UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ______ to ______
Commission
File No.
(Exact name of Registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
OTCQB |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for at least the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
There were shares of the Registrant’s $0.00001 par value common stock outstanding as of May 12, 2023.
HUMBL, Inc.
INDEX
i |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
Table of Contents
1 |
HUMBL, INC
CONSOLIDATED BALANCE SHEETS (IN US$)
MARCH 31, 2023 (UNAUDITED) AND DECEMBER 31, 2022
MARCH 31, | DECEMBER 31, | |||||||
2023 | 2022 | |||||||
(UNAUDITED) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | $ | ||||||
Assets related to user cryptocurrencies safeguarding obligation | ||||||||
Accounts receivable | ||||||||
Inventory, net | ||||||||
Intangible assets - digital assets, current portion | ||||||||
Prepaid expenses and other current assets | ||||||||
Current assets of discontinued operations | ||||||||
Total Current Assets | ||||||||
Non-Current Assets: | ||||||||
Fixed assets, net of depreciation | ||||||||
Intangible assets, net of amortization | ||||||||
Intangible assets - digital assets, net of current portion | ||||||||
Total Non-Current Assets | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
LIABILITIES | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Obligation to issue common shares | ||||||||
User cryptocurrencies safeguarding obligation | ||||||||
Contingent consideration | ||||||||
Due to seller | ||||||||
Derivative liabilities | ||||||||
Current portion of notes payable - bank | ||||||||
Current portion of notes payable | ||||||||
Current portion of notes payable - related parties | ||||||||
Convertible notes payable - related parties, net of current portion | ||||||||
Current portion of convertible notes payable, net of discount | ||||||||
Current liabilities of discontinued operations | ||||||||
Total Current Liabilities | ||||||||
Long-Term Liabilities: | ||||||||
Notes payable - bank, net of current portion | ||||||||
Notes payable related parties, net of current portion | ||||||||
Non-current liabilities of discontinued operations | ||||||||
Total Long-Term Liabilities | ||||||||
Total Liabilities | ||||||||
Commitments and contingency | ||||||||
STOCKHOLDERS’ DEFICIT | ||||||||
Preferred stock, | shares Series A Preferred stock authorized, and Series B Preferred stock authorized (Series C Preferred stock was cancelled October 29, 2021)||||||||
Series A Preferred, par value $ | , and shares issued and outstanding, respectively||||||||
Series B Preferred, par value $ | , and shares issued and outstanding, respectively||||||||
Common stock, par value, $ | , shares authorized and issued and outstanding, respectively||||||||
Additional paid in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Accumulated other comprehensive income (loss) | ( | ) | ||||||
Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ |
The accompanying notes are an integral part of these financial statements.
2 |
HUMBL, INC
CONSOLIDATED STATEMENTS OF OPERATIONS (IN US$) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
2023 | 2022 | |||||||
REVENUES | $ | $ | ||||||
COST OF REVENUES | ||||||||
GROSS PROFIT | ||||||||
OPERATING EXPENSES | ||||||||
Development costs | ||||||||
Professional fees | ||||||||
Settlement | ||||||||
Impairment - intangible assets including goodwill | ||||||||
Impairment - digital assets | ||||||||
General and administrative expenses | ||||||||
Total Operating Expenses | ||||||||
OPERATING LOSS | ( | ) | ( | ) | ||||
NON-OPERATING INCOME (EXPENSE) | ||||||||
Interest expense | ( | ) | ( | ) | ||||
Change in fair value of derivative liabilities | ||||||||
Derivative expense | ( | ) | ||||||
Amortization of debt discounts | ( | ) | ( | ) | ||||
Gain on sale of digital assets | ||||||||
Loss on conversion of convertible notes payable | ( | ) | ||||||
Total Non-Operating Income (Expenses) | ( | ) | ( | ) | ||||
NET LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED | ||||||||
OPERATIONS AND PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
DISCONTINUED OPERATIONS: | ||||||||
(Loss) income from discontinued operations | ( | ) | ||||||
Gain on disposal of discontinued operations | ||||||||
Total discontinued operations | ||||||||
NET INCOME (LOSS) FROM OPERATIONS BEFORE | ||||||||
PROVISION FOR INCOME TAXES | ( | ) | ||||||
Provision for income taxes | ||||||||
NET INCOME (LOSS) | $ | $ | ( | ) | ||||
Other comprehensive income (loss) | ||||||||
Foreign currency translations adjustment | ( | ) | ||||||
Comprehensive income (loss) | $ | $ | ( | ) | ||||
Net income (loss) per share - basic | ||||||||
Continuing operations | $ | ( | ) | $ | ( | ) | ||
Discontinued operations | $ | $ | ||||||
Net income (loss) per share - basic | $ | $ | ( | ) | ||||
Net income (loss) per share - diluted | ||||||||
Continuing operations | $ | ( | ) | $ | ( | ) | ||
Discontinued operations | $ | $ | ||||||
Net income (loss) per share - diluted | $ | $ | ( | ) | ||||
Weighted average common shares outstanding - basic | ||||||||
Weighted average common shares outstanding - diluted |
The accompanying notes are an integral part of these financial statements.
3 |
HUMBL, INC
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (IN US$) (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Series A Preferred | Series B Preferred | Common Stock | Additional Paid-In | Other Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Total | |||||||||||||||||||||||||||||||
Balance - January 1, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
Cancellation of shares | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Settlement | - | - | ||||||||||||||||||||||||||||||||||||||
Services | - | - | ||||||||||||||||||||||||||||||||||||||
Acquisition -Ixaya | - | - | ||||||||||||||||||||||||||||||||||||||
Acquisition -BizSecure | - | - | ||||||||||||||||||||||||||||||||||||||
Exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||
Exchange of notes payable and accrued interest | - | - | ||||||||||||||||||||||||||||||||||||||
Conversion of Series B Preferred to common shares | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
Shares canceled for no consideration | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||
Stock-based compensation - warrants | - | - | - | |||||||||||||||||||||||||||||||||||||
Stock-based compensation - options | - | - | - | |||||||||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock grants | - | - | - | |||||||||||||||||||||||||||||||||||||
Change in comprehensive income (loss) | - | - | - | |||||||||||||||||||||||||||||||||||||
Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
Balance - March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
Balance - January 1, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
Stock issued for: | ||||||||||||||||||||||||||||||||||||||||
Services (including settlement of obligation to issue common shares) | - | - | ||||||||||||||||||||||||||||||||||||||
Acquisition -BM Authentics (to settle obligation to issue common shares) | - | - | ||||||||||||||||||||||||||||||||||||||
Settlement of Tickeri sale | - | - | ||||||||||||||||||||||||||||||||||||||
Conversion of convertible notes | - | - | ||||||||||||||||||||||||||||||||||||||
Conversion of Series B Preferred to common shares | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
Contribution of capital | - | - | - | |||||||||||||||||||||||||||||||||||||
Stock-based compensation - warrants | - | - | - | |||||||||||||||||||||||||||||||||||||
Stock-based compensation - options | - | - | - | |||||||||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock grants | - | - | - | |||||||||||||||||||||||||||||||||||||
Amortization of contingent consideration - restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||
Change in comprehensive income | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
Net income for the period | - | - | - | |||||||||||||||||||||||||||||||||||||
Balance - March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these financial statements.
4 |
HUMBL, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN US$) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
2023 | 2022 | |||||||
CASH FLOW FROM OPERTING ACTIVIITES FROM CONTINUING OPERATIONS | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
Depreciation | ||||||||
Amortization | ||||||||
Impairment expense - intangible assets including goodwill | ||||||||
Impairment expense - digital assets | ||||||||
(Gain) on sale of digital assets | ( | ) | ( | ) | ||||
Loss on conversion of convertible notes payable | ||||||||
Expenses paid for by digital assets | ||||||||
Fee added to convertible notes | ||||||||
Sales commission received in digital assets | ( | ) | ||||||
Amortization of debt discounts | ||||||||
Foreign currency adjustment | ( | ) | ||||||
Stock-based compensation | ||||||||
Gain on disposal of Tickeri | ( | ) | ||||||
Derivative expense | ||||||||
Change in fair value of derivative liabilities | ( | ) | ||||||
Settlement | ||||||||
Obligation to issue common shares for services rendered | ||||||||
Changes in assets and liabilities, net of acquired amounts | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Intangible assets - digital assets | ( | ) | ||||||
Inventory | ||||||||
Prepaid expenses and other assets | ||||||||
Accounts payable and accrued expenses | ||||||||
Total adjustments | ( | ) | ||||||
Net cash used in operating activities of continuing operations | ( | ) | ( | ) | ||||
Net cash provided by (used in) operating activities of discontinued operations | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of fixed assets | ( | ) | ||||||
Cash paid in purchase of Ixaya, net of amounts received | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
Proceeds from the exercise of warrants | ||||||||
Proceeds from related party notes payable | ||||||||
Payments of notes payable - bank | ( | ) | ||||||
Payments of notes payable | ( | ) | ||||||
Contribution of capital CEO | ||||||||
Proceeds from notes payable | ||||||||
Proceeds from convertible notes payable | ||||||||
Net cash provided by financing activities | ||||||||
NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH | ( | ) | ||||||
CASH AND RESTRICTED CASH - BEGINNING OF PERIOD | ||||||||
CASH AND RESTRICTED CASH - END OF PERIOD | $ | $ | ||||||
CASH PAID DURING THE PERIOD FOR: | ||||||||
Interest expense | $ | $ | ||||||
Income taxes | $ | $ | ||||||
SUPPLEMENTAL INFORMATION - NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Settlement with Tickeri in disposal | $ | $ | ||||||
Conversion of preferred stock into common stock | $ | $ | ||||||
Conversion of obligation to issue common stock into common stock | $ | $ | ||||||
Conversion of convertible notes payable and accrued interest to common stock | $ | $ | ||||||
Exchange of convertible notes payable and accrued interest into common stock | $ | $ | ||||||
Reclassification of deferred revenue to additional paid in capital | $ | $ | ||||||
Recognition of discounts at inception of convertible notes payable | $ | $ | ||||||
Vesting of contingent consideration | $ | $ | ||||||
Reclassification of convertible notes payable to derivative liability | $ | $ | ||||||
Acquisition of Ixaya: | ||||||||
Accounts receivable | $ | $ | ||||||
Goodwill | ||||||||
Intellectual property - software | ||||||||
Accounts payable and accrued expenses | ( | ) | ||||||
Note payable - bank | ( | ) | ||||||
Related party advances | ( | ) | ||||||
Common shares issued | ( | ) | ||||||
Net cash paid in acquisition of Ixaya | $ | $ | ||||||
Acquisition of BizSecure: | ||||||||
Customer relationship | $ | $ | ||||||
Intellectual property - software | ||||||||
Goodwill | ||||||||
Common shares issued | ( | ) | ||||||
Contingent consideration | ( | ) | ||||||
Net cash paid in acquisition of BizSecure | $ | $ |
The accompanying notes are an integral part of these financial statements.
5 |
HUMBL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN US$) (UNAUDITED)
MARCH 31, 2023 AND 2022
NOTE 1: NATURE OF OPERATIONS
HUMBL, Inc. (“Company” or “HUMBL”) was incorporated in the state of Oklahoma on November 12, 2009. The Company was redomiciled on November 30, 2020 to the state of Delaware.
On
December 3, 2020, HUMBL, LLC (“HUMBL LLC”) merged into the Company in what is accounted for as a reverse merger. Under the
terms of the Merger Agreement, HUMBL LLC exchanged
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
On
June 3, 2021 we acquired Tickeri, Inc. (“Tickeri”) in a debt and stock transaction totaling $
On June 30, 2021, we acquired Monster Creative, LLC (“Monster”). Monster is a Hollywood production studio that specializes in producing movie trailers and other related content. As part of the acquisition we entered into certain debt instruments with the founders of Monster that are in default as they were due December 31, 2022. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.
On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company had issued common shares and restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the RSUs that vested during 2022. Pursuant to BizSecure’s request, the shares of common stock and the RSUs were rescinded effective December 30, 2022. The remaining RSUs will continue to vest in accordance with the original terms. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.
6 |
On
March 3, 2022, the Company acquired Ixaya Business SA de CV, a Mexican corporation (“Ixaya”), under a Stock Purchase Agreement
(“Ixaya SPA”). The acquisition of Ixaya was for $
On
November 2, 2022, the Company acquired BM Authentics (“BM”), a provider of sports merchandise ranging from autographed jerseys,
bats, balls, helmets, and photos for $
On
November 15, 2022 we entered into a Settlement Agreement and Mutual Release of Claims (the “Release Agreement”) with Forwardly,
Inc. (“Forwardly”) under which we agreed to pay Forwardly $
HUMBL is a Web 3, digital commerce platform built to connect consumers, businesses and governments in the digital economy. HUMBL provides simple tools and packaging for complex new technologies such as blockchain, in the same way that previous cycles of e-commerce and the cloud were more simply packaged by companies such as Facebook, Apple, Amazon and Netflix over the past several decades. The Company through their product offerings are looking to simplify and package the digital economy for consumers, corporations and government.
The goal of HUMBL is to provide ready built tools, and platforms for consumers and merchants to seamlessly participate in the digital economy. HUMBL is built on a patent-pending, decentralized technology stack that utilizes both core and partner technologies, to provide faster connections to the digital economy and each other.
The Company is organized into two divisions: a) HUMBL Consumer and b) HUMBL Commercial. These two divisions incorporate and expand the Company’s core products and services. The majority of the Company’s operations prior to 2022 were focused on the Consumer division.
HUMBL – A Web 3 Commerce Platform
HUMBL was founded to deliver an integrated, Web 3 digital commerce platform for consumers, merchants and governments. HUMBL has delivered one of the first integrated technology environments in which a digital wallet, search engine, social media and marketplace listings can be used together by consumers in one place. The HUMBL platform is comprised of the following key components described below.
HUMBL Consumer Division
● | HUMBL Wallet | |
● | HUMBL Search Engine | |
● | HUMBL Tickets | |
● | HUMBL Marketplace | |
● | HUMBL Social | |
● | HUMBL Metaverse Stores |
HUMBL Commercial Division
● | HUMBL Blockchain Services |
7 |
HUMBL Wallet
The HUMBL Wallet is the centerpiece of the Web 3 consumer experience on the HUMBL platform. The HUMBL Wallet is self-custodied by the individual; ensuring that they have full control over their digital assets and private keys.
Customers can use the HUMBL Wallet to send and receive digital assets, interact on the HUMBL Social platform, perform web searches on the HUMBL Search Engine, store and manage their NFTs, consume content via MP4 multimedia player and more.
The HUMBL Wallet drives revenue through: a) digital asset swaps, in which the customer can use the self-custodied HUMBL digital wallet to swap from one digital asset to another on the Ethereum blockchain, and b) purchasing crypto through Sardine, a third-party service that allows customers to buy digital assets with credit cards.
The HUMBL Wallet is also connected to the BLOCKS Registry, a decentralized blockchain registry that allows customers to authenticate digital items, such as NFTs, and track the chain of custody to ensure reduced fraud, forgery and theft in the digital markets.
HUMBL Wallet customers have the obligation to perform their own tax record keeping and tracking of assets and swaps in the self-custodied wallet; as well as backup of their private keys, to ensure the recoverability, data security and storage of their digital assets.
The HUMBL Wallet is equipped with 2-factor authentication; as well as biometric security features, which are handled by the handset and its manufacturer. HUMBL does not store or have access to any biometric information related to its verified users.
The HUMBL Wallet uses SumSub, a third-party service provider, to perform KYC / KYB and authenticate customers. HUMBL does not capture or store consumers’ information on HUMBL’s servers, except for their corresponding name, wallet address and email address for basic communications with the verified user. HUMBL does not resell its customers data.
The HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries.
HUMBL Search Engine
The HUMBL Search Engine is available via the HUMBL Wallet and the HUMBL website. The HUMBL Search Engine allows customers to search for standard Web 2 content such as news, images and video. The company also recently completed the development of its HUMBL Ads portal, which can be used to customize advertising programs for clients. This includes traditional search advertising such as display ads, location targeting and cost-per-click performance advertising.
The HUMBL Search Engine also offers Web 3 blockchain-based search features such as the ability to search major NFTs across Ethereum, Polygon, BLOCKS, Gnosis and Solana. Consumers are able to confirm that certain NFTs have been “Verified by BLOCKS” to protect against the fraud and forgery in the NFT market. The search engine also shows customers where certain NFTs are available for purchase across various marketplaces.
HUMBL Tickets
HUMBL Tickets is initially focused on the offering of secondary (resale) tickets to thousands of live events across North America. HUMBL Tickets inventory listings and ticket fulfillment are provided by Ticket Evolution and HUMBL earns a commission for each sale through its website.
The ticketing content provided on HUMBL Tickets spans across major live music, sports, festivals and events in multiple countries. HUMBL Tickets advertises its services primarily across social media, including its own HUMBL Social platform.
HUMBL is also exploring the development of primary ticketing and peer-to-peer ticketing sales via blockchain technology and dynamic QR codes, with ticket storage inside the HUMBL Wallet as future digital collectibles; along with authenticated content, ratings and reviews from ticketed events on the HUMBL Social platform via verified profiles, commemorative icons and attendance badges.
8 |
HUMBL Marketplace
The HUMBL Marketplace was designed to pair authenticated buyers and sellers in verified, digital commerce. The HUMBL Marketplace currently works with clients such as professional athletes, brands, and marketing and talent agencies, to provide sports merchandise ranging from autographed jerseys, bats, balls, helmets, photos and more.
The HUMBL Marketplace mitigates forgeries by pairing physical merchandise with digital certificates of registration. Merchandise is made available on the HUMBL platform and is verified, registered, and cataloged on the blockchain.
The HUMBL Marketplace also allows for the minting and listing of non-fungible tokens (NFTs) as digital collectibles, that allow pre-approved individuals to monetize their digital images, multimedia content and catalogues on the blockchain.
HUMBL is a software platform and does not act as a broker, financial institution, or creditor for digital collectibles. We facilitate transactions between the buyer and seller in the auction/sale process, but we are not a party to any agreement between the buyer and seller or between any users.
HUMBL Social
HUMBL Social is one of the world’s first user-verified social media platforms. The social media platform is available via web browser and the HUMBL Wallet. The goal of HUMBL Social is to provide real people, real profiles and real merchants with a place to connect on the worldwide web.
HUMBL Social supports only verified user profiles, to ensure authenticity of the platform. This helps to reduce the fake profiles, product ratings and reviews that have plagued major Web 2 social media platforms due to the allowance of anonymous profiles and non-verified sellers. The HUMBL Social platform is available in over 130+ countries via the HUMBL Wallet and web browser.
HUMBL Metaverse Stores
HUMBL has created technology to build customized metaverse stores for brands, athletes, entertainers and celebrities. HUMBL’s first metaverse store was created for Major League Baseball player Ke’Bryan Hayes and his father Charlie Hayes, a retired Major League Baseball player. The brand metaverse store is called the “House of Hayes” and supports the development of an immersive player experience, in which customers can navigate a simulated environment of historical artwork and current digital collectibles. Custom artwork was provided by Topps “Sports Artist of the Year” Lauren Taylor, in the form of digital collectibles that rotated on screens throughout the environment. Endorsement sporting goods brands of Ke’Bryan Hayes, such as Wilson, Franklin and Old Hickory, also supported product placement and sell-through environments for products such as authentic baseball bats and gloves. An immersive Wilson Amphitheatre was also created for multimedia press conferences or media interactions with Ke’Bryan Hayes’ avatar.
HUMBL Blockchain Services
HUMBL Blockchain Services (“HBS”) was formed as part of the Company’s asset acquisition of BizSecure on February 12, 2022. Recognizing the opportunities for governments and commercial enterprises to incorporate blockchain and distributed ledger technologies (“DLT”), HBS is focused on working with clients to identify problems and develop solutions that build upon the various capabilities the Company has and continues to develop.
Our solutions enable municipalities, government agencies, and other commercial entities the ability to offer mobile IDs and other credential verification services to their constituents. We continue to make significant investments to leverage our existing technologies and further expand our DLT capabilities.
9 |
Components of the HUMBL Wallet can be used by HBS to white label a “Powered By” environment for local, state or national government clients that may want to move to digital or blockchain-based registry formats of their transactions, record keeping and / or payments from citizens, corporations, or government departments.
An example of this is a pilot program that HUMBL is currently developing with the County of Santa Cruz (CA), in which HUMBL and the County are working to scope the development of a digital wallet in which citizens can more easily and effectively receive government services access via digital technologies.
HUMBL Financial
HUMBL Financial was developed to package step-function technologies such as blockchain into “several clicks” for the customer.
In 2021, HUMBL Financial created BLOCK ETX products to simplify digital asset investing for customers and institutions seeking exposure to a new, 24/7 digital asset class. We have launched this product in 100 countries outside the United States. HUMBL Financial has developed proprietary, multi-factor blockchain indexes, trading algorithms and financial services for the new digital asset trading markets to accommodate index, active and thematic investment strategies. BLOCK ETXs are completely non-custodial, algorithmically driven software services that allow customers to purchase and hold digital assets in pre-set allocations through their own digital asset exchange accounts. BLOCK ETXs are compatible for United States customers who have accounts with Coinbase Pro, Bittrex US or Binance US and for non-US customers who have accounts with Bittrex Global. BLOCK ETXs were served first on the desktop and web version of the HUMBL platform, with the goal of future applications inside the HUMBL mobile application. HUMBL Financial is open to the licensing of the BLOCK ETXs to institutions and exchanges. HUMBL Financial also plans to offer trusted, third-party financial services in areas such as payments, investments, credit card services and lending across the HUMBL platform over time.
In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.
Going Concern
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
During the past two years, we devoted a substantial amount of capital to build out our platform and as a result our working capital deficit and accumulated deficit have increased significantly. In addition, we have incurred significant debt from both unrelated and related parties to assist in supporting our operations.
As
of March 31, 2023, we had $
We
had a working capital deficit of $11,719,183 and $
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In
January 2023, we recognized a gain on disposal of $
The consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
Impact of COVID-19
The COVID-19 pandemic previously had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries in which we operate, depending on the vaccine rollouts and the emergence of virus mutations.
COVID-19 did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets.
Our ability to access the capital markets and maintain existing operations is unknown during the COVID-19 pandemic. Any such limitation on available financing and how we conduct business with our customers and vendors would adversely affect our business.
Because the federal government and some state and local authorities are reacting to the many variants of COVID-19, it is creating uncertainty on whether these actions could disrupt the operation of the Company’s business and have an adverse effect on the Company. The extent to which the COVID-19 outbreak may impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Impact of Cryptocurrency Bankruptcies
In November 2022, both FTX Trading and BlockFi filed for bankruptcy protection under Chapter 11. These bankruptcies have impacted several companies either directly or indirectly. Customers of the HUMBL Wallet use our platform to hold their cryptocurrency. Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets. We removed the HUMBL Pay app from the Apple App Store and Google Play store on January 31, 2023 and are in the process of migrating all customers from HUMBL Pay to the HUMBL Wallet. HUMBL Wallet users maintain their own private digital wallets where the cryptocurrency is held and HUMBL has no access to those wallets.
The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
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We do not, nor have we ever used either of these exchanges to conduct business. We have not been impacted by these bankruptcies. And we continue to monitor the industry and protect our customers’ assets.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “Commission” or the “SEC”). It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.
Principles of Consolidation
The
consolidated financial statements include the accounts of HUMBL, Inc. and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. HUMBL, Inc. holds
The Company applies the guidance of Topic 805 Business Combinations of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
For Monster, BizSecure, Ixaya and BM Authentics, the Company accounted for these acquisitions as business combinations and the difference between the consideration paid and the net assets was applied to goodwill as there were no identifiable intangible assets acquired.
Reclassification
The Company has reclassified certain amounts in the 2022 financial statements to comply with the 2023 presentation. These principally relate to classification of certain expenses and liabilities. The reclassifications had no impact on total net loss or net cash flows for the three months ended March 31, 2022.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for permanent and temporary differences related to income taxes, liabilities to accrue, estimates of the fair value of goodwill and determination of the fair value of stock awards. Actual results could differ from those estimates.
Cash
Cash
consists of cash and demand deposits with an original maturity of three months or less. The Company holds
In 2022, the Company established a service to their HUMBL Pay app users. The service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre (“Wyre”) to purchase digital assets (cryptocurrency). As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS in a BitGo wallet (“BitGo”). BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS.
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The BitGo account is not the Company’s account; however it represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.
Safeguarding Obligation
Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets.
The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
Fixed Assets and Long-Lived Assets
ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted Accounting Standard Update (“ASU”) 2017-04 Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
Fixed assets and intangible assets with finite useful lives are stated at cost less accumulated amortization and impairment. Intangible assets with infinite lives, such as digital currency are valued at costs and reviewed for indicators of impairment at least annually, or more depending on circumstances.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Revenue Recognition
The Company accounts for a contract with a customer that is within the scope of this Topic only when the five steps of revenue recognition under ASC 606 are met.
The five core principles will be evaluated for each service provided by the Company and is further supported by applicable guidance in ASC 606 to support the Company’s recognition of revenue.
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The Company accounts for revenues based on the verticals in which they were earned. The three principal verticals in which the Company operates today are HUMBL Mobile Wallet, HUMBL Marketplace, and HUMBL Blockchain Services.
HUMBL Mobile Wallet (formerly HUMBL Pay)
The Company is anticipated to earn transaction revenues primarily from fees charged to consumers and merchants on a transaction basis through the Company’s mobile application. These fees may have a fixed and/or variable component. The variable component is generally a percentage of the value of the payment amount and is known at the time the transaction is processed. For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. The Company may estimate the amount of fee refunds that will be processed each quarter and record a provision against the net revenues. The volume of activity processed on the platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).
The Company will earn additional fees on transactions where currency conversion is performed via on ramping and off ramping via digital currencies, when swaps are performed on digital currencies, and when cross-border transactions are enabled (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for customers from their HUMBL account to their debit card or bank account, and other miscellaneous fees. The Company will rely on third party partners to perform all money transmission services.
The Company may earn revenues from other value-added services, which are comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, ticketing, peer-to-peer payments, and other services that will be provided to merchants and consumers. These contracts typically have one performance obligation which is provided and recognized over the term of the contract.
The transaction price is generally fixed and known at the end of each reporting period; however, for some agreements, it may be necessary to estimate the transaction price using the expected value method. The Company is expected to record revenue earned in revenues from other value-added services on a net basis when they are considered the agent with respect to processing transactions.
HUMBL Search Engine
Revenues are derived principally from the sale of advertisements, classifieds fees, and revenue sharing arrangements. Advertising revenue is derived principally from the sale of online advertisements which are based on “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our platforms) or “clicks” (which are generated each time users on our platforms click through our advertisements to an advertiser’s designated website) delivered to advertisers.
The Company uses the output method and apply the practical expedient to recognize advertising revenue in the amount to which they have a right to invoice. For contracts with target advertising commitments with rebates, estimated payout is accounted for as a variable consideration to the extent it is probable that a significant reversal of revenue will not occur.
HUMBL Tickets
The Company recognizes revenues from HUMBL Tickets primarily from service fees. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we receive in exchange for those goods or services. For service fees and payment processing fees, revenue is recognized when the ticket is sold.
We evaluate whether it is appropriate to recognize revenue on a gross or net basis based upon our evaluation of whether we obtain control of the specified goods or services by considering if we are primarily responsible for fulfillment of the promise, have inventory risk, and have the latitude in establishing pricing and selecting suppliers, among other factors.
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For the payment processing service, we determined that we are the principal in providing the service as we responsible for fulfilling the promise to process the payment and we have discretion and latitude in establishing the price of our service. Based on our assessment, we record revenue on a net basis related to our ticketing service and on a gross basis related to our payment processing service. As a result, costs incurred for processing the transactions are included in cost of net revenues in the consolidated statements of operations.
Revenue is presented net of indirect taxes, value-added taxes, creator royalties and reserves for customer refunds, payment chargebacks and estimated uncollectible amounts. If an event is cancelled by a creator, then any obligations to provide refunds to event attendees are the responsibility of that creator.
If a creator is unwilling or unable to fulfill their refund obligations, we may, at our discretion, provide attendee refunds. Revenue is also presented net of the amortization of creator signing fees when applicable. The benefit we receive by securing exclusive ticketing and payment processing rights with certain creators from creator signing fees is inseparable from the customer relationship with the creator and accordingly these fees are recorded as a reduction of revenue in the consolidated statements of operations.
HUMBL Marketplace
The Company recognizes revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which is expected to be entitled in exchange for those goods or services. Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities.
Net transaction revenues
The net transaction revenues will primarily include final value fees, feature fees, including fees to promote listings, and listing fees from sellers in our Marketplace. The net transaction revenues will also include store subscription and other fees often from large enterprise sellers. The net transaction revenues are reduced by incentives provided to customers.
The Company has identified one performance obligation to sellers on the Marketplace platform, which is to connect buyers and sellers on the secure and trusted Marketplace platforms. Final value fees are recognized when an item is sold on a Marketplace platform, satisfying this performance obligation. There may be additional services available to Marketplace sellers, mainly to promote or feature listings, that are not distinct within the context of the contract.
Accordingly, fees for these additional services are recognized when the single performance obligation is satisfied. Promoted listing fees are recognized when the item is sold and feature and listing fees are recognized when an item is sold, or when the contract expires.
Further, to drive traffic to the platform, the Company will provide incentives to buyers and sellers in various forms including discounts on fees, discounts on items sold, coupons and rewards. Evaluating whether a promotion or incentive is a payment to a customer may require significant judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when the incentive is paid or promise to be paid. Promotions and incentives to most buyers on our Marketplace platforms, to whom there is no performance obligation, are recognized as sales and marketing expense. In addition, there may be credits provided to customers when certain fees are refunded. Credits are accounted for as variable consideration at contract inception when estimating the amount of revenue to be recognized when a performance obligation is satisfied to the extent that it is probable that a significant reversal of revenue will not occur and updated as additional information becomes available.
HUMBL Blockchain Services
The Company disaggregates revenue from contracts with customers into product revenues and services revenues.
Product revenue related contracts with customers begin upon contract inception when a purchase order for a specific customer order of a product to be delivered in the near term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.
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Service revenues primarily consist of revenues derived from maintenance support and the use of the Company’s service platforms and application programming interface (“APIs”) on a subscription basis. The Company generates this revenue from fees for maintenance and support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.
The Company accounts for individual goods and services separately if they are distinct performance obligations, which often requires significant judgment based upon knowledge of the products and/or services, the solution provided and the structure of the sales contract. In SaaS agreements, the Company provides a service to the customer that combines the software functionality, maintenance and hosting into a single performance obligation. In product-related contracts, a purchase order may cover different products, each constituting a separate performance obligation.
HUMBL Financial
In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022.
Accounts Receivable and Concentration of Credit Risk
An
allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses.
Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts
are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. The Company
does not charge interest on accounts receivable. As of March 31, 2023 and December 31, 2022, there was
Inventory
Inventory is valued at the lower of cost or net realizable value, with cost determined using the first-in first-out method. The carrying value of inventory is evaluated periodically for excess quantities and obsolescence. Management evaluates quantities on hand and physical condition as these characteristics may be impacted by anticipated customer demand for current products. The allowance is adjusted based on such evaluation, with a corresponding provision included in cost of sales.
Income Taxes
Income taxes are accounted under the asset and liability method. The current charge for income tax expense is calculated in accordance with the relevant tax regulations applicable to the entities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences.
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Uncertain Tax Positions
The Company follows ASC 740-10 Accounting for Uncertainty in Income Taxes. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed.
The Company follows ASC 718 Compensation – Stock Compensation and has adopted ASU 2017-09 Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting. The Company calculates compensation expense for all awards granted, but not yet vested, based on the grant-date fair values. Share-based compensation expense for all awards granted is based on the grant-date fair values. The Company policy is to recognize these compensation costs, on a pro rata basis over the requisite service period of each vesting tranche of each award for service-based grants, and as the criteria is achieved for performance-based grants, when such grants are made. For stock options and warrants, the Company uses the Black-Scholes model to estimate the value of those grants. The Company has not had any forfeitures of these grants, and these estimates of value will include a percentage of forfeitures when that percentage is able to be estimated.
The Company adopted ASU 2016-09 Improvements to Employee Share-Based Payment Accounting. Cash paid when shares are directly withheld for tax withholding purposes will be classified as a financing activity in the statement of cash flows.
Fair Value of Financial Instruments
ASC 825 Financial Instruments requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company’s financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued liabilities, and amounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Leases
The Company follows ASC 842 Leases in accounting for leased properties, when they exceed a one-year term. When the Company enters into leases with a term in excess of one year, they will recognize a lease liability and right of use asset in accordance with the provisions of ASC 842.
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants.
Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only the basic weighted average number of common shares are used in the computations.
Currency Translation
Ixaya’s functional currency is the Mexican Peso and its reporting currency is the United States dollar. Transactions denominated in the functional currency are converted into United States dollars using the exchange rate in effect at the date of the transaction or the average rate for the period in the case of revenue and expense transactions. Monetary assets and liabilities are re-valued into the reporting currency at each balance sheet date using the exchange rate in effect at the balance sheet date, with any resulting exchange gains or losses being credited or charged to accumulated other comprehensive income (loss). Non-monetary assets and liabilities are recorded in the reporting currency using the exchange rate in effect at the date of the transaction and are not revalued for subsequent changes in exchange rates.
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Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including convertible notes and warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities, is remeasured at the end of each reporting period.
Digital Assets
Digital assets, including non-fungible tokens and cryptocurrencies, are included in the consolidated balance sheets. We have ownership of and control over our digital assets and may use third party custodial services to secure them. Digital assets are initially recorded at cost and are subsequently remeasured at cost, net of any impairment losses on our consolidated balance sheets. We assign costs to digital asset transactions on a first-in, first-out basis. Gains or losses are not recorded until realized upon sale(s).
We determine the fair value of our digital assets on a nonrecurring basis, based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). We perform a quarterly, or more frequent review to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges on any day during the quarter, indicate that it is more likely than not that our digital assets are impaired.
The
cost basis of digital assets will not be adjusted upward for subsequent increases in fair value. Such impairment in the value of digital
assets is recorded as a component of other operating expenses in our consolidated statements of operations. We recorded an impairment
loss of approximately $
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
Segment Reporting
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions.
Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial.
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All of the Company’s sales are from North America, therefore the Company has determined that segment reporting by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report segment information by location.
Recent Accounting Pronouncements
The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe that this new guidance will have a material impact on its financial statements.
On March 31, 2022, the SEC added Staff Accounting Bulletin (“SAB”) No. 121 (“SAB 121”) into Section FF to Topic 5. The interpretations in this SAB express views of the staff regarding the accounting for entities that have obligations to safeguard crypto-assets held for their platform users. In connection with these services, these entities and/or their agents may safeguard the platform users’ crypto-assets and also maintain the cryptographic key information necessary to access the crypto-asset. The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets, including technological, legal, and regulatory risks and uncertainties.
These risks can have a significant impact on the entity’s operations and financial condition. The staff believes that the recognition, measurement, and disclosure guidance in this SAB will enhance the information received by investors and other uses of financial statements about these risks, thereby assisting them in making investment and other capital allocation decisions.
This guidance should be applied no later than the financial statements covering the first interim or annual report ending after June 15, 2022, with retroactive application as of the beginning of the fiscal year to which the interim or annual period relates. Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to act as the custodians of the digital assets held on our platform.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3: DISCONTINUED OPERATIONS
BLOCK ETX
Effective February 28, 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. Per ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.
All subscription revenues recognized in January and February 2022, were refunded to the subscribers. The only amounts reflected as discontinued operations in 2022 relate to the direct expenses attributable to the BLOCK ETX product line that include direct payroll and direct subcontractor costs. These amounts are reflected in the loss for discontinued operations as noted in the chart below.
2022 | ||||
Revenue | $ | |||
Cost of revenue | ||||
Gross (loss) | ||||
Operating and non-operating expenses | ||||
Loss from discontinued operations | $ | ( | ) |
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The Company paid the refunds to the subscribers in the three months ended March 31, 2022, and had no expenses related to the BLOCK ETX product line after February 28, 2022. For a full description of the BLOCK ETX/HUMBL Financial, refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023.
NON-RESIDENTIAL PROPERTY
On
June 30, 2022, the Company determined to sell their non-residential property, and listed this property for sale in July 2022. This represented
a strategic shift for future operations and the Company as a result reclassified the net value on this property of $
TICKERI
On
January 31, 2023, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Javier Gonzalez (“Javier”)
and Juan Luis Gonzalez (“Juan”). Under the terms of the Settlement Agreement, Tickeri was transferred back to Javier and
Juan, free of any encumbrances and including all of Tickeri’s intellectual property, since the Company was in default of the promissory
notes for $
Per
ASC 205-20-50-1(a), the timing of the disposal was January 31, 2023, but the Company had made the decision to dispose of this business
in December 2022, and it represented a strategic shift in the business of the Company. The Company met the criteria for the Tickeri operations
to be classified as held for sale at that time. In addition to the assets and liabilities reflected as discontinued operations, the settlement
with Tickeri resulted in the forgiveness of the two promissory notes totaling $
Current assets as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
March 31, 2023 | December 31, 2022 | |||||||
Cash | $ | $ | ||||||
Accounts receivable | ||||||||
$ | $ |
Current liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
March 31, 2023 | December 31, 2022 | |||||||
Accounts payable and accrued expenses | $ | $ | ||||||
$ | $ |
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Non-current liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
March 31, 2023 | December 31, 2022 | |||||||
Long-term debt | $ | $ | ||||||
$ | $ |
The Company reclassified the following operations to discontinued operations for the three months ended March 31, 2023 and 2022, respectively.
2023 | 2022 | |||||||
Revenue | $ | $ | ||||||
Operating expenses | ||||||||
Other non-operating expenses | ||||||||
Net (loss) income from discontinued operations | $ | ( | ) | $ |
The Company reflected the following gain on disposal for the three months ended March 31, 2023 related to the sale of Tickeri:
2023 | 2022 | |||||||
Common shares issued | $ | ( | ) | $ | ||||
Forgiveness of related party notes | ||||||||
Forgiveness of accrued expenses | ||||||||
Cash | ( | ) | ||||||
Accounts receivable | ( | ) | ||||||
Accounts payable and accrued expenses | ||||||||
Other (income) loss | ||||||||
Net gain on disposal | $ | $ |
NOTE 4: BUSINESS COMBINATIONS
For all acquisitions prior to January 1, 2022, refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023.
BizSecure
On
February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined
this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure
is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US
Air Force and BizSecure’s Mobile ID technology. The Company had issued
Customer relationships | $ | |||
Intellectual property - software | ||||
Goodwill | ||||
$ |
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The consideration paid for the acquisition of assets of BizSecure was as follows:
Common stock | $ | |||
Contingent consideration (RSUs) | ||||
Total consideration | $ |
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of February 12, 2022.
The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and useful lives for the intangible assets acquired; and (iii) finalization of the fair value of non-cash consideration.
The Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation of assets and liabilities is necessary, the Company will adjust these figures.
The Company has determined that the preliminary purchase price allocation did not need to be revised.
Effective
December 31, 2022, the Company impaired the $
The goodwill is not expected to be deductible for tax purposes.
Ixaya
On March 3, 2022, the Company acquired the assets and liabilities of Ixaya noted below in in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:
Cash | $ | |||
Accounts receivables | ||||
Goodwill | ||||
Intellectual property - software | ||||
Accounts payable and accrued expenses | ( | ) | ||
Payable – officer | ( | ) | ||
Note payable - bank | ( | ) | ||
$ |
The consideration paid for the acquisition of Ixaya was as follows:
Cash | $ | |||
Common stock | ||||
Total consideration | $ |
22 |
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of March 3, 2022. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and useful lives for the intangible assets acquired; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.
The
Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained
during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date
that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation
of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase
price allocation and has determined that there are no adjustments to be made from the original allocation. During the three months ended
March 31, 2022, the Company impaired $
The Company has determined that the preliminary purchase price allocation did not need to be revised.
The goodwill was not expected to be deductible for tax purposes.
BM Authentics
On November 2, 2022, the Company acquired the assets and liabilities of BM Authentics noted below in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:
Inventory | $ |
The consideration paid for the acquisition of BM Authentics was as follows:
Cash | $ | |||
Common stock | ||||
Total consideration | $ |
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of November 2, 2022. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuations and useful lives for the intangible assets acquired; (ii) finalization of the valuation of accounts payable and accrued expenses; (iii) finalization of the valuation of the inventory; and (iv) finalization of the fair value of non-cash consideration.
The Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase price allocation and has determined that there are no adjustments to be made from the original allocation.
The Company has determined that the preliminary purchase price allocation did not need to be revised. The Company issued the shares owed ( common shares) on January 10, 2023.
The goodwill was not expected to be deductible for tax purposes.
23 |
The following table shows the unaudited pro-forma results for the three months ended March 31, 2022 as if the acquisitions had occurred on January 1, 2022. These unaudited pro forma results of operations are based on the historical financial statements and related notes of BizSecure, Ixaya, BM Authentics and the Company for 2022.
Three Months Ended March 31, 2022 | ||||
(Unaudited) | ||||
Revenues | $ | |||
Net loss | $ | ( | ) | |
Net loss per share | $ | ( | ) |
NOTE 5: REVENUE
The following table disaggregates the Company’s revenue by major source for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Revenue: | ||||||||
Services - Production | $ | $ | ||||||
Services - Ixaya | ||||||||
Merchandise | ||||||||
Tickets | ||||||||
NFTs | ||||||||
Rental income | ||||||||
Other | ||||||||
$ | $ |
There were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Collections of the amounts billed are typically paid by the customers within 30 to 60 days.
NOTE 6: INVENTORY
On
November 2, 2022, in the acquisition of BM Authentics, the Company acquired $
NOTE 7: FIXED ASSETS
As of March 31, 2023 and December 31, 2022, the Company has the following fixed assets:
2023 | 2022 | |||||||
Equipment – | $ | $ | ||||||
Furniture and fixtures – | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
$ | $ |
24 |
In
June 2021, the Company purchased some equipment and furniture as well as a commercial property in the form of a suite at a luxury hotel.
The Company is the owner of this suite and entered into a long-term rental agreement with the hotel to manage the property. The Company
has use of the suite for 28 calendar days a year and will receive their proportionate income for the other days the suite is being used.
The suite with a net value of $
Depreciation
expense for the three months ended March 31, 2023 and 2022 was $
NOTE 8: INTANGIBLE ASSETS AND GOODWILL
As of March 31, 2023 and December 31, 2022, the Company has the following intangible assets:
2023 | 2022 | |||||||
Intellectual property - software – | $ | $ | ||||||
Customer relationship – | ||||||||
Domain names – | ||||||||
Accumulated amortization - software | ( | ) | ( | ) | ||||
Accumulated amortization – customer relationship | ( | ) | ( | ) | ||||
Accumulated amortization - domain names | ( | ) | ( | ) | ||||
$ | $ |
In
February 2022, the Company acquired intangible assets from BizSecure valued at $
Amortization
expense for the three months ended March 31, 2023 and 2022 was $
Amortization expense for the next five years and in the aggregate is as follows:
2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
$ |
As of March 31, 2023 and December 31, 2022, the Company has recorded goodwill as follows for our continuing operations:
March 31, 2023 | March 31, 2022 | |||||||
Balance – beginning of the period | $ | $ | ||||||
Acquisition of Monster | ||||||||
Acquisition of BizSecure | ||||||||
Acquisition of Ixaya | ||||||||
Impairment for the period | ( | ) | ||||||
$ | $ |
As of March 31, 2023 and December 31, 2022, the Company had remaining goodwill recorded.
The Company evaluated ASC 350-20-50 for the goodwill associated with their acquisitions.
25 |
NOTE 9: INTANGIBLE ASSETS – DIGITAL ASSETS
In 2022, the Company established a service to their HUMBL Pay app users. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS to BitGo. BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS. These timing differences occur, and as of December 31, 2022, the BitGo account has been settled and no unfunded liabilities exist. The BitGo account is not the Company’s account; however, represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.
In
March 2022, the Company purchased an NFT for $
In
the year ended December 31, 2022, the Company purchased $
In
the three months ended March 31, 2023, the Company expensed $
The
value of the digital assets as of March 31, 2023 and December 31, 2022 is $
The following table presents additional information about the Company’s digital asset holdings during the three months ended March 31, 2023:
Digital Assets Owned By HUMBL:
Three Months Ended March 31, 2023 | ETH | BLOCKS | BTC | WETH | DAI | USDC/USDT | Total | |||||||||||||||||||||
Balance – January 1, 2023 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Advertising expenses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Impairment – digital assets | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Gain (loss) on disposal of digital assets | ||||||||||||||||||||||||||||
Balance – March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Digital Assets held at March 31, 2023 |
Digital Assets Owned By HUMBL Pay Users (SAB 121 disclosure):
Under SAB 121, companies are required to present the asset and liability at fair value for any crypto-assets and obligations to safeguard crypto-assets. The Company earns no revenue from providing this service to their customers. It is simply an added benefit that HUMBL Pay customers receive for using the app. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in Wyre, there may be delays in digital assets being received by customers and the delivery of BLOCKS to a BitGo. BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS These timing differences occur, and as of December 31, 2022, the BitGo account has been settled and no unfunded liabilities exist.
26 |
Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to act as the custodians of the digital assets held on our platform.
NOTE 10: NOTE PAYABLE - BANK
On
March 3, 2022 with the acquisition of Ixaya, the Company assumed a loan with Citibanamex. The loan is due in monthly payments of $
NOTE 11: NOTES PAYABLE
The Company entered into notes payable as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued operations or disposed of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
March 31, 2023 | December 31, 2022 | |||||||
Note payable entered into February 8, 2023 with a maturity date of | $ | $ | ||||||
Note payable entered into November 15, 2022 with a company pursuant to a settlement agreement and mutual release of claims, payments due in 5 equal payments on November 15, 2022, December 15, 2022, January 15, 2023, February 15, 2023 and June 15, 2023 (previously March 15, 2023) (January 2023 and February 2023 payments were made on December 30, 2022 to extend the final payment to June 15, 2023); upon satisfaction of the note payable, the Company will receive back | ||||||||
Total | ||||||||
Less: Discounts | ( | ) | ||||||
Less: Current portion | ( | ) | ( | ) | ||||
Long-term debt | $ | $ |
All of the notes payable as of March 31, 2023 are due in the next fiscal year, and therefore all current.
Interest
expense for the three months ended March 31, 2023 and 2022 was $
27 |
NOTE 12: NOTES PAYABLE – RELATED PARTIES
The Company entered into notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued operations or disposed of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
March 31, 2023 | December 31, 2022 | |||||||
Notes payable ($ | $ | $ | ||||||
Notes payable to the sellers of Tickeri ($ | ||||||||
Notes payable ($ | ||||||||
Note payable with a company whose managing member is related to an officer and director of the Company, at | ||||||||
Note payable with a company whose managing member is related to an officer and director of the Company, at | ||||||||
Note payable with a company whose managing member is related to an officer and director of the Company, at | ||||||||
Note payable with a company whose managing member is related to an officer and director of the Company, at | ||||||||
Note payable with a company whose managing member is related to an officer and director of the Company, at | ||||||||
Advance – officer – Ixaya, on demand, no interest | ||||||||
Total | ||||||||
Less: Current portion | ( | ) | ( | ) | ||||
Long-term debt | $ | $ |
Maturities of notes payable – related parties as of March 31 is as follows:
2024 | $ | |||
2025 | ||||
2026 | ||||
$ |
Interest
expense for the three months ended March 31, 2023 and 2022 was $
On
January 31, 2023, in the sale back to the former owners of Tickeri, the $
28 |
NOTE 13: CONVERTIBLE PROMISSORY NOTES
The Company entered into notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable – related parties that were repaid or converted during 2022. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
March 31, 2023 | December 31, 2022 | |||||||
Convertible note at | $ | $ | ||||||
Convertible note at | ||||||||
Convertible note at | ||||||||
Convertible note at | ||||||||
Convertible note at | ||||||||
Convertible note at | ||||||||
Convertible note due | ||||||||
Convertible note due | ||||||||
Convertible note at | ||||||||
Less: Current portion | ( | ) | ( | ) | ||||
Less: Discounts | ( | ) | ( | ) | ||||
Long-term debt | $ | $ |
On
April 14, 2021 we received bridge financing in the form of a loan in the principal amount of $
BCP
has been converting this note and accrued interest since August 16, 2022. In addition, they sold a portion of the note ($
29 |
On
May 17, 2021, the Company issued a convertible promissory note to an investor for $
On
December 8, 2022, the Company entered into an
On
January 25, 2023, the Company entered into an
On
February 8, 2023, the Company entered into a
On
February 23, 2023, the Company entered into a convertible promissory note in the amount up to $
On
March 1, 2023, a noteholder sold $
On
March 6, 2023, the Company entered into a
On
March 31, 2023, the Company entered into a Convertible Promissory Note in the amount of $
30 |
On
April 10, 2023, the Company entered into a Promissory Note in the amount of $
In order to have sufficient common shares to convert the debt and enable the transfer agent to have the reserves necessary, the Company’s CEO has committed to not to convert of his Series B Preferred shares until after the Company increases their authorized common shares in amount sufficient to provide for sufficient reserves the outstanding obligations.
All of the convertible promissory notes as of March 31, 2023 and December 31, 2022 are due in the next fiscal year, and therefore all current.
The Company evaluated the terms of the convertible notes and determined that there were derivative liabilities to be recorded at inception of the notes as there were sufficient shares to net share settle the notes at the discounted values.
Interest
expense for the three months ended March 31, 2023 and 2022 was $
On
March 31, 2022, the Company entered into exchange agreements with most of their convertible note holders to exchange $
NOTE 14: CONVERTIBLE PROMISSORY NOTES – RELATED PARTIES
The Company entered into convertible notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include convertible notes payable – related parties that were repaid or converted during 2022. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
March 31, 2023 | December 31, 2022 | |||||||
Convertible note at | $ | $ | ||||||
Less: Current portion | ( | ) | ( | ) | ||||
Long-term debt | $ | $ |
31 |
All of the convertible promissory notes – related parties are in default and reflected in current liabilities as of March 31, 2023.
On
June 30, 2021, the Company acquired Monster Creative, LLC. The Monster Purchase Price included: (a) a convertible note to Phantom Power,
LLC in the amount of $
The Company evaluated the terms of the convertible notes and determined that there were no terms that would necessitate the recognition of any derivative liabilities.
In
the three months ended March 31, 2023, the convertible noteholders sold $
Interest
expense for the three months ended March 31, 2023 and 2022 was $
NOTE 15: DERIVATIVE LIABILITIES
The Company entered into several convertible notes payable during the three months ended March 31, 2023, that terms include variable conversion prices (see Note 13). The Company evaluated these terms and determined that the conversion option on the convertible notes payable contained characteristics that required the Company to classify them as derivative liabilities. The Derivative Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value of Derivative Instruments. The estimated fair value of the Derivative Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).
The Company identified embedded features in some of the agreements which were classified as liabilities. These embedded features included a variable conversion price that would convert those instruments into a variable number of common shares. The accounting treatment of derivative financial instruments requires that the Company treat the instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
The Company determined the derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of March 31, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used on March 31, 2023 and at inception:
Three Months Ended | Inception | |||||||
Expected term | ||||||||
Expected volatility | % | % | ||||||
Expected dividend yield | ||||||||
Risk-free interest rate | % | % | ||||||
Market price | $ | – $ | $ | - $ |
The Company’s derivative liabilities as of March 31, 2023 and inception associated with the offerings are as follows.
March 31, 2023 (unaudited) | December 31, 2022 | Inception | ||||||||||
Fair value of conversion option on February 8, 2023 note (see Note 13) | $ | $ | ||||||||||
Fair value of conversion option on February 23, 2023 note (see Note 13) | ||||||||||||
Fair value of conversion option on March 6, 2023 note (see Note 13) | ||||||||||||
$ | $ |
Activity related to the derivative liabilities for the three months ended March 31, 2023 is as follows:
Beginning balance as of December 31, 2022 | $ | |||
Bifurcation of conversion option on convertible note payable | ||||
Change in fair value of derivative liabilities (restated) | ( | ) | ||
Ending balance as of March 31, 2023 | $ |
There were no derivative liabilities in the three months ended March 31, 2022.
NOTE 16: STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
As of March 31, 2023 and December 31, 2022, the Company has shares of Preferred Stock authorized, designated as follows: shares of Series A Preferred Stock authorized, and shares of Series B Preferred Stock authorized. All shares of preferred stock have a par value of $ .
Series A Preferred Stock
Dividends. Shares of Series A Preferred Stock shall be entitled to receive, out of funds legally available for that purpose, on the same terms and conditions as that of holders of common stock, as may be declared by the Board of Directors.
Conversion. There are no conversion rights.
32 |
Redemption.
Voting
Rights.
Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation value of the Series A Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series A Preferred Stock shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
The shares were issued to a former officer of the Company and assigned to the new CEO at the time of the reverse merger of HUMBL.
Series B Preferred Stock
Prior to the amendment of the Certificate of Incorporation on October 29, 2021, the criteria established for the Series B Preferred Stock was as follows:
Dividends. Shares of Series B Preferred Stock shall be entitled to receive, out of funds legally available for that purpose, on the same terms and conditions as that of holders of common stock, as may be declared by the Board of Directors.
Conversion. Each share of Series B Preferred Stock shall be convertible at the option of the holder thereof at any time after December 3, 2021 at the office of the Company or any transfer agent for such stock, into ten thousand ( ) fully paid and nonassessable shares of common stock subject to adjustment for any stock split or distribution of securities or subdivision of the outstanding shares of common stock.
Redemption.
Voting
Rights.
Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation value of the Series B Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series B Preferred Stock shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
HUMBL
exchanged
These shares have a lock-up provision that prevents the holders to convert into common stock for a period of one-year from the date of the merger of December 3, 2020, with the exception of those held by the CEO who had a two-year lock up provision. In addition, officers and directors that received these shares are subject to strict selling limitations, where the number of shares sold within the preceding three months cannot exceed the greater of: (a) % of the total outstanding common shares; and (b) the average weekly reported trading volume for the previous four weeks.
On February 26, 2021, the Company issued shares of Series B Preferred Stock for services rendered that were cancelled. On April 15, 2021, the Company revised their issuances and issued with an effective date of March 31, 2021, Series B Preferred shares for services rendered. Of the shares issued, are vested immediately, are vested over one year, and are vested over two years. The vesting period commenced January 1, 2021. All of the Series B Preferred Shares issued have one-year lock up provisions to convert into common stock from the date of the merger of December 3, 2020. These shares have been fully expensed as of December 31, 2022.
33 |
Between May 3 and May 6, 2021, the Company’s CEO converted shares of common stock into Series B Preferred shares. These shares are subject to a lock-up provision whereby the CEO has agreed not to convert these Series B shares to common for a period of two years.
On July 6, 2021, the CEO of the Company cancelled shares of Series B Preferred Stock ( if converted into common stock) for no consideration.
On
November 19, 2021, the Company paid $
In December 2021, there were Series B Preferred shares converted into common shares.
On March 17, 2022, the CEO of the Company cancelled shares of Series B Preferred Stock ( if converted into common stock) and on September 21, 2022, the Company’s CEO cancelled Series B Preferred shares (the equivalent of common shares) for no consideration.
During the year ended December 31, 2022, there were shares of Series B Preferred Stock converted into common shares.
For the three months ended March 31, 2023, there were shares of Series B Preferred Stock converted into common shares.
As of March 31, 2023, the Company has shares of Series B Preferred Stock issued and outstanding.
On
October 29, 2021, the Company by Board consent approved an amendment to their Certificate of Amendment for the Series B Preferred Stock
to
Common Stock
The Company has shares of common stock, par value $ , authorized. The Company has and shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. The Company on February 26, 2021 increased its authorized shares from to shares.
In the three months ended March 31, 2022, the Company: (a) issued shares in a settlement; (b) shares in the exercise of warrants; (c) shares in the asset purchase of BizSecure (also granted restricted stock units in this acquisition); (d) shares in the acquisition of Ixaya; (e) shares for services rendered; (f) shares issued for the exchange of notes payable and accrued interest; and (g) shares issued in conversion of Series B Preferred stock. In addition, the Company cancelled shares.
During
the three months ended March 31, 2022, the Company expensed $
In the three months ended June 30, 2022, the Company: (a) issued shares for services rendered; and (b) issued shares in conversion of Series B Preferred stock.
34 |
During
the three months ended June 30, 2022, the Company expensed $
In
the three months ended September 30, 2022, the Company: (a) issued
During
the three months ended September 30, 2022, the Company expensed $
In
the three months ended December 31, 2022, the Company: (a) issued
During
the three months ended December 31, 2022, the Company expensed $
In
the three months ended March 31, 2023, the Company: (a) issued
During
the three months ended March 31, 2023, the Company expensed $
Stock Incentive Plan
On July 21, 2021, the Company established the HUMBL, Inc. 2021 Stock Incentive Plan (the “Plan”) for a total issuance not to exceed shares of common stock. The purpose of the Plan is to promote the long-term growth and profitability of the Company by (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of the Company, and (ii) enabling the Company to attract, retain and reward the best-available persons.
The Plan permits the granting of Stock Options (including incentive stock options qualifying under Code Section 422 and nonqualified stock options), Stock Appreciation Rights, restricted or unrestricted Stock Awards, Restricted Stock Units, Performance Awards, other stock-based awards, or any combination of the foregoing.
35 |
Warrants
Warrants issued in 2023 and 2022 consisted of the following:
On
September 29, 2022, the Company entered into subscription agreements with investors whereby the Company issued
Between
November 7, 2022 and ending November 13, 2022 with 11 different investors issued warrants to purchase
On
December 14, 2022 with 4 different investors issued warrants to purchase
The following represents a summary of the warrants:
Three Months Ended March 31, 2023 | Year Ended December 31, 2022 | |||||||||||||||
Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
Beginning balance | $ | $ | ||||||||||||||
Granted | ||||||||||||||||
Exercised | ( | ) | ||||||||||||||
Forfeited | ( | ) | ||||||||||||||
Expired | ( | ) | ( | ) | ||||||||||||
Ending balance | $ | $ | ||||||||||||||
Intrinsic value of warrants | $ | $ | ||||||||||||||
Weighted Average Remaining Contractual Life (Years) |
As of March 31, 2023, warrants are vested.
For the three months ended March 31, 2023 and 2022, the Company incurred stock-based compensation expense of $ and $ , respectively for the warrants in accordance with ASC 718-10-50-1 and ASC 718-10-50-2. The fair value of the grants were calculated based on the black-scholes calculation using the assumptions reflected in the chart below for both the service-based grants and the performance-based grants.
As of March 31, 2023, there remains unrecognized stock-based compensation expense related to these warrants of $ comprising of service-based grants through June 30, 2026.
Options
Options issued in 2023 and 2022 consisted of the following:
On May 26, 2022, the Company granted stock options to employees. These options have a term of years and are exercisable into shares of common stock at a price of $ per share.
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As of March 31, 2023, of the May 26, 2022 options as well as options issued in 2021 have been forfeited. As of March 31, 2023, options are exercisable.
Three Months Ended March 31, 2023 | Year Ended December 31, 2022 | |||||||||||||||
Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
Beginning balance | $ | $ | ||||||||||||||
Granted | ||||||||||||||||
Exercised | ||||||||||||||||
Forfeited | ( | ) | ||||||||||||||
Expired | ||||||||||||||||
Ending balance | $ | $ | ||||||||||||||
Intrinsic value of options | $ | $ | ||||||||||||||
Weighted Average Remaining Contractual Life (Years) |
For the three months ended March 31, 2023 and 2022, the Company incurred stock-based compensation expense of $ and $ , respectively for the options in accordance with ASC 718-10-50-1 and ASC 718-10-50-2. The fair value of the grants were calculated based on the black-scholes calculation using the assumptions reflected in the chart below for the service-based grants.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each option/warrant is estimated using the Black-Scholes valuation model. The following assumptions were used for the periods as follows:
Three Months Ended March 31, 2023 | Year Ended December 31, 2022 | |||||||
Expected term | ||||||||
Expected volatility | % | % | ||||||
Expected dividend yield | ||||||||
Risk-free interest rate | % | % |
Restricted Stock Units (RSUs)
On February 12, 2022, the Company granted RSUs in the acquisition of the asserts of BizSecure that was recorded as contingent consideration. These RSUs commenced vesting on April 1, 2022.
Three Months Ended March 31, 2023 | Year Ended December 31, 2022 | |||||||||||||||
Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
Beginning balance | $ | $ | ||||||||||||||
Granted | ||||||||||||||||
Exercised | ||||||||||||||||
Forfeited | ( | ) | ||||||||||||||
Vested | ( | ) | ||||||||||||||
Ending balance | $ | $ |
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On December 30, 2022, the Company and BizSecure negotiated a settlement of all claims resulting from the Company’s inability to timely register the shares of common stock issued February 12, 2022 and RSUs that vested during 2022. As a result, the shares of common stock and the RSUs were rescinded effective December 30, 2022. The remaining RSUs will continue to vest in accordance with the original terms and the Company will continue the process to get those RSUs registered for resale and re-negotiate the terms of the common shares to be issued to BizSecure. For the three months ended March 31, 2023, RSUs vested. These shares were issued in April 2023.
For
the three months ended March 31, 2023 and 2022, the Company amortized $
NOTE 17: RELATED-PARTY TRANSACTIONS
In March 2022, the Company’s CEO cancelled Series B Preferred shares and in September 2022, the Company’s CEO cancelled Series B Preferred shares. These shares are the equivalent of common shares. The cancellations were done for no consideration.
In
May 2022, the Company’s CEO contributed $
NOTE 18: COUNTRY RIGHTS OPTION
Aurea Group
On
March 15, 2021 we entered into a Securities Purchase Agreement with HUMBL CL SpA (“HUMBL CL”), an affiliate of Aurea Group
Ventures (“Aurea Group”), a Chilean multi-family office, under which Aurea Group purchased shares of our common stock in
return for exclusive country rights to Chile of our HUMBL products for a purchase price of up to $
Under
the terms of the Securities Purchase Agreement, HUMBL CL agreed to purchase
The
Securities Purchase Agreement provides that if HUMBL CL exercises its right to purchase the subsidiary interest, it will receive
On January 3, 2022, the Company entered into a Settlement Agreement with HUMBL CL whereby HUMBL issued HUMBL CL shares of common stock and HUMBL CL agreed to waive its right to purchase the Latin America territory rights.
The Company is still working with Aurea Group on Latin American business development opportunities for their products in key verticals such as: banking, merchant and financial services, real estate, hospitality, tourism, sports, festivals, entertainment and ticketing services in the region.
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NOTE 19: SEGMENT REPORTING
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.
Less than 3-4% of the Company’s sales are from outside of North America, therefore the Company has determined that segment reporting by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report segment information by location.
The following represents segment reporting for continuing operations only:
Three Months Ended March 31, 2022 | Consumer | Commercial | Total | |||||||||
Segmented operating revenues | $ | $ | $ | |||||||||
Cost of revenues | ||||||||||||
Gross profit | ||||||||||||
Total operating expenses net of depreciation, amortization and impairment | ||||||||||||
Depreciation, amortization and impairment | ||||||||||||
Other expenses (income) | ( | ) | ||||||||||
(Loss) from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Segmented assets as of March 31, 2022 | ||||||||||||
Property and equipment, net | $ | $ | $ | |||||||||
Intangible assets | $ | $ | $ | |||||||||
Intangible assets – digital assets | $ | $ | $ | |||||||||
Goodwill | $ | $ | $ | |||||||||
Capital expenditures | $ | $ | $ |
Three Months Ended March 31, 2023 | Consumer | Commercial | Total | |||||||||
Segmented operating revenues | $ | $ | $ | |||||||||
Cost of revenues | ||||||||||||
Gross profit | ||||||||||||
Total operating expenses net of depreciation, amortization and impairment | ||||||||||||
Depreciation, amortization and impairment | ||||||||||||
Other expenses (income) | ||||||||||||
(Loss) from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Segmented assets as of March 31, 2023 | ||||||||||||
Property and equipment, net | $ | $ | $ | |||||||||
Intangible assets | $ | $ | $ | |||||||||
Intangible assets – digital assets | $ | $ | $ | |||||||||
Capital expenditures | $ | $ | $ |
The HUMBL Financial sector as well as the operations of Tickeri are reflected in discontinued operations on the consolidated statement of operations for the three months ended March 31, 2023 and 2022.
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NOTE 20: LEGAL PROCEEDINGS
We have been sued in the United States District Court for the Southern District of California in a case styled Matt Pasquinelli and Bryan Paysen v. HUMBL, LLC, Brian Foote, Jeffrey Hinshaw and George Sharp, Case No.22CV0723 AJB BLM, which is a putative shareholder derivative class action since November 21, 2020 for alleged violations of the federal securities laws by allegedly making false and misleading statements regarding our business and operations, more specifically that the HUMBL Pay App did not have the functionality that it promised to investors and that several international business partnerships had a low chance of contributing material revenues to our bottom line and that we sold unregistered securities through our BLOCK Exchange Traded Index products, all of which plaintiffs allege caused a decline in the market value of our shares of common stock. Plaintiffs seek unspecified monetary damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
We also have been sued in the Delaware Chancery Court in a case styled Mike Armstrong, derivatively on behalf of HUMBL, Inc. v. Brian Foote, Jeffrey Hinshaw, George Sharp, Michele Rivera, and William B. Hoagland (Case No. 2022-0620) in a class action on behalf of shareholders of the Company since November 21, 2020 repeating the same claims as in the Pasquinelli litigation described above and also seeking unspecified damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
NOTE 21: COMMITMENT
On
December 12, 2022, the Company entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement
(“Rights Agreement”) with GHS Investments, LLC (“GHS”). Pursuant to the EFA, the Company has the right,
subject to certain conditions, to sell up to $in
shares of its common stock to GHS. Pursuant to the Rights Agreement, the Company agreed to file a registration statement to register
the common stock issuable under the EFA. Following the registration of the securities under the EFA, the Company has the right to
cause GHS to purchase its common stock at 80% of the average of the three lowest closing trade prices in the previous 10 trading
days by submitting a put notice to GHS. The Company may choose the dollar amount of each put notice; provided, however, the maximum
dollar amount of any put cannot exceed 200% of the Company’s average daily trading volume in the previous 10 trading days. In
addition, the amount of the put notice must not be less than $
NOTE 22: SUBSEQUENT EVENTS
Between April 1, 2023 and May 12, 2023, the Company issued shares of common stock in conversion of shares of Series B Preferred Stock.
On April 21, 2023, the Company sold shares of common stock for $ .
On
April 4, 2023, the Company received the second tranche of this note of $
On
April 11, 2023, the Company exchanged
On
April 10, 2023, the Company entered into a Promissory Note in the amount of $
In April 2023, a noteholder sold their remaining note to non-related third parties, and the balance of $ was converted into shares of common stock.
On April 21, 2023, the Company issued shares of common stock for vested RSUs to BizSecure.
On April 28, 2023, $
On April 28, 2023, we issued
a convertible promissory note in the amount of $
On May 10, 2023, the Company issued a convertible
promissory note in the amount of up to $
On May 10, 2023, we entered
into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with Pacific
Lion. Pursuant to the EFA, the Company has the right, subject to certain conditions, to sell up to $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Our executive offices are located at 600 B Street, Suite 300, San Diego, California 92101, telephone (786) 738-9012. Our corporate website address is www.humbl.com.
Overview
HUMBL, Inc. (“Company” or “HUMBL”) was incorporated in the state of Oklahoma on November 12, 2009. The Company was redomiciled on November 30, 2020 to the state of Delaware.
On December 3, 2020, HUMBL, LLC (“HUMBL LLC”) merged into the Company in what is accounted for as a reverse merger. Under the terms of the Merger Agreement, HUMBL LLC exchanged 100% of their membership interests for 552,029 shares of newly created Series B Preferred Stock. The Series B Preferred shares were issued to the respective members of HUMBL LLC following the approval by FINRA of a one-for-four reverse stock split of the common shares and the increase in the authorized common shares to 7,450,000,000 shares, and 10,000,000 preferred shares.
The FINRA approval for both the increase in the authorized common shares and reverse stock split occurred on February 26, 2021. To assume control of the Company, the former CEO, Henry Boucher assigned his 7,000,000 shares of Series A Preferred Stock as well as 550,000,000 shares of common stock to Brian Foote, the President and CEO of HUMBL LLC for a $40,000 note payable. The Series A Preferred Stock is not convertible into common stock; however, it has voting rights of 10,000 votes per 1 share of stock. After the reverse merger was completed, HUMBL LLC ceased doing business, and all operations were conducted under Tesoro Enterprises, Inc. which later changed its name to HUMBL, Inc. (“HUMBL” or the “Company”).
On June 3, 2021 we acquired Tickeri, Inc. (“Tickeri”) in a debt and stock transaction totaling $20,000,000 following which Tickeri became a subsidiary of HUMBL. On January 31, 2023, the Company sold Tickeri back to the former owners and reflected the loss on disposal in the Consolidated Statement of Operations. For the full description of these transactions, refer to the Form 10-K filed April 6, 2023.
On June 30, 2021, we acquired Monster Creative, LLC (“Monster”). Monster is a Hollywood production studio that specializes in producing movie trailers and other related content. As part of the acquisition we entered into certain debt instruments with the founders of Monster that are in default as they were due December 31, 2022. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.
On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company had issued 13,200,000 common shares and 26,800,000 restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of two years as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the 13,200,000 shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the 10,050,000 RSUs that vested during 2022. Pursuant to BizSecure’s request, the 13,200,000 shares of common stock and the 10,050,000 RSUs were rescinded effective December 30, 2022. The remaining 16,750,000 RSUs will continue to vest in accordance with the original terms. There is no requirement for the Company to cease using the intellectual property received in the February 12, 2022 transaction. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.
On March 3, 2022, the Company acquired Ixaya Business SA de CV, a Mexican corporation (“Ixaya”), under a Stock Purchase Agreement (“Ixaya SPA”). The acquisition of Ixaya was for $150,000 and 8,962,036 shares of common stock (a value of $1,500,000) for a total of $1,650,000. The Company accounted for this acquisition as a business combination under ASC 805, and Ixaya is not considered a significant subsidiary under Regulation S-X Rule 1-02(w).
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On November 2, 2022, the Company acquired BM Authentics (“BM”), a provider of sports merchandise ranging from autographed jerseys, bats, balls, helmets, and photos for $110,000 in cash and 90,000,000 shares of common stock. These shares were issued on January 10, 2023.
On November 15, 2022 we entered into a Settlement Agreement and Mutual Release of Claims (the “Release Agreement”) with Forwardly, Inc. (“Forwardly”) under which we agreed to pay Forwardly $2,200,000 in five equal monthly payments of $440,000 commencing November 15, 2022 and ending March 15, 2023. The Company and Forwardly, amended the terms of the payments whereby the Company paid the January and February 2023 payments in December 2022, and Forwardly agreed to extend the last payment to June 15, 2023. The payment is being made in connection with a warrant (the “Warrant”) that Forwardly purchased from us for $200,000 in 2020 that provided for the purchase of up to 125 million shares of our common stock of which Forwardly purchased 10 million shares for $2,000,000 in 2021. Forwardly retained the 10 million shares under the Warrant in lieu of interest on the $2,000,000 it paid to exercise that number of our shares of common stock under the Warrant.
HUMBL is a Web 3, digital commerce platform that was built to connect consumers, businesses and governments in the digital economy. HUMBL provides simple tools and packaging for complex new technologies such as blockchain, in the same way that previous cycles of e-commerce and the cloud were more simply packaged by companies such as Facebook, Apple, Amazon and Netflix over the past several decades. The Company through their product offerings are looking to simplify and package the digital economy for consumers, corporations and government.
The goal of HUMBL is to provide ready built tools, and platforms for consumers and merchants to seamlessly participate in the digital economy. HUMBL is built on a patent-pending, decentralized technology stack that utilizes both core and partner technologies, to provide faster connections to the digital economy and each other.
The Company is organized into two divisions: a) HUMBL Consumer and b) HUMBL Commercial. These two divisions incorporate and expand the Company’s core products and services. The majority of the Company’s operations prior to 2022 were focused on the Consumer division.
HUMBL – A Web 3 Commerce Platform
HUMBL was founded to deliver an integrated, Web 3 digital commerce platform for consumers, merchants and governments. HUMBL has delivered one of the first integrated technology environments in which a digital wallet, search engine, social media and marketplace listings can be used together by consumers in one place. The HUMBL platform is comprised of the following key components described below.
HUMBL Consumer Division
● | HUMBL Wallet | |
● | HUMBL Search Engine | |
● | HUMBL Tickets | |
● | HUMBL Marketplace | |
● | HUMBL Social | |
● | HUMBL Metaverse Stores |
HUMBL Commercial Division
● | HUMBL Blockchain Services |
HUMBL Wallet
The HUMBL Wallet is the centerpiece of the Web 3 consumer experience on the HUMBL platform. The HUMBL Wallet is self-custodied by the individual; ensuring that they have full control over their digital assets and private keys.
Customers can use the HUMBL Wallet to send and receive digital assets, interact on the HUMBL Social platform, perform web searches on the HUMBL Search Engine, store and manage their NFTs, consume content via MP4 multimedia player and more.
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The HUMBL Wallet drives revenue through: a) digital asset swaps, in which the customer can use the self-custodied HUMBL digital wallet to swap from one digital asset to another on the Ethereum blockchain, and b) purchasing crypto through Sardine, a third-party service that allows customers to buy digital assets with credit cards.
The HUMBL Wallet is also connected to the BLOCKS Registry, a decentralized blockchain registry that allows customers to authenticate digital items, such as NFTs, and track the chain of custody to ensure reduced fraud, forgery and theft in the digital markets.
HUMBL Wallet customers have the obligation to perform their own tax record keeping and tracking of assets and swaps in the self-custodied wallet; as well as backup of their private keys, to ensure the recoverability, data security and storage of their digital assets.
The HUMBL Wallet is equipped with 2-factor authentication; as well as biometric security features, which are handled by the handset and its manufacturer. HUMBL does not store or have access to any biometric information related to its verified users.
The HUMBL Wallet uses SumSub, a third-party service provider, to perform KYC / KYB and authenticate customers. HUMBL does not capture or store consumers’ information on HUMBL’s servers, except for their corresponding name, wallet address and email address for basic communications with the verified user. HUMBL does not resell its customers data.
The HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries.
HUMBL Search Engine
The HUMBL Search Engine is available via the HUMBL Wallet and the HUMBL website. The HUMBL Search Engine allows customers to search for standard Web 2 content such as news, images and video search capabilities. The company also recently completed the development of its HUMBL Ads portal, which can be used to customize advertising programs for clients. This includes traditional search advertising such as display ads, location targeting and cost-per-click performance advertising.
The HUMBL Search Engine also offers Web 3 blockchain-based search features such as the ability to search major NFTs across Ethereum, Polygon, BLOCKS, Gnosis and Solana. Consumers are able to confirm that certain NFTs have been “Verified by BLOCKS” to protect against the fraud and forgery in the NFT market. The search engine also shows customers where certain NFTs are available for purchase across various marketplaces.
HUMBL Tickets
HUMBL Tickets is initially focused on the offering of secondary (resale) tickets to thousands of live events across North America. HUMBL Tickets inventory listings and ticket fulfillment are provided by Ticket Evolution and HUMBL earns a commission for each sale through its website.
The ticketing content provided on HUMBL Tickets spans across major live music, sports, festivals and events in multiple countries. HUMBL Tickets advertises its services primarily across social media, including its own HUMBL Social platform.
HUMBL is also exploring the development of primary ticketing and peer-to-peer ticketing sales via blockchain technology and dynamic QR codes, with ticket storage inside the HUMBL Wallet as future digital collectibles; along with authenticated content, ratings and reviews from ticketed events on the HUMBL Social platform via verified profiles, commemorative icons and attendance badges.
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HUMBL Marketplace
The HUMBL Marketplace was designed to pair authenticated buyers and sellers in verified, digital commerce. The HUMBL Marketplace currently works with clients such as professional athletes, brands, and marketing and talent agencies, to provide sports merchandise ranging from autographed jerseys, bats, balls, helmets, photos and more.
The HUMBL Marketplace mitigates forgeries by pairing physical merchandise with digital certificates of registration. Merchandise is made available on the HUMBL platform and is verified, registered, and cataloged on the blockchain.
The HUMBL Marketplace also allows for the minting and listing of non-fungible tokens (NFTs) as digital collectibles, that allow pre-approved individuals to monetize their digital images, multimedia content and catalogues on the blockchain.
HUMBL is a software platform and does not act as a broker, financial institution, or creditor for digital collectibles. We facilitate transactions between the buyer and seller in the auction/sale process, but we are not a party to any agreement between the buyer and seller or between any users.
HUMBL Social
HUMBL Social is one of the world’s first user-verified social media platforms. The social media platform is available via web browser and the HUMBL Wallet. The goal of HUMBL Social is to provide real people, real profiles and real merchants with a place to connect on the worldwide web.
HUMBL Social supports only verified user profiles, to ensure authenticity of the platform. This helps to reduce the fake profiles, product ratings and reviews that have plagued major Web 2 social media platforms due to the allowance of anonymous profiles and non-verified sellers. The HUMBL Social platform is available in over 130+ countries via the HUMBL Wallet and web browser.
HUMBL Metaverse Stores
HUMBL has created technology to build customized metaverse stores for brands, athletes, entertainers and celebrities. HUMBL’s first metaverse store was created for Major League Baseball player Ke’Bryan Hayes and his father Charlie Hayes, a retired Major League Baseball player. The brand metaverse store is called the “House of Hayes” and supports the development of an immersive player experience, in which customers can navigate a simulated environment of historical artwork and current digital collectibles. Custom artwork was provided by Topps “Sports Artist of the Year” Lauren Taylor, in the form of digital collectibles that rotated on screens throughout the environment. Endorsement sporting goods brands of Ke’Bryan Hayes, such as Wilson, Franklin and Old Hickory, also supported product placement and sell-through environments for products such as authentic baseball bats and gloves. An immersive Wilson Amphitheatre was also created for multimedia press conferences or media interactions with Ke’Bryan Hayes’ avatar.
HUMBL Blockchain Services
HUMBL Blockchain Services (“HBS”) was formed as part of the Company’s asset acquisition of BizSecure on February 12, 2022. Recognizing the opportunities for governments and commercial enterprises to incorporate blockchain and distributed ledger technologies (“DLT”), HBS is focused on working with clients to identify problems and develop solutions that build upon the various capabilities the Company has and continues to develop.
Our solutions enable municipalities, government agencies, and other commercial entities the ability to offer mobile IDs and other credential verification services to their constituents. We continue to make significant investments to leverage our existing technologies and further expand our DLT capabilities.
Components of the HUMBL Wallet can be used by HBS to white label a “Powered By” environment for local, state or national government clients that may want to move to digital or blockchain-based registry formats of their transactions, record keeping and / or payments from citizens, corporations, or government departments.
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An example of this is a pilot program that HUMBL is currently developing with the County of Santa Cruz (CA), in which HUMBL and the County are working to scope the development of a digital wallet in which citizens can more easily and effectively receive government services access via digital technologies.
HUMBL Financial
HUMBL Financial was developed to package step-function technologies such as blockchain into “several clicks” for the customer.
In 2021, HUMBL Financial created BLOCK ETX products to simplify digital asset investing for customers and institutions seeking exposure to a new, 24/7 digital asset class. We have launched this product in 100 countries outside the United States. HUMBL Financial has developed proprietary, multi-factor blockchain indexes, trading algorithms and financial services for the new digital asset trading markets to accommodate index, active and thematic investment strategies. BLOCK ETXs are completely non-custodial, algorithmically driven software services that allow customers to purchase and hold digital assets in pre-set allocations through their own digital asset exchange accounts. BLOCK ETXs are compatible for United States customers who have accounts with Coinbase Pro, Bittrex US or Binance US and for non-US customers who have accounts with Bittrex Global. BLOCK ETXs were served first on the desktop and web version of the HUMBL platform, with the goal of future applications inside the HUMBL mobile application. HUMBL Financial is open to the licensing of the BLOCK ETXs to institutions and exchanges. HUMBL Financial also plans to offer trusted, third-party financial services in areas such as payments, investments, credit card services and lending across the HUMBL platform over time.
In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.
Results of Operations for the Three Months Ended March 31, 2023 and 2022
The following table sets forth the summary operations for the three months ended March 31, 2023 and 2022:
For the Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
Revenues | $ | 402,824 | $ | 856,990 | ||||
Cost of Revenues | $ | 162,800 | $ | 437,990 | ||||
Gross Profit | $ | 240,024 | $ | 419,000 | ||||
Development Costs | $ | 66,845 | $ | 1,263,992 | ||||
Professional Fees | $ | 409,837 | $ | 919,822 | ||||
Settlement | $ | - | $ | 1,120,400 | ||||
Stock-based compensation | $ | 2,531,519 | $ | 4,074,497 | ||||
Impairment – intangible assets including goodwill | $ | - | $ | 1,008,642 | ||||
Impairment – digital assets | $ | 1,995 | $ | 45,318 | ||||
General and Administrative Expenses | $ | 1,075,613 | $ | 2,551,487 | ||||
Interest Expense | $ | (272,187 | ) | $ | (401,272 | ) | ||
Amortization of Debt Discounts | $ | (12,408 | ) | $ | (1,590,897 | ) | ||
Change in fair value of derivative liabilities | $ | 35,253 | $ | - | ||||
Derivative expense | $ | (70,218 | ) | $ | - | |||
Gain on Sale of Digital Assets | $ | 24 | $ | 29,551 | ||||
Loss on conversion of convertible notes payable | $ | (427,740 | ) | $ | - | |||
Provision for Income Taxes | $ | - | $ | - | ||||
Net Loss from Continuing Operations | $ | (4,593,061 | ) | $ | (12,527,776 | ) |
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Revenues
Revenues for the three months ended March 31, 2023 were $402,824 as compared to $856,990 for the three months ended March 31, 2022, a decrease of $454,166. The decrease was due in large part to the reduction of production revenue from Monster offset by the sales of merchandise from our marketplace which included items form BM Authentics.
Cost of Revenues and Gross Profit
Cost of revenues for the three months ended March 31, 2023 were $162,800 as compared to $437,990 for the three months ended March 31, 2022, a decrease of $275,190. The decrease was primarily due to the direct labor attributable to Monster from the reduction in personnel and increases in our marketplace for BM Authentics. Our gross profit was reduced by 43% from 2022 to 2023 as a result of the above changes.
Operating Expenses
Operating expenses for the three months ended March 31, 2023 were $4,085,809 as compared to $10,984,158 for the three months ended March 31, 2022, a decrease of $6,898,349. Operating expenses consists of development costs, professional fees and general and administrative expenses and non-cash charges for impairment expenses and stock-based compensation as fully described below. We expect our development costs and professional fees to continue to decrease in our next 12 months as we look to scale back on outside contract labor. Approximately 65% of our operating expenses relate to non-cash charges in 2023 and these charges comprise of approximately $2,600,000. Our non-cash charges have already declined from levels in 2022 as our stock-based compensation will be reduced and we have already impaired most of our intangible assets and all of our goodwill.
Development Costs
Development costs which consist of salaried and outsourced technical consultants for the three months ended March 31, 2023 were $66,845 compared with $1,263,992 for the three months ended March 31, 2022. The increase of development costs related to the roll out of various projects such as the HUMBL Wallet and Social.
Professional Fees
Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the three months ended March 31, 2023 were $409,837 compared to $919,822 for the three months ended March 31, 2022. The decrease in professional fees related to the professional fees incurred in regulatory filings including OTC compliance and reporting as well as increases in consultant costs in 2022 versus 2023. We expect that these costs will continue decreasing during 2023.
Settlement
The Company incurred $1,120,400 in settlement expenses which are included in our operating expenses for the three months ended March 31, 2022 related to agreements with individuals for liabilities incurred. We incurred no settlement expenses for the three months ended March 31, 2023.
Stock-Based Compensation
The Company incurred $2,531,519 in stock-based compensation expenses for the three months ended March 31, 2023 compared to $4,074,497 for the three months ended March 31, 2022 related to agreements with consultants, advisors, and directors for services rendered. We expect our stock-based compensation expenses to decline in the next 12 months due to the vesting terms of such grants. The awards provided were valued in accordance with ASC 718 at fair value.
Impairment of Intangible Assets including Goodwill and Digital Assets
The Company incurred $1,008,784 in non-cash charges related to impairment of intangible assets including goodwill in 2022, and $1,995 and $45,318 in impairment of our digital assets in the three months ended March 31, 2023 and 2022. The intangible asset impairment relates to the impairment on the goodwill incurred in the Ixaya acquisition. The impairment of the digital assets was based on the valuation changes in the digital assets we hold.
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General and Administrative
General and administrative expenses for the three months ended March 31, 2023 were $1,075,613 compared with $2,551,487 for the three months ended March 31, 2022. The decrease in general and administrative expenses of $1,475,874 is related to the following approximate reductions in expenses as follows: advertising and business development expenses ($140,000), travel and conferences ($185,000), penalties ($400,000), salaries ($500,000), recruitment ($54,000), insurance ($25,000), amortization and depreciation expenses ($41,000), and all other general and administrative costs (approximately $130,000).
Other Income (Expense)
In the three months ended March 31, 2023 we incurred $747,276 in other expenses, compared to $1,962,618 in other expenses in the three months ended March 31, 2022, a decrease of $1,215,342. The other expenses relate to amortization of discounts of $12,408 and $1,590,897, respectively for the 2023 and 2022 periods, as well as interest expense of $272,187 and $401,272, respectively. Gain on sale of digital assets of $24 and $29,551, and a loss on conversion of convertible notes payable of $427,740 and $0 for 2023 and 2022, respectively. In 2023, we had $70,218 in derivative expenses and a change in the fair value of derivative liabilities of $35,253 related to convertible notes entered into during this period. We expect to incur additional other income (expense) in the next 12 months related to our debt.
Net Loss from Continuing Operations
Net loss from operations from continuing operations for the three months ended March 31, 2023 was ($4,593,061) as compared to a net loss of ($12,527,776) for the three months ended March 31, 2022. The $7,934,715 decrease in the net loss was due to the changes noted herein.
Segment Reporting
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.
Less than 3-4% of the Company’s sales are from outside of North America, therefore the Company has determined that segment reporting by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report segment information by location.
The following represents segment reporting for continuing operations only:
Three Months Ended March 31, 2022 | Consumer | Commercial | Total | |||||||||
Segmented operating revenues | $ | 838,606 | $ | 18,384 | $ | 856,990 | ||||||
Cost of revenues | 423,155 | 14,835 | 437,990 | |||||||||
Gross profit | 415,451 | 3,549 | 419,000 | |||||||||
Total operating expenses net of depreciation, amortization and impairment | 9,386,370 | 458,059 | 9,844,429 | |||||||||
Depreciation, amortization and impairment | 46,053 | 1,093,676 | 1,139,729 | |||||||||
Other expenses (income) | 1,965,226 | (2,608 | ) | 1,962,618 | ||||||||
(Loss) from continuing operations | $ | (10,982,198 | ) | $ | (1,545,578 | ) | $ | (12,527,776 | ) | |||
Segmented assets as of March 31, 2022 | ||||||||||||
Property and equipment, net | $ | 359,106 | $ | - | $ | 359,106 | ||||||
Intangible assets | $ | 2,799,564 | $ | 2,799,564 | ||||||||
Intangible assets – digital assets | $ | 32,064 | $ | 406,040 | $ | 438,104 | ||||||
Goodwill | $ | 7,158,954 | $ | - | $ | 7,158,954 | ||||||
Capital expenditures | $ | 8,510 | $ | - | $ | 8,510 |
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Three Months Ended March 31, 2023 | Consumer | Commercial | Total | |||||||||
Segmented operating revenues | $ | 211,214 | $ | 191,610 | $ | 402,824 | ||||||
Cost of revenues | 137,572 | 25,228 | 162,800 | |||||||||
Gross profit | 73,642 | 166,382 | 240,024 | |||||||||
Total operating expenses net of depreciation, amortization and impairment | 3,266,912 | 777,392 | 4,044,304 | |||||||||
Depreciation, amortization and impairment | 8,147 | 33,358 | 41,505 | |||||||||
Other expenses (income) | 746,662 | 614 | 747,276 | |||||||||
(Loss) from continuing operations | $ | (3,948,079 | ) | $ | (644,982 | ) | $ | (4,593,061 | ) | |||
Segmented assets as of March 31, 2023 | ||||||||||||
Property and equipment, net | $ | 22,058 | $ | - | $ | 22.058 | ||||||
Intangible assets | $ | 257,130 | $ | 509,167 | $ | 766,297 | ||||||
Intangible assets – digital assets | $ | 4,279 | $ | 147,823 | $ | 152,102 | ||||||
Capital expenditures | $ | - | $ | - | $ | - |
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
During the past two years, we devoted a substantial amount of capital to build out our platform and as a result our working capital deficit and accumulated deficit have increased significantly. In addition, we have incurred significant debt from both unrelated and related parties to assist in supporting our operations.
As of March 31, 2023, we had $301,050 in cash. During the last two years we have built our platform and grew our operations by acquiring companies to support what we have just recently consolidated into HUMBL.com. The acquisitions increased our debt and our common shares issued as we spent very little cash in these acquisitions. The impact of COVID-19, supply chain issues, challenges in the cryptocurrency market and recent bank failures have had a very minimal impact on the Company’s operations.
We had a working capital deficit of $11,719,183 and $27,408,687 as of March 31, 2023 and December 31, 2022, respectively. The majority of our current liabilities is in the form of related party notes. The decrease in working capital is the direct result of these notes as well as the debt incurred related to the cash necessary to continue the development of our mobile wallet. A majority of the Company’s operating expenses in the past two years were the result of non-cash charges such as impairment of intangible assets including goodwill, settlement and stock-based compensation. The actual monthly cash burn of the Company is approximately $386,000 per month at this time and as our core products come online, this is likely to decrease upon our technology being completed. The Company in the three months ended March 31, 2023 received net proceeds of $791,841 from various debt financings, and has received $50,000 as a contribution from our CEO. In the three months ended March 31, 2022, the Company received $2,000,000 in warrant exercises and $4,500,837 in related party debt proceeds, however, as a result of the operating losses and working capital deficit, management has determined that there is substantial doubt about the Company’s ability to continue as a going concern.
We expect that the consolidation of our platform into HUMBL.com will bring about revenue producing operations to improve the liquidity of the Company moving forward. However, going forward, the effect of our industry on the capital markets may limit our ability to raise additional capital on the terms acceptable to us at the time we need it, if at all. The additional post-COVID challenges related to remote work and travel restrictions that we as a smaller company have faced in striving to meet our disclosure obligations in a timely manner while taking the steps to protect the health and safety of our employees have impacted, and may continue to further impact, our ability to raise additional capital.
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The consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
Off-Balance Sheet Arrangements
As March 31, 2023 and December 31, 2022, we had no off-balance sheet arrangements.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for permanent and temporary differences related to income taxes, liabilities to accrue, estimates of the fair value of goodwill and determination of the fair value of stock awards. Actual results could differ from those estimates.
Safeguarding Obligation
Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets.
The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
Inventory
Inventory is valued at the lower of cost or net realizable value, with cost determined using the first-in first-out method. The carrying value of inventory is evaluated periodically for excess quantities and obsolescence. Management evaluates quantities on hand and physical condition as these characteristics may be impacted by anticipated customer demand for current products. The allowance is adjusted based on such evaluation, with a corresponding provision included in cost of sales.
Fair Value of Financial Instruments
ASC 825 Financial Instruments requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company’s financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued liabilities, and amounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
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).
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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.
Revenue Recognition
The Company accounts for a contract with a customer that is within the scope of this Topic only when the five steps of revenue recognition under ASC 606 are met.
The five core principles will be evaluated for each service provided by the Company and is further supported by applicable guidance in ASC 606 to support the Company’s recognition of revenue.
The Company accounts for revenues based on the verticals in which they were earned. The three principal verticals in which the Company operates today are HUMBL Mobile Wallet, HUMBL Marketplace, and HUMBL Blockchain Services.
HUMBL Mobile Wallet (formerly HUMBL Pay)
The Company is anticipated to earn transaction revenues primarily from fees charged to consumers and merchants on a transaction basis through the Company’s mobile application. These fees may have a fixed and/or variable component. The variable component is generally a percentage of the value of the payment amount and is known at the time the transaction is processed. For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. The Company may estimate the amount of fee refunds that will be processed each quarter and record a provision against the net revenues. The volume of activity processed on the platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).
The Company will earn additional fees on transactions where currency conversion is performed via on ramping and off ramping via digital currencies, when swaps are performed on digital currencies, and when cross-border transactions are enabled (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for customers from their HUMBL account to their debit card or bank account, and other miscellaneous fees. The Company will rely on third party partners to perform all money transmission services.
The Company may earn revenues from other value-added services, which are comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, ticketing, peer-to-peer payments, and other services that will be provided to merchants and consumers. These contracts typically have one performance obligation which is provided and recognized over the term of the contract.
The transaction price is generally fixed and known at the end of each reporting period; however, for some agreements, it may be necessary to estimate the transaction price using the expected value method. The Company is expected to record revenue earned in revenues from other value-added services on a net basis when they are considered the agent with respect to processing transactions.
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HUMBL Search Engine
Revenues are derived principally from the sale of advertisements, classifieds fees, and revenue sharing arrangements. Advertising revenue is derived principally from the sale of online advertisements which are based on “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our platforms) or “clicks” (which are generated each time users on our platforms click through our advertisements to an advertiser’s designated website) delivered to advertisers.
The Company uses the output method and apply the practical expedient to recognize advertising revenue in the amount to which they have a right to invoice. For contracts with target advertising commitments with rebates, estimated payout is accounted for as a variable consideration to the extent it is probable that a significant reversal of revenue will not occur.
HUMBL Tickets
The Company recognizes revenues from HUMBL Tickets primarily from service fees. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we receive in exchange for those goods or services. For service fees and payment processing fees, revenue is recognized when the ticket is sold.
We evaluate whether it is appropriate to recognize revenue on a gross or net basis based upon our evaluation of whether we obtain control of the specified goods or services by considering if we are primarily responsible for fulfillment of the promise, have inventory risk, and have the latitude in establishing pricing and selecting suppliers, among other factors.
For the payment processing service, we determined that we are the principal in providing the service as we responsible for fulfilling the promise to process the payment and we have discretion and latitude in establishing the price of our service. Based on our assessment, we record revenue on a net basis related to our ticketing service and on a gross basis related to our payment processing service. As a result, costs incurred for processing the transactions are included in cost of net revenues in the consolidated statements of operations.
Revenue is presented net of indirect taxes, value-added taxes, creator royalties and reserves for customer refunds, payment chargebacks and estimated uncollectible amounts. If an event is cancelled by a creator, then any obligations to provide refunds to event attendees are the responsibility of that creator.
If a creator is unwilling or unable to fulfill their refund obligations, we may, at our discretion, provide attendee refunds. Revenue is also presented net of the amortization of creator signing fees when applicable. The benefit we receive by securing exclusive ticketing and payment processing rights with certain creators from creator signing fees is inseparable from the customer relationship with the creator and accordingly these fees are recorded as a reduction of revenue in the consolidated statements of operations.
HUMBL Marketplace
The Company recognizes revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which is expected to be entitled in exchange for those goods or services. Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities.
Net transaction revenues
The net transaction revenues will primarily include final value fees, feature fees, including fees to promote listings, and listing fees from sellers in our Marketplace. The net transaction revenues will also include store subscription and other fees often from large enterprise sellers. The net transaction revenues are reduced by incentives provided to customers.
The Company has identified one performance obligation to sellers on the Marketplace platform, which is to connect buyers and sellers on the secure and trusted Marketplace platforms. Final value fees are recognized when an item is sold on a Marketplace platform, satisfying this performance obligation. There may be additional services available to Marketplace sellers, mainly to promote or feature listings, that are not distinct within the context of the contract.
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Accordingly, fees for these additional services are recognized when the single performance obligation is satisfied. Promoted listing fees are recognized when the item is sold and feature and listing fees are recognized when an item is sold, or when the contract expires.
Further, to drive traffic to the platform, the Company will provide incentives to buyers and sellers in various forms including discounts on fees, discounts on items sold, coupons and rewards. Evaluating whether a promotion or incentive is a payment to a customer may require significant judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when the incentive is paid or promise to be paid. Promotions and incentives to most buyers on our Marketplace platforms, to whom there is no performance obligation, are recognized as sales and marketing expense. In addition, there may be credits provided to customers when certain fees are refunded. Credits are accounted for as variable consideration at contract inception when estimating the amount of revenue to be recognized when a performance obligation is satisfied to the extent that it is probable that a significant reversal of revenue will not occur and updated as additional information becomes available.
HUMBL Blockchain Services
The Company disaggregates revenue from contracts with customers into product revenues and services revenues.
Product revenue related contracts with customers begin upon contract inception when a purchase order for a specific customer order of a product to be delivered in the near term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.
Service revenues primarily consist of revenues derived from maintenance support and the use of the Company’s service platforms and application programming interface (“APIs”) on a subscription basis. The Company generates this revenue from fees for maintenance and support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.
The Company accounts for individual goods and services separately if they are distinct performance obligations, which often requires significant judgment based upon knowledge of the products and/or services, the solution provided and the structure of the sales contract. In SaaS agreements, the Company provides a service to the customer that combines the software functionality, maintenance and hosting into a single performance obligation. In product-related contracts, a purchase order may cover different products, each constituting a separate performance obligation.
Impact of Cryptocurrency Bankruptcies
In November 2022, both FTX Trading and BlockFi filed for bankruptcy protection under Chapter 11. These bankruptcies have impacted several companies either directly or indirectly. Customers of the HUMBL Pay app use our platform to hold their cryptocurrency. Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets.
The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
We do not, nor have we ever used either of these exchanges to conduct business. We have not been impacted by these bankruptcies. And we continue to monitor the industry and protect our customers’ assets.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of March 31, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have been sued in the United States District Court for the Southern District of California in a case styled Matt Pasquinelli and Bryan Paysen v. HUMBL, LLC, Brian Foote, Jeffrey Hinshaw and George Sharp, Case No.22CV0723 AJB BLM, which is a putative shareholder derivative class action since November 21, 2020 for alleged violations of the federal securities laws by allegedly making false and misleading statements regarding our business and operations, more specifically that the HUMBL Pay App did not have the functionality that it promised to investors and that several international business partnerships had a low chance of contributing material revenues to our bottom line and that we sold unregistered securities through our BLOCK Exchange Traded Index products, all of which plaintiffs allege caused a decline in the market value of our shares of common stock. Plaintiffs seek unspecified monetary damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
We also have been sued in the Delaware Chancery Court in a case styled Mike Armstrong, derivatively on behalf of HUMBL, Inc. v. Brian Foote, Jeffrey Hinshaw, George Sharp, Michele Rivera, and William B. Hoagland (Case No. 2022-0620) in a class action on behalf of shareholders of the Company since November 21, 2020 repeating the same claims as in the Pasquinelli litigation described above and also seeking unspecified damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
ITEM 1A. RISK FACTORS
Not applicable as we are a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 21, 2023, the Company sold 22,500,000 shares of common stock for $85,050. On May 12, 2023, Company issued, along with a Convertible Promissory Note, a Warrant to Purchase Shares of Common Stock to Pacific Lion, LLC. The Company received $100,000 in connection with the sale of the note and the warrant. The proceeds from the foregoing sales of equity securities will be used for general working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibit | Incorporated by Reference | Filed or Furnished | ||||||||
No. | Exhibit Description | Form | Date | Number | Herewith | |||||
10.1 | Convertible Promissory Note dated May 10, 2023 | Filed | ||||||||
10.2 | Warrant to Purchase Shares of Common Stock dated May 10, 2023 | Filed | ||||||||
10.3 | Filed | |||||||||
10.4 | Filed | |||||||||
31.1 | Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | Filed | ||||||||
31.2 | Certification of Principal Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | Filed | ||||||||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished** | ||||||||
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished** | ||||||||
101.INS | Inline XBRL Instance Document | Filed | ||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* | Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The Company undertakes to furnish to the SEC a copy of any omitted schedule and/or exhibit upon request. |
** | This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at HUMBL Inc., 600 B Street, Suite 300, San Diego, CA 92101.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HUMBL, Inc. | ||
Date: May 15, 2023 | By: | /s/ BRIAN FOOTE |
Brian Foote | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: May 15, 2023 | By: | /s/ JEFFREY HINSHAW |
Jeffrey Hinshaw | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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Exhibit 10.1
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
CONVERTIBLE PROMISSORY NOTE
Effective Date: May 10, 2023 | Up to U.S. $800,000.00 |
FOR VALUE RECEIVED, HUMBL, Inc., a Delaware corporation (“Borrower”), promises to pay to the order of Pacific Lion LLC, a Florida limited liability company, or its successors or assigns (“Lender”), up to $800,000.00 and any interest accrued hereunder on the date that is twelve (12) months from the Effective Date (the “Maturity Date”) in accordance with the terms set forth herein and to pay interest on the outstanding balance at the rate of six percent (6%) per annum from the Effective Date until the same is paid in full. This Convertible Promissory Note (this “Note”) is issued and made effective as of May 10, 2023 (the “Effective Date”). Certain capitalized terms used herein are defined in Attachment 1 attached hereto and incorporated herein by this reference.
The first tranche of $100,000.00 will be funded on the Effective Date. Lender may fund tranches of up to an additional $700,000.00 (for a total of up to $800,000.00), by delivering written notice to Borrower of its intent to fund additional amounts hereunder, and subsequently delivering such funds to Lender via wire transfer of immediately available funds.
1. Payment; Prepayment.
1.1. Payment. All payments owing hereunder shall be in lawful money of the United States of America or Conversion Shares (as defined below), as provided for herein, and delivered to Lender at the address or bank account furnished to Borrower for that purpose. All payments shall be applied first to (a) costs of collection, if any, then to (b) fees and charges, if any, then to (c) accrued and unpaid interest, and thereafter, to (d) principal.
1.2. Prepayment. Borrower may prepay the principal amount of this Note at any time without penalty; provided, however, in the event the principal amount of this Note is prepaid all remaining interest that would have accrued as of the Maturity Date will be accelerated and may not be prepaid.
2. Security. This Note is unsecured.
3. Automatic Conversion. Upon Borrower’s successful completion of an Uplisting, the Outstanding Balance of this Note will automatically convert in shares (“Conversion Shares”) of Borrower’s common stock, par value $0.00001 (the “Common Stock”), at the Automatic Conversion Price. The Conversion Shares will be delivered pursuant to Section 8 below.
4. Borrower Optional Conversion. Upon the occurrence of an Event of Default (as defined below) and during the period beginning on the Maturity Date if this Note is still outstanding and ending on the date the Note is repaid in full, Borrower will have the right to convert all or any portion of the Outstanding Balance into Conversion Shares at the Borrower Optional Conversion Price by sending Borrower a Conversion Notice in the form attached hereto as Exhibit A. The Conversion Shares will be delivered pursuant to Section 8 below.
5. Defaults and Remedies.
5.1. Defaults. The following are events of default under this Note (each, an “Event of Default”): (a) Borrower fails to pay any principal, interest, fees, charges, or any other amount when due and payable hereunder; (b) Borrower fails to deliver any Conversion Shares in accordance with the terms hereof; (c) a receiver, trustee or other similar official shall be appointed over Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; (d) Borrower makes a general assignment for the benefit of creditors; (e) Borrower files a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); (f) an involuntary bankruptcy proceeding is commenced or filed against Borrower; or (g) Borrower breaches any covenant in Section 4 of the Purchase Agreement. Notwithstanding the foregoing, the occurrence of any of the foregoing events will not be considered an Event of Default unless Borrower fails to cure such event within ten (10) Trading Days of its receipt of written notice from Lender.
5.2. Remedies. Following an Event of Default, Lender may accelerate this Note by written notice to Borrower with the outstanding balance becoming immediately due and payable. Nothing herein shall limit Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver Conversion Shares upon Conversion of the Note as required pursuant to the terms hereof.
6. Unconditional Obligation; No Offset. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Lender, its successors and assigns, and agrees to make the payments or Conversions called for herein in accordance with the terms of this Note.
7. Waiver. No waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.
8. Method of Conversion Share Delivery. On or before the close of business on the third (3rd) Trading Day following the date of delivery of a Conversion Notice (the “Delivery Date”), Borrower shall, provided it is DWAC Eligible at such time, deliver or cause its transfer agent to deliver the applicable Conversion Shares electronically via DWAC to the account designated by Lender in the applicable Conversion Notice. If Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as designated in the Conversion Notice), via reputable overnight courier, a certificate representing the number of shares of Common Stock equal to the number of Conversion Shares to which Lender shall be entitled, registered in the name of Lender or its designee.
9. Ownership Limitation. Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents, Borrower shall not effect any conversion of this Note to the extent that after giving effect to such conversion would cause Lender (together with its affiliates) to beneficially own a number of shares exceeding 4.99% (the “Maximum Percentage”) of the number of shares of Common Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance). For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended. By written notice to Borrower, Lender may increase the Maximum Percentage to 9.99%, but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of Lender.
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10. Opinion of Counsel. In the event that an opinion of counsel is needed for any matter related to this Note, Lender shall have such opinion provided by its counsel.
11. Governing Law; Venue. This Note shall be governed by and construed in accordance with the laws of the State of Florida applicable to contracts made and wholly performed in that jurisdiction. Each party hereto submits to the exclusive jurisdiction of any state or federal court sitting in Pinellas County, Florida in any proceeding arising out of or relating to this Note and agrees that all claims in respect of the proceeding may be heard and determined in any such court and hereby expressly submits to the personal jurisdiction and venue of such court for the purposes hereof and expressly waives any claim of improper venue and any claim that such courts are an inconvenient forum. Each party hereto hereby irrevocably consents to the service of process of any of the aforementioned courts in any such proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to its address as set forth herein, such service to become effective ten (10) days after such mailing. The parties expressly and irrevocably waive the right to a trial by jury in any and all actions or proceedings brought with respect to this Note and with respect to any claims arising out of or related to this Note.
12. Cancellation. After repayment or conversion of the entire outstanding balance, this Note shall be deemed paid in full, shall automatically be deemed canceled, and shall not be reissued.
13. Amendments. The prior written consent of both parties hereto shall be required for any change or amendment to this Note.
14. Assignments. Neither party may assign this Note without the consent of the other party. Any assignment or assumption in connection with a Change of Control is subject to Lender’s approval, unless this Note is paid in full in connection with such Change of Control.
15. Notices. Whenever notice is required to be given under this Note, such notice shall be given as set forth in the Purchase Agreement.
16. Severability. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Lender to the fullest extent permitted by law and the balance of this Note shall remain in full force and effect.
[Remainder of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the Effective Date.
BORROWER: | ||
HUMBL, Inc. | ||
By: | ||
Brian Foote, CEO |
ACKNOWLEDGED, ACCEPTED AND AGREED: | ||
LENDER: | ||
Pacific Lion LLC | ||
By: | ||
Jacob Fernane, Manager |
[Signature Page to Convertible Promissory Note]
ATTACHMENT 1
DEFINITIONS
For purposes of this Note, the following terms shall have the following meanings:
A1. “Automatic Conversion Price” means eighty percent (80%) multiplied by the registered offering price used in conjunction with the Uplisting. In the event of a direct listing, the Conversion Price will be eighty percent (80%) multiplied by the volume weighted average price of the Common Stock on the Senior Exchange during the first five (5) Trading Days following the Uplisting.
A2. “Borrower Optional Conversion Price” means eighty percent (80%) multiplied by the average of the closing trade price of the Common Stock for the five (5) Trading Days immediately preceding the date of Conversion.
A3. “DTC” means the Depository Trust Company or any successor thereto.
A4. “DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer program.
A5. “DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.
A6. “DWAC Eligible” means that (a) Borrower’s Common Stock is eligible at DTC for full services pursuant to DTC’s operational arrangements, including without limitation transfer through DTC’s DWAC system; (b) Borrower has been approved (without revocation) by DTC’s underwriting department; (c) Borrower’s transfer agent is approved as an agent in the DTC/FAST Program; (d) the Conversion Shares are otherwise eligible for delivery via DWAC; and (e) Borrower’s transfer agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.
A7. “Senior Stock Exchange” means Nasdaq, NYSE, NYSE American or other similar national stock exchange.
A8. “Trading Day” means any day on which Borrower’s principal trading market is open for trading.
A9. “Uplisting” means the moving of the listing of the Common Stock from OTC Markets to a Senior Stock Exchange.
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Attachment 1 to Convertible Promissory Note, Page 1
EXHIBIT A
Pacific Lion LLC
HUMBL, Inc. | Date: |
Attn: Brian Foote
600 B. Street, Suite 300
San Diego, California 92101
CONVERSION NOTICE
The above-captioned Lender hereby gives notice to HUMBL, Inc., a Delaware corporation (the “Borrower”), pursuant to that certain Convertible Promissory Note made by Borrower in favor of Lender on May 10, 2023 (the “Note”), that Lender elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.
A. Date of Conversion: ____________
B. Conversion #: ____________
C. Conversion Amount: ____________
D. Conversion Price: __________
E. Conversion Shares: _______________ (C divided by D)
F. Remaining Outstanding Balance of Note: ____________
Please transfer the Conversion Shares electronically (via DWAC) to the following account:
Broker: | Address: | |||
DTC#: | ||||
Account #: | ||||
Account Name: |
To the extent the Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such certificated shares to Lender via reputable overnight courier after receipt of this Conversion Notice (by facsimile transmission or otherwise) to:
_____________________________________
_____________________________________
_____________________________________
Sincerely, | ||
Lender: | ||
By: | ||
Jacob Fernane, Manager |
Exhibit A to Convertible Promissory Note, Page 1
Exhibit 10.2
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS WARRANT OR SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS WARRANT OR SUCH SECURITIES, AS APPLICABLE, MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS.
HUMBL, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
1. Issuance. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by HUMBL, Inc., a Delaware corporation, its successors and assigns (“Company”), Pacific Lion LLC, a Florida limited liability company, its successors and/or registered assigns (“Investor”), is hereby granted the right to purchase at any time on or after the Uplist Date (as defined in Attachment 1) until the date that is five (5) years from the Issue Date (the “Expiration Date”), 500,000 fully paid and non-assessable shares (the “Warrant Shares”) of Company’s common stock, par value $0.00001 per share (the “Common Stock”), as such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant to Purchase Shares of Common Stock (this “Warrant”).
This Warrant is being issued pursuant to the terms of that certain Securities Purchase Agreement dated May 10, 2023, to which Company and Investor are parties (the “Purchase Agreement”). Certain capitalized terms used herein are defined in Attachment 1 attached hereto and incorporated herein by this reference. This Warrant was issued to Investor on May 10, 2023 (the “Issue Date”).
2. Exercise of Warrant.
2.1. General.
(a) This Warrant is exercisable in whole or in part at any time and from time to time commencing on the Uplist Date and ending on the Expiration Date. Such exercise shall be effectuated by submitting to Company (either by delivery to Company or by email or facsimile transmission) a completed and signed Notice of Exercise substantially in the form attached to this Warrant as Exhibit A (the “Notice of Exercise”). The date a Notice of Exercise is delivered to Company shall be the “Exercise Date,” provided that, if such exercise represents the full exercise of the outstanding balance of this Warrant, Investor shall tender this Warrant to Company within five (5) Trading Days thereafter, but only if the Warrant Shares to be delivered pursuant to the Notice of Exercise have been delivered to Investor as of such date. The Notice of Exercise shall be executed by Investor and shall indicate the number of Warrant Shares to be issued pursuant to such exercise
(b) The Exercise Price per share of Common Stock for the Warrant Shares shall be payable, at the election of Investor, in cash or by certified or official bank check or by wire transfer in accordance with instructions provided by Company at the request of Investor.
(c) Upon the appropriate payment to Company of the Exercise Price for the Warrant Shares, Company shall promptly, but in no case later than the date that is ten (10) Trading Days following the date the Exercise Price is paid to Company (the “Delivery Date”), deliver or cause Company’s Transfer Agent to deliver the applicable Warrant Shares electronically via the DWAC system to the account designated by Investor on the Notice of Exercise. If for any reason Company is not able to so deliver the Warrant Shares via the DWAC system, Company shall instead, on or before the applicable date set forth above in this subsection, issue and deliver to Investor or its broker (as designated in the Notice of Exercise), via reputable overnight courier, a certificate, registered in the name of Investor or its designee, representing the applicable number of Warrant Shares.
(d) In no event may this Warrant be settled via cashless exercise.
(e) If an Uplisting has not occurred before the date that is nine (9) months from the Issue Date, then this Warrant will automatically be cancelled and of no further force or effect.
2.2. Ownership Limitation. Notwithstanding anything to the contrary contained in this Warrant, if at any time Lender shall or would be issued shares of Common Stock under this Warrant, but such issuance would cause Lender (together with its affiliates) to beneficially own a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the “Maximum Percentage”), then Borrower shall not issue to Lender shares of Common Stock which would exceed the Maximum Percentage. The ownership limitation is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of Lender.
3. Mutilation or Loss of Warrant. Upon receipt by Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, Company will execute and deliver to Investor a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.
4. Rights of Investor. Investor shall not, by virtue of this Warrant alone, be entitled to any rights of a stockholder in Company, either at law or in equity, and the rights of Investor with respect to or arising under this Warrant are limited to those expressed in this Warrant and are not enforceable against Company except to the extent set forth herein
5. Transfer to Comply with the Securities Act. This Warrant and the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the “1933 Act”). Neither this Warrant nor the Warrant Shares may be sold, transferred, pledged or hypothecated without (a) an effective registration statement under the 1933 Act relating to such security or (b) an opinion of counsel reasonably satisfactory to Company that registration is not required under the 1933 Act. Until such time as registration has occurred under the 1933 Act, each certificate for this Warrant and any Warrant Shares shall contain a legend, in form and substance satisfactory to counsel for Company, setting forth the restrictions on transfer contained in this Section 7.
6. Notices. Any notice required or permitted hereunder shall be given in the manner provided in the subsection titled “Notices” in the Purchase Agreement, the terms of which are incorporated herein by reference.
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7. Supplements and Amendments; Whole Agreement. This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant, together with the Purchase Agreement, contains the full understanding of the parties hereto with respect to the subject matter hereof and thereof and there are no representations, warranties, agreements or understandings with respect to the subject matter hereof and thereof other than as expressly contained herein and therein.
8. Governing Law; Venue. This Warrant shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of Florida, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Florida. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state and federal courts in Pinellas County, Florida. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The prevailing party in any dispute arising under this Agreement shall be entitled to recover from the other party its reasonable attorney’s fees and costs.
9. Waiver of Jury Trial. EACH OF COMPANY AND INVESTOR IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS WARRANT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, COMPANY ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.
10. Counterparts. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Electronic signatures shall be considered original signatures for all purposes hereof.
11. Attorneys’ Fees. In the event of any litigation or dispute arising from this Warrant, the parties agree that the prevailing party shall be entitled to an additional award of the full amount of the reasonable attorneys’ fees and expenses paid by said prevailing party in connection with litigation or dispute.
12. Severability. Whenever possible, each provision of this Warrant shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be invalid or unenforceable in any jurisdiction, such provision shall be modified to achieve the objective of the parties to the fullest extent permitted and such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Warrant or the validity or enforceability of this Warrant in any other jurisdiction.
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IN WITNESS WHEREOF, Company has caused this Warrant to be duly executed as of the Issue Date.
COMPANY: | ||
HUMBL, INC. | ||
By: | ||
Brian Foote, President and CEO |
[Signature Page to Warrant]
ATTACHMENT 1
DEFINITIONS
For purposes of this Warrant, the following terms shall have the following meanings:
A1. “DTC” means the Depository Trust Company or any successor thereto.
A2. “DTC Eligible” means, with respect to the Common Stock, that such Common Stock is eligible to be deposited in certificate form at the DTC, cleared and converted into electronic shares by the DTC and held in the name of the clearing firm servicing Investor’s brokerage firm for the benefit of Investor.
A3. “DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer program.
A4. “DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.
A5. “Exercise Price” means $0.10 per share of Common Stock, as the same may be adjusted from time to time pursuant to the terms and conditions of this Warrant.
A6. “Senior Stock Exchange” means Nasdaq, NYSE, NYSE American or other similar national stock exchange.
A7. “Trading Day” means any day the New York Stock Exchange is open for trading.
A8. “Uplisting” means the moving of the listing of the Common Stock from OTC Markets to a Senior Stock Exchange.
A9. “Uplist Date” means the date the completion of the Uplisting.
Attachment 1 to Warrant, Page 1
EXHIBIT A
NOTICE OF EXERCISE OF WARRANT
TO: | HUMBL, INC. | |
ATTN: _______________ | ||
VIA FAX TO: ( )______________ | EMAIL: ______________ |
The undersigned hereby irrevocably elects to exercise the right, represented by the Warrant to Purchase Shares of Common Stock dated as of May 10, 2023 (the “Warrant”), to purchase shares of the common stock, $0.00001 par value (“Common Stock”), of HUMBL, Inc., and tenders herewith payment in accordance with Section 2 of the Warrant, as follows:
Warrant Shares: _______________________
Exercise Price: $_______________________
Purchase Price: $___________________ = (Exercise Price x Warrant Shares)
Payment is being made by:
_____ enclosed check
_____ wire transfer
_____ other
Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Warrant.
It is the intention of Investor to comply with the provisions of Section 2.2 of the Warrant regarding certain limits on Investor’s right to receive shares thereunder. Investor believes this exercise complies with the provisions of such Section 2.2. Nonetheless, to the extent that, pursuant to the exercise effected hereby, Investor would receive more shares of Common Stock than permitted under Section 2.2, Company shall not be obligated and shall not issue to Investor such excess shares until such time, if ever, that Investor could receive such excess shares without violating, and in full compliance with, Section 2.2 of the Warrant.
As contemplated by the Warrant, this Notice of Exercise is being sent by email to the officer indicated above.
If this Notice of Exercise represents the full exercise of the entire Warrant, Investor will surrender (or cause to be surrendered) the Warrant to Company at the address indicated above by express courier within five (5) Trading Days after the Warrant Shares to be delivered pursuant to this Notice of Exercise have been delivered to Investor.
To the extent the Warrant Shares are not able to be delivered to Investor via the DWAC system, please deliver certificates representing the Warrant Shares to Investor via reputable overnight courier after receipt of this Notice of Exercise (by facsimile transmission or otherwise) to:
_____________________________________
_____________________________________
_____________________________________
Exhibit A to Warrant, Page 1
Dated:_____________________ | |
___________________________ | |
[Name of Investor] | |
By:________________________ |
Exhibit A to Warrant, Page 2
Exhibit 10.3
EQUITY FINANCING AGREEMENT
This EQUITY FINANCING AGREEMENT (the “Agreement”), dated as of May 10, 2023 (the “Execution Date”), is entered into by and between HUMBL, Inc., a Delaware corporation (the “Company”), and Pacific Lion LLC, a Florida limited liability company (the “Investor”).
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Investor shall invest up to Twenty Million Dollars ($20,000,000) (the “Commitment Amount”), over the course of the period beginning on the Effective Date and ending on September 30, 2024 (the “Contract Period”) to purchase the Company’s common stock, par value $0.00001 per share (the “Common Stock”);
WHEREAS, such investments will be made in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”), Rule 506 of Regulation D promulgated by the SEC under the 1933 Act, and/or upon such other exemption from the registration requirements of the 1933 Act as may be available with respect to any or all of the investments in Common Stock to be made hereunder; and
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit A (the “Registration Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral part of this Agreement, the covenants and agreements set forth hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investor hereby agree as follows:
SECTION I.
DEFINITIONS
For all purposes of and under this Agreement, the following terms shall have the respective meanings below, and such meanings shall be equally applicable to the singular and plural forms of such defined terms.
“1933 Act” shall have the meaning set forth in the recitals.
“1934 Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same will then be in effect.
“Affiliate” shall have the meaning set forth in Section 5.7.
“Agreement” shall have the meaning set forth in the preamble.
“Certificate
of Incorporation” shall have the meaning set forth in Section 4.3.
“By-laws” shall have the meaning set forth in Section 4.3.
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“Closing”
shall have the meaning set forth in Section 2.4.
“Closing Date” shall have the meaning set forth in Section 2.4.
“Common Stock” shall have the meaning set forth in the recitals.
“Control” or “Controls” shall have the meaning set forth in Section 5.7.
“Effective Date” shall mean the date the SEC declares effective under the 1933 Act the Registration Statement covering the Securities.
“Environmental Laws” shall have the meaning set forth in Section 4.13.
“Execution Date” shall have the meaning set forth in the preamble.
“Indemnified Liabilities” shall have the meaning set forth in Section 10.
“Indemnitees” shall have the meaning set forth in Section 10.
“Indemnitor” shall have the meaning set forth in Section 10.
“Ineffective Period” shall mean any period of time that the Registration Statement or any supplemental registration statement becomes ineffective or unavailable for use for the sale or resale, as applicable, of any or all of the Registrable Securities (as defined in the Registration Rights Agreement) for any reason (or in the event the prospectus under either of the above is not current and deliverable) during any time period required under the Registration Rights Agreement.
“Investor” shall have the meaning set forth in the preamble.
“Market Price” shall mean the lowest closing trade price of the Common Stock during the Pricing Period.
“Material Adverse Effect” shall have the meaning set forth in Section 4.1.
“Maximum Common Stock Issuance” shall have the meaning set forth in Section 2.5.
“Open Period” shall mean the period beginning on and including the Trading Day immediately following the Effective Date and ending on the termination of the Agreement in accordance with Section 8.
“Pricing Period” shall mean the ten (10) consecutive Trading Days preceding the relevant Put Notice Date.
“Principal Market” shall mean the New York Stock Exchange, the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the OTC Markets, whichever is the principal market on which the Common Stock is listed.
“Prospectus” shall mean the prospectus, preliminary prospectus and supplemental prospectus used in connection with the Registration Statement.
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“Purchase Amount” shall mean the total amount being paid by the Investor on a particular Closing Date to purchase the Securities.
“Purchase Price” shall mean eighty-five percent (85%) of the Market Price. Following an up-list to the NASDAQ, NYSE or an equivalent national exchange by the Company, the Purchase Price shall mean ninety percent (90%) of the Market Price, subject to a floor agreed upon by the parties at the time of the up-list, below which the Company shall not deliver a Put.
“Put” shall mean the Company is entitled to request equity investments (the “Put” or “Puts”) by the Investor, pursuant to which the Company will issue Common Stock to the Investor with an aggregate Purchase Price equal to the value of the Put, subject to a price per share calculation based on the Market Price.
“Put Amount” shall mean the total dollar amount requested by the Company pursuant to an applicable Put. The timing and amounts of each Put shall be at the discretion of the Company. The maximum dollar amount of each Put will not exceed one hundred fifty percent (150%) of the average daily trading dollar volume for the Common Stock during the five (5) consecutive Trading Days preceding the Put Notice Date. No Put will be made in an amount equaling less than twenty-five thousand dollars ($25,000) or greater than two hundred thousand dollars ($200,000) (unless such cap is waived by the Investor).
“Put Notice” shall mean a written notice sent to the Investor by the Company stating the Put Amount in U.S. dollars that the Company intends to sell to the Investor pursuant to the terms of the Agreement and stating the current number of Shares issued and outstanding on such date.
“Put Notice Date” shall mean the Trading Day on which the Investor receives a Put Notice.
“Put Restriction” shall mean a minimum of ten (10) Trading Days following a Closing Date. During this time, the Company shall not be entitled to deliver another Put Notice.
“Put Shares” shall have the meaning set forth in Section 2.4.
“Registered Offering Transaction Documents” shall mean this Agreement and the Registration Rights Agreement between the Company and the Investor as of the date herewith.
“Registration Rights Agreement” shall have the meaning set forth in the recitals.
“Registration Statement” means the registration statement of the Company filed under the 1933 Act covering the Securities issuable hereunder.
“Related Party” shall have the meaning set forth in Section 5.7.
“Resolution” shall have the meaning set forth in Section 7.5.
“SEC” shall mean the U.S. Securities and Exchange Commission.
“SEC Documents” shall have the meaning set forth in Section 4.6.
“Securities” shall mean the shares of Common Stock issued pursuant to the terms of this Agreement.
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“Settlement Date” shall have the meaning set forth in Section 2.4.
“Shares” shall mean the shares of the Common Stock.
“Subsidiaries” shall have the meaning set forth in Section 4.1.
“Trading Day” shall mean any day on which the Principal Market for the Common Stock is open for trading, from the hours of 9:30 am until 4:00 pm.
“Transaction Costs” the Company shall bear the costs of the Registration Statement.
SECTION II
PURCHASE AND SALE OF COMMON STOCK
2.1 PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set forth herein, the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company, up to that number of Shares having an aggregate Purchase Price of Twenty Million Dollars ($20,000,000).
2.2 DELIVERY OF PUT NOTICES. Subject to the terms and conditions herein, and from time to time during the Open Period, the Company may, in its sole discretion, deliver a Put Notice to the Investor which states the dollar amount (designated in U.S. Dollars), which the Company intends to sell to the Investor on a Closing Date (the “Put”). The Put Notice shall be in the form attached hereto as Exhibit C and incorporated herein by reference. The Purchase Price of the Put shall be eighty-five percent (85%) percent of the Market Price. Following an up-list to the NYSE American or equivalent national exchange, the Purchase Price shall be ninety percent (90%) of the Market Price, subject to a mutually agreed upon floor price per share, below which the Company shall not deliver a Put. During the Open Period, the Company shall not be entitled to submit a Put Notice until after the previous Closing has been completed. There will be a minimum of ten (10) trading days between Closings. No Put will be made in an amount equaling less than ten thousand dollars ($10,000) or greater than two hundred thousand dollars ($200,000), unless such maximum amount is waived by the Investor.
2.3 CONDITIONS TO INVESTOR’S OBLIGATION TO PURCHASE SHARES. Notwithstanding anything to the contrary in this Agreement, the Company shall not be entitled to deliver a Put Notice and the Investor shall not be obligated to purchase any Shares at a Closing unless each of the following conditions are satisfied:
i. | a Registration Statement shall have been declared effective and shall remain effective and available for the resale of all the Registrable Securities (as defined in the Registration Rights Agreement) at all times until the Closing with respect to the subject Put Notice; |
ii. | at all times during the period beginning on the related Put Notice Date and ending on and including the related Closing Date, the Common Stock shall have been listed or quoted for trading on the Principal Market and shall not have been suspended from trading thereon for a period of two (2) consecutive Trading Days during the Open Period and the Company shall not have been notified of any pending or threatened proceeding or other action to suspend the trading of the Common Stock; |
iii. | the Company has complied with its obligations and is otherwise not in breach of or in default under, this Agreement, the Registration Rights Agreement or any other agreement executed between the parties, which has not been cured prior to delivery of the Put Notice; |
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iv. | no injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Securities; and |
v. | the issuance of the Securities will not violate any requirements of the Principal Market. |
If any of the events described in clauses (i) through (v) above occurs during a Pricing Period, then the Investor shall have no obligation to purchase the Put Amount of Common Stock set forth in the applicable Put Notice.
2.4
MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the satisfaction of the conditions set forth in Sections 2.5, 7 and 8
of this Agreement, at the end of the Pricing Period, the Purchase Price shall be established and an amount of Shares equaling one hundred
percent (100%) of the Put Amount (the “Put Shares”) shall be delivered to the Investor’s broker for a particular
Put.
The Closing of a Put shall occur upon the first Trading Day following the confirmation of receipt and approval for trading by Investor’s
broker of the Put Shares, whereby the Company shall have caused the Transfer Agent to electronically transmit, prior to the applicable
Closing Date, the applicable Put Shares by crediting the account of the Investor’s broker with DTC through its Deposit Withdrawal
Agent Commission (“DWAC”) system. The Investor shall deliver the Purchase Amount specified in the Put Notice (less
deposit and clearing fees) by wire transfer of immediately available funds to an account designated by the Company if the aforementioned
receipt and approval are confirmed before 9:30 AM ET or on the following Trading Day if receipt and approval by the Investor’s
broker is made after 9:30 AM ET (“Closing Date” or “Closing”). In addition, on or prior to such
Closing Date, each of the Company and Investor shall deliver to each other all documents, instruments and writings required to be delivered
or reasonably requested by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein.
2.5 OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained herein to the contrary, if during the Open Period the Company becomes listed on an exchange which limits the number of shares of Common Stock that may be issued without shareholder approval, then the number of Shares issuable by the Company and purchasable by the Investor, shall not exceed that number of the shares of Common Stock that may be issuable without shareholder approval (the “Maximum Common Stock Issuance”). If such issuance of shares of Common Stock could cause a delisting on the Principal Market then the Maximum Common Stock Issuance shall first be approved by the Company’s shareholders in accordance with applicable law and the By-laws and the Certificate of Incorporation of the Company. The parties understand and agree that the Company’s failure to seek or obtain such shareholder approval shall in no way adversely affect the validity and due authorization of the issuance and sale of Securities or the Investor’s obligation in accordance with the terms and conditions hereof to purchase a number of Shares in the aggregate up to the Maximum Common Stock Issuance, and that such approval pertains only to the applicability of the Maximum Common Stock Issuance limitation provided in this Section 2.5.
2.6 LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this Agreement, in no event shall the Investor be entitled to purchase that number of Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 4.99% of the number of shares of Common Stock outstanding on the Closing Date (the “Maximum Percentage”), as determined in accordance with Rule 13d-1(j) of the 1934 Act. By written notice to the Company, the Investor may increase the Maximum Percentage to 9.99%, but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of the Investor.
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SECTION III
INVESTOR’S REPRESENTATIONS, WARRANTIES AND COVENANTS
The Investor represents and warrants to the Company, and covenants, that to the best of the Investor’s knowledge:
3.1 SOPHISTICATED INVESTOR. The Investor has, by reason of its business and financial experience, such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that it is capable of (I) evaluating the merits and risks of an investment in the Securities and making an informed investment decision; (II) protecting its own interest; and (III) bearing the economic risk of such investment for an indefinite period of time.
3.2 AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Investor and is a valid and binding agreement of the Investor enforceable against the Investor in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.
3.3 SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor will comply with the provisions of Section 9 of the 1934 Act, and the rules promulgated thereunder, with respect to transactions involving the Common Stock.
3.4 ACCREDITED INVESTOR. Investor is an “Accredited Investor” as that term is defined in Rule 501(a) of Regulation D of the 1933 Act.
3.5 NO CONFLICTS. The execution, delivery and performance of the Registered Offering Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby will not result in a violation of the operating agreement or other organizational documents of the Investor.
3.6 OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to the Company’s business, finance and operations which it has requested. The Investor has had an opportunity to discuss the business, management and financial affairs of the Company with the Company’s management.
3.7 INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own account for investment purposes and not with a view towards distribution and agrees to resell or otherwise dispose of the Securities solely in accordance with the registration provisions of the 1933 Act (or pursuant to an exemption from such registration provisions).
3.8 GOOD STANDING. The Investor is a limited liability company, duly organized, validly existing and in good standing in the State of Florida.
3.9 TAX LIABILITIES. The Investor understands that it is liable for its own tax liabilities.
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3.10 REGULATION M. The Investor will comply with Regulation M under the 1934 Act, if applicable.
3.11 PROHIBITED TRADING. No short sales shall be permitted by the Investor or its affiliates during the period commencing on the Execution Date and continuing through the termination of this Agreement.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedules attached hereto, or as disclosed on the Company’s SEC Documents, the Company represents and warrants to the Investor that:
4.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted. Both the Company and the companies it owns or controls (“Subsidiaries”) are duly qualified to do business and are in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means a change, event, circumstance, effect or state of facts that has had or is reasonably likely to have, a material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Registered offering Transaction Documents.
4.2 AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
i. | The Company has the requisite corporate power and authority to enter into and perform the Registered Offering Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. |
ii. | The execution and delivery of the Registered Offering Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Securities pursuant to this Agreement, have been duly and validly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its shareholders. |
iii. | The Registered Offering Transaction Documents have been duly and validly executed and delivered by the Company. |
iv. | The Registered Offering Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies. |
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4.3 ISSUANCE OF SHARES. At such time as sufficient shares are available for reservation, the Company will have reserved the amount of Shares included in the Registration Statement for issuance pursuant to the Registered Offering Transaction Documents, which have been duly authorized and reserved (subject to adjustment pursuant to the Company’s covenant set forth in Section 5.5 below) pursuant to this Agreement. Upon issuance in accordance with this Agreement, the Securities will be validly issued, fully paid for and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. In the event the Company cannot register a sufficient number of Shares for issuance pursuant to this Agreement, the Company will use its best efforts to authorize and reserve for issuance the number of Shares required for the Company to perform its obligations hereunder as soon as reasonably practicable.
4.4 NO CONFLICTS. The execution, delivery and performance of the Registered Offering Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Certificate of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws; or (ii) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a party, or to the Company’s knowledge result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the Principal Market or principal securities exchange or trading market on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Neither the Company nor its Subsidiaries is in violation of any term of, or in default under, the Certificate of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws or their organizational charter or by-laws, respectively, or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not individually or in the aggregate have or constitute a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act or any securities laws of any states, to the Company’s knowledge, the Company is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement between the parties) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Registered Offering Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, permits, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company is not, and will not be, in violation of the listing requirements of the Principal Market as in effect on the date hereof and on each of the Closing Dates and is not aware of any facts which would reasonably lead to delisting of the Common Stock by the Principal Market in the foreseeable future.
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4.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, and amendments thereto, being hereinafter referred to as the “SEC Documents”). The Company has delivered to the Investor or its representatives, or they have had access through EDGAR to, true and complete copies of the SEC Documents. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC or the time they were amended, if amended, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, by a firm that is a member of the Public Companies Accounting Oversight Board (“PCAOB”) consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other written information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents, including, without limitation, information referred to in Section 4.3 of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided the Investor with any material, nonpublic information which was not publicly disclosed prior to the date hereof and any material, nonpublic information provided to the Investor by the Company or its Subsidiaries or any of their officers, directors, employees or agents prior to any Closing Date shall be publicly disclosed by the Company prior to such Closing Date.
4.6 ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC Documents, the Company does not intend to change the business operations of the Company in any material way. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings.
4.7 ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company’s Subsidiaries or any of the Company’s or the Company’s Subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a Material Adverse Effect.
4.8 ACKNOWLEDGMENT REGARDING INVESTOR’S PURCHASE OF SHARES. The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length investor with respect to the Registered Offering Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Registered Offering Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Investor or any of its respective representatives or agents in connection with the Registered Offering Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Investor’s purchase of the Securities, and is not being relied on by the Company. The Company further represents to the Investor that the Company’s decision to enter into the Registered Offering Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.
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4.9 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set forth in the SEC Documents, as of the date hereof, no event, liability, development or circumstance has occurred or exists, or to the Company’s knowledge is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, assets, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced.
4.10 EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that relations with their employees are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company’s employ or otherwise terminate such officer’s employment with the Company.
4.11 INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth in the SEC Documents, none of the Company’s trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights necessary to conduct its business as now or as proposed to be conducted have expired or terminated, or are expected to expire or terminate within three (3) years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth in the SEC Documents, there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.
4.12 ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are, to the knowledge of the management and directors of the Company and its Subsidiaries, in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”); (ii) have, to the knowledge of the management and directors of the Company, received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance, to the knowledge of the management and directors of the Company, with all terms and conditions of any such permit, license or approval where, in each of the three (3) foregoing cases, the failure to so comply would have, individually or in the aggregate, a Material Adverse Effect.
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4.13 TITLE. The Company and its Subsidiaries have good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries. Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.
4.14 INSURANCE. Each of the Company’s Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any of its Subsidiaries has been refused any insurance coverage sought or applied for and neither the Company nor its Subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.
4.15 REGULATORY PERMITS. The Company and its Subsidiaries have in full force and effect all certificates, approvals, authorizations and permits from the appropriate federal, state, local or foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease or operate their respective properties and assets and conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, approval, authorization or permit, except for such certificates, approvals, authorizations or permits which if not obtained, or such revocations or modifications which, would not have a Material Adverse Effect.
4.16 INTERNAL ACCOUNTING CONTROLS. Except as otherwise set forth in the SEC Documents, the Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles by a firm with membership to the PCAOB and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company’s management has determined that the Company’s internal accounting controls were not effective as of the date of this Agreement as further described in the SEC Documents.
4.17 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
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4.18 TAX STATUS. The Company and each of its Subsidiaries has made or filed all United States federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
4.19 CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at least ten (10) days prior to the date hereof and except for arm’s length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from disinterested third parties, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, such that disclosure would be required in the SEC Documents..
4.20 DILUTIVE EFFECT. The Company understands and acknowledges that the number of shares of Common Stock issuable upon purchases pursuant to this Agreement will increase in certain circumstances including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the period between the Effective Date and the end of the Open Period. The Company’s executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect on the shareholders of the Company. The Board of Directors of the Company has concluded, in its good faith business judgment, and with full understanding of the implications, that such issuance is in the best interests of the Company. The Company specifically acknowledges that, subject to such limitations as are expressly set forth in the Registered Offering Transaction Documents, its obligation to issue shares of Common Stock upon purchases pursuant to this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
4.21 NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Common Stock to be offered as set forth in this Agreement.
4.22 NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS. No brokers, finders or financial advisory fees or commissions will be payable by the Company, its agents or Subsidiaries, with respect to the transactions contemplated by this Agreement.
4.23 EXCLUSIVITY. The Company shall not pursue a similar equity financing transaction as envisioned hereunder (the “Equity Financing”) with any other party unless and until good faith negotiations have terminated between the Investor and the Company or until such time as the Registration Statement has been declared effective by the SEC.
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SECTION V
COVENANTS OF THE COMPANY
5.1 BEST EFFORTS. The Company shall use all commercially reasonable efforts to timely satisfy each of the conditions set forth in Section 7 of this Agreement.
5.2 REPORTING STATUS. Until one of the following occurs, the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status, or take an action or fail to take any action, which would terminate its status as a reporting company under the 1934 Act: (i) this Agreement terminates pursuant to Section 8 and the Investor has the right to sell all of the Securities without restrictions pursuant to Rule 144 promulgated under the 1933 Act, or such other exemption, or (ii) the date on which the Investor has sold all the Securities and this Agreement has been terminated pursuant to Section 8.
5.3 USE OF PROCEEDS. The Company will use the proceeds from the sale of the Put Shares (excluding amounts paid by the Company for fees as set forth in the Registered Offering Transaction Documents) for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in good faith, deem to be in the best interest of the Company.
5.4 FINANCIAL INFORMATION. During the Open Period, the Company agrees to make available to the Investor via EDGAR or other electronic means the following documents and information on the forms set forth: (i) within five (5) Trading Days after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any Registration Statements or amendments filed pursuant to the 1933 Act; (ii) copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders; and (iii) within two (2) calendar days of filing or delivery thereof, copies of all documents filed with, and all correspondence sent to, the Principal Market, any securities exchange or market, or the Financial Industry Regulatory Association, unless such information is material nonpublic information.
5.5 RESERVATION OF SHARES. The Company shall take all action necessary to at all times after sufficient number of shares become available have authorized, and reserved the amount of Shares included in the Company’s registration statement for issuance pursuant to the Registered Offering Transaction Documents. In the event that the Company determines that it does not have a sufficient number of authorized shares of Common Stock to reserve and keep available for issuance as described in this Section 5.5, the Company shall use all commercially reasonable efforts to increase the number of authorized shares of Common Stock by seeking shareholder approval for the authorization of such additional shares.
5.6 LISTING. The Company shall promptly secure and maintain the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) on the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, such listing of all Registrable Securities from time to time issuable under the terms of the Registered Offering Transaction Documents. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the Company). The Company shall promptly provide to the Investor copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5.6.
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5.7 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary’s officers, directors, persons who were officers or directors at any time during the previous two (2) years, shareholders who beneficially own 5% or more of the Common Stock, or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a “Related Party”), except for (i) customary employment arrangements and benefit programs on reasonable terms, (ii) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a disinterested third party other than such Related Party, or (iii) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company. For purposes hereof, any director who is also an officer of the Company or any Subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. “Affiliate” for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a 5% or more equity interest in that person or entity, (ii) has 5% or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) is under common control with that person or entity. “Control” or “Controls” for purposes hereof means that a person or entity has the power, directly or indirectly, to conduct or govern the policies of another person or entity.
5.8 FILING OF FORM 8-K. On or before the date which is four (4) Trading Days after the Execution Date, the Company shall file a Current Report on Form 8-K with the SEC describing the terms of the transaction contemplated by the Registered Offering Transaction Documents in the form required by the 1934 Act, if such filing is required.
5.9 CORPORATE EXISTENCE. The Company shall use all commercially reasonable efforts to preserve and continue the corporate existence of the Company.
5.10 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall promptly notify the Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Securities: (i) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Securities for sale in any jurisdiction or the initiation or notice of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company’s reasonable determination that a post-effective amendment or supplement to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to Investor any Put Notice during the continuation of any of the foregoing events in this Section 5.10.
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5.11 TRANSFER AGENT. The Company shall deliver instructions to its transfer agent to issue Shares to the Investor that are issued to the Investor pursuant to the Equity Financing and transactions contemplated herein.
5.12 ACKNOWLEDGEMENT OF TERMS. The Company hereby represents and warrants to the Investor that: (i) it is voluntarily entering into this Agreement of its own free will, (ii) it is not entering this Agreement under economic duress, (iii) the terms of this Agreement are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Agreement, advise the Company with respect to this Agreement, and represent the Company in connection with this Agreement.
SECTION VI
CONDITIONS OF THE COMPANY’S OBLIGATION TO SELL
The obligation hereunder of the Company to issue and sell the Securities to the Investor is further subject to the satisfaction, at or before each Closing Date, of each of the following conditions set forth below. These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion.
6.1 The Investor shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company.
6.2 The Investor shall have delivered to the Company the Purchase Price for the Securities being purchased by the Investor.
6.3 No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.
SECTION VII
FURTHER CONDITIONS OF THE INVESTOR’S OBLIGATION TO PURCHASE
The obligation of the Investor hereunder to purchase Securities is subject to the satisfaction, on or before each Closing Date, of each of the following conditions set forth below.
7.1 The Company shall have executed the Registered Offering Transaction Documents and delivered the same to the Investor.
7.2 The representations and warranties of the Company shall be true and correct as of the date when made and as of the applicable Closing Date as though made at that time and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Registered Offering Transaction Documents to be performed, satisfied or complied with by the Company on or before such Closing Date. The Investor may request an update as of such Closing Date regarding the representation contained in Section 4.3.
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7.3 The Company shall have executed and delivered to the Investor via DWAC the Securities (in such denominations as the Investor shall request) being purchased by the Investor at such Closing.
7.4 The Board of Directors of the Company shall have adopted resolutions consistent with Section 4.2(ii) (the “Resolutions”) and such Resolutions shall not have been amended or rescinded prior to such Closing Date.
7.5 No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.
7.6 Within thirty (30) calendar days after the Agreement is executed, the Company agrees to use its best efforts to file with the SEC the Registration Statement covering the shares of stock underlying the Equity Financing contemplated herein. Such Registration Statement shall conform to the requirements of the rules and regulations of the SEC, and be subject to the reasonable approval of the Investor. The Company will take any and all steps necessary to have its Registration Statement declared effective by the SEC within thirty (30) calendar days but no more than ninety (90) calendar days after the Company has filed its Registration Statement. The Registration Statement shall be effective on each Closing Date and no stop order suspending the effectiveness of the Registration statement shall be in effect or to the Company’s knowledge shall be pending or threatened. Furthermore, on each Closing Date (I) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC’s concerns have been addressed), and (II) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist.
7.7 At the time of each Closing, the Registration Statement (including information or documents incorporated by reference therein) and any amendments or supplements thereto shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or which would require public disclosure or an update supplement to the prospectus.
7.8 If applicable, the shareholders of the Company shall have approved the issuance of any Shares in excess of the Maximum Common Stock Issuance in accordance with Section 2.5 or the Company shall have obtained appropriate approval pursuant to the requirements of applicable state and federal laws and the Company’s Certificate of Incorporation and By-laws.
7.9 The conditions to such Closing set forth in Section 2.3 shall have been satisfied on or before such Closing Date.
7.10 The Company shall have certified to the Investor the number of Shares of Common Stock outstanding when a Put Notice is given to the Investor. The Company’s delivery of a Put Notice to the Investor constitutes the Company’s certification of the existence of the necessary number of shares of Common Stock reserved for issuance.
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SECTION VIII
TERMINATION
This Agreement shall terminate upon any of the following events:
8.1
when the Investor has purchased an aggregate of Twenty Million Dollars ($20,000,000) of the Common Stock of the Company pursuant to this
Agreement; or
8.2 September 30, 2024.
Any and all shares, or penalties, if any, due under this Agreement shall be immediately payable and due upon termination of this Agreement.
SECTION IX
SUSPENSION
This Agreement shall be suspended upon any of the following events, and shall remain suspended until such event is rectified:
i. The trading of the Common Stock is suspended by the SEC, the Principal Market or FINRA for a period of two (2) consecutive Trading Days during the Open Period;
ii. The Common Stock ceases to be quoted, listed or traded on the Principal Market or the Registration Statement is no longer effective (except as permitted hereunder);
iii. The Company breaches any representation, warranty, covenant or other such term;
iv. The Company files, threatens or is compelled into Bankruptcy or insolvency; or
v. The Common Stock is no longer DWAC eligible.
vi. Immediately upon the occurrence of one of the above-described events, the Company shall send written notice of such event to the Investor.
SECTION X
INDEMNIFICATION
In consideration of the parties mutual obligations set forth in the Transaction Documents, the Company ( the “Indemnitor”) shall defend, protect, indemnify and hold harmless the Investor and all of the investor’s shareholders, officers, directors, employees, counsel, and direct or indirect investors and any of the foregoing person’s agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (I) any misrepresentation or breach of any representation or warranty made by the Indemnitor or any other certificate, instrument or document contemplated hereby or thereby; (II) any breach of any covenant, agreement or obligation of the Indemnitor contained in the Registered Offering Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; or (III) any cause of action, suit or claim brought or made against such Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of the Registered Offering Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, except insofar as any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with information furnished to Indemnitor which is specifically intended for use in the preparation of any such Registration Statement, preliminary prospectus, prospectus or amendments to the prospectus. To the extent that the foregoing undertaking by the Indemnitor may be unenforceable for any reason, the Indemnitor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights Indemnitor may have, and any liabilities the Indemnitor or the Indemnitees may be subject to.
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SECTION XI
MISCELLANEOUS.
11.1 Law Governing this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state or federal courts located in St. Petersburg, Florida. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Company agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Documents by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
11.2 FEES. Except as otherwise set forth in the Registered Offering Transaction Documents (including but not limited to Section V of the Registration Rights Agreement), each party shall pay the fees and expenses of its advisers, counsel, the accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Any attorneys’ fees and expenses incurred by either the Company or the Investor in connection with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another party in respect of the transactions contemplated hereunder, shall be paid on demand by the party which breached the Agreement and/or defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of any Securities.
11.3 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile transmission, PDF, electronic signature or other similar electronic means with the same force and effect as if such signature page were an original thereof.
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11.4 HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine.
11.5 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.
11.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL AGREEMENT between the Company and the Investor with respect to the terms and conditions set forth herein, and, the terms of this Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the Parties. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investor, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. The execution and delivery of the Registered Offering Transaction Documents shall not alter the force and effect of any other agreements between the Parties, and the obligations under those agreements.
11.7 NOTICES. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (I) upon receipt, when delivered personally; (II) upon receipt, when sent by email; or (III) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications shall be:
If to the Company:
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HUMBL, Inc. Attn: Brian Foote 600 B. Street, Suite 300 San Diego, CA 92101 | |
If to the Investor:
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Pacific Lion LLC Attn: Jacob Fernane 7901 4th St. N. 10184 St. Petersburg, FL 33703
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Each party shall provide five (5) days prior written notice to the other party of any change in address.
11.8 NO ASSIGNMENT. This Agreement may not be assigned.
11.9 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person, except that the Company acknowledges that the rights of the Investor may be enforced by its general partner.
11.10 SURVIVAL. The representations and warranties of the Company and the Investor contained in Sections 3 and 4, the agreements and covenants set forth in Sections 5 and 6, and the indemnification provisions set forth in Section 10, shall survive each of the Closings and the termination of this Agreement.
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11.11 PUBLICITY. The Investor acknowledges that this Agreement and all or part of the Registered Offering Transaction Documents may be deemed to be “material contracts” as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the 1933 Act or the 1934 Act. The Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.
11.12 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
11.13 PLACEMENT AGENT. If so required, the Company agrees to pay a registered broker dealer, to act as placement agent. The Investor shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other persons or entities for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Registered Offering Transaction Documents. The Company shall indemnify and hold harmless the Investor, their employees, officers, directors, agents, and partners, and their respective affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney’s fees) and expenses incurred in respect of any such claimed or existing fees, as such fees and expenses are incurred.
11.14 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party, as the parties mutually agree that each has had a full and fair opportunity to review this Agreement and seek the advice of counsel on it.
11.15 REMEDIES. The Investor shall have all rights and remedies set forth in this Agreement and the Registration Rights Agreement and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which the Investor has by law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any default or breach of any provision of this Agreement, including the recovery of reasonable attorneys fees and costs, and to exercise all other rights granted by law.
11.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Investor hereunder or under the Registration Rights Agreement or the Investor enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
11.17 PRICING OF COMMON STOCK. For purposes of this Agreement, the price of the Common Stock shall be as reported by OTC Markets.
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SECTION XII
NON-DISCLOSURE OF NON-PUBLIC INFORMATION
The Company shall not disclose non-public information to the Investor, its advisors, or its representatives.
Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 12 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.
SECTION XIII
ACKNOWLEDGEMENTS OF THE PARTIES
Notwithstanding anything in this Agreement to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Investor makes no representations or covenants that it will not engage in trading in the securities of the Company, other than as provided in Section 3.12 of this Agreement; (ii) the Company shall, by 8:30 a.m. EST on the fourth Trading Day following the date hereof, file a current report on Form 8-K disclosing the material terms of the transactions contemplated hereby and in the other Registered Offering Transaction Documents; (iii) the Company has not and shall not provide material non-public information to the Investor unless prior thereto the Investor shall have executed a written agreement regarding the confidentiality and use of such information; and (iv) the Company understands and confirms that the Investor will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Investor effects any transactions in the securities of the Company.
[Signature page follows]
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Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of the Investment Agreement as of the date first written above. The undersigned signatory hereby certifies that he has read and understands the Investment Agreement, and the representations made by the undersigned in this Investment Agreement are true and accurate, and agrees to be bound by its terms.
PACIFIC LION LLC | ||
By: | ||
Jacob Fernane, Manager | ||
HUMBL, INC. | ||
By: | ||
Brian Foote, CEO | ||
[SIGNATURE PAGE OF EQUITY FINANCING AGREEMENT]
22 |
LIST OF EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Notice of Effectiveness
EXHIBIT C Put Notice
EXHIBIT D Put Settlement Sheet
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EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
See attached.
24 |
EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Date: __________
[TRANSFER AGENT]
Re: HUMBL, Inc.
Ladies and Gentlemen:
We are counsel to HUMBL, Inc., a Delaware corporation (the “Company”), and have represented the Company in connection with that certain Equity Financing Agreement (the “Investment Agreement”) entered into by and among the Company and Pacific Lion LLC (the “Investor”) pursuant to which the Company has agreed to issue to the Investor shares of the Company’s common stock, $_____ par value per share (the “Common Stock”) on the terms and conditions set forth in the Investment Agreement. Pursuant to the Investment Agreement, the Company also has entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issued or issuable under the Investment Agreement under the Securities Act of 1933, as amended (the “1933 Act”). In connection with the Company’s obligations under the Registration Rights Agreement, on ____________ ___, 20__, the Company filed a Registration Statement on Form S-1 (File No. __-________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names the Investor as a selling shareholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at ______ on __________, 20__ and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for sale under the 1933 Act pursuant to the Registration Statement
Very truly yours, |
[Company Counsel] |
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EXHIBIT C
FORM OF PUT NOTICE
Date:
RE: Put Notice Number __
Dear Mr./Ms.__________,
This is to inform you that as of today, HUMBL, Inc., a Delaware corporation (the “Company”), hereby elects to exercise its right pursuant to the Equity Financing Agreement to require Pacific Lion LLC to purchase shares of its common stock. The Company hereby certifies that:
The amount of this put is $__________.
The Pricing Period runs from _______________ until _______________.
The Purchase Price is: $_______________
The number of Put Shares due:___________________.
The current number of shares of common stock issued and outstanding is: _________________.
The number of shares currently available for issuance on the S-1 is: ________________________.
Regards,
HUMBL, Inc. | ||
By: | ||
Name: | ||
Title: |
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EXHIBIT D
PUT SETTLEMENT SHEET
Date: ________________
Dear Mr. ________,
Pursuant to the Put given by HUMBL, Inc., to Pacific Lion LLC (“GHS”) on _________________ 202_, we are now submitting the amount of common shares for you to issue to GHS.
Please have a certificate bearing no restrictive legend totaling __________ shares issued to GHS immediately and send via DWAC to the following account:
[INSERT]
If not DWAC eligible, please send FedEx Priority Overnight to:
[INSERT ADDRESS]
Once these shares are received by us, we will have the funds wired to the Company.
Regards,
PACIFIC LION LLC | ||
By: | ||
Name: | ||
Title |
27 |
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights AGREEMENT (the “Agreement”), dated as of May 10, 2023 (the “Execution Date”), is entered into by and between HUMBL, Inc., a Delaware corporation (the “Company”), and Pacific Lion LLC, a Florida limited liability company (the “Investor”).
RECITALS:
Whereas, pursuant to the Equity Financing Agreement entered into by and between the Company and the Investor of even date (the “Equity Financing Agreement”), the Company has agreed to issue and sell to the Investor an indeterminate number of shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), up to an aggregate purchase price of Twenty Million Dollars ($20,000,000);
Whereas, as an inducement to the Investor to execute and deliver the Equity Financing Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable state securities laws, with respect to the shares of Common Stock issuable pursuant to the Equity Financing Agreement.
Now therefore, in consideration of the foregoing promises and the mutual covenants contained hereinafter and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:
SECTION
I
DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings:
“Execution Date” shall have the meaning set forth in the preambles.
“Investor” shall have the meaning set forth in the preambles.
“Person” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
“Register,” “Registered,” and “Registration” refer to the Registration effected by preparing and filing one (1) or more Registration Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the “SEC”).
“Registrable Securities” means (i) the shares of Common Stock issued or issuable pursuant to the Equity Financing Agreement, (ii) any shares of Common Stock issued or issuable pursuant to that certain Warrant to Purchase Shares of Common Stock issued by the Company in favor of the Investor on May 10, 2023, and (iii) any shares of capital stock issued or issuable with respect to such shares of Common Stock, if any, as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, which have not been (x) included in the Registration Statement that has been declared effective by the SEC, or (y) sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the 1933 Act. Upon written notice from the Investor to the Company, any shares of Common Stock issued or issuable pursuant to that certain Convertible Promissory Note issued by Company in favor of Investor on May 10, 2023 will become Registrable Securities.
“Registration Statement” means the registration statement of the Company filed under the 1933 Act covering the Registrable Securities.
“Registered Offering Transaction Documents” shall mean this Agreement and the Equity Financing Agreement between the Company and the Investor as of the date hereof.
All capitalized terms used in this Agreement and not otherwise defined herein shall have the same meaning ascribed to them as in the Equity Financing Agreement.
SECTION
II
REGISTRATION
2.1 The Company shall, within twenty (20) calendar days of the date of execution of this Agreement, use its best efforts to file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form S-1 (or, if such form is unavailable for such a registration, on such other form as is available for such registration), covering the resale of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933 Act, such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially register for resale all of the Registrable Securities which would be issuable on the date preceding the filing of the Registration Statement based on the closing bid price of the Company’s Common Stock on such date and the amount reasonably calculated that represents Common Stock issuable as set forth in the Equity Financing Agreement except to the extent that the SEC requires the share amount to be reduced as a condition of effectiveness less any number of shares required to be registered for any other party pursuant to outstanding obligations.
2.2 The Company agrees that it will not file any other Registration Statement for other securities, until thirty (30) calendar days after the Registration Statement for the Registrable Securities is declared effective by the SEC.
2.3 Notwithstanding the registration obligations set forth in Section 2.1, if the staff of the SEC (the “Staff”) or the SEC informs the Company that all of the unregistered Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single Registration Statement, the Company agrees to promptly (i) inform the Investor and use its commercially reasonable efforts to file amendments to the Registration Statement as required by the SEC and/or (ii) withdraw the Registration Statement and file a new registration statement (the “New Registration Statement”), in either case covering the maximum number of Registrable Securities permitted to be registered by the SEC, on Form S-1 to register for resale the Registrable Securities as a secondary offering. If the Company amends the Registration Statement or files a New Registration Statement, as the case may be, under clauses (i) or (ii) above, the Company will use its commercially reasonable efforts to file with the SEC, as promptly as allowed by the Staff or SEC, one or more registration statements on Form S-1 to register for resale those Registrable Securities that were not registered for resale on the Registration Statement, as amended, or the New Registration Statement (each, an “Additional Registration Statement”).
SECTION
III
RELATED OBLIGATIONS
At such time as the Company is obligated to prepare and file the Registration Statement with the SEC pursuant to Section 2.1, the Company will affect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, with respect thereto, the Company shall have the following obligations:
3.1 The Company shall use all commercially reasonable efforts to cause such Registration Statement relating to the Registrable Securities to become effective and shall keep such Registration Statement effective until the earlier to occur of the date on which (A) the Investor shall have sold all the Registrable Securities; or (B) the Investor has no right to acquire any additional shares of Common Stock under the Equity Financing Agreement (the “Registration Period”). The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. The Company shall use all commercially reasonable efforts to respond to all SEC comments within ten (10) business days from receipt of such comments by the Company. The Company shall use all commercially reasonable efforts to cause the Registration Statement relating to the Registrable Securities to become effective no later than three (3) business days after notice from the SEC that the Registration Statement may be declared effective. The Investor agrees to provide all information which is required by law to provide to the Company, including the intended method of disposition of the Registrable Securities, and the Company’s obligations set forth above shall be conditioned on the receipt of such information.
3.2 The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the Investor thereof as set forth in such Registration Statement. In the event the number of shares of Common Stock covered by the Registration Statement filed pursuant to this Agreement is at any time insufficient to cover all of the Registrable Securities, the Company shall amend such Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within thirty (30) calendar days after the necessity therefor arises (based on the then Purchase Price of the Common Stock and other relevant factors on which the Company reasonably elects to rely), assuming the Company has sufficient authorized shares at that time, and if it does not, within thirty (30) calendar days after such shares are authorized. The Company shall use commercially reasonable efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof.
3.3 The Company shall make available to the Investor and its legal counsel without charge (i) promptly after the same is prepared and filed with the SEC at least one (1) copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, the prospectus included in such Registration Statement (including each preliminary prospectus) and, with regards to such Registration Statement(s), any correspondence by or on behalf of the Company to the SEC or the staff of the SEC and any correspondence from the SEC or the staff of the SEC to the Company or its representatives; (ii) upon the effectiveness of any Registration Statement, the Company shall make available copies of the prospectus, via EDGAR, included in such Registration Statement and all amendments and supplements thereto; and (iii) such other documents, including copies of any preliminary or final prospectus, as the Investor may reasonably request from time to time to facilitate the disposition of the Registrable Securities.
3.4 The Company shall use commercially reasonable efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or “blue sky” laws of such states in the United States as the Investor reasonably requests; (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period; (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3.4, or (y) subject itself to general taxation in any such jurisdiction. The Company shall promptly notify the Investor of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.
3.5 As promptly as practicable after becoming aware of such event, the Company shall notify Investor in writing of the happening of any event as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (“Registration Default”) and use all diligent efforts to promptly prepare a supplement or amendment to such Registration Statement and take any other necessary steps to cure the Registration Default (which, if such Registration Statement is on Form S-3, may consist of a document to be filed by the Company with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as defined below) and to be incorporated by reference in the prospectus) to correct such untrue statement or omission, and make available copies of such supplement or amendment to the Investor. The Company shall also promptly notify the Investor (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when the Registration Statement or any post-effective amendment has become effective (the Company will prepare notification of such effectiveness which shall be delivered to the Investor on the same day of such effectiveness and by overnight mail), additionally, the Company will promptly provide to the Investor, a copy of the effectiveness order prepared by the SEC once it is received by the Company; (ii) of any request by the SEC for amendments or supplements to the Registration Statement or related prospectus or related information, (iii) of the Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate, (iv) in the event the Registration Statement is no longer effective, or (v) if the Registration Statement is stale as a result of the Company’s failure to timely file its financials or otherwise
3.6 The Company shall use all commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of the Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor holding Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding concerning the effectiveness of the registration statement.
3.7 The Company shall permit the Investor and legal counsel, designated by the Investor, to review and comment upon the Registration Statement and all amendments and supplements thereto at least one (1) calendar day prior to their filing with the SEC. However, any postponement of a filing of a Registration Statement or any postponement of a request for acceleration or any postponement of the effective date or effectiveness of a Registration Statement by written request of the Investor (collectively, the “Investor’s Delay”) shall not act to trigger any penalty of any kind, or any cash amount due or any in-kind amount due the Investor from the Company under any and all agreements of any nature or kind between the Company and the Investor. The event(s) of an Investor’s Delay shall act to suspend all obligations of any kind or nature of the Company under any and all agreements of any nature or kind between the Company and the Investor.
3.8 At the request of the Investor, the Company’s counsel shall furnish to the Investor, within two (2) business days, an opinion letter confirming the effectiveness of the registration statement. Such opinion letter shall be issued as of the date of the effectiveness of the registration statement, in a form suitable to the Investor.
3.9 The Company shall hold in confidence and not make any disclosure of information concerning the Investor unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, or (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction. The Company agrees that it shall, upon learning that disclosure of such information concerning the Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Investor and allow the Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order covering such information.
3.10 The Company shall use all commercially reasonable efforts to maintain designation and quotation of all the Registrable Securities covered by any Registration Statement on the Principal Market. If, despite the Company’s commercially reasonable efforts, the Company is unsuccessful in satisfying the preceding sentence, it shall use commercially reasonable efforts to cause all the Registrable Securities covered by any Registration Statement to be listed on each other national securities exchange and automated quotation system, if any, on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or system. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3.10.
3.11 The Company shall cooperate with the Investor to facilitate the prompt preparation and delivery of the Registrable Securities to be offered pursuant to the Registration Statement and enable such Registrable Securities to be in such denominations or amounts, as the case may be, as the Investor may reasonably request.
3.12 The Company shall provide a transfer agent for all the Registrable Securities not later than the effective date of the first Registration Statement filed pursuant hereto.
3.13 If requested by the Investor, the Company shall (i) as soon as reasonably practical incorporate in a prospectus supplement or post-effective amendment such information as the Investor reasonably determines should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as reasonably possible after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if reasonably requested by the Investor.
3.14 The Company shall use all commercially reasonable efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to facilitate the disposition of such Registrable Securities.
3.15 The Company shall otherwise use all commercially reasonable efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.
3.16 Within three (3) business day after the Registration Statement is declared effective by the SEC, the Company shall deliver to the transfer agent for such Registrable Securities, with copies to the Investor, confirmation that such Registration Statement has been declared effective by the SEC.
3.17 The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to the Registration Statement.
SECTION
IV
OBLIGATIONS OF THE INVESTOR
4.1 At least five (5) calendar days prior to the first anticipated filing date of the Registration Statement, the Company shall notify the Investor in writing of the information the Company requires from the Investor for the Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities and the Investor agrees to furnish to the Company that information regarding itself, the Registrable Securities and the intended method of disposition of the Registrable Securities as shall reasonably be required to effect the registration of such Registrable Securities and the Investor shall execute such documents in connection with such registration as the Company may reasonably request. The Investor covenants and agrees that, in connection with any sale of Registrable Securities by it pursuant to the Registration Statement, it shall comply with the “Plan of Distribution” section of the then current prospectus relating to such Registration Statement.
4.2 The Investor, by its acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless the Investor has notified the Company in writing of an election to exclude all of the Investor’s Registrable Securities from such Registration Statement.
4.3 The Investor agrees that, upon receipt of written notice from the Company of the happening of any event of the kind described in Section 3.6 or the first sentence of 3.5, the Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.6 or the first sentence of 3.5.
SECTION
V
EXPENSES OF REGISTRATION
All legal expenses, other than underwriting discounts and commissions and other than as set forth in the Equity Financing Agreement, incurred in connection with registrations including comments, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, and printing fees shall be paid by the Company.
SECTION
VI
INDEMNIFICATION
In the event any Registrable Securities are included in the Registration Statement under this Agreement:
6.1 To the fullest extent permitted by law, the Company, under this Agreement, will, and hereby does, indemnify, hold harmless and defend the Investor who holds Registrable Securities, the directors, officers, partners, employees, counsel, agents, representatives of, and each Person, if any, who controls, any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the “1934 Act”) (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys’ fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”), incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in the Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which the Investor has requested in writing that the Company register or qualify the Shares (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which the statements therein were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to the Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). Subject to the restrictions set forth in Section 6.3 the Company shall reimburse the Investor and each such controlling person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.1: (i) shall not apply to a Claim arising out of or based upon a Violation which is due to the inclusion in the Registration Statement of the information furnished to the Company by any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not be available to the extent such Claim is based on (a) a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company or (b) the Indemnified Person’s use of an incorrect prospectus despite being promptly advised in advance by the Company in writing not to use such incorrect prospectus; (iii) any claims based on the manner of sale of the Registrable Securities by the Investor or of the Investor’s failure to register as a dealer under applicable securities laws; (iv) any omission of the Investor to notify the Company of any material fact that should be stated in the Registration Statement or prospectus relating to the Investor or the manner of sale; and (v) any amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the resale of the Registrable Securities by the Investor pursuant to the Registration Statement.
6.2 In connection with any Registration Statement in which Investor is participating, the Investor agrees to severally and jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6.1, the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act and the Company’s agents (collectively and together with an Indemnified Person, an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation is due to the inclusion in the Registration Statement of the written information furnished to the Company by the Investor expressly for use in connection with such Registration Statement; and, subject to Section 6.3, the Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6.2 and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall only be liable under this Section 6.2 for that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the resale of the Registrable Securities by the Investor pursuant to the Registration Statement. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.2 with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus were corrected on a timely basis in the prospectus, as then amended or supplemented. This indemnification provision shall apply separately to each Investor and liability hereunder shall not be joint and several.
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the Indemnified Person or Indemnified Party, the representation by counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one (1) separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such counsel shall be selected by the Investor, if the Investor is entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding affected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.
6.4 The indemnity agreements contained herein shall be in addition to (I) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
SECTION VII
CONTRIBUTION
7.1 To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6; (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
SECTION VIII
REPORTS UNDER THE 1934 ACT
8.1 With a view to making available to the Investor the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell securities of the Company to the public without registration (“Rule 144”), provided that the Investor holds any Registrable Securities are eligible for resale under Rule 144, the Company agrees to:
a. | make and keep adequate current public information available, as those terms are understood and defined in Rule 144; |
b. | file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company’s obligations under Section 5(c) of the Equity Financing Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and |
c. | furnish to the Investor, promptly upon request, (I) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration. |
SECTION X
MISCELLANEOUS
9.1 NOTICES. Any notices or other communications required or permitted to be given under the terms of this Agreement that must be in writing will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by email; or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications shall be:
If to the Company:
|
HUMBL, Inc. 600 B. Street, Suite 300 San Diego, CA 92101 Attn: Brian Foote | |
If to the Investor: | Pacific Lion LLC 7901 4th St. N. 10184 St. Petersburg, FL 33702 Attn: Jacob Fernane |
Each party shall provide five (5) business days prior notice to the other party of any change in address, phone number or facsimile number.
9.2 NO WAIVERS. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
9.3 NO ASSIGNMENTS. The rights and obligations under this Agreement shall not be assignable.
9.4 ENTIRE AGREEMENT/AMENDMENT. This Agreement and the Registered Offering Transaction Documents constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Registered Offering Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. The provisions of this Agreement may be amended only with the written consent of the Company and Investor.
9.5 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if all the parties had prepared the same.
9.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile transmission, PDF, electronic signature or other similar electronic means with the same force and effect as if such signature page were an original thereof.
9.7 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
9.8 SEVERABILITY. In case any provision of this Agreement is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby.
9.9 Law Governing this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state or federal courts located in St. Petersburg, Florida. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Company agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Registered Offering Transaction Documents by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
9.10 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person, except that the Company acknowledges that the rights of the Investor may be enforced by its general partner.
[Signature page follows]
Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of the Registration Rights Agreement as of the date first written above. The undersigned signatory hereby certifies that he has read and understands the Registration Rights Agreement, and the representations made by the undersigned in this Registration Rights Agreement are true and accurate, and agrees to be bound by its terms.
PACIFIC LION LLC. | ||
By: | ||
Jacob Fernane, Manager |
HUMBL, INC. | ||
By: | ||
Brian Foote, CEO |
[SIGNATURE PAGE OF REGISTRATION RIGHTS AGREEMENT]
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian Foote, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of HUMBL, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2023 | |
/s/ Brian Foote | |
Brian Foote | |
Chief Executive Officer | |
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF INTERIM CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey Hinshaw, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of HUMBL, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2023 | |
/s/ Jeffrey Hinshaw | |
Jeffrey Hinshaw | |
Chief Financial Officer (Principal Accounting and Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying quarterly report of HUMBL, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023 (the “Report”), the undersigned, Brian Foote, Chief Executive Officer of the Company, and Jeffrey Hinshaw, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and | |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 15, 2023 | ||
/s/ Brian Foote | ||
Name: | Brian Foote | |
Title: | Chief Executive Officer | |
/s/ Jeffrey Hinshaw | ||
Name: | Jeffrey Hinshaw | |
Title: | Chief Financial Officer |
Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Mar. 31, 2023 |
Dec. 31, 2022 |
Oct. 29, 2021 |
Feb. 26, 2021 |
Feb. 25, 2021 |
---|---|---|---|---|---|
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | |||
Preferred stock, par value | $ 0.00001 | $ 0.00001 | |||
Common stock, par share | $ 0.00001 | $ 0.00001 | |||
Common stock, shares authorized | 7,450,000,000 | 7,450,000,000 | 7,450,000,000 | 5,000,000,000 | |
Common stock, shares issued | 3,005,310,839 | 2,182,343,775 | |||
Common stock, shares outstanding | 3,005,310,839 | 2,182,343,775 | |||
Series A Preferred Stock [Member] | |||||
Preferred stock, shares authorized | 7,000,000 | 7,000,000 | |||
Preferred stock, par value | $ 0.00001 | $ 0.00001 | |||
Preferred stock, shares issued | 7,000,000 | 7,000,000 | |||
Preferred stock, shares outstanding | 7,000,000 | 7,000,000 | |||
Series B Preferred Stock [Member] | |||||
Preferred stock, shares authorized | 570,000 | 570,000 | 570,000 | ||
Preferred stock, par value | $ 0.00001 | $ 0.00001 | |||
Preferred stock, shares issued | 400,175 | 416,159 | |||
Preferred stock, shares outstanding | 400,175 | 416,159 |
NATURE OF OPERATIONS |
3 Months Ended | |||||||||||||||||||||
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Mar. 31, 2023 | ||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||
NATURE OF OPERATIONS | NOTE 1: NATURE OF OPERATIONS
HUMBL, Inc. (“Company” or “HUMBL”) was incorporated in the state of Oklahoma on November 12, 2009. The Company was redomiciled on November 30, 2020 to the state of Delaware.
On December 3, 2020, HUMBL, LLC (“HUMBL LLC”) merged into the Company in what is accounted for as a reverse merger. Under the terms of the Merger Agreement, HUMBL LLC exchanged 100% of their membership interests for shares of newly created Series B Preferred Stock. The Series B Preferred shares were issued to the respective members of HUMBL LLC following the approval by FINRA of a one-for-four reverse stock split of the common shares and the increase in the authorized common shares to shares, and preferred shares.
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 40,000 note payable. The Series A Preferred Stock is not convertible into common stock; however, it has voting rights of 10,000 votes per 1 share of stock. After the reverse merger was completed, HUMBL LLC ceased doing business, and all operations were conducted under Tesoro Enterprises, Inc. which later changed its name to HUMBL, Inc. (“HUMBL” or the “Company”). shares of Series A Preferred Stock as well as shares of common stock to Brian Foote, the President and CEO of HUMBL LLC for a $
On June 3, 2021 we acquired Tickeri, Inc. (“Tickeri”) in a debt and stock transaction totaling $20,000,000 following which Tickeri became a subsidiary of HUMBL. On January 31, 2023, the Company sold Tickeri back to the former owners and reflected the loss on disposal in the Consolidated Statement of Operations. For the full description of these transactions, refer to the Form 10-K filed April 6, 2023.
On June 30, 2021, we acquired Monster Creative, LLC (“Monster”). Monster is a Hollywood production studio that specializes in producing movie trailers and other related content. As part of the acquisition we entered into certain debt instruments with the founders of Monster that are in default as they were due December 31, 2022. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.
On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company had issued common shares and restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the RSUs that vested during 2022. Pursuant to BizSecure’s request, the shares of common stock and the RSUs were rescinded effective December 30, 2022. The remaining RSUs will continue to vest in accordance with the original terms. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.
On March 3, 2022, the Company acquired Ixaya Business SA de CV, a Mexican corporation (“Ixaya”), under a Stock Purchase Agreement (“Ixaya SPA”). The acquisition of Ixaya was for $150,000 and shares of common stock (a value of $1,500,000) for a total of $1,650,000. The Company accounted for this acquisition as a business combination under ASC 805, and Ixaya is not considered a significant subsidiary under Regulation S-X Rule 1-02(w).
On November 2, 2022, the Company acquired BM Authentics (“BM”), a provider of sports merchandise ranging from autographed jerseys, bats, balls, helmets, and photos for $110,000 in cash and shares of common stock. These shares were issued on January 10, 2023.
On November 15, 2022 we entered into a Settlement Agreement and Mutual Release of Claims (the “Release Agreement”) with Forwardly, Inc. (“Forwardly”) under which we agreed to pay Forwardly $2,200,000 in five equal monthly payments of $440,000 commencing November 15, 2022 and ending March 15, 2023. The Company and Forwardly, amended the terms of the payments whereby the Company paid the January and February 2023 payments in December 2022, and Forwardly agreed to extend the last payment to June 15, 2023. The payment is being made in connection with a warrant (the “Warrant”) that Forwardly purchased from us for $200,000 in 2020 that provided for the purchase of up to million shares of our common stock of which Forwardly purchased million shares for $2,000,000 in 2021. Forwardly retained the million shares under the Warrant in lieu of interest on the $2,000,000 it paid to exercise that number of our shares of common stock under the Warrant.
HUMBL is a Web 3, digital commerce platform built to connect consumers, businesses and governments in the digital economy. HUMBL provides simple tools and packaging for complex new technologies such as blockchain, in the same way that previous cycles of e-commerce and the cloud were more simply packaged by companies such as Facebook, Apple, Amazon and Netflix over the past several decades. The Company through their product offerings are looking to simplify and package the digital economy for consumers, corporations and government.
The goal of HUMBL is to provide ready built tools, and platforms for consumers and merchants to seamlessly participate in the digital economy. HUMBL is built on a patent-pending, decentralized technology stack that utilizes both core and partner technologies, to provide faster connections to the digital economy and each other.
The Company is organized into two divisions: a) HUMBL Consumer and b) HUMBL Commercial. These two divisions incorporate and expand the Company’s core products and services. The majority of the Company’s operations prior to 2022 were focused on the Consumer division.
HUMBL – A Web 3 Commerce Platform
HUMBL was founded to deliver an integrated, Web 3 digital commerce platform for consumers, merchants and governments. HUMBL has delivered one of the first integrated technology environments in which a digital wallet, search engine, social media and marketplace listings can be used together by consumers in one place. The HUMBL platform is comprised of the following key components described below.
HUMBL Consumer Division
HUMBL Commercial Division
HUMBL Wallet
The HUMBL Wallet is the centerpiece of the Web 3 consumer experience on the HUMBL platform. The HUMBL Wallet is self-custodied by the individual; ensuring that they have full control over their digital assets and private keys.
Customers can use the HUMBL Wallet to send and receive digital assets, interact on the HUMBL Social platform, perform web searches on the HUMBL Search Engine, store and manage their NFTs, consume content via MP4 multimedia player and more.
The HUMBL Wallet drives revenue through: a) digital asset swaps, in which the customer can use the self-custodied HUMBL digital wallet to swap from one digital asset to another on the Ethereum blockchain, and b) purchasing crypto through Sardine, a third-party service that allows customers to buy digital assets with credit cards.
The HUMBL Wallet is also connected to the BLOCKS Registry, a decentralized blockchain registry that allows customers to authenticate digital items, such as NFTs, and track the chain of custody to ensure reduced fraud, forgery and theft in the digital markets.
HUMBL Wallet customers have the obligation to perform their own tax record keeping and tracking of assets and swaps in the self-custodied wallet; as well as backup of their private keys, to ensure the recoverability, data security and storage of their digital assets.
The HUMBL Wallet is equipped with 2-factor authentication; as well as biometric security features, which are handled by the handset and its manufacturer. HUMBL does not store or have access to any biometric information related to its verified users.
The HUMBL Wallet uses SumSub, a third-party service provider, to perform KYC / KYB and authenticate customers. HUMBL does not capture or store consumers’ information on HUMBL’s servers, except for their corresponding name, wallet address and email address for basic communications with the verified user. HUMBL does not resell its customers data.
The HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries.
HUMBL Search Engine
The HUMBL Search Engine is available via the HUMBL Wallet and the HUMBL website. The HUMBL Search Engine allows customers to search for standard Web 2 content such as news, images and video. The company also recently completed the development of its HUMBL Ads portal, which can be used to customize advertising programs for clients. This includes traditional search advertising such as display ads, location targeting and cost-per-click performance advertising.
The HUMBL Search Engine also offers Web 3 blockchain-based search features such as the ability to search major NFTs across Ethereum, Polygon, BLOCKS, Gnosis and Solana. Consumers are able to confirm that certain NFTs have been “Verified by BLOCKS” to protect against the fraud and forgery in the NFT market. The search engine also shows customers where certain NFTs are available for purchase across various marketplaces.
HUMBL Tickets
HUMBL Tickets is initially focused on the offering of secondary (resale) tickets to thousands of live events across North America. HUMBL Tickets inventory listings and ticket fulfillment are provided by Ticket Evolution and HUMBL earns a commission for each sale through its website.
The ticketing content provided on HUMBL Tickets spans across major live music, sports, festivals and events in multiple countries. HUMBL Tickets advertises its services primarily across social media, including its own HUMBL Social platform.
HUMBL is also exploring the development of primary ticketing and peer-to-peer ticketing sales via blockchain technology and dynamic QR codes, with ticket storage inside the HUMBL Wallet as future digital collectibles; along with authenticated content, ratings and reviews from ticketed events on the HUMBL Social platform via verified profiles, commemorative icons and attendance badges.
HUMBL Marketplace
The HUMBL Marketplace was designed to pair authenticated buyers and sellers in verified, digital commerce. The HUMBL Marketplace currently works with clients such as professional athletes, brands, and marketing and talent agencies, to provide sports merchandise ranging from autographed jerseys, bats, balls, helmets, photos and more.
The HUMBL Marketplace mitigates forgeries by pairing physical merchandise with digital certificates of registration. Merchandise is made available on the HUMBL platform and is verified, registered, and cataloged on the blockchain.
The HUMBL Marketplace also allows for the minting and listing of non-fungible tokens (NFTs) as digital collectibles, that allow pre-approved individuals to monetize their digital images, multimedia content and catalogues on the blockchain.
HUMBL is a software platform and does not act as a broker, financial institution, or creditor for digital collectibles. We facilitate transactions between the buyer and seller in the auction/sale process, but we are not a party to any agreement between the buyer and seller or between any users.
HUMBL Social
HUMBL Social is one of the world’s first user-verified social media platforms. The social media platform is available via web browser and the HUMBL Wallet. The goal of HUMBL Social is to provide real people, real profiles and real merchants with a place to connect on the worldwide web.
HUMBL Social supports only verified user profiles, to ensure authenticity of the platform. This helps to reduce the fake profiles, product ratings and reviews that have plagued major Web 2 social media platforms due to the allowance of anonymous profiles and non-verified sellers. The HUMBL Social platform is available in over 130+ countries via the HUMBL Wallet and web browser.
HUMBL Metaverse Stores
HUMBL has created technology to build customized metaverse stores for brands, athletes, entertainers and celebrities. HUMBL’s first metaverse store was created for Major League Baseball player Ke’Bryan Hayes and his father Charlie Hayes, a retired Major League Baseball player. The brand metaverse store is called the “House of Hayes” and supports the development of an immersive player experience, in which customers can navigate a simulated environment of historical artwork and current digital collectibles. Custom artwork was provided by Topps “Sports Artist of the Year” Lauren Taylor, in the form of digital collectibles that rotated on screens throughout the environment. Endorsement sporting goods brands of Ke’Bryan Hayes, such as Wilson, Franklin and Old Hickory, also supported product placement and sell-through environments for products such as authentic baseball bats and gloves. An immersive Wilson Amphitheatre was also created for multimedia press conferences or media interactions with Ke’Bryan Hayes’ avatar.
HUMBL Blockchain Services
HUMBL Blockchain Services (“HBS”) was formed as part of the Company’s asset acquisition of BizSecure on February 12, 2022. Recognizing the opportunities for governments and commercial enterprises to incorporate blockchain and distributed ledger technologies (“DLT”), HBS is focused on working with clients to identify problems and develop solutions that build upon the various capabilities the Company has and continues to develop.
Our solutions enable municipalities, government agencies, and other commercial entities the ability to offer mobile IDs and other credential verification services to their constituents. We continue to make significant investments to leverage our existing technologies and further expand our DLT capabilities.
Components of the HUMBL Wallet can be used by HBS to white label a “Powered By” environment for local, state or national government clients that may want to move to digital or blockchain-based registry formats of their transactions, record keeping and / or payments from citizens, corporations, or government departments.
An example of this is a pilot program that HUMBL is currently developing with the County of Santa Cruz (CA), in which HUMBL and the County are working to scope the development of a digital wallet in which citizens can more easily and effectively receive government services access via digital technologies.
HUMBL Financial
HUMBL Financial was developed to package step-function technologies such as blockchain into “several clicks” for the customer.
In 2021, HUMBL Financial created BLOCK ETX products to simplify digital asset investing for customers and institutions seeking exposure to a new, 24/7 digital asset class. We have launched this product in 100 countries outside the United States. HUMBL Financial has developed proprietary, multi-factor blockchain indexes, trading algorithms and financial services for the new digital asset trading markets to accommodate index, active and thematic investment strategies. BLOCK ETXs are completely non-custodial, algorithmically driven software services that allow customers to purchase and hold digital assets in pre-set allocations through their own digital asset exchange accounts. BLOCK ETXs are compatible for United States customers who have accounts with Coinbase Pro, Bittrex US or Binance US and for non-US customers who have accounts with Bittrex Global. BLOCK ETXs were served first on the desktop and web version of the HUMBL platform, with the goal of future applications inside the HUMBL mobile application. HUMBL Financial is open to the licensing of the BLOCK ETXs to institutions and exchanges. HUMBL Financial also plans to offer trusted, third-party financial services in areas such as payments, investments, credit card services and lending across the HUMBL platform over time.
In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022. The Company met the criteria for the BLOCK ETX operations to be classified as held for sale at that time.
Going Concern
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
During the past two years, we devoted a substantial amount of capital to build out our platform and as a result our working capital deficit and accumulated deficit have increased significantly. In addition, we have incurred significant debt from both unrelated and related parties to assist in supporting our operations.
As of March 31, 2023, we had $301,050 in cash. During the last two years we built our platform and grew our operations by acquiring companies to support what we have just recently consolidated into HUMBL.com. The acquisitions increased our debt and our common shares issued as we spent very little cash in these acquisitions. The impact of COVID-19, supply chain issues, challenges in the cryptocurrency market and recent bank failures have had a minimal impact on the Company’s operations.
We had a working capital deficit of $11,719,183 and $27,408,687 as of March 31, 2023 and December 31, 2022, respectively. The majority of our current liabilities is in the form of both related and unrelated party notes, and accounts payable and accrued expenses. The decrease in working capital is the direct result of the settlement with Tickeri resulting in over $11,400,000 in reductions of notes payable, accrued interest and accrued expenses. This reduction was offset by some increases in accounts payable as we continue the development of our mobile wallet. A majority of the Company’s operating expenses in the past two years was the result of non-cash charges such as impairment of intangible assets including goodwill, settlement and stock-based compensation. The actual monthly cash burn of the Company is approximately $386,000 per month at this time and as our core products come online, this is likely to decrease upon our technology being completed. The Company in the three months ended March 31, 2023 received net proceeds of approximately $800,000 from various debt financings and has received $1,190,000 in purchases of common stock and warrants, $2,000,000 in additional warrant exercises and $8,700,000 in related party debt proceeds in the year ended December 31, 2022. However, as a result of the operating losses and working capital deficit, management has determined that there is substantial doubt about the Company’s ability to continue as a going concern.
In January 2023, we recognized a gain on disposal of $11,577,247 when we settled all claims with the former owners of Tickeri and sold them back their company. We expect that the consolidation of our platform into HUMBL.com will bring about revenue producing operations to improve the liquidity of the Company moving forward. However, going forward, the effect of our industry on the capital markets may limit our ability to raise additional capital on the terms acceptable to us at the time we need it, if at all. The additional post-COVID challenges related to remote work and travel restrictions that we as a smaller company have faced in striving to meet our disclosure obligations in a timely manner while taking the steps to protect the health and safety of our employees have impacted, and may continue to further impact, our ability to raise additional capital.
The consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
Impact of COVID-19
The COVID-19 pandemic previously had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries in which we operate, depending on the vaccine rollouts and the emergence of virus mutations.
COVID-19 did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets.
Our ability to access the capital markets and maintain existing operations is unknown during the COVID-19 pandemic. Any such limitation on available financing and how we conduct business with our customers and vendors would adversely affect our business.
Because the federal government and some state and local authorities are reacting to the many variants of COVID-19, it is creating uncertainty on whether these actions could disrupt the operation of the Company’s business and have an adverse effect on the Company. The extent to which the COVID-19 outbreak may impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Impact of Cryptocurrency Bankruptcies
In November 2022, both FTX Trading and BlockFi filed for bankruptcy protection under Chapter 11. These bankruptcies have impacted several companies either directly or indirectly. Customers of the HUMBL Wallet use our platform to hold their cryptocurrency. Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets. We removed the HUMBL Pay app from the Apple App Store and Google Play store on January 31, 2023 and are in the process of migrating all customers from HUMBL Pay to the HUMBL Wallet. HUMBL Wallet users maintain their own private digital wallets where the cryptocurrency is held and HUMBL has no access to those wallets.
The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
We do not, nor have we ever used either of these exchanges to conduct business. We have not been impacted by these bankruptcies. And we continue to monitor the industry and protect our customers’ assets.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended |
---|---|
Mar. 31, 2023 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “Commission” or the “SEC”). It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of HUMBL, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. HUMBL, Inc. holds 100% of Monster, Ixaya and BM Authentics. The Company formed additional subsidiaries that are inactive and have no activity for future use. All operations of Tickeri are reflected in discontinued operations as this entity was sold back to the original owners on January 31, 2023.
The Company applies the guidance of Topic 805 Business Combinations of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
For Monster, BizSecure, Ixaya and BM Authentics, the Company accounted for these acquisitions as business combinations and the difference between the consideration paid and the net assets was applied to goodwill as there were no identifiable intangible assets acquired.
Reclassification
The Company has reclassified certain amounts in the 2022 financial statements to comply with the 2023 presentation. These principally relate to classification of certain expenses and liabilities. The reclassifications had no impact on total net loss or net cash flows for the three months ended March 31, 2022.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for permanent and temporary differences related to income taxes, liabilities to accrue, estimates of the fair value of goodwill and determination of the fair value of stock awards. Actual results could differ from those estimates.
Cash
Cash consists of cash and demand deposits with an original maturity of three months or less. The Company holds no cash equivalents as of March 31, 2023 and December 31, 2022, respectively. The Company maintains cash balances in excess of the FDIC insured limit at a single bank.
In 2022, the Company established a service to their HUMBL Pay app users. The service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre (“Wyre”) to purchase digital assets (cryptocurrency). As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS in a BitGo wallet (“BitGo”). BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS.
The BitGo account is not the Company’s account; however it represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.
Safeguarding Obligation
Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets.
The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
Fixed Assets and Long-Lived Assets
ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted Accounting Standard Update (“ASU”) 2017-04 Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
Fixed assets and intangible assets with finite useful lives are stated at cost less accumulated amortization and impairment. Intangible assets with infinite lives, such as digital currency are valued at costs and reviewed for indicators of impairment at least annually, or more depending on circumstances.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Revenue Recognition
The Company accounts for a contract with a customer that is within the scope of this Topic only when the five steps of revenue recognition under ASC 606 are met.
The five core principles will be evaluated for each service provided by the Company and is further supported by applicable guidance in ASC 606 to support the Company’s recognition of revenue.
The Company accounts for revenues based on the verticals in which they were earned. The three principal verticals in which the Company operates today are HUMBL Mobile Wallet, HUMBL Marketplace, and HUMBL Blockchain Services.
HUMBL Mobile Wallet (formerly HUMBL Pay)
The Company is anticipated to earn transaction revenues primarily from fees charged to consumers and merchants on a transaction basis through the Company’s mobile application. These fees may have a fixed and/or variable component. The variable component is generally a percentage of the value of the payment amount and is known at the time the transaction is processed. For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. The Company may estimate the amount of fee refunds that will be processed each quarter and record a provision against the net revenues. The volume of activity processed on the platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).
The Company will earn additional fees on transactions where currency conversion is performed via on ramping and off ramping via digital currencies, when swaps are performed on digital currencies, and when cross-border transactions are enabled (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for customers from their HUMBL account to their debit card or bank account, and other miscellaneous fees. The Company will rely on third party partners to perform all money transmission services.
The Company may earn revenues from other value-added services, which are comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, ticketing, peer-to-peer payments, and other services that will be provided to merchants and consumers. These contracts typically have one performance obligation which is provided and recognized over the term of the contract.
The transaction price is generally fixed and known at the end of each reporting period; however, for some agreements, it may be necessary to estimate the transaction price using the expected value method. The Company is expected to record revenue earned in revenues from other value-added services on a net basis when they are considered the agent with respect to processing transactions.
HUMBL Search Engine
Revenues are derived principally from the sale of advertisements, classifieds fees, and revenue sharing arrangements. Advertising revenue is derived principally from the sale of online advertisements which are based on “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our platforms) or “clicks” (which are generated each time users on our platforms click through our advertisements to an advertiser’s designated website) delivered to advertisers.
The Company uses the output method and apply the practical expedient to recognize advertising revenue in the amount to which they have a right to invoice. For contracts with target advertising commitments with rebates, estimated payout is accounted for as a variable consideration to the extent it is probable that a significant reversal of revenue will not occur.
HUMBL Tickets
The Company recognizes revenues from HUMBL Tickets primarily from service fees. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we receive in exchange for those goods or services. For service fees and payment processing fees, revenue is recognized when the ticket is sold.
We evaluate whether it is appropriate to recognize revenue on a gross or net basis based upon our evaluation of whether we obtain control of the specified goods or services by considering if we are primarily responsible for fulfillment of the promise, have inventory risk, and have the latitude in establishing pricing and selecting suppliers, among other factors.
For the payment processing service, we determined that we are the principal in providing the service as we responsible for fulfilling the promise to process the payment and we have discretion and latitude in establishing the price of our service. Based on our assessment, we record revenue on a net basis related to our ticketing service and on a gross basis related to our payment processing service. As a result, costs incurred for processing the transactions are included in cost of net revenues in the consolidated statements of operations.
Revenue is presented net of indirect taxes, value-added taxes, creator royalties and reserves for customer refunds, payment chargebacks and estimated uncollectible amounts. If an event is cancelled by a creator, then any obligations to provide refunds to event attendees are the responsibility of that creator.
If a creator is unwilling or unable to fulfill their refund obligations, we may, at our discretion, provide attendee refunds. Revenue is also presented net of the amortization of creator signing fees when applicable. The benefit we receive by securing exclusive ticketing and payment processing rights with certain creators from creator signing fees is inseparable from the customer relationship with the creator and accordingly these fees are recorded as a reduction of revenue in the consolidated statements of operations.
HUMBL Marketplace
The Company recognizes revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which is expected to be entitled in exchange for those goods or services. Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities.
Net transaction revenues
The net transaction revenues will primarily include final value fees, feature fees, including fees to promote listings, and listing fees from sellers in our Marketplace. The net transaction revenues will also include store subscription and other fees often from large enterprise sellers. The net transaction revenues are reduced by incentives provided to customers.
The Company has identified one performance obligation to sellers on the Marketplace platform, which is to connect buyers and sellers on the secure and trusted Marketplace platforms. Final value fees are recognized when an item is sold on a Marketplace platform, satisfying this performance obligation. There may be additional services available to Marketplace sellers, mainly to promote or feature listings, that are not distinct within the context of the contract.
Accordingly, fees for these additional services are recognized when the single performance obligation is satisfied. Promoted listing fees are recognized when the item is sold and feature and listing fees are recognized when an item is sold, or when the contract expires.
Further, to drive traffic to the platform, the Company will provide incentives to buyers and sellers in various forms including discounts on fees, discounts on items sold, coupons and rewards. Evaluating whether a promotion or incentive is a payment to a customer may require significant judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when the incentive is paid or promise to be paid. Promotions and incentives to most buyers on our Marketplace platforms, to whom there is no performance obligation, are recognized as sales and marketing expense. In addition, there may be credits provided to customers when certain fees are refunded. Credits are accounted for as variable consideration at contract inception when estimating the amount of revenue to be recognized when a performance obligation is satisfied to the extent that it is probable that a significant reversal of revenue will not occur and updated as additional information becomes available.
HUMBL Blockchain Services
The Company disaggregates revenue from contracts with customers into product revenues and services revenues.
Product revenue related contracts with customers begin upon contract inception when a purchase order for a specific customer order of a product to be delivered in the near term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.
Service revenues primarily consist of revenues derived from maintenance support and the use of the Company’s service platforms and application programming interface (“APIs”) on a subscription basis. The Company generates this revenue from fees for maintenance and support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.
The Company accounts for individual goods and services separately if they are distinct performance obligations, which often requires significant judgment based upon knowledge of the products and/or services, the solution provided and the structure of the sales contract. In SaaS agreements, the Company provides a service to the customer that combines the software functionality, maintenance and hosting into a single performance obligation. In product-related contracts, a purchase order may cover different products, each constituting a separate performance obligation.
HUMBL Financial
In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022.
Accounts Receivable and Concentration of Credit Risk
An allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. The Company does not charge interest on accounts receivable. As of March 31, 2023 and December 31, 2022, there was no allowance necessary.
Inventory
Inventory is valued at the lower of cost or net realizable value, with cost determined using the first-in first-out method. The carrying value of inventory is evaluated periodically for excess quantities and obsolescence. Management evaluates quantities on hand and physical condition as these characteristics may be impacted by anticipated customer demand for current products. The allowance is adjusted based on such evaluation, with a corresponding provision included in cost of sales.
Income Taxes
Income taxes are accounted under the asset and liability method. The current charge for income tax expense is calculated in accordance with the relevant tax regulations applicable to the entities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences.
Uncertain Tax Positions
The Company follows ASC 740-10 Accounting for Uncertainty in Income Taxes. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed.
The Company follows ASC 718 Compensation – Stock Compensation and has adopted ASU 2017-09 Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting. The Company calculates compensation expense for all awards granted, but not yet vested, based on the grant-date fair values. Share-based compensation expense for all awards granted is based on the grant-date fair values. The Company policy is to recognize these compensation costs, on a pro rata basis over the requisite service period of each vesting tranche of each award for service-based grants, and as the criteria is achieved for performance-based grants, when such grants are made. For stock options and warrants, the Company uses the Black-Scholes model to estimate the value of those grants. The Company has not had any forfeitures of these grants, and these estimates of value will include a percentage of forfeitures when that percentage is able to be estimated.
The Company adopted ASU 2016-09 Improvements to Employee Share-Based Payment Accounting. Cash paid when shares are directly withheld for tax withholding purposes will be classified as a financing activity in the statement of cash flows.
Fair Value of Financial Instruments
ASC 825 Financial Instruments requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company’s financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued liabilities, and amounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Leases
The Company follows ASC 842 Leases in accounting for leased properties, when they exceed a one-year term. When the Company enters into leases with a term in excess of one year, they will recognize a lease liability and right of use asset in accordance with the provisions of ASC 842.
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants.
Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only the basic weighted average number of common shares are used in the computations.
Currency Translation
Ixaya’s functional currency is the Mexican Peso and its reporting currency is the United States dollar. Transactions denominated in the functional currency are converted into United States dollars using the exchange rate in effect at the date of the transaction or the average rate for the period in the case of revenue and expense transactions. Monetary assets and liabilities are re-valued into the reporting currency at each balance sheet date using the exchange rate in effect at the balance sheet date, with any resulting exchange gains or losses being credited or charged to accumulated other comprehensive income (loss). Non-monetary assets and liabilities are recorded in the reporting currency using the exchange rate in effect at the date of the transaction and are not revalued for subsequent changes in exchange rates.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including convertible notes and warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities, is remeasured at the end of each reporting period.
Digital Assets
Digital assets, including non-fungible tokens and cryptocurrencies, are included in the consolidated balance sheets. We have ownership of and control over our digital assets and may use third party custodial services to secure them. Digital assets are initially recorded at cost and are subsequently remeasured at cost, net of any impairment losses on our consolidated balance sheets. We assign costs to digital asset transactions on a first-in, first-out basis. Gains or losses are not recorded until realized upon sale(s).
We determine the fair value of our digital assets on a nonrecurring basis, based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). We perform a quarterly, or more frequent review to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges on any day during the quarter, indicate that it is more likely than not that our digital assets are impaired.
The cost basis of digital assets will not be adjusted upward for subsequent increases in fair value. Such impairment in the value of digital assets is recorded as a component of other operating expenses in our consolidated statements of operations. We recorded an impairment loss of approximately $1,995 and $45,318 related to digital assets during the three months ended March 31, 2023 and 2022, respectively.
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
Segment Reporting
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions.
Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial.
All of the Company’s sales are from North America, therefore the Company has determined that segment reporting by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report segment information by location.
Recent Accounting Pronouncements
The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe that this new guidance will have a material impact on its financial statements.
On March 31, 2022, the SEC added Staff Accounting Bulletin (“SAB”) No. 121 (“SAB 121”) into Section FF to Topic 5. The interpretations in this SAB express views of the staff regarding the accounting for entities that have obligations to safeguard crypto-assets held for their platform users. In connection with these services, these entities and/or their agents may safeguard the platform users’ crypto-assets and also maintain the cryptographic key information necessary to access the crypto-asset. The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets, including technological, legal, and regulatory risks and uncertainties.
These risks can have a significant impact on the entity’s operations and financial condition. The staff believes that the recognition, measurement, and disclosure guidance in this SAB will enhance the information received by investors and other uses of financial statements about these risks, thereby assisting them in making investment and other capital allocation decisions.
This guidance should be applied no later than the financial statements covering the first interim or annual report ending after June 15, 2022, with retroactive application as of the beginning of the fiscal year to which the interim or annual period relates. Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to act as the custodians of the digital assets held on our platform.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
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DISCONTINUED OPERATIONS |
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DISCONTINUED OPERATIONS | 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.
The Company paid the refunds to the subscribers in the three months ended March 31, 2022, and had no expenses related to the BLOCK ETX product line after February 28, 2022. For a full description of the BLOCK ETX/HUMBL Financial, refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023.
NON-RESIDENTIAL PROPERTY
On June 30, 2022, the Company determined to sell their non-residential property, and listed this property for sale in July 2022. This represented a strategic shift for future operations and the Company as a result reclassified the net value on this property of $328,222 as a non-current asset held for sale in accordance with ASC 205-20-45-1E. On September 16, 2022, the Company sold the property for $270,905 and recognized a loss of $57,318 on disposal. There was no adjustments made for this during the three months ended March 31, 2022.
TICKERI
On January 31, 2023, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Javier Gonzalez (“Javier”) and Juan Luis Gonzalez (“Juan”). Under the terms of the Settlement Agreement, Tickeri was transferred back to Javier and Juan, free of any encumbrances and including all of Tickeri’s intellectual property, since the Company was in default of the promissory notes for $5,000,000 to each of them with a maturity date of December 3, 2022 (the “Notes”) owed to Javier and Juan as a portion of the consideration paid by the Company under the agreement to acquire Tickeri. Javier and Juan will receive shares of the Company’s common stock owed to them under the acquisition agreement. Under the terms of the Settlement Agreement, the Notes were cancelled, and the parties agreed to a mutual release of claims. As a result of this settlement, the Company has reclassified the assets, and liabilities of Tickeri as held for sale, and the operations as discontinued operations as of and for the year ended December 31, 2022.
Per ASC 205-20-50-1(a), the timing of the disposal was January 31, 2023, but the Company had made the decision to dispose of this business in December 2022, and it represented a strategic shift in the business of the Company. The Company met the criteria for the Tickeri operations to be classified as held for sale at that time. In addition to the assets and liabilities reflected as discontinued operations, the settlement with Tickeri resulted in the forgiveness of the two promissory notes totaling $10,000,000, accrued interest of $789,041 (as of January 31, 2023) and accrued liabilities of $700,000 that are part of the Company’s liabilities as of January 31, 2023.
Current assets as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
Current liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
Non-current liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
The Company reclassified the following operations to discontinued operations for the three months ended March 31, 2023 and 2022, respectively.
The Company reflected the following gain on disposal for the three months ended March 31, 2023 related to the sale of Tickeri:
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BUSINESS COMBINATIONS | NOTE 4: BUSINESS COMBINATIONS
For all acquisitions prior to January 1, 2022, refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023.
BizSecure
On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company had issued 16,750,000 RSUs will continue to vest in accordance with the original terms. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023. common shares and restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the RSUs that vested during 2022. Pursuant to BizSecure’s request, the shares of common stock and the RSUs were cancelled effective December 30, 2022. The remaining
The consideration paid for the acquisition of assets of BizSecure was as follows:
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of February 12, 2022.
The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and useful lives for the intangible assets acquired; and (iii) finalization of the fair value of non-cash consideration.
The Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation of assets and liabilities is necessary, the Company will adjust these figures.
The Company has determined that the preliminary purchase price allocation did not need to be revised.
Effective December 31, 2022, the Company impaired the $3,981,000 in goodwill and the remaining $2,256,618 in intellectual property and customer relationships, for total impairment of $6,237,618.
The goodwill is not expected to be deductible for tax purposes.
Ixaya
On March 3, 2022, the Company acquired the assets and liabilities of Ixaya noted below in in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:
The consideration paid for the acquisition of Ixaya was as follows:
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of March 3, 2022. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and useful lives for the intangible assets acquired; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.
The Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase price allocation and has determined that there are no adjustments to be made from the original allocation. During the three months ended March 31, 2022, the Company impaired $1,008,642 of the goodwill.
The Company has determined that the preliminary purchase price allocation did not need to be revised.
The goodwill was not expected to be deductible for tax purposes.
BM Authentics
On November 2, 2022, the Company acquired the assets and liabilities of BM Authentics noted below in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:
The consideration paid for the acquisition of BM Authentics was as follows:
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of November 2, 2022. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuations and useful lives for the intangible assets acquired; (ii) finalization of the valuation of accounts payable and accrued expenses; (iii) finalization of the valuation of the inventory; and (iv) finalization of the fair value of non-cash consideration.
The Company has up to one-year from the date of acquisition to adjust any of the acquired assets and liabilities for information obtained during this measurement period. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities as of the acquisition date or a re-allocation of assets and liabilities is necessary, the Company will adjust these figures. The Company has performed an analysis on the purchase price allocation and has determined that there are no adjustments to be made from the original allocation.
The Company has determined that the preliminary purchase price allocation did not need to be revised. The Company issued the shares owed ( common shares) on January 10, 2023.
The goodwill was not expected to be deductible for tax purposes.
The following table shows the unaudited pro-forma results for the three months ended March 31, 2022 as if the acquisitions had occurred on January 1, 2022. These unaudited pro forma results of operations are based on the historical financial statements and related notes of BizSecure, Ixaya, BM Authentics and the Company for 2022.
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REVENUE |
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Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE | NOTE 5: REVENUE
The following table disaggregates the Company’s revenue by major source for the three months ended March 31, 2023 and 2022:
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.
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INVENTORY |
3 Months Ended |
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Mar. 31, 2023 | |
Inventory Disclosure [Abstract] | |
INVENTORY | NOTE 6: INVENTORY
On November 2, 2022, in the acquisition of BM Authentics, the Company acquired $1,010,000 in inventory. Inventory consisted of sports merchandise and memorabilia ranging from autographed jerseys, bats, balls, helmets, and photos. As of March 31, 2023 and December 31, 2022, inventory is valued at $1,012,042 and $1,038,816, respectively. Inventory includes write-downs for excess and obsolete inventory of $155,736 as of March 31 and December 31, 2022.
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FIXED ASSETS |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
FIXED ASSETS | NOTE 7: FIXED ASSETS
As of March 31, 2023 and December 31, 2022, the Company has the following fixed assets:
In June 2021, the Company purchased some equipment and furniture as well as a commercial property in the form of a suite at a luxury hotel. The Company is the owner of this suite and entered into a long-term rental agreement with the hotel to manage the property. The Company has use of the suite for 28 calendar days a year and will receive their proportionate income for the other days the suite is being used. The suite with a net value of $328,222 was reclassified to a non-current asset held for sale on June 30, 2022.
Depreciation expense for the three months ended March 31, 2023 and 2022 was $2,427 and $5,851, respectively, as the property was placed into service on July 1, 2021.
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INTANGIBLE ASSETS AND GOODWILL |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS AND GOODWILL | NOTE 8: INTANGIBLE ASSETS AND GOODWILL
As of March 31, 2023 and December 31, 2022, the Company has the following intangible assets:
In February 2022, the Company acquired intangible assets from BizSecure valued at $2,775,000, in March 2022 in the acquisition of Ixaya acquired intangible assets valued at $650,000. On December 31, 2022, the Company impaired $2,256,618 in intellectual property related to BizSecure.
Amortization expense for the three months ended March 31, 2023 and 2022 was $37,083 and $91,716, respectively.
Amortization expense for the next five years and in the aggregate is as follows:
As of March 31, 2023 and December 31, 2022, the Company has recorded goodwill as follows for our continuing operations:
As of March 31, 2023 and December 31, 2022, the Company had remaining goodwill recorded.
The Company evaluated ASC 350-20-50 for the goodwill associated with their acquisitions.
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INTANGIBLE ASSETS – DIGITAL ASSETS |
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INTANGIBLE ASSETS – DIGITAL ASSETS | NOTE 9: INTANGIBLE ASSETS – DIGITAL ASSETS
In 2022, the Company established a service to their HUMBL Pay app users. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS to BitGo. BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS. These timing differences occur, and as of December 31, 2022, the BitGo account has been settled and no unfunded liabilities exist. The BitGo account is not the Company’s account; however, represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.
In March 2022, the Company purchased an NFT for $406,046. The Company had evaluated the fair value of this NFT for impairment and recognized impairment of $258,217 through March 31, 2023. The value of the NFT as of March 31, 2023 is $147,823. The NFT will not be amortized as it is considered a non-statutory based digital asset. The NFT is considered a non-current asset while the other digital assets held by the Company are considered current assets. On May 3, 2022, the Company’s CEO contributed capital to pay for this NFT.
In the year ended December 31, 2022, the Company purchased $1,010,934 in digital currency expensed $458,162 in the digital currency for future endeavors and for payment of expenses, received commissions on sales of NFTs of $1,814, reflected $1,348,567 in impairment of the intangible asset for digital currency, and recognized a gain on sale of digital assets of $297,895. The Company’s CEO contributed $500,000 worth of BLOCKS to the Company that is included in the digital assets owned by HUMBL.
In the three months ended March 31, 2023, the Company expensed $359 in the digital currency for future endeavors and for payment of expenses, reflected $1,995 in impairment of the intangible asset for digital currency, and recognized a gain on sale of digital assets of $24.
The value of the digital assets as of March 31, 2023 and December 31, 2022 is $152,102 (of which the value of the non-fungible token of $147,823 is considered a non-current asset) and $154,432 (of which the value of the non-fungible token of $147,823 is considered a non-current asset), respectively.
The following table presents additional information about the Company’s digital asset holdings during the three months ended March 31, 2023:
Digital Assets Owned By HUMBL:
Digital Assets Owned By HUMBL Pay Users (SAB 121 disclosure):
Under SAB 121, companies are required to present the asset and liability at fair value for any crypto-assets and obligations to safeguard crypto-assets. The Company earns no revenue from providing this service to their customers. It is simply an added benefit that HUMBL Pay customers receive for using the app. The “Buy Crypto, Earn Rewards” service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre to purchase digital assets (cryptocurrency) and earn rewards. These rewards are not paid by the Company, but by Wyre itself. As it can take 5 to 8 business days to physically settle funds in Wyre, there may be delays in digital assets being received by customers and the delivery of BLOCKS to a BitGo. BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS These timing differences occur, and as of December 31, 2022, the BitGo account has been settled and no unfunded liabilities exist.
Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to act as the custodians of the digital assets held on our platform.
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NOTE PAYABLE - BANK |
3 Months Ended |
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Mar. 31, 2023 | |
Debt Disclosure [Abstract] | |
NOTE PAYABLE - BANK | NOTE 10: NOTE PAYABLE - BANK
On March 3, 2022 with the acquisition of Ixaya, the Company assumed a loan with Citibanamex. The loan is due in monthly payments of $7,110 MXN (approximately $350 US$) inclusive of interest and matures in July 2025. As of March 31, 2023 and December 31, 2022, the Company has $10,088 and $10,949 outstanding under the loan. As of March 31, 2023, the Company has included $5,978 in current liabilities, and the balance of $4,110 in long-term liabilities.
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NOTES PAYABLE |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE | NOTE 11: NOTES PAYABLE
The Company entered into notes payable as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued operations or disposed of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
All of the notes payable as of March 31, 2023 are due in the next fiscal year, and therefore all current.
Interest expense for the three months ended March 31, 2023 and 2022 was $990 and $3,853, respectively. There was no in accrued interest as of March 31, 2023.
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NOTES PAYABLE – RELATED PARTIES |
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NOTES PAYABLE – RELATED PARTIES | NOTE 12: NOTES PAYABLE – RELATED PARTIES
The Company entered into notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued operations or disposed of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
Maturities of notes payable – related parties as of March 31 is as follows:
Interest expense for the three months ended March 31, 2023 and 2022 was $103,174 and $145,049, respectively. Accrued interest at March 31, 2023 was $333,979.
On January 31, 2023, in the sale back to the former owners of Tickeri, the $10,000,000 in related party notes along with $789,041 in accrued interest were included in the settlement and are no longer payable.
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CONVERTIBLE PROMISSORY NOTES |
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Convertible Promissory Notes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONVERTIBLE PROMISSORY NOTES | NOTE 13: CONVERTIBLE PROMISSORY NOTES
The Company entered into notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable – related parties that were repaid or converted during 2022. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
On April 14, 2021 we received bridge financing in the form of a loan in the principal amount of $3,300,000 from Brighton Capital Partners, LLC (“Brighton Capital” or “BCP”) for which we issued them a convertible promissory note due originally on July 14, 2022. The note has since been extended to June 30, 2023 for no consideration and thus it was deemed to not be a material modification to the debt instrument.
BCP has been converting this note and accrued interest since August 16, 2022. In addition, they sold a portion of the note ($300,000) to a third-party, which has also been converted. As of March 31, 2023, there remains a total of $ in principal and interest. The Company issued 326,000,000 shares of common stock, which includes 86,000,000 issued to a third party that purchased $300,000 of this note in the three months ended March 31, 2023 in conversions of the BCP note. The Company recognized a loss on conversions of BCP (and third parties that purchased portions of this note) in the amount of $1,518,300.
On May 17, 2021, the Company issued a convertible promissory note to an investor for $1,020,000 with an original issue discount of $20,000, for a term of months maturing March 17, 2023. The Company recognized a $20,000 original issue discount at inception of this convertible note. This note has not been repaid or converted, and is currently past due as the maturity date has passed. This is reflected in our current portion of convertible notes payable as of March 31, 2023.
On December 8, 2022, the Company entered into an 8% convertible redeemable note in the amount of $222,000 with an original issue discount of $14,500, for a term of nine months due September 8, 2023. From the $207,500 in proceeds received, $7,500 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $200,000. The note is convertible into shares of common stock at $ per share. Should the Company be in default of this note, the conversion price would be equal to the lower of (a) $ or (b) 70% of the lowest trading price for the fifteen prior trading days including the day upon which a conversion notice is received by the Company. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
On January 25, 2023, the Company entered into an 8% convertible redeemable note in the amount of $138,750 with an original issue discount of $9,000, for a term of nine months due October 25, 2023. From the $129,750 in proceeds received, $4,750 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $125,000. The note is convertible into shares of common stock at $ per share, as long as the note is not in default. Should the Company be in default of this note, the conversion price would be equal to the lower of (a) $ or (b) 70% of the lowest trading price for the fifteen prior trading days including the day upon which a conversion notice is received by the Company. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
On February 8, 2023, the Company entered into a 9% convertible promissory note in the amount of $77,500 with an original issue discount of $9,000, for a term of twelve months due February 8, 2024. From the $77,500 in proceeds received, $2,500 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $75,000. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.
On February 23, 2023, the Company entered into a convertible promissory note in the amount up to $1,100,000. On February 23, 2023, the Company received the first tranche of this note in the amount of $110,000, including $10,000 in original issue discount for net proceeds of $100,000. On April 4, 2023, the Company received the second tranche of this note of $55,000, with a $5,000 original issue discount. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days. In addition, the Company was required to reserve with the transfer agent, the amount of common shares equal to three times the number of common shares needed to convert any of the outstanding amounts received. At March 31, 2023, the reserve equals shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.
On March 1, 2023, a noteholder sold $553,500. of their outstanding related party note to a third party. Of the amount sold, $ was converted into shares of common stock. This conversion resulted in a gain of $
On March 6, 2023, the Company entered into a 9% convertible promissory note in the amount of $59,250, for a term of twelve months due March 6, 2024. From the $59,250 in proceeds received, $4,250 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $55,000. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.
On March 31, 2023, the Company entered into a Convertible Promissory Note in the amount of $150,000 with an original issue discount of $12,500 and a $12,500 interest charge assessed at closing, and a term of twelve months due March 31, 2024. The Company received net proceeds of $125,000. The note is convertible into shares of common stock at $0.008 per share. Beginning on September 31, 2022, the investor has the right to cause note in cash or common stock. If the Company pays in common stock, it may do so at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
On April 10, 2023, the Company entered into a Promissory Note in the amount of $59,675, with a term of twelve months due April 10, 2024, and an original issue discount of $5,425. From the $54,250 in proceeds received, $4,250 was deducted to pay for legal and due diligence fees. The Company received net proceeds of $50,000. Following an event of default, the note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. A one-time interest charge of $7,757 was added upon the issuance of the note. Beginning on May 30, 2023 and for the next nine months thereafter, the Company is required to make monthly amortization payments of $6,743.20. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
In order to have sufficient common shares to convert the debt and enable the transfer agent to have the reserves necessary, the Company’s CEO has committed to not to convert of his Series B Preferred shares until after the Company increases their authorized common shares in amount sufficient to provide for sufficient reserves the outstanding obligations.
All of the convertible promissory notes as of March 31, 2023 and December 31, 2022 are due in the next fiscal year, and therefore all current.
The Company evaluated the terms of the convertible notes and determined that there were derivative liabilities to be recorded at inception of the notes as there were sufficient shares to net share settle the notes at the discounted values.
Interest expense for the three months ended March 31, 2023 and 2022 was $87,515 and $159,654, respectively. Amortization of debt discount, and original issue discount was $12,408 and $340,370 for the three months ended March 31, 2023 and 2022, respectively. Accrued interest at March 31, 2023 was $377,157.
On March 31, 2022, the Company entered into exchange agreements with most of their convertible note holders to exchange $2,979,000 of notes payable and $197,804 of accrued interest on those notes into shares of common stock. The exchange agreements resulted in a $1,250,527 adjustment for the unvested debt discount at the time of the convertible note exchanges to common stock. This amount is reflected in the amortization of debt discounts in other income (expense) in the consolidated statement of operations for the three months ended March 31, 2022. The then unamortized debt discount of $1,250,527 represented the loss on these exchange transactions.
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CONVERTIBLE PROMISSORY NOTES – RELATED PARTIES |
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CONVERTIBLE PROMISSORY NOTES – RELATED PARTIES | NOTE 14: CONVERTIBLE PROMISSORY NOTES – RELATED PARTIES
The Company entered into convertible notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include convertible notes payable – related parties that were repaid or converted during 2022. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
All of the convertible promissory notes – related parties are in default and reflected in current liabilities as of March 31, 2023.
On June 30, 2021, the Company acquired Monster Creative, LLC. The Monster Purchase Price included: (a) a convertible note to Phantom Power, LLC in the amount of $6,525,000 that bears interest at 5% per annum, and was to mature December 31, 2022, convertible into the Company’s common stock; and (b) a convertible note to Kevin Childress in the amount of $975,000 that bears interest at 5% per annum, and was to mature December 31, 2022, convertible into the Company’s common stock. These notes are currently in default. The convertible promissory note to Kevin Childress was satisfied in full on April 20, 2023.
The Company evaluated the terms of the convertible notes and determined that there were no terms that would necessitate the recognition of any derivative liabilities.
In the three months ended March 31, 2023, the convertible noteholders sold $4,050,000 of these convertible notes to third-parties, and the third parties converted the $2,745,000 into shares of common stock. These transactions resulted in a gain on conversion of notes payable in the amount of $537,060, which is reflected in the consolidated statements of operations for the three months ended March 31, 2023.
Interest expense for the three months ended March 31, 2023 and 2022 was $75,421 and $92,466, respectively, and accrued interest as of March 31, 2023 was $639,462.
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DERIVATIVE LIABILITIES |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE LIABILITIES | NOTE 15: DERIVATIVE LIABILITIES
The Company entered into several convertible notes payable during the three months ended March 31, 2023, that terms include variable conversion prices (see Note 13). The Company evaluated these terms and determined that the conversion option on the convertible notes payable contained characteristics that required the Company to classify them as derivative liabilities. The Derivative Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value of Derivative Instruments. The estimated fair value of the Derivative Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).
The Company identified embedded features in some of the agreements which were classified as liabilities. These embedded features included a variable conversion price that would convert those instruments into a variable number of common shares. The accounting treatment of derivative financial instruments requires that the Company treat the instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
The Company determined the derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of March 31, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used on March 31, 2023 and at inception:
The Company’s derivative liabilities as of March 31, 2023 and inception associated with the offerings are as follows.
Activity related to the derivative liabilities for the three months ended March 31, 2023 is as follows:
There were no derivative liabilities in the three months ended March 31, 2022.
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STOCKHOLDERS’ EQUITY (DEFICIT) |
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STOCKHOLDERS’ EQUITY (DEFICIT) | NOTE 16: STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
As of March 31, 2023 and December 31, 2022, the Company has shares of Preferred Stock authorized, designated as follows: shares of Series A Preferred Stock authorized, and shares of Series B Preferred Stock authorized. All shares of preferred stock have a par value of $ .
Series A Preferred Stock
Dividends. Shares of Series A Preferred Stock shall be entitled to receive, out of funds legally available for that purpose, on the same terms and conditions as that of holders of common stock, as may be declared by the Board of Directors.
Conversion. There are no conversion rights.
Redemption. Subject to certain conditions set forth in the Series A Certificate of Designation, in the event of a Change of Control (defined in the Series A Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series A Preferred Stock shall have acquired, in one or a series of related transactions, equity securities of the Company representing more than fifty percent 50% of the outstanding voting securities of the Company), the Company, at its option, will have the right to redeem all or a portion of the outstanding Series A Preferred Stock in cash at a price per share of Series A Preferred Stock equal to 100% of the liquidation value.
Voting Rights. Holders of Series A Preferred Stock are entitled to vote on all matters, together with the holders of common stock, and have the equivalent of one thousand (1,000) votes for every share of Series A Preferred Stock held.
Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation value of the Series A Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series A Preferred Stock shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
The shares were issued to a former officer of the Company and assigned to the new CEO at the time of the reverse merger of HUMBL.
Series B Preferred Stock
Prior to the amendment of the Certificate of Incorporation on October 29, 2021, the criteria established for the Series B Preferred Stock was as follows:
Dividends. Shares of Series B Preferred Stock shall be entitled to receive, out of funds legally available for that purpose, on the same terms and conditions as that of holders of common stock, as may be declared by the Board of Directors.
Conversion. Each share of Series B Preferred Stock shall be convertible at the option of the holder thereof at any time after December 3, 2021 at the office of the Company or any transfer agent for such stock, into ten thousand ( ) fully paid and nonassessable shares of common stock subject to adjustment for any stock split or distribution of securities or subdivision of the outstanding shares of common stock.
Redemption. Subject to certain conditions set forth in the Series B Certificate of Designation, in the event of a Change of Control (defined in the Series B Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series B Preferred Stock shall have acquired, in one or a series of related transactions, equity securities of the Company representing more than fifty percent 50% of the outstanding voting securities of the Company), the Company, at its option, will have the right to redeem all or a portion of the outstanding Series B Preferred Stock in cash at a price per share of Series B Preferred Stock equal to 100% of the liquidation value.
Voting Rights. Holders of Series B Preferred Stock are entitled to vote on all matters, together with the holders of common stock, and have the equivalent of ten thousand (10,000) votes for every share of Series B Preferred Stock held.
Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation value of the Series B Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series B Preferred Stock shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
HUMBL exchanged 100% of their membership interests for shares of newly created Series B Preferred Stock. The Series B Preferred shares were issued to the respective members of HUMBL following the approval by FINRA of the one-for-four reverse stock split of the common shares and the increase in the authorized common shares to 7,450,000,000 shares. The FINRA approval for both the increase in the authorized common shares and reverse stock split occurred on February 26, 2021. These shares that were issued in the reverse merger had a value of $39,967.
These shares have a lock-up provision that prevents the holders to convert into common stock for a period of one-year from the date of the merger of December 3, 2020, with the exception of those held by the CEO who had a two-year lock up provision. In addition, officers and directors that received these shares are subject to strict selling limitations, where the number of shares sold within the preceding three months cannot exceed the greater of: (a) % of the total outstanding common shares; and (b) the average weekly reported trading volume for the previous four weeks.
On February 26, 2021, the Company issued shares of Series B Preferred Stock for services rendered that were cancelled. On April 15, 2021, the Company revised their issuances and issued with an effective date of March 31, 2021, Series B Preferred shares for services rendered. Of the shares issued, are vested immediately, are vested over one year, and are vested over two years. The vesting period commenced January 1, 2021. All of the Series B Preferred Shares issued have one-year lock up provisions to convert into common stock from the date of the merger of December 3, 2020. These shares have been fully expensed as of December 31, 2022.
Between May 3 and May 6, 2021, the Company’s CEO converted shares of common stock into Series B Preferred shares. These shares are subject to a lock-up provision whereby the CEO has agreed not to convert these Series B shares to common for a period of two years.
On July 6, 2021, the CEO of the Company cancelled shares of Series B Preferred Stock ( if converted into common stock) for no consideration.
On November 19, 2021, the Company paid $215, to redeem Series B Preferred Shares.
In December 2021, there were Series B Preferred shares converted into common shares.
On March 17, 2022, the CEO of the Company cancelled shares of Series B Preferred Stock ( if converted into common stock) and on September 21, 2022, the Company’s CEO cancelled Series B Preferred shares (the equivalent of common shares) for no consideration.
During the year ended December 31, 2022, there were shares of Series B Preferred Stock converted into common shares.
For the three months ended March 31, 2023, there were shares of Series B Preferred Stock converted into common shares.
As of March 31, 2023, the Company has shares of Series B Preferred Stock issued and outstanding.
On October 29, 2021, the Company by Board consent approved an amendment to their Certificate of Amendment for the Series B Preferred Stock to (a) reduce the number of authorized shares of Series B Preferred stock to . and (b) for Series B Preferred shareholders holding greater than 750 shares of Series B Preferred Stock, for the calendar months of December 2021 and January 2022, Series B Preferred shareholders shall not have the right, whether by election, operation of law, or otherwise, to convert into Common Stock shares of Series B Preferred stock constituting more than 5% of the total number of Series B Preferred shares held by them; and for each of the calendar months from February 2022 to May 2023, the percentage that the Series B Preferred shareholder may convert is 3% of the total number of Series B Preferred shares held by them. This action was approved by Series B Shareholder consent
Common Stock
The Company has shares of common stock, par value $ , authorized. The Company has and shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. The Company on February 26, 2021 increased its authorized shares from to shares.
In the three months ended March 31, 2022, the Company: (a) issued shares in a settlement; (b) shares in the exercise of warrants; (c) shares in the asset purchase of BizSecure (also granted restricted stock units in this acquisition); (d) shares in the acquisition of Ixaya; (e) shares for services rendered; (f) shares issued for the exchange of notes payable and accrued interest; and (g) shares issued in conversion of Series B Preferred stock. In addition, the Company cancelled shares.
During the three months ended March 31, 2022, the Company expensed $1,440,464 related to shares issued to consultants and advisors for services as noted above, leaving $ of stock-based compensation yet to be expensed as of March 31, 2022. The Company has reduced their obligation to issue common stock by 1,120,176 shares and as of March 31, 2022 has an obligation to issue shares valued at $26,831. These shares were issued in April 2022.
In the three months ended June 30, 2022, the Company: (a) issued shares for services rendered; and (b) issued shares in conversion of Series B Preferred stock.
During the three months ended June 30, 2022, the Company expensed $1,216,115 related to shares issued to consultants and advisors for services as noted above, leaving $ of stock-based compensation yet to be expensed as of June 30, 2022. The Company has reduced their obligation to issue common stock by 198,750 shares and as of June 30, 2022 has an obligation to issue shares valued at $10,236. These shares were issued in July 2022.
In the three months ended September 30, 2022, the Company: (a) issued 800,000, and recognized a loss on conversion of these shares in the amount of $305,967; and (d) the Company redeemed shares of common stock in a settlement. In September 2022, the Company received $ from three investors as part of a total of $575,000 for shares and 76,666,666 warrants with a strike price of $0.03 and $0.04 ( each). The remaining $150,000 was received in October 2022 and the shares were issued in October 2022. The Company has included the $425,000 in additional paid in capital as of September 30, 2022. shares for services rendered; (b) issued shares in conversion of Series B Preferred stock; (c) shares for conversion of notes payable valued at $
During the three months ended September 30, 2022, the Company expensed $1,192,808 related to shares issued to consultants and advisors for services as noted above, leaving $ of stock-based compensation yet to be expensed as of September 30, 2022. The Company has reduced their obligation to issue common stock by 198,750 shares and as of September 30, 2022 has an obligation to issue shares valued at $4,969. These shares were issued in October 2022.
In the three months ended December 31, 2022, the Company: (a) issued 1,537,745, and recognized a loss on conversion of these shares in the amount of $753,858; and (d) the Company issued shares of common stock with 11 different investors for $615,000, and issued shares of common stock for $575,000. shares for services rendered; (b) issued shares in conversion of Series B Preferred stock; (c) shares for conversion of notes payable valued at $
During the three months ended December 31, 2022, the Company expensed $1,032,748 related to shares issued to consultants and advisors for services as noted above, leaving $ of stock-based compensation yet to be expensed as of December 31, 2022. The Company has reduced their obligation to issue common stock by 198,750 shares and as of December 31, 2022 has an obligation to issue shares valued at $1,585. These shares were issued in January 2023.
In the three months ended March 31, 2023, the Company: (a) issued 4,855,141, and recognized a loss on conversion of these shares in the amount of $427,740; (d) the Company issued shares of common stock in the acquisition of BM Authentics; and (e) shares of common stock in settlement with Tickeri on the disposal of that entity. shares for services rendered; (b) issued shares in conversion of Series B Preferred stock; (c) shares for conversion of notes payable valued at $
During the three months ended March 31, 2023, the Company expensed $1,135,579 related to shares issued to consultants and advisors for services as noted above, leaving $ of stock-based compensation yet to be expensed as of March 31, 2023. The Company has reduced their obligation to issue common stock by 90,418,750 shares and as of March 31, 2023 has no obligation to issue shares. In addition, the Company recognized $206,032 in BCF discounts on convertible notes and the Company’s CEO contributed $50,000 during the three months ended March 31, 2023.
Stock Incentive Plan
On July 21, 2021, the Company established the HUMBL, Inc. 2021 Stock Incentive Plan (the “Plan”) for a total issuance not to exceed shares of common stock. The purpose of the Plan is to promote the long-term growth and profitability of the Company by (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of the Company, and (ii) enabling the Company to attract, retain and reward the best-available persons.
The Plan permits the granting of Stock Options (including incentive stock options qualifying under Code Section 422 and nonqualified stock options), Stock Appreciation Rights, restricted or unrestricted Stock Awards, Restricted Stock Units, Performance Awards, other stock-based awards, or any combination of the foregoing.
Warrants
Warrants issued in 2023 and 2022 consisted of the following:
On September 29, 2022, the Company entered into subscription agreements with investors whereby the Company issued September 29, 2025 for warrants at $ per share and warrants at $ per share. The Company received $425,000 in proceeds as of September 30, 2022 with the remaining $150,000 in proceeds received in October 2022. These warrants were cancelled on December 14, 2022. shares of common stock (issued in October 2022) and granted three-year warrants expiring
Between November 7, 2022 and ending November 13, 2022 with 11 different investors issued warrants to purchase 36,176,471 shares of its common stock. The Warrants are exercisable for a period of three years, have a cashless exercise provision and have an exercise price of $0.017 per share.
On December 14, 2022 with 4 different investors issued warrants to purchase 38,333,333 shares of its common stock. The Warrants are exercisable for a period of three years, have a cashless exercise provision and have an exercise price of $0.012 per share.
The following represents a summary of the warrants:
As of March 31, 2023, warrants are vested.
For the three months ended March 31, 2023 and 2022, the Company incurred stock-based compensation expense of $ and $ , respectively for the warrants in accordance with ASC 718-10-50-1 and ASC 718-10-50-2. The fair value of the grants were calculated based on the black-scholes calculation using the assumptions reflected in the chart below for both the service-based grants and the performance-based grants.
As of March 31, 2023, there remains unrecognized stock-based compensation expense related to these warrants of $ comprising of service-based grants through June 30, 2026.
Options
Options issued in 2023 and 2022 consisted of the following:
On May 26, 2022, the Company granted stock options to employees. These options have a term of years and are exercisable into shares of common stock at a price of $ per share.
As of March 31, 2023, of the May 26, 2022 options as well as options issued in 2021 have been forfeited. As of March 31, 2023, options are exercisable.
For the three months ended March 31, 2023 and 2022, the Company incurred stock-based compensation expense of $ and $ , respectively for the options in accordance with ASC 718-10-50-1 and ASC 718-10-50-2. The fair value of the grants were calculated based on the black-scholes calculation using the assumptions reflected in the chart below for the service-based grants.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each option/warrant is estimated using the Black-Scholes valuation model. The following assumptions were used for the periods as follows:
Restricted Stock Units (RSUs)
On February 12, 2022, the Company granted RSUs in the acquisition of the asserts of BizSecure that was recorded as contingent consideration. These RSUs commenced vesting on April 1, 2022.
On December 30, 2022, the Company and BizSecure negotiated a settlement of all claims resulting from the Company’s inability to timely register the shares of common stock issued February 12, 2022 and RSUs that vested during 2022. As a result, the shares of common stock and the RSUs were rescinded effective December 30, 2022. The remaining RSUs will continue to vest in accordance with the original terms and the Company will continue the process to get those RSUs registered for resale and re-negotiate the terms of the common shares to be issued to BizSecure. For the three months ended March 31, 2023, RSUs vested. These shares were issued in April 2023.
For the three months ended March 31, 2023 and 2022, the Company amortized $565,815 and $0, of the contingent consideration to additional paid in capital, respectively for the RSUs.
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RELATED-PARTY TRANSACTIONS |
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Mar. 31, 2023 | |
Related Party Transactions [Abstract] | |
RELATED-PARTY TRANSACTIONS | NOTE 17: RELATED-PARTY TRANSACTIONS
In March 2022, the Company’s CEO cancelled Series B Preferred shares and in September 2022, the Company’s CEO cancelled Series B Preferred shares. These shares are the equivalent of common shares. The cancellations were done for no consideration.
In May 2022, the Company’s CEO contributed $406,040 to pay for the purchase of the NFT that is reflected as a non-current asset on the Company’s consolidated balance sheet, as well as contributed 100 million BLOCKS valued at $500,000. In the three months ended March 31, 2023, the Company’s CEO contributed $50,000.
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COUNTRY RIGHTS OPTION |
3 Months Ended |
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Mar. 31, 2023 | |
Country Rights Option | |
COUNTRY RIGHTS OPTION | NOTE 18: COUNTRY RIGHTS OPTION
Aurea Group
On March 15, 2021 we entered into a Securities Purchase Agreement with HUMBL CL SpA (“HUMBL CL”), an affiliate of Aurea Group Ventures (“Aurea Group”), a Chilean multi-family office, under which Aurea Group purchased shares of our common stock in return for exclusive country rights to Chile of our HUMBL products for a purchase price of up to $7,500,000.
Under the terms of the Securities Purchase Agreement, HUMBL CL agreed to purchase 1,000,000. The payment for these shares was due on or before March 30, 2021 but as a result of restrictions imposed due to COVID-19 was paid in two tranches of $500,000 each on April 5, 2021 and April 6, 2021. In addition, HUMBL CL also received the right to purchase shares of HUMBL common stock for $6,500,000 by December 31, 2021 and to receive a 35% equity interest in a Chilean subsidiary HUMBL intends to form to conduct its operations in Chile. shares of our common stock for $
The Securities Purchase Agreement provides that if HUMBL CL exercises its right to purchase the subsidiary interest, it will receive 35% of the profits from operations of the HUMBL family of products in Chile. In addition, HUMBL CL also received a right of first refusal with respect to regional or country rights sales in Latin America.
On January 3, 2022, the Company entered into a Settlement Agreement with HUMBL CL whereby HUMBL issued HUMBL CL shares of common stock and HUMBL CL agreed to waive its right to purchase the Latin America territory rights.
The Company is still working with Aurea Group on Latin American business development opportunities for their products in key verticals such as: banking, merchant and financial services, real estate, hospitality, tourism, sports, festivals, entertainment and ticketing services in the region.
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SEGMENT REPORTING |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT REPORTING | NOTE 19: SEGMENT REPORTING
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.
Less than 3-4% of the Company’s sales are from outside of North America, therefore the Company has determined that segment reporting by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report segment information by location.
The following represents segment reporting for continuing operations only:
The HUMBL Financial sector as well as the operations of Tickeri are reflected in discontinued operations on the consolidated statement of operations for the three months ended March 31, 2023 and 2022.
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LEGAL PROCEEDINGS |
3 Months Ended |
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Mar. 31, 2023 | |
Commitments and Contingencies Disclosure [Abstract] | |
LEGAL PROCEEDINGS | NOTE 20: LEGAL PROCEEDINGS
We have been sued in the United States District Court for the Southern District of California in a case styled Matt Pasquinelli and Bryan Paysen v. HUMBL, LLC, Brian Foote, Jeffrey Hinshaw and George Sharp, Case No.22CV0723 AJB BLM, which is a putative shareholder derivative class action since November 21, 2020 for alleged violations of the federal securities laws by allegedly making false and misleading statements regarding our business and operations, more specifically that the HUMBL Pay App did not have the functionality that it promised to investors and that several international business partnerships had a low chance of contributing material revenues to our bottom line and that we sold unregistered securities through our BLOCK Exchange Traded Index products, all of which plaintiffs allege caused a decline in the market value of our shares of common stock. Plaintiffs seek unspecified monetary damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
We also have been sued in the Delaware Chancery Court in a case styled Mike Armstrong, derivatively on behalf of HUMBL, Inc. v. Brian Foote, Jeffrey Hinshaw, George Sharp, Michele Rivera, and William B. Hoagland (Case No. 2022-0620) in a class action on behalf of shareholders of the Company since November 21, 2020 repeating the same claims as in the Pasquinelli litigation described above and also seeking unspecified damages. We intend to vigorously defend the actions of the defendants and contest what we believe are baseless claims.
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COMMITMENT |
3 Months Ended |
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Mar. 31, 2023 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENT | NOTE 21: COMMITMENT
On December 12, 2022, the Company entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with GHS Investments, LLC (“GHS”). Pursuant to the EFA, the Company has the right, subject to certain conditions, to sell up to $in shares of its common stock to GHS. Pursuant to the Rights Agreement, the Company agreed to file a registration statement to register the common stock issuable under the EFA. Following the registration of the securities under the EFA, the Company has the right to cause GHS to purchase its common stock at 80% of the average of the three lowest closing trade prices in the previous 10 trading days by submitting a put notice to GHS. The Company may choose the dollar amount of each put notice; provided, however, the maximum dollar amount of any put cannot exceed 200% of the Company’s average daily trading volume in the previous 10 trading days. In addition, the amount of the put notice must not be less than $10,000 or greater than $500,000. The Company may only deliver one put notice to GHS in any given 10 trading day period. Following an uplist to Nasdaq or an equivalent national exchange, the conversion rate would increase from 80% to 90%. The amount of the Company’s shares owned by GHS cannot exceed 4.99% of the issue and outstanding shares of the Company’s common stock following the purchase by GHS of the Company’s shares under a put notice. The Company subsequently terminated the GHS EFA and Rights Agreement and entered into a new Equity Financing Agreement and Registration Rights Agreement described in Note 22 below.
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SUBSEQUENT EVENTS |
3 Months Ended |
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Mar. 31, 2023 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 22: SUBSEQUENT EVENTS
Between April 1, 2023 and May 12, 2023, the Company issued shares of common stock in conversion of shares of Series B Preferred Stock.
On April 21, 2023, the Company sold shares of common stock for $ .
On April 4, 2023, the Company received the second tranche of this note of $55,000, with a $5,000 original issue discount. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days. In addition, the Company was required to reserve with the transfer agent, the amount of common shares equal to three times the number of common shares needed to convert any of the outstanding amounts received.
On April 11, 2023, the Company exchanged 76,666,666 shares of common stock for no consideration. The Company recognized a loss on the exchange equal to the value of the common shares of $287,500 ($ per share) which resulted in a loss of $172,500. warrants for
On April 10, 2023, the Company entered into a Promissory Note in the amount of $59,675, with a term of twelve months due April 10, 2024, and an original issue discount of $5,425. From the $54,250 in proceeds received, $4,250 was deducted to pay for legal and due diligence fees. The Company received net proceeds of $50,000. Following an event of default, the note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. A one-time interest charge of $7,757 was added upon the issuance of the note. Beginning on May 30, 2023 and for the next nine months thereafter, the Company is required to make monthly amortization payments of $6,743.20. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
In April 2023, a noteholder sold their remaining note to non-related third parties, and the balance of $ was converted into shares of common stock.
On April 21, 2023, the Company issued shares of common stock for vested RSUs to BizSecure.
On April 28, 2023, $300,000 of a related party note was exchanged for shares of common stock.
On April 28, 2023, we issued a convertible promissory note in the amount of $60,000, including a $ original issue discount and a $5,000 interest charge. The Company received net proceeds of $50,000. The note is convertible at the lender’s option at $ per share. After six months, the lender has the right to cause the Company to redeem the note. After receiving a redemption notice from the lender, the Company has the right to pay the redemption amount in cash or common stock. If we elect to pay in common stock, the conversion price will be 70% of lowest closing trade price of the common stock in the previous 20 trading days. The note may be prepaid at any time subject to a 15% premium.
On May 10, 2023, the Company issued a convertible promissory note in the amount of up to $800,000 to Pacific Lion LLC (“Pacific Lion”). The amount of the initial tranche funded under the note was $ . The lender has the right at its option to fu $ under the note. The note bears interest at 6% per annum and is due on May 10, 2024. Upon completion of an uplisting to a senior stock exchange, the note will automatically convert into common stock at 80% of the uplisting offering price. In the event an uplisting does not occur by the maturity date or upon an event of default, the note will become convertible at 80% of the average of the closing trade prices during the five trading days preceding the date of conversion. The principal amount of the note may be prepaid at any time without penalty. The foregoing description of the note does not purport to be complete and is qualified in its entirety by reference to the note which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q. In addition to the note, the Company also issued a Warrant to Purchase Shares of Common Stock to Pacific Lion on May 10, 2023. The warrant is exercisable for 500,000 shares for a period of five years at $0.10 per share. In the event that an uplisting to a senior stock exchange does not occur within nine months of the issuance date, the warrant will automatically be cancelled. The foregoing description of the warrant does not purport to be complete and is qualified in its entirety by reference to the warrant which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q.
On May 10, 2023, we entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with Pacific Lion. Pursuant to the EFA, the Company has the right, subject to certain conditions, to sell up to $20,000,000 in shares of its common stock to Pacific Lion. Pursuant to the Rights Agreement, HUMBL agreed to file a registration statement to register the common stock issuable under the EFA. Following the registration of the securities under the EFA, HUMBL has the right to cause Pacific Lion to purchase its common stock at 85% of the lowest closing trade price in the previous 10 trading days by submitting a put notice to Pacific Lion. HUMBL may choose the dollar amount of each put notice; provided, however, the maximum dollar amount of any put cannot exceed 150% of HUMBL’s average daily trading volume in the previous 10 trading days. In addition, the amount of the put notice must not be less than $10,000 or greater than $200,000, unless otherwise agreed to by the parties. HUMBL may only deliver one put notice to Pacific Lion in any given 10 trading day period. Following an uplist to Nasdaq, NYSE or an equivalent national exchange, the conversion rate would increase from 85% to 90%. The amount of HUMBL shares owned by Pacific Lion cannot exceed 4.99% of the issue and outstanding shares of HUMBL common stock following the purchase by Pacific Lion of HUMBL shares under a put notice. The foregoing description of the EFA and Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the EFA which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and the Rights Agreement which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended |
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Mar. 31, 2023 | |
Accounting Policies [Abstract] | |
Basis of Presentation | 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.
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Principles of Consolidation | Principles of Consolidation
The consolidated financial statements include the accounts of HUMBL, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. HUMBL, Inc. holds 100% of Monster, Ixaya and BM Authentics. The Company formed additional subsidiaries that are inactive and have no activity for future use. All operations of Tickeri are reflected in discontinued operations as this entity was sold back to the original owners on January 31, 2023.
The Company applies the guidance of Topic 805 Business Combinations of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
For Monster, BizSecure, Ixaya and BM Authentics, the Company accounted for these acquisitions as business combinations and the difference between the consideration paid and the net assets was applied to goodwill as there were no identifiable intangible assets acquired.
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Reclassification | Reclassification
The Company has reclassified certain amounts in the 2022 financial statements to comply with the 2023 presentation. These principally relate to classification of certain expenses and liabilities. The reclassifications had no impact on total net loss or net cash flows for the three months ended March 31, 2022.
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Use of Estimates | 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.
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Cash | Cash
Cash consists of cash and demand deposits with an original maturity of three months or less. The Company holds no cash equivalents as of March 31, 2023 and December 31, 2022, respectively. The Company maintains cash balances in excess of the FDIC insured limit at a single bank.
In 2022, the Company established a service to their HUMBL Pay app users. The service enables HUMBL Pay app users the ability through a Company maintained digital asset wallet with Wyre (“Wyre”) to purchase digital assets (cryptocurrency). As it can take 5 to 8 business days to physically settle funds in the Wyre wallet, there may be delays in digital assets being received by customers and the delivery of BLOCKS in a BitGo wallet (“BitGo”). BitGo is a third-party custodian service that provides the custody for the customers’ BLOCKS.
The BitGo account is not the Company’s account; however it represents the pool of all BLOCKS held by and allocated to HUMBL Pay users accounts. The users may choose to transfer the purchased BLOCKS to their individual wallets outside of HUMBL.
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Safeguarding Obligation | Safeguarding Obligation
Assets related to user cryptocurrencies safeguarding obligation and the user cryptocurrencies safeguarding obligation represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes the users cryptocurrencies liabilities and corresponding assets related to the users cryptocurrencies, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or misuse would impact the measurement of users crypto assets.
The majority of the cryptocurrency obligation is comprised of Bitcoin, Ethereum and BLOCKS.
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Fixed Assets and Long-Lived Assets | 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.
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Revenue Recognition | Revenue Recognition
The Company accounts for a contract with a customer that is within the scope of this Topic only when the five steps of revenue recognition under ASC 606 are met.
The five core principles will be evaluated for each service provided by the Company and is further supported by applicable guidance in ASC 606 to support the Company’s recognition of revenue.
The Company accounts for revenues based on the verticals in which they were earned. The three principal verticals in which the Company operates today are HUMBL Mobile Wallet, HUMBL Marketplace, and HUMBL Blockchain Services.
HUMBL Mobile Wallet (formerly HUMBL Pay)
The Company is anticipated to earn transaction revenues primarily from fees charged to consumers and merchants on a transaction basis through the Company’s mobile application. These fees may have a fixed and/or variable component. The variable component is generally a percentage of the value of the payment amount and is known at the time the transaction is processed. For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. The Company may estimate the amount of fee refunds that will be processed each quarter and record a provision against the net revenues. The volume of activity processed on the platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).
The Company will earn additional fees on transactions where currency conversion is performed via on ramping and off ramping via digital currencies, when swaps are performed on digital currencies, and when cross-border transactions are enabled (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for customers from their HUMBL account to their debit card or bank account, and other miscellaneous fees. The Company will rely on third party partners to perform all money transmission services.
The Company may earn revenues from other value-added services, which are comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, ticketing, peer-to-peer payments, and other services that will be provided to merchants and consumers. These contracts typically have one performance obligation which is provided and recognized over the term of the contract.
The transaction price is generally fixed and known at the end of each reporting period; however, for some agreements, it may be necessary to estimate the transaction price using the expected value method. The Company is expected to record revenue earned in revenues from other value-added services on a net basis when they are considered the agent with respect to processing transactions.
HUMBL Search Engine
Revenues are derived principally from the sale of advertisements, classifieds fees, and revenue sharing arrangements. Advertising revenue is derived principally from the sale of online advertisements which are based on “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our platforms) or “clicks” (which are generated each time users on our platforms click through our advertisements to an advertiser’s designated website) delivered to advertisers.
The Company uses the output method and apply the practical expedient to recognize advertising revenue in the amount to which they have a right to invoice. For contracts with target advertising commitments with rebates, estimated payout is accounted for as a variable consideration to the extent it is probable that a significant reversal of revenue will not occur.
HUMBL Tickets
The Company recognizes revenues from HUMBL Tickets primarily from service fees. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we receive in exchange for those goods or services. For service fees and payment processing fees, revenue is recognized when the ticket is sold.
We evaluate whether it is appropriate to recognize revenue on a gross or net basis based upon our evaluation of whether we obtain control of the specified goods or services by considering if we are primarily responsible for fulfillment of the promise, have inventory risk, and have the latitude in establishing pricing and selecting suppliers, among other factors.
For the payment processing service, we determined that we are the principal in providing the service as we responsible for fulfilling the promise to process the payment and we have discretion and latitude in establishing the price of our service. Based on our assessment, we record revenue on a net basis related to our ticketing service and on a gross basis related to our payment processing service. As a result, costs incurred for processing the transactions are included in cost of net revenues in the consolidated statements of operations.
Revenue is presented net of indirect taxes, value-added taxes, creator royalties and reserves for customer refunds, payment chargebacks and estimated uncollectible amounts. If an event is cancelled by a creator, then any obligations to provide refunds to event attendees are the responsibility of that creator.
If a creator is unwilling or unable to fulfill their refund obligations, we may, at our discretion, provide attendee refunds. Revenue is also presented net of the amortization of creator signing fees when applicable. The benefit we receive by securing exclusive ticketing and payment processing rights with certain creators from creator signing fees is inseparable from the customer relationship with the creator and accordingly these fees are recorded as a reduction of revenue in the consolidated statements of operations.
HUMBL Marketplace
The Company recognizes revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which is expected to be entitled in exchange for those goods or services. Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities.
Net transaction revenues
The net transaction revenues will primarily include final value fees, feature fees, including fees to promote listings, and listing fees from sellers in our Marketplace. The net transaction revenues will also include store subscription and other fees often from large enterprise sellers. The net transaction revenues are reduced by incentives provided to customers.
The Company has identified one performance obligation to sellers on the Marketplace platform, which is to connect buyers and sellers on the secure and trusted Marketplace platforms. Final value fees are recognized when an item is sold on a Marketplace platform, satisfying this performance obligation. There may be additional services available to Marketplace sellers, mainly to promote or feature listings, that are not distinct within the context of the contract.
Accordingly, fees for these additional services are recognized when the single performance obligation is satisfied. Promoted listing fees are recognized when the item is sold and feature and listing fees are recognized when an item is sold, or when the contract expires.
Further, to drive traffic to the platform, the Company will provide incentives to buyers and sellers in various forms including discounts on fees, discounts on items sold, coupons and rewards. Evaluating whether a promotion or incentive is a payment to a customer may require significant judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when the incentive is paid or promise to be paid. Promotions and incentives to most buyers on our Marketplace platforms, to whom there is no performance obligation, are recognized as sales and marketing expense. In addition, there may be credits provided to customers when certain fees are refunded. Credits are accounted for as variable consideration at contract inception when estimating the amount of revenue to be recognized when a performance obligation is satisfied to the extent that it is probable that a significant reversal of revenue will not occur and updated as additional information becomes available.
HUMBL Blockchain Services
The Company disaggregates revenue from contracts with customers into product revenues and services revenues.
Product revenue related contracts with customers begin upon contract inception when a purchase order for a specific customer order of a product to be delivered in the near term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.
Service revenues primarily consist of revenues derived from maintenance support and the use of the Company’s service platforms and application programming interface (“APIs”) on a subscription basis. The Company generates this revenue from fees for maintenance and support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.
The Company accounts for individual goods and services separately if they are distinct performance obligations, which often requires significant judgment based upon knowledge of the products and/or services, the solution provided and the structure of the sales contract. In SaaS agreements, the Company provides a service to the customer that combines the software functionality, maintenance and hosting into a single performance obligation. In product-related contracts, a purchase order may cover different products, each constituting a separate performance obligation.
HUMBL Financial
In February 2022, the Company elected to suspend offering the BLOCK ETX products pending further legal analysis regarding how to offer the BLOCK ETXs in a fully compliant manner with the evolving laws and regulatory treatment of such novel products. The Company will continue to monitor the regulatory environment with respect to these products. In accordance with ASC 205-20-50-1(a), the timing of the disposal was February 28, 2022.
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Accounts Receivable and Concentration of Credit Risk | Accounts Receivable and Concentration of Credit Risk
An allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. The Company does not charge interest on accounts receivable. As of March 31, 2023 and December 31, 2022, there was no allowance necessary.
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Inventory | Inventory
Inventory is valued at the lower of cost or net realizable value, with cost determined using the first-in first-out method. The carrying value of inventory is evaluated periodically for excess quantities and obsolescence. Management evaluates quantities on hand and physical condition as these characteristics may be impacted by anticipated customer demand for current products. The allowance is adjusted based on such evaluation, with a corresponding provision included in cost of sales.
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Income Taxes | Income Taxes
Income taxes are accounted under the asset and liability method. The current charge for income tax expense is calculated in accordance with the relevant tax regulations applicable to the entities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences.
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Uncertain Tax Positions | Uncertain Tax Positions
The Company follows ASC 740-10 Accounting for Uncertainty in Income Taxes. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed.
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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.
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Fair Value of Financial Instruments | 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.
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Leases | 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.
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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.
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Currency Translation | Currency Translation
Ixaya’s functional currency is the Mexican Peso and its reporting currency is the United States dollar. Transactions denominated in the functional currency are converted into United States dollars using the exchange rate in effect at the date of the transaction or the average rate for the period in the case of revenue and expense transactions. Monetary assets and liabilities are re-valued into the reporting currency at each balance sheet date using the exchange rate in effect at the balance sheet date, with any resulting exchange gains or losses being credited or charged to accumulated other comprehensive income (loss). Non-monetary assets and liabilities are recorded in the reporting currency using the exchange rate in effect at the date of the transaction and are not revalued for subsequent changes in exchange rates.
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Derivative Financial Instruments | Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including convertible notes and warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities, is remeasured at the end of each reporting period.
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Digital Assets | Digital Assets
Digital assets, including non-fungible tokens and cryptocurrencies, are included in the consolidated balance sheets. We have ownership of and control over our digital assets and may use third party custodial services to secure them. Digital assets are initially recorded at cost and are subsequently remeasured at cost, net of any impairment losses on our consolidated balance sheets. We assign costs to digital asset transactions on a first-in, first-out basis. Gains or losses are not recorded until realized upon sale(s).
We determine the fair value of our digital assets on a nonrecurring basis, based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). We perform a quarterly, or more frequent review to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges on any day during the quarter, indicate that it is more likely than not that our digital assets are impaired.
The cost basis of digital assets will not be adjusted upward for subsequent increases in fair value. Such impairment in the value of digital assets is recorded as a component of other operating expenses in our consolidated statements of operations. We recorded an impairment loss of approximately $1,995 and $45,318 related to digital assets during the three months ended March 31, 2023 and 2022, respectively.
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Fair Value Measurements | 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.
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Segment Reporting | Segment Reporting
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions.
Commencing January 1, 2022, the Company simplified their business model to segment their business into two distinct divisions: Consumer and Commercial.
All of the Company’s sales are from North America, therefore the Company has determined that segment reporting by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report segment information by location.
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Recent Accounting Pronouncements | Recent Accounting Pronouncements
The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe that this new guidance will have a material impact on its financial statements.
On March 31, 2022, the SEC added Staff Accounting Bulletin (“SAB”) No. 121 (“SAB 121”) into Section FF to Topic 5. The interpretations in this SAB express views of the staff regarding the accounting for entities that have obligations to safeguard crypto-assets held for their platform users. In connection with these services, these entities and/or their agents may safeguard the platform users’ crypto-assets and also maintain the cryptographic key information necessary to access the crypto-asset. The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets, including technological, legal, and regulatory risks and uncertainties.
These risks can have a significant impact on the entity’s operations and financial condition. The staff believes that the recognition, measurement, and disclosure guidance in this SAB will enhance the information received by investors and other uses of financial statements about these risks, thereby assisting them in making investment and other capital allocation decisions.
This guidance should be applied no later than the financial statements covering the first interim or annual report ending after June 15, 2022, with retroactive application as of the beginning of the fiscal year to which the interim or annual period relates. Upon adoption of this guidance, the Company has reflected the asset and liability related to the user cryptocurrencies safeguarded on the Company’s platform. We do not have any ownership or custody of the digital assets maintained on our platform. We engage the services of Wyre and BitGo to act as the custodians of the digital assets held on our platform.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
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DISCONTINUED OPERATIONS (Tables) |
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SCHEDULE OF GAIN ON DISPOSAL | The Company reflected the following gain on disposal for the three months ended March 31, 2023 related to the sale of Tickeri:
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Tickeri, Inc. [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF DISCONTINUED OPERATIONS | Current assets as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
Current liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
Non-current liabilities as of March 31, 2023 and December 31, 2022 – Discontinued Operations:
The Company reclassified the following operations to discontinued operations for the three months ended March 31, 2023 and 2022, respectively.
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SCHEDULE OF DISCONTINUED OPERATIONS |
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BUSINESS COMBINATIONS (Tables) |
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Business Acquisition [Line Items] | |||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF PRO FORMA INFORMATION |
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BizSecure, Inc. [Member] | |||||||||||||||||||||||||||||||||||||||||
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SCHEDULE OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED |
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SCHEDULE OF CONSIDERATION PAID FOR ACQUISITION | The consideration paid for the acquisition of assets of BizSecure was as follows:
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Ixaya Inc [Member] | |||||||||||||||||||||||||||||||||||||||||
Business Acquisition [Line Items] | |||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED | 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:
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SCHEDULE OF CONSIDERATION PAID FOR ACQUISITION | The consideration paid for the acquisition of Ixaya was as follows:
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BM Authentics [Member] | |||||||||||||||||||||||||||||||||||||||||
Business Acquisition [Line Items] | |||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED | On November 2, 2022, the Company acquired the assets and liabilities of BM Authentics noted below in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:
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SCHEDULE OF CONSIDERATION PAID FOR ACQUISITION | The consideration paid for the acquisition of BM Authentics was as follows:
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REVENUE (Tables) |
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SCHEDULE OF DISAGGREGATION OF REVENUE | The following table disaggregates the Company’s revenue by major source for the three months ended March 31, 2023 and 2022:
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FIXED ASSETS (Tables) |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF FIXED ASSETS | As of March 31, 2023 and December 31, 2022, the Company has the following fixed assets:
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INTANGIBLE ASSETS AND GOODWILL (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS | As of March 31, 2023 and December 31, 2022, the Company has the following intangible assets:
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SCHEDULE OF AMORTIZATION EXPENSE | Amortization expense for the next five years and in the aggregate is as follows:
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SCHEDULE OF GOODWILL FROM CONTINUING OPERATIONS | As of March 31, 2023 and December 31, 2022, the Company has recorded goodwill as follows for our continuing operations:
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INTANGIBLE ASSETS – DIGITAL ASSETS (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF DIGITAL ASSET HOLDINGS | The following table presents additional information about the Company’s digital asset holdings during the three months ended March 31, 2023:
Digital Assets Owned By HUMBL:
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NOTES PAYABLE (Tables) |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF NOTES PAYABLE | The Company entered into notes payable as follows as of March 31, 2023 and December 31, 2022. The chart below does not include notes payable that were repaid or converted during 2022, or notes payable that were reclassified to liabilities of discontinued operations or disposed of. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
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NOTES PAYABLE – RELATED PARTIES (Tables) |
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Debt Instrument [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF NOTES PAYABLE RELATED PARTIES |
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SCHEDULE OF MATURITIES NOTES PAYABLE - RELATED PARTIES | Maturities of notes payable – related parties as of March 31 is as follows:
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CONVERTIBLE PROMISSORY NOTES (Tables) |
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SCHEDULE OF CONVERTIBLE PROMISSORY NOTES |
On April 14, 2021 we received bridge financing in the form of a loan in the principal amount of $3,300,000 from Brighton Capital Partners, LLC (“Brighton Capital” or “BCP”) for which we issued them a convertible promissory note due originally on July 14, 2022. The note has since been extended to June 30, 2023 for no consideration and thus it was deemed to not be a material modification to the debt instrument.
BCP has been converting this note and accrued interest since August 16, 2022. In addition, they sold a portion of the note ($300,000) to a third-party, which has also been converted. As of March 31, 2023, there remains a total of $ in principal and interest. The Company issued 326,000,000 shares of common stock, which includes 86,000,000 issued to a third party that purchased $300,000 of this note in the three months ended March 31, 2023 in conversions of the BCP note. The Company recognized a loss on conversions of BCP (and third parties that purchased portions of this note) in the amount of $1,518,300.
On May 17, 2021, the Company issued a convertible promissory note to an investor for $1,020,000 with an original issue discount of $20,000, for a term of months maturing March 17, 2023. The Company recognized a $20,000 original issue discount at inception of this convertible note. This note has not been repaid or converted, and is currently past due as the maturity date has passed. This is reflected in our current portion of convertible notes payable as of March 31, 2023.
On December 8, 2022, the Company entered into an 8% convertible redeemable note in the amount of $222,000 with an original issue discount of $14,500, for a term of nine months due September 8, 2023. From the $207,500 in proceeds received, $7,500 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $200,000. The note is convertible into shares of common stock at $ per share. Should the Company be in default of this note, the conversion price would be equal to the lower of (a) $ or (b) 70% of the lowest trading price for the fifteen prior trading days including the day upon which a conversion notice is received by the Company. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
On January 25, 2023, the Company entered into an 8% convertible redeemable note in the amount of $138,750 with an original issue discount of $9,000, for a term of nine months due October 25, 2023. From the $129,750 in proceeds received, $4,750 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $125,000. The note is convertible into shares of common stock at $ per share, as long as the note is not in default. Should the Company be in default of this note, the conversion price would be equal to the lower of (a) $ or (b) 70% of the lowest trading price for the fifteen prior trading days including the day upon which a conversion notice is received by the Company. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
On February 8, 2023, the Company entered into a 9% convertible promissory note in the amount of $77,500 with an original issue discount of $9,000, for a term of twelve months due February 8, 2024. From the $77,500 in proceeds received, $2,500 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $75,000. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.
On February 23, 2023, the Company entered into a convertible promissory note in the amount up to $1,100,000. On February 23, 2023, the Company received the first tranche of this note in the amount of $110,000, including $10,000 in original issue discount for net proceeds of $100,000. On April 4, 2023, the Company received the second tranche of this note of $55,000, with a $5,000 original issue discount. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days. In addition, the Company was required to reserve with the transfer agent, the amount of common shares equal to three times the number of common shares needed to convert any of the outstanding amounts received. At March 31, 2023, the reserve equals shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.
On March 1, 2023, a noteholder sold $553,500. of their outstanding related party note to a third party. Of the amount sold, $ was converted into shares of common stock. This conversion resulted in a gain of $
On March 6, 2023, the Company entered into a 9% convertible promissory note in the amount of $59,250, for a term of twelve months due March 6, 2024. From the $59,250 in proceeds received, $4,250 was deducted to pay for legal fees of the issuer. The Company received net proceeds of $55,000. The note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note. This note was reclassified to Derivative Liabilities, See Note 15, as the conversion option qualified as a derivative instrument under ASC 815.
On March 31, 2023, the Company entered into a Convertible Promissory Note in the amount of $150,000 with an original issue discount of $12,500 and a $12,500 interest charge assessed at closing, and a term of twelve months due March 31, 2024. The Company received net proceeds of $125,000. The note is convertible into shares of common stock at $0.008 per share. Beginning on September 31, 2022, the investor has the right to cause note in cash or common stock. If the Company pays in common stock, it may do so at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
On April 10, 2023, the Company entered into a Promissory Note in the amount of $59,675, with a term of twelve months due April 10, 2024, and an original issue discount of $5,425. From the $54,250 in proceeds received, $4,250 was deducted to pay for legal and due diligence fees. The Company received net proceeds of $50,000. Following an event of default, the note is convertible into shares of common stock at 70% of the lowest trading price for the twenty prior trading days ending on the latest complete Trading Day prior to the Conversion Date. A one-time interest charge of $7,757 was added upon the issuance of the note. Beginning on May 30, 2023 and for the next nine months thereafter, the Company is required to make monthly amortization payments of $6,743.20. In addition, the Company was required to reserve with the transfer agent, shares of common stock for this note.
In order to have sufficient common shares to convert the debt and enable the transfer agent to have the reserves necessary, the Company’s CEO has committed to not to convert of his Series B Preferred shares until after the Company increases their authorized common shares in amount sufficient to provide for sufficient reserves the outstanding obligations.
All of the convertible promissory notes as of March 31, 2023 and December 31, 2022 are due in the next fiscal year, and therefore all current.
The Company evaluated the terms of the convertible notes and determined that there were derivative liabilities to be recorded at inception of the notes as there were sufficient shares to net share settle the notes at the discounted values.
Interest expense for the three months ended March 31, 2023 and 2022 was $87,515 and $159,654, respectively. Amortization of debt discount, and original issue discount was $12,408 and $340,370 for the three months ended March 31, 2023 and 2022, respectively. Accrued interest at March 31, 2023 was $377,157.
On March 31, 2022, the Company entered into exchange agreements with most of their convertible note holders to exchange $2,979,000 of notes payable and $197,804 of accrued interest on those notes into shares of common stock. The exchange agreements resulted in a $1,250,527 adjustment for the unvested debt discount at the time of the convertible note exchanges to common stock. This amount is reflected in the amortization of debt discounts in other income (expense) in the consolidated statement of operations for the three months ended March 31, 2022. The then unamortized debt discount of $1,250,527 represented the loss on these exchange transactions.
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CONVERTIBLE PROMISSORY NOTES – RELATED PARTIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Notes Related Parties [Member] | ||||||||||||||||||||||||||||||||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF CONVERTIBLE PROMISSORY NOTES RELATED PARTIES | The Company entered into convertible notes payable – related parties as follows as of March 31, 2023 and December 31, 2022. The chart below does not include convertible notes payable – related parties that were repaid or converted during 2022. Refer to the Form 10-K for the year ended December 31, 2022 filed April 6, 2023 for a full description of those notes:
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DERIVATIVE LIABILITIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF FAIR VALUE ASSUMPTIONS OF WARRANTS |
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SCHEDULE OF DERIVATIVE LIABILITY | The Company’s derivative liabilities as of March 31, 2023 and inception associated with the offerings are as follows.
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ACTIVITY RELATED TO DERIVATIVE LIABILITIES | Activity related to the derivative liabilities for the three months ended March 31, 2023 is as follows:
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STOCKHOLDERS’ EQUITY (DEFICIT) (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF WARRANTS ACTIVITIES | The following represents a summary of the warrants:
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SUMMARY OF STOCK OPTION |
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SUMMARY OF FAIR VALUE VALUATION TECHNIQUES |
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SCHEDULE OF RESTRICTED STOCK |
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SEGMENT REPORTING (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF SEGMENT REPORTING | The following represents segment reporting for continuing operations only:
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
Cash equivalents | $ 0 | $ 0 | |
Allowance for accounts receivable | 0 | $ 0 | |
Impairment loss related to digital assets | $ 1,995 | $ 45,318 | |
Tickeri, Inc. [Member] | |||
Ownership percentage | 100.00% |
SCHEDULE OF DISCONTINUED OPERATIONS (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
Restructuring Cost and Reserve [Line Items] | |||
Revenue | |||
Cost of revenue | |||
Gross (loss) | |||
Operating and non-operating expenses | 7,945 | ||
Net (loss) income from discontinued operations | (7,945) | ||
Cash | 163,879 | ||
Accounts receivable | 39,457 | ||
Total current assets | $ 194,472 | ||
Accounts payable and accrued expenses | 189,358 | ||
Total Current liabilities | 99,342 | ||
Total Non-current liabilities | 150,000 | ||
Tickeri, Inc. [Member] | |||
Restructuring Cost and Reserve [Line Items] | |||
Revenue | 59,180 | 290,143 | |
Net (loss) income from discontinued operations | (81,152) | 62,431 | |
Cash | 154,159 | ||
Accounts receivable | 40,313 | ||
Total current assets | 194,472 | ||
Accounts payable and accrued expenses | 99,342 | ||
Total Current liabilities | 42,568 | ||
Long-term debt | 150,000 | ||
Total Non-current liabilities | $ 150,000 | ||
Operating expenses | 137,934 | 226,180 | |
Other non-operating expenses | $ 2,398 | $ 1,532 |
SCHEDULE OF GAIN ON DISPOSAL (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |
---|---|---|---|
Jan. 31, 2023 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
Discontinued Operations and Disposal Groups [Abstract] | |||
Common shares issued | $ (47,816) | ||
Forgiveness of related party notes | 10,000,000 | ||
Forgiveness of accrued expenses | 1,489,041 | ||
Cash | (163,879) | ||
Accounts receivable | (39,457) | ||
Accounts payable and accrued expenses | 189,358 | ||
Other (income) loss | 150,000 | ||
Net gain on disposal | $ 11,577,247 | $ 11,577,247 |
DISCONTINUED OPERATIONS (Details Narrative) - USD ($) |
3 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
Jan. 31, 2023 |
Dec. 31, 2022 |
Dec. 30, 2022 |
Sep. 16, 2022 |
Jan. 03, 2022 |
Dec. 31, 2022 |
Mar. 31, 2022 |
Jun. 30, 2022 |
|
Restructuring Cost and Reserve [Line Items] | ||||||||
Non-current asset held for sale | $ 328,222 | |||||||
Sale on property | $ 270,905 | |||||||
Recognized loss on disposal | $ 57,318 | |||||||
Number of common stock shares issued | 13,200,000 | 76,666,666 | 37,374,170 | |||||
Forgiveness of promissory note | $ 10,000,000 | |||||||
Accrued interest | $ 789,041 | |||||||
Accrued liabilities | 700,000 | |||||||
Settlement Agreement [Member] | ||||||||
Restructuring Cost and Reserve [Line Items] | ||||||||
Number of common stock shares issued | 4,000,000 | |||||||
Tickeri, Inc. [Member] | Juan Gonzalez [Member] | Settlement Agreement [Member] | ||||||||
Restructuring Cost and Reserve [Line Items] | ||||||||
Payments for acquisition | $ 5,000,000 | |||||||
Maturity date | Dec. 03, 2022 | |||||||
Number of common stock shares issued | 4,672,897 |
SCHEDULE OF CONSIDERATION PAID FOR ACQUISITION (Details) - USD ($) |
Nov. 02, 2022 |
Mar. 03, 2022 |
Feb. 12, 2022 |
---|---|---|---|
BizSecure, Inc. [Member] | |||
Business Acquisition [Line Items] | |||
Common stock | $ 2,229,480 | ||
Contingent consideration (RSUs) | 4,526,520 | ||
Total consideration | $ 6,756,000 | ||
Ixaya Inc [Member] | |||
Business Acquisition [Line Items] | |||
Common stock | $ 1,500,000 | ||
Cash | 150,000 | ||
Total consideration | $ 1,650,000 | ||
BM Authentics [Member] | |||
Business Acquisition [Line Items] | |||
Common stock | $ 900,000 | ||
Cash | 110,000 | ||
Total consideration | $ 1,010,000 |
SCHEDULE OF PRO FORMA INFORMATION (Details) |
3 Months Ended |
---|---|
Mar. 31, 2022
USD ($)
$ / shares
| |
Business Combination and Asset Acquisition [Abstract] | |
Revenues | $ 1,074,412 |
Net loss | $ (12,509,707) |
Net loss per share | $ / shares | $ (0.01) |
BUSINESS COMBINATIONS (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 |
Dec. 30, 2022 |
Feb. 12, 2022 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Mar. 31, 2022 |
Dec. 31, 2022 |
Mar. 03, 2022 |
Dec. 31, 2021 |
|
Business Acquisition [Line Items] | |||||||||
Number of common stock shares issued | 13,200,000 | 76,666,666 | 37,374,170 | ||||||
Impairment of goodwill | $ 3,981,000 | $ 1,008,642 | |||||||
Impairment of property | 2,256,618 | $ 2,256,618 | $ 2,256,618 | ||||||
Total impairment charges | 6,237,618 | ||||||||
Goodwill | 7,158,954 | $ 3,177,954 | |||||||
Stock issued during period shares acquisitions | 90,000,000 | ||||||||
BizSecure, Inc. [Member] | |||||||||
Business Acquisition [Line Items] | |||||||||
Number of common stock shares issued | 13,200,000 | 13,200,000 | |||||||
Number of restricted stock units | 10,050,000 | 26,800,000 | 16,750,000 | ||||||
Vesting period | 2 years | ||||||||
Remaining restricted stock units | 16,750,000 | ||||||||
Goodwill | $ 3,981,000 | ||||||||
Ixaya Inc [Member] | |||||||||
Business Acquisition [Line Items] | |||||||||
Goodwill | $ 1,008,642 | $ 1,008,642 |
SCHEDULE OF DISAGGREGATION OF REVENUE (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
Disaggregation of Revenue [Line Items] | ||
Total revenue | $ 402,824 | $ 856,990 |
Service Production [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | 132,139 | 826,901 |
Service Ixaya [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | 191,610 | 18,384 |
Merchandise [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | 75,359 | 1,373 |
Tickets [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | 3,497 | 5,199 |
NFTs [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | 1,063 | |
Rental Income [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | 2,842 | |
Other [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | $ 219 | $ 1,228 |
INVENTORY (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2022 |
Mar. 31, 2023 |
Nov. 02, 2022 |
|
Restructuring Cost and Reserve [Line Items] | ||||
Inventory, net | $ 1,038,816 | $ 1,012,042 | ||
Inventory write down | $ 155,736 | $ 155,736 | ||
BM Authentics [Member] | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Business acquisition, inventory | $ 1,010,000 |
SCHEDULE OF FIXED ASSETS (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
Mar. 31, 2022 |
---|---|---|---|
Property, Plant and Equipment [Line Items] | |||
Accumulated depreciation | $ (13,593) | $ (11,166) | |
Fixed assets, net | 22,058 | 24,485 | $ 359,106 |
Equipment [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Fixed asset, gross | 19,344 | 19,344 | |
Furniture and Fixtures [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Fixed asset, gross | $ 16,307 | $ 16,307 |
SCHEDULE OF FIXED ASSETS (Details) (Parenthetical) |
Mar. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Useful life | 5 years | 5 years |
Furniture and Fixtures [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Useful life | 5 years | 5 years |
FIXED ASSETS (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Jun. 30, 2022 |
|
Property, Plant and Equipment [Abstract] | |||
Non-current asset held for sale | $ 328,222 | ||
Depreciation expense | $ 2,427 | $ 5,851 |
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
Mar. 31, 2022 |
---|---|---|---|
Finite-Lived Intangible Assets [Line Items] | |||
Intellectual property - software – 5 year-life | $ 3,150,000 | $ 3,150,000 | |
Customer relationship – 5 year-life | 275,000 | 275,000 | |
Intangible assets, gross | 275,020 | 275,020 | |
Intangible assets, net | 766,297 | 803,380 | $ 2,799,564 |
Intellectual Property [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Accumulated amortization | (2,640,833) | (2,608,333) | |
Customer Relationships [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Accumulated amortization | (275,000) | (275,000) | |
Domain Names [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Accumulated amortization | $ (17,890) | $ (13,307) |
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS (Details) (Parenthetical) |
Mar. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Intellectual Property [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Intangible assets, useful life | 5 years | 5 years |
Customer Relationships [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Intangible assets, useful life | 5 years | 5 years |
Domain Names [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Intangible assets, useful life | 15 years | 15 years |
SCHEDULE OF AMORTIZATION EXPENSE (Details) |
Mar. 31, 2023
USD ($)
|
---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | |
2024 | $ 148,335 |
2025 | 148,335 |
2026 | 148,335 |
2027 | 137,502 |
2028 | 40,002 |
Thereafter | 143,788 |
Total | $ 766,297 |
SCHEDULE OF GOODWILL FROM CONTINUING OPERATIONS (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
Restructuring Cost and Reserve [Line Items] | |||
Balance – beginning of the period | $ 3,177,954 | ||
Impairment for the period | $ (3,981,000) | (1,008,642) | |
Balance - ending of the Period | 7,158,954 | ||
Monster Creative, LLC [Member] | |||
Restructuring Cost and Reserve [Line Items] | |||
Acquisition of Ixaya | |||
BizSecure [Member] | |||
Restructuring Cost and Reserve [Line Items] | |||
Acquisition of Ixaya | 3,981,000 | ||
Ixaya [Member] | |||
Restructuring Cost and Reserve [Line Items] | |||
Acquisition of Ixaya | $ 1,008,642 |
INTANGIBLE ASSETS AND GOODWILL (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | ||||
---|---|---|---|---|---|---|
Mar. 31, 2022 |
Feb. 28, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Impairment of property | $ 2,256,618 | |||||
Amortization | $ 37,083 | $ 91,716 | ||||
Goodwill | $ 7,158,954 | $ 7,158,954 | $ 3,177,954 | |||
BizSecure [Member] | ||||||
Intangible assets acquired | $ 2,775,000 | |||||
Ixaya [Member] | ||||||
Intangible assets acquired | $ 650,000 |
INTANGIBLE ASSETS – DIGITAL ASSETS (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
Finite-Lived Intangible Assets [Line Items] | ||||
Non-fungible token of intangible asset | $ 2,799,564 | $ 766,297 | $ 2,799,564 | $ 803,380 |
Impairment of intangible digital assets | (1,995) | |||
Gain on sale of digital assets | 24 | $ 29,551 | ||
Digital Currency [Member] | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Acquire intangible assets | $ 406,046 | 1,010,934 | ||
Impairment of intangible asset | 258,217 | |||
Digital currency expenses | 359 | 458,162 | ||
Commissions received | 1,814 | |||
Impairment of intangible digital assets | 1,995 | 1,348,567 | ||
Gain on sale of digital assets | 24 | 297,895 | ||
Finite live asset contribution | 500,000 | |||
Non-fungible Token [Member] | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Non-fungible token of intangible asset | 147,823 | 147,823 | ||
Media Content [Member] | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Non-fungible token of intangible asset | $ 152,102 | $ 154,432 |
SCHEDULE OF NOTES PAYABLE (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Short-Term Debt [Line Items] | ||
Less: Discounts | $ (4,528) | |
Less: Current portion | (488,676) | (440,000) |
Long-term debt | ||
Related Party [Member] | ||
Short-Term Debt [Line Items] | ||
Total | 9,640,559 | 19,389,511 |
Less: Current portion | (488,676) | (440,000) |
Long-term debt | 8,700,000 | 8,700,000 |
Notes Payable One [Member] | ||
Short-Term Debt [Line Items] | ||
Total | 53,204 | |
Notes Payable One [Member] | Related Party [Member] | ||
Short-Term Debt [Line Items] | ||
Total | 10,000,000 | |
Notes Payable Two [Member] | ||
Short-Term Debt [Line Items] | ||
Total | 440,000 | 440,000 |
Notes Payable Two [Member] | Related Party [Member] | ||
Short-Term Debt [Line Items] | ||
Total | 348,191 | 348,191 |
Note Payable [Member] | ||
Short-Term Debt [Line Items] | ||
Total | $ 493,204 | $ 440,000 |
SCHEDULE OF NOTES PAYABLE (Details) (Parenthetical) - shares |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
Notes Payable Two [Member] | ||
Debt Instrument [Line Items] | ||
Number of warrants | 115,000,000 | 115,000,000 |
Shares issued | 10,000,000 | 10,000,000 |
Note Payable One [Member] | ||
Debt Instrument [Line Items] | ||
Maturity date | Feb. 08, 2023 | |
Interest percentage | 12.00% |
NOTE PAYABLE - BANK (Details Narrative) |
3 Months Ended | ||||
---|---|---|---|---|---|
Mar. 03, 2022
USD ($)
|
Mar. 31, 2023
USD ($)
|
Mar. 31, 2022
USD ($)
|
Dec. 31, 2022
USD ($)
|
Mar. 03, 2022
MXN ($)
|
|
Short-Term Debt [Line Items] | |||||
Due payment | $ 7,110 | ||||
Due payment | $ 350 | $ 5,596 | |||
Note payable to bank | 5,978 | $ 4,380 | |||
Notes payables to bank noncurrent | 4,110 | 6,569 | |||
Notes Payable to Banks [Member] | |||||
Short-Term Debt [Line Items] | |||||
Amount outstanding | $ 10,088 | $ 10,949 |
NOTES PAYABLE (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
Debt Instrument [Line Items] | ||
Interest expense | $ 990 | $ 3,853 |
Notes Payable [Member] | ||
Debt Instrument [Line Items] | ||
Accrued interest | $ 0 |
SCHEDULE OF MATURITIES NOTES PAYABLE - RELATED PARTIES (Details) - Notes Payable Related Parties [Member] |
Mar. 31, 2023
USD ($)
|
---|---|
Debt Instrument [Line Items] | |
2024 | $ 940,559 |
2025 | 6,700,000 |
2026 | 2,000,000 |
Total | $ 9,640,559 |
NOTES PAYABLE – RELATED PARTIES (Details Narrative) - Notes Payable Related Parties [Member] - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Jan. 31, 2023 |
|
Debt Instrument [Line Items] | |||
Interest expense | $ 103,174 | $ 145,049 | |
Accrued interest | $ 333,979 | $ 789,041 | |
Notes Payable | $ 10,000,000 |
SCHEDULE OF CONVERTIBLE PROMISSORY NOTES RELATED PARTIES (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Debt Instrument [Line Items] | ||
Long term debt, gross | $ 3,450,000 | $ 7,500,000 |
Less: Current portion | (3,450,000) | (7,500,000) |
Long-term debt | ||
Convertible Promissory Note Related Parties One [Member] | ||
Debt Instrument [Line Items] | ||
Long term debt, gross | $ 3,450,000 | $ 7,500,000 |
SCHEDULE OF CONVERTIBLE PROMISSORY NOTES RELATED PARTIES (Details) (Paranthetical) - Convertible Promissory Note Related Parties One [Member] - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
Debt Instrument [Line Items] | ||
Debt instrument, interest rate | 5.00% | 5.00% |
Debt instrument, maturity date | Dec. 31, 2022 | Dec. 31, 2022 |
Debt instrument, conversion price | $ 1.20 | $ 1.20 |
Note One [Member] | ||
Debt Instrument [Line Items] | ||
Debt instrument, conversion amount | $ 6,525,000 | $ 6,525,000 |
Note Two [Member] | ||
Debt Instrument [Line Items] | ||
Debt instrument, conversion amount | $ 975,000 | $ 975,000 |
SCHEDULE OF DERIVATIVE LIABILITY (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
May 13, 2019 |
---|---|---|---|
Derivative Instruments, Gain (Loss) [Line Items] | |||
Derivative liabilities | $ 261,791 | ||
Conversion Option February Eight [Member] | |||
Derivative Instruments, Gain (Loss) [Line Items] | |||
Derivative liabilities | 75,246 | 122,025 | |
Conversion Option February Twenty Three [Member] | |||
Derivative Instruments, Gain (Loss) [Line Items] | |||
Derivative liabilities | 127,783 | 127,100 | |
Conversion Option March Six [Member] | |||
Derivative Instruments, Gain (Loss) [Line Items] | |||
Derivative liabilities | $ 58,762 | $ 47,919 |
ACTIVITY RELATED TO DERIVATIVE LIABILITIES (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||
Beginning balance as of December 31, 2022 | ||
Bifurcation of conversion option on convertible note payable | 297,044 | |
Bifurcation of conversion option on convertible note payable | (35,253) | |
Ending balance as of March 31, 2023 | $ 261,791 |
SCHEDULE OF WARRANTS ACTIVITIES (Details) - Warrant [Member] - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Warrants, Outstanding, Beginning Balance | 347,234,804 | 283,650,000 |
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ 0.26265 | $ 0.32627 |
Warrants, Granted | 151,176,470 | |
Weighted Average Exercise Price, Outstanding, Granted | $ 0.002486 | |
Warrants, Exercised | (10,000,000) | |
Weighted Average Exercise Price, Outstanding, Exercised | $ 0.20 | |
Warrants, Forfeited | (77,366,666) | |
Weighted Average Exercise Price, Outstanding, Forfeited | ||
Warrants, Expired | (12,500,000) | (225,000) |
Weighted Average Exercise Price, Outstanding, Expired | ||
Warrants, Outstanding, Ending Balance | 334,734,804 | 347,234,804 |
Weighted Average Exercise Price, Outstanding, Ending Balance | $ 0.23511 | $ 0.26265 |
Warrants, Intrinsic Value | ||
Warrants, Weighted Average Remaining Contractual Life | 1 year 4 months 17 days | 1 year 6 months 25 days |
SUMMARY OF STOCK OPTION (Details) - USD ($) |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
May 26, 2022 |
Mar. 31, 2023 |
Dec. 31, 2022 |
|
Equity [Abstract] | |||
Options, Outstanding, Beginning Balance | 4,005,000 | 630,000 | |
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ 0.1501 | $ 0.70 | |
Options, Granted | 8,660,000 | 8,660,000 | |
Weighted Average Exercise Price, Granted | $ 0.0983 | ||
Options, Exercised | |||
Weighted Average Exercise Price, Exercised | $ 0.0983 | ||
Options, Forfeited | (5,285,000) | ||
Weighted Average Exercise Price, Forfeited | |||
Options, Expired | |||
Weighted Average Exercise Price, Expired | |||
Options, Outstanding, Ending Balance | 4,005,000 | 4,005,000 | |
Weighted Average Exercise Price, Outstanding, Ending Balance | $ 0.1501 | $ 0.1501 | |
Options, Intrinsic Value | |||
Options, Weighted Average Remaining Contractual Life | 10 years | 9 years 1 month 17 days | 9 years 4 months 9 days |
SUMMARY OF FAIR VALUE VALUATION TECHNIQUES (Details) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
Equity [Abstract] | ||
Expected term | 10 years | |
Expected volatility | 120.00% | |
Expected dividend yield | ||
Risk-free interest rate | 2.74% |
SCHEDULE OF RESTRICTED STOCK (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
Number of Shares, Beginning Balance | 16,750,000 | |
Weighted Average Exercise Price, Outstanding, Beginning | $ 0.1689 | |
Number Of Shares, Granted | 26,800,000 | |
Weighted Average Exercise Price, Outstanding, Granted | $ 0.1689 | |
Number of Shares, Exercised | ||
Weighted Average Exercise Price, Outstanding, Exercised | ||
Number of Shares, Forfeited | (10,050,000) | |
Weighted Average Exercise Price, Outstanding, Forfeited | ||
Number Of Shares, Vested | (3,350,000) | |
Weighted Average Exercise Price, Outstanding, Vested | ||
Number of Shares, Ending Balance | 13,400,000 | 16,750,000 |
Weighted Average Exercise Price, Outstanding, Ending | $ 0.1689 | $ 0.1689 |
RELATED-PARTY TRANSACTIONS (Details Narrative) Integer in Millions |
1 Months Ended | 3 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022
shares
|
May 31, 2022
USD ($)
Integer
|
Mar. 31, 2022
shares
|
Mar. 31, 2023
USD ($)
|
|
Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | ||||
Adjustment to additional paid in capital other | $ 50,000 | |||
Chief Executive Officer [Member] | ||||
Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | ||||
Shares cancelled | shares | 499,000,000 | |||
Adjustment to additional paid in capital other | $ 406,040 | $ 50,000 | ||
Number of block | Integer | 100 | |||
Contribution of capital digital assets | $ 500,000 | |||
Chief Executive Officer [Member] | Series B Preferred Stock [Member] | ||||
Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | ||||
Shares cancelled | shares | 45,000 | 4,900 |
COUNTRY RIGHTS OPTION (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 |
Feb. 23, 2023 |
Dec. 30, 2022 |
Jan. 03, 2022 |
Apr. 06, 2021 |
Mar. 15, 2021 |
Mar. 15, 2021 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Mar. 31, 2022 |
Dec. 31, 2021 |
|
Proceeds from issuance of common stock | $ 110,000 | ||||||||||
Shares outstanding | 50,000,000 | 175,000,000 | |||||||||
Number of shares of common stock | 13,200,000 | 76,666,666 | 37,374,170 | ||||||||
Securities Purchase Agreement [Member] | Aurea Group [Member] | |||||||||||
Ownership percentage | 35.00% | 35.00% | |||||||||
Settlement Agreement [Member] | |||||||||||
Number of shares of common stock | 4,000,000 | ||||||||||
Aurea Group [Member] | |||||||||||
Shares outstanding | 437,500 | 437,500 | |||||||||
Aurea Group [Member] | Securities Purchase Agreement [Member] | |||||||||||
Proceeds from issuance of common stock | $ 1,000,000 | $ 7,500,000 | $ 6,500,000 | ||||||||
Shares outstanding | 1,562,500 | ||||||||||
Aurea Group [Member] | Securities Purchase Agreement [Member] | Two Tranches [Member] | |||||||||||
Proceeds from issuance of common stock | $ 500,000 |
COMMITMENT (Details Narrative) - USD ($) |
Dec. 12, 2022 |
Dec. 11, 2022 |
---|---|---|
GHS Investments LLC [Member] | ||
Loss Contingencies [Line Items] | ||
Ownership perentage | 4.99% | |
Equity Financing Agreement [Member] | Minimum [Member] | ||
Loss Contingencies [Line Items] | ||
Stock Issued During Period, Value, Acquisitions | $ 10,000 | |
Conversion rate percentage | 80.00% | |
Equity Financing Agreement [Member] | Maximum [Member] | ||
Loss Contingencies [Line Items] | ||
Stock Issued During Period, Value, Acquisitions | $ 500,000 | |
Conversion rate percentage | 90.00% | |
Equity Financing Agreement [Member] | GHS Investments LLC [Member] | ||
Loss Contingencies [Line Items] | ||
Shares, Issued | 20,000,000 |
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