TAP Real Estate Technologies, Inc.: Form 10-Q for the period ended Sep 30, 2023

General

Our executive offices are located at 101 W. Broadway, Suite 1450, San Diego, California 92101, telephone (786) 738-9012. Our corporate website address is www.humbl.com (http://www.humbl.com).

Overview

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

On December 3, 2020, HUMBL, LLC (“HUMBL LLC”) merged into the Company in what is accounted for as a reverse merger. Under the terms of the Merger Agreement, HUMBL LLC exchanged 100% of their membership interests for 552,029 shares of newly created Series B Preferred Stock. The Series B Preferred shares were issued to the respective members of HUMBL LLC following the approval by FINRA of a one-for-four reverse stock split of the common shares and the increase in the authorized common shares to 7,450,000,000 shares, and 10,000,000 preferred shares. On July 27, 2023 the Company increased their authorized common stock to 12,500,000,000 shares.

The FINRA approval for both the increase in the authorized common shares and reverse stock split occurred on February 26, 2021. To assume control of the Company, the former CEO, Henry Boucher assigned his 7,000,000 shares of Series A Preferred Stock as well as 550,000,000 shares of common stock to Brian Foote, the President and CEO of HUMBL LLC for a $40,000 note payable. The Series A Preferred Stock is not convertible into common stock; however, it has voting rights of 10,000 votes per 1 share of stock. After the reverse merger was completed, HUMBL LLC ceased doing business, and all operations were conducted under Tesoro Enterprises, Inc. which later changed its name to HUMBL, Inc. (“HUMBL” or the “Company”).

On June 3, 2021 we acquired Tickeri, Inc. (“Tickeri”) in a debt and stock transaction totaling $20,000,000 following which Tickeri became a subsidiary of HUMBL. On January 31, 2023, the Company sold Tickeri back to the former owners and reflected the loss on disposal in the Consolidated Statement of Operations. For the full description of these transactions, refer to the Form 10-K filed April 6, 2023.

On June 30, 2021, we acquired Monster Creative, LLC (“Monster”). Monster is a Hollywood production studio that specializes in producing movie trailers and other related content. As part of the acquisition, we entered into certain debt instruments with the founders of Monster that are in default as they were due December 31, 2022. Effective June 30, 2023, the Company and Phantom Power, LLC (the entity that sold Monster to the Company two years earlier) entered into a Securities Purchase Agreement whereby the Company sold back the membership interest they held along with 115,000,000 five-year warrants priced at $0.05 in exchange for the cancellation of the remaining portion of the original $975,000 non-convertible note of which $300,000 remained outstanding, and the cancellation of $1,000,000 of the remaining $3,308,830 in convertible notes that remained outstanding. As part of the sale of the membership interest, Monster took back all assets and liabilities with respect to their company, and the intercompany advances between the Company and Monster were forgiven. The operations of Monster for the six months ended June 30, 2023 and 2022 are reflected in discontinued operations, and the result of the disposal of Monster is reflected as a gain on disposal in the consolidated statements of operations. For the full description of Monster, refer to the Form 10-K filed April 6, 2023.

On February 12, 2022, the Company entered into an asset purchase agreement with BizSecure, Inc. (“BizSecure”). The Company determined this was an acquisition of a business pursuant to the guidance provided in both ASC 805 and Rule 11-01(d) of Regulation S-X. BizSecure is not considered a significant subsidiary under Regulation S-X Rule 1-02(w). The Company acquired a customer relationship with the US Air Force and BizSecure’s Mobile ID technology. The Company had issued 13,200,000 common shares and 26,800,000 restricted stock units (“RSUs”) that vest quarterly commencing April 1, 2022 for a period of two years as part of this acquisition. On December 30, 2022, as a result of the Company’s failure to timely register the 13,200,000 shares of common stock issued February 12, 2022 BizSecure requested the cancellation of such shares and the 10,050,000 RSUs that vested during 2022. Pursuant to BizSecure’s request, the 13,200,000 shares of common stock and the 10,050,000 RSUs were rescinded effective December 30, 2022. The remaining 16,750,000 RSUs will continue to vest in accordance with the original terms. There is no requirement for the Company to cease using the intellectual property received in the February 12, 2022 transaction. For the full description of this transaction, refer to the Form 10-K filed April 6, 2023.

On July 19, 2023, the Company entered into a Settlement Agreement and Mutual Release dated July 19, 2023 (the “Settlement Agreement”) with BizSecure, Alfonso Arana, Alfonso Rodriquez-Arana and Clement Danish to resolve matters arising under the Asset Purchase Agreement dated February 12, 2022 between the Company and BizSecure in which the Company purchased the assets of BizSecure. Under the terms of the Settlement Agreement, the Company agreed as follows: (i) within three (3) business days of the execution date, the Company will issue and deliver 127,000,000 restricted shares of its common stock (the “Shares”) (which were issued July 25, 2023) that the Company will register on SEC Form S-1 within 60 calendar days of the execution date of the Settlement Agreement; (ii) if, prior to and including the effective date of the Form S-1, and through the end of the 12th month following such effective date, the value per Share falls below $0.003, then the Company shall file an amendment to the initial Form S-1 filing to increase the number of Shares issued to BizSecure and the aggregate offering price of the Shares being registered (“|the “Registered Shares”), reflecting the public market value of the Shares within three (3) business days of the execution date, but in no event shall the Shares be valued less than $0.003 per share; (iii) if the Company fails to register the Shares, then the Company agrees to immediately pay BizSecure the cash equivalent of the public market value of the Shares based on (a) the value of the price of the Company’s common stock on the day the Company was obligated to register the Shares, multiplied by 127,000,000 or (b) $0.003 multiplied by 127,000,000 whichever is higher;.(iv) the public market value of the Shares on the execution date shall be equal to the number of Shares multiplied by $.0026 (the “Share Value”); (v) on the last day of the first year following the execution date (the “Anniversary Date”), the Share Value shall be no less than the per share value of the Shares on the Anniversary Date based on the closing price of the Registered Shares on the Anniversary Date (the “Anniversary Value”) (as may be adjusted pursuant to any reverse split). To the extent the Anniversary Value is lower than the Share Value, which in no event will be less than $0.003, the Company will register and issue and deliver additional shares to BizSecure equal to the amount necessary for the public market value of the total number of Shares issued to the Stockholders in accordance with this Agreement to equal the Anniversary Value; and (vi) the Company will transfer ownership of and title to the Vibe Board Pro 75 to BizSecure.

On March 3, 2022, the Company acquired Ixaya Business SA de CV, a Mexican corporation (“Ixaya”), under a Stock Purchase Agreement (“Ixaya SPA”). The acquisition of Ixaya was for $150,000 and 8,962,036 shares of common stock (a value of $1,500,000) for a total of $1,650,000. The Company accounted for this acquisition as a business combination under ASC 805, and Ixaya is not considered a significant subsidiary under Regulation S-X Rule 1-02(w).

On November 2, 2022, the Company acquired BM Authentics (“BM”), a provider of sports merchandise ranging from autographed jerseys, bats, balls, helmets, and photos for $110,000 in cash and 90,000,000 shares of common stock. These shares were issued on January 10, 2023.

On November 15, 2022 we entered into a Settlement Agreement and Mutual Release of Claims (the “Release Agreement”) with Forwardly, Inc. (“Forwardly”) under which we agreed to pay Forwardly $2,200,000 in five equal monthly payments of $440,000 commencing November 15, 2022 and ending March 15, 2023. The Company and Forwardly, amended the terms of the payments whereby the Company paid the January and February 2023 payments in December 2022, and Forwardly agreed to extend the last payment to June 15, 2023. The payment is being made in connection with a warrant (the “Warrant”) that Forwardly purchased from us for $200,000 in 2020 that provided for the purchase of up to 125 million shares of our common stock of which Forwardly purchased 10 million shares for $2,000,000 in 2021. Forwardly retained the 10 million shares under the Warrant in lieu of interest on the $2,000,000 it paid to exercise that number of our shares of common stock under the Warrant. Upon payment of the last $440,000, the remaining 115,000,000 warrants were cancelled.

On May 10, 2023, we entered into an Equity Financing Agreement (“EFA”) and a Registration Rights Agreement (“Rights Agreement”) with Pacific Lion. Pursuant to the EFA, the Company has the right, subject to certain conditions, to sell up to $20,000,000 in shares of its common stock to Pacific Lion. Pursuant to the Rights Agreement, HUMBL agreed to file a registration statement to register the common stock issuable under the EFA. Following the registration of the securities under the EFA, HUMBL has the right to cause Pacific Lion to purchase its common stock at 85% of the lowest closing trade price in the previous 10 trading days by submitting a put notice to Pacific Lion. HUMBL may choose the dollar amount of each put notice; provided, however, the maximum dollar amount of any put cannot exceed 150% of HUMBL’s average daily trading volume in the previous 10 trading days. In addition, the amount of the put notice must not be less than $10,000 or greater than $200,000, unless otherwise agreed to by the parties. HUMBL may only deliver one put notice to Pacific Lion in any given 10 trading day period. Following an uplist to Nasdaq, NYSE or an equivalent national exchange, the conversion rate would increase from 85% to 90%. The amount of HUMBL shares owned by Pacific Lion cannot exceed 4.99% of the issue and outstanding shares of HUMBL common stock following the purchase by Pacific Lion of HUMBL shares under a put notice. We have agreed with Pacific Lion to delay the filing of the registration statement indefinitely.

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

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

The Company is organized into two divisions: a) HUMBL Consumer and b) HUMBL Commercial. These two divisions incorporate and expand the Company’s core products and services. The majority of the Company’s operations prior to 2022 were focused on the Consumer division.

HUMBL – A Verified Commerce Platform

HUMBL delivers a digital wallet and website as our core services. HUMBL provides customers with the ability to connect with consumers and merchants that have all been fully verified.

1. HUMBL Wallet

2. HUMBL.com - Website

3. HUMBL Commercial Services

HUMBL Wallet

The HUMBL Wallet is a 4.9 star application that is available for download on major app stores. The HUMBL Wallet is the centerpiece of the consumer experience on the HUMBL platform. The HUMBL Wallet consolidates a variety of services for customers in one place and helps us to verify customers and merchants.

• Search Engine
• Social Media
• Marketplace
• Digital Payments

The HUMBL Wallet is self-custodied by the individual; ensuring that the user has full control over their online identity, digital assets and private keys.

The HUMBL Wallet is also connected to the BLOCKS Registry, a product registry that allows customers to authenticate and track physical and digital items.

HUMBL Wallet customers have the obligation to perform their own tax record keeping; 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. We do not store or have access to any biometric information related to our verified users.

The HUMBL Wallet uses SumSub, a third-party service provider, to perform know-your-customer/know-your-business services and authenticate customers. We do not capture or store consumers’ information on our servers, except for their corresponding name, wallet address and email address for basic communications with the verified user. We do not resell our customers data.

The HUMBL Wallet is available in over 130 countries and is not available in any OFAC Countries. The HUMBL Wallet no longer allows customers to buy, sell or swap digital assets.

HUMBL Website

i. 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 articles, news, images, videos and more. The search engine also serves as a discovery layer for consumers to search for verified merchandise and tickets.

ii. HUMBL Tickets

Primary - HUMBL is now the Official Technology Platform of the Arena Football League (AFL) through the 2028 season, and will be offering AFL tickets for sale, along with other major arena ticketing partners such as Ticketmaster and Seat Geek.

Secondary - HUMBL Tickets offers secondary (resale) tickets to thousands of live events across North America. HUMBL Tickets inventory listings and ticket fulfillment are provided by Ticket Evolution and we earn a commission for each sale through our 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.

iii. 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.

We are a software platform and do 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.

We previously offered an NFT marketplace and in an effort to ensure compliance with applicable regulations, we have terminated its use. HUMBL customers may no longer buy or sell NFTs on our platform.

iv. HUMBL Social Media

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 and enhance consumer protection.

v. HUMBL Metaverse Stores

In addition to traditional marketplace listings, HUMBL has also created metaverse stores. Our first metaverse store was created for Major League Baseball (MLB) 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 - Commercial Division (HBS)

Our digital wallet and website can also be used as a white label or “Powered by HUMBL” solution for commercial clients.

• Government - HUMBL is one of the first government-approved digital wallets in the State of California. We are currently in the middle of rolling out a pilot program with the County of Santa Cruz, CA, that will deliver a digital wallet for Santa Cruz County citizens to help them interact more effectively with County government in areas of record keeping such as applications, permits and licensing.
• Sports Leagues and Arenas - HUMBL is the “Official Technology Platform” of the Arena Football League (AFL) through the 2028 season. HUMBL will be providing a digital wallet, website and ticketing services for all 16 teams of this sports league, alongside other major ticketing providers such as Ticketmaster and Seat Geek.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

The following table sets forth the summary operations for the nine months ended September 30, 2023 and 2022:

Revenues

Revenues for the nine months ended September 30, 2023 were $676,245 as compared to $106,350 for the nine months ended September 30, 2022, an increase of $569,895. The increase was due in large part to the sales of merchandise from our marketplace which included items from BM Authentics and from services rendered from our Mexican subsidiary, Ixaya.

Cost of Revenues and Gross Profit

Cost of revenues for the nine months ended September 30, 2023 were $292,275 as compared to $92,372 for the nine months ended September 30, 2022, an increase of $199,903. The increase was primarily due to increases in our marketplace for BM Authentics and our cost of labor for Ixaya.

Operating Expenses

Operating expenses for the nine months ended September 30, 2023 were $11,397,801 as compared to $25,174,873 for the nine months ended September 30, 2022, a decrease of $13,777,072. Operating expenses consists of development costs, professional fees and general and administrative expenses and non-cash charges for impairment expenses and stock-based compensation as fully described below. We expect our development costs and professional fees to continue to decrease in our next 12 months as we look to scale back on outside contract labor. Our non-cash charges have already declined from levels in 2022 as our stock-based compensation will be reduced and we have already impaired most of our intangible assets and all of our goodwill.

Development Costs

Development costs which consist of salaried and outsourced technical consultants for the nine months ended September 30, 2023 were $161,980 compared with $2,242,668 for the nine months ended September 30, 2022. The decrease of development costs related to the roll out of various projects such as the HUMBL Wallet and Social in 2022.

Professional Fees

Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the nine months ended September 30, 2023 were $1,474,131 compared to $3,275,300 for the nine months ended September 30, 2022. The decrease in professional fees related to the professional fees incurred in regulatory filings including OTC compliance and reporting as well as increases in consultant costs in 2022 versus 2023. We expect that these costs will continue decreasing during 2023.

Settlement

The Company incurred $806,400 in settlement expenses for the nine months ended September 30, 2023 and $1,552,400 in settlement expenses for the nine months ended September 30, 2022 related to agreements with individuals for liabilities incurred.

Stock-Based Compensation

The Company incurred $5,894,280 in stock-based compensation expenses for the nine months ended September 30, 2023 compared to $10,146,188 for the nine months ended September 30, 2022 related to agreements with consultants, advisors, and directors for services rendered. We expect our stock-based compensation expenses to decline in the next 12 months due to the vesting terms of such grants. The awards provided were valued in accordance with ASC 718 at fair value.

Impairment of Intangible Assets including Goodwill and Digital Assets and Inventory

The Company incurred $1,008,784 in non-cash charges related to impairment of intangible assets including goodwill in 2022, and $151,409 and $1,593,570 in impairment of our digital assets in the nine months ended September 30, 2023 and 2022. The intangible asset impairment relates to the impairment on the goodwill incurred in the Ixaya acquisition. The impairment of the digital assets was based on the valuation changes in the digital assets we held. Effective June 30, 2023, we held no digital assets. We impaired $797,089 in 2023 related to our inventory as a one-time adjustment.

General and Administrative

General and administrative expenses for the nine months ended September 30, 2023 were $2,112,512 compared with $5,356,105 for the nine months ended September 30, 2022. The decrease in general and administrative expenses of $3,243,593 is related to the following approximate reductions in expenses as follows: salaries and wages ($1,602,000) advertising and business development expenses ($340,000), travel and conferences ($213,000), penalties ($700,000), recruitment ($54,000), insurance ($45,000), rent ($26,000), security ($124,000) and all other general and administrative costs (approximately $140,000).

Other Income (Expense)

In the nine months ended September 30, 2023 we incurred $1,461,988 in other expenses, compared to $3,108,081 in other expenses in the nine months ended September 30, 2022, a decrease of $1,646,093. The other expenses relate to amortization of discounts of $334,904 and $1,668,881, respectively for the 2023 and 2022 periods, as well as interest expense of $548,594 and $1,262,925, respectively. Gain on sale of digital assets of $24 and $187,009, and a loss on conversion of convertible notes payable of $525,425 and a loss of $305,966 for 2023 and 2022, respectively. In 2023, we had $95,866 in derivative expenses and a change in the fair value of derivative liabilities of $42,777 related to convertible notes entered into during this period. We had a loss of $57,318 on sale of fixed assets in 2022. 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 nine months ended September 30, 2023 was ($12,475,819) as compared to a net loss of ($28,268,976) for the nine months ended September 30, 2022. The $15,793,157 decrease in the net loss was due to the changes noted herein.

Segment Reporting

The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.

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

The following represents segment reporting for continuing operations only:

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Results of Operations for the Three Months Ended September 30, 2023 and 2022

The following table sets forth the summary operations for the three months ended September 30, 2023 and 2022:

Revenues

Revenues for the three months ended September 30, 2023 were $186,779 as compared to $21,347 for the three months ended September 30, 2022, an increase of $165,432. The increase was due in large part to the sales of merchandise from our marketplace which included items from BM Authentics and from services rendered from our Mexican subsidiary, Ixaya.

Cost of Revenues and Gross Profit

Cost of revenues for the three months ended September 30, 2023 were $72,634 as compared to $54,672 for the three months ended September 30, 2022, an increase of $17,962. The increase was primarily due to increases in our marketplace for BM Authentics and our cost of labor for Ixaya.

Operating Expenses

Operating expenses for the three months ended September 30, 2023 were $4,678,650 as compared to $6,724,792 for the three months ended September 30, 2022, a decrease of $2,046,142. Operating expenses consists of development costs, professional fees and general and administrative expenses and non-cash charges for impairment expenses and stock-based compensation as fully described below. We expect our development costs and professional fees to continue to decrease in our next 12 months as we look to scale back on outside contract labor. Our non-cash charges have already declined from levels in 2022 as our stock-based compensation will be reduced and we have already impaired most of our intangible assets and all of our goodwill.

Development Costs

Development costs which consist of salaried and outsourced technical consultants for the three months ended September 30, 2023 were $0 compared with $167,265 for the three months ended September 30, 2022. The decrease of development costs related to the roll out of various projects such as the HUMBL Wallet and Social in 2022.

Professional Fees

Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the three months ended September 30, 2023 were $699,107 compared to $1,663,702 for the three months ended September 30, 2022. The decrease in professional fees related to the professional fees incurred in regulatory filings including OTC compliance and reporting as well as increases in consultant costs in 2022 versus 2023. We expect that these costs will continue decreasing during 2023.

Settlement

The Company incurred $806,400 and $432,000 in settlement expenses which are included in our operating expenses for the three months ended September 30, 2023 and 2022 related to agreements with individuals for liabilities incurred.

Stock-Based Compensation

The Company incurred $1,853,653 in stock-based compensation expenses for the three months ended September 30, 2023 compared to $3,350,541 for the three months ended September 30, 2022 related to agreements with consultants, advisors, and directors for services rendered. We expect our stock-based compensation expenses to decline in the next 12 months due to the vesting terms of such grants. The awards provided were valued in accordance with ASC 718 at fair value.

Impairment of Intangible Assets including Goodwill and Digital Assets and Inventory

The Company incurred $0 and $381,688 in impairment of our digital assets in the three months ended September 30, 2023 and 2022. The impairment of the digital assets was based on the valuation changes in the digital assets we held. Effective June 30, 2023, we held no digital assets. We impaired $797,089 in 2023 related to our inventory as a one-time adjustment.

General and Administrative

General and administrative expenses for the three months ended September 30, 2023 were $522,401 compared with $729,596 for the three months ended September 30, 2022. The decrease in general and administrative expenses of $207,195 is related to the reductions in expenses for salaries, penalties, advertising, rent, travel and insurance.

Other Income (Expense)

In the three months ended September 30, 2023 we incurred $1,252,001 in other income, compared to $767,818 in other expenses in the three months ended September 30, 2022, a decrease of $484,183. The other income and expenses relate to amortization of discounts of $305,803 and $12,614, respectively for the 2023 and 2022 periods, as well as interest expense of $35,009 and $483,135, respectively. Gain on sale of digital assets of $0 and $91,215, and a loss on conversion of convertible notes payable of $897,258 and a loss on conversion of $305,966 for 2023 and 2022, respectively. In 2023, we had $16,515 in derivative expenses and a change in the fair value of derivative liabilities of $2,584 related to convertible notes entered into during this period. We had a loss on sale of fixed assets of $57,318 in 2022. We expect to incur additional other income (expense) in the next 12 months related to our debt.

Net Loss from Continuing Operations

Net loss from operations from continuing operations for the three months ended September 30, 2023 was ($5,816,506) as compared to a net loss of ($7,525,935) for the three months ended September 30, 2022. The $1,709,429 decrease in the net loss was due to the changes noted herein.

Segment Reporting

The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions.

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

The following represents segment reporting for continuing operations only:

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Liquidity and Capital Resources

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

During the past two years, we devoted a substantial amount of capital to build out our platform and as a result our working capital deficit and accumulated deficit have increased significantly. In addition, we have incurred significant debt from both unrelated and related parties to assist in supporting our operations.

As of September 30, 2023, we had $117,791 in cash. During the last two years we have built our platform and grew our operations by acquiring companies to support what we have just recently consolidated into HUMBL.com. The acquisitions increased our debt and our common shares issued as we spent very little cash in these acquisitions. The impact of COVID-19, supply chain issues, challenges in the cryptocurrency market and recent bank failures have had a very minimal impact on the Company’s operations.

We had a working capital deficit of $7,192,076 and $27,408,687 as of September 30, 2023 and December 31, 2022, respectively. The majority of our current liabilities is in the form of related party notes, convertible notes and accounts payable. The decrease in working capital is the direct result of these notes as well as the debt incurred related to the cash necessary to continue the development of our mobile wallet. A majority of the Company’s operating expenses in the past two years were the result of non-cash charges such as impairment of intangible assets including goodwill, settlement and stock-based compensation. The actual monthly cash burn of the Company is approximately $386,000 per month at this time and as our core products come online, this is likely to decrease upon our technology being completed. The Company in the nine months ended September 30, 2023 received net proceeds of $2,122,773 from various debt financings, net of repayments, and has received $50,000 as a contribution from our CEO as well as $360,050 from the sale of common stock and warrants and $100,000 that was for a Series C preferred stock issuance when the finalization of the Certificate of Designation is complete. In the nine months ended September 30, 2022, the Company received $2,000,000 in warrant exercises, $406,040 in capital contributions from our CEO and $5,806,702 in various debt financings, net of repayments, and $425,000 from the issuance of common stock, 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.

Off-Balance Sheet Arrangements

As September 30, 2023 and December 31, 2022, we had no off-balance sheet arrangements.

Critical Accounting Policies

Use of Estimates

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

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.

Revenue Recognition

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

We account for revenues based on the verticals in which they were earned, the three principal verticals being (1) HUMBL Wallet, (2) HUMBL Marketplace, and (3) HBS – Commercial division. See “Revenue Recognition” in Note 2 of our Financial Statements.

The Company has a core revenue focus on:

1. HUMBL Wallet

2. HUMBL.com – Web Platform

3. HBS Commercial Division - (“Powered by HUMBL”)

The Company plans to drive its revenues through the following channels:

HUMBL Wallet

• The Company will drive consumer acquisition primarily through the digital wallet. Consumers can be monetized inside a digital wallet through the delivery of search advertising, social media advertising, loyalty advertising, credit card payment transactions, ticketing sales, certificates of authenticity and more.

HUMBL Web Platform

• The Company has developed one of the first digital wallet and web platforms that are connected together. This means that any verified customers using the HUMBL.com web platform, are also connected to a digital wallet for consumer and merchant transactions.
• The HUMBL.com platform can be used to drive search advertising, social media advertising, loyalty advertising, credit card payment transactions, ticketing sales, certificates of authenticity, authentic merchandise purchases and more.

HBS Commercial Services (“Powered by HUMBL”)

• HUMBL also packages its digital wallet and web platform for white-labeling by clients.
• Government – HUMBL has secured approval to build a digital wallet for the County of Santa Cruz, CA. This digital wallet will be built in a modular way, that can be replicated for other cities, counties, states and national government transactions and record keeping in areas such as licensing, renewals and certificates. Once built, HUMBL will offer these digital wallets for government in exchange for flat fee, a percentage of transactions, or a mix of both.
• Stadiums, Arenas and Leagues – HUMBL has secured approval to serve as the “Official Technology Platform” of the Arena Football League (AFL), which is currently comprised of 16 teams through the 2028 season. HUMBL will deliver digital wallet and web platform services, with the goal of maximizing ticket revenues, merchandise sales and advertising programs across league digital properties. HUMBL will be paid a percentage on every ticket sold by the league, with annual escalators through the end of the 2028 season. HUMBL will seek to replicate this model across other teams, sports leagues, stadiums, arenas and festivals.

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 September 30, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.