10-Q: HUMBL, Inc. Pivots to Mining and AI, Reports Q1 Net Income Driven by Asset Sale Amidst Going Concern Doubts

HUMBL, Inc. reported a net income of $12.17 million for Q1 2025, primarily due to a significant gain from the sale of its HUMBL.com assets, as the company pivots its business model to focus on mining and artificial intelligence in Brazil and Latin America, despite ongoing concerns about its ability to continue as a going concern.

Summary

• HUMBL, Inc. has undergone a significant business model pivot, selling its HUMBL.com assets to WSCG, Inc. and acquiring a 99% interest in FinCapital Credito Pagamentos e Servicos LTDA, a Brazilian company whose primary asset is 41,500 tons of magnesium silicate valued at $20,000,000.
• The company reported a net income of $12,169,164 for the three months ended March 31, 2025, a substantial improvement from a net loss of $(232,022) in the same period of 2024, primarily driven by a $16,835,929 gain on the disposal of discontinued operations (HUMBL.com assets).
• Despite the reported net income, the company's continuing operations incurred a net loss of $(4,656,633) for Q1 2025, a significant increase from a net income of $800,772 in Q1 2024.
• The company's cash balance increased significantly to $2,099,252 as of March 31, 2025, from $20,487 at December 31, 2024, largely due to the $2,000,000 cash payment received from WSCG for the asset sale.
• HUMBL's working capital deficit improved to $(6,592,161) as of March 31, 2025, from $(23,693,753) at December 31, 2024, but management still expresses 'substantial doubt about the Company's ability to continue as a going concern' due to ongoing operating losses and the remaining deficit.
• The company's new strategy involves operating as a holding company, owning and operating various subsidiaries with a particular focus on acquiring undervalued assets and businesses in Brazil and Latin America, including mining and artificial intelligence.
• As of March 31, 2025, there were 39,791,299,186 common shares issued and outstanding, with authorized common shares increased to 85,000,000,000 as of May 21, 2025.
• The company's disclosure controls and procedures were deemed 'not effective' as of March 31, 2025.

Sentiment

Score: 3

Explanation: While the company reported a net income due to a one-time asset sale gain and has a new strategic direction, the underlying continuing operations show significant losses, a substantial increase in debt-related expenses, and an explicit 'going concern' warning. The ineffectiveness of internal controls and ongoing legal issues further contribute to a negative outlook, indicating severe financial distress and high uncertainty despite the pivot.

Positives

• Reported a net income of $12,169,164 for the three months ended March 31, 2025, primarily due to a significant gain on the disposal of discontinued operations.
• Cash balance increased substantially to $2,099,252 as of March 31, 2025, from $20,487 at December 31, 2024, bolstered by the $2,000,000 payment from the WSCG asset sale.
• Working capital deficit improved significantly to $(6,592,161) from $(23,693,753) in the prior quarter, reducing immediate liquidity pressure.
• Net cash used in operating activities decreased by $509,464, from $(807,699) in Q1 2024 to $(298,235) in Q1 2025, indicating a reduced operational cash burn.
• The company has acquired FinCapital, which holds 41,500 tons of magnesium silicate valued at $20,000,000, providing a new asset base.
• Entered into a joint venture with Multicortex, LLC on April 3, 2025, acquiring a 51% interest to focus on artificial intelligence and high-performance computing, diversifying its business focus.

Negatives

• Net loss from continuing operations significantly worsened to $(4,656,633) for Q1 2025, compared to a net income of $800,772 in Q1 2024.
• Interest expense surged to $(1,267,822) in Q1 2025 from $(96,830) in Q1 2024, indicating a substantial increase in debt servicing costs.
• Incurred significant non-operating expenses including derivative expense of $(585,608), loss on exchange of warrants to common stock of $(109,329), and loss on exchange of Series C Preferred Stock to common stock of $(562,000) in Q1 2025.
• Loss on conversion of convertible notes payable increased to $(577,315) in Q1 2025 from $(331,905) in Q1 2024, highlighting ongoing dilution costs.
• Management concluded that disclosure controls and procedures were 'not effective' as of March 31, 2025.
• The company continues to operate with a working capital deficit of $(6,592,161) and an accumulated deficit of $(105,806,970) as of March 31, 2025.
• Several convertible notes are in default, leading to additional default fees and fixed conversion prices, which could result in further dilution.

Risks

• Management has determined that there is 'substantial doubt about the Company's ability to continue as a going concern' due to operating losses and a working capital deficit.
• The company faces significant debt obligations, including current portions of notes payable totaling $750,000, related party notes payable of $397,500, and convertible notes payable of $1,477,690, with several notes in default.
• The new business model, focused on mining (magnesium silicate) and artificial intelligence, is a significant pivot from previous operations and is unproven in terms of generating consistent, profitable revenue.
• The company is subject to two ongoing shareholder derivative class action lawsuits alleging federal securities law violations, false/misleading statements, and sales of unregistered securities, which could result in significant monetary damages.
• Future common share issuances, including $16,000,000 in common shares for the FinCapital acquisition contingent on a recapitalization event, pose a substantial risk of further dilution to existing shareholders.
• The ineffectiveness of disclosure controls and procedures raises concerns about the reliability of financial reporting and internal controls.

Future Outlook

HUMBL, Inc. has transitioned to a holding company model, no longer pursuing Web3 and related technologies. The company's future strategy involves owning and operating various subsidiaries, with a particular focus on Brazil and Latin America. FinCapital, a 99% owned subsidiary, will focus on selling its magnesium silicate assets and acquiring other raw materials or mining interests. Additionally, the company has entered a joint venture with Multicortex, LLC, to develop artificial intelligence and high-performance computing products, with funding expected from a potential Regulation A+ offering.

Management Comments

• "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."
• "Our CEO, Thiago Moura, is an experienced entrepreneur with deep connections in Brazil and throughout Latin America."
• "Our plan is to find and acquire undervalued assets and business in North and South America, with a particular focus in Brazil, and then operate those businesses as subsidiaries under our corporate umbrella."
• "We expect our professional fees to continue to decrease in our next 12 months as we look to scale back on outside contract labor due to the change in our business operations."

Industry Context

HUMBL's strategic pivot from Web3 and blockchain technologies to a holding company model focused on mining (magnesium silicate) and artificial intelligence represents a dramatic shift. This move positions the company in entirely different sectors, moving away from the highly speculative and often volatile crypto/Web3 space towards more traditional resource and emerging technology markets. The emphasis on Brazil and Latin America suggests a regional focus, potentially leveraging local connections and opportunities in these industries. This pivot is a significant departure from its previous identity and places it in competition with established players in mining and the rapidly evolving AI sector.

Management Changes

Corporate Governance

Legal Proceedings

• Matt Pasquinelli and Bryan Paysen v. HUMBL, LLC, Brian Foote, Jeffrey Hinshaw and George Sharp (Case No. 22CV0723 AJB BLM): A shareholder derivative class action lawsuit alleging federal securities law violations, false/misleading statements, and sales of unregistered securities. The case was dismissed without prejudice on March 27, 2025, but plaintiffs filed an amended complaint on April 10, 2025. The company intends to vigorously defend the actions.
• 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): A shareholder derivative class action lawsuit filed in Delaware Chancery Court alleging similar claims as the Pasquinelli litigation. No new updates were provided in this report.

Related Party Transactions

• Outstanding balance of $25,702 owed to WSCG, Inc. as of March 31, 2025, representing advances made above expenses related to credit card charges.
• Notes payable with a trust related to a director of the Company totaling $44,500 as of March 31, 2025, with a new $12,000 note entered on January 21, 2025. All these notes were repaid in April 2025.
• A Secured Promissory Note with a partnership controlled by the family of one of the Company's directors, totaling $353,000 as of March 31, 2025, bearing 6% interest and due February 7, 2025. This note was repaid in April 2025.
• Convertible promissory notes related to the Monster Creative acquisition, totaling $421,830 as of March 31, 2025, which are in default.
• Brian Foote, former CEO and current director, sold his 7,000,000 shares of Series A Preferred Stock and 100,000 shares of Series D Preferred Stock to Ybyr Capital S.A., making Ybyr the controlling stockholder.

Stakeholder Impact

• Shareholders face significant dilution risk due to the massive increase in authorized common shares (to 85 billion) and ongoing issuances for debt conversions, acquisitions, and compensation.
• Shareholders' voting power may be further diluted by the issuance of Series D Preferred Stock with high voting rights.
• Creditors are exposed to risk given the company's 'going concern' warning, working capital deficit, and several notes being in default, although some related-party notes were repaid post-quarter.
• Employees may experience continued changes in personnel and operations as the company transitions its business model, with decreases noted in payroll and payroll-related expenses.
• The company's pivot to mining and AI introduces new operational and market risks for investors and potential partners, as the company lacks a proven track record in these new sectors.

Next Steps

• Market and sell the 41,500 tons of magnesium silicate owned by FinCapital.
• Acquire other raw materials or mining interests through FinCapital.
• Find and acquire undervalued assets and businesses in North and South America, with a particular focus in Brazil, to operate as subsidiaries under the new holding company model.
• Fund the development of Multicortex's artificial intelligence and high-performance computing suite of products, potentially through a Regulation A+ offering.
• Address the identified deficiencies in disclosure controls and procedures.

Key Dates

Recommendation

Keywords

HUMBL, HMBL, SEC filing, 10-Q, quarterly report, financial results, business pivot, mining, magnesium silicate, artificial intelligence, AI, Brazil, Latin America, FinCapital, WSCG, corporate governance, going concern, convertible notes, shareholder lawsuit, dilution