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 June 30, 2022, we had $1,985,437 in cash. In the six months ended June 30, 2022, the Company’s subsidiaries experienced positive cash flow from operations generating over $2,261,995 in revenue. The Company expanded their product offerings through the acquisition of BizSecure, Inc. and the acquisition of Ixaya. These entities will be instrumental in the roll out of HUMBL’s Blockchain Services Group which currently is focused on providing services to governments as well as businesses. We also received $6,500,000 in related party long-term promissory notes and $2,000,000 from the exercise of 10,000,000 warrants. The Company intends to continue to pursue additional resources to continue the development of our core products and the roll out of new products.
We had a working capital deficit of $27,690,796 as of June 30, 2022 as compared to a working capital deficit of $20,965,419 as December 31, 2021, respectively. The increase in the working capital deficit is the result of the incurrence of expenditures related to the commencement of the various products and the current potion of debt that is due in the next 12 months. 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 (over 52%) are the result of non-cash charges such as impairment of goodwill and stock-based compensation. The actual monthly cash burn of the Company is approximately $1,250,000 per month at this time and as our core products come online, this is likely to decrease as much of this is directly related to the in-house and outsourced technology team. 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.
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We expect that the revenue generating operations of the Company will continue to improve the liquidity of the Company moving forward. However, going forward, the effect of the pandemic and rising interest rates on the capital markets may limit our ability to raise additional capital on the terms acceptable to us at the time we need it, if at all. The challenges related to remote work and travel restrictions that we as a smaller company have faced in striving to meet our disclosure obligations in a timely manner while taking the steps to protect the health and safety of our employees have impacted, and may continue to further impact, our ability to raise additional capital.
The consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
The Company 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 $7,559,595 and $3,431,561 for the six months ended June 30, 2022 and 2021, respectively. The $4,128,034 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 goodwill for Tickeri in 2021 versus the impairment for Ixaya in 2022. Additionally, we increased our accounts payable and accrued expenses by $1,330,140 from 2021 to 2022 and had net cash decreases as a result of changes in our digital assets of $885,355.
Net cash used in investing activities was $843,307 for the six months ended June 30, 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, purchases of a non-fungible token of $406,040 and domain names of $275,020. In the six months ended June 30, 2021we incurred investing activities of $234,151 related to $364,545 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 $6,895,126 and $7,259,954 for the six months ended June 30, 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 $6,250,000, and repayment of notes payable of $46. In 2022, the Company raised $2,000,000 from the exercise of warrants and proceeds from related party notes in the amount of $4,502,645, and a contribution of capital of $406,040 (as well as non-cash contribution of capital of $500,000) by the Company’s CEO.
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.
