NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (IN US$) (UNAUDITED)
MARCH
31, 2023 AND 2022
NOTE
1: NATURE OF OPERATIONS
HUMBL,
Inc. (“Company” or “HUMBL”) was incorporated in the state of Oklahoma on November 12, 2009. The Company was
redomiciled on November 30, 2020 to the state of Delaware.
On
December 3, 2020, HUMBL, LLC (“HUMBL LLC”) merged into the Company in what is accounted for as a reverse merger. Under the
terms of the Merger Agreement, HUMBL LLC exchanged 100% of their membership interests for 552,029 shares of newly created Series B Preferred
Stock. The Series B Preferred shares were issued to the respective members of HUMBL LLC following the approval by FINRA of a one-for-four
reverse stock split of the common shares and the increase in the authorized common shares to 7,450,000,000 shares, and 10,000,000 preferred
shares.
The
FINRA approval for both the increase in the authorized common shares and reverse stock split occurred on February 26, 2021. To assume
control of the Company, the former CEO, Henry Boucher assigned his 7,000,000 shares of Series A Preferred Stock as well as
shares of common stock to Brian Foote, the President and CEO of HUMBL LLC for a $ note payable. . After the reverse merger was completed,
HUMBL LLC ceased doing business, and all operations were conducted under Tesoro Enterprises, Inc. which later changed its name to HUMBL,
Inc. (“HUMBL” or the “Company”).
On
June 3, 2021 we acquired Tickeri, Inc. (“Tickeri”) in a debt and stock transaction totaling $20,000,000 following which Tickeri
became a subsidiary of HUMBL. On January 31, 2023, the Company sold Tickeri back to the former owners and reflected the loss on disposal
in the Consolidated Statement of Operations. For the full description of these transactions, refer to the Form 10-K filed April 6, 2023.
On
June 30, 2021, we acquired Monster Creative, LLC (“Monster”). Monster is a Hollywood production studio that specializes in
producing movie trailers and other related content. As part of the acquisition we entered into certain debt instruments with the founders
of Monster that are in default as they were due December 31, 2022. For the full description of this transaction, refer to the Form 10-K
filed April 6, 2023.
On
February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined
this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure
is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US
Air Force and BizSecure’s Mobile ID technology. The Company had issued 13,200,000 common shares and 26,800,000 restricted stock
units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of two years as part of this acquisition. On December
30, 2022, as a result of the Company’s failure to timely register the 13,200,000 shares of common stock issued February 12, 2022
BizSecure requested the cancellation of such shares and the 10,050,000 RSUs that vested during 2022. Pursuant to BizSecure’s request,
the 13,200,000 shares of common stock and the 10,050,000 RSUs were rescinded effective December 30, 2022. The remaining 16,750,000 RSUs
will continue to vest in accordance with the original terms. For the full description of this transaction, refer to the Form 10-K filed
April 6, 2023.
On
March 3, 2022, the Company acquired Ixaya Business SA de CV, a Mexican corporation (“Ixaya”), under a Stock Purchase Agreement
(“Ixaya SPA”). The acquisition of Ixaya was for $150,000 and 8,962,036 shares of common stock (a value of $1,500,000) for
a total of $1,650,000. The Company accounted for this acquisition as a business combination under ASC 805, and Ixaya is not considered
a significant subsidiary under Regulation S-X Rule 1-02(w).
On
November 2, 2022, the Company acquired BM Authentics (“BM”), a provider of sports merchandise ranging from autographed jerseys,
bats, balls, helmets, and photos for $110,000 in cash and 90,000,000 shares of common stock. These shares were issued on January 10,
2023.
On
November 15, 2022 we entered into a Settlement Agreement and Mutual Release of Claims (the “Release Agreement”) with Forwardly,
Inc. (“Forwardly”) under which we agreed to pay Forwardly $2,200,000 in five equal monthly payments of $440,000 commencing
November 15, 2022 and ending March 15, 2023. The Company and Forwardly, amended the terms of the payments whereby the Company paid the
January and February 2023 payments in December 2022, and Forwardly agreed to extend the last payment to June 15, 2023. The payment is
being made in connection with a warrant (the “Warrant”) that Forwardly purchased from us for $200,000 in 2020 that provided
for the purchase of up to 125 million shares of our common stock of which Forwardly purchased 10 million shares for $2,000,000 in 2021.
Forwardly retained the 10 million shares under the Warrant in lieu of interest on the $2,000,000 it paid to exercise that number of our
shares of common stock under the Warrant.
HUMBL
is a Web 3, digital commerce platform built to connect consumers, businesses and governments in the digital economy. HUMBL provides simple
tools and packaging for complex new technologies such as blockchain, in the same way that previous cycles of e-commerce and the cloud
were more simply packaged by companies such as Facebook, Apple, Amazon and Netflix over the past several decades. The Company through
their product offerings are looking to simplify and package the digital economy for consumers, corporations and government.
The
goal of HUMBL is to provide ready built tools, and platforms for consumers and merchants to seamlessly participate in the digital economy.
HUMBL is built on a patent-pending, decentralized technology stack that utilizes both core and partner technologies, to provide faster
connections to the digital economy and each other.
The
Company is organized into two divisions: a) HUMBL Consumer and b) HUMBL Commercial. These two divisions incorporate and expand the Company’s
core products and services. The majority of the Company’s operations prior to 2022 were focused on the Consumer division.
HUMBL
– A Web 3 Commerce Platform
HUMBL
was founded to deliver an integrated, Web 3 digital commerce platform for consumers, merchants and governments. HUMBL has delivered one
of the first integrated technology environments in which a digital wallet, search engine, social media and marketplace listings can be
used together by consumers in one place. The HUMBL platform is comprised of the following key components described below.
HUMBL
Consumer Division
| |
● |
HUMBL
Wallet |
| |
● |
HUMBL
Search Engine |
| |
● |
HUMBL
Tickets |
| |
● |
HUMBL
Marketplace |
| |
● |
HUMBL
Social |
| |
● |
HUMBL
Metaverse Stores |
HUMBL
Commercial Division
| |
● |
HUMBL
Blockchain Services |
HUMBL
Wallet
The
HUMBL Wallet is the centerpiece of the Web 3 consumer experience on the HUMBL platform. The HUMBL Wallet is self-custodied by the individual;
ensuring that they have full control over their digital assets and private keys.
Customers
can use the HUMBL Wallet to send and receive digital assets, interact on the HUMBL Social platform, perform web searches on the HUMBL
Search Engine, store and manage their NFTs, consume content via MP4 multimedia player and more.
The
HUMBL Wallet drives revenue through: a) digital asset swaps, in which the customer can use the self-custodied HUMBL digital wallet to
swap from one digital asset to another on the Ethereum blockchain, and b) purchasing crypto through Sardine, a third-party service that
allows customers to buy digital assets with credit cards.
The
HUMBL Wallet is also connected to the BLOCKS Registry, a decentralized blockchain registry that allows customers to authenticate digital
items, such as NFTs, and track the chain of custody to ensure reduced fraud, forgery and theft in the digital markets.
HUMBL
Wallet customers have the obligation to perform their own tax record keeping and tracking of assets and swaps in the self-custodied wallet;
as well as backup of their private keys, to ensure the recoverability, data security and storage of their digital assets.
The
HUMBL Wallet is equipped with 2-factor authentication; as well as biometric security features, which are handled by the handset and its
manufacturer. HUMBL does not store or have access to any biometric information related to its verified users.
The
HUMBL Wallet uses SumSub, a third-party service provider, to perform KYC / KYB and authenticate customers. HUMBL does not capture or
store consumers’ information on HUMBL’s servers, except for their corresponding name, wallet address and email address for
basic communications with the verified user. HUMBL does not resell its customers data.
The
HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries.
HUMBL
Search Engine
The
HUMBL Search Engine is available via the HUMBL Wallet and the HUMBL website. The HUMBL Search Engine allows customers to search for standard
Web 2 content such as news, images and video. The company also recently completed the development of its HUMBL Ads portal, which can
be used to customize advertising programs for clients. This includes traditional search advertising such as display ads, location targeting
and cost-per-click performance advertising.
The
HUMBL Search Engine also offers Web 3 blockchain-based search features such as the ability to search major NFTs across Ethereum, Polygon,
BLOCKS, Gnosis and Solana. Consumers are able to confirm that certain NFTs have been “Verified by BLOCKS” to protect against
the fraud and forgery in the NFT market. The search engine also shows customers where certain NFTs are available for purchase across
various marketplaces.
HUMBL
Tickets
HUMBL
Tickets is initially focused on the offering of secondary (resale) tickets to thousands of live events across North America. HUMBL Tickets
inventory listings and ticket fulfillment are provided by Ticket Evolution and HUMBL earns a commission for each sale through its website.
The
ticketing content provided on HUMBL Tickets spans across major live music, sports, festivals and events in multiple countries. HUMBL
Tickets advertises its services primarily across social media, including its own HUMBL Social platform.
HUMBL
is also exploring the development of primary ticketing and peer-to-peer ticketing sales via blockchain technology and dynamic QR codes,
with ticket storage inside the HUMBL Wallet as future digital collectibles; along with authenticated content, ratings and reviews from
ticketed events on the HUMBL Social platform via verified profiles, commemorative icons and attendance badges.
HUMBL
Marketplace
The
HUMBL Marketplace was designed to pair authenticated buyers and sellers in verified, digital commerce. The HUMBL Marketplace currently
works with clients such as professional athletes, brands, and marketing and talent agencies, to provide sports merchandise ranging from
autographed jerseys, bats, balls, helmets, photos and more.
The
HUMBL Marketplace mitigates forgeries by pairing physical merchandise with digital certificates of registration. Merchandise is made
available on the HUMBL platform and is verified, registered, and cataloged on the blockchain.
The
HUMBL Marketplace also allows for the minting and listing of non-fungible tokens (NFTs) as digital collectibles, that allow pre-approved
individuals to monetize their digital images, multimedia content and catalogues on the blockchain.
HUMBL
is a software platform and does not act as a broker, financial institution, or creditor for digital collectibles. We facilitate transactions
between the buyer and seller in the auction/sale process, but we are not a party to any agreement between the buyer and seller or between
any users.
HUMBL
Social
HUMBL
Social is one of the world’s first user-verified social media platforms. The social media platform is available via web browser
and the HUMBL Wallet. The goal of HUMBL Social is to provide real people, real profiles and real merchants with a place to connect on
the worldwide web.
HUMBL
Social supports only verified user profiles, to ensure authenticity of the platform. This helps to reduce the fake profiles, product
ratings and reviews that have plagued major Web 2 social media platforms due to the allowance of anonymous profiles and non-verified
sellers. The HUMBL Social platform is available in over 130+ countries via the HUMBL Wallet and web browser.
HUMBL
Metaverse Stores
HUMBL
has created technology to build customized metaverse stores for brands, athletes, entertainers and celebrities. HUMBL’s first metaverse
store was created for Major League Baseball player Ke’Bryan Hayes and his father Charlie Hayes, a retired Major League Baseball
player. The brand metaverse store is called the “House of Hayes” and supports the development of an immersive player experience,
in which customers can navigate a simulated environment of historical artwork and current digital collectibles. Custom artwork was provided
by Topps “Sports Artist of the Year” Lauren Taylor, in the form of digital collectibles that rotated on screens throughout
the environment. Endorsement sporting goods brands of Ke’Bryan Hayes, such as Wilson, Franklin and Old Hickory, also supported
product placement and sell-through environments for products such as authentic baseball bats and gloves. An immersive Wilson Amphitheatre
was also created for multimedia press conferences or media interactions with Ke’Bryan Hayes’ avatar.
HUMBL
Blockchain Services
HUMBL
Blockchain Services (“HBS”) was formed as part of the Company’s asset acquisition of BizSecure on February 12, 2022.
Recognizing the opportunities for governments and commercial enterprises to incorporate blockchain and distributed ledger technologies
(“DLT”), HBS is focused on working with clients to identify problems and develop solutions that build upon the various capabilities
the Company has and continues to develop.
Our
solutions enable municipalities, government agencies, and other commercial entities the ability to offer mobile IDs and other credential
verification services to their constituents. We continue to make significant investments to leverage our existing technologies and further
expand our DLT capabilities.
Components
of the HUMBL Wallet can be used by HBS to white label a “Powered By” environment for local, state or national government
clients that may want to move to digital or blockchain-based registry formats of their transactions, record keeping and / or payments
from citizens, corporations, or government departments.
An
example of this is a pilot program that HUMBL is currently developing with the County of Santa Cruz (CA), in which HUMBL and the County
are working to scope the development of a digital wallet in which citizens can more easily and effectively receive government services
access via digital technologies.
HUMBL
Financial
HUMBL
Financial was developed to package step-function technologies such as blockchain into “several clicks” for the customer.
In
2021, HUMBL Financial created BLOCK ETX products to simplify digital asset investing for customers and institutions seeking exposure
to a new, 24/7 digital asset class. We have launched this product in 100 countries outside the United States. HUMBL Financial has developed
proprietary, multi-factor blockchain indexes, trading algorithms and financial services for the new digital asset trading markets to
accommodate index, active and thematic investment strategies. BLOCK ETXs are completely non-custodial, algorithmically driven software
services that allow customers to purchase and hold digital assets in pre-set allocations through their own digital asset exchange accounts.
BLOCK ETXs are compatible for United States customers who have accounts with Coinbase Pro, Bittrex US or Binance US and for non-US customers
who have accounts with Bittrex Global. BLOCK ETXs were served first on the desktop and web version of the HUMBL platform, with the goal
of future applications inside the HUMBL mobile application. HUMBL Financial is open to the licensing of the BLOCK ETXs to institutions
and exchanges. HUMBL Financial also plans to offer trusted, third-party financial services in areas such as payments, investments, credit
card services and lending across the HUMBL platform over time.
In
February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the
BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue
to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal
was February 28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.
Going
Concern
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate
on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable
and accounts payable and capital expenditures.
During
the past two years, we devoted a substantial amount of capital to build out our platform and as a result our working capital deficit
and accumulated deficit have increased significantly. In addition, we have incurred significant debt from both unrelated and related
parties to assist in supporting our operations.
As
of March 31, 2023, we had $301,050 in cash. During the last two years we built our platform and grew our operations by acquiring
companies to support what we have just recently consolidated into HUMBL.com. The acquisitions increased our debt and our common shares
issued as we spent very little cash in these acquisitions. The impact of COVID-19, supply chain issues, challenges in the cryptocurrency
market and recent bank failures have had a minimal impact on the Company’s operations.
We
had a working capital deficit of $11,719,183 and $27,408,687 as of March 31, 2023 and December 31, 2022, respectively. The majority of
our current liabilities is in the form of both related and unrelated party notes, and accounts payable and accrued expenses. The decrease
in working capital is the direct result of the settlement with Tickeri resulting in over $11,400,000 in reductions of notes payable,
accrued interest and accrued expenses. This reduction was offset by some increases in accounts payable as we continue the development
of our mobile wallet. A majority of the Company’s operating expenses in the past two years was the result of non-cash charges
such as impairment of intangible assets including goodwill, settlement and stock-based compensation. The actual monthly cash burn of
the Company is approximately $386,000 per month at this time and as our core products come online, this is likely to decrease upon our
technology being completed. The Company in the three months ended March 31, 2023 received net proceeds of approximately $800,000 from
various debt financings and has received $1,190,000 in purchases of common stock and warrants, $2,000,000 in additional warrant exercises
and $8,700,000 in related party debt proceeds in the year ended December 31, 2022. However, as a result of the operating losses and working
capital deficit, management has determined that there is substantial doubt about the Company’s ability to continue as a going concern.
In
January 2023, we recognized a gain on disposal of $11,577,247 when we settled all claims with the former owners of Tickeri and sold them
back their company. We expect that the consolidation of our platform into HUMBL.com will bring about revenue producing operations to
improve the liquidity of the Company moving forward. However, going forward, the effect of our industry on the capital markets may limit
our ability to raise additional capital on the terms acceptable to us at the time we need it, if at all. The additional post-COVID challenges
related to remote work and travel restrictions that we as a smaller company have faced in striving to meet our disclosure obligations
in a timely manner while taking the steps to protect the health and safety of our employees have impacted, and may continue to further
impact, our ability to raise additional capital.
The
consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which
contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over
a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome
of the uncertainties.
Impact
of COVID-19
The
COVID-19 pandemic previously had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries
in which we operate, depending on the vaccine rollouts and the emergence of virus mutations.
COVID-19
did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets.
Our
ability to access the capital markets and maintain existing operations is unknown during the COVID-19 pandemic. Any such limitation on
available financing and how we conduct business with our customers and vendors would adversely affect our business.
Because
the federal government and some state and local authorities are reacting to the many variants of COVID-19, it is creating uncertainty
on whether these actions could disrupt the operation of the Company’s business and have an adverse effect on the Company. The extent
to which the COVID-19 outbreak may impact the Company’s results will depend on future developments that are highly uncertain and
cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Impact
of Cryptocurrency Bankruptcies
In
November 2022, both FTX Trading and BlockFi filed for bankruptcy protection under Chapter 11. These bankruptcies have impacted several
companies either directly or indirectly. Customers of the HUMBL Wallet use our platform to hold their cryptocurrency. Assets related
to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s
obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these
assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies
liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair
value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets. We removed the HUMBL Pay
app from the Apple App Store and Google Play store on January 31, 2023 and are in the process of migrating all customers from HUMBL Pay
to the HUMBL Wallet. HUMBL Wallet users maintain their own private digital wallets where the cryptocurrency is held and HUMBL has no
access to those wallets.
The
majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
We
do not, nor have we ever used either of these exchanges to conduct business. We have not been impacted by these bankruptcies. And we
continue to monitor the industry and protect our customers’ assets.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”)
and the rules and regulations of the United States Securities and Exchange Commission (the “Commission” or the “SEC”).
It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statement presentation.
Principles
of Consolidation
The
consolidated financial statements include the accounts of HUMBL, Inc. and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. HUMBL, Inc. holds 100% of Monster, Ixaya and BM Authentics. The Company formed additional
subsidiaries that are inactive and have no activity for future use. All operations of Tickeri are reflected in discontinued operations
as this entity was sold back to the original owners on January 31, 2023.
The
Company applies the guidance of Topic 805 Business Combinations of the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”).
For
Monster, BizSecure, Ixaya and BM Authentics, the Company accounted for these acquisitions as business combinations and the difference
between the consideration paid and the net assets was applied to goodwill as there were no identifiable intangible assets acquired.
Reclassification
The
Company has reclassified certain amounts in the 2022 financial statements to comply with the 2023 presentation. These principally relate
to classification of certain expenses and liabilities. The reclassifications had no impact on total net loss or net cash flows for the
three months ended March 31, 2022.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include,
but are not limited to, management’s estimate of provisions required for permanent and temporary differences related to income
taxes, liabilities to accrue, estimates of the fair value of goodwill and determination of the fair value of stock awards. Actual results
could differ from those estimates.
Cash
Cash
consists of cash and demand deposits with an original maturity of three months or less. The Company holds no cash equivalents as of March
31, 2023 and December 31, 2022, respectively. The Company maintains cash balances in excess of the FDIC insured limit at a single bank.
In
2022, the Company established a service to their HUMBL Pay app users. The service enables HUMBL Pay app users the ability through a Company
maintained digital asset wallet with Wyre (“Wyre”) to purchase digital assets (cryptocurrency). As it can take 5 to 8 business
days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery
of BLOCKS in a BitGo wallet (“BitGo”). BitGo is a third-party custodian service that provides the custody for the customers’
BLOCKS.
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 three principal verticals in which the Company operates
today are HUMBL Mobile Wallet, HUMBL Marketplace, and HUMBL Blockchain Services.
HUMBL
Mobile Wallet (formerly HUMBL Pay)
The
Company is anticipated to earn transaction revenues primarily from fees charged to consumers and merchants on a transaction basis through
the Company’s mobile application. These fees may have a fixed and/or variable component. The variable component is generally a
percentage of the value of the payment amount and is known at the time the transaction is processed. For a portion of our transactions,
the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. The Company
may estimate the amount of fee refunds that will be processed each quarter and record a provision against the net revenues. The volume
of activity processed on the platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).
The
Company will earn additional fees on transactions where currency conversion is performed via on ramping and off ramping via digital currencies,
when swaps are performed on digital currencies, and when cross-border transactions are enabled (i.e., transactions where the merchant
and consumer are in different countries), to facilitate the instant transfer of funds for customers from their HUMBL account to their
debit card or bank account, and other miscellaneous fees. The Company will rely on third party partners to perform all money transmission
services.
The
Company may earn revenues from other value-added services, which are comprised primarily of revenue earned through partnerships, referral
fees, subscription fees, gateway fees, ticketing, peer-to-peer payments, and other services that will be provided to merchants and consumers.
These contracts typically have one performance obligation which is provided and recognized over the term of the contract.
The
transaction price is generally fixed and known at the end of each reporting period; however, for some agreements, it may be necessary
to estimate the transaction price using the expected value method. The Company is expected to record revenue earned in revenues from
other value-added services on a net basis when they are considered the agent with respect to processing transactions.
HUMBL
Search Engine
Revenues
are derived principally from the sale of advertisements, classifieds fees, and revenue sharing arrangements. Advertising revenue is derived
principally from the sale of online advertisements which are based on “impressions” (i.e., the number of times that an advertisement
appears in pages viewed by users of our platforms) or “clicks” (which are generated each time users on our platforms click
through our advertisements to an advertiser’s designated website) delivered to advertisers.
The
Company uses the output method and apply the practical expedient to recognize advertising revenue in the amount to which they have a
right to invoice. For contracts with target advertising commitments with rebates, estimated payout is accounted for as a variable consideration
to the extent it is probable that a significant reversal of revenue will not occur.
HUMBL
Tickets
The
Company recognizes revenues from HUMBL Tickets primarily from service fees. Revenue is recognized when control of the promised goods
or services is transferred to customers, in an amount that reflects the consideration we receive in exchange for those goods or services.
For service fees and payment processing fees, revenue is recognized when the ticket is sold.
We
evaluate whether it is appropriate to recognize revenue on a gross or net basis based upon our evaluation of whether we obtain control
of the specified goods or services by considering if we are primarily responsible for fulfillment of the promise, have inventory risk,
and have the latitude in establishing pricing and selecting suppliers, among other factors.
For
the payment processing service, we determined that we are the principal in providing the service as we responsible for fulfilling the
promise to process the payment and we have discretion and latitude in establishing the price of our service. Based on our assessment,
we record revenue on a net basis related to our ticketing service and on a gross basis related to our payment processing service. As
a result, costs incurred for processing the transactions are included in cost of net revenues in the consolidated statements of operations.
Revenue
is presented net of indirect taxes, value-added taxes, creator royalties and reserves for customer refunds, payment chargebacks and estimated
uncollectible amounts. If an event is cancelled by a creator, then any obligations to provide refunds to event attendees are the responsibility
of that creator.
If
a creator is unwilling or unable to fulfill their refund obligations, we may, at our discretion, provide attendee refunds. Revenue is
also presented net of the amortization of creator signing fees when applicable. The benefit we receive by securing exclusive ticketing
and payment processing rights with certain creators from creator signing fees is inseparable from the customer relationship with the
creator and accordingly these fees are recorded as a reduction of revenue in the consolidated statements of operations.
HUMBL
Marketplace
The
Company recognizes revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration
to which is expected to be entitled in exchange for those goods or services. Revenue is recognized net of any taxes collected, which
are subsequently remitted to governmental authorities.
Net
transaction revenues
The
net transaction revenues will primarily include final value fees, feature fees, including fees to promote listings, and listing fees
from sellers in our Marketplace. The net transaction revenues will also include store subscription and other fees often from large enterprise
sellers. The net transaction revenues are reduced by incentives provided to customers.
The
Company has identified one performance obligation to sellers on the Marketplace platform, which is to connect buyers and sellers on the
secure and trusted Marketplace platforms. Final value fees are recognized when an item is sold on a Marketplace platform, satisfying
this performance obligation. There may be additional services available to Marketplace sellers, mainly to promote or feature listings,
that are not distinct within the context of the contract.
Accordingly,
fees for these additional services are recognized when the single performance obligation is satisfied. Promoted listing fees are recognized
when the item is sold and feature and listing fees are recognized when an item is sold, or when the contract expires.
Further,
to drive traffic to the platform, the Company will provide incentives to buyers and sellers in various forms including discounts on fees,
discounts on items sold, coupons and rewards. Evaluating whether a promotion or incentive is a payment to a customer may require significant
judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later
of when revenue is recognized or when the incentive is paid or promise to be paid. Promotions and incentives to most buyers on our Marketplace
platforms, to whom there is no performance obligation, are recognized as sales and marketing expense. In addition, there may be credits
provided to customers when certain fees are refunded. Credits are accounted for as variable consideration at contract inception when
estimating the amount of revenue to be recognized when a performance obligation is satisfied to the extent that it is probable that a
significant reversal of revenue will not occur and updated as additional information becomes available.
HUMBL
Blockchain Services
The
Company disaggregates revenue from contracts with customers into product revenues and services revenues.
Product
revenue related contracts with customers begin upon contract inception when a purchase order for a specific customer order of a product
to be delivered in the near term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon
shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents
the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.
Service
revenues primarily consist of revenues derived from maintenance support and the use of the Company’s service platforms and application
programming interface (“APIs”) on a subscription basis. The Company generates this revenue from fees for maintenance and
support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement
is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same
pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price,
which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer
of services as the customer obtains equal benefit from the service throughout the service period.
The
Company accounts for individual goods and services separately if they are distinct performance obligations, which often requires significant
judgment based upon knowledge of the products and/or services, the solution provided and the structure of the sales contract. In SaaS
agreements, the Company provides a service to the customer that combines the software functionality, maintenance and hosting into a single
performance obligation. In product-related contracts, a purchase order may cover different products, each constituting a separate performance
obligation.
HUMBL
Financial
In
February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the
BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue
to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal
was February 28, 2022.
Accounts
Receivable and Concentration of Credit Risk
An
allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses.
Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts
are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. The Company
does not charge interest on accounts receivable. As of March 31, 2023 and December 31, 2022, there was no allowance necessary.
Inventory
Inventory
is valued at the lower of cost or net realizable value, with cost determined using the first-in first-out method. The carrying value
of inventory is evaluated periodically for excess quantities and obsolescence. Management evaluates quantities on hand and physical condition
as these characteristics may be impacted by anticipated customer demand for current products. The allowance is adjusted based on such
evaluation, with a corresponding provision included in cost of sales.
Income
Taxes
Income
taxes are accounted under the asset and liability method. The current charge for income tax expense is calculated in accordance with
the relevant tax regulations applicable to the entities. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences.
Uncertain
Tax Positions
The
Company follows ASC 740-10 Accounting for Uncertainty in Income Taxes. This requires recognition and measurement of uncertain income
tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.
The
Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income
tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were
filed.
Share-Based
Compensation
The
Company follows ASC 718 Compensation – Stock Compensation and has adopted ASU 2017-09 Compensation – Stock Compensation (Topic
718) Scope of Modification Accounting. The Company calculates compensation expense for all awards granted, but not yet vested, based
on the grant-date fair values. Share-based compensation expense for all awards granted is based on the grant-date fair values. The Company
policy is to recognize these compensation costs, on a pro rata basis over the requisite service period of each vesting tranche of each
award for service-based grants, and as the criteria is achieved for performance-based grants, when such grants are made. For stock options
and warrants, the Company uses the Black-Scholes model to estimate the value of those grants. The Company has not had any forfeitures
of these grants, and these estimates of value will include a percentage of forfeitures when that percentage is able to be estimated.
The
Company adopted ASU 2016-09 Improvements to Employee Share-Based Payment Accounting. Cash paid when shares are directly withheld for
tax withholding purposes will be classified as a financing activity in the statement of cash flows.
Fair
Value of Financial Instruments
ASC
825 Financial Instruments requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Company’s financial instruments: The carrying amount of cash, accounts receivable,
prepaid and other current assets, accounts payable and accrued liabilities, and amounts payable to related parties, approximate fair
value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Leases
The
Company follows ASC 842 Leases in accounting for leased properties, when they exceed a one-year term. When the Company enters into leases
with a term in excess of one year, they will recognize a lease liability and right of use asset in accordance with the provisions of
ASC 842.
Earnings
(Loss) Per Share of Common Stock
Basic
net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share
(“EPS”) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable
pursuant to the exercise of stock options and warrants.
Common
stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so
would be anti-dilutive for periods presented, so only the basic weighted average number of common shares are used in the computations.
Currency
Translation
Ixaya’s
functional currency is the Mexican Peso and its reporting currency is the United States dollar. Transactions denominated in the functional
currency are converted into United States dollars using the exchange rate in effect at the date of the transaction or the average rate
for the period in the case of revenue and expense transactions. Monetary assets and liabilities are re-valued into the reporting currency
at each balance sheet date using the exchange rate in effect at the balance sheet date, with any resulting exchange gains or losses being
credited or charged to accumulated other comprehensive income (loss). Non-monetary assets and liabilities are recorded in the reporting
currency using the exchange rate in effect at the date of the transaction and are not revalued for subsequent changes in exchange rates.
Derivative
Financial Instruments
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates
all of the Company’s financial instruments, including convertible notes and warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives.
The
Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation
dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities,
is remeasured at the end of each reporting period.
Digital
Assets
Digital
assets, including non-fungible tokens and cryptocurrencies, are included in the consolidated balance sheets. We have ownership of and
control over our digital assets and may use third party custodial services to secure them. Digital assets are initially recorded at cost
and are subsequently remeasured at cost, net of any impairment losses on our consolidated balance sheets. We assign costs to digital
asset transactions on a first-in, first-out basis. Gains or losses are not recorded until realized upon sale(s).
We
determine the fair value of our digital assets on a nonrecurring basis, based on quoted prices on the active exchange(s) that we have
determined is the principal market for such assets (Level 1 inputs). We perform a quarterly, or more frequent review to identify whether
events or changes in circumstances, principally decreases in the quoted prices on active exchanges on any day during the quarter, indicate
that it is more likely than not that our digital assets are impaired.
The
cost basis of digital assets will not be adjusted upward for subsequent increases in fair value. Such impairment in the value of digital
assets is recorded as a component of other operating expenses in our consolidated statements of operations. We recorded an impairment
loss of approximately $1,995 and $45,318 related to digital assets during the three months ended March 31, 2023 and 2022, respectively.
Fair
Value Measurements
ASC
820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands
disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level
1 inputs: Quoted prices for identical instruments in active markets.
Level
2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that
are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level
3 inputs: Instruments with primarily unobservable value drivers.
Segment
Reporting
The
Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based
on the manner in which management disaggregates the Company in making internal operating decisions.
Commencing
January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial.
All
of the Company’s sales are from North America, therefore the Company has determined that segment reporting by geographic location
was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report
segment information by location.
Recent
Accounting Pronouncements
The
ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning
after December 15, 2020, and interim periods within those fiscal years. The Company does not believe that this new guidance will have
a material impact on its financial statements.
On
March 31, 2022, the SEC added Staff Accounting Bulletin (“SAB”) No. 121 (“SAB 121”) into Section FF to Topic
5. The interpretations in this SAB express views of the staff regarding the accounting for entities that have obligations to safeguard
crypto-assets held for their platform users. In connection with these services, these entities and/or their agents may safeguard the
platform users’ crypto-assets and also maintain the cryptographic key information necessary to access the crypto-asset. The obligations
associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not
crypto-assets, including technological, legal, and regulatory risks and uncertainties.
These
risks can have a significant impact on the entity’s operations and financial condition. The staff believes that the recognition,
measurement, and disclosure guidance in this SAB will enhance the information received by investors and other uses of financial statements
about these risks, thereby assisting them in making investment and other capital allocation decisions.
This
guidance should be applied no later than the financial statements covering the first interim or annual report ending after June 15, 2022,
with retroactive application as of the beginning of the fiscal year to which the interim or annual period relates. Upon adoption of this
guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform.
We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to
act as the custodians of the digital assets held on our platform.
The
Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition,
results of operations, cash flows or disclosures.
NOTE
3: DISCONTINUED OPERATIONS
BLOCK
ETX
Effective
February 28, 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer
the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue
to monitor the regulatory environment with respect to these products. Per ASC 205-20-50-1(a), the timing of the disposal was February
28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.
All
subscription revenues recognized in January and February 2022, were refunded to the subscribers. The only amounts reflected as discontinued
operations in 2022 relate to the direct expenses attributable to the BLOCK ETX product line that include direct payroll and direct subcontractor
costs. These amounts are reflected in the loss for discontinued operations as noted in the chart below.
SCHEDULE
OF DISCONTINUED OPERATIONS
| | |
2022 | |
| Revenue | |
$ | - | |
| Cost of revenue | |
| - | |
| Gross (loss) | |
| - | |
| | |
| | |
| Operating and non-operating expenses | |
| 7,945 | |
| Loss from discontinued operations | |
$ | (7,945 | ) |
The
Company paid the refunds to the subscribers in the three months ended March 31, 2022, and had no expenses related to the BLOCK ETX product
line after February 28, 2022. For a full description of the BLOCK ETX/HUMBL Financial, refer to the Form 10-K for the year ended December
31, 2022 filed April 6, 2023.
NON-RESIDENTIAL
PROPERTY
On
June 30, 2022, the Company determined to sell their non-residential property, and listed this property for sale in July 2022. This represented
a strategic shift for future operations and the Company as a result reclassified the net value on this property of $328,222 as a non-current
asset held for sale in accordance with ASC 205-20-45-1E. On September 16, 2022, the Company sold the property for $270,905 and recognized
a loss of $57,318 on disposal. There was no adjustments made for this during the three months ended March 31, 2022.
TICKERI
On
January 31, 2023, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Javier Gonzalez (“Javier”)
and Juan Luis Gonzalez (“Juan”). Under the terms of the Settlement Agreement, Tickeri was transferred back to Javier and
Juan, free of any encumbrances and including all of Tickeri’s intellectual property, since the Company was in default of the promissory
notes for $5,000,000 to each of them with a maturity date of December 3, 2022 (the “Notes”) owed to Javier and Juan as a
portion of the consideration paid by the Company under the agreement to acquire Tickeri. Javier and Juan will receive 4,672,897 shares
of the Company’s common stock owed to them under the acquisition agreement. Under the terms of the Settlement Agreement, the Notes
were cancelled, and the parties agreed to a mutual release of claims. As a result of this settlement, the Company has reclassified the
assets, and liabilities of Tickeri as held for sale, and the operations as discontinued operations as of and for the year ended December
31, 2022.
Per
ASC 205-20-50-1(a), the timing of the disposal was January 31, 2023, but the Company had made the decision to dispose of this business
in December 2022, and it represented a strategic shift in the business of the Company. The Company met the criteria for the Tickeri operations
to be classified as held for sale at that time. In addition to the assets and liabilities reflected as discontinued operations, the settlement
with Tickeri resulted in the forgiveness of the two promissory notes totaling $10,000,000, accrued interest of $789,041 (as of January
31, 2023) and accrued liabilities of $700,000 that are part of the Company’s liabilities as of January 31, 2023.
Current
assets as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
SCHEDULE
OF DISCONTINUED OPERATIONS
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Cash | |
$ | - | | |
$ | 154,159 | |
| Accounts receivable | |
| - | | |
| 40,313 | |
| | |
| | | |
| | |
| Total current assets | |
$ | - | | |
$ | 194,472 | |
Current
liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Accounts payable and accrued expenses | |
$ | - | | |
$ | 99,342 | |
| | |
| | | |
| | |
| Total Current liabilities | |
$ | - | | |
$ | 42,568 | |
Non-current
liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Long-term debt | |
$ | - | | |
$ | 150,000 | |
| | |
| | | |
| | |
| Total Non-current liabilities | |
$ | - | | |
$ | 150,000 | |
The
Company reclassified the following operations to discontinued operations for the three months ended March 31, 2023 and 2022, respectively.
| | |
2023 | | |
2022 | |
| Revenue | |
$ | 59,180 | | |
$ | 290,143 | |
| Operating expenses | |
| 137,934 | | |
| 226,180 | |
| Other non-operating expenses | |
| 2,398 | | |
| 1,532 | |
| Net (loss) income from discontinued operations | |
$ | (81,152 | ) | |
$ | 62,431 | |
The
Company reflected the following gain on disposal for the three months ended March 31, 2023 related to the sale of Tickeri:
SCHEDULE
OF GAIN ON DISPOSAL
| | |
2023 | | |
2022 | |
| Common shares issued | |
$ | (47,816 | ) | |
$ | - | |
| Forgiveness of related party notes | |
| 10,000,000 | | |
| - | |
| Forgiveness of accrued expenses | |
| 1,489,041 | | |
| - | |
| Cash | |
| (163,879 | ) | |
| - | |
| Accounts receivable | |
| (39,457 | ) | |
| - | |
| Accounts payable and accrued expenses | |
| 189,358 | | |
| - | |
| Other (income) loss | |
| 150,000 | | |
| - | |
| Net gain on disposal | |
$ | 11,577,247 | | |
$ | - | |
NOTE
4: BUSINESS COMBINATIONS
For
all acquisitions prior to January 1, 2022, refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023.
BizSecure
On
February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined
this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure
is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US
Air Force and BizSecure’s Mobile ID technology. The Company had issued 13,200,000 common shares and 26,800,000 restricted stock
units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of two years as part of this acquisition. On December
30, 2022, as a result of the Company’s failure to timely register the 13,200,000 shares of common stock issued February 12, 2022
BizSecure requested the cancellation of such shares and the 10,050,000 RSUs that vested during 2022. Pursuant to BizSecure’s request,
the 13,200,000 shares of common stock and the 10,050,000 RSUs were cancelled effective December 30, 2022. The remaining 16,750,000 RSUs
will continue to vest in accordance with the original terms. For the full description of this transaction, refer to the Form 10-K filed
April 6, 2023.
SCHEDULE
OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED
| | |
| | |
| Customer relationships | |
$ | 275,000 | |
| Intellectual property - software | |
| 2,500,000 | |
| Goodwill | |
| 3,981,000 | |
| | |
$ | 6,756,000 | |
The
consideration paid for the acquisition of assets of BizSecure was as follows:
SCHEDULE
OF CONSIDERATION PAID FOR ACQUISITION
| | |
| | |
| Common stock | |
$ | 2,229,480 | |
| Cash | |
| | |
| Contingent consideration (RSUs) | |
| 4,526,520 | |
| Total consideration | |
$ | 6,756,000 | |
The
Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total
acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair
values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market
data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets
acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based
on historical inputs and data as of February 12, 2022.
The
preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the
finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations
and useful lives for the intangible assets acquired; and (iii) finalization of the fair value of non-cash consideration.
The
Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained
during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date
that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation
of assets and liabilities is necessary, the Company will adjust these figures.
The
Company has determined that the preliminary purchase price allocation did not need to be revised.
Effective
December 31, 2022, the Company impaired the $3,981,000 in goodwill and the remaining $2,256,618 in intellectual property and customer
relationships, for total impairment of $6,237,618.
The
goodwill is not expected to be deductible for tax purposes.
Ixaya
On
March 3, 2022, the Company acquired the assets and liabilities of Ixaya noted below in in accordance with ASC 805. Based on the fair
values at the effective date of acquisition the purchase price was recorded as follows:
SCHEDULE
OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED
| | |
| | |
| Cash | |
$ | 1,325 | |
| Accounts receivables | |
| 24,446 | |
| Goodwill | |
| 1,008,642 | |
| Intellectual property - software | |
| 650,000 | |
| Accounts payable and accrued expenses | |
| (10,700 | ) |
| Payable – officer | |
| (9,834 | ) |
| Note payable - bank | |
| (13,879 | ) |
| | |
$ | 1,650,000 | |
The
consideration paid for the acquisition of Ixaya was as follows:
SCHEDULE
OF CONSIDERATION PAID FOR ACQUISITION
| | |
| | |
| Cash | |
$ | 150,000 | |
| Common stock | |
| 1,500,000 | |
| Total consideration | |
$ | 1,650,000 | |
The
Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total
acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair
values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market
data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets
acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based
on historical inputs and data as of March 3, 2022. The preliminary allocation of the purchase price is based on the best information
available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible
assets acquired; (ii) the finalization of the valuations and useful lives for the intangible assets acquired; (iii) finalization of the
valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.
The
Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained
during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date
that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation
of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase
price allocation and has determined that there are no adjustments to be made from the original allocation. During the three months ended
March 31, 2022, the Company impaired $1,008,642 of the goodwill.
The
Company has determined that the preliminary purchase price allocation did not need to be revised.
The
goodwill was not expected to be deductible for tax purposes.
BM
Authentics
On
November 2, 2022, the Company acquired the assets and liabilities of BM Authentics noted below in accordance with ASC 805. Based on
the fair values at the effective date of acquisition the purchase price was recorded as follows:
SCHEDULE
OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED
The
consideration paid for the acquisition of BM Authentics was as follows:
SCHEDULE
OF CONSIDERATION PAID FOR ACQUISITION
| | |
| | |
| Cash | |
$ | 110,000 | |
| Common stock | |
| 900,000 | |
| Total consideration | |
$ | 1,010,000 | |
The
Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total
acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair
values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market
data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets
acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based
on historical inputs and data as of November 2, 2022. The preliminary allocation of the purchase price is based on the best information
available and is pending, amongst other things: (i) the finalization of the valuations and useful lives for the intangible assets acquired;
(ii) finalization of the valuation of accounts payable and accrued expenses; (iii) finalization of the valuation of the inventory; and
(iv) finalization of the fair value of non-cash consideration.
The
Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained
during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date
that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation
of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase
price allocation and has determined that there are no adjustments to be made from the original allocation.
The
Company has determined that the preliminary purchase price allocation did not need to be revised. The Company issued the shares owed
(90,000,000 common shares) on January 10, 2023.
The
goodwill was not expected to be deductible for tax purposes.
The
following table shows the unaudited pro-forma results for the three months ended March 31, 2022 as if the acquisitions had occurred on
January 1, 2022. These unaudited pro forma results of operations are based on the historical financial statements and related notes of
BizSecure, Ixaya, BM Authentics and the Company for 2022.
SCHEDULE
OF PRO FORMA INFORMATION
| | |
Three Months
Ended March 31, 2022 | |
| | |
(Unaudited) | |
| Revenues | |
$ | 1,074,412 | |
| Net loss | |
$ | (12,509,707 | ) |
| Net loss per share | |
$ | (0.01 | ) |
NOTE
5: REVENUE
The
following table disaggregates the Company’s revenue by major source for the three months ended March 31, 2023 and 2022:
SCHEDULE
OF DISAGGREGATION OF REVENUE
| | |
2023 | | |
2022 | |
| | |
Three Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| Revenue: | |
| | | |
| | |
| Services - Production | |
$ | 132,139 | | |
$ | 826,901 | |
| Services - Ixaya | |
| 191,610 | | |
| 18,384 | |
| Merchandise | |
| 75,359 | | |
| 1,373 | |
| Tickets | |
| 3,497 | | |
| 5,199 | |
| NFTs | |
| - | | |
| 1,063 | |
| Rental income | |
| - | | |
| 2,842 | |
| Other | |
| 219 | | |
| 1,228 | |
| Total revenue | |
$ | 402,824 | | |
$ | 856,990 | |
There
were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value
of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for
which we recognize revenue at the amount to which we have the right to invoice for services performed.
Collections
of the amounts billed are typically paid by the customers within 30 to 60 days.
NOTE
6: INVENTORY
On
November 2, 2022, in the acquisition of BM Authentics, the Company acquired $1,010,000 in inventory. Inventory consisted of sports merchandise
and memorabilia ranging from autographed jerseys, bats, balls, helmets, and photos. As of March 31, 2023 and December 31, 2022, inventory
is valued at $1,012,042 and $1,038,816, respectively. Inventory includes write-downs for excess and obsolete inventory of $155,736 as
of March 31 and December 31, 2022.
NOTE
7: FIXED ASSETS
As
of March 31, 2023 and December 31, 2022, the Company has the following fixed assets:
SCHEDULE
OF FIXED ASSETS
| | |
2023 | | |
2022 | |
| Equipment – 5 year-life | |
$ | 19,344 | | |
$ | 19,344 | |
| Furniture and fixtures – 5 year-life | |
| 16,307 | | |
| 16,307 | |
| Fixed asset, gross | |
| 16,307 | | |
| 16,307 | |
| Accumulated depreciation | |
| (13,593 | ) | |
| (11,166 | ) |
| Fixed assets, net | |
$ | 22,058 | | |
$ | 24,485 | |
In
June 2021, the Company purchased some equipment and furniture as well as a commercial property in the form of a suite at a luxury hotel.
The Company is the owner of this suite and entered into a long-term rental agreement with the hotel to manage the property. The Company
has use of the suite for 28 calendar days a year and will receive their proportionate income for the other days the suite is being used.
The suite with a net value of $328,222 was reclassified to a non-current asset held for sale on June 30, 2022.
Depreciation
expense for the three months ended March 31, 2023 and 2022 was $2,427 and $5,851, respectively, as the property was placed into service
on July 1, 2021.
NOTE
8: INTANGIBLE ASSETS AND GOODWILL
As
of March 31, 2023 and December 31, 2022, the Company has the following intangible assets:
SCHEDULE
OF FINITE LIVED INTANGIBLE ASSETS
| | |
2023 | | |
2022 | |
| Intellectual property - software – 5 year-life | |
$ | 3,150,000 | | |
$ | 3,150,000 | |
| Customer relationship – 5 year-life | |
| 275,000 | | |
| 275,000 | |
| Domain names – 15 year-life | |
| 275,020 | | |
| 275,020 | |
| Intangible assets, gross | |
| 275,020 | | |
| 275,020 | |
| Accumulated amortization - software | |
| (2,640,833 | ) | |
| (2,608,333 | ) |
| Accumulated amortization – customer relationship | |
| (275,000 | ) | |
| (275,000 | ) |
| Accumulated amortization - domain names | |
| (17,890 | ) | |
| (13,307 | ) |
| Accumulated amortization | |
| (17,890 | ) | |
| (13,307 | ) |
| Intangible assets, net | |
$ | 766,297 | | |
$ | 803,380 | |
In
February 2022, the Company acquired intangible assets from BizSecure valued at $2,775,000, in March 2022 in the acquisition of Ixaya
acquired intangible assets valued at $650,000. On December 31, 2022, the Company impaired $2,256,618 in intellectual property related
to BizSecure.
Amortization
expense for the three months ended March 31, 2023 and 2022 was $37,083 and $91,716, respectively.
Amortization
expense for the next five years and in the aggregate is as follows:
SCHEDULE
OF AMORTIZATION EXPENSE
| | |
| | |
| 2024 | |
$ | 148,335 | |
| 2025 | |
| 148,335 | |
| 2026 | |
| 148,335 | |
| 2027 | |
| 137,502 | |
| 2028 | |
| 40,002 | |
| Thereafter | |
| 143,788 | |
| Total | |
$ | 766,297 | |
As
of March 31, 2023 and December 31, 2022, the Company has recorded goodwill as follows for our continuing operations:
SCHEDULE
OF GOODWILL FROM CONTINUING OPERATIONS
| | |
March 31, 2023 | | |
March 31, 2022 | |
| Balance – beginning of the period | |
$ | - | | |
$ | 3,177,954 | |
| Acquisition of Monster | |
| - | | |
| - | |
| Acquisition of BizSecure | |
| - | | |
| 3,981,000 | |
| Acquisition of Ixaya | |
| - | | |
| 1,008,642 | |
| Impairment for the period | |
| - | | |
| (1,008,642 | ) |
| Balance - ending of the Period | |
$ | - | | |
$ | 7,158,954 | |
As
of March 31, 2023 and December 31, 2022, the Company had no remaining goodwill recorded.
The
Company evaluated ASC 350-20-50 for the goodwill associated with their acquisitions.
NOTE
9: INTANGIBLE ASSETS – DIGITAL ASSETS
In
2022, the Company established a service to their HUMBL Pay app users. The “Buy Crypto, Earn Rewards” service enables HUMBL
Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and
earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle
funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS to BitGo. BitGo
is a third-party custodian service that provides the custody for the customers’ BLOCKS. These timing differences occur, and as
of December 31, 2022, the BitGo account has been settled and no unfunded liabilities exist. The BitGo account is not the Company’s
account; however, represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer
the purchased BLOCKS to their individual wallets outside of HUMBL.
In
March 2022, the Company purchased an NFT for $406,046. The Company had evaluated the fair value of this NFT for impairment and recognized
impairment of $258,217 through March 31, 2023. The value of the NFT as of March 31, 2023 is $147,823. The NFT will not be amortized as
it is considered a non-statutory based digital asset. The NFT is considered a non-current asset while the other digital assets held by
the Company are considered current assets. On May 3, 2022, the Company’s CEO contributed capital to pay for this NFT.
In
the year ended December 31, 2022, the Company purchased $1,010,934 in digital currency expensed $458,162 in the digital currency for
future endeavors and for payment of expenses, received commissions on sales of NFTs of $1,814, reflected $1,348,567 in impairment of
the intangible asset for digital currency, and recognized a gain on sale of digital assets of $297,895. The Company’s CEO contributed
$500,000 worth of BLOCKS to the Company that is included in the digital assets owned by HUMBL.
In
the three months ended March 31, 2023, the Company expensed $359 in the digital currency for future endeavors and for payment of expenses,
reflected $1,995 in impairment of the intangible asset for digital currency, and recognized a gain on sale of digital assets of $24.
The
value of the digital assets as of March 31, 2023 and December 31, 2022 is $152,102 (of which the value of the non-fungible token of $147,823
is considered a non-current asset) and $154,432 (of which the value of the non-fungible token of $147,823 is considered a non-current
asset), respectively.
The
following table presents additional information about the Company’s digital asset holdings during the three months ended March
31, 2023:
SCHEDULE
OF DIGITAL ASSET HOLDINGS
Digital
Assets Owned By HUMBL:
| Three Months Ended March 31, 2023 | |
ETH | | |
BLOCKS | | |
BTC | | |
WETH | | |
DAI | | |
USDC/USDT | | |
Total | |
| Balance – January 1, 2023 | |
$ | 114 | | |
$ | 6,064 | | |
$ | 201 | | |
$ | - | | |
$ | - | | |
$ | 230 | | |
$ | 6,609 | |
| Advertising expenses | |
| (132 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (227 | ) | |
| (359 | ) |
| Impairment – digital assets | |
| - | | |
| (1,971 | ) | |
| (24 | ) | |
| - | | |
| - | | |
| - | | |
| (1,995 | ) |
| Gain (loss) on disposal of digital assets | |
| 24 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 24 | |
| Balance – March 31, 2023 | |
$ | 6 | | |
$ | 4,093 | | |
$ | 177 | | |
$ | - | | |
$ | - | | |
$ | 3 | | |
$ | 4,279 | |
| Digital Assets held at March 31, 2023 | |
| 0.005302 | | |
| 28,402,357 | | |
| 0.011343 | | |
| - | | |
| 0.422881 | | |
| 2.648397 | | |
| | |
Digital
Assets Owned By HUMBL Pay Users (SAB 121 disclosure):
Under
SAB 121, companies are required to present the asset and liability at fair value for any crypto-assets and obligations to safeguard crypto-assets.
The Company earns no revenue from providing this service to their customers. It is simply an added benefit that HUMBL Pay customers receive
for using the app. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained
digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company,
but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in Wyre, there may be delays in digital assets being
received by customers and the delivery of BLOCKS to a BitGo. BitGo is a third-party custodian service that provides the custody for the
customers’ BLOCKS These timing differences occur, and as of December 31, 2022, the BitGo account has been settled and no unfunded
liabilities exist.
Upon
adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the
Company’s platform. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services
of Wyre and BitGo to act as the custodians of the digital assets held on our platform.
NOTE
10: NOTE PAYABLE - BANK
On
March 3, 2022 with the acquisition of Ixaya, the Company assumed a loan with Citibanamex. The loan is due in monthly payments of $7,110
MXN (approximately $350 US$) inclusive of interest and matures in July 2025. As of March 31, 2023 and December 31, 2022, the Company
has $10,088 and $10,949 outstanding under the loan. As of March 31, 2023, the Company has included $5,978 in current liabilities, and
the balance of $4,110 in long-term liabilities.
NOTE
11: NOTES PAYABLE
The
Company entered into notes payable as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable
that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued operations or disposed
of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
SCHEDULE
OF NOTES PAYABLE
| | |
March 31, 2023 | | |
December 31, 2022 | |
| | |
| | |
| |
| Note payable entered into February 8, 2023 with a maturity date of February 8, 2023 at 12% interest per annum | |
$ | 53,204 | | |
$ | - | |
| Note payable entered into November 15, 2022 with a company pursuant to a settlement agreement and mutual release of claims, payments due in 5 equal payments on November 15, 2022, December 15, 2022, January 15, 2023, February 15, 2023 and June 15, 2023 (previously March 15, 2023) (January 2023 and February 2023 payments were made on December 30, 2022 to extend the final payment to June 15, 2023); upon satisfaction of the note payable, the Company will receive back 115,000,000 warrants. In lieu of interest, the company will keep 10,000,000 shares previously issued in exercise of warrants | |
| 440,000 | | |
| 440,000 | |
| | |
| | | |
| | |
| Total | |
| 493,204 | | |
| 440,000 | |
| Less: Discounts | |
| (4,528 | ) | |
| - | |
| Less: Current portion | |
| (488,676 | ) | |
| (440,000 | ) |
| Long-term debt | |
$ | - | | |
$ | - | |
All
of the notes payable as of March 31, 2023 are due in the next fiscal year, and therefore all current.
Interest
expense for the three months ended March 31, 2023 and 2022 was $990 and $3,853, respectively. There was no in accrued interest as of
March 31, 2023.
NOTE
12: NOTES PAYABLE – RELATED PARTIES
The
Company entered into notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does
not include notes payable that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued
operations or disposed of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of
those notes:
SCHEDULE
OF NOTES PAYABLE RELATED PARTIES
| | |
March 31, 2023 | | |
December 31, 2022 | |
| | |
| | |
| |
| Notes payable ($435,000 and $65,000), at 5% interest, originally maturing April 1, 2022, extended to October 1, 2022 for the acquisition of Monster (see Note 4) with the two principals of Monster; payments due at maturity (increased note balance by $18,000 to the two noteholders for the extension which did not constitute a material modification of a debt instrument) (in default) | |
$ | 333,000 | | |
$ | 333,000 | |
| | |
| | | |
| | |
| Notes payable to the sellers of Tickeri ($5,000,000 each for a total of $10,000,000) at 5% interest due December 3, 2022 (not considered in default by noteholders as this was settled on January 31, 2023) | |
| - | | |
| 10,000,000 | |
| | |
| | | |
| | |
| Notes payable ($271,250 and $215,000), at 3% interest, maturing December 31, 2022, with family relatives of the two principals of Monster; payments due at maturity (in default) | |
| 348,191 | | |
| 348,191 | |
| | |
| | | |
| | |
| Note payable with a company whose managing member is related to an officer and director of the Company, at 4% interest, maturing February 22, 2025, payment due at maturity | |
| 3,000,000 | | |
| 3,000,000 | |
| | |
| | | |
| | |
| Note payable with a company whose managing member is related to an officer and director of the Company, at 4% interest, maturing March 31, 2025, payment due at maturity | |
| 1,500,000 | | |
| 1,500,000 | |
| | |
| | | |
| | |
| Note payable with a company whose managing member is related to an officer and director of the Company, at 5% interest, maturing July 26, 2025, payment due at maturity | |
| 2,000,000 | | |
| 2,000,000 | |
| | |
| | | |
| | |
| Note payable with a company whose managing member is related to an officer and director of the Company, at 5% interest, maturing November 15, 2024, payment due at maturity (represents four draws of the line of credit ($440,000 each) entered into on November 15, 2022) | |
| 2,200,000 | | |
| 2,200,000 | |
| | |
| | | |
| | |
| Note payable with a company whose managing member is related to an officer and director of the Company, at 6% interest, maturing March 23, 2024, payment due at maturity | |
| 250,000 | | |
| - | |
| | |
| | | |
| | |
| Advance – officer – Ixaya, on demand, no interest | |
| 9,368 | | |
| 8,320 | |
| | |
| | | |
| | |
| Total | |
| 9,640,559 | | |
| 19,389,511 | |
| Less: Current portion | |
| (940,559 | ) | |
| (10,689,511 | ) |
| Long-term debt | |
$ | 8,700,000 | | |
$ | 8,700,000 | |
Maturities
of notes payable – related parties as of March 31 is as follows:
SCHEDULE
OF MATURITIES NOTES PAYABLE - RELATED PARTIES
| | |
| | |
| 2024 | |
$ | 940,559 | |
| 2025 | |
| 6,700,000 | |
| 2026 | |
| 2,000,000 | |
| Total | |
$ | 9,640,559 | |
Interest
expense for the three months ended March 31, 2023 and 2022 was $103,174 and $145,049, respectively. Accrued interest at March 31, 2023
was $333,979.
On
January 31, 2023, in the sale back to the former owners of Tickeri, the $10,000,000 in related party notes along with $789,041 in accrued
interest were included in the settlement and are no longer payable.
NOTE
13: CONVERTIBLE PROMISSORY NOTES
The
Company entered into notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does
not include notes payable – related parties that were repaid or converted during 2022. Refer to the Form 10-K for the year ended
December 31, 2022 filed April 6, 2023 for a full description of those notes:
SCHEDULE
OF CONVERTIBLE PROMISSORY NOTES
| | |
March 31, 2023 | | |
December 31, 2022 | |
| | |
| | |
| |
| Convertible note at 10% interest, maturing July 14, 2022, extended to June 30, 2023 convertible into common shares | |
$ | 99,746 | | |
$ | 1,410,146 | |
| | |
| | | |
| | |
| Convertible note at 8% interest, maturing March 17, 2023 convertible into common shares at $1.00 per share | |
| 1,020,000 | | |
| 1,020,000 | |
| | |
| | | |
| | |
| Convertible note at 2.5% interest, maturing March 1, 2024 convertible into common shares at $0.012 per share | |
| 1,305,000 | | |
| - | |
| | |
| | | |
| | |
| Convertible note at 9%
interest, maturing February
8, 2024 convertible into common shares at 70%
of the Market Price as defined in the convertible note agreement (this note is reclassified to “Derivative
Liabilities”) | |
| - | | |
| - | |
| | |
| | | |
| | |
| Convertible note at 9% interest, maturing March 6, 2024 convertible into common shares at 70% of the
Market Price as defined in the convertible note agreement (a portion of this note is reclassified to “Derivative Liabilities”) | |
| 11,331 | | |
| - | |
| | |
| | | |
| | |
| Convertible note at 8% interest, maturing October 25, 2023, net of discount convertible into common shares at $0.0099 per share | |
| 138,750 | | |
| - | |
| | |
| | | |
| | |
| Convertible note due November 23, 2023 convertible into shares at 70% of the Market Price as defined in
the convertible note agreement in an amount up to $1,100,000. Company received the first tranche of $110,000, net of discount on
February 23, 2023. No interest unless there is an event of default (this note is reclassified to “Derivative Liabilities”) | |
| - | | |
| - | |
| | |
| | | |
| | |
| Convertible note due March 31, 2024, net of discount convertible into common shares at $0.008 per share | |
| 150,000 | | |
| - | |
| | |
| | | |
| | |
| Convertible note at 8% interest, maturing September 8, 2023 convertible into common shares at $0.012 per share, net of discount | |
| 222,000 | | |
| 222,000 | |
| Total | |
| 2,946,827 | | |
| 2,652,146 | |
| Less: Current portion | |
| (2,918,822 | ) | |
| (2,636,411 | ) |
| Less: Discounts | |
| (28,005 | ) | |
| (15,735 | ) |
| Long-term debt | |
$ | - | | |
$ | - | |
On
April 14, 2021 we received bridge financing in the form of a loan in the principal amount of $3,300,000 from Brighton Capital Partners,
LLC (“Brighton Capital” or “BCP”) for which we issued them a convertible promissory note due originally on July
14, 2022. The note has since been extended to June 30, 2023 for no consideration and thus it was deemed to not be a material modification
to the debt instrument.
BCP
has been converting this note and accrued interest since August 16, 2022. In addition, they sold a portion of the note ($300,000) to
a third-party, which has also been converted. As of March 31, 2023, there remains a total of $312,816 in principal and interest. The
Company issued 326,000,000 shares of common stock, which includes 86,000,000 issued to a third party that purchased $300,000 of this
note in the three months ended March 31, 2023 in conversions of the BCP note. The Company recognized a loss on conversions of BCP (and
third parties that purchased portions of this note) in the amount of $1,518,300.
On
May 17, 2021, the Company issued a convertible promissory note to an investor for $1,020,000 with an original issue discount of $20,000,
for a term of twenty-two months maturing March 17, 2023. The Company recognized a $20,000 original issue discount at inception of this
convertible note. This note has not been repaid or converted, and is currently past due as the maturity date has passed. This is reflected
in our current portion of convertible notes payable as of March 31, 2023.
On
December 8, 2022, the Company entered into an 8% convertible redeemable note in the amount of $222,000 with an original issue discount
of $14,500, for a term of nine months due September 8, 2023. From the $207,500 in proceeds received, $7,500 was deducted to pay for legal
fees of the issuer. The Company received net proceeds of $200,000. The note is convertible into shares of common stock at $0.012 per
share. Should the Company be in default of this note, the conversion price would be equal to the lower of (a) $0.012 or (b) 70% of the
lowest trading price for the fifteen prior trading days including the day upon which a conversion notice is received by the Company.
In addition, the Company was required to reserve with the transfer agent, 74,000,000 shares of common stock for this note.
On
January 25, 2023, the Company entered into an 8% convertible redeemable note in the amount of $138,750 with an original issue discount
of $9,000, for a term of nine months due October 25, 2023. From the $129,750 in proceeds received, $4,750 was deducted to pay for legal
fees of the issuer. The Company received net proceeds of $125,000. The note is convertible into shares of common stock at $0.0099 per
share, as long as the note is not in default. Should the Company be in default of this note, the conversion price would be equal to the
lower of (a) $0.0099 or (b) 70% of the lowest trading price for the fifteen prior trading days including the day upon which a conversion
notice is received by the Company. In addition, the Company was required to reserve with the transfer agent, 57,000,000 shares of common
stock for this note.
On
February 8, 2023, the Company entered into a 9% convertible promissory note in the amount of $77,500 with an original issue discount
of $9,000, for a term of twelve months due February 8, 2024. From the $77,500 in proceeds received, $2,500 was deducted to pay for legal
fees of the issuer. The Company received net proceeds of $75,000. The note is convertible into shares of common stock at 70% of the lowest
trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition,
the Company was required to reserve with the transfer agent, 76,884,920 shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative
instrument under ASC 815.
On
February 23, 2023, the Company entered into a convertible promissory note in the amount up to $1,100,000. On February 23, 2023, the Company
received the first tranche of this note in the amount of $110,000, including $10,000 in original issue discount for net proceeds of $100,000.
On April 4, 2023, the Company received the second tranche of this note of $55,000, with a $5,000 original issue discount. The note is
convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days. In addition, the Company
was required to reserve with the transfer agent, the amount of common shares equal to three times the number of common shares needed
to convert any of the outstanding amounts received. At March 31, 2023, the reserve equals 175,000,000 shares of common stock for this
note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative
instrument under ASC 815.
On
March 1, 2023, a noteholder sold $2,925,000 of their outstanding related party note to a third party. Of the amount sold, $1,620,000
was converted into 135,000,000 shares of common stock. This conversion resulted in a gain of $553,500.
On
March 6, 2023, the Company entered into a 9% convertible promissory note in the amount of $59,250, for a term of twelve months due March
6, 2024. From the $59,250 in proceeds received, $4,250 was deducted to pay for legal fees of the issuer. The Company received net proceeds
of $55,000. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days
ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer
agent, 61,335,403 shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative
instrument under ASC 815.
On
March 31, 2023, the Company entered into a Convertible Promissory Note in the amount of $150,000 with an original issue discount of $12,500
and a $12,500 interest charge assessed at closing, and a term of twelve months due March 31, 2024. The Company received net proceeds
of $125,000. The note is convertible into shares of common stock at $0.008 per share. Beginning on September 31, 2022, the investor has
the right to cause note in cash or common stock. If the Company pays in common stock, it may do so at 70% of the lowest trading price
for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was
required to reserve with the transfer agent, 50,000,000 shares of common stock for this note.
On
April 10, 2023, the Company entered into a Promissory Note in the amount of $59,675, with a term of twelve months due April 10, 2024,
and an original issue discount of $5,425. From the $54,250 in proceeds received, $4,250 was deducted to pay for legal and due diligence
fees. The Company received net proceeds of $50,000. Following an event of default, the note is convertible into shares of common stock
at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion
Date. A one-time interest charge of $7,757 was added upon the issuance of the note. Beginning on May 30, 2023 and for the next nine months
thereafter, the Company is required to make monthly amortization payments of $6,743.20. In addition, the Company was required to reserve
with the transfer agent, 52,346,491 shares of common stock for this note.
In
order to have sufficient common shares to convert the debt and enable the transfer agent to have the reserves necessary, the Company’s
CEO has committed to not to convert 200,000 of his Series B Preferred shares until after the Company increases their authorized common
shares in amount sufficient to provide for sufficient reserves the outstanding obligations.
All
of the convertible promissory notes as of March 31, 2023 and December 31, 2022 are due in the next fiscal year, and therefore all current.
The Company evaluated the terms of the convertible notes and determined
that there were derivative liabilities to be recorded at inception of the notes as there were sufficient shares to net share settle the
notes at the discounted values.
Interest
expense for the three months ended March 31, 2023 and 2022 was $87,515 and $159,654, respectively. Amortization of debt discount, and
original issue discount was $12,408 and $340,370 for the three months ended March 31, 2023 and 2022, respectively. Accrued interest at
March 31, 2023 was $377,157.
On
March 31, 2022, the Company entered into exchange agreements with most of their convertible note holders to exchange $2,979,000 of notes
payable and $197,804 of accrued interest on those notes into 37,374,170 shares of common stock. The exchange agreements resulted in a
$1,250,527 adjustment for the unvested debt discount at the time of the convertible note exchanges to common stock. This amount is reflected
in the amortization of debt discounts in other income (expense) in the consolidated statement of operations for the three months ended
March 31, 2022. The then unamortized debt discount of $1,250,527 represented the loss on these exchange transactions.
NOTE
14: CONVERTIBLE PROMISSORY NOTES – RELATED PARTIES
The
Company entered into convertible notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart
below does not include convertible notes payable – related parties that were repaid or converted during 2022. Refer to the Form
10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
SCHEDULE
OF CONVERTIBLE PROMISSORY NOTES RELATED PARTIES
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Convertible note at 5% interest, maturing December 31, 2022 convertible into common shares at $1.20 per share (two notes – one for $6,525,000 and one for $975,000) for the acquisition of Monster Creative, LLC (see Note 4) with the two principals of Monster; payments due at maturity (currently in default) | |
$ | 3,450,000 | | |
$ | 7,500,000 | |
| Convertible note at 5% interest, maturing December 31, 2022 convertible into common shares at $1.20 per share (two notes – one for $6,525,000 and one for $975,000) for the acquisition of Monster Creative, LLC (see Note 4) with the two principals of Monster; payments due at maturity (currently in default) | |
$ | 3,450,000 | | |
$ | 7,500,000 | |
| Long term debt, gross | |
| 3,450,000 | | |
| 7,500,000 | |
| Less: Current portion | |
| (3,450,000 | ) | |
| (7,500,000 | ) |
| Long-term debt | |
$ | - | | |
$ | - | |
All
of the convertible promissory notes – related parties are in default and reflected in current liabilities as of March 31, 2023.
On
June 30, 2021, the Company acquired Monster Creative, LLC. The Monster Purchase Price included: (a) a convertible note to Phantom Power,
LLC in the amount of $6,525,000 that bears interest at 5% per annum, and was to mature December 31, 2022, convertible into the Company’s
common stock; and (b) a convertible note to Kevin Childress in the amount of $975,000 that bears interest at 5% per annum, and was to
mature December 31, 2022, convertible into the Company’s common stock. These notes are currently in default. The convertible promissory
note to Kevin Childress was satisfied in full on April 20, 2023.
The
Company evaluated the terms of the convertible notes and determined that there were no terms that would necessitate the recognition of
any derivative liabilities.
In
the three months ended March 31, 2023, the convertible noteholders sold $4,050,000 of these convertible notes to third-parties, and the
third parties converted the $2,745,000 into 66,274,658 shares of common stock. These transactions resulted in a gain on conversion of
notes payable in the amount of $537,060, which is reflected in the consolidated statements of operations for the three months ended March
31, 2023.
Interest
expense for the three months ended March 31, 2023 and 2022 was $75,421 and $92,466, respectively, and accrued interest as of March 31,
2023 was $639,462.
NOTE
15: DERIVATIVE LIABILITIES
The
Company entered into several convertible notes payable during the three months ended March 31, 2023, that terms include variable conversion
prices (see Note 13). The Company evaluated these terms and determined that the conversion option on the convertible notes payable contained
characteristics that required the Company to classify them as derivative liabilities. The Derivative Instruments have been accounted
for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value
of Derivative Instruments. The estimated fair value of the Derivative Instruments has been calculated using the Black-Scholes fair value
option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded
as gains or losses on revaluation in other income (expense).
The
Company identified embedded features in some of the agreements which were classified as liabilities. These embedded features included
a variable conversion price that would convert those instruments into a variable number of common shares. The accounting treatment of
derivative financial instruments requires that the Company treat the instrument as liability and record the fair value of the instrument
as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance
sheet date.
The
Company determined the derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate
the fair value as of March 31, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration,
the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
Changes
to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using
the Black-Scholes valuation model. The following assumptions were used on March 31, 2023 and at inception:
SCHEDULE
OF FAIR VALUE ASSUMPTIONS OF WARRANTS
| | |
Three Months Ended
March 31,
2023 | | |
Inception | |
| Expected term | |
| 0.70 – 0.83 years | | |
| 0.75 – 1.00 years | |
| Expected volatility | |
| 118 - 125 | % | |
| 120% – 125 | % |
| Expected dividend yield | |
| - | | |
| - | |
| Risk-free interest rate | |
| 4.85 | % | |
| 4.85 | % |
| Market price | |
$ | 0.006 – $0.013 | | |
$ | 0.0078 - $0.013 | |
The
Company’s derivative liabilities as of March 31, 2023 and inception associated with the offerings are as follows.
SCHEDULE
OF DERIVATIVE LIABILITY
| | |
March 31,
2023
(unaudited) | | |
December 31,
2022 | | |
Inception | |
| Fair value of conversion option on February 8, 2023 note (see Note 13) | |
$ | 75,246 | | |
| - | | |
$ | 122,025 | |
| Fair value of conversion option on February 23, 2023 note (see Note 13) | |
| 127,783 | | |
| - | | |
| 127,100 | |
| Fair value of conversion option on March 6, 2023 note (see Note 13) | |
| 58,762 | | |
| - | | |
| 47,919 | |
| Derivative liabilities | |
$ | 261,791 | | |
$ | - | | |
| - | |
Activity
related to the derivative liabilities for the three months ended March 31, 2023 is as follows:
ACTIVITY
RELATED TO DERIVATIVE LIABILITIES
| Beginning balance as of December 31, 2022 | |
$ | - | |
| Bifurcation of conversion option on convertible note payable | |
| 297,044 | |
| Change in fair value of derivative liabilities (restated) | |
| (35,253 | ) |
| Ending balance as of March 31, 2023 | |
$ | 261,791 | |
There
were no derivative liabilities in the three months ended March 31, 2022.
NOTE
16: STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred
Stock
As
of March 31, 2023 and December 31, 2022, the Company has 10,000,000 shares of Preferred Stock authorized, designated as follows: 7,000,000
shares of Series A Preferred Stock authorized, and 570,000 shares of Series B Preferred Stock authorized. All shares of preferred stock
have a par value of $0.00001.
Series
A Preferred Stock
Dividends.
Shares of Series A Preferred Stock shall be entitled to receive, out of funds legally available for that purpose, on the same terms and
conditions as that of holders of common stock, as may be declared by the Board of Directors.
Conversion.
There are no conversion rights.
Redemption.
Subject to certain conditions set forth in the Series A Certificate of Designation, in the event of a Change of Control (defined in the
Series A Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series
A Preferred Stock shall have acquired, in one or a series of related transactions, equity securities of the Company representing more
than fifty percent 50% of the outstanding voting securities of the Company), the Company, at its option, will have the right to redeem
all or a portion of the outstanding Series A Preferred Stock in cash at a price per share of Series A Preferred Stock equal to 100% of
the liquidation value.
Voting
Rights. Holders of Series A Preferred Stock are entitled to vote on all matters, together with the holders of common stock, and have
the equivalent of one thousand (1,000) votes for every share of Series A Preferred Stock held.
Liquidation.
Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation value
of the Series A Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the
assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series
A Preferred Stock shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full.
The
7,000,000 shares were issued to a former officer of the Company and assigned to the new CEO at the time of the reverse merger of HUMBL.
Series
B Preferred Stock
Prior
to the amendment of the Certificate of Incorporation on October 29, 2021, the criteria established for the Series B Preferred Stock was
as follows:
Dividends.
Shares of Series B Preferred Stock shall be entitled to receive, out of funds legally available for that purpose, on the same terms and
conditions as that of holders of common stock, as may be declared by the Board of Directors.
Conversion.
Each share of Series B Preferred Stock shall be convertible at the option of the holder thereof at any time after December 3, 2021 at
the office of the Company or any transfer agent for such stock, into ten thousand (10,000) fully paid and nonassessable shares of common
stock subject to adjustment for any stock split or distribution of securities or subdivision of the outstanding shares of common stock.
Redemption.
Subject to certain conditions set forth in the Series B Certificate of Designation, in the event of a Change of Control (defined in the
Series B Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series
B Preferred Stock shall have acquired, in one or a series of related transactions, equity securities of the Company representing more
than fifty percent 50% of the outstanding voting securities of the Company), the Company, at its option, will have the right to redeem
all or a portion of the outstanding Series B Preferred Stock in cash at a price per share of Series B Preferred Stock equal to 100% of
the liquidation value.
Voting
Rights. Holders of Series B Preferred Stock are entitled to vote on all matters, together with the holders of common stock, and have
the equivalent of ten thousand (10,000) votes for every share of Series B Preferred Stock held.
Liquidation.
Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of Series B Preferred
Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation value
of the Series B Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the
assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series
B Preferred Stock shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full.
HUMBL
exchanged 100% of their membership interests for 552,029 shares of newly created Series B Preferred Stock. The Series B Preferred shares
were issued to the respective members of HUMBL following the approval by FINRA of the one-for-four reverse stock split of the common
shares and the increase in the authorized common shares to 7,450,000,000 shares. The FINRA approval for both the increase in the authorized
common shares and reverse stock split occurred on February 26, 2021. These shares that were issued in the reverse merger had a value
of $39,967.
These
shares have a lock-up provision that prevents the holders to convert into common stock for a period of one-year from the date of the
merger of December 3, 2020, with the exception of those held by the CEO who had a two-year lock up provision. In addition, officers and
directors that received these shares are subject to strict selling limitations, where the number of shares sold within the preceding
three months cannot exceed the greater of: (a) 1% of the total outstanding common shares; and (b) the average weekly reported trading
volume for the previous four weeks.
On
February 26, 2021, the Company issued 493 shares of Series B Preferred Stock for services rendered that were cancelled. On April 15,
2021, the Company revised their issuances and issued with an effective date of March 31, 2021, 2,272 Series B Preferred shares for services
rendered. Of the 2,272 shares issued, 528 are vested immediately, 1,219 are vested over one year, and 525 are vested over two years.
The vesting period commenced January 1, 2021. All of the Series B Preferred Shares issued have one-year lock up provisions to convert
into common stock from the date of the merger of December 3, 2020. These shares have been fully expensed as of December 31, 2022.
Between
May 3 and May 6, 2021, the Company’s CEO converted 79,625,000 shares of common stock into 7,962 Series B Preferred shares. These
shares are subject to a lock-up provision whereby the CEO has agreed not to convert these Series B shares to common for a period of two
years.
On
July 6, 2021, the CEO of the Company cancelled 9,350 shares of Series B Preferred Stock (93,500,000 if converted into common stock) for
no consideration.
On
November 19, 2021, the Company paid $215, to redeem 215 Series B Preferred Shares.
In
December 2021, there were 7,939 Series B Preferred shares converted into 79,390,000 common shares.
On
March 17, 2022, the CEO of the Company cancelled 4,900 shares of Series B Preferred Stock (49,000,000 if converted into common stock)
and on September 21, 2022, the Company’s CEO cancelled 45,000 Series B Preferred shares (the equivalent of 450,000,000 common shares)
for no consideration.
During
the year ended December 31, 2022, there were 79,762 shares of Series B Preferred Stock converted into 797,620,000 common shares.
For
the three months ended March 31, 2023, there were 15,984 shares of Series B Preferred Stock converted into 159,840,000 common shares.
As
of March 31, 2023, the Company has 400,175 shares of Series B Preferred Stock issued and outstanding.
On
October 29, 2021, the Company by Board consent approved an amendment to their Certificate of Amendment for the Series B Preferred Stock
to (a) reduce the number of authorized shares of Series B Preferred stock to 570,000 and (b) for Series B Preferred shareholders holding
greater than 750 shares of Series B Preferred Stock, for the calendar months of December 2021 and January 2022, Series B Preferred shareholders
shall not have the right, whether by election, operation of law, or otherwise, to convert into Common Stock shares of Series B Preferred
stock constituting more than 5% of the total number of Series B Preferred shares held by them; and for each of the calendar months from
February 2022 to May 2023, the percentage that the Series B Preferred shareholder may convert is 3% of the total number of Series B Preferred
shares held by them. This action was approved by Series B Shareholder consent.
Common
Stock
The
Company has 7,450,000,000 shares of common stock, par value $0.00001, authorized. The Company has 3,005,310,839 and 2,182,343,775 shares
issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. The Company on February 26, 2021 increased its authorized
shares from 5,000,000,000 to 7,450,000,000 shares.
In
the three months ended March 31, 2022, the Company: (a) issued 4,000,000 shares in a settlement; (b) 10,000,000 shares in the exercise
of warrants; (c) 13,200,000 shares in the asset purchase of BizSecure (also granted 26,800,000 restricted stock units in this acquisition);
(d) 8,962,036 shares in the acquisition of Ixaya; (e) 675,000 shares for services rendered; (f) 37,374,170 shares issued for the exchange
of notes payable and accrued interest; and (g) 220,640,000 shares issued in conversion of 22,064 Series B Preferred stock. In addition,
the Company cancelled 825,000 shares.
During
the three months ended March 31, 2022, the Company expensed $1,440,464 related to shares issued to consultants and advisors for services
as noted above, leaving $4,626,417 of stock-based compensation yet to be expensed as of March 31, 2022. The Company has reduced their
obligation to issue common stock by 1,120,176 shares and as of March 31, 2022 has an obligation to issue 198,750 shares valued at $26,831.
These shares were issued in April 2022.
In
the three months ended June 30, 2022, the Company: (a) issued 198,750 shares for services rendered; and (b) issued 224,510,000 shares
in conversion of 22,451 Series B Preferred stock.
During
the three months ended June 30, 2022, the Company expensed $1,216,115 related to shares issued to consultants and advisors for services
as noted above, leaving $3,410,302 of stock-based compensation yet to be expensed as of June 30, 2022. The Company has reduced their
obligation to issue common stock by 198,750 shares and as of June 30, 2022 has an obligation to issue 198,750 shares valued at $10,236.
These shares were issued in July 2022.
In
the three months ended September 30, 2022, the Company: (a) issued 11,698,750 shares for services rendered; (b) issued 208,010,000 shares
in conversion of 20,801 Series B Preferred stock; (c) 30,338,978 shares for conversion of notes payable valued at $800,000, and recognized
a loss on conversion of these shares in the amount of $305,967; and (d) the Company redeemed 1,000,000 shares of common stock in a settlement.
In September 2022, the Company received $425,000 from three investors as part of a total of $575,000 for 38,333,333 shares and 76,666,666
warrants with a strike price of $0.03 and $0.04 (38,333,333 each). The remaining $150,000 was received in October 2022 and the shares
were issued in October 2022. The Company has included the $425,000 in additional paid in capital as of September 30, 2022.
During
the three months ended September 30, 2022, the Company expensed $1,192,808 related to shares issued to consultants and advisors for services
as noted above, leaving $2,217,494 of stock-based compensation yet to be expensed as of September 30, 2022. The Company has reduced their
obligation to issue common stock by 198,750 shares and as of September 30, 2022 has an obligation to issue 198,750 shares valued at $4,969.
These shares were issued in October 2022.
In
the three months ended December 31, 2022, the Company: (a) issued 168,750 shares for services rendered; (b) issued 144,460,000 shares
in conversion of 14,446 Series B Preferred stock; (c) 111,073,302 shares for conversion of notes payable valued at $1,537,745, and recognized
a loss on conversion of these shares in the amount of $753,858; and (d) the Company issued 72,352,940 shares of common stock with 11
different investors for $615,000, and issued 76,666,666 shares of common stock for $575,000.
During
the three months ended December 31, 2022, the Company expensed $1,032,748 related to shares issued to consultants and advisors for services
as noted above, leaving $1,184,746 of stock-based compensation yet to be expensed as of December 31, 2022. The Company has reduced their
obligation to issue common stock by 198,750 shares and as of December 31, 2022 has an obligation to issue 168,750 shares valued at $1,585.
These shares were issued in January 2023.
In
the three months ended March 31, 2023, the Company: (a) issued 40,418,750 shares for services rendered; (b) issued 159,840,000 shares
in conversion of 15,984 Series B Preferred stock; (c) 527,274,658 shares for conversion of notes payable valued at $4,855,141, and recognized
a loss on conversion of these shares in the amount of $427,740; (d) the Company issued 90,000,000 shares of common stock in the acquisition
of BM Authentics; and (e) 5,433,656 shares of common stock in settlement with Tickeri on the disposal of that entity.
During
the three months ended March 31, 2023, the Company expensed $1,135,579 related to shares issued to consultants and advisors for services
as noted above, leaving $49,167 of stock-based compensation yet to be expensed as of March 31, 2023. The Company has reduced their obligation
to issue common stock by 90,418,750 shares and as of March 31, 2023 has no obligation to issue shares. In addition, the Company recognized
$206,032 in BCF discounts on convertible notes and the Company’s CEO contributed $50,000 during the three months ended March 31,
2023.
Stock
Incentive Plan
On
July 21, 2021, the Company established the HUMBL, Inc. 2021 Stock Incentive Plan (the “Plan”) for a total issuance not to
exceed 20,000,000 shares of common stock. The purpose of the Plan is to promote the long-term growth and profitability of the Company
by (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of the
Company, and (ii) enabling the Company to attract, retain and reward the best-available persons.
The
Plan permits the granting of Stock Options (including incentive stock options qualifying under Code Section 422 and nonqualified stock
options), Stock Appreciation Rights, restricted or unrestricted Stock Awards, Restricted Stock Units, Performance Awards, other stock-based
awards, or any combination of the foregoing.
Warrants
Warrants
issued in 2023 and 2022 consisted of the following:
On
September 29, 2022, the Company entered into subscription agreements with investors whereby the Company issued 38,333,333 shares of common
stock (issued in October 2022) and granted three-year warrants expiring September 29, 2025 for 38,333,333 warrants at $0.03 per share
and 38,333,333 warrants at $0.04 per share. The Company received $425,000 in proceeds as of September 30, 2022 with the remaining $150,000
in proceeds received in October 2022. These warrants were cancelled on December 14, 2022.
Between
November 7, 2022 and ending November 13, 2022 with 11 different investors issued warrants to purchase 36,176,471 shares of its common
stock. The Warrants are exercisable for a period of three years, have a cashless exercise provision and have an exercise price of $0.017
per share.
On
December 14, 2022 with 4 different investors issued warrants to purchase 38,333,333 shares of its common stock. The Warrants are exercisable
for a period of three years, have a cashless exercise provision and have an exercise price of $0.012 per share.
The
following represents a summary of the warrants:
SCHEDULE OF WARRANTS ACTIVITIES
| | |
Three Months Ended
March 31, 2023 | | |
Year Ended
December 31, 2022 | |
| | |
Number | | |
Weighted Average Exercise Price | | |
Number | | |
Weighted Average Exercise Price | |
| Beginning balance | |
| 347,234,804 | | |
$ | 0.26265 | | |
| 283,650,000 | | |
$ | 0.32627 | |
| | |
| | | |
| | | |
| | | |
| | |
| Granted | |
| - | | |
| - | | |
| 151,176,470 | | |
| 0.2486 | |
| Exercised | |
| - | | |
| - | | |
| (10,000,000 | ) | |
| 0.20 | |
| Forfeited | |
| - | | |
| - | | |
| (77,366,666 | ) | |
| - | |
| Expired | |
| (12,500,000 | ) | |
| - | | |
| (225,000 | ) | |
| - | |
| Ending balance | |
| 334,734,804 | | |
$ | 0.23511 | | |
| 347,234,804 | | |
$ | 0.26265 | |
| Intrinsic value of warrants | |
$ | - | | |
| | | |
$ | - | | |
| | |
| Weighted Average Remaining Contractual Life (Years) | |
| 1.38 | | |
| | | |
| 1.57 | | |
| | |
As
of March 31, 2023, 334,734,804 warrants are vested.
For
the three months ended March 31, 2023 and 2022, the Company incurred stock-based compensation expense of $956,620 and $3,270,349, respectively
for the warrants in accordance with ASC 718-10-50-1 and ASC 718-10-50-2. The fair value of the grants were calculated based on the black-scholes
calculation using the assumptions reflected in the chart below for both the service-based grants and the performance-based grants.
As
of March 31, 2023, there remains unrecognized stock-based compensation expense related to these warrants of $12,011,954 comprising of
service-based grants through June 30, 2026.
Options
Options
issued in 2023 and 2022 consisted of the following:
On
May 26, 2022, the Company granted 8,660,000 stock options to employees. These options have a term of 10 years and are exercisable into
shares of common stock at a price of $0.0983 per share.
As
of March 31, 2023, 5,000,000 of the May 26, 2022 options as well as 285,000 options issued in 2021 have been forfeited. As of March 31,
2023, 2,759,167 options are exercisable.
SUMMARY
OF STOCK OPTION
| | |
Three Months Ended
March 31, 2023 | | |
Year Ended
December 31, 2022 | |
| | |
Number | | |
Weighted Average Exercise Price | | |
Number | | |
Weighted Average Exercise Price | |
| Beginning balance | |
| 4,005,000 | | |
$ | 0.1501 | | |
| 630,000 | | |
$ | 0.70 | |
| | |
| | | |
| | | |
| | | |
| | |
| Granted | |
| - | | |
| - | | |
| 8,660,000 | | |
| 0.0983 | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Forfeited | |
| - | | |
| - | | |
| (5,285,000 | ) | |
| - | |
| Expired | |
| - | | |
| - | | |
| - | | |
| - | |
| Ending balance | |
| 4,005,000 | | |
$ | 0.1501 | | |
| 4,005,000 | | |
$ | 0.1501 | |
| Intrinsic value of options | |
$ | - | | |
| | | |
$ | - | | |
| | |
| Weighted Average Remaining Contractual Life (Years) | |
| 9.13 | | |
| | | |
| 9.36 | | |
| | |
For
the three months ended March 31, 2023 and 2022, the Company incurred stock-based compensation expense of $59,320 and $36,750, 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:
SUMMARY
OF FAIR VALUE VALUATION TECHNIQUES
| | |
Three Months Ended March 31, 2023 | | |
Year Ended December 31, 2022 | |
| Expected term | |
| - | | |
| 10 | |
| Expected volatility | |
| - | % | |
| 120 | % |
| Expected dividend yield | |
| - | | |
| - | |
| Risk-free interest rate | |
| - | % | |
| 2.74 | % |
Restricted
Stock Units (RSUs)
On
February 12, 2022, the Company granted 26,800,000 RSUs in the acquisition of the asserts of BizSecure that was recorded as contingent
consideration. These RSUs commenced vesting on April 1, 2022.
SCHEDULE
OF RESTRICTED STOCK
| | |
Three Months Ended
March 31, 2023 | | |
Year Ended
December 31, 2022 | |
| | |
Number | | |
Weighted Average Exercise Price | | |
Number | | |
Weighted Average Exercise Price | |
| Beginning balance | |
| 16,750,000 | | |
$ | 0.1689 | | |
| - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | |
| Granted | |
| - | | |
| - | | |
| 26,800,000 | | |
| 0.1689 | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Forfeited | |
| - | | |
| - | | |
| (10,050,000 | ) | |
| - | |
| Vested | |
| (3,350,000 | ) | |
| - | | |
| - | | |
| - | |
| Ending balance | |
| 13,400,000 | | |
$ | 0.1689 | | |
| 16,750,000 | | |
$ | 0.1689 | |
On
December 30, 2022, the Company and BizSecure negotiated a settlement of all claims resulting from the Company’s inability to timely
register the 13,200,000 shares of common stock issued February 12, 2022 and 10,050,000 RSUs that vested during 2022. As a result, the
13,200,000 shares of common stock and the 10,050,000 RSUs were rescinded effective December 30, 2022. The remaining 16,750,000 RSUs will
continue to vest in accordance with the original terms and the Company will continue the process to get those RSUs registered for resale
and re-negotiate the terms of the common shares to be issued to BizSecure. For the three months ended March 31, 2023, 3,350,000 RSUs
vested. These shares were issued in April 2023.
For
the three months ended March 31, 2023 and 2022, the Company amortized $565,815 and $0, of the contingent consideration to additional
paid in capital, respectively for the RSUs.
NOTE
17: RELATED-PARTY TRANSACTIONS
In
March 2022, the Company’s CEO cancelled 4,900 Series B Preferred shares and in September 2022, the Company’s CEO cancelled
45,000 Series B Preferred shares. These shares are the equivalent of 499,000,000 common shares. The cancellations were done for no consideration.
In
May 2022, the Company’s CEO contributed $406,040 to pay for the purchase of the NFT that is reflected as a non-current asset on
the Company’s consolidated balance sheet, as well as contributed 100 million BLOCKS valued at $500,000. In the three months ended
March 31, 2023, the Company’s CEO contributed $50,000.
NOTE
18: COUNTRY RIGHTS OPTION
Aurea
Group
On
March 15, 2021 we entered into a Securities Purchase Agreement with HUMBL CL SpA (“HUMBL CL”), an affiliate of Aurea Group
Ventures (“Aurea Group”), a Chilean multi-family office, under which Aurea Group purchased shares of our common stock in
return for exclusive country rights to Chile of our HUMBL products for a purchase price of up to $7,500,000.
Under
the terms of the Securities Purchase Agreement, HUMBL CL agreed to purchase 437,500 shares of our common stock for $1,000,000. The payment
for these shares was due on or before March 30, 2021 but as a result of restrictions imposed due to COVID-19 was paid in two tranches
of $500,000 each on April 5, 2021 and April 6, 2021. In addition, HUMBL CL also received the right to purchase 1,562,500 shares of HUMBL
common stock for $6,500,000 by December 31, 2021 and to receive a 35% equity interest in a Chilean subsidiary HUMBL intends to form to
conduct its operations in Chile.
The
Securities Purchase Agreement provides that if HUMBL CL exercises its right to purchase the subsidiary interest, it will receive 35%
of the profits from operations of the HUMBL family of products in Chile. In addition, HUMBL CL also received a right of first refusal
with respect to regional or country rights sales in Latin America.
On
January 3, 2022, the Company entered into a Settlement Agreement with HUMBL CL whereby HUMBL issued HUMBL CL 4,000,000 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
19: SEGMENT REPORTING
The
Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard
requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating
decisions.
Less
than 3-4% of the Company’s sales are from outside of North America, therefore the Company has determined that segment reporting
by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if
it is feasible to report segment information by location.
The
following represents segment reporting for continuing operations only:
SCHEDULE
OF SEGMENT REPORTING
| | |
|
| | |
|
| | |
|
| |
| Three Months Ended March 31, 2022 | |
Consumer | | |
Commercial | | |
Total | |
| Segmented operating revenues | |
$ | 838,606 | | |
$ | 18,384 | | |
$ | 856,990 | |
| Cost of revenues | |
| 423,155 | | |
| 14,835 | | |
| 437,990 | |
| Gross profit | |
| 415,451 | | |
| 3,549 | | |
| 419,000 | |
| Total operating expenses net of depreciation, amortization and impairment | |
| 9,386,370 | | |
| 458,059 | | |
| 9,844,429 | |
| Depreciation, amortization and impairment | |
| 46,053 | | |
| 1,093,676 | | |
| 1,139,729 | |
| Other expenses (income) | |
| 1,965,226 | | |
| (2,608 | ) | |
| 1,962,618 | |
| (Loss) from continuing operations | |
$ | (10,982,198 | ) | |
$ | (1,545,578 | ) | |
$ | (12,527,776 | ) |
| | |
| | | |
| | | |
| | |
| Segmented assets as of March 31, 2022 | |
| | | |
| | | |
| | |
| Property and equipment, net | |
$ | 359,106 | | |
$ | - | | |
$ | 359,106 | |
| Intangible assets | |
$ | | | |
$ | 2,799,564 | | |
$ | 2,799,564 | |
| Intangible assets – digital assets | |
$ | 32,064 | | |
$ | 406,040 | | |
$ | 438,104 | |
| Goodwill | |
$ | 7,158,954 | | |
$ | - | | |
$ | 7,158,954 | |
| Capital expenditures | |
$ | 8,510 | | |
$ | - | | |
$ | 8,510 | |
| | |
|
| | |
|
| | |
|
| |
| Three Months Ended March 31, 2023 | |
Consumer | | |
Commercial | | |
Total | |
| Segmented operating revenues | |
$ | 211,214 | | |
$ | 191,610 | | |
$ | 402,824 | |
| Cost of revenues | |
| 137,572 | | |
| 25,228 | | |
| 162,800 | |
| Gross profit | |
| 73,642 | | |
| 166,382 | | |
| 240,024 | |
| Total operating expenses net of depreciation, amortization and impairment | |
| 3,266,912 | | |
| 777,392 | | |
| 4,044,304 | |
| Depreciation, amortization and impairment | |
| 8,147 | | |
| 33,358 | | |
| 41,505 | |
| Other expenses (income) | |
| 746,662 | | |
| 614 | | |
| 747,276 | |
| (Loss) from continuing operations | |
$ | (3,948,079 | ) | |
$ | (644,982 | ) | |
$ | (4,593,061 | ) |
| | |
| | | |
| | | |
| | |
| Segmented assets as of March 31, 2023 | |
| | | |
| | | |
| | |
| Property and equipment, net | |
$ | 22,058 | | |
$ | - | | |
$ | 22,058 | |
| Intangible assets | |
$ | 257,130 | | |
$ | 509,167 | | |
$ | 766,297 | |
| Intangible assets – digital assets | |
$ | 4,279 | | |
$ | 147,823 | | |
$ | 152,102 | |
| Capital expenditures | |
$ | - | | |
$ | - | | |
$ | - | |
The
HUMBL Financial sector as well as the operations of Tickeri are reflected in discontinued operations on the consolidated statement of
operations for the three months ended March 31, 2023 and 2022.
NOTE
20: 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
21: COMMITMENT
On
December 12, 2022, the Company entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement
(“Rights Agreement”) with GHS Investments, LLC (“GHS”). Pursuant to the EFA, the Company has the right,
subject to certain conditions, to sell up to $20,000,000 in
shares of its common stock to GHS. Pursuant to the Rights Agreement, the Company agreed to file a registration statement to register
the common stock issuable under the EFA. Following the registration of the securities under the EFA, the Company has the right to
cause GHS to purchase its common stock at 80% of the average of the three lowest closing trade prices in the previous 10 trading
days by submitting a put notice to GHS. The Company may choose the dollar amount of each put notice; provided, however, the maximum
dollar amount of any put cannot exceed 200% of the Company’s average daily trading volume in the previous 10 trading days. In
addition, the amount of the put notice must not be less than $10,000 or
greater than $500,000.
The Company may only deliver one put notice to GHS in any given 10 trading day period. Following an uplist to Nasdaq or an
equivalent national exchange, the conversion rate would increase from 80%
to 90%. The amount of the Company’s shares owned by GHS cannot exceed 4.99% of the issue and outstanding shares of the
Company’s common stock following the purchase by GHS of the Company’s shares under a put notice. The Company subsequently terminated the GHS EFA and Rights Agreement and entered into a new Equity Financing Agreement
and Registration Rights Agreement described in Note 22 below.
NOTE
22: SUBSEQUENT EVENTS
Between
April 1, 2023 and May 12, 2023, the Company issued 64,700,000 shares of common stock in conversion of 6,470 shares of Series B Preferred
Stock.
On
April 21, 2023, the Company sold 22,500,000 shares of common stock for $85,050.
On
April 4, 2023, the Company received the second tranche of this note of $55,000, with a $5,000 original issue discount. The note is convertible
into shares of common stock at 70% of the lowest trading price for the twenty prior trading days. In addition, the Company was required
to reserve with the transfer agent, the amount of common shares equal to three times the number of common shares needed to convert any
of the outstanding amounts received.
On
April 11, 2023, the Company exchanged 38,333,333
warrants for 76,666,666
shares of common stock for no consideration. The Company recognized a loss on the exchange equal to the value of the common shares
of $287,500
($0.00375
per share) which resulted in a loss of $172,500.
On
April 10, 2023, the Company entered into a Promissory Note in the amount of $59,675, with a term of twelve months due April 10, 2024,
and an original issue discount of $5,425. From the $54,250 in proceeds received, $4,250 was deducted to pay for legal and due diligence
fees. The Company received net proceeds of $50,000. Following an event of default, the note is convertible into shares of common stock
at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion
Date. A one-time interest charge of $7,757 was added upon the issuance of the note. Beginning on May 30, 2023 and for the next nine months
thereafter, the Company is required to make monthly amortization payments of $6,743.20. In addition, the Company was required to reserve
with the transfer agent, 52,346,491 shares of common stock for this note.
In
April 2023, a noteholder sold their remaining note to non-related third parties, and the balance of $838,586.71 was converted into 99,627,024
shares of common stock.
On
April 21, 2023, the Company issued 3,350,000 shares of common stock for vested RSUs to BizSecure.
On April 28, 2023, $300,000 of a related party note was exchanged for 50,000,000
shares of common stock.
On April 28, 2023, we issued
a convertible promissory note in the amount of $60,000, including a $5,000 original issue discount and a $5,000 interest charge. The Company
received net proceeds of $50,000. The note is convertible at the lender’s option at $0.008 per share. After six months, the lender
has the right to cause the Company to redeem the note. After receiving a redemption notice from the lender, the Company has the right
to pay the redemption amount in cash or common stock. If we elect to pay in common stock, the conversion price will be 70% of lowest closing
trade price of the common stock in the previous 20 trading days. The note may be prepaid at any time subject to a 15% premium.
On May 10, 2023, the Company issued a convertible
promissory note in the amount of up to $800,000 to Pacific Lion LLC (“Pacific Lion”). The amount of the initial tranche funded
under the note was $100,000. The lender has the right at its option to fu $700,000 under the note. The note bears
interest at 6% per annum and is due on May 10, 2024. Upon completion of an uplisting to a senior stock exchange, the note will automatically
convert into common stock at 80% of the uplisting offering price. In the event an uplisting does not occur by the maturity date or upon
an event of default, the note will become convertible at 80% of the average of the closing trade prices during the five trading days preceding
the date of conversion. The principal amount of the note may be prepaid at any time without penalty. The foregoing description of the
note does not purport to be complete and is qualified in its entirety by reference to the note which is filed as Exhibit 10.1 to this
Quarterly Report on Form 10-Q. In addition to the note, the Company also issued a Warrant to Purchase Shares of Common Stock to Pacific
Lion on May 10, 2023. The warrant is exercisable for 500,000 shares for a period of five years at $0.10 per share. In the event that an
uplisting to a senior stock exchange does not occur within nine months of the issuance date, the warrant will automatically be cancelled.
The foregoing description of the warrant does not purport to be complete and is qualified in its entirety by reference to the warrant
which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q.
On May 10, 2023, we entered
into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with Pacific
Lion. Pursuant to the EFA, the Company has the right, subject to certain conditions, to sell up to $20,000,000 in shares of its common
stock to Pacific Lion. Pursuant to the Rights Agreement, HUMBL agreed to file a registration statement to register the common stock issuable
under the EFA. Following the registration of the securities under the EFA, HUMBL has the right to cause Pacific Lion to purchase its common
stock at 85% of the lowest closing trade price in the previous 10 trading days by submitting a put notice to Pacific Lion. HUMBL may choose
the dollar amount of each put notice; provided, however, the maximum dollar amount of any put cannot exceed 150% of HUMBL’s average
daily trading volume in the previous 10 trading days. In addition, the amount of the put notice must not be less than $10,000 or greater
than $200,000, unless otherwise agreed to by the parties. HUMBL may only deliver one put notice to Pacific Lion in any given 10 trading
day period. Following an uplist to Nasdaq, NYSE or an equivalent national exchange, the conversion rate would increase from 85% to 90%.
The amount of HUMBL shares owned by Pacific Lion cannot exceed 4.99% of the issue and outstanding shares of HUMBL common stock following
the purchase by Pacific Lion of HUMBL shares under a put notice. The foregoing description of the EFA and Rights Agreement does not purport
to be complete and is qualified in its entirety by reference to the EFA which is filed as Exhibit 10.3 to this Quarterly Report on Form
10-Q and the Rights Agreement which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q.