TAP Real Estate Technologies, Inc.: Form 10-K for the period ended Dec 31, 2022

OVERVIEW

HUMBL, Inc. (“HUMBL” or the “Company”) is a Web 3, digital commerce company that operates a platform 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 its product offerings is looking to simplify and package the digital economy for consumers, corporations and governments.

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. Through these two divisions the Company offers its core products and services. The majority of the Company’s operations prior to 2022 were focused on the consumer division.

HUMBL – A Web 3 Commerce Platform

HUMBL was founded to deliver an integrated, Web 3 digital commerce platform for consumers, merchants and governments. HUMBL has delivered one of the first integrated technology environments in which a digital wallet, search engine, social media and marketplace listings can be used together by consumers in one place. The HUMBL platform is comprised of the following key components described below.

HUMBL Consumer Division

• HUMBL Wallet
• HUMBL Search Engine
• HUMBL Tickets
• HUMBL Marketplace
• HUMBL Social
• HUMBL Metaverse Stores

HUMBL Commercial Division

• HUMBL Blockchain Services

HUMBL Wallet

The HUMBL Wallet is the centerpiece of the Web 3 consumer experience on the HUMBL platform. The HUMBL Wallet is self-custodied by the individual; ensuring that they have full control over their digital assets and private keys.

Customers can use the HUMBL Wallet to send and receive digital assets, interact on the HUMBL Social platform, perform web searches on the HUMBL Search Engine, store and manage their NFTs, consume content via MP4 multimedia player and more.

The HUMBL Wallet drives revenue through: a) digital asset swaps, in which the customer can use the self-custodied HUMBL digital wallet to swap from one digital asset to another on the Ethereum blockchain, and b) purchasing crypto through Sardine, a third-party service that allows customers to buy digital assets with credit cards.

The HUMBL Wallet is also connected to the BLOCKS Registry, a decentralized blockchain registry that allows customers to authenticate digital items, such as NFTs, and track the chain of custody to ensure reduced fraud, forgery and theft in the digital markets.

HUMBL Wallet customers have the obligation to perform their own tax record keeping and tracking of assets and swaps in the self-custodied wallet; as well as backup of their private keys, to ensure the recoverability, data security and storage of their digital assets.

The HUMBL Wallet is equipped with 2-factor authentication; as well as biometric security features, which are handled by the handset and its manufacturer. HUMBL does not store or have access to any biometric information related to its verified users.

The HUMBL Wallet uses SumSub, a third-party service provider, to perform KYC / KYB and authenticate customers. HUMBL does not capture or store consumers’ information on HUMBL’s servers, except for their corresponding name, wallet address and email address for basic communications with the verified user. HUMBL does not resell its customers data.

The HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries.

HUMBL Search Engine

The HUMBL Search Engine is available via the HUMBL Wallet and the HUMBL website. The HUMBL Search Engine allows customers to search for standard Web 2 content such as news, images and video 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.

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.

Organizational History

We were formed under the name Ponca Acquisition Corporation in Nevada on May 3, 2000, as a “blank check” development stage company that indicated that our business plan was to engage in a merger or acquisition with an unidentified company or companies. Following a series of name changes and changes in the focus of our business, on November 18, 2008, we filed Form 15 with the SEC to terminate its registration with the SEC.

On March 12, 2009, we redomiciled to Oklahoma and on March 16, 2009, changed our name from IWT Tesoro Corporation to Tesoro Distributors, Inc. Tesoro Enterprises, Inc., an Oklahoma corporation, was incorporated on November 12, 2009, as a subsidiary of Tesoro Distributors, Inc.

On March 11, 2010, we changed our name to Tesoro Enterprises, Inc. and received a new symbol of TSNP following FINRA review of our name and symbol change request.

Effective November 4, 2020, Henry J. Boucher, then President, CEO and Chairman of the Board of Directors, and Brian Foote entered into a Stock Purchase Agreement pursuant to which Henry J. Boucher sold his controlling interest in the Company in the form of 7,000,000 shares of the Company’s Series A preferred stock to Brian Foote in return for Brian Foote assigning a $40,000 promissory note from HUMBL LLC to Henry J. Boucher. Our Board of Directors, following the change of control, appointed Brian Foote, Jeff Hinshaw and Michele Rivera to be the members of the Board following the resignation of Henry J. Boucher as our sole director.

On November 30, 2020, we changed our domicile to Delaware.

On December 3, 2020, we merged with HUMBL LLC to conduct the business of HUMBL LLC through a reverse merger. Under the terms of the merger, the members of HUMBL LLC exchanged their membership interests for 552,029 shares of our Series B Preferred Stock.

On December 23, 2020, we filed a Certificate of Amendment to our Certificate of Incorporation (“Amended Certificate”) to effect a 1:4 reverse split, change our name to HUMBL, Inc., increase our authorized common stock to 7,450,000,000 shares, reduce our authorized number of “blank check” preferred stock from 25 million to 10 million and designate a Series B and Series C Preferred Stock.

On February 26, 2021, FINRA announced the change of our name from Tesoro Enterprise, Inc. to HUMBL, Inc. and the change of our trading symbol from TSNP to HMBL that became effective March 26, 2021.

Recent Acquisitions

BM Authentics

On November 2, 2022, we entered into an Asset Purchase Agreement with Brian Meltzer and Robin Burns pursuant to which we purchased from the seller the assets of BM Authentics, a sports merchandise and memorabilia business, for 90,000,000 shares of restricted common stock and $110,000. The Company believes the acquisition of the assets of BM Authentics will help further efforts related to the authentication physical goods on the blockchain. HUMBL plans to pair physical merchandise, alongside HUMBL technologies such as the HUMBL wallet, search engine, tickets and NFTs, to deliver an integrated digital experience for customers. Brian Meltzer was hired by the Company to run the HUMBL Marketplace product line.

Recent Financings and Material Agreements

Settlement Agreement

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, which payment schedule was modified to accelerate the January and February 2023 payments to December 31, 2022 and extend the $440,000 final March 15, 2023 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 shares of our common stock under the Warrant. The Warrant will be cancelled upon payment of the final payment.

Sartorii, LLC Line of Credit and Note

On November 15, 2022, we entered into a Line of Credit Agreement with Sartorii, LLC (“Satorii”) under which Satorii agreed to lend up to $2,200,000 in principal amount through a series of draws not to exceed $440,000 per month and bearing annual interest of 5%. Each draw is documented and added to the outstanding balance of a promissory note (the “Note”) with principal and interest due two years from the date of the draw. The Note may be prepaid by HUMBL without any penalty and is unsecured. HUMBL has drawn down the entire $2,200,000 under the line of credit.

On March 23, 2023, we issued a Promissory Note to Sartorii in the original principal amount of $250,000. The note is not convertible, bears interest at 6% per annum, and is due on March 23, 2024.

Tickeri Settlement and Divestiture

On January 31, 2023, we 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, Inc. 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 us under the agreement to acquire Tickeri. Javier and Juan received 4,672,897 shares of our 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, we have 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 and 2021.

GS Convertible Redeemable Note

On December 8, 2022, we issued an 8% Redeemable Convertible Promissory Note in the original principal amount of $220,000 to GS Capital Partners, LLC. The purchase price for the note was $207,500. The note bears interest at 8% and is due on September 8, 2023. The note is convertible at $0.012 per share. Upon the occurrence of an event of default under the note, the note would become convertible at 70% of lowest trade price in the previous 15 trading days. The note also has a most favored nations provision with respect to conversion terms.

GHS Equity Financing Agreement

On December 12, 2022, we entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with GHS Investments, LLC (“GHS”). Pursuant to the EFA, HUMBL has the right, subject to certain conditions, to sell up to $20,000,000 in shares of its common stock to GHS. Pursuant to the Rights Agreement, 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 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. HUMBL may choose the dollar amount of each put notice; provided, however, the maximum dollar amount of any put cannot exceed 200% 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 $500,000. HUMBL 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 HUMBL shares owned by GHS cannot exceed 4.99% of the issue and outstanding shares of HUMBL common stock following the purchase by GHS of HUMBL shares under a put notice.

Efrat Convertible Redeemable Note

On January 25, 2023, we issued an 8% Redeemable Convertible Promissory Note to Efrat Investments, LLC. The purchase price for the note was $129,750. The note bears interest at 8% and is due on September 8, 2023. The note is convertible at $0.0092 per share. Upon the occurrence of an event of default under the note, the note would become convertible at 70% of lowest trade price in the 15 trading days preceding the conversion. The note also has a most favored nations provision with respect to conversion terms.

1800 Diagonal Notes

On February 8, 2023, we issued a Promissory Note in the original principal amount of $58,800 to 1800 Diagonal Lending LLC (“1800 Diagonal”). The purchase price for the note was $52,500. The note is due on February 8, 2024. A one-time interest charge of 12% was applied upon issuance of the note. Beginning on March 30, 2023, we are required to make monthly payments of $6,585.60 until the note is paid in full. The note is not convertible unless an event of default occurs. Upon the occurrence of an event of default, the note would become convertible at 75% multiplied by the lowest trade price in the 10 trading days preceding the conversion.

On February 8, 2023, we issued a Convertible Promissory Note in the original principal amount of $77,500 to 1800 Diagonal. The purchase price for the note was $77,500. The note is due on February 8, 2024 and bears interest at the rate of 9% per annum. The note is convertible at 70% of lowest trade price in the 20 trading days preceding the conversion.

On March 6, 2023, we issued a Convertible Promissory Note in the original principal amount of $59,250 to 1800 Diagonal. The purchase price for the note was $59,250. The note is due on March 6, 2024 and bears interest at the rate of 9% per annum. The note is convertible at 70% of lowest trade price in the 20 trading days preceding the conversion.

Mammoth Convertible Promissory Note

On February 23, 2023, we issued a Convertible Promissory Note in the original principal amount of up to $1,100,000 to Mammoth Corporation. The note is due on November 23, 2023. Only one tranche of $100,000 has been funded under the note. A one-time interest charge of $10,000 was added to the outstanding balance upon the funding of the first tranche. The note is convertible at 70% of the lowest closing bid price during the 20 trading days preceding the conversion.

Corporate Strategy

Our objective is to provide more seamless digital pairing experiences for consumers and merchants in the global economy. The key elements of our growth strategy are:

• innovate and advance our platform;
• drive growth by acquiring new customers;
• drive increased usage within our existing customer base;

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• expand our global footprint;
• expand data sharing across our global ecosystem;
• grow and invest in our partner network;
• expand our sales capabilities; and
• develop additional revenue streams.

Significant Vendor Relationships

We have established contractual relationships with the following companies that we consider to be material to providing our core products:

We need in each country or region a payment processing company to allow the consumers to pay online the merchants using our software services. In the United States we have a Platform Connect Agreement and Services Agreement with Stripe, Inc. as well a Referral Agreement with Wyre, Inc. We have entered into the standard forms of agreements that these companies offer to companies such as ours that promote online purchase of goods and services.

We utilize Very Good Security (“VGS”), a company that encrypts debit and credit card data as well as banking information, that allows us not to hold onto, see or decrypt any of the raw credit card or banking data from our customers since this information is handled directly by VGS which encrypts all of it and securely sends this data directly to Stripe.

We utilize SumSub to provide KYC/KYB and user verification for our HUMBL Wallet and HUMBL Social platforms.

Competition

Each of our principal verticals is highly competitive. Throughout the globe, we currently face substantial competition from other service providers that offer blockchain wallets, search engines, ticketing, online marketplaces, social media platforms, and ecommerce websites. We compete primarily on the basis of availability of services and products, unique product offerings and price.

HUMBL Wallet competes with Metamask and Coinbase. HUMBL Search Engine competes with Google and Microsoft. HUMBL Tickets competes with StubHub and Ticketmaster. HUMBL Marketplace competes with eBay. HUMBL Social competes with Twitter. HUMBL Metaverse Stores competes with traditional ecommerce stores.

Employees and Human Capital

As of December 31, 2022, we had 16 full time employees. None of our employees or personnel is represented by a labor union, and we consider our employee/personnel relations to be good. Competition for qualified personnel in our industry is intense, particularly for software development and other technical staff. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

• Reduced disclosure about our executive compensation arrangements;
• No non-binding shareholder advisory votes on executive compensation or golden parachute arrangements;
• Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and
• Reduced disclosure of financial information in this prospectus, limited to two years of audited financial information and two years of selected financial information.

As a smaller reporting company, each of the foregoing exemptions is currently available to us. We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large-accelerated filer under the rules of the Securities and Exchange Commission, or if we issue more than $1.0 billion of non- convertible debt over a three-year-period.

The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Available Information

Our website address is www.humbl.com (http://www.humbl.com). Information found on, or accessible through, our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K. We file electronically with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make available on our website at www.humbl.com (http://www.humbl.com), free of charge, copies of these reports and other information as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Our operations and financial results are subject to various risks and uncertainties, including those described below. You should consider and read carefully all of the risks and uncertainties described below, together with all of the other information contained in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making an investment decision. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, or results of operations. In such case, the trading price of our common stock could decline. You should not interpret our disclosure of any of the following risks to imply that such risks have not already materialized.

RISK FACTORS

Investing in our common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in this prospectus, before purchasing shares of our common stock. There are numerous and varied risks that may prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.

Risks Related to Our Company and Our Business

Our operating losses and working capital deficiency raise substantial doubt about our ability to continue as a going concern. If we do not continue as a going concern, investors could lose their entire investment.

Our operating losses and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We have an accumulated deficit of $(99,218,747) as of December 31, 2022 as well as a net loss of $48,567,938 and $49,656,004 for the years ended December 31, 2022 and 2021, respectively. We may never achieve profitability. If we do not generate sufficient revenues, do not achieve profitability and do not have other sources of financing for our business, we may have to curtail or cease our development plans and operations, which could cause investors to lose the entire amount of their investment.

We may not be able to raise capital when needed, if at all, which would force us to delay, reduce or eliminate our level of marketing efforts to expand the number of customers and merchants using our products and acquisition of suitable target companies and could cause our business plan to fail.

We will need substantial additional funding to increase our customer base and pursue our acquisition of companies and business units that meet our desired standards. There are no assurances that future funding will be available on favorable terms or at all. The failure to fund our operating and capital requirements could have a material adverse effect on our business, financial condition and results of operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to reduce our efforts to enlist more customers and merchants to use our technology and to delay, reduce or eliminate our acquisition strategy. Any of these events could significantly harm our business, financial condition and prospects.

We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.

As part of our business strategy, we may pursue acquisitions of businesses and assets or enter into strategic alliances and collaborations, to initiate and then expand our operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any such transaction, any of which could have a detrimental effect on our financial condition, results of operations and cash flows. We have limited experience with acquiring other companies and assets and limited experience with forming strategic alliances and collaborations. We may not be able to find suitable acquisition candidates, and if we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith. Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwise focus on developing our existing business. We may not be able to find suitable strategic alliance or collaboration partners or identify other investment opportunities, and we may experience losses related to any such investments.

To finance any acquisitions or collaborations, we may choose to issue debt or equity securities as consideration. Any such issuance of securities would dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.

Current global financial conditions have been characterized by increased volatility which could negatively impact our business, prospects, liquidity and financial condition.

Current global financial conditions and recent market events have been characterized by increased volatility and the resulting tightening of the credit and capital markets has reduced the amount of available liquidity and overall economic activity. We cannot guaranty that debt or equity financing, the ability to borrow funds or cash generated by operations will be available or sufficient to meet or satisfy our initiatives, objectives or requirements. Our inability to access sufficient amounts of capital on terms acceptable to us for our operations will negatively impact our business, prospects, liquidity and financial condition.

We are growing the size of our organization, and we may experience difficulties in managing any growth we may achieve.

As of the date of this annual report, we have 15 full-time employees. As our growth plans proceed and development and commercialization plans and strategies develop, we expect to need additional development, managerial, operational, sales, marketing, financial, accounting, legal, and other resources. Future growth would impose significant added responsibilities on members of management. Our management may not be able to accommodate those added responsibilities, and our failure to do so could prevent us from effectively managing future growth, if any, and successfully growing our Company.

Our potential for rapid growth and our entry into new markets make it difficult for us to evaluate our current and future business prospects, and we may be unable to effectively manage any growth associated with these new markets, which may increase the risk of your investment and could harm our business, financial condition, results of operations and cash flow.

Our entry into new markets as we seek to expand globally the adoption of our products and services may place a significant strain on our resources and increase demands on our executive management, personnel and systems, and our operational, administrative and financial resources may be inadequate. We may also not be able to effectively manage any expanded operations or achieve planned growth on a timely or profitable basis, particularly if the number of customers using our technology significantly increases or their demands and needs change as our business expands. If we are unable to manage expanded operations effectively, we may experience operating inefficiencies, the quality of our products and services could deteriorate, and our business and results of operations could be materially adversely affected.

If we are unable to develop and maintain our brand and reputation for our service and product offerings, our business and prospects could be materially harmed.

Our business and prospects depend, in part, on developing and then maintaining and strengthening our brand and reputation in the markets we will serve and for the companies we acquire. If problems arise with our future products or services, our brand and reputation could be diminished. If we fail to develop, promote and maintain our brand and reputation successfully, our business and prospects could be materially harmed.

Any failure to protect our future intellectual property rights could impair our ability to protect our technology and our brand.

Our success depends in part on our ability to enforce our intellectual property and other proprietary rights of the companies we expect to acquire. We expect to rely upon a combination of trademark and trade secret laws, as well as license and other contractual provisions, to protect our intellectual property and other proprietary rights. These laws, procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. To the extent that our intellectual property and other proprietary rights are not adequately protected, third parties may gain access to our proprietary information, develop and market solutions similar to ours or use trademarks similar to ours, each of which could materially harm our business. The failure to adequately protect our intellectual property and other proprietary rights could have a material adverse effect on our business, financial condition and results of operations.

Our expansion into new products, services, technologies, and geographic regions subjects us to additional risks.

We may have limited or no experience in our newer markets, and our customers may not adopt our product or service offerings. These offerings, which can present new and difficult technology challenges, may subject us to claims if customers of these offerings experience service disruptions or failures or other quality issues.. In addition, profitability, if any, in our newer activities may not meet our expectations, and we may not be successful enough in these newer activities to recoup our investments in them. Failure to realize the benefits of amounts we invest in new technologies, products, or services could result in the value of those investments being written down or written off.

Our financial results fluctuate and may be difficult to forecast, and this may cause a decline in the trading price of our stock.

Our revenues, expenses and operating results are difficult to predict given our limited history of current operations. We expect that our operating results will continue to fluctuate in the future due to a number of factors, some of which are beyond our control. These factors include, but are not limited to:

• our ability to increase our brand awareness;
• our ability to attract new customers;
• our ability to increase our customer base;
• the amount and timing of costs relating to the expansion of our operations, including sales and marketing expenditures;
• our ability to introduce new mobile payment offerings or customer services in a competitive environment;
• technical difficulties consumers might encounter in using our mobile apps; and
• our ability to manage third-party outsourced operations;

Due to all of these factors, our operating results may fall below the expectations of investors, which could cause a decline in the trading price of our common stock.

We intend to make acquisitions that could disrupt our operations and adversely impact our business and operating results.

We intend to attempt to acquire complementary e-commerce businesses and to support the transition and integration of acquired operations with our ongoing business as a part of our growth strategy. Other than as disclosed herein, we currently have no binding commitments or agreements with respect to any such acquisitions and there can be no assurance that we will eventually consummate any acquisitions. The process of integrating acquired assets into our operations may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for the ongoing development of our business. In addition, we have limited experience in performing acquisitions and managing growth. There can be no assurance that the anticipated benefits of any acquisition will be realized. In addition, future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which could materially and adversely affect our operating results and financial position. In addition, acquisitions also involve other risks, including risks inherent in entering markets in which we have no or limited prior experience and the potential loss of key employees.

Our plans for expansion cannot be implemented if we lose our key personnel or cannot recruit additional personnel.

We depend substantially on the continued services, specialized knowledge and performance of our senior management, particularly Brian Foote, our President and CEO, Jeffrey Hinshaw, our COO and CFO, and Michele Rivera, our Vice President, Global Partnerships. While we have employment agreements with all these executives, those employment agreements do not prevent such employees from terminating their employment with us at any time. As a result, these executives may elect to pursue other opportunities at any time. If one or more of these individuals choose to leave our company, we may lose a significant number of supplier relationships and operating expertise which they have developed over many years and which would be difficult to replace. The loss of the services of any executive officer or other key employee could hurt our business.

In addition, as our business expands, we will need to add new information technology and engineering personnel to maintain and expand our website and systems and customer support personnel to serve our growing customer base. If we are unable to hire and successfully train employees or contractors in these areas, users of our website may have negative experiences and we may lose customers, which would diminish the value of our brand and harm our business. The market for recruiting qualified information technology and other personnel is extremely competitive, and we may experience difficulties in attracting and retaining employees. Should we fail to retain or attract qualified personnel, we may not be able to compete successfully or implement our plans for expansion.

We have an evolving business model with still untested growth initiatives.

We have an evolving business model and intend to implement new strategies to grow our business in the future. Among other strategies for organic growth, we intend to recruit country partners to sell our mobile financial services. There can be no assurance that we will be successful in developing new product categories or in entering new specialty markets or in implementing any other growth strategies. Similarly, there can be no assurance that we already have or will be able to obtain or retain any employees, consultants or other resources with any specialized skills or relationships to successfully implement our strategies in the future.

We rely on third-party systems to conduct our business and relationships with payment processors, advertisers, third party sellers of our mobile apps, and our revenues and market share may decrease if these third-party relationship and systems are unavailable in the future or if they no longer offer quality performance.

We rely on third-party computer systems and third-party service providers, including payment services such as Stripe, and Wyre for credit card verifications and confirmations, to host our website and to advertise and deliver the products sold on our website to customers. We also rely on third-party licenses for components of the software underlying our technology platform. Any interruption in our ability to obtain the products or services of these or other third parties or deterioration in their performance could impair the timing and quality of our own service. If our service providers fail to deliver high-quality services in a timely manner to our customers, our services will not meet the expectations of our customers and our reputation and brand will be damaged. Furthermore, if our arrangements with any of these third parties are terminated, we may not find an alternate source of systems support on a timely basis or on terms as advantageous to us. In addition, our contracts or arrangements with suppliers do not provide for the continuation of particular pricing practices, for the availability of any specific services and generally may be terminated by either party. If we are unable to develop and maintain relationships with these third-party suppliers that will allow us to obtain sufficient levels of service on acceptable commercial terms, such inability could harm our business, prospects, financial condition and results of operations.

We are subject to cyber security risks and risks of data loss or other security breaches.

Our business involves the storage and transmission of users’ proprietary information, and security breaches could expose us to a risk of loss or misuse of this information, and to resulting claims, fines, and litigation. We have been subjected to a variety of cyber-attacks, which have increased in number and variety over time. We believe our systems are probed by potential hackers virtually 24/7, and we expect the problem will continue to grow worse over time. Cyber-attacks may target us, our customers, our suppliers, banks, credit card processors, delivery services, e-commerce in general or the communication infrastructure on which we depend. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, any of which could have a material adverse effect on our financial results and business. Moreover, any insurance coverage we may carry may be inadequate to cover the expenses and other potential financial exposure we could face as a result of a cyber-attack or data breach.

We may not be able to compete successfully against existing or future competitors including larger, well-established and well-financed mobile app companies.

Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. In addition, some of our competitors may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing and devote substantially more resources to systems development than we do. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise. We cannot provide assurance that we will be able to compete successfully against existing or future competitors.

Our business depends on effective marketing, including marketing via email and social networking messaging, and we intend to increase our spending on marketing and branding, which may adversely affect our financial results.

We depend on effective marketing to attract customers and merchants. We depend on email and social networking messaging to promote our site and offerings and to generate a substantial portion of our revenues. If we are unable to develop, implement and maintain effective and efficient cost-effective advertising and marketing programs, it would have a material adverse effect on our financial results and business. Further, as part of our growth strategies, we intend to increase our spending on marketing and branding initiatives significantly, which may adversely affect our financial results. There is no assurance that any increase in our marketing or branding expenditures will result in increased market shares or will ultimately have a positive effect on our financial results.

If we do not respond to rapid technological changes, our services could become obsolete and we could lose customers.

To remain competitive, we must continue to enhance and improve the functionality and features of our e-commerce businesses. We may face material delays in introducing new services, products and enhancements. If this happens, our customers may forego the use of our websites and use those of our competitors. If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our existing technology and systems may become obsolete. Our failure to respond to technological change or to adequately maintain, upgrade and develop our computer network and the systems used to process customers’ orders and payments could harm our business, prospects, financial condition and results of operations.

Use of social media may adversely impact our reputation.

There has been a marked increase in the use of social media platforms and similar devices, including blogs, social media websites and other forms of internet-based communications that allow individuals access to a broad audience of consumers and other interested persons. Consumers value readily available information concerning retailers, manufacturers, and their goods and services and often act on such information without further investigation, authentication and without regard to its accuracy. The availability of information on social media platforms and devices is virtually immediate as is its impact. Social media platforms and devices immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our company may be posted on such platforms and devices at any time. Information posted may be adverse to our interests, may be inaccurate, and may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms also could be used for the dissemination of trade secret information or otherwise compromise valuable company assets, all of which could harm our business, prospects, financial condition and results of operations.

We are subject to payments-related risks.

We accept payments using a variety of methods, including credit card, and debit card, credit accounts (including promotional financing), gift cards, direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery. For existing and future payment options we offer to our customers, we may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in significant costs and reduce the ease of use of our payments products), as well as fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide certain Amazon-branded payment methods and payment processing services, including the processing of credit cards, and debit cards., electronic checks, and promotional financing. In each case, it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected.

In addition, we provide regulated services in certain jurisdictions because we enable customers to keep account balances with us and transfer money to third parties, and because we provide services to third parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding and capital maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, and authentication. We are also subject to or voluntarily comply with a number of other laws and regulations relating to payments, money laundering, international money transfers, privacy and information security, and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to additional requirements and civil and criminal penalties or forced to cease providing certain services.

If we do not begin to generate significant revenues, we will still need to raise additional capital to meet our long-term business requirements. Any such capital raising may be costly or difficult to obtain and would likely dilute current stockholders’ ownership interests. If we are unable to secure additional financing in the future, we will not be able to continue as a going concern.

If we do not begin to generate significant revenues from our operations we will need additional capital, which may not be available on reasonable terms or at all. The raising of additional capital will dilute current stockholders’ ownership interests. We may need to raise additional funds through public or private debt or equity financings to meet various objectives including, but not limited to:

• maintaining enough working capital to run our business;
• pursuing growth opportunities, including more rapid expansion;
• acquiring complementary businesses and technologies;
• making capital improvements to improve our infrastructure;
• responding to competitive pressures;

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• complying with regulatory requirements for advertising or taxation; and
• maintaining compliance with applicable laws.

Any additional capital raised through the sale of equity or equity-linked securities may dilute current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. The terms of those securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect that is different from or in addition to that reflected in the capitalization described in this report.

Further, any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business and we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.

We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.

Any failure to protect our future intellectual property rights could impair our ability to protect our technology and our brand.

Our success depends in part on our ability to enforce our intellectual property and other proprietary rights of the companies we expect to acquire. We expect to rely upon a combination of trademark and trade secret laws, as well as license and other contractual provisions, to protect our intellectual property and other proprietary rights. These laws, procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. To the extent that our intellectual property and other proprietary rights are not adequately protected, third parties may gain access to our proprietary information, develop and market solutions similar to ours or use trademarks similar to ours, each of which could materially harm our business. The failure to adequately protect our intellectual property and other proprietary rights could have a material adverse effect on our business, financial condition and results of operations.

Our international operations expose us to a number of risks.

We expect that our current limited international activities will grow significantly. In certain international market segments, we have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed. It can be costly to establish, develop, and maintain international operations and promote our brand internationally. Our international operations may not become profitable on a sustained basis.

In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of risks, including:

• local economic and political conditions;
• government regulation (such as regulation of our product and service offerings and of competition); restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs); nationalization; and restrictions on foreign ownership;
• restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, including uncertainty as a result of less Internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media products and enforcement of intellectual property rights;
• business licensing or certification requirements, such as for imports, exports, web services, and electronic devices;
• limitations on the repatriation and investment of funds and foreign currency exchange restrictions;
• limited fulfillment and technology infrastructure;
• shorter payable and longer receivable cycles and the resultant negative impact on cash flow;
• laws and regulations regarding privacy, data protection, data security, network security, consumer protection, payments, advertising, and restrictions on pricing or discounts;
• lower levels of use of the Internet;
• lower levels of consumer spending and fewer opportunities for growth compared to the United States;
• lower levels of credit card usage and increased payment risk;
• difficulty in staffing, developing, and managing foreign operations as a result of distance, language, and cultural differences;
• compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt payments to government officials and other third parties;
• laws and policies of the United States and other jurisdictions affecting trade, foreign investment, loans, and taxes; and
• geopolitical events, including war and terrorism.

Whether a particular non-fungible token (NFT) or other crypto assets is a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if we are unable to properly characterize an NFT or other crypto asset, we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.

The SEC and its staff have taken the position that certain crypto assets (which includes NFTs) fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given crypto asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular crypto asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff. For example, Chair Gary Gensler has repeatedly remarked on the need for further regulatory oversight on crypto assets, crypto trading, and lending platforms by the SEC. Public statements by senior officials at the SEC indicate that the SEC does not intend to take the position that Bitcoin or Ethereum are securities (in their current form). Bitcoin and Ethereum are the only crypto assets as to which senior officials at the SEC have publicly expressed such a view. Moreover, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other crypto asset. With respect to all other crypto assets, there is currently no certainty under the applicable legal test that such assets are not securities, notwithstanding the conclusions we may draw based on our risk-based assessment regarding the likelihood that a particular crypto asset could be deemed a “security” under applicable laws. Similarly, though the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for analyzing whether any given crypto asset is a security in April 2019, this framework is also not a rule, regulation or statement of the SEC and is not binding on the SEC.

Several foreign jurisdictions have taken a broad-based approach to classifying crypto assets as “securities,” while other foreign jurisdictions, such as Switzerland, Malta, and Singapore, have adopted a narrower approach. As a result, certain crypto assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of crypto assets as “securities.”

The classification of a crypto asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer and sale of such assets. For example, a crypto asset that is a security in the United States may generally only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in crypto assets that are securities in the United States may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade crypto assets that are securities in the United States are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an ATS in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and qualification requirements.

We have policies and procedures to analyze whether each NFT that we seek to facilitate listing and sale on our platform could be deemed to be a “security” under applicable laws. Our policies and procedures do not constitute a legal standard but rather represent our company-developed model, which permits us to make a risk-based assessment regarding the likelihood that a particular NFT could be deemed a “security” under applicable laws. Regardless of our conclusions, we could be subject to legal or regulatory action in the event the SEC, a state or foreign regulatory authority, or a court were to determine that an NFT listed and sold on our platform is a “security” under applicable laws. Because our platform is not registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to facilitate the offer and sale of NFTs on our platform, we only permit listing on our platform of those NFTs for which we determine there are reasonably strong arguments to conclude that the NFT is not a security. We believe that our process reflects a comprehensive and thoughtful analysis and is reasonably designed to facilitate consistent application of available legal guidance to crypto assets to facilitate informed risk-based business judgment. However, we recognize that the application of securities laws to the specific facts and circumstances of crypto assets may be complex and subject to change, and that a listing determination does not guarantee any conclusion under the U.S. federal securities laws. We expect our risk assessment policies and procedures to continuously evolve to take into account case law, facts, and developments in technology.

There can be no assurances that we will properly characterize any given NFT as a security or non-security for purposes of determining whether our platform will allow the listing of such NFT, or that the SEC, foreign regulatory authority, or a court, if the question was presented to it, would agree with our assessment. If the SEC, state or foreign regulatory authority, or a court were to determine that NFTs offered or sold on our platform are securities, we would not be able to offer such NFTs until we are able to do so in a compliant manner. A determination by the SEC, a state or foreign regulatory authority, or a court that an NFT listed and sold on our platform was a security may also result in us determining that it is advisable to remove NFTs from our platform that have similar characteristics to the NFT that was determined to be a security. In addition, we could be subject to judicial or administrative sanctions for failing to offer or sell the NFT in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration. Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Customers that purchased such NFTs on our platform and suffered losses could also seek to rescind a transaction that we facilitated as the basis that it was conducted in violation of applicable law, which could subject us to significant liability. We may also be required to cease facilitating transactions in other similar NFTs, which could negatively impact our business, operating results, and financial condition.

Our failure to safeguard and manage our and our customers’ crypto assets could adversely impact our business, operating results, and financial condition.

We have never provided custody of any crypto assets purchased through our platform. Custody of crypto assets on our platform is performed by Wyre, a third-party partner. On January 31, 2023, we removed the HUMBL Pay app from the Apple and Google app stores. By removing the HUMBL Pay app, we removed the ability for customers to purchase and hold new crypto assets through Wyre. We have requested all customers remove all funds from the HUMBL Pay app and migrate to the HUMBL Wallet. We still in the process of completing this migration. The HUMBL Wallet is entirely non-custodial with all customers holding and managing their own private keys. As our business continues to grow and we expand our product and service offerings, we must continue to strengthen our associated internal controls and ensure that our partners do the same. Our success and the success of our offerings requires significant public confidence in our and our partners’ ability to properly manage customers’ balances. In addition, we are dependent on our partners’ operations, liquidity, and financial condition for the proper maintenance, use, and safekeeping of these customer assets. We believe our policies and procedures protect us from material risks surrounding the safeguarding of crypto assets and conflicts of interest. However, any material failure by us or our partners to maintain the necessary controls, policies, procedures or to manage the crypto assets we hold for our own investment and operating purposes could adversely impact our business, operating results, and financial condition. Further, any material failure by us or our partners to maintain the necessary controls or to manage customer crypto assets and funds appropriately and in compliance with applicable regulatory requirements could result in reputational harm, litigation, regulatory enforcement actions, significant financial losses, lead customers to discontinue or reduce their use of our and our partners’ products, and result in significant penalties and fines and additional restrictions, which could adversely impact our business, operating results, and financial condition. Moreover, because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets Wyre holds in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors. Our no longer offering custodial services through Wyre may make our offerings less attractive and any failure to increase our customer base, discontinuation or reduction in use of our platform and products by existing customers as a result could adversely impact our business, operating results, and financial condition.

Further, we place great importance on safeguarding crypto assets custodied by Wyre and keeping them bankruptcy remote from our general creditors. We believe UCC Article 8 applies to custodied crypto assets the same legal protection that our institutional custody and prime broker clients also rely upon. UCC Article 8 provides that financial assets held by Wyre are not property of Wyre and not subject to the claims of its general creditors. In light of UCC Article 8, we believe that a court would not treat custodied crypto assets as part of our general estate; however, due to the novelty of crypto assets, courts have not yet considered this type of treatment for custodied crypto assets.

Our security technology is designed to prevent, detect, and mitigate inappropriate access to our systems, by internal or external threats. We believe we have developed and maintained administrative, technical, and physical safeguards designed to comply with applicable legal requirements and industry standards. However, it is nevertheless possible that hackers, employees or service providers acting contrary to our policies, or others could circumvent these safeguards to improperly access our systems or documents, or the systems or documents of our business partners, agents, or service providers, and improperly access, obtain, misuse customer crypto assets and funds. The methods used to obtain unauthorized access, disable, or degrade service or sabotage systems are also constantly changing and evolving and may be difficult to anticipate or detect for long periods of time. Any loss of customer cash or crypto assets could result in a subsequent lapse in insurance coverage, which could cause a substantial business disruption, adverse reputational impact, inability to compete with our competitors, and regulatory investigations, inquiries, or actions. Additionally, transactions undertaken through our websites or other electronic channels may create risks of fraud, hacking, unauthorized access or acquisition, and other deceptive practices. Any security incident resulting in a compromise of customer assets could result in substantial costs to us and require us to notify impacted individuals, and in some cases regulators, of a possible or actual incident, expose us to regulatory enforcement actions, including substantial fines, limit our ability to provide services, subject us to litigation, significant financial losses, damage our reputation, and adversely affect our business, operating results, financial condition, and cash flows.

The theft, loss, or destruction of private keys required to access any crypto assets held in custody for our own account or for our customers may be irreversible. If we are unable to access our private keys or if we experience a hack or other data loss relating to our ability to access any crypto assets, it could cause regulatory scrutiny, reputational harm, and other losses.

Crypto assets are generally controllable only by the possessor of the unique private key relating to the digital wallet in which the crypto assets are held. While blockchain protocols typically require public addresses to be published when used in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the crypto assets held in such a wallet. To the extent that any of the private keys relating to our wallets containing crypto assets held for our own account or for our customers is lost, destroyed, or otherwise compromised or unavailable, and no backup of the private key is accessible, we will be unable to access the crypto assets held in the related wallet. Further, we cannot provide assurance that our wallet will not be hacked or compromised. Crypto assets and blockchain technologies have been, and may in the future be, subject to security breaches, hacking, or other malicious activities. Any loss of private keys relating to, or hack or other compromise of, digital wallets used to store our customers’ crypto assets could adversely affect our customers’ ability to access or sell their crypto assets, require us to reimburse our customers for their losses, and subject us to significant financial losses in addition to losing customer trust in us and our products. As such, any loss of private keys due to a hack, employee or service provider misconduct or error, or other compromise by third parties could hurt our brand and reputation, result in significant losses, and adversely impact our business.

Risks Related to Our Common Stock

Our securities are “Penny Stock” and subject to specific rules governing their sale to investors.

Under SEC Rule 15g-9 we are a “penny stock,” which is defined as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks; and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

To approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination; and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for Company’s shareholders to sell shares of our common stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Our OTC listing may be removed from the OTCQB marketplace

On March 14, 2023, we received notice from OTC Markets of non-compliance with the listing standards of the OTCQB marketplace. The OTCQB listing standards require that the minimum closing bid price of our common stock must be above $0.01 per share on at least one of the prior thirty consecutive calendar days. We have a cure period of 90 days ending on June 12, 2023 during which the closing bid price of our common stock must be $0.01 or greater for ten consecutive trading days. In the event we are unable to comply with such requirement, we will be removed from the OTCQB marketplace.

If we are removed from the OTCQB marketplace, we face significant material adverse consequences, including:

• a limited availability of market quotations for our securities;
• reduced liquidity with respect to our securities;
• our shares of common stock are currently classified as “penny stock” which requires brokers trading in our shares of common stock to adhere to more stringent rules, resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock; and
• a decreased ability to issue additional securities or obtain additional financing in the future.

Because we became public by means of a merger, we may not be able to attract the attention of major brokerage firms.

Additional risks may exist since we became public through a merger with a publicly traded company. Securities analysts of major brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf in the future.

Compliance with the reporting requirements of federal securities laws can be expensive.

We will become a fully reporting company upon effectiveness of this offering and will be subject to the information and reporting requirements of the Exchange Act and other federal securities laws and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders are substantial.

Applicable regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or retain listing of our common stock.

As a fully reporting company under Section 13 of the Exchange Act, we may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.

Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business and its ability to obtain or retain listing of our shares of common stock on any stock exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease the trading price of our stock.

We must maintain effective internal controls to provide reliable financial reports and detect fraud. We have been assessing our internal controls to identify areas that need improvement. Failure to identify and thereafter implement required changes to our internal controls or any others that we identify as necessary to maintain an effective system of internal controls, if any, could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our stock.

The price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.

The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:

• actual or anticipated variations in our operating results;
• announcements of developments by us or our competitors;
• regulatory actions regarding our products;
• announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
• adoption of new accounting standards affecting our industry;
• additions or departures of key personnel;
• introduction of new products by us or our competitors;
• sales of our common stock or other securities in the open market; and
• other events or factors, many of which are beyond our control such as the continuation of disruptions due to COVID-19.

The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of its management’s attention and resources, which could harm our business and financial condition.

Our common stock is controlled by insiders.

Our officers and directors beneficially own approximately 70% of our outstanding shares of capital stock through their ownership of Series B preferred shares. Such concentrated control may adversely affect the price of our common stock. Investors who acquire common stock may have no effective voice in our management. Sales by our insiders or affiliates along with any other market transactions, could negatively affect the market price of our common stock.

Our President and CEO, Brian Foote, has voting control of the Company’s capital stock and, as a result, owners of our common stock may be unable to influence management and exercise control over our business.

Our largest stockholder, Brian Foote, our President and CEO, will control approximately 70% of the voting power of our capital stock principally through his ownership of Series A and Series B preferred stock. Brian Foote owns 7,000,000 shares of Series A preferred stock which has the voting power of 1,000 shares of our common stock for each share of Series A preferred stock and 198,421 shares of Series B preferred stock, each such share having the voting power of 10,000 shares of our common stock. As a result, he is able to: elect or defeat the election of our directors, amend or prevent amendment to our certificates of incorporation or bylaws, effect or prevent a merger, sale of assets or other corporate transaction, and control the outcome of any other matter submitted to the stockholders for vote. Accordingly, other stockholders may be unable to influence management and exercise control over our business.

Our bylaws include a forum selection clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us, remove current management or to be acquired by a third party.

Our bylaws require that, unless we consent in writing to the selection of an alternative forum, either (i) the Court of Chancery of the State of Delaware is to be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or our bylaws or (d) any action or proceeding asserting a claim governed by the internal affairs doctrine or (ii) the federal district court in the State of Delaware will be the exclusive forum for a cause of action arising under the Securities Act and the Exchange Act. In addition, our bylaws could make it more difficult for a third party to acquire us or to remove current management through provisions that preclude cumulative voting in the election of directors and that allow our bylaws to be adopted, amended or repealed by our board of directors.

This exclusive forum provision will apply to other state and federal law claims including actions arising under the Securities Act (although our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder). Section 22 of the Securities Act, however, creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. This forum selection provision in our bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our bylaws, a court could rule that such a provision is inapplicable or unenforceable.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

• being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
• not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
• not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
• reduced disclosure obligations regarding executive compensation; and
• not being required to hold a non-binding advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved.

Further, the JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition time to comply with new or revised accounting standards as applicable to public companies. We are choosing to elect the extended transition period for complying with new or revised accounting standards applicable to public companies. We have elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non- affiliates exceeds $700 million as of the prior June 30 and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

If we do not meet the listing standards of a national securities exchange our investors’ ability to make transactions in our securities will be limited, and we will be subject to additional trading restrictions.

Our securities currently are traded over-the-counter on the OTCQB and are not qualified to be listed on a national securities exchange, such as NASDAQ. Accordingly, we face significant material adverse consequences, including:

• a limited availability of market quotations for our securities;
• reduced liquidity with respect to our securities;
• our shares of common stock are currently classified as “penny stock” which requires brokers trading in our shares of common stock to adhere to more stringent rules, resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;
• a limited amount of news and analyst coverage for our company; and
• a decreased ability to issue additional securities or obtain additional financing in the future.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Since our Common Stock is traded on OTCQB, our common stock is a covered security. Although the states are preempted from regulating the sale of our securities, the federal statute allows the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer traded over-the-counter, our common stock would not be a covered security and we would be subject to regulation in each state in which we offer our securities.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our securities will be your sole source of gain for the foreseeable future.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, or remove our current management. These include provisions that:

• permit our Board of Directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as it may designate, of which we have designated 7,000,000 Series A preferred stock with 1,000 votes per share, all of which are held by Brian Foote, our CEO; issue 570,000 Series B preferred stock with 10,000 votes per share 400,175 of which are issued and outstanding;
• provide that all vacancies on our Board of Directors, including as a result of newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;
• not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election;
• provide that special meetings of our stockholders may be called by a majority of the Board of Directors; and
• provide that our Board of Directors is expressly authorized to make, alter or repeal the bylaws.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, who are responsible for appointing the members of our management. Any provision of our articles of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

We currently rent an office in San Diego, California at a monthly cost of $15,858.92 (“Company Headquarters”). The lease for our Company Headquarters expires on June 30, 2023. We believe that the Company Headquarters are currently adequate for the purposes of our operations. We do not own any real property.

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.

The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained herein. In addition to historical information, the following discussion contains forward looking statements based upon current expectations that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including, but not limited to, risks described in the section entitled “Risk Factors”.

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 (http://www.humbl.com).

Overview

Following our merger with HUMBL LLC on December 3, 2020, we changed our name from Tesoro Enterprises, Inc. to HUMBL, Inc. and adopted the business of HUMBL to deliver a more seamless digital pairing experiences for consumers and merchants in the global economy. This discussion does not include any operations of our discontinued operations for BLOCK ETX or Tickeri.

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.

Results of Operations for the Years Ended December 31, 2022 and 2021

The following table sets forth the summary operations for the years ended December 31, 2022 and 2021:

Revenues

Revenues for the year ended December 31, 2022 were $2,768,534 as compared to $1,372,444 for the year ended December 31, 2021, an increase of $1,396,090. The increase was due in large part to the services rendered from Monster Creative which increased $1,209,781 in 2022 versus 2021.

Cost of Revenues and Gross Profit

Cost of revenues for the year ended December 31, 2022 were $1,401,658 as compared to $855,805 for the year ended December 31, 2021, an increase of $545,853. The increase was primarily due to the direct labor attributable to our production services. Our gross profit grew by 165% from 2021 to 2022 as a result of the production services.

Operating Expenses

Operating expenses for the year ended December 31, 2022 were $42,554,221 as compared to $28,775,951 for the year ended December 31, 2021, an increase of $13,778,270. Operating expenses consists of development costs, professional fees and general and administrative expenses and non-cash charges for impairment expenses and stock-based compensation as fully described below. We expect our development costs and professional fees to decrease in our next 12 months as we look to scale back on outside contract labor. Approximately 71% of our operating expenses relate to non-cash charges in 2022 and these charges comprise of over $27,982,000. We do expect that our non-cash charges will be much lower in the future 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 year ended December 31, 2022 were $2,363,225 compared with $2,117,683 for the year ended December 31, 2021. The increase of development costs related to the roll out of various projects such as the HUMBL Wallet and Search3 that are in development.

Professional Fees

Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the year ended December 31, 2022 were $4,288,782 compared to $3,787,539 for the year ended December 31, 2021. The increase in professional fees related to the professional fees incurred in regulatory filings including OTC compliance and reporting as well as increases in consultant costs. We expect that these costs will decrease during 2023.

Settlement

The Company incurred $3,752,400 in settlement expenses which are included in our operating expenses for the year ended December 31, 2022 related to agreements with individuals for liabilities incurred. We incurred $1,870,000 in settlement expenses for the year ended December 31, 2021.

Stock-Based Compensation

The Company incurred $12,199,063 in stock-based compensation expenses for the year ended December 31, 2022 compared to $10,734,834 for the year ended December 31, 2021 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 $10,424,214 in non-cash charges related to impairment of intangible assets including goodwill, and $1,606,784 in impairment of our digital assets in the year ended December 31, 2022. The intangible asset impairment relates to the impairment on the BizSecure, Monster and Ixaya acquisitions. The impairment of the digital assets was based on the valuation changes in the digital assets we hold. In the year ended December 31, 2021, the impairment of the intangible assets related to the Monster goodwill.

General and Administrative

General and administrative expenses for the year ended December 31, 2022 were $7,919,753 compared with $4,761,175 for the year ended December 31, 2021. The increase in general and administrative expenses of $3,158,578 is related to the operations of Ixaya of ($220,000), advertising expenses ($140,000), travel ($235,000), general office expenses (approximately $225,000), insurance (approximately $48,000), amortization and depreciation expenses ($500,000), penalties ($700,000) and the addition of management and employees to grow our business (approximately $1,050,000). The general and administrative expenses related to the year ended December 31, 2021 related to mostly operating expenses to complete the merger with Tesoro and the startup of the HUMBL Marketplace and Pay divisions.

There were no significant operations prior to the completion of the merger in February 2021. We expect our general and administrative expenses to decline in the next 12 months, unless we acquire other businesses that will add expenses to the Company.

Other Income (Expense)

In the year ended December 31, 2022 we incurred $3,756,975 in other expenses, compared to $4,929,381 in other expenses in the year ended December 31, 2021, a decrease of $1,172,406. The other expenses relate to amortization of discounts of $1,672,940 and $838,941, respectively for the 2022 and 2021 periods, as well as interest expense of $1,570,754 and $932,632, respectively. gain on sale of digital assets of $297,895 and $47,875, and in 2021 we incurred a $3,300,000 charge for a beneficial conversion feature on a convertible note payable and in 2022 we had a loss on sale of assets of $57,318, and a loss on conversion of convertible notes payable of $753,858. 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 year ended December 31, 2022 was ($44,949,270) as compared to a net loss of ($33,193,643) for the year ended December 31, 2021. The $11,755,627 increase 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.

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

Less than 3-4% of the Company’s sales are from outside of North America, therefore the Company has determined that segment reporting by geographic location was not necessary. In the future, the Company will continue to monitor their activity by region to determine if it is feasible to report segment information by location.

The following represents segment reporting for continuing operations only:

29

Liquidity and Capital Resources

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

As of December 31, 2022, we had $616,950 in cash. Between the revenues generated from our subsidiaries as well as through sales of merchandise, HUMBL Tickets and NFTs in the HUMBL Marketplace, we continue to fund the development of the HUMBL Wallet. In February 2022 we entered into a purchase agreement with BizSecure that coincided with the commencement of HUMBL Blockchain Services. With this acquisition of BizSecure and Ixaya in March 2022, we are growing our operations in the LatAm region of the world and expect to be able to offer our array of core products to governmental agencies as well as the private sector not in the United States, but throughout the world. We have generated a majority of our proceeds from the issuance of debt, the sale of common stock and through the exercise of warrants.

We had a working capital deficit of $27,408,687 and $20,963,591 as of December 31, 2022 and 2021, 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. The Company believes it has adequate capital resources to meet its cash requirements during the next 12 months as they continue to grow and develop suitable sources of capital. A majority of the Company’s operating expenses in 2022 (71%) 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 $977,000 per month at this time and as our core products come online, this is likely to decrease upon our technology being completed. The Company has received $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 2022, however, as a result of the operating losses and working capital deficit, management has determined that there is substantial doubt about the Company’s ability to continue as a going concern.

We expect that the 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.

The Company has made strategic acquisitions in the first few months of 2022 to enhance their core products and their intellectual property. Management believes these acquisitions will result in increased profitability.

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

Net cash used in operating activities was $11,726,995 and $9,928,322 for the years ended December 31, 2022 and 2021, respectively. The $1,798,673 increase in net cash used in operating activities was primarily a result of the non-cash charges impacting our net loss from 2021 to 2022, such as the impairment of intangible assets including goodwill and increases in our stock-based compensation. Additionally, we increased our accounts payable and accrued expenses by $1,933,910 from 2021 to 2022 and had net cash decreases as a result of changes in our digital assets of $896,284.

Net cash used in investing activities was $682,402 for the year ended December 31, 2022 related to purchases of fixed assets of $13,572 and cash paid, net of amounts received in the acquisition of Ixaya of $148,675, cash paid in the acquisition of BM Authentics of $110,000, purchases of a non-fungible token of $406,040 and domain names of $275,020 as well as proceeds received from the sale of fixed assets of $270,905. In the year ended December 31, 2021 we incurred investing activities of $237,182 related to $367,576 for purchases of fixed assets, $127,377 in cash received in the acquisition of Tickeri, and $3,017 in cash received in the acquisition of Monster Creative.

Cash provided by financing activities was $9,853,244 and $11,617,628 for the years ended December 31, 2022 and 2021, respectively. Cash was provided through proceeds from sales of membership interests in HUMBL LLC in 2021 of $10,000, proceeds from the issuance of common stock for cash for $1,000,000, proceeds from the issuance of convertible notes of $6,700,000, and repayment of notes payable of $51,600. In 2022, the Company raised $2,000,000 from the exercise of warrants and proceeds from related party notes in the amount of $8,700,000, and a contribution of capital of $406,040 (as well as non-cash contribution of capital of $500,000) by the Company’s CEO as well as repayments of notes payable, related party notes, amounts due to seller and bank loans of $2,600,296 and the purchase of treasury shares of $50,000 that was subsequently retired.

Since the date of the reverse merger in December 2020 we have financed our operations through sales of common and preferred stock and the issuance of debt.

Off-Balance Sheet Arrangements

As December 31, 2022 and 2021, 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).

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 $1,606,784 and $34,570 related to digital assets during the years ended December 31, 2022 and 2021, respectively, of which $258,217 in 2022 relates to the NFT we purchased.

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.

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.

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 December 31, 2022. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, 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 December 31, 2022 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.