TAP Real Estate Technologies, Inc.: Form 10-Q for the period ended Jun 30, 2024

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 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

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.

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 2023 were focused on the Consumer division.

Results of Operations for the Six Months Ended June 30, 2024 and 2023

The following table sets forth the summary operations for the six months ended June 30, 2024 and 2023:

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Revenues

Revenues for the six months ended June 30, 2024 were $263,198 as compared to $197,653 for the six months ended June 30, 2023, an increase of $65,545. The increase was due in large part to the sales of merchandise from our marketplace which included items from BM Authentics.

Cost of Revenues and Gross Profit

Cost of revenues for the six months ended June 30, 2024 were $308,565 as compared to $180,546 for the six months ended June 30, 2023, an increase of $128,019. The increase was primarily due to increases in our marketplace for BM Authentics.

Operating Expenses

Operating expenses for the six months ended June 30, 2024 were $3,973,385 as compared to $6,430,217 for the six months ended June 30, 2023, a decrease of $2,456,832. 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 2023 as our stock-based compensation has decreased sharply.

Development Costs

Development costs which consist of salaried and outsourced technical consultants for the six months ended June 30, 2024 were $92,787 compared with $161,980 for the six months ended June 30, 2023. The decrease of development costs related to the roll out of various projects such as the HUMBL Wallet and Social in 2023 which reduced significantly in 2024.

Professional Fees

Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the six months ended June 30, 2024 were $1,015,172 compared to $871,234 for the six months ended June 30, 2023. 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 in 2023 versus 2024. We expect that these costs will stabilize during 2024 and beyond.

Stock-Based Compensation

The Company incurred $2,322,682 in stock-based compensation expenses for the six months ended June 30, 2024 compared to $4,040,627 for the six months ended June 30, 2023 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 Digital Assets

The Company incurred $0 and $151,409 in impairment of our digital assets in the six months ended June 30, 2024 and 2023. 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.

General and Administrative

General and administrative expenses for the six months ended June 30, 2024 were $542,744 compared with $1,204,967 for the six months ended June 30, 2023. The decrease in general and administrative expenses of $662,223 is related to the following approximate reductions in salaries and wages, advertising, business development expenses, insurance, rent, and security.

Other Income (Expense)

In the six months ended June 30, 2024 we incurred $1,302,267 in other income, compared to $209,760 in other expenses in the six months ended June 30, 2023, an increase of $1,512,027. The main contributing factors of this increase was the $2,800,000 gain on the sale of HUMBL Financial assets for the 10% ownership in Avrio and decreases in other expenses from 2023 to 2024 mostly related to interest expense, and the loss on the conversion of convertible debt. 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 six months ended June 30, 2024 was ($2,716,485) as compared to a net loss of ($6,622,870) for the six months ended June 30, 2023. The $3,906,385 decrease in the net loss was due to the changes noted herein.

Results of Operations for the Three Months Ended June 30, 2024 and 2023

The following table sets forth the summary operations for the three months ended June 30, 2024 and 2023:

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Revenues

Revenues for the three months ended June 30, 2024 were $156,857 as compared to $118,578 for the three months ended June 30, 2023, an increase of $38,279. The increase was due in large part to the sales of merchandise from our marketplace which included items from BM Authentics.

Cost of Revenues and Gross Profit

Cost of revenues for the three months ended June 30, 2024 were $162,165 as compared to $82,386 for the three months ended June 30, 2023, an increase of $79,779. The increase was primarily due to increases in our marketplace for BM Authentics.

Operating Expenses

Operating expenses for the three months ended June 30, 2024 were $1,898,032 as compared to $2,707,179 for the three months ended June 30, 2023, a decrease of $809,147. 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 2023 as our stock-based compensation has decreased sharply.

Development Costs

Development costs which consist of salaried and outsourced technical consultants for the three months ended June 30, 2024 were $20,861 compared with $95,135 for the three months ended June 30, 2023. The decrease of development costs related to the roll out of various projects such as the HUMBL Wallet and Social.

Professional Fees

Professional fees which consist of contracted individuals and companies, legal, audit and accounting costs for the three months ended June 30, 2024 were $491,382 compared to $464,643 for the three months ended June 30, 2023. 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 in 2023 versus 2024. We expect that these costs will stabilize during 2024.

Stock-Based Compensation

The Company incurred $1,310,197 in stock-based compensation expenses for the three months ended June 30, 2024 compared to $1,509,108 for the three months ended June 30, 2023 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 Digital Assets

The Company incurred $0 and $149,414 in impairment of our digital assets in the three months ended June 30, 2024 and 2023. The impairment of the digital assets was based on the valuation changes in the digital as81sets we held. Effective June 30, 2023, we held no digital assets.

General and Administrative

General and administrative expenses for the three months ended June 30, 2024 were $75,592 compared with $488,879 for the three months ended June 30, 2023. The decrease in general and administrative expenses of $413,287 is related to the following approximate reductions in salaries and wages, advertising, business development expenses, insurance, rent, and security.

Other Income (Expense)

In the three months ended June 30, 2024 we incurred $1,031,572 in other expenses, compared to $535,048 in other income in the three months ended June 30, 2023, a decrease of $1,566,620. The main contributing factors of this increase from 2023 to 2024 mostly related to interest expense, and the gain on the conversion of convertible debt. 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 June 30, 2024 was ($2,934,912) as compared to a net loss of ($2,135,939) for the three months ended June 30, 2023. The $798,973 increase in the net loss was due to the changes noted herein.

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 June 30, 2024, we had $12,053 in cash. During the last two years we built our platform and grew our operations by acquiring companies to support what we have just recently consolidated into HUMBL.com.

We had a working capital deficit of $1,574,777 and $4,690,800 as of June 30, 2024 and December 31, 2023, respectively. The majority of our current liabilities is in the form of long-term debt and notes payable, and accounts payable and accrued expenses. The decrease in working capital is the direct result of reductions of notes payable, accrued interest and accrued expenses as well as the change in the contingent consideration. A majority of the Company’s operating expenses in the past two years was the result of non-cash charges such as impairment of intangible assets including goodwill, settlement and stock-based compensation. The actual monthly cash burn of the Company is approximately $225,000 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 six months ended June 30, 2024 received net proceeds of approximately $1,209,000 from various debt and warrant financings. However, as a result of the operating losses and working capital deficit, management has determined that there is substantial doubt about the Company’s ability to continue as a going concern.

In January 2023 and June 2023, we recognized a gain on disposal of $13,685,645 when we settled all claims with the former owners of Tickeri and Monster and sold them back their companies.

Net cash used in operating activities was $1,338,287 and $2,101,421 for the six months ended June 30, 2024 and 2023, respectively. The $763,134 decrease in net cash used in operating activities was primarily a result of the change in the net loss and the non-cash charges impacting our net loss from 2023 to 2024, such as the gain on the sale of HUMBL Financial assets, and decreases in our stock-based compensation. Additionally, our changes in assets and liabilities increased by approximately $54,000.

We had no activities from investing activities in the six months ended June 30, 2024 and 2023, respectively.

Cash provided by financing activities was $987,086 and $1,722,621 for the six months ended June 30, 2024 and 2023, respectively. In 2024, the Company raised $1,025,487 from the proceeds from convertible notes as well as repayments of convertible notes payable of $221,901 and raised $111,000 from the sale of warrants. In 2023, we raised $360,050 from the sale of stock, $1,040,000 from proceeds of convertible notes payable and $700,000 from related party notes payable and $50,000 from a contribution of capital by our CEO and $50,000 from notes payable. We also repaid $477,429 of notes payable.

We expect that the consolidation of our platform into HUMBL.com as well as our arrangement with the AFL 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 June 30, 2024 and December 31, 2023, 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 June 30, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2024, 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 June 30, 2024 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.