing these services. Second, HUMBL can charge a monthly subscription fee for users such as merchants and freelancers that use the app. Currently, we are not receiving revenue in either of these ways. The Company is not charging fees (in addition to those charged by the third-party services providers) as a way to provide competitive pricing and incentivize customers to use the app. We could begin charging these fees at any time.
We engage the services of providers such as Stripe to process payments and Wyre and BitGo to act as custodians of the digital assets purchased by our customers using our HUMBL Pay app. The digital assets purchased on our platform are actually purchased through the Wyre and held by Wyre for our customers’ benefit. No digital assets are purchased through BitGo, but they do act as a custodian for certain of our digital assets.
HUMBL Marketplace
Through its online marketplace, HUMBL is developing the capability for merchants to list a wide range of soft goods and digital assets to mid-market audiences, that, where appropriate, incorporate the benefits of blockchain. HUMBL provides merchants with the ability to list and sell goods with greater levels of authentication, by using technologies such as the HUMBL Token Engine and HUMBL Origin Assurance, to improve the merchant’s ability to trade, track and pay for assets.
Through our online marketplace we also allow for the listing of non-fungible tokens (“NFTs”). NFTs allow entities and individuals such as athletes, celebrities, agencies, artists and companies to monetize their digital images, multimedia content and catalogues on the blockchain. HUMBL provides a marketplace for artists and athletes to connect online in the sale of digital collectibles to fans and collectors and provides a rigorous set of terms and conditions that govern what can and cannot be listed on the marketplace. We currently review all listings to screen for graphic content, potential intellectual property rights violations, and potential securities law violations. The NFT marketplace is operated through a third-party marketplace plug-in (OpenSea), electronic wallet extensions (such as MetaMask), and the Ethereum blockchain. Users participate in the NFT marketplace by linking their digital wallets to our platform and engaging (e.g., buying, selling, bidding) with the NFTs listed on our platform. The services provided by HUMBL are administrative. HUMBL is a platform and does not act as a broker, financial institution, or creditor. 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 receive revenue from the NFT marketplace in two ways. First, for some clients HUMBL provides design services to help artists, athletes and entertainers create NFTs to be sold to their fans. In these circumstances HUMBL typically receives a flat fee for providing such services that is paid out of the sales price of the NFT. The size of the fee depends on the scope and complexity of the design services provided. Second, HUMBL receives a transaction fee each time an NFT sells on the NFT marketplace.
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The NFT marketplace allows creators to mint NFTs using their own intellectual property and list those NFTs for sale (primary sales) on the marketplace. The NFT marketplace also allows for NFTs to be resold (secondary sales) on the platform, but currently only NFTs that were originally minted on the Company’s NFT Marketplace or are otherwise approved by the Company may be listed for secondary sales on the Marketplace. The Company does not otherwise support or influence the market for the resale of NFTs sold on its platform. Other than requiring creators to attest they own the IP used to create their NFTs and monitoring for obvious copyright violations, the Company does not enforce any rights related to the primary or secondary sales of NFTs. Payment transactions for the purchase and sale of NFTs are made through the use of smart contracts on the Ethereum blockchain.
The Company does not handle separate, off-chain payments for NFTs. Tracking and payment of resale royalty fees are accomplished automatically through the use of smart contracts. The Company is not responsible for distributing or managing resale royalty fees.
In September of 2021, HUMBL launched HUMBL Tickets, initially focused on the offering of secondary (resale) tickets to thousands of live events across North America. The inventory listings and ticket fulfillment are provided by Ticket Evolution and HUMBL earns a commission for each sale. In addition to its subsidiary Tickeri, the Company will continue to work with clients to merge the realms of NFTs, event tickets and blockchain authentication.
HUMBL Financial
HUMBL Financial was developed to package step-function technologies such as blockchain into “several clicks” for the customer.
In 2021, HUMBL Financial created BLOCK ETX products to simplify digital asset investing for customers and institutions seeking exposure to a new, 24/7 digital asset class. We have launched this product in 100 countries outside the United States. HUMBL Financial has developed proprietary, multi-factor blockchain indexes, trading algorithms and financial services for the new digital asset trading markets to accommodate index, active and thematic investment strategies. BLOCK ETXs are completely non-custodial, algorithmically driven software services that allow customers to purchase and hold digital assets in pre-set allocations through their own digital asset exchange accounts. BLOCK ETXs are compatible for United States customers who have accounts with Coinbase Pro, Bittrex US or Binance US and for non-US customers who have accounts with Bittrex Global. BLOCK ETXs were served first on the desktop and web version of the HUMBL platform, with the goal of future applications inside the HUMBL mobile application. HUMBL Financial is open to the licensing of the BLOCK ETXs to institutions and exchanges. HUMBL Financial also plans to offer trusted, third-party financial services in areas such as payments, investments, credit card services and lending across the HUMBL platform over time.
In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.
HUMBL Blockchain Services
HUMBL Blockchain Services (“HBS”) was formed as part of the Company’s asset acquisition of BizSecure on February 12, 2022. Recognizing the opportunities for governments and commercial enterprises to incorporate Blockchain and Distributed Ledger Technologies (“DLT”), HBS is focused on working with clients to identify problems and develop solutions that build upon the various capabilities the Company has and continues to develop.
Our solutions enable municipalities, government agencies, and other commercial entities the ability to offer mobile IDs and other credential verification services to their constituents. We continue to make significant investments to leverage our existing technologies and further expand both our DLT capabilities and are always exploring strategic alternatives intended to optimize the value of our Company.
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.
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We have incurred an increased working capital deficit and accumulated deficit as of September 30, 2022 as we continued to ramp up operations significantly in this period and incurred new debt mostly offset by exchanging some debt into shares of common stock to assist in supporting our operations.
As
of September 30, 2022, we had $
We
had a working capital deficit of $
We expect that the revenue generating operations of the Company will continue to improve the liquidity of the Company moving forward. However, going forward, the effect of the pandemic 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 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.
The Company plans to raise additional capital through the exercising of their warrants as well as through future debt and equity financings to carry out its business plan. Obtaining additional financing and the successful development of the Company’s segments including their new Blockchain Services group, ultimately, to profitable operations, are necessary for the Company to continue operations.
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.
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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.
As the acquisition of HUMBL resulted in the owners of HUMBL gaining control over the combined entity after the transaction, and the shareholders of Tesoro Enterprises, Inc. continuing only as passive investors, the transaction was not considered a business combination under the ASC. Instead, this transaction was considered to be a capital transaction of the legal acquiree (HUMBL) and was equivalent to the issuance of shares by HUMBL for the net monetary assets of Tesoro Enterprises, Inc. accompanied by a recapitalization. As a result, all historical balances are those of HUMBL as they are the accounting acquirer.
Under generally accepted accounting principles of the United States, any excess of the fair value of the shares issued by HUMBL over the value of the net monetary assets of Tesoro Enterprises, Inc. is recognized as a reduction of equity. There was no excess of fair value in this transaction.
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
The Company applies the guidance of Topic 805 Business Combinations of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
For Tickeri, Monster, BizSecure and Ixaya, 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 2021 financial statements to comply with the 2022 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 nine months ended September 30, 2021.
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 and Restricted Cash
Cash
consists of cash and demand deposits with an original maturity of three months or less. The Company holds
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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. These timing differences occur, and as of June 30, 2022, the BitGo account has been settled and no unfunded liabilities exist.
The BitGo account is not the Company’s account; however it represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.
Safeguarding Obligation
Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets.
The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
Fixed Assets and Long-Lived Assets
ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted Accounting Standard Update (“ASU”) 2017-04 Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
Fixed assets and intangible assets with finite useful lives are stated at cost less accumulated amortization and impairment. Intangible assets with infinite lives, such as digital currency are valued at costs and reviewed for indicators of impairment at least annually, or more depending on circumstances.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Revenue Recognition
The Company accounts for a contract with a customer that is within the scope of this Topic only when the five steps of revenue recognition under ASC 606 are met.
The five core principles will be evaluated for each service provided by the Company and is further supported by applicable guidance in ASC 606 to support the Company’s recognition of revenue.
The Company accounts for revenues based on the verticals in which they were earned. The four principal verticals in which the Company operates today are HUMBL Mobile Wallet, HUMBL Marketplace, HUMBL Financial and HUMBL Blockchain Services.
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HUMBL Mobile Wallet (formerly HUMBL Pay)
The Company is anticipated to earn transaction revenues primarily from fees charged to merchants and consumers 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, 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 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.
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Ticketing Revenues
The Company with the acquisition of Tickeri and launch of HUMBL Tickets recognizes revenues from their ticketing services primarily from service fees, commissions and payment processing fees charged at the time a ticket for an event is sold. We also derive revenues from providing certain creators with account management services and customer support. Our customers are primarily event creators who use our platform to sell tickets to attendees. 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. We allocate the transaction price by estimating a standalone selling price for each performance obligation using a cost plus a margin approach. For service fees and payment processing fees, revenue is recognized when the ticket is sold. For account management services and customer support, revenue is recognized over the period from the date of the sale of the ticket to the date of the event.
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.
We determined the event creator is the party responsible for fulfilling the promise to the attendee, as the creator is responsible for providing the event for which a ticket is sold, determines the price of the ticket and is responsible for providing a refund if the event is canceled. Our service is to provide a platform for the creator and event attendee to transact and our performance obligation is to facilitate and process that transaction and issue the ticket. The amount that we earn for our services is fixed. For the payment processing service, we determined that we are the principal in providing the service as we responsible for fulfilling the promise to process the payment and we have discretion and latitude in establishing the price of our service. Based on our assessment, we record revenue on a net basis related to our ticketing service and on a gross basis related to our payment processing service. As a result, costs incurred for processing the transactions are included in cost of net revenues in the consolidated statements of operations.
Revenue is presented net of indirect taxes, value-added taxes, creator royalties and reserves for customer refunds, payment chargebacks and estimated uncollectible amounts. If an event is cancelled by a creator, then any obligations to provide refunds to event attendees are the responsibility of that creator.
If a creator is unwilling or unable to fulfill their refund obligations, we may, at our discretion, provide attendee refunds. Revenue is also presented net of the amortization of creator signing fees when applicable. The benefit we receive by securing exclusive ticketing and payment processing rights with certain creators from creator signing fees is inseparable from the customer relationship with the creator and accordingly these fees are recorded as a reduction of revenue in the consolidated statements of operations.
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 Company recognizes rental revenue for the days in the month the suite is being rented in that month.
Marketing services and other revenues
Marketing services and other 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 Financial
Revenue was recognized upon transfer of control of services to customers in an amount to which the Company expects to be entitled in exchange for those services. Service subscription revenue is recognized for the month in which services are provided. If a customer pays for an annual subscription, revenue is allocated over the months in the subscription and recognized for each month of the service provided.
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In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022.
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 September 30, 2022 and December 31, 2021, there was
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.
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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.
Currency Translation
Ixaya’s functional currency is the Mexican Peso and its reporting currency is the United States dollar. Transactions denominated in the functional currency are converted into United States dollars using the exchange rate in effect at the date of the transaction or the average rate for the period in the case of revenue and expense transactions. Monetary assets and liabilities are re-valued into the reporting currency at each balance sheet date using the exchange rate in effect at the balance sheet date, with any resulting exchange gains or losses being credited or charged to accumulated other comprehensive income (loss). Non-monetary assets and liabilities are recorded in the reporting currency using the exchange rate in effect at the date of the transaction and are not revalued for subsequent changes in exchange rates.
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.
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Digital Assets
Digital assets, including non-fungible tokens and cryptocurrencies, are included in the consolidated balance sheets. We have ownership of and control over our digital assets and may use third party custodial services to secure them. Digital assets are initially recorded at cost and are subsequently remeasured at cost, net of any impairment losses on our consolidated balance sheets. We assign costs to digital asset transactions on a first-in, first-out basis. Gains or losses are not recorded until realized upon sale(s).
We determine the fair value of our digital assets on a nonrecurring basis, based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). We perform a quarterly, or more frequent review to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges on any day during the quarter, indicate that it is more likely than not that our digital assets are impaired.
The
cost basis of digital assets will not be adjusted upward for subsequent increases in fair value. Such impairment in the value of digital
assets is recorded as a component of other operating expenses in our consolidated statements of operations. We recorded an impairment
loss of approximately $
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.
For 2021, the Company established three distinct operating segments: HUMBL Marketplace; HUMBL Pay; and HUMBL Financial. Most of the operations for the year ended December 31, 2021 were conducted in North America. Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial. The 2021 segments were all considered part of the consumer division.
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
In August, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas.
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.
| 17 |
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
of $
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 expenses | ||||
| Loss from discontinued operations | $ | ( | ) | |
The Company paid the refunds to the subscribers in the three months ended March 31, 2022, and had no expenses related to the BLOCK ETX product line in the six months from April 1, 2022 through September 30, 2022.
The Company commenced operations of the BLOCK ETX products in March 2021. The Company has reclassified the statement of operations for the nine months ended September 30, 2021 to reflect the subscription revenue and the direct expenses attributable to the BLOCK ETX product line that included direct payroll and direct subcontractor costs. These amounts are reflected in the loss for discontinued operations as noted in the chart below.
| 2021 | ||||
| Revenue | $ | |||
| Cost of revenue | ||||
| Gross profit | ||||
| Operating and non-operating expenses | ( | ) | ||
| Loss from discontinued operations | $ | ( | ) | |
| 18 |
In
addition, effective 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 $
NOTE 4: BUSINESS COMBINATIONS
Tickeri
On June 3, 2021, the Company acquired the assets and liabilities of Tickeri 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 | $ | |||
| Accounts receivables | ||||
| Goodwill | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| SBA EIDL | ( | ) | ||
| PPP loan | ( | ) | ||
| $ |
The consideration paid for the acquisition of Tickeri was as follows:
| Common stock | $ | |||
| Notes payable | ||||
| Total consideration | $ |
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 had estimated the preliminary purchase price allocations based on historical inputs and data as of June 3, 2021. There were no changes to the inputs in the one year that passed since Tickeri was acquired.
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 goodwill is not deductible for tax purposes.
Monster
On June 30, 2021, the Company acquired the assets and liabilities of Monster 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 | $ | |||
| Accounts receivables | ||||
| Goodwill | ||||
| Due to seller | ( | ) | ||
| Accounts payable and accrued expenses | ( | ) | ||
| Notes payable – related parties | ( | ) | ||
| PPP loan | ( | ) | ||
| $ |
The consideration paid for the acquisition of Monster was as follows:
| Convertible notes payable | $ | |||
| Non-convertible notes payable | ||||
| Total consideration | $ |
| 19 |
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 had estimated the preliminary purchase price allocations based on historical inputs and data as of June 30, 2021. There were no changes to the inputs in the one year that passed since Monster was acquired.
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 goodwill is not deductible for tax purposes.
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 entered into employment agreements with two BizSecure employees as
part of the agreement to help integrate the Mobile ID technology into the Company’s larger suite of products and help operate the
blockchain services division. The assets acquired from BizSecure represented the majority of the operations of the entity and BizSecure
post-acquisition has only conducted nominal operations and has no employees. The Company issued to BizSecure common shares
and restricted stock units that vest quarterly commencing April 1, 2022 for a period of . The shares and restricted
stock units have a value of $
| Customer relationships | $ | |||
| Intellectual property - software | ||||
| Goodwill | ||||
| $ |
The consideration paid for the acquisition of assets of BizSecure was as follows:
| Common stock | $ | |||
| Contingent consideration (RSUs) | ||||
| Total consideration | $ |
| 20 |
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 goodwill is not expected to be deductible for tax purposes.
Ixaya
On March 3, 2022, the Company acquired the assets and liabilities of Ixaya noted below in in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:
| Cash | $ | |||
| Accounts receivables | ||||
| Goodwill | ||||
| Intellectual property - software | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Payable – officer | ( | ) | ||
| Note payable - bank | ( | ) | ||
| $ |
The consideration paid for the acquisition of Ixaya was as follows:
| Cash | $ | |||
| Common stock | ||||
| Total consideration | $ |
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of March 3, 2022. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and useful lives for the intangible assets acquired; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.
The
Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained
during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date
that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation
of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase
price allocation and has determined that there are no adjustments to be made from the original allocation. During the three months ended
March 31, 2022, the Company impaired $
The goodwill was not expected to be deductible for tax purposes.
| 21 |
The following table shows the unaudited pro-forma results for the nine months ended September 30, 2022 and 2021, as if the acquisitions had occurred on January 1, 2021. These unaudited pro forma results of operations are based on the historical financial statements and related notes of Tickeri, Monster, BizSecure, Ixaya and the Company for 2021, and BizSecure, Ixaya and the Company for 2022.
| Nine Months Ended September 30, 2021 | ||||
| (Unaudited) | ||||
| Revenues | $ | |||
| Net loss | $ | ( | ) | |
| Net loss per share | $ | ( | ) | |
| Nine Months Ended September 30, 2022 | ||||
| (Unaudited) | ||||
| Revenues | $ | |||
| Net loss | $ | ( | ) | |
| Net loss per share | $ | ( | ) | |
NOTE 5: REVENUE
The following table disaggregates the Company’s revenue by major source for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue: | ||||||||
| Services - Production | $ | $ | ||||||
| Services - Ixaya | ||||||||
| Merchandise | ||||||||
| Tickets | ||||||||
| NFTs | ||||||||
| Rental income | ||||||||
| Other | ||||||||
| $ | $ | |||||||
There were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Collections of the amounts billed are typically paid by the customers within 30 to 60 days.
NOTE 6: FIXED ASSETS
As of September 30, 2022 and December 31, 2021, the Company has the following fixed assets:
| 2022 | 2021 | |||||||
| Non-residential property – | $ | $ | ||||||
| Equipment – | ||||||||
| Furniture and fixtures – | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 22 |
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 $
Depreciation
expense for the nine months ended September 30, 2022 and 2021 was $
NOTE 7: INTANGIBLE ASSETS AND GOODWILL
As of September 30, 2022 and December 31, 2021, the Company has the following intangible assets:
| 2022 | 2021 | |||||||
| Intellectual property - software – | $ | $ | ||||||
| Customer relationship – | ||||||||
| Domain names – | ||||||||
| Accumulated amortization | ( | ) | ||||||
| $ | $ | |||||||
In
February 2022, the Company acquired intangible assets from BizSecure valued at $
Amortization
expense for the nine months ended September 30, 2022 was $
As of September 30, 2022 and December 31, 2021, the Company has recorded goodwill as follows:
| 2022 | 2021 | |||||||
| Tickeri | $ | $ | ||||||
| Monster Creative | ||||||||
| BizSecure | ||||||||
| Ixaya | ||||||||
| $ | $ | |||||||
In
2021, the Company evaluated ASC 350-20-50 for the goodwill associated with the two acquisitions. The Company determined that there was
impairment of goodwill associated with the Tickeri acquisition of $
In
2022, the Company evaluated ASC 350-20-50 for the goodwill associated with the BizSecure and Ixaya acquisitions. The Company determined
that there was impairment of goodwill associated with the Ixaya acquisition of $
| 23 |
NOTE 8: INTANGIBLE ASSETS – DIGITAL ASSETS
In
2021, the Company purchased Ethereum, a digital asset to create NFTs for beta testing to determine whether they would be able to place
them onto the HUMBL Marketplace’s NFT Gallery in addition to the NFTs others create that are on the NFT Gallery. The Company purchased
$
In 2022, the Company established a service to their HUMBL Pay app users. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS to BitGo. BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS. These timing differences occur, and as of September 30, 2022, the BitGo account has been settled and no unfunded liabilities exist.The BitGo account is not the Company’s account; however, represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.
In
March 2022, the Company purchased an NFT for $
In
the nine months ended September 30, 2022, the Company purchased $
The
value of the digital assets as of September 30, 2022 and December 31, 2021 is $
The following table presents additional information about the Company’s digital asset holdings during the period ended June 30, 2022:
Digital Assets Owned By HUMBL:
| Nine Months Ended September 30, 2022 | ETH | BLOCKS | BTC | WETH | DAI | USDCUSDT | Total | |||||||||||||||||||||
| Balance – January 1, 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Contribution by CEO | ||||||||||||||||||||||||||||
| Purchases of digital assets | ||||||||||||||||||||||||||||
| Purchases of digital assets by customers in the HUMBL Pay App | ||||||||||||||||||||||||||||
| Purchases of BLOCKS for HUMBL Pay users and NFT purchase | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Transfers | ( | ) | ||||||||||||||||||||||||||
| NFT commissions | ||||||||||||||||||||||||||||
| Consulting | ( | ) | ( | ) | ||||||||||||||||||||||||
| Contract labor | ( | ) | ( | ) | ||||||||||||||||||||||||
| Exchange fees | ( | ) | ( | ) | ||||||||||||||||||||||||
| Advertising expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Conferences | ( | ) | ( | ) | ||||||||||||||||||||||||
| Impairment – digital assets | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Gain (loss) on disposal of digital assets | ||||||||||||||||||||||||||||
| Balance – September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Digital Assets held at September 30, 2022 | ||||||||||||||||||||||||||||
| 24 |
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 September 30, 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 of $
NOTE 9: 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 $
NOTE 10: NOTES PAYABLE
The Company entered into notes payable as follows as of September 30, 2022 and December 31, 2021. The chart below does not include notes payable that were repaid or converted during 2021:
| 2022 | 2021 | |||||||
| Notes payable ($ | $ | $ | ||||||
| EIDL loan at | ||||||||
| Total | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Long-term debt | $ | $ | ||||||
Maturities of notes payable for the next five years as of September 30 are as follows:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| $ |
In
the acquisition of Tickeri, the Company assumed a PPP loan and an EIDL loan. The PPP loan was repaid in its entirety in the year ended
December 31, 2021. In the acquisition of Monster a $
| 25 |
NOTE 11: NOTES PAYABLE – RELATED PARTIES
The Company entered into notes payable as follows as of September 30, 2022 and December 31, 2021:
| 2022 | 2021 | |||||||
| Notes payable ($ | $ | $ | ||||||
| Notes payable ($ | ||||||||
| Notes payable ($ | ||||||||
| Note payable with a company whose managing member is related to an officer and director of the Company, at | ||||||||
| Note payable with a company whose managing member is related to an officer and director of the Company, at | ||||||||
| Note payable with a company whose managing member is related to an officer and director of the Company,
at | ||||||||
| Advance – officer – Ixaya, on demand, no interest | ||||||||
| Total | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Long-term debt | $ | $ | ||||||
Maturities of notes payable – related parties as of September 30 is as follows:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| $ |
Interest
expense for the nine months ended September 30, 2022 and 2021 was $
| 26 |
NOTE 12: CONVERTIBLE PROMISSORY NOTES
The Company entered into convertible promissory notes as follows as of September 30, 2022 and December 31, 2021:
| 2022 | 2021 | |||||||
| Convertible note, at | $ | $ | ||||||
| Convertible note, at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Convertible note at | ||||||||
| Less: Discounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
On
April 14, 2021 we received bridge financing in the form of a loan in the principal amount of $
Under the terms of the note, Brighton Capital has a right of redemption commencing on the earlier of an effective date of a Registration Statement and the 12-month anniversary of the note, to cause us to redeem all or any portion of the note in cash or shares of our common stock, at the Company’s election.
| 27 |
During
the three months ended September 30, 2022, BCP converted $
On October 26, 2021, the Company and BCP agreed to terminate the Equity Financing Agreement. The Company agreed to issue shares for the termination of the EFA in the registration statement they file.
On
May 13, 2021, the Company issued a convertible promissory note to investors for $
On
May 13, 2021, the Company issued a convertible promissory note to an investor for $
On
May 17, 2021, the Company issued a convertible promissory note to an investor for $
On
May 19, 2021, the Company issued a convertible promissory note to an investor for $
On
May 19, 2021, the Company issued a convertible promissory note to an investor for $
On
May 19, 2021, the Company issued a convertible promissory note to an investor for $
On
June 21, 2021, the Company issued a convertible promissory note to an investor for $
| 28 |
On
June 21, 2021, the Company issued a convertible promissory note to an investor for $
On
August 30, 2021, the Company issued a convertible promissory note to an investor for $
On
November 12, 2021, the Company issued a convertible promissory note to an investor for $
Maturities of convertible promissory notes as of September 30 are as follows (with discount):
| 2023 | $ | |||
| $ |
The
Company recognized $
Interest
expense for the nine months ended September 30, 2022 and 2021 was $
On
March 31, 2022, the Company entered into exchange agreements with most of their convertible note holders to exchange $
NOTE 13: CONVERTIBLE PROMISSORY NOTES – RELATED PARTIES
The Company entered into convertible promissory notes as follows as of September 30, 2022 and December 31, 2021:
| 2022 | 2021 | |||||||
| Convertible note at | $ | $ | ||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| 29 |
Maturities of convertible promissory notes – related parties as of September 30 are as follows:
| 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 $
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.
Interest
expense for the nine months ended September 30, 2022 and 2021 was $
NOTE 14: STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
As of September 30, 2022 and December 31, 2021, 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 $.
On October 29, 2021, the Series B Preferred Stock had their authorized shares reduced from shares to and the shares of Series C Preferred Stock were cancelled.
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.
Voting
Rights.
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.
| 30 |
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.
Voting
Rights.
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
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 has 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.
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. For the nine months ended September 30, 2022 and year ended December 31, 2021, the Company expensed $ and $ for these Series B Preferred grants.
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.
| 31 |
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 $
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) for no consideration.
During the three months ended March 31, 2022, there were Series B Preferred shares converted into common shares.
During the three months ended June 30, 2022, there were Series B Preferred shares converted into common shares.
During the three months ended September 30, 2022, there were Series B Preferred shares converted into common shares, and on September 21, 2022, the Company’s CEO cancelled Series B Preferred shares (the equivalent of common shares) for no consideration.
As of September 30, 2022, the Company has shares of Series B Preferred Stock issued and outstanding.
On
October 29, 2021, the Company by Board consent approved an amendment to their Certificate of Amendment for the Series B Preferred Stock
to
Common Stock
The Company has shares of common stock, par value $, authorized. The Company has and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. The Company on February 26, 2021 increased its authorized shares from to shares.
In March 2021 there was an adjustment for shares of common stock from the reverse stock split on February 26, 2021.
On
April 26, 2021, the Company, issued
shares of common stock for the sale of the Chile country rights. The value of this transaction was $
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
June 3, 2021, the Company issued shares of common stock valued at $
On June 30, 2021, the Company issued shares of common stock in settlement of a liability.
In December 2021, there were Series B Preferred shares converted into common shares.
During
the year ended December 31, 2021, the Company issued shares of common stock to consultants and advisors for services. These
shares were valued at the market price of the Company’s common stock on the respective dates of issuance. These shares will be
expensed as stock-based compensation expense through June 30, 2025. In addition, the Company committed to issue an additional
common shares that have a value of $
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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 Series B Preferred stock. In addition, the Company cancelled shares.
During
the three months ended March 31, 2022, the Company expensed $
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 $
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 $
During
the three months ended September 30, 2022, the Company expensed $
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
On
December 4, 2020, the Company granted warrants to two separate holders at a price of $
On
December 23, 2020, the Company granted warrants which were part of a country rights option HUMBL granted. These warrants have
a term of
On
December 23, 2020, the Company entered into two separate convertible note agreements that are convertible into shares of common stock
at $
On
May 13, 2021, the Company entered into two separate convertible note agreements that are convertible into shares of common stock at $
On
May 19, 2021, the Company entered into three separate convertible note agreements that are convertible into shares of common stock at
$
On
May 21, 2021, the Company entered into a consulting agreement and granted warrants under this agreement. The warrants have
a term of
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On
June 21, 2021, the Company entered into two separate convertible note agreements that are convertible into shares of common stock at
$
On
August 30, 2021, the Company entered into a convertible note agreement that is convertible into shares of common stock at $
On
October 6, 2021, the Company entered into a consulting agreement and granted warrants under this agreement. The warrants have
a term of
On
November 12, 2021, the Company entered into a convertible note agreement that is convertible into shares of common stock at $
On
December 31, 2021, the Company entered into a consulting agreement and granted warrants under this agreement. The warrants
have a term of
On
December 31, 2021, the Company entered into a consulting agreement and granted warrants under this agreement. The warrants
have a term of
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 -year warrants expiring
The following represents a summary of the warrants:
| Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||||||||||
| Number | Weighted Price | Number | Weighted Average Exercise Price | |||||||||||||
| Beginning balance | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Expired | ||||||||||||||||
| Ending balance | $ | $ | ||||||||||||||
| Intrinsic value of warrants | $ | $ | ||||||||||||||
| Weighted Average Remaining Contractual Life (Years) | ||||||||||||||||
As of September 30, 2022, warrants are vested.
For the nine months ended September 30, 2022 and 2021, 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.
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As of September 30, 2022, there remains unrecognized stock-based compensation expense related to these warrants of $ comprising of service-based grants through June 30, 2026.
Options
On October 26, 2021, 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 September 30, 2022, none of the stock options are vested.
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 September 30, 2022,
| Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||||||||||
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
| Beginning balance | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ||||||||||||||||
| Ending balance | $ | $ | ||||||||||||||
| Intrinsic value of warrants | $ | $ | ||||||||||||||
| Weighted Average Remaining Contractual Life (Years) | ||||||||||||||||
As of September 30, 2022, options are vested.
For the nine months ended September 30, 2022 and 2021, 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:
Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
| 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 commence vesting on April 1, 2022.
| Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||||||||||
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
| Beginning balance | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Vested | ( | ) | ||||||||||||||
| Ending balance | $ | $ | ||||||||||||||
For
the nine months ended September 30, 2022 and 2021, the Company amortized $
NOTE 15: RELATED-PARTY TRANSACTIONS
Since
May 13, 2019 when HUMBL was incorporated, they relied on entities that had common ownership to HUMBL for either assistance with payment
of bills or for services rendered to assist HUMBL in bringing their products to market. The Company has not relied on these entities
since early 2021 for this assistance. The amounts were largely for shared services that have ceased in 2021. The Company had recorded
$
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 $
NOTE 16: COUNTRY RIGHTS OPTION
Tuigamala Group Pty Ltd
On
December 23, 2020, the Company and Tuigamala Group Pty Ltd, an Australian corporation (“TGP”), entered into a Securities
Purchase Agreement whereby TGP agreed to purchase an option to purchase territory rights to 15 countries in the Oceania region (“Option”).
The purchase price for this Option was $
In
addition to receiving the Option, TGP was granted a warrant to purchase shares of common stock of the Company at an exercise
price of $
On
February 26, 2021, the Company and TGP entered into a term sheet to revise the Option. The revised terms of the Option are that the Company
would form a subsidiary in the Oceania region. TGP would purchase a
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As
a result of the revised terms, the $
The
Company and TGP were unable to come to agreement on new terms of this transaction and as of April 14, 2021 have terminated negotiations.
TGP still owns the warrants received in December 2020. The Company is not obligated to return any of the $
These warrants were assigned to Archumbl Pty Ltd. in May 2021.
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 $
Under
the terms of the Securities Purchase Agreement, HUMBL CL agreed to purchase shares of our common stock for $
The
Securities Purchase Agreement provides that if HUMBL CL exercises its right to purchase the subsidiary interest, it will receive
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.
NOTE 17: TECHNOLOGY PARTNERSHIP AGREEMENT
On
September 25, 2022, the Company and Great Foods2Go, Inc. (“Technology Partner”) entered into a one-year Technology Partnership
Agreement (“Technology Agreement”) whereby the Technology Partner agrees to assist the Company test its products for cloud
kitchen and delivery services. These services include technology solutions across branding, payments, search and marketplaces in their
cloud kitchen and delivery environments. The Company paid $
NOTE 18: 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.
For 2021, the Company established three distinct operating segments: HUMBL Marketplace; HUMBL Pay; and HUMBL Financial. Most of the operations for the year ended December 31, 2021 were conducted in North America. Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial. The 2021 segments were all considered part of the consumer division.
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.
| Nine Months Ended September 30, 2022 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | $ | $ | |||||||||
| Cost of revenues | ||||||||||||
| Gross profit | ||||||||||||
| Total operating expenses net of depreciation, amortization and impairment | ||||||||||||
| Depreciation, amortization and impairment | ||||||||||||
| Other expenses (income) | ( | ) | ||||||||||
| (Loss) from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
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| Three Months Ended September 30, 2022 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | $ | $ | |||||||||
| Cost of revenues | ||||||||||||
| Gross profit | ||||||||||||
| Total operating expenses net of depreciation, amortization and impairment | ||||||||||||
| Depreciation, amortization and impairment | ||||||||||||
| Other expenses (income) | ( | ) | ||||||||||
| (Loss) from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Segmented assets as of September 30, 2022 | ||||||||||||
| Property and equipment, net | $ | $ | $ | |||||||||
| Intangible assets | $ | $ | $ | |||||||||
| Intangible assets – digital assets | $ | $ | $ | |||||||||
| Goodwill | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ |
| Nine Months Ended September 30, 2021 | HUMBL Pay | HUMBL Marketplace | Total | |||||||||
| Segmented operating revenues | $ | $ | $ | |||||||||
| Cost of revenues | ||||||||||||
| Gross profit | ||||||||||||
| Total operating expenses net of depreciation, amortization and impairment | ||||||||||||
| Depreciation, amortization and impairment | ||||||||||||
| Other (income) expense | ||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Three Months Ended September 30, 2021 | HUMBL Pay | HUMBL Marketplace | Total | |||||||||
| Segmented operating revenues | $ | $ | $ | |||||||||
| Cost of revenues | ||||||||||||
| Gross profit | ||||||||||||
| Total operating expenses net of depreciation, amortization and impairment | ||||||||||||
| Depreciation, amortization and impairment | ||||||||||||
| Other (income) expense | ||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Segmented assets as of September 30, 2021 | ||||||||||||
| Property and equipment, net | $ | $ | $ | |||||||||
| Intangible assets, net | $ | $ | $ | |||||||||
| Goodwill | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ |
The HUMBL Financial sector is reflected in discontinued operations on the consolidated statement of operations for the nine months ended September 30, 2022 and 2021.
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NOTE 19: LEGAL PROCEEDINGS
We have been sued in the United States District Court for the Southern District of California in a case styled Matt Pasquinelli and Bryan Paysen v. HUMBL, LLC, Brian Foote, Jeffrey Hinshaw and George Sharp, Case No.22CV0723 AJB BLM, which is a putative shareholder derivative class action since November 21, 2020 for alleged violations of the federal securities laws by allegedly making false and misleading statements regarding our business and operations, more specifically 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 that we sold unregistered securities through our BLOCK Exchange Traded Index products, all of which plaintiffs allege caused a decline in the market value of our shares of common stock. Plaintiffs seek unspecified monetary damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
We also have been sued in the Delaware Chancery Court in a case 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) in a class action on behalf of shareholders of the Company since November 21, 2020 repeating the same claims as in the Pasquinelli litigation described above and also seeking unspecified damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
NOTE 20: SUBSEQUENT EVENTS
In the period October 1, 2022 through November 11, 2022, the Company issued shares of common stock in the conversion of shares of Series B Preferred stock.
In October 2022, the Company issued shares of common stock that were accrued as of September 30, 2022 in the Obligation to Issue Common Stock.
The
Company issued shares of common stock for investments of $
On October 31, 2022, the Company’s Board of
Directors approved a
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 $
Beginning
on November 7, 2022 and ending November 10, 2022, HUMBL, Inc. (“HUMBL”) entered into Securities Purchase Agreements with
11 different investors (the “Purchase Agreements”). Under the terms of the Purchase Agreements, HUMBL sold shares
of its common stock and warrants to purchase shares of its common stock (the “Warrants”) for a total purchase
price of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in our Form S-1 filed on July 20, 2022. In addition to historical information, the following discussion contains forward looking statements based upon current expectations that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including, but not limited to, risks described in the section entitled “Risk Factors” and elsewhere in the Form S-1.
General
Our executive offices are located at 600 B Street, Suite 300, San Diego, California 92101, telephone (786) 738-9012. Our corporate website address is www.humbl.com.
Overview
Following our merger with HUMBL LLC on December 3, 2020, we changed our name from Tesoro Enterprises, Inc. to HUMBL, Inc. and adopted the business of HUMBL to deliver a more seamless digital pairing experiences for consumers and merchants in the global economy.
Comparison of Results of Operations for the Nine Months Ended September 30, 2022 and 2021
The following table sets forth the summary operations for the six months ended June 30, 2022 and 2021:
| For the Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| Revenues | $ | 3,036,146 | $ | 1,388,983 | ||||
| Cost of Revenues | $ | 1,511,909 | $ | 604,217 | ||||
| Gross Profit | $ | 1,524,237 | $ | 784,766 | ||||
| Development Costs | $ | 2,242,668 | $ | 1,470,005 | ||||
| Professional Fees | $ | 3,499,345 | $ | 2,986,355 | ||||
| Settlement | $ | 1,552,400 | $ | 1,870,000 | ||||
| Stock-based compensation | $ | 10,146,188 | $ | 10,185,497 | ||||
| Impairment - goodwill | $ | 4,186,596 | $ | 12,141,062 | ||||
| Impairment – digital assets | $ | 1,593,570 | $ | 33,464 | ||||
| General and Administrative Expenses | $ | 7,164,478 | $ | 2,496,122 | ||||
| Interest Expense | $ | (1,281,335 | ) | $ | (533,457 | ) | ||
| Amortization of Debt Discounts | $ | (1,668,881 | ) | $ | (489,848 | ) | ||
| Gain on Sale of Digital Assets | $ | 187,009 | $ | 29,029 | ||||
| Beneficial conversion feature | $ | - | $ | (3,300,000 | ) | |||
| Loss on sale of assets | $ | (57,318 | ) | $ | - | |||
| Loss on conversion of convertible notes payable | $ | (305,967 | ) | $ | - | |||
| Other income | $ | 1,895 | $ | 28,200 | ||||
| Provision for Income Taxes | $ | - | $ | - | ||||
| Net Loss from Continuing Operations | $ | (31,985,605 | ) | $ | (34,663,815 | ) | ||
Revenues
Revenues for the nine months ended September 30, 2022 were $3,036,146 as compared to $1,388,983 for the nine months ended September 30, 2021, an increase of $1,647,163. The increase was due to the ticketing revenue recognized of $1,090,158 as well as from services rendered from Monster Creative of $1,798,585. In 2021, our revenue was from sales of merchandise and a partial period of ticketing revenue post-acquisition of Tickeri and three months of Monster Creative production revenue.
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Cost of Revenues and Gross Profit
Cost of revenues for the nine months ended September 30, 2022 were $1,511,909 as compared to $604,217 for the nine months ended September 30, 2021, an increase of $907,692. The increase was primarily due to the direct labor attributable to ticketing and production services. Our gross profit grew by 94% from 2021 to 2022 as a result of the production services and ticketing aspects of the business.
Operating Expenses
Operating expenses for the nine months ended September 30, 2022 were $30,385,245 as compared to $31,182,505 for the nine months ended September 30, 2021, a decrease of $797,260. 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 decrease in our next 12 months as we look to scale back on outside contract labor. Approximately 58% of our operating expenses relate to non-cash charges in 2022 and these charges comprise of over $17,475,000. We do expect that our non-cash charges will remain the same in the next few quarters as out stock-based compensation completes the vesting terms.
Development Costs
Development costs which consist of salaried and outsourced technical consultants for the nine months ended September 30, 2022 were $2,242,668 compared with $1,470,005 for the nine months ended September 30, 2021. The increase of development costs related to the roll out of various projects such as the HUMBL Wallet and Search3 that are in development as well as enhancements in the HUMBL Pay app for 2022. In 2021, a majority of the development costs went towards the HUMBL Pay app.
Professional Fees
Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the nine months ended September 30, 2022 were $3,499,345 compared to $2,986,355 for the nine months ended September 30, 2021. The increase in professional fees related to the professional fees incurred in regulatory filings including OTC compliance and reporting as well as increases in consultant costs. We expect that these costs will decrease during the remainder of 2022 into 2023.
Settlement
The Company incurred $1,552,400 in settlement expenses which are included in our operating expenses for the nine months ended September 30, 2022 related to agreements with individuals for liabilities incurred. We incurred $1,870,000 in settlement expenses for the nine months ended September 30, 2021.
Stock-Based Compensation
The Company incurred $10,146,188 in stock-based compensation expenses for the nine months ended September 30, 2022 compared to $10,185,497 for the nine months ended September 30, 2021 related to agreements with consultants, advisors, and directors for services rendered. We expect our stock-based compensation expenses to remain consistent 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 Goodwill and Digital Assets and Stock-Based Compensation
The Company incurred $4,186,596 in non-cash charges related to impairment of goodwill, and $1,593,570 in impairment of our digital assets in the nine months ended September 30, 2022. The goodwill impairment related to the impairment of the goodwill in the Ixaya acquisition. This impairment was part of our Commercial segment. The impairment of the digital assets was based on the valuation changes in the digital assets we hold. We incurred $12,141,062 in goodwill impairment on the Tickeri acquisition in the nine months ended September 30, 2021.
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General and Administrative
General and administrative expenses for the nine months ended September 30, 2022 were $7,164,478 compared with $2,496,122 for the nine months ended September 30, 2021. The increase in general and administrative expenses of $4,668,356 is related to the operations of Tickeri ($628,000), operations of Monster advertising and business development ($673,000), operations of Ixaya of ($146,000), advertising expenses ($120,000), travel ($188,000), general office expenses (approximately $225,000), insurance (approximately $48,000), amortization and depreciation expenses ($473,000), penalties ($700,000) and the addition of management and employees to grow our business (approximately $1,400,000). The general and administrative expenses related to the nine months ended September 30, 2021 related to mostly operating expenses to complete the merger with Tesoro and the startup of the HUMBL Marketplace and Pay divisions.
There were no significant operations prior to the completion of the merger in February 2021. We expect our general and administrative expenses to be consistent in the next 12 months, unless we acquire other businesses that will add expenses to the Company.
Other Income (Expense)
In the nine months ended September 30, 2022 we incurred $3,124,597 in other expenses, compared to $4,266,076 in other expenses in the nine months ended September 30, 2021, a decrease of $1,141,479. The other expenses relate to amortization of discounts of $1,668,881 and $489,848, respectively for the 2022 and 2021 periods, as well as interest expense of $1,281,335 and $533,457, respectively. gain on sale of digital assets of $187,009 and $29,029, and in 2021 we incurred a $3,300,000 charge for a beneficial conversion feature on a convertible note payable and in 2022 we had a loss on sale of assets of $57,318, and a loss on conversion of convertible notes payable of $305,967. We expect to incur additional other income (expense) in the next 12 months related to our debt.
Provision for Income Taxes
We incurred no provision for state income taxes in the nine months ended September 30, 2022 and 2021.
Net Loss from Continuing Operations
Net loss from operations from continuing operations for the nine months ended September 30, 2022 was ($31,985,605) as compared to a net loss of ($34,663,815) for the nine months ended September 30, 2021. The $2,678,210 decrease in the net loss was due to the changes noted herein.
Discontinued Operations
Net loss from operations from discontinued operations for the nine months ended September 30, 2022 was ($7,945) as compared to a net loss of ($280,602) for the nine months ended September 30, 2021. The discontinued operations relate to the suspension of operations related to the Company’s ETX products that occurred in February 2022.
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.
For 2021, the Company established three distinct operating segments: HUMBL Marketplace; HUMBL Pay; and HUMBL Financial. Most of the operations for the year ended December 31, 2021 were conducted in North America. Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial. The 2021 segments were all considered part of the consumer division.
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| Nine Months Ended September 30, 2022 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 2,920,827 | $ | 115,319 | $ | 3,036,146 | ||||||
| Cost of revenues | 1,438,932 | 72,977 | 1,511,909 | |||||||||
| Gross profit | 1,481,895 | 42,342 | 1,524,237 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 22,876,740 | 1,255,737 | 24,132,477 | |||||||||
| Depreciation, amortization and impairment | 4,634,356 | 1,618,412 | 6,252,768 | |||||||||
| Other expenses (income) | 3,143,021 | (18,424 | ) | 3,124,597 | ||||||||
| (Loss) from continuing operations | $ | (29,172,222 | ) | $ | (2,813,383 | ) | $ | (31,985,605 | ) | |||
| Segmented assets as of September 30, 2022 | ||||||||||||
| Property and equipment, net | $ | 26,912 | $ | - | $ | 26,912 | ||||||
| Intangible assets | $ | 266,297 | $ | 2,976,005 | $ | 3,242,302 | ||||||
| Intangible assets – digital assets | $ | 130,776 | $ | 147,823 | $ | 278,599 | ||||||
| Goodwill | $ | 3,353,392 | $ | 3,981,000 | $ | 7,334,392 | ||||||
| Capital expenditures | $ | 13,572 | $ | - | $ | 13,572 |
| Nine Months Ended September 30, 2021 | HUMBL Pay | HUMBL Marketplace | Total | |||||||||
| Segmented operating revenues | $ | 13,778 | $ | 1,375,205 | $ | 1,388,983 | ||||||
| Cost of revenues | - | 604,217 | 604,217 | |||||||||
| Gross profit | 13,778 | 770,988 | 784,766 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 9,534,193 | 9,468,272 | 19,002,465 | |||||||||
| Depreciation, amortization and impairment | 215 | 12,179,825 | 12,180,040 | |||||||||
| Other (income) expense | 2,155,966 | 2,110,110 | 4,266,076 | |||||||||
| Income (loss) from operations | $ | (11,676,596 | ) | $ | (22,987,219 | ) | $ | (34,663,815 | ) | |||
The HUMBL Financial sector is reflected in discontinued operations on the consolidated statement of operations for the nine months ended September 30, 2022 and 2021.
Comparison of Results of Operations for the Three Months Ended September 30, 2022 and 2021
The following table sets forth the summary operations for the three months ended September 30, 2022 and 2021:
| For the Three Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| Revenues | $ | 774,151 | $ | 1,111,133 | ||||
| Cost of Revenues | $ | 495,913 | $ | 460,352 | ||||
| Gross Profit | $ | 278,238 | $ | 650,781 | ||||
| Development Costs | $ | 167,265 | $ | 713,993 | ||||
| Professional Fees | $ | 1,754,463 | $ | 928,761 | ||||
| Settlement | $ | 432,000 | $ | - | ||||
| Stock-based compensation | $ | 3,350,541 | $ | 8,619,429 | ||||
| Impairment - goodwill | $ | 3,177,954 | $ | - | ||||
| Impairment – digital assets | $ | 381,688 | $ | 33,464 | ||||
| General and Administrative Expenses | $ | 1,825,723 | $ | 1,965,751 | ||||
| Interest Expense | $ | (488,715 | ) | $ | (389,588 | ) | ||
| Amortization of Debt Discounts | $ | (12,614 | ) | $ | (342,595 | ) | ||
| Gain on Sale of Digital Assets | $ | 91,215 | $ | 29,029 | ||||
| Loss on sale of assets | $ | (57,318 | ) | $ | - | |||
| Loss on conversion of convertible notes payable | $ | (305,967 | ) | $ | - | |||
| Other income | $ | - | $ | 25,000 | ||||
| Provision for Income Taxes | $ | - | $ | - | ||||
| Net Loss from Continuing Operations | $ | (11,584,795 | ) | $ | (12,288,771 | ) | ||
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Revenues
Revenues for the three months ended September 30, 2022 were $774,151 as compared to $1,111,133 for the three months ended September 30, 2021, a decrease of $336,982. The decrease was due to the services rendered from Monster Creative. Ticketing revenue was consistent for the periods presented.
Cost of Revenues and Gross Profit
Cost of revenues for the three months ended September 30, 2022 were $495,913 as compared to $460,352 for the three months ended September 30, 2021, an increase of $35,561. The increase was primarily due to the direct labor attributable to ticketing and production services. Our gross profit decreased by 57% from 2021 to 2022 as a result of the production services and ticketing aspects of the business.
Operating Expenses
Operating expenses for the three months ended September 30, 2022 were $11,089,634 as compared to $12,261,398 for the three months ended September 30, 2021, a decrease of $1,171,764. 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 decrease in our next 12 months as we look to scale back on outside contract labor. Approximately 66% of our operating expenses relate to non-cash charges in 2022 and these charges comprise of over $7,342,000. We do expect that our non-cash charges will remain the same in the next few quarters as out stock-based compensation completes the vesting terms.
Development Costs
Development costs which consist of salaried and outsourced technical consultants for the three months ended September 30, 2022 were $167,265 compared with $713,993 for the three months ended September 30, 2021. The decrease of development costs related to scaling back of technology contractors in 2022. In 2021, a majority of the development costs went towards the HUMBL Pay app.
Professional Fees
Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the three months ended September 30, 2022 were $1,754,463 compared to $928,761 for the three months ended September 30, 2021. The increase in professional fees related to the professional fees incurred in regulatory filings as well as due diligence and legal fees associated with mergers and acquisitions activity. We expect that these costs will decrease during the remainder of 2022 into 2023.
Settlement
The Company incurred $432,000 in settlement expenses which are included in our operating expenses for the three months ended September 30, 2022 related to shares issued in termination of an EFA entered into in 2021. We incurred $0 in settlement expenses for the three months ended September 30, 2021.
Stock-Based Compensation
The Company incurred $3,350,541 in stock-based compensation expenses for the three months ended September 30, 2022 compared to $8,619,429 for the three months ended September 30, 2021 related to agreements with consultants, advisors, and directors for services rendered. We expect our stock-based compensation expenses to remain the same in the next few quarters as out stock-based compensation completes the vesting terms. The awards provided were valued in accordance with ASC 718 at fair value.
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Impairment of Goodwill and Digital Assets and Stock-Based Compensation
The Company incurred $3,177,954 in non-cash charges related to impairment of goodwill, and $381,688 in impairment of our digital assets in the three months ended September 30, 2022. This impairment of goodwill was part of our Commercial segment. The impairment of the digital assets was based on the valuation changes in the digital assets we hold. We incurred $0 in goodwill impairment and $33,464 in impairment of digital assets in the three months ended September 30, 2021.
General and Administrative
General and administrative expenses for the three months ended September 30, 2022 were $1,825,723 compared with $1,965,751 for the three months ended September 30, 2021. The decrease in general and administrative expenses of $140,028 is related to increases in the operations of Tickeri ($120,000), operations of Monster advertising and business development ($150,000), operations of Ixaya ($45,000), amortization and depreciation expenses ($470,000), offset by the reduction of management and employees to grow our business (approximately $650,000) and reductions in overhead and travel costs ($285,000). The general and administrative expenses related to the three months ended September 30, 2021 related to mostly operating expenses for Tickri, Monster and corporate overhead for regulatory filings and tech advances.
There were no significant operations prior to the completion of the merger in February 2021. We expect our general and administrative expenses to be consistent in the next 12 months, unless we acquire other businesses that will add expenses to the Company.
Other Income (Expense)
In the three months ended September 30, 2022 we incurred $773,399 in other expenses, compared to $678,154 in other expenses in the three months ended September 30, 2021, an increase of $95,245. The other expenses relate to amortization of discounts of $12,614 and $342,595, respectively for the 2022 and 2021 periods, as well as interest expense of $488,715 and $389,588, respectively, and gain on sale of digital assets of $91,215 and $29,029, and a loss on sale of assets in 2022 of $57,318, and a loss on conversion of convertible notes payable of $305,967. We expect to incur additional other income (expense) in the next 12 months related to our debt.
Provision for Income Taxes
We incurred no provision for state income taxes in the three months ended September 30, 2022 and 2021.
Net Loss from Continuing Operations
Net loss from operations from continuing operations for the three months ended September 30, 2022 was ($11,584,795) as compared to a net loss of ($12,288,771) for the three months ended September 30, 2021. The $703,976 decrease in the net loss was due to the changes noted herein.
Discontinued Operations
Net loss from operations from discontinued operations for the three months ended September 30, 2022 was $0 as compared to a net loss of ($23,295) for the three months ended September 30, 2021. The discontinued operations relate to the suspension of operations related to the Company’s ETX products that occurred in February 2022.
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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.
For 2021, the Company established three distinct operating segments: HUMBL Marketplace; HUMBL Pay; and HUMBL Financial. Most of the operations for the year ended December 31, 2021 were conducted in North America. Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial. The 2021 segments were all considered part of the consumer division.
| Three Months Ended September 30, 2022 | Consumer | Commercial | Total | |||||||||
| Segmented operating revenues | $ | 714,725 | $ | 59,426 | $ | 774,151 | ||||||
| Cost of revenues | 459,345 | 36,568 | 495,913 | |||||||||
| Gross profit | 255,380 | 22,858 | 278,238 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 6,986,188 | 359,073 | 7,345,261 | |||||||||
| Depreciation, amortization and impairment | 3,528,697 | 215,676 | 3,744,373 | |||||||||
| Other expenses (income) | 782,397 | (8,998 | ) | 773,399 | ||||||||
| (Loss) from continuing operations | $ | (11,041,902 | ) | $ | (542,893 | ) | $ | (11,584,795 | ) | |||
| Three Months Ended September 30, 2021 | HUMBL Pay | HUMBL Marketplace | Total | |||||||||
| Segmented operating revenues | $ | 13,778 | $ | 1,097,355 | $ | 1,111,133 | ||||||
| Cost of revenues | - | 460,352 | 460,352 | |||||||||
| Gross profit | 13,778 | 637,003 | 650,781 | |||||||||
| Total operating expenses net of depreciation, amortization and impairment | 5,938,141 | 6,284,279 | 12,222,420 | |||||||||
| Depreciation, amortization and impairment | 215 | 38,763 | 38,978 | |||||||||
| Other (income) expense | 362,270 | 315,884 | 678,154 | |||||||||
| Income (loss) from operations | $ | (6,286,848 | ) | $ | (6,001,923 | ) | $ | (12,288,771 | ) | |||
The HUMBL Financial sector is reflected in discontinued operations on the consolidated statement of operations for the three months ended September 30, 2022 and 2021.
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.
As of September 30, 2022, we had $1,258,122 in cash. In the nine months ended September 30, 2022, the Company’s subsidiaries experienced positive cash flow from operations generating over $3,036,146 in revenue. The Company expanded their product offerings through the acquisition of BizSecure, Inc. and the acquisition of Ixaya. These entities will be instrumental in the roll out of HUMBL’s Blockchain Services Group which currently is focused on providing services to governments as well as businesses. We also received $6,500,000 in related party long-term promissory notes and $2,000,000 from the exercise of 10,000,000 warrants, and $575,000 from investors in the sale of common stock and warrants. The Company intends to continue to pursue additional resources to continue the development of our core products and the roll out of new products.
We had a working capital deficit of $27,739,267 as of September 30, 2022 as compared to a working capital deficit of $20,965,419 as of December 31, 2021, respectively. The increase in the working capital deficit is the result of the incurrence of expenditures related to the commencement of the various products and the current potion of debt that is due in the next 12 months. The Company believes it has adequate capital resources to meet its cash requirements during the next 12 months as they continue to grow and develop suitable sources of capital. A majority of the Company’s operating expenses (over 58%) are the result of non-cash charges such as impairment of goodwill and stock-based compensation. The actual monthly cash burn of the Company is approximately $1,137,000 per month at this time and as our core products come online, this is likely to decrease as much of this is directly related to the in-house and outsourced technology team. 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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We expect that the revenue generating operations of the Company will continue to improve the liquidity of the Company moving forward. However, going forward, the effect of the pandemic and rising interest rates 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 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.
The Company has made strategic acquisitions in the first few months of 2022 to enhance their core products and their intellectual property. Management believes these acquisitions will result in increased profitability.
The Company plans to raise additional capital through the exercising of their warrants as well as through future debt and equity financings to carry out its business plan. Obtaining additional financing and the successful development of the Company’s segments including their new Blockchain Services group, ultimately, to profitable operations, are necessary for the Company to continue operations.
Net cash used in operating activities was $10,237,638 and $6,428,256 for the nine months ended September 30, 2022 and 2021, respectively. The $3,809,382 increase in net cash used in operating activities was primarily a result of the non-cash charges impacting our net loss from 2021 to 2022, such as the impairment of goodwill for Tickeri in 2021 versus the impairment for Ixaya in 2022. Additionally, we increased our accounts payable and accrued expenses by $1,747,142 from 2021 to 2022 and had net cash decreases as a result of changes in our digital assets of $915,684.
Net cash used in investing activities was $572,402 for the nine months ended September 30, 2022 related to purchases of fixed assets of $13,572 and cash paid, net of amounts received in the acquisition of Ixaya of $148,675, purchases of a non-fungible token of $406,040 and domain names of $275,020 as well as proceeds received from the sale of fixed assets of $270,905. In the nine months ended September 30, 2021 we incurred investing activities of $237,182 related to $367,576 for purchases of fixed assets, $127,377 in cash received in the acquisition of Tickeri, and $3,017 in cash received in the acquisition of Monster Creative.
Cash provided by financing activities was $8,574,949 and $7,409,814 for the nine months ended September 30, 2022 and 2021, respectively. Cash was provided through proceeds from sales of membership interests in HUMBL LLC in 2021 of $10,000, proceeds from the issuance of common stock for cash for $1,000,000, proceeds from the issuance of convertible notes of $6,400,000, and repayment of notes payable of $186. In 2022, the Company raised $2,000,000 from the exercise of warrants and proceeds from related party notes in the amount of $6,502,645, and a contribution of capital of $406,040 (as well as non-cash contribution of capital of $500,000) by the Company’s CEO as well as repayments of notes payable, related party notes and bank loans of $708,736 and the purchase of treasury shares of $50,000 that was subsequently retired.
Since the date of the reverse merger in December 2020 we have financed our operations through sales of common and preferred stock and the issuance of debt.
Off-Balance Sheet Arrangements
As September 30, 2022 and December 31, 2021, we had no off-balance sheet arrangements.
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Cautionary Note Regarding Forward Looking Statements
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including expected increase in revenues from oil and gas operations and future liquidity. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include, among other things, volatility of oil prices, the risks arising from the impact of the COVID-19 pandemic, including its future effect on the U.S. and global economies and on our Company, competition, government regulation or action, the costs and results of drilling activities, risks inherent in drilling operations, availability of equipment, services, resources and personnel required to conduct operating activities, ability to replace reserves and uncertainties related to reserve estimates, the Company’s ability to raise additional capital on acceptable terms when needed, uncertainties related to ongoing litigation, risks related to potential impact of natural disasters, and cybersecurity risks. Further information on our risk factors is contained in our filings with the SEC, including our registration statement on Form S-1 filed on July 20, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the period ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| (a) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; | |
| (b) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and | |
| (c) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have been sued in the United States District Court for the Southern District of California in a case styled Matt Pasquinelli and Bryan Paysen v. HUMBL, LLC, Brian Foote, Jeffrey Hinshaw and George Sharp, Case No.22CV0723 AJB BLM, which is a putative shareholder derivative class action since November 21, 2020 for alleged violations of the federal securities laws by allegedly making false and misleading statements regarding our business and operations, more specifically 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 that we sold unregistered securities through our BLOCK Exchange Traded Index products, all of which plaintiffs allege caused a decline in the market value of our shares of common stock. Plaintiffs seek unspecified monetary damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
We also have been sued in the Delaware Chancery Court in a case 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) in a class action on behalf of shareholders of the Company since November 21, 2020 repeating the same claims as in the Pasquinelli litigation described above and also seeking unspecified damages. 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 August 11, 2022, we entered into four Securities Purchase Agreements (the “Purchase Agreements”) pursuant to which we sold common stock and warrants to purchase common stock. On September 21, 2022, we entered into four Global Amendments (“Global Amendments”) that amended the Purchase Agreements. Under the terms of the Purchase Agreements, HUMBL sold 29,625,000 shares of its common stock ($0.04 per share) and warrants to purchase 59,250,000 shares of its common stock (the “Warrant Shares”) for a total purchase price of $1,185,000. The warrants are exercisable for a period of three years and are cash exercise only warrants. Of the Warrant Shares, 50,362,500 are exercisable at an exercise price of $0.075 and 8,887,500 are exercisable at an exercise price of $0.10.
The Global Amendments (i) reduced the aggregate purchase price under the Purchase Agreements to $575,000, (ii) revised the closing date to September 29, 2022 instead of August 25, 2022, (iii) increased the number of Shares purchased under the Purchase Agreement to 38,333,333 shares of HUMBL common stock ($0.015 per share), (iv) increased the total number of Warrant Shares to 76,666,666, (v) decreased the exercise price on 38,333,333 Warrant Shares to $0.04, and (vi) decreased the exercise price on 38,333,333 Warrant Shares to $0.03.
The proceeds received from the foregoing sales of equity securities were used for general corporate purposes.
Beginning on November 7, 2022 and ending November 10, 2022, HUMBL, Inc. (“HUMBL”) entered into Securities Purchase Agreements with 11 different investors (the “Purchase Agreements”). Under the terms of the Purchase Agreements, HUMBL sold 69,411,765 shares of its common stock and warrants to purchase 34,705,882 shares of its common stock (the “Warrants”) for a total purchase price of $590,000.00 ($0.0085 per share). 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.
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
| Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
| No. | Exhibit Description | Form | Date | Number | Herewith | |||||
| 31.1 | Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | Filed | ||||||||
| 31.2 | Certification of Principal Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | Filed | ||||||||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished** | ||||||||
| 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished** | ||||||||
| 101.INS | Inline XBRL Instance Document | Filed | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||||
| * | 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: November 14, 2022 | By: | /s/ BRIAN FOOTE |
| Brian Foote | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2022 | By: | /s/ JEFFREY HINSHAW |
| Jeffrey Hinshaw | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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