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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2022

 

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

 

For the transition period from ______ to ______

 

Commission File No. 000-31267

 

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

 

Delaware   91-2048019 
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification No.)

 

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

(Address of principal executive offices) (Zip Code)

 

(786) 738-9012

(Registrant’s telephone number, including area code)

 

N/A

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

 

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

 

Title of each class   Trading Symbol   Name of each exchange on which registered
None        

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.00001 per share

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ☐     No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

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

 

There were 1,686,993,139 shares of the Registrant’s $0.00001 par value common stock outstanding as of August 12, 2022.

  

 

 

 
 

 

HUMBL, Inc.

 

INDEX

 

    Page No.
Part I. Financial Information 1
     
Item 1. Consolidated Financial Statements (Unaudited) 1
  Consolidated Balance Sheets (Unaudited) 2
  Consolidated Statements of Operations (Unaudited) 3
  Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited) 4
  Consolidated Statements of Cash Flows (Unaudited) 5
  Notes to Consolidated Financial Statements (Unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 48
     
Item 4. Controls and Procedures 48
     
Part II. Other Information 50
     
Item 1. Legal Proceedings 50
     
Item 1A. Risk Factors 50
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
     
Item 3. Default Upon Senior Securities 50
     
Item 4. Mine Safety Disclosures 50
     
Item 5. Other Information 50
     
Item 6. Exhibits 51
     
Signatures 52

 

i  
 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2022

 

Table of Contents

 

Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-39

 

1
 

 

HUMBL, INC

CONSOLIDATED BALANCE SHEETS (IN US$)

JUNE 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021

 

                 
    JUNE 30,     DECEMBER 31,  
    2022     2021  
    (unaudited)        
ASSETS                
Current Assets:                
Cash   $ 1,985,437     $ 3,493,213  
Assets related to user cryptocurrencies safeguarding obligation     1,572,898       -  
Accounts receivable     363,881       325,267  
Intangible assets - digital assets, current portion     498,635       2,695  
Prepaid expenses and other current assets     27,834       57,693  
                 
Total Current Assets     4,448,685       3,878,868  
                 
Non-Current Assets:                
Fixed assets, net of depreciation     29,340       356,447  
Non-current asset held for sale     328,222       -  
Intangible assets, net of amortization     3,424,606       -  
Intangible assets - digital assets, net of current portion     147,823       -  
Goodwill     10,512,346       6,531,346  
                 
Total Non-Current Assets     14,442,337       6,887,793  
                 
TOTAL ASSETS   $ 18,891,022     $ 10,766,661  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
                 
LIABILITIES                
Current Liabilities:                
Accounts payable and accrued expenses   $ 2,964,615     $ 1,460,266  
Obligation to issue common shares     10,236       676,408  
User cryptocurrencies safeguarding obligation     1,572,898       -  
Contingent consideration     3,960,705       -  
Due to seller     314,657       327,412  
Current portion of notes payable - bank     4,240       -  
Current portion of notes payable     502,309       501,828  
Current portion of notes payable - related parties     11,007,729       10,986,250  
Convertible notes payable - related parties, net of current portion     7,500,000       7,500,000  
Current portion of convertible notes payable, net of discount     4,302,092       3,392,123  
                 
Total Current Liabilities     32,139,481       24,844,287  
                 
Long-Term Liabilities:                
Notes payable - bank, net of current portion     8,835       -  
Notes payable, net of current portion     147,691       148,172  
Notes payable related parties, net of current portion     4,500,000       -  
Convertible notes payable, net of discount and net of current portion     -       2,232,702  
                 
Total Long-Term Liabilities     4,656,526       2,380,874  
                 
Total Liabilities     36,796,007       27,225,161  
                 
Commitments and contingency     -       -  
STOCKHOLDERS’ EQUITY (DEFICIT)                
Preferred stock, 7,000,000 shares Series A Preferred stock authorized, and 570,000 Series B Preferred stock authorized (Series C Preferred stock was cancelled October 29, 2021)                
                 
Series A Preferred, par value $0.00001, 7,000,000 and 7,000,000 shares issued and outstanding, respectively     70       70  
Series B Preferred, par value $0.00001, 495,344 and 544,759 shares issued and outstanding, respectively     5       5  
Common stock, par value, $0.00001, 7,450,000,000 shares authorized 1,541,774,389 and 1,023,039,433 issued and outstanding, respectively     15,417       10,230  
Additional paid in capital     53,137,176       34,182,004  
Accumulated deficit     (71,059,564 )     (50,650,809 )
Accumulated other comprehensive income (loss)     1,911       -  
                 
Total Stockholders’ Equity (Deficit)     (17,904,985 )     (16,458,500 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)   $ 18,891,022     $ 10,766,661  

 

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

 

2
 

 

HUMBL, INC

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

SIX AND THREE MONTHS ENDED JUNE 30, 2022 AND 2021

 

                                 
    SIX MONTHS ENDED     THREE MONTHS ENDED  
    JUNE 30,     JUNE 30,     JUNE 30,     JUNE 30,  
    2022     2021     2022     2021  
                         
REVENUES   $ 2,261,995     $ 277,850     $ 1,114,861     $ 123,746  
                                 
COST OF REVENUES     1,015,996       143,865       495,026       39,122  
                                 
GROSS PROFIT     1,245,999       133,985       619,835       84,624  
                                 
OPERATING EXPENSES                                
Development costs     2,075,403       756,012       811,411       653,709  
Professional fees     1,744,882       1,671,974       763,744       1,017,221  
Settlement     1,120,400       1,870,000       -       1,870,000  
Impairment - goodwill     1,008,642       12,141,062       -       12,141,062  
Impairment - digital assets     1,211,882       -       1,166,564       -  
General and administrative expenses     12,134,402       2,458,122       5,434,478       2,012,749  
                                 
Total Operating Expenses     19,295,611       18,897,170       8,176,197       17,694,741  
                                 
OPERATING LOSS     (18,049,612 )     (18,763,185 )     (7,556,362 )     (17,610,117 )
                                 
NON-OPERATING INCOME (EXPENSE)                                
Interest expense     (792,620 )     (143,869 )     (389,816 )     (138,641 )
Beneficial conversion feature     -       (3,300,000 )     -       (3,300,000 )
Amortization of debt discounts     (1,656,267 )     (147,253 )     (65,370 )     (126,656 )
Gain on sale of digital assets     95,794       -       66,243       -  
Other income     1,895       3,200       1,895       3,200  
                                 
Total Non-Operating Income (Expenses)     (2,351,198 )     (3,587,922 )     (387,048 )     (3,562,097 )
                                 
NET LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS AND PROVISION FOR INCOME TAXES     (20,400,810 )     (22,351,107 )     (7,943,410 )     (21,172,214 )
                                 
DISCONTINUED OPERATIONS:                                
Loss from discontinued operations     (7,945 )     (281,254 )     -       (23,285 )
Gain on disposal of discontinued operations     -       -       -       -  
Total discontinued operations     (7,945 )     (281,254 )     -       (23,285 )
                                 
NET LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES     (20,408,755 )     (22,632,361 )     (7,943,410 )     (21,195,499 )
                                 
Provision for income taxes     -       -       -       -  
                                 
NET LOSS   $ (20,408,755 )   $ (22,632,361 )   $ (7,943,410 )   $ (21,195,499 )
                                 
Other comprehensive income (loss)                                
Foreign currency translations adjustment     1,911       -       (1,131 )     -  
Comprehensive loss   $ (20,406,844 )   $ (22,632,361 )   $ (7,944,541 )   $ (21,195,499 )
                                 
Net loss per share - basic and diluted   $ (0.02 )   $ (0.02 )   $ (0.01 )   $ (0.02 )
                                 
Weighted average common shares outstanding - basic and diluted     1,324,745,508       951,633,584       1,471,059,609       929,337,459  

 

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

 

3
 

 

HUMBL, INC

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

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

 

                                                                                 
    Series A Preferred     Series B Preferred     Common Stock     Additional
Paid-In
    Accumulated
Other
Comprehensive
    Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Income (Loss)     Deficit     Total  
                                                             
Balance - January 1, 2021     7,000,000     $ 70       -     $ -       974,177,443     $ 9,742     $ 2,545,825     $ -     $ (994,805 )   $ 1,560,832  
                                                                                 
Stock issued for:                                                                                
Adjustment     -       -       -       -       41,156       -       -       -       -       -  
Reverse merger with HUMBL     -       -       552,029       6       -       -       39,961       -       -       39,967  
Services     -       -       2,272       -       -       -       179,675       -       -       179,675  
Members interest purchased for cash (timing difference from 2020)     -       -       -       -       -       -     10,000       -       -       10,000  
Reclassification from deferred revenue on warrant purchase     -       -       -       -       -       -       43,243       -       -       43,243  
                                                                                 
Net loss for the period     -       -       -       -       -       -       -       -       (1,436,862 )     (1,436,862 )
                                                                                 
Balance - March 31, 2021     7,000,000       70       554,301       6       974,218,599       9,742       2,818,704       -       (2,431,667 )     396,855  
                                                                                 
Stock issued for:                                                                                
Services     -       -       -       -       5,212,500       52       922,273                       922,325  
Acquisition - Chile Country Rights     -       -       -       -       437,500       4       999,996                       1,000,000  
Acquisition - Tickeri     -       -       -       -       9,345,794       93       9,999,907                       10,000,000  
 Settlement     -       -       -       -       1,000,000       10       1,169,990                       1,170,000  
Conversion of common shares to Series B Preferred     -       -       7,962       -       (79,625,000 )     (796 )     796                       -  
Beneficial conversion feature on convertible note payable     -       -       -       -                       3,300,000                       3,300,000  
Discount on convertible notes     -       -       -       -                       1,754,942                       1,754,942  
Warrants - consultants     -       -       -       -                       424,101                       424,101  
Net loss for the period     -       -       -       -       -       -       -       -       (21,195,499 )     (21,195,499 )
                                                                                 
Balance - June 30, 2021     7,000,000     $ 70       562,263     $ 6       910,589,393     $ 9,105     $ 21,390,709     $ -     $ (23,627,166 )   $ (2,227,276 )
                                                                                 
Balance - January 1, 2022     7,000,000     $ 70       544,759     $ 5       1,023,039,433     $ 10,230     $ 34,182,004     $ -     $ (50,650,809 )   $ (16,458,500 )
                                                                                 
Stock issued for:                                                                                
Services     -       -       -       -       675,000       7       190,586       -       -       190,593  
Cancellation of shares     -       -       -       -       (825,000 )     (9 )     (187,241 )     -       -       (187,250 )
Acquisition -Ixaya     -       -       -       -       8,962,036       90       1,499,910       -       -       1,500,000  
Acquisition -BizSecure     -       -       -       -       13,200,000       132       2,229,348       -       -       2,229,480  
Exercise of warrants     -       -       -       -       10,000,000       100       1,999,900       -       -       2,000,000  
Settlement     -       -       -       -       4,000,000       40       1,120,360       -       -       1,120,400  
Exchange of notes payable and accrued interest     -       -       -       -       37,374,170       374       3,176,430       -       -       3,176,804  
Conversion of Series B Preferred to common shares     -       -       (22,064 )     -       220,640,000       2,206       (2,206 )                     -  
Shares canceled for no consideration     -       -       (4,900 )     -       -       -       -       -       -       -  
Stock-based compensation - warrants     -       -       -       -       -       -       3,270,349       -       -       3,270,349  
Stock-based compensation - options     -       -       -       -       -       -       36,750       -       -       36,750  
Stock-based compensation - restricted stock grants     -       -       -       -       -       -       1,440,464       -       -       1,440,464  
Net change in comprehensive income     -       -       -       -       -       -       -       

3,042

      -      

3,042

 
Net loss for the period     -       -       -       -       -       -       -       -       (12,465,345 )     (12,465,345 )
                                                                                 
Balance - March 31, 2022     7,000,000       70       517,795       5       1,317,065,639       13,170       48,956,654       3,042       (63,116,154 )     (14,143,213 )
                                                                                 
Stock issued for:                                                                                
Services     -       -       -       -       198,750       2       34,704       -       -       34,706  
Conversion of Series B Preferred to common shares     -       -       (22,451 )     -       224,510,000       2,245       (2,245 )                     -  
Contribution of capital - NFT     -       -       -       -       -       -       406,040       -       -       406,040  
Contribution of capital - digital assets     -       -       -       -       -       -       500,000       -       -       500,000  
Stock-based compensation - warrants     -       -       -       -       -       -       1,251,633       -       -       1,251,633  
Stock-based compensation - options     -       -       -       -       -       -       208,460       -       -       208,460  
Stock-based compensation - restricted stock grants     -       -       -       -       -       -       1,216,115       -       -       1,216,115  
Amortization of contingent consideration - restricted stock units     -       -       -       -       -       -       565,815       -       -       565,815  
Net change in comprehensive income     -       -       -       -       -       -       -       (1,131     -        (1,131 )
Net loss for the period     -       -       -       -       -       -       -       -     (7,943,410 )     (7,943,410 )
                                                                                 
Balance - June 30, 2022     7,000,000     $ 70       495,344     $ 5       1,541,774,389     $ 15,417     $ 53,137,176     $ 1,911     $ (71,059,564 )   $ (17,904,985 )

 

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

 

4
 

 

HUMBL, INC

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

SIX MONTHS ENDED JUNE 30, 2022 AND 2021

 

      2022       2021  
CASH FLOW FROM OPERATING ACTIVITIES                
Net loss   $ (20,408,755 )   $ (22,632,361 )
Adjustments to reconcile net loss to net cash used in operating activities                
Depreciation     12,457       -  
Amortization     275,414       -  
Impairment expense - goodwill     1,008,642       12,141,062  
Impairment expense - digital assets     1,211,882       -  
(Gain) on sale of digital assets     (95,794 )     -  
Expenses paid for by digital assets     131,489       -  
Fee added to related party notes for extension     9,000       -  
Sales commission received in digital assets     (1,410 )     -  
Amortization of debt discounts     1,656,267       147,253  
Foreign currency adjustment     1,911       -  
Stock-based compensation     6,795,647       1,566,068  
Bad debt     -       88,693  
Settlement     1,120,400       1,870,000  
Beneficial conversion feature on convertible note payable     -       3,300,000  
                 
Changes in assets and liabilities                
Accounts receivable     (14,168 )     (7,232 )
Intangible assets - digital assets     (983,890 )     (98,535 )
Prepaid expenses and other assets     29,859       (156,276 )
Decrease in related party payable     -       (11,547 )
Accounts payable and accrued expenses     1,691,454       361,314  
Total adjustments     12,849,160       19,200,800  
                 
Net cash used in operating activities     (7,559,595 )     (3,431,561 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of fixed assets     (13,572 )     (364,545 )
Purchase of intangible assets     (275,020 )     -  
Purchase of digital asset (non-fungible token)     (406,040 )     -  
Cash received in purchase of Tickeri     -       127,377  
Cash received in purchase of Monster Creative     -       3,017  
Cash paid in purchase of Ixaya, net of amounts received     (148,675 )     -  
Net cash used in investing activities     (843,307 )     (234,151 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from sales of membership interests of HUMBL, LLC     -       10,000  
Proceeds from sales of warrants and country rights option     -       -  
Redemption of Series B Preferred Stock     -       -  
Proceeds from the exercise of warrants     2,000,000       -  
Proceeds from related party notes payable     4,502,645       -  
Payments of notes payable     (804 )     (46 )
Repayment of amount due to seller     (12,755 )     -  
Contribution of capital CEO     406,040       -  
Proceeds from convertible notes payable     -       6,250,000  
Proceeds from issuance of common stock for cash     -       1,000,000  
Net cash provided by financing activities     6,895,126       7,259,954  
                 
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH     (1,507,776 )     3,594,242  
                 
CASH AND RESTRICTED CASH - BEGINNING OF PERIOD     3,493,213       1,720,979  
                 
CASH AND RESTRICTED CASH - END OF PERIOD   $ 1,985,437     $ 5,315,221  
                 
CASH PAID DURING THE PERIOD FOR:                
Interest expense   $ -     $ -  
                 
Income taxes   $ -     $ -  
                 
SUPPLEMENTAL INFORMATION - NON-CASH INVESTING AND FINANCING ACTIVITIES:                
                 
Conversion of preferred stock into common stock   $ 4,451     $ -  
Conversion of common stock into preferred stock   $ -     $ 796  
Conversion of obligation to issue common stock into common stock   $ 449,950     $ -  
Exchange of convertible notes payable and accrued interest into common stock   $ 3,176,805     $ -  
Contribution of digital assets by CEO   $ 500,000     $ -  
Reclassification of deferred revenue to additional paid in capital   $ -     $ 43,243  
Recognition of discounts at inception of convertible notes payable   $ -     $ 1,754,942  
Reclassification of fixed assets to assets held for sale   $ 328,222     $ -  
                 
Acquisition of Ixaya:                
Accounts receivable   $ 24,446     $ -  
Goodwill     1,008,642       -  
Intellectual property - software     650,000       -  
Accounts payable and accrued expenses     (10,700 )     -  
Note payable - bank     (13,879 )     -  
Related party advances     (9,834 )     -  
Total     1,648,675       -  
Common shares issued     (1,500,000 )     -  
Net cash paid in acquisition of Ixaya   $ 148,675     $ -  
                 
Acquisition of BizSecure:                
Customer relationship   $ 275,000     $ -  
Intellectual property - software     2,500,000       -  
Goodwill     3,981,000       -  
Total     6,756,000       -  
Common shares issued     (2,229,480 )        
Contingent consideration     (4,526,520 )     -  
Net cash paid in acquisition of BizSecure   $ -     $ -  
                 
Acquisition of Tickeri:                
Accounts receivable   $ -     $ 23,587  
Goodwill     -       20,086,664  
Accounts payable and accrued expenses     -       (87,071 )
EIDL Loan     -       (150,000 )
PPP Loan     -       (557 )
Total     -       19,872,623  
Notes payable issued     -       (10,000,000 )
Common shares issued     -       (10,000,000 )
Net cash received in acquisition of Tickeri   $ -     $ (127,377 )
                 
Acquisition of Monster Creative, LLC:                
Accounts receivable   $ -     $ 109,113  
Goodwill     -       8,521,767  
Accounts payable and accrued expenses     -       (81,530 )
Notes payable - officers     -       (486,250 )
PPP Loan     -       (66,117 )
Total     -       7,996,983  
Notes payable issued     -       (500,000 )
Convertible notes payable issued     -       (7,500,000 )
Net cash received in acquisition of Monster Creative, LLC   $ -     $ (3,017 )

 

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

 

5
 

 

HUMBL, INC.

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

JUNE 30, 2022 AND 2021

 

NOTE 1: NATURE OF OPERATIONS

 

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

 

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

 

The FINRA approval for both the increase in the authorized common shares and reverse stock split occurred on February 26, 2021. To assume control of the Company, the former CEO, Henry Boucher assigned his 7,000,000 shares of Series A Preferred Stock as well as 550,000,000 shares of common stock to Brian Foote, the President and CEO of HUMBL LLC for a $40,000 note payable. The Series A Preferred Stock is not convertible into common stock; however, it has voting rights of 10,000 votes per 1 share of stock. After the reverse merger was completed, HUMBL LLC ceased doing business, and all operations were conducted under Tesoro Enterprises, Inc. which later changed their 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. Tickeri is a leading ticketing, live events and box office SaaS platform featuring Latin events and artists throughout the United States, Latin America, and the Caribbean corridor. The purchase price for the stock purchase was $20,000,000 of which we must pay $10,000,000 in our common stock and $10,000,000 was paid through two promissory notes. The shares had a deemed value equal to the volume weighted average price per share of HUMBL common stock on the OTC Markets for the ten consecutive trading days ending with the complete trading day ending two trading days prior to the closing. We issued the two shareholders of Tickeri, Juan Gonzalez and Javier Gonzalez, 4,672,897 shares of our common stock each. We also issued to each of Juan and Javier Gonzalez a secured promissory note in the face amount of $5,000,000. The promissory notes are due and payable on or before December 31, 2022, bear interest at the rate of 5% per annum and are secured by the equity interests of Tickeri. In the event of an uncured default by HUMBL under the promissory note, Juan and Javier Gonzalez have the right to recover the ownership of Tickeri and re-commence the business and operations of Tickeri free and clear of any claims or encumbrances by HUMBL. We intend to limit the integration of Tickeri’s assets with our assets until the promissory notes are paid in full. We agreed to register on Form S-1 within three months from the closing the shares issued to Juan and Javier Gonzalez and have the registration statement declared effective within six months of the closing date. Following the closing, Juan Gonzalez and Javier Gonzalez, entered into employment agreements having a term of 18 months, appointing them CEO of Tickeri and CTO of HUMBL, respectively. The Company has been negotiating with both Juan Luis and Javier Gonzalez regarding the registration rights effectiveness provision and have accrued $700,000 through June 30, 2022 as a result of the failure to have the registration statement originally filed in July 2021 declared effective. We evaluated whether this penalty would constitute a derivative liability, and we determined that there are sufficient funds to cover this fee and sufficient authorized common stock should we pay this fee in stock.

 

On June 30, 2021, we acquired Monster Creative, LLC (“Monster”). Monster is a Hollywood production studio that specializes in producing movie trailers and other related content. Monster was founded by Doug Brandt and Kevin Childress. Monster will collaborate with HUMBL in the production of NFTs and other digital content. The purchase price for all of the membership interests in Monster was paid through the issuance of one convertible note and one non-convertible note to each of Doug Brandt and Kevin Childress in the aggregate principal amount of $8,000,000. The convertible notes were issued to Doug Brandt (through an entity owned by him) and Kevin Childress in the aggregate principal amount of $7,500,000. The notes convert at the holder’s election at $1.20 per share, bear interest at 5% per annum and are due in 18 months from issuance. We also issued non-convertible notes to Doug Brandt and Kevin Childress in the aggregate amount of $500,000. These notes bear interest at the rate of 5% per annum and are due on April 1, 2022. Doug Brandt and Kevin Childress each entered into employment agreements with Monster having a term of three years. Doug Brandt was appointed as the CEO of Monster and Kevin Childress was appointed as its President and Creative Director. The Company and Doug Brandt and Kevin Childress agreed to an extension on March 30, 2022 of the notes that were due April 1, 2022 until July 1, 2022 and then another extension on July 1, 2022 to October 1, 2022.

 

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In the initial extension agreements through July 1, 2022, the Company added $7,500 to Doug Brandt and $1,500 to Kevin Childress in their note agreements, and then added another $7,500 to Doug Brandt and $1,500 to Kevin Childress on July 1, 2022 to extend these notes to October 1, 2022. On July 1, 2022, the Company extended these notes to October 1, 2022 with the following terms: (i) $85,000 due July 15, 2022; (ii) $50,000 due August 1, 2022, (iii) $50,000 due September 1, 2022; and (iv) the remainder of $333,000 due October 1, 2022. The fees of $18,000 on the two extensions did not constitute a material modification of the debt instruments.

 

On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company entered into employment agreements with two BizSecure employees as part of the agreement to help integrate the Mobile ID technology into the Company’s larger suite of products and help operate the blockchain services division. The assets acquired from BizSecure represented the majority of the operations of the entity and BizSecure post-acquisition has only conducted nominal operations and has no employees. The Company issued to BizSecure 13,200,000 common shares and 26,800,000 restricted stock units that vest quarterly commencing April 1, 2022 for a period of two years. The shares and restricted stock units have a value of $6,756,000. The Company has included the value of $4,526,520 which represents the value of the restricted stock units in contingent consideration pursuant to ASC 805-10-55-25. Management considered several factors when making the determination to treat the RSUs as contingent consideration and not post-combination compensation, including, but not limited to, the following: (a) the RSUs are not automatically forfeited upon termination of the two key employees as those RSUs would vest if the employees were terminated without cause or if the employees resigned with good reasons; (b) all selling shareholders of BizSecure receive the same pro rata compensation; (c) the BizSecure shareholders hired by the Company receive compensation commensurate with other employees in the Company at the same level; (d) there are no adjustments to the RSUs based on earnings and thus there is no profit-sharing component to the RSUs; and (e) the parties desired for the compensation to be paid over time and not all up front. Therefore, the Company determined that the restricted stock units should be treated as contingent consideration.

 

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).

 

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

 

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

 

The Company is organized into two divisions: a) HUMBL Consumer and b) HUMBL Commercial. These two divisions incorporate and expand the Company’s core products that were formerly set up into three distinct segments prior to 2022. The majority of the Company’s operations prior to 2022 were focused on the Consumer division. With the acquisition of the Mobile ID technology from BizSecure and software capabilities from Ixaya, the development of our newly formed HUMBL Blockchain Services unit we anticipate that the Commercial division will provide opportunities across the governmental sector as well as businesses in search of enhancing their platforms.

 

HUMBL’s core products and services are as follows:

 

HUMBL Mobile Wallet – A mobile app that allows peers, consumers and merchants to connect in the digital economy;

 

HUMBL Marketplace – A mobile marketplace that allows consumers and merchants to connect more seamlessly in the digital economy; and

 

HUMBL Financial – Financial products and services, targeted for simplified investing on the blockchain.

 

HUMBL Blockchain Services – Enterprise solutions for businesses and governments related primarily to credentialing and identity verification.

 

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HUMBL Mobile Wallet (formerly HUMBL Pay)

HUMBL continues the development of a mobile application that allows customers to migrate to and participate in the digital economy. The Company has integrated a variety of useful functionality such as buying, selling, sending and receiving digital assets, storing personal digital credentials and supporting various digital forms of payment. The Company is also working rapidly to integrate the use of search, discovery, peer-to-peer cash and ticketing around the world, as these services migrate into digital and blockchain-based modalities. The mobile application is designed to provide functionality to the following groups:

 

Individuals - Consumers who want to participate in acquiring digital assets discover, pay, rate and review experiences digitally vs. paper bills and hardware point-of-sale (“POS”);

 

Freelancers - Service providers and gig workers that want to get paid from anywhere they work vs. paper bills and hardware POS; and

 

Merchants – Primarily brick and mortar vendors that want to get paid digitally vs. paper bills and hardware POS.

 

We can receive revenue from the mobile wallet in two ways. First, HUMBL can participate in any transactional fees generated from customers using the HUMBL Pay app. In these circumstances HUMBL can typically collect a percentage of the transaction for providing these services. Second, HUMBL can charge a monthly subscription fee for users such as merchants and freelancers that use the app. Currently, we are not receiving revenue in either of these ways. The Company is not charging fees (in addition to those charged by the third-party services providers) as a way to provide competitive pricing and incentivize customers to use the app. We could begin charging these fees at any time.

 

We engage the services of providers such as Stripe to process payments and Wyre and BitGo to act as custodians of the digital assets purchased by our customers using our HUMBL Pay app. The digital assets purchased on our platform are actually purchased through the Wyre and held by Wyre for our customers’ benefit. No digital assets are purchased through BitGo, but they do act as a custodian for certain of our digital assets.

 

HUMBL Marketplace

 

Through its online marketplace, HUMBL is developing the capability for merchants to list a wide range of soft goods and digital assets to mid-market audiences, that, where appropriate, incorporate the benefits of blockchain. HUMBL provides merchants with the ability to list and sell goods with greater levels of authentication, by using technologies such as the HUMBL Token Engine and HUMBL Origin Assurance, to improve the merchant’s ability to trade, track and pay for assets.

 

Through our online marketplace we also allow for the listing of non-fungible tokens (“NFTs”). NFTs allow entities and individuals such as athletes, celebrities, agencies, artists and companies to monetize their digital images, multimedia content and catalogues on the blockchain. HUMBL provides a marketplace for artists and athletes to connect online in the sale of digital collectibles to fans and collectors and provides a rigorous set of terms and conditions that govern what can and cannot be listed on the marketplace. We currently review all listings to screen for graphic content, potential intellectual property rights violations, and potential securities law violations. The NFT marketplace is operated through a third-party marketplace plug-in (OpenSea), electronic wallet extensions (such as MetaMask), and the Ethereum blockchain. Users participate in the NFT marketplace by linking their digital wallets to our platform and engaging (e.g., buying, selling, bidding) with the NFTs listed on our platform. The services provided by HUMBL are administrative. HUMBL is a platform and does not act as a broker, financial institution, or creditor. We facilitate transactions between the buyer and seller in the auction/sale process but we are not a party to any agreement between the buyer and seller or between any users.

 

We receive revenue from the NFT marketplace in two ways. First, for some clients HUMBL provides design services to help artists, athletes and entertainers create NFTs to be sold to their fans. In these circumstances HUMBL typically receives a flat fee for providing such services that is paid out of the sales price of the NFT. The size of the fee depends on the scope and complexity of the design services provided. Second, HUMBL receives a transaction fee each time an NFT sells on the NFT marketplace.

 

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The NFT marketplace allows creators to mint NFTs using their own intellectual property and list those NFTs for sale (primary sales) on the marketplace. The NFT marketplace also allows for NFTs to be resold (secondary sales) on the platform, but currently only NFTs that were originally minted on the Company’s NFT Marketplace or are otherwise approved by the Company may be listed for secondary sales on the Marketplace. The Company does not otherwise support or influence the market for the resale of NFTs sold on its platform. Other than requiring creators to attest they own the IP used to create their NFTs and monitoring for obvious copyright violations, the Company does not enforce any rights related to the primary or secondary sales of NFTs. Payment transactions for the purchase and sale of NFTs are made through the use of smart contracts on the Ethereum blockchain.

 

The Company does not handle separate, off-chain payments for NFTs. Tracking and payment of resale royalty fees are accomplished automatically through the use of smart contracts. The Company is not responsible for distributing or managing resale royalty fees.

 

In September of 2021, HUMBL launched HUMBL Tickets, initially focused on the offering of secondary (resale) tickets to thousands of live events across North America. The inventory listings and ticket fulfillment are provided by Ticket Evolution and HUMBL earns a commission for each sale. In addition to its subsidiary Tickeri, the Company will continue to work with clients to merge the realms of NFTs, event tickets and blockchain authentication.

 

HUMBL Financial

 

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

 

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

 

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

 

HUMBL Blockchain Services

 

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

 

Our solutions enable municipalities, government agencies, and other commercial entities the ability to offer mobile IDs and other credential verification services to their constituents. We continue to make significant investments to leverage our existing technologies and further expand both our DLT capabilities and are always exploring strategic alternatives intended to optimize the value of our Company.

 

Going Concern

 

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

 

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We have incurred an increased working capital deficit and accumulated deficit as of March 31, 2022 as we continued to ramp up operations significantly in this period and incurred new debt mostly offset by exchanging some debt into shares of common stock to assist in supporting our operations.

 

As of June 30, 2022, we had $1,985,437 in cash and restricted cash. Between the growth in revenues and profitability from our subsidiaries as well as through sales of merchandise, HUMBL Tickets and NFTs in the HUMBL Marketplace, we continue to fund the development of the HUMBL Wallet. In February 2022 we entered into an purchase agreement with BizSecure that coincided with the commencement of HUMBL Blockchain Services. With this acquisition of BizSecure and Ixaya in March 2022, we are growing our operations in the LatAm region of the world and expect to be able to offer our array of core products to governmental agencies as well as the private sector not in the United States, but throughout the world. We have generated a majority of our proceeds from the issuance of debt and through the exercise of warrants.

 

We had a working capital deficit of $27,690,796 and $20,965,419 as of June 30, 2022 and December 31, 2021, respectively. The majority of our current liabilities is in the form of related party notes for the acquisitions of Tickeri and Monster. The decrease in working capital is the direct result of these notes as well as the debt incurred related to the cash necessary to continue the development of our mobile wallet. The Company believes it has adequate capital resources to meet its cash requirements during the next 12 months as they continue to grow and develop suitable sources of capital. A majority of the Company’s operating expenses in 2022 (52%) were the result of non-cash charges such as impairment of goodwill, settlement and stock-based compensation. The actual monthly cash burn of the Company is approximately $1,250,000 per month at this time and as our core products come online, this is likely to decrease upon our technology being completed. The Company has received $2,000,000 in additional warrant exercises and $6,500,000 in related party debt proceeds in 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.

 

We expect that the revenue generating operations of the Company will continue to improve the liquidity of the Company moving forward. However, going forward, the effect of the pandemic on the capital markets may limit our ability to raise additional capital on the terms acceptable to us at the time we need it, if at all. The challenges related to remote work and travel restrictions that we as a smaller company have faced in striving to meet our disclosure obligations in a timely manner while taking the steps to protect the health and safety of our employees have impacted, and may continue to further impact, our ability to raise additional capital.

 

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

 

The Company plans to raise additional capital through the exercising of their warrants as well as through future debt and equity financings to carry out its business plan. Obtaining additional financing and the successful development of the Company’s segments including their new Blockchain Services group, ultimately, to profitable operations, are necessary for the Company to continue operations.

 

Impact of COVID-19

 

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

 

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

 

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

 

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

 

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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

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

 

As the acquisition of HUMBL resulted in the owners of HUMBL gaining control over the combined entity after the transaction, and the shareholders of Tesoro Enterprises, Inc. continuing only as passive investors, the transaction was not considered a business combination under the ASC. Instead, this transaction was considered to be a capital transaction of the legal acquiree (HUMBL) and was equivalent to the issuance of shares by HUMBL for the net monetary assets of Tesoro Enterprises, Inc. accompanied by a recapitalization. As a result, all historical balances are those of HUMBL as they are the accounting acquirer.

 

Under generally accepted accounting principles of the United States, any excess of the fair value of the shares issued by HUMBL over the value of the net monetary assets of Tesoro Enterprises, Inc. is recognized as a reduction of equity. There was no excess of fair value in this transaction.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of HUMBL, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. HUMBL, Inc. holds 100% of Tickeri, Monster and Ixaya. The Company formed additional subsidiaries that are inactive and have no activity for future use.

 

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

 

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

 

Reclassification

 

The Company has reclassified certain amounts in the 2021 financial statements to comply with the 2022 presentation. These principally relate to classification of certain expenses and liabilities. The reclassifications had no impact on total net loss or net cash flows for the six months ended June 30, 2021.

 

Use of Estimates 

 

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

 

Cash and Restricted Cash

 

Cash consists of cash and demand deposits with an original maturity of three months or less. The Company holds no cash equivalents as of June 30, 2022 and December 31, 2021, respectively. The Company maintains cash balances in excess of the FDIC insured limit at a single bank.

 

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In 2022, the Company established a service to their HUMBL Pay app users. The service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre (“Wyre”) to purchase digital assets (cryptocurrency). As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS in a BitGo wallet (“BitGo”). BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS. These timing differences occur, and as of June 30, 2022, the BitGo account has been settled and no unfunded liabilities exist.

 

The BitGo account is not the Company’s account; however 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 represents the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets.

 

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

 

Fixed Assets and Long-Lived Assets 

 

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

 

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

 

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

 

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

 

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

 

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

 

3. Significant negative industry or economic trends.

 

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

 

Revenue Recognition

 

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

 

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

 

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

 

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HUMBL Mobile Wallet (formerly HUMBL Pay)

 

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

 

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

 

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

 

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

 

HUMBL Marketplace

 

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

 

Net transaction revenues

 

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

 

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

 

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

 

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

 

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Ticketing Revenues

 

The Company with the acquisition of Tickeri and launch of HUMBL Tickets recognizes revenues from their ticketing services primarily from service fees, commissions and payment processing fees charged at the time a ticket for an event is sold. We also derive revenues from providing certain creators with account management services and customer support. Our customers are primarily event creators who use our platform to sell tickets to attendees. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we receive in exchange for those goods or services. We allocate the transaction price by estimating a standalone selling price for each performance obligation using a cost plus a margin approach. For service fees and payment processing fees, revenue is recognized when the ticket is sold. For account management services and customer support, revenue is recognized over the period from the date of the sale of the ticket to the date of the event.

 

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

 

We determined the event creator is the party responsible for fulfilling the promise to the attendee, as the creator is responsible for providing the event for which a ticket is sold, determines the price of the ticket and is responsible for providing a refund if the event is canceled. Our service is to provide a platform for the creator and event attendee to transact and our performance obligation is to facilitate and process that transaction and issue the ticket. The amount that we earn for our services is fixed. For the payment processing service, we determined that we are the principal in providing the service as we responsible for fulfilling the promise to process the payment and we have discretion and latitude in establishing the price of our service. Based on our assessment, we record revenue on a net basis related to our ticketing service and on a gross basis related to our payment processing service. As a result, costs incurred for processing the transactions are included in cost of net revenues in the consolidated statements of operations.

 

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

 

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

 

In June 2021, the Company purchased some equipment and furniture as well as a commercial property in the form of a suite at a luxury hotel. The Company is the owner of this suite and entered into a long-term rental agreement with the hotel to manage the property. The Company has use of the suite for 28 calendar days a year and will receive their proportionate income for the other days the suite is being used. The Company recognizes rental revenue for the days in the month the suite is being rented in that month.

 

Marketing services and other revenues

 

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

 

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

 

HUMBL Financial

 

Revenue was recognized upon transfer of control of services to customers in an amount to which the Company expects to be entitled in exchange for those services. Service subscription revenue is recognized for the month in which services are provided. If a customer pays for an annual subscription, revenue is allocated over the months in the subscription and recognized for each month of the service provided.

 

14
 

 

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

 

HUMBL Blockchain Services

 

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

 

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

 

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

 

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

 

Accounts Receivable and Concentration of Credit Risk

 

An allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. The Company does not charge interest on accounts receivable. As of June 30, 2022 and December 31, 2021, there was no allowance necessary.

 

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.

 

15
 

 

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.

 

16
 

 

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 $1,211,882 related to digital assets during the six months ended June 30, 2022, of which $258,217 relates to the NFT we purchased.

 

Fair Value Measurements

 

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

 

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

 

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

 

Level 3 inputs: Instruments with primarily unobservable value drivers.

 

Segment Reporting

 

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

 

For 2021, the Company established three distinct operating segments: HUMBL Marketplace; HUMBL Pay; and HUMBL Financial. Most of the operations for the year ended December 31, 2021 were conducted in North America. Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial. The 2021 segments were all considered part of the consumer division.

 

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

 

Recent Accounting Pronouncements

 

In August, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas.

 

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

 

17
 

 

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

 

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

 

This guidance should be applied no later than the financial statements covering the first interim or annual report ending after June 15, 2022, with retroactive application as of the beginning of the fiscal year to which the interim or annual period relates. Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform of $1,572,898. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to act as the custodians of the digital assets held on our platform.

 

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

 

NOTE 3: DISCONTINUED OPERATIONS

 

BLOCK ETX

 

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

 

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

 

         
    2022  
Revenue   $ -  
Cost of revenue     -  
Gross (loss)     -  
Operating 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 in the three months ended June 30, 2022.

 

The Company commenced operations of the BLOCK ETX products in March 2021. The Company has reclassified the statement of operations for the six months ended June 30, 2021 to reflect the subscription revenue and the direct expenses attributable to the BLOCK ETX product line that included direct payroll and direct subcontractor costs. These amounts are reflected in the loss for discontinued operations as noted in the chart below.

 

         
    2021  
Revenue   $ 104,366  
Cost of revenue     -  
Gross profit     104,366  
Operating and non-operating expenses     (385,620 )
Loss from discontinued operations   $ (281,254 )

 

18
 

 

In addition, effective June 30, 2022, the Company determined to sell their non-residential property, and listed this property for sale in July 2022. This represented a strategic shift for future operations and the Company as a result reclassified the net value on this property of $328,222 as a non-current asset held for sale in accordance with ASC 205-20-45-1E.

 

NOTE 4: BUSINESS COMBINATIONS

 

Tickeri

 

On June 3, 2021, the Company acquired the assets and liabilities of Tickeri noted below in in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:

 

         
Cash   $ 127,377  
Accounts receivables     23,587  
Goodwill     20,086,664  
Accounts payable and accrued expenses     (87,071 )
SBA EIDL     (150,000 )
PPP loan     (557 )
    $ 20,000,000  

 

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

 

         
Common stock   $ 10,000,000  
Notes payable     10,000,000  
Total consideration   $ 20,000,000  

 

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 June 3, 2021. There were no changes to the inputs in the one year that passed since Tickeri was acquired.

 

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

 

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

 

Monster

 

On June 30, 2021, the Company acquired the assets and liabilities of Monster noted below in in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:

 

         
Cash   $ 3,017  
Accounts receivables     379,012  
Goodwill     8,648,104  
Due to seller     (379,012 )
Accounts payable and accrued expenses     (98,754 )
Notes payable – related parties     (486,250 )
PPP loan     (66,117 )
    $ 8,000,000  

 

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

 

         
Convertible notes payable   $ 7,500,000  
Non-convertible notes payable     500,000  
Total consideration   $ 8,000,000  

 

19
 

 

The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of June 30, 2021. There were no changes to the inputs in the one year that passed since Monster was acquired. 

 

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

 

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

 

BizSecure

 

On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company entered into employment agreements with two BizSecure employees as part of the agreement to help integrate the Mobile ID technology into the Company’s larger suite of products and help operate the blockchain services division. The assets acquired from BizSecure represented the majority of the operations of the entity and BizSecure post-acquisition has only conducted nominal operations and has no employees. The Company issued to BizSecure 13,200,000 common shares and 26,800,000 restricted stock units that vest quarterly commencing April 1, 2022 for a period of two years. The shares and restricted stock units have a value of $6,756,000. The Company has included the value of $4,526,520 which represents the value of the restricted stock units in contingent consideration pursuant to ASC 805-10-55-25. Management considered several factors when making the determination to treat the RSUs as contingent consideration and not post-combination compensation, including, but not limited to, the following: (a) the RSUs are not automatically forfeited upon termination of the two key employees as those RSUs would vest if the employees were terminated without cause or if the employees resigned with good reasons; (b) all selling shareholders of BizSecure receive the same pro rata compensation; (c) the BizSecure shareholders hired by the Company receive compensation commensurate with other employees in the Company at the same level; (d) there are no adjustments to the RSUs based on earnings and thus there is no profit-sharing component to the RSUs; and (e) the parties desired for the compensation to be paid over time and not all up front. Therefore, the Company determined that the restricted stock units should be treated as contingent consideration.

 

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

 

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

 

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

 

20
 

 

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

 

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

 

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

 

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

 

Ixaya

 

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

 

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

 

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

 

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

 

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 goodwill was not expected to be deductible for tax purposes.

 

21
 

 

The following table shows the unaudited pro-forma results for the three months ended March 31, 2022 and 2021, as if the acquisitions had occurred on January 1, 2021. These unaudited pro forma results of operations are based on the historical financial statements and related notes of Tickeri, Monster, BizSecure, Ixaya and the Company for 2021, and BizSecure, Ixaya and the Company for 2022.

 

         
    Six Months Ended
June 30, 2021
 
      (Unaudited)  
Revenues   $ 986,142  
Net loss   $ (23,402,883 )
Net loss per share   $ (0.02 )

 

         
    Six Months Ended
June 30, 2022
 
    (Unaudited)  
Revenues   $ 2,302,495  
Net loss   $ (20,437,405 )
Net loss per share   $ (0.02 )

 

NOTE 5: REVENUE

 

The following table disaggregates the Company’s revenue by major source for the six months ended June 30, 2022 and 2021:

 

                 
    Six Months Ended
June 30,
 
    2022     2021  
Revenue:                
Services - Production   $ 1,558,512     $ -  
Services - Ixaya     55,893       -  
Merchandise     7,717       189,282  
Tickets     628,358       88,568  
NFTs     1,410       -  
Rental income     8,509       -  
Other     1,596       -  
Total revenue   $ 2,261,995     $ 277,850  

 

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

 

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

 

NOTE 6: FIXED ASSETS

 

As of June 30, 2022 and December 31, 2021, the Company has the following fixed assets:

 

                 
    2022     2021  
Non-residential property – 20 year-life   $ -     $ 345,497  
Equipment – 5 year-life     19,344       5,772  
Furniture and fixtures – 5 year-life     16,307       16,307  
Accumulated depreciation     (6,311 )     (11,129 )
Fixed assets   $ 29,340     $ 356,447  

 

22
 

 

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

 

Depreciation expense for the six months ended June 30, 2022 and 2021 was $12,457 and $0, respectively, as the property was placed into service on July 1, 2021.

 

NOTE 7: INTANGIBLE ASSETS AND GOODWILL

 

As of June 30, 2022 and December 31, 2021, the Company has the following intangible assets:

 

                 
    2022     2021  
Intellectual property - software – 5 year-life   $ 3,150,000     $ -  
Customer relationship – 5 year-life     275,000       -  
Domain names – 15 year-life     275,020       -  
Accumulated amortization     (275,414 )     -  
Intangible assets, net   $ 3,424,606     $ -  

 

In February 2022, the Company acquired intangible assets from BizSecure valued at $2,775,000, and in March 2022 in the acquisition of Ixaya acquired intangible assets valued at $650,000. There were no intangible assets as of December 31, 2021.

 

Amortization expense for the six months ended June 30, 2022 was $275,414.

 

As of June 30, 2022 and December 31, 2021, the Company has recorded goodwill as follows:

 

                 
    2022     2021  
Tickeri   $ 3,353,392     $ 3,353,392  
Monster Creative     3,177,954       3,177,954  
BizSecure     3,981,000       -  
Ixaya     -       -  
Goodwill   $ 10,512,346     $ 6,531,346  

 

In 2021, the Company evaluated ASC 350-20-50 for the goodwill associated with the two acquisitions. The Company determined that there was impairment of goodwill associated with the Tickeri acquisition of $16,733,272 and impairment of goodwill associated with the Monster Creative transaction of $5,470,150 to be recognized in the year ended December 31, 2021, as reflected in operating expenses under the line item Impairment - goodwill. In accordance with ASC 350-20-50-6 (a through d), the Company determined based on the qualitative factors surrounding the Tickeri and Monster Creative acquisitions, which include the foothold of Tickeri in the Latin population of the United States, the development of the Company’s website, and the fact that the former President of Tickeri became the CTO of HUMBL, as well as the services being provided by Monster Creative in production, and the services for both entities in the COVID pandemic, the fair value of Tickeri and Monster Creative did not equate to the value that was paid for these entities. As a result, we recognized the goodwill at the time of purchase for Tickeri, and re-evaluated the goodwill determination as of December 31, 2021 for both Tickeri and Monster Creative which resulted in additional impairment to be recognized. We determined the value based on the multiple of earnings on similar companies evaluated in the ticketing space and in the production space for Monster Creative. Since both Tickeri and Monster Creative services fall under the HUMBL Marketplace segment in 2021 (now Consumer division), the entire impairment of the goodwill is reflected in that segment. The Company has determined that no further impairment of goodwill for either of these two acquisitions was necessary during the six months ended June 30, 2022.

 

In 2022, the Company evaluated ASC 350-20-50 for the goodwill associated with the BizSecure and Ixaya acquisitions. The Company determined that there was impairment of goodwill associated with the Ixaya acquisition of $1,008,642 in the three months ended March 31, 2022. We determined the value of Ixaya’s intellectual property based on the multiple of earnings on similar companies evaluated in the blockchain technology space Since Ixaya services fall under the Commercial Division, the impairment of the goodwill for Ixaya is reflected in that division. The Company determined there was no indication of impairment for BizSecure as of June 30, 2022, as the assets purchased have contributed to significant enhancements to the HUMBL Pay app.

 

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NOTE 8: INTANGIBLE ASSETS – DIGITAL ASSETS

 

In 2021, the Company purchased Ethereum, a digital asset to create NFTs for beta testing to determine whether they would be able to place them onto the HUMBL Marketplace’s NFT Gallery in addition to the NFTs others create that are on the NFT Gallery. The Company purchased $114,650 in digital currency in the year ended December 31, 2021. The Company expensed $133,660 in the digital currency to create NFTs as beta testing for future endeavors and for payment of expenses, received commissions on sales of NFTs of $8,400, reflected $34,570 in impairment of the intangible asset for digital currency, and recognized a gain on sale of digital assets of $47,875.

 

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 June 30, 2022, the BitGo account has been settled and no unfunded liabilities exist.The BitGo account is not the Company’s account; however, represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.

 

In March 2022, the Company purchased an NFT for $406,046. The Company has evaluated the fair value of this NFT as of June 30, 2022 and has determined that there impairment of $258,217 was necessary as the value of similar priced NFTs have declined as of June 30, 2022. The value of the NFT as of June 30, 2022 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 six months ended June 30, 2022, the Company purchased $983,890 in digital currency expensed $131,489 in the digital currency for future endeavors and for payment of expenses, received commissions on sales of NFTs of $1,410, reflected $953,665 in impairment of the intangible asset for digital currency, and recognized a gain on sale of digital assets of $95,794. The Company’s CEO contributed $500,000 worth of BLOCKS to the Company that is included in the digital assets owned by HUMBL.

 

The value of the digital assets as of June 30, 2022 and December 31, 2021 is $646,458 (of which the value of the non-fungible token of $147,823 is considered a non-current asset) and $2,695, respectively.

The following table presents additional information about the Company’s digital asset holdings during the period ended June 30, 2022:

 

Digital Assets Owned By HUMBL:

 

Six Months Ended June 30, 2022   ETH     BLOCKS     BTC     WETH     DAI     USDC     Total  
Balance – January 1, 2022   $ 2,664     $ -     $ 28     $ -     $ -     $ 3     $ 2,695  
Contribution by CEO     -       500,000       -       -       -       -       500,000  
Purchases of digital assets     983,890       -       -       -       -       -       983,890  
Purchases of digital assets by customers in the HUMBL Pay App     -       -       -       -       -       1,760,647       1,760,647  
Purchases of BLOCKS for HUMBL Pay users and NFT purchase     (521,758 )     -       -       (23,590 )     (14,094 )     (1,201,205 )     (1,760,647 )
Transfers     343,842       164,323       5,191       20,192       14,852       (548,400 )     -  
NFT commissions     1,410       -       -       -       -       -       1,410  
Contract labor     -       (16,655 )     -       -       -       -       (16,655 )
Exchange fees     (105 )     -       -       -       -       -       (105 )
Advertising expenses     (95,460 )     -       (4,719 )     -       -       (4,900 )     (105,079 )
Conferences     (9,650 )     -       -       -       -       -       (9,650 )
Impairment – digital assets     (791,160 )     (158,502 )     (327 )     (1,972 )     (770 )     (934 )     (953,665 )
Gain (loss) on disposal of digital assets     86,437       3,947       28       5,370       12       -       95,794  
Balance – June 30, 2022   $ 110     $ 493,113     $ 201     $ -     $ -     $ 5,211     $ 498,635  
Digital Assets held at June 30, 2022     0.108800938       127,419,343       0.01134288       -       0,4233       5211.281239       -  

 

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

 

Under SAB 121, companies are required to present the asset and liability at fair value for any crypto-assets and obligations to safeguard crypto-assets. The Company earns no revenue from providing this service to their customers. It is simply an added benefit that HUMBL Pay customers receive for using the app. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in Wyre, there may be delays in digital assets being received by customers and the delivery of BLOCKS to a BitGo. BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS These timing differences occur, and as of June 30, 2022, the BitGo account has been settled and no unfunded liabilities exist.

 

Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform of $1,572,898. 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 9: NOTE PAYABLE - BANK

 

On March 3, 2022 with the acquisition of Ixaya, the Company assumed a loan with Citibanamex. The loan is due in monthly payments of $7,110 MXN (approximately $350 US$) inclusive of interest and matures in July 2025. As of June 30, 2022, the Company has $13,075 outstanding under the loan. The Company has included $4,240 in current liabilities, and the balance of $8,835 in long-term liabilities.

 

NOTE 10: NOTES PAYABLE

 

The Company entered into notes payable as follows as of June 30, 2022 and December 31, 2021. The chart below does not include notes payable that were repaid or converted during 2021:

 

                 
    2022     2021  
Notes payable ($250,000 each), at 2% interest, maturing July 30, 2022; payments due at maturity (see Note 19, “Subsequent Events”)   $ 500,000     $ 500,000  
                 
EIDL loan at 3.75% interest, maturing May 18, 2050 (assumed in the acquisition of Tickeri), no payments for 2 years, then monthly payments of $731 per month inclusive of interest     150,000       150,000  
                 
Total     650,000       650,000  
Less: Current portion     (502,309 )     (501,828 )
Long-term debt   $ 147,691     $ 148,172  

 

Maturities of notes payable for the next five years as of June 30 are as follows:

 

         
2023   $ 502,309  
2024     3,548  
2025     3,700  
2026     3,841  
2027     3,988  
Thereafter     132,614  
Total   $ 650,000  

 

In the acquisition of Tickeri, the Company assumed a PPP loan and an EIDL loan. The PPP loan was repaid in its entirety in the year ended December 31, 2021. In the acquisition of Monster a $66,117 PPP loan was forgiven in the year ended December 31, 2021 and the forgiveness of this debt is reflected in other income. Interest expense for the six months ended June 30, 2022 and 2021 was $8,014 and $1,588, respectively. Accrued interest at June 30, 2022 was $22,165.

 

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NOTE 11: NOTES PAYABLE – RELATED PARTIES

 

The Company entered into notes payable as follows as of June 30, 2022 and December 31, 2021:

 

                 
    2022     2021  
Notes payable ($5,000,000 each), at 5% interest, maturing December 3, 2022 for acquisition of Tickeri (see Note 4) with the two principals of Tickeri, one of which is an officer of the Company as well; payments due at maturity   $ 10,000,000     $ 10,000,000  
                 
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 $9,000 to the two noteholders for the extension which did not constitute a material modification of a debt instrument)     509,000       500,000  
                 
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     486,250       486,250  
                 
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       -  
                 
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       -  
                 
Advance – officer – Ixaya, on demand, no interest     12,479       -  
                 
Total     15,507,729       10,986,250  
Less: Current portion     (11,007,729 )     (10,986,250 )
Long-term debt   $ 4,500,000     $ -  

 

Maturities of notes payable – related parties as of June 30 is as follows:

 

         
2023   $ 11,007,729  
2024     -  
2025     4,500,000  
Total   $ 15,505,921  

 

Interest expense for the six months ended June 30, 2022 and 2021 was $324,828 and $36,986, respectively. Accrued interest at June 30, 2022 was $633,614.

 

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NOTE 12: CONVERTIBLE PROMISSORY NOTES

 

The Company entered into convertible promissory notes as follows as of June 30, 2022 and December 31, 2021:

 

                 
    2022     2021  
Convertible note, at 8% interest, maturing December 23, 2022 convertible into common shares at $