DERIVATIVE LIABILITIES

3 Months Ended

Mar. 31, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

NOTE 11: DERIVATIVE LIABILITIES

The Company entered into several convertible notes payable, that terms include variable conversion prices (see Note 14). The Company evaluated these terms and determined that the conversion option on the convertible notes payable contained characteristics that required the Company to classify them as derivative liabilities. The Derivative Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value of Derivative Instruments. The estimated fair value of the Derivative Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).

The Company identified embedded features in some of the agreements which were classified as liabilities. These embedded features included a variable conversion price that would convert those instruments into a variable number of common shares. The accounting treatment of derivative financial instruments requires that the Company treat the instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.

The Company determined the derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of March 31, 2025. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.

Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each conversion option is estimated using the Black-Scholes valuation model. The following assumptions were used on March 31, 2025:

	Three Months Ended March 31, 2025
Expected term		0.75 years
Expected volatility		361	%
Expected dividend yield		-
Risk-free interest rate		4.12	%
Market price	$	0.0002 – $0.001

Activity related to the derivative liabilities for the period ended March 31, 2025 and December 31, 2024 is as follows:

	March 31, 2025			December 31, 2024
Beginning balances	$	338,986		$	63,316
Recognition of derivative liability on conversion options of notes		423,000			245,000
Derivative expense		585,608			79,025
Conversion of note payable		(167,674	)		(33,082	)
Change in fair value of derivative liabilities		(11,573	)		(15,273	)
Ending balances	$	1,168,347		$	338,986

HUMBL, INC. 10-Q