UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2021

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 333-148987

 

CUENTAS, INC.

(Exact name of Registrant as specified in its charter)

 

Florida   20-3537265
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)

 

235 Lincoln Rd., Suite 210, Miami Beach, FL 33139

(Address of principal executive offices)

 

800-611-3622

(Registrant’s telephone number)

 

Securities registered under Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         
Common Stock, par value $0.001 per share   CUEN   The Nasdaq Stock Market LLC
         
Warrants, each exercisable for one share of Common Stock   CUENW   The Nasdaq Stock Market LLC

 

Securities registered under Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

As of June 30, 2021, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock outstanding, other than shares held by persons who may be deemed affiliates of the registrant, computed by reference to the closing sales price of the common stock on June 30, 2021, was $36,258,669.

 

The number of shares of Common Stock, $0.001 par value, outstanding on March 31, 2022 was 14,965,690 shares.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I  
     
Item 1. Business 1
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 20
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Mine Safety Disclosures 21
     
PART II  
     
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities 22
Item 6. [Reserved] 24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 27
Item 9A Control and Procedures 27
Item 9B. Other Information 28
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 28
     
PART III  
     
Item 10. Directors, Executive Officers and Corporate Governance 29
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 38
Item 13. Certain Relationships and Related Transactions, and Director Independence 39
Item 14. Principal Accounting Fees and Services 40
     
PART IV  
     
Item 15. Exhibits, Financial Statement Schedules 41
Item 16. Form 10-K Summary 42

 

i

 

 

SPECIAL NOTE

 

As used in this Annual Report on Form 10-K (the “Annual Report”), unless the context otherwise requires, the terms “the Company,” “Cuentas,” “we,” “us,” and “our” refer to Cuentas, Inc., a Florida corporation.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report includes forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995 or by the U.S. Securities and Exchange Commission in its rules, regulations and releases, regarding, among other things, all statements other than statements of historical facts contained in this report, including statements regarding our future financial position, business strategy, and plans and objectives of management for future operations. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. In addition, our past results of operations do not necessarily indicate our future results.

 

These statements include, among other things, statements regarding:

 

  our ability to implement our business plan;
     
  our ability to attract key personnel;
     
  our ability to operate profitably;
     
  our ability to efficiently and effectively finance our operations;
     
  our ability to raise additional financing for working capital;
     
  our ability to efficiently manage our operations;
     
  that our accounting policies and methods may require management to make estimates about matters that are inherently uncertain;
     
  changes in the legal, regulatory and legislative environments in the markets in which we operate;
     
  adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations.

 

Except as otherwise required by applicable laws and regulations, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this report, whether as a result of new information, future events, or changed circumstances after the date of this report. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. No forward-looking statement is a guarantee of future performance. You should read this Annual Report and the documents that we reference in this Annual Report and have filed with the Securities and Exchange Commission (the SEC) thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

 

The Company maintains a website at www.cuentas.com. The Company makes available, free of charge, through the Investor Information section of the website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Any of the foregoing information is available in print to any stockholder who requests it by contacting our Investor Relations Department. Alternatively, you may also access our reports at the SEC’s website at www.sec.gov.

  

ii

 

 

PART I

 

ITEM 1. BUSINESS

 

The Company

 

The Company was incorporated under the laws of Florida on September 21, 2005, and currently focuses on the business of using proprietary fintech technology to provide e-banking and e-commerce services for delivering mobile banking, prepaid debit and digital content services to the unbanked, underbanked and underserved Latino, Hispanic and immigrant communities. The Company’s proprietary software platform enables Cuentas to offer comprehensive financial services and robust functionality that is absent from other Mobile Apps through the use of our Prepaid Debit Mastercard®/General-Purpose Reloadable cards (“GPR”).

 

Our Business

 

The Company’s Mobile App & GPR card are integrated into a proprietary fintech ecosystem that protects customers by depositing their funds in an FDIC insured bank account at Sutton Bank, the issuing bank.

 

The comprehensive financial services currently available include:

 

Direct ACH Deposits to receive funds

 

  ATM access – U.S. and most foreign countries

 

Retail and Online purchases

 

Peer to Peer Payments at no cost between Cuentas Account holders

 

Cash Reloads at major retailers (Walmart, CVS, Walgreens, Dollar General, etc.)

 

Discounted Gift Cards for major brands (Amazon Cash, Xbox, Playstation, Burger King, etc.)

 

Transit Authority Fares – Los Angeles TAP, Connecticut GoCT, coming soon NY-OMNY

 

Prepaid Long Distance Telecom Minutes – call land lines or mobile phones worldwide

 

  U.S. Mobile Phone Recharges (TopUps)

 

Int’l. Mobile Phone Recharges (TopUps)

 

WU and Cuentas Bridge Digital and Retail Money Transfer Worlds for Latino Community

 

On or about March 8, 2022, the Company has integrated Western Union's (“WU”) domestic and international money transfer capabilities into the Cuentas mobile banking app. The integration enables the Company’s customers to send money to 200 countries and territories via the Cuentas mobile app. Leveraging Western Union's leading global cross-border, cross-currency platform, The Company’s customers can conveniently move money to friends and family almost anywhere across the world using the Cuentas mobile app. Once sent, receivers can pick up their remittance in cash at any Western Union retail location.

 

1

 

 

A major factor that provides technical strength and reliability to Cuentas’ project is the fintech ecosystem that it has developed. The foundation of Cuentas’ ecosystem is the fintech-exclusive, royalty-free, perpetual platform license and source code from CIMA Telecom, Inc. (“CIMA”) that Cuentas acquired for an aggregate value of $9 Million of capital stock of the Company. We believe that this platform has been proven to be a robust, reliable transactional, marketing, financial and predictive, Tier-1 transactional platform Cuentas’ ecosystem integrates the proprietary CIMA platform via dedicated APIs with Sutton Bank (the issuing bank), IDology (AML & KYC) and InComm (Processor, Load Network & 3rd Party Digital Products).

 

Cuentas’ Mobile App includes a Mobile Wallet (“Wallet”), Digital Store (“Store”) and is linked with a Prepaid Mastercard® which can be used for ATM withdrawals, online purchases and in-person purchases.

 

Account holders may deposit funds to their account via (a) no-cost Direct Deposit, (b) no-cost fund transfers from other Cuentas account holders, or (c) for a small charge, using InComm’s VanillaLoad network in over 200,000 locations at major retailers like Walmart, CVS, Walgreens, Dollar General, and more.

 

Once account holders have available funds, they can use their Cuentas Prepaid Mastercard® wherever prepaid Mastercards are accepted worldwide and at most ATMs in the U.S., and many international ATMs.

 

Account holders may use the funds in their wallet to purchase discounted gift cards in the Cuentas Digital Store. Product categories in the Digital Store include Digital Gift Cards, Transit Cards, Mobile Phone Recharges (the “TopUps”) and Western Union International Remittances. Digital gift cards include Amazon Cash, Sony Playstation, Xbox, Karma Koin, Burger King, Bass Pro Shops and more. Transit products include or will include OMNY in New York, TAP in Los Angeles, GoCT in Connecticut and The Rapid from Grand Rapids, Michigan. Additional transit products will be available as InComm rolls them out. Cuentas account holders may purchase Mobile Phone Recharges (TopUps) which allow them to recharge their own or someone else’s Verizon, AT&T or other mobile phones in the U.S. or in many foreign countries – in real time. Account holders may make real phone calls using the Cuentas ILD Rewards balance (Loyalty Program) or funds in their wallet - actual phone calls that are made directly from their phone to any mobile phone or land line worldwide.  

 

The Latino Market 

 

The name “Cuentas” is a Spanish word that has multiple meanings and was chosen for strategic reasons, to develop a close relationship with the Spanish speaking population. It means “Accounts” as in “bank accounts” and it can also mean “You can count on me” as in “Cuentas conmigo”. Additionally, it can be used to “Pay or settle accounts” (saldar cuentas), “accountability” (rendición de cuentas), “to be accountable” (rendir cuentas) and other significant meanings.

  

The 2020 U.S. Census showed the Hispanic Latino population at over 62 million and at 18.7% of the total U.S. population. The FDIC defines the “unbanked” “as those adults without an account at a bank or other financial institution and are considered to be outside the mainstream for one reason or another. The Company believes that the Hispanic and Latino demographic generally have had more identification, credit, and former bank account issues more so than any other U.S. minority group leading to more difficulty in obtaining a traditional bank account.

  

Cuentas Mobile App and Wallet

 

The Cuentas Mobile App and Wallet are positioned to service the Hispanic, Latino and immigrant demographics with comprehensive financial products. Additionally, we are able to accept various forms of U.S. and some foreign government issued identification to confirm qualification for opening an account with the Cuentas’ app. The Cuentas’ app is able to accept SSN or ITIN with U.S. identification, Matricula Consular or other qualified government issued forms of identification.

 

The Cuentas Prepaid Mastercard® - General-Purpose Reloadable (GPR) Card

 

The Cuentas Prepaid GPR Card allows each account holder to have a personalized Cuentas Mastercard® and an associated Cuentas Account with the Mobile App, Digital Wallet, Digital Store and Long Distance Telecom services included. It acts as a comprehensive banking solution which enables access to the U.S. financial system for those who are unbanked or underbanked, while also enabling greater functionality than a traditional bank account. The cardholders’ deposited funds are protected in an FDIC-insured bank account at Sutton Bank. 

 

2

 

 

The Cuentas Business Model

 

The Cuentas business model provides or, we expect will provide, for multiple revenue sources, many of which are synergistic market segments and provide unified financial and social functionality to forgotten segments of society.

 

The Cuentas Mobile Wallet has several potential revenue streams. We expect that the Company will receive monthly maintenance fees, reload fees, ATM fees and commissions for products sold as well as interchange and network fees from Mastercard & Pulse. Cuentas’ strategy is to provide excellent value to consumers while charging reasonable fees and commissions to produce profitability. We believe that monthly fees of $4.50 which we will charge per user will generate reasonable revenue. Cuentas provides account recharge capabilities to account holders via the nationwide VanillaLoad network owned by InComm as it is available in many big box retailer chains such as Walmart, Walgreens, CVS, Dollar Store and others.

 

We expect that The Cuentas Digital Store will produce revenue each time that consumers purchase third party gift cards, digital access, mass transit tickets and mobile phone top-ups (U.S. and international). Additionally, International remittances provided by the industry-leader Western Union “by Cuentas” are available and International Bill Pay should be available in 2022. Both services should be major revenue driving factors for Cuentas as they provide reliable, low-cost solutions to our target audience.

 

Cuentas expects to offer rewards for free long distance calling to its account holders (“Cuentas Rewards”) who are given credits upon activation to be able to make real international calls to land lines or mobile phone worldwide, not like internet calling which can be unreliable and poor quality. If successful, we can expand the Rewards program in the future. Our target demographic uses both internet and prepaid calling services to communicate with family members around the U.S. and in their country. This added benefit is designed, at a very low cost, to provide extra benefits to our accountholders, which should help to maintain and solidify valuable relationships with them.

  

Prepaid Debit Card Market Overview

 

The Research and Markets report titled “Prepaid Card Market: Payment Trends, Market Dynamics, and Forecasts 2020 - 2025” released in January 2020 states that, “[i]n the United States, prepaid cards remain the preferred choice for the unbanked market segment....” It also states that “[t]he move towards a cashless society is substantial, further driving the prepaid card market.”

  

Cuentas is strategically positioned in the prepaid marketplace with a focus on the Hispanic, Latino and immigrant demographics.

 

Cuentas has identified Activation Fees as an important issue to our target demographic, so we offer “no-cost” registration and activation with a personalized Prepaid Mastercard® sent directly to the consumer, and we charge a monthly fee of $4.50 15 Days after activation and every 30 days thereafter. As previously mentioned, we also model our offering with empathy and consideration for our target demographic, keeping fees and costs reasonably low so they will be able to justify and appreciate the benefits provided by the Cuentas Mobile App, Wallet & Prepaid Mastercard®.

 

The Cuentas Technology platform

 

The Cuentas technology platform is comprised of CIMA Group’s Knetik and Auris software platforms (the “CIMA Licensed Technology”). The platform is built on a powerful integrated component framework delivering a variety of capabilities accessible by a set of industry standard REST-based API endpoints. In addition to handling electronic transactions such as deposits and purchasing, the platform has the capability of organizing virtual currencies into wallets, essentially future proofing it in today’s evolving financial environment. It enables the organizing of the user’s monetary deposits into a tree-based set of wallets, through strictly enforced user permissions, to delineate proper controls in a tiered monetary asset organizational structure, thus providing a sound basis for family and/or corporate control and distribution of funds across individuals.

 

3

 

 

The platform also contains a sound and proven gamification engine, capable of driving user behaviors in a manner that entices and rewards using incentivization based on proven behavioral science patterns. At the heart of this gamification engine lies a proven and robust rules engine that can easily integrate and modify process flows and orchestrations between disparate platforms, allowing for a quick and easy integration of complex, orchestrated integrations between internal process automation and invocations of external systems. The platform provides Android and iOS software for users to execute a wide variety of transactions including, but not limited to, account balances, account transfers and in-app purchases. User messaging are also integrated and are achieved via SMS, email, in-app messaging, and voice.

 

The user management application uses rich metadata CRM and single sign-on (“SSO”) to track user behavior and personalize the user experience. It is fully integrated with our Strategic Partners, scalable and manages the digital ecosystem entitlements. The platform can process both physical and virtual goods, digital assets, real time currency value exchange, virtual currency support with current exchange rates and support nontraditional assets, in addition to credit card, POS, debits, and digital wallet management.

 

The unique rules engine is capable of all aspects of gamification: badging, questing, leveling, points consumption, leader boards, loyalty and reward points and personalization with tracking and messaging to support behavior management. Business intelligence is used for reporting and communication of product management via Rate Deck Management, Pinless ANI Recognition, IV and Call Flows and Access Number Management. The platform has redundant reporting for enhanced billing and fraud control and integrates customer service with Business Intelligence and platform integrity. 

  

Strategic Partners

 

Sutton Bank (“Sutton”)

  

Cuentas has a 5 year Prepaid Card Program Management Agreement with Sutton Bank as the issuer of the Cuentas Prepaid Mastercard® - Debit/GPR card which is effective through October 2026 with automatic 1 year renewals.. Sutton insures account holders’ funds through the FDIC and provides direct deposit capabilities, early pay functionality and account balance functionality for the Cuentas Mobile App and Mobile Wallet. Sutton coordinates Know Your Client (“KYC”), Office of Foreign Asset Control (“OFAC”), Politically Exposed Persons (“PEP”) and Anti-Money Laundering (“AML”) compliance with Cuentas and IDology. Each applicant must have either a Social Security number or an ITIN. During the registration process, IDology compares each applicant’s personal information with known KYC, OFAC and PEP databases, and if required, can request certain forms of identification to confirm thier identity. These forms of identification may include but are not limited to: Passport, Driver’s License, Matricula Consular and U.S. residency documentation. Only applicants that reach a certain score that is coordinated between Sutton and IDology, are approved to receive a Cuentas Prepaid Mastercard® associated with their Cuentas Mobile App & Wallet account.

 

Interactive Communications International, Inc. (“InComm”)

 

Cuentas has multiple agreements with InComm including: (a) Processing services, (b) Resale of 3rd party Digital gift cards, (c) Resale of InComm Digital Solutions, and (d) Reload Commission Agreement. The agreements are effective through July 2024 and then renew automatically for 1 year periods. InComm is an instrumental partner of Cuentas as it provides the operational core of Cuentas’ transaction processing platform, the cash reload component and access to many third party products and services.

 

On July 23, 2019, the Company entered into a 5 year Prepaid Services Agreement with InComm (the “InComm PSA”) to power and expand the Company’s Mobile App, Mobile Wallet and GPR card. InComm is a supplier of 3rd party gift and digital content cards and Cuentas currently resells a variety of these products through its Mobile App’s Digital Store and Cuentas-SDI distribution network, with possible expansion in the future.

 

Under the InComm PSA, InComm is the prepaid card processor and through its VanillaLoad network, allows the Company’s cardholders for a small fee, to reload their Cuentas Mobile Wallet through a nationwide network of retailers including Walmart, 7-Eleven, Walgreens, CVS Pharmacy, Rite Aid, Dollar General and many more. In addition, the Company plans to extend the cash reload component of the Wallet through a select number of “bodegas” in the Cuentas-SDI network to increase its market penetration and profitability.

 

4

 

 

Under the InComm PSA, InComm provides processing services, telephone support, data storage services, account servicing, reporting, output and hot carding services to the Company. Processing services consist mainly of authorization and transaction processing services. InComm also processes authorizations for transactions made with or on prepaid products, along with any payments or adjustments made to prepaid products. InComm also processes the Company’s data and post entries in accordance with the specifications. Data storage services consist mainly of storage of the Company’s data in a format that is accessible online by the Company through APIs designated by InComm, subject to additional API and data sharing terms and conditions. InComm also provides Web/API services for prepaid Cuentas GPR applications and transactions.

 

The Cuentas Ecosystem

 

Cuentas’ goal is to offer the consumer a one-stop shop, easy to use, Mobile App & Mobile wallet with Mastercard® rails that can provide new, important financial services and solve many of their daily needs and desires while saving the users time and money.

 

Approved Cuentas accountholders will have a Prepaid Mastercard® acceptable wherever Mastercard® debit cards are accepted and can have their paychecks or certain government benefits checks directly deposited to their account associated with the card, with funds available for use on the card up to 2 days earlier than standard direct deposits. Furthermore, the Cuentas card has ATM access through the nationwide Pulse Network which provides access to over 500,000 ATMs in the U.S. and many more worldwide. (source: pulsenetwork.com)

 

The Cuentas Digital Store in the Mobile App will allow accountholders to purchase certain mainstream gift cards for use in a variety of stores, online portals and transit agencies – many at discounted prices. Accountholders can also “Top Up” or prepay their mobile phone accounts and also do the same for friends & family living in the US or overseas.

 

5

 

 

Cuentas Mobile

 

Cuentas Mobile is our Mobile Virtual Network Operator (“MVNO”) trade name, which provided Cuentas Mobile branded mobile phones along with attractively priced prepaid voice, text, and data mobile phone services to a limited customer base. Cuentas, through M&M is negotiating to sell mobile services as an MVNO throug an operator on the largest 5G nationwide network from one of the top 3 mobile carriers. Cuentas Mobile will continue to operate a virtual telecommunications network providing mobile voice, text, and data services with essentially the same quality as other MVNOs such as Cricket, Boost, Simple, Ultra, Mint, and Lyca Mobile which have been successful at creating brands, without owning the towers, hardware or network. Cuentas is currently reactivating distribution through grass roots retailers that normally interact with Cuentas’ target audience, specifically offering low-cost mobile phone service with the ability to make international calls to specific Spanish speaking countries in Central and South America.

 

We believe that our potential customers will migrate away from legacy telephone and banking systems to enhanced mobility solutions. The Company’s technological advantage and the synergies created by its combination of a reloadable debit card and a holder of mobile virtual network operator rights will make its products increasingly useful to unbanked, under-banked, under-served and other emerging niche markets.

 

Meimoun & Mammon LLC

 

Meimoun & Mammon LLC (“M&M”) is a retail provider of domestic and international long-distance voice, text, and data telephony services to consumers in the United States and throughout the world. M&M holds International and Domestic Section 214 authority issued by the FCC. M&M operates the retail Tel3 business as a separate division. Tel3 has been a prepaid long distance provider for many years and provides direct and indirect access to Latino and immigrant communities across the US as it provides them with quality international communications services. The majority of revenue generated by the company so far has come from this division.

  

Regulatory Compliance

 

We operate in an ever-evolving and complex legal and regulatory environment. We, the products and services that we offer and market, and those for which we provide processing services, are subject to a variety of federal, state and foreign laws and regulations, including, but not limited to: federal communications laws and regulations; foreign jurisdiction communications laws and regulations; federal anti-money laundering laws and regulations, including the Patriot Act, the BSA, anti-terrorist financing laws and anti-bribery and corrupt practice laws and regulations in the U.S., and similar international laws and regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in Canada; state unclaimed property laws and money transmitter or similar licensing requirements; federal and state consumer protection laws, including the CARD Act, and the Dodd-Frank Act, and regulations relating to privacy and data security; and foreign jurisdiction payment services industry regulations.

 

Our subsidiary M&M is subject to regulation by the FCC and other government agencies and task forces. M&M holds International and Domestic Section 214 licenses issued by the FCC, which may be suspended or revoked by the FCC if M&M does not strictly comply with all applicable regulations and the terms and conditions under which the International and Domestic Section 214 licenses were issued. M&M is also subject to certain foreign jurisdiction communications laws and regulations as it provides limited access to its prepaid calling platform internationally . We believe that we, including our subsidiaries, are currently operating in compliance with all applicable laws and regulations, but there is no certainty that laws and regulations affecting our business will not change. Any such change of laws and regulations applicable to our business might adversely affect our ability to execute our business plan and achieve profitable operating results.

 

6

 

 

At the federal level, Congress and federal regulatory agencies have enacted and implemented new laws and regulations that affect the prepaid industry, such the CARD Act and FinCEN’s Prepaid Access Rule. Moreover, there are currently proposals before Congress that could further substantially change the way banks, including prepaid card issuing banks and other financial services companies, are regulated and are permitted to offer their products to consumers. Non-bank financial services companies, including money transmitters and prepaid access providers, are now regulated at the federal level by the Consumer Financial Protection Bureau (the “CFPB”), which began operations in July 2011, bringing additional uncertainty to the regulatory system and its impact on our business. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business. Sutton bank performs routine AML, KYC, OFAC in consultation with Cuentas and IDology and other compliance review and searches throughout Cuentas’ registration and operational processes. Abuse of our prepaid products for purposes of financing sanctioned countries, terrorist funding, bribery or corruption could cause reputational or other harm that could have a material adverse effect on our business, results of operations and financial condition. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. Failure by us to comply with federal banking regulation may subject us to fines and penalties and our relationships with our issuing banks may be harmed.

 

Most states regulate the business of sellers of traveler’s checks, money orders, drafts and other monetary instruments, which we refer to collectively as money transmitters. While many states expressly exempt banks and their agents from regulation as money transmitters, others purport to regulate the money transmittal businesses of bank agents or do not extend exemptions to non-branch bank agents. In those states where we are required to be licensed, we are subject to direct supervision and regulation by the relevant state banking departments or similar agencies charged with enforcement of the money transmitter statutes and must comply with various restrictions and requirements, such as those related to the maintenance of certain levels of net worth, surety bonding, selection and oversight of our authorized delegates, permissible investments in an amount equal to our outstanding payment obligations with respect to some of the products subject to licensure, recordkeeping and reporting, and disclosures to consumers. We are also subject to periodic examinations by the relevant licensing authorities, which may include reviews of our compliance practices, policies and procedures, financial position and related records, various agreements that we have with our issuing banks, retail distribution partners and other third parties, privacy and data security policies and procedures, and other matters related to our business. As a regulated entity, Cuentas may incur significant costs associated with regulatory compliance. We anticipate that compliance costs and requirements will increase in the future for our regulated subsidiaries and that additional subsidiaries will need to become subject to these or new regulations. If we fail to maintain our existing money transmitter licenses or permits, or fail to obtain new licenses or permits in a timely manner, our business, results of operations and financial condition could be materially and adversely affected.

 

Marketing

 

The Cuentas Mobile App, Mobile Wallet and Prepaid Mastercard® will be predominantly marketed via digital and traditional media channels. Cuentas expects to use a combination of internal resources as well as third parties for our marketing efforts.

 

The digital marketing placements will include social media, SEO (Search Engine Optimization), internet, geo fencing, online streaming providers, influencers, and other digital providers. Traditional marketing efforts include media such as radio, TV, print, billboards, bus wraps, bus benches, TV, radio, etc.

 

Media spends is distributed amongst these marketing vehicles and adjusted as acquisition data is received. Our initial program is to test creative, geo targeting and formats. Once feedback is analyzed, spending will be optimized to enhance efficiency and cost of acquisition. Vertical market integration and partnerships will also be developed to augment growth and stability.

 

Marketing strategies for customer acquisition will focus on key markets, targeted audiences, lifestyle fit, brand awareness, key metrics and go-to-market plans. The proposed acquisition of the SDI companies, if acquired,will expand the current target demographic of unbanked, underbanked and underserved Hispanic and Latino groups to also include the Asian, African, Middle East and European immigrant populations in the U.S .

 

Marketing to Hispanic & Latino groups will initially focus on those populations that have settled in Southern California, Texas, New York, Florida, Arizona and New Mexico.

 

7

 

 

Entry into a Joint-Venture Agreement with WaveMAX Corporation (“WaveMax”) 

 

On July 21, 2021, the Company and WaveMAX entered into a Definitive Joint-Venture Agreement (the “Agreement”). Pursuant to the Agreement, the Company and WaveMax formed CuentasMax LLC on Dec 8, 2021, a joint venture (“CUENTASMAX”) which would install WiFi6 shared network (“WSN”) systems in up to 1,000 retail locations in the New York metropolitan tristate area using access points and small cells to provide users with access to the WSN (the “JV Project”). The WSN will allow CUENTASMAX to generate location-based advertising configured by advertisers using WaveMAX’s advertising dashboard technology directly to users over the WSN, could permit users to pay a service fee for ad-free access to the WSN. The ownership and management of CUENTASMAX shall be as follows: 50% to the Company, 25% to WaveMAX and 25% to Consultoria y Asesoria de Redes, S.A. de C.V. (“Execon”). Execon currently manages approximately 20,000 WiFi endpoints with WaveMax in Mexico. Each of the Company and WaveMAX agreed to fund $120,000 (for a total of $240,000) initially upon execution of the Agreement . In addition, each of the Company and WaveMAX has agreed to fund an additional $127,500 over the succeeding five months, in each case, subject to approval of each party’s board of directors. The expenses of the JV Project shall include acquiring the Access Points hardware, the installation and configuration of the Access Points hardware for use with the broadband internet service at each Retail Location, entering into the necessary agreements with the Retail Locations, instore marketing and promotion of the WSN program, and expenses relating to commercialization of the digital advertising program. The Board of Directors of CUENTASMAX shall initially be comprised of four persons, two designated by the Company, one designated by WaveMAX, and one designated by Execon. The officers of CUENTASMAX shall be the persons from time to time designated by mutual agreement of the Company and WaveMAX, with the initial officers to be determined. It is hoped that up to 1,000 high traffic, prime location convenience stores and “bodegas” (small community markets) will be signed up in conjunction with the Company’s distribution network that sells prepaid debit card, e-store, e-wallet and digital services. A fee of 2% (two percent) of the net revenue of CUENTASMAX will be paid by CUENTASMAX on a monthly basis as a commission to Innovateur Management SAPI de CV. WaveMAX grants CUENTASMAX exclusive rights to use and deploy the WaveMAX Technology, including any and all patents owned or to be owned by WaveMAX and any and all related enhancements or applications of the WaveMAX Technology and any and all prior and subsequent improvements and/or new technology developed by WaveMAX solely in the Company’s BODEGAS network throughout the United States. The parties have agreed to expand CUENTASMAX to other areas of the U.S. once the current deployment is in progress or has been completed. As of December 31.2021, the Company has funded CUENTASMAX an amount of $40,000 and, in agreement with the other parties, funded CunetasMax $40,000 in February of 2022 The parties have agreed to make the third installment by April 15, 2022 The joint venture has begun the initial sales and marketing for the JV and expects to produce revenue initially in Q2 of 2022. 

 

Entry into a Joint-Venture Agreement with Benelisha Group, Inc. (“Benelisha”)  

 

On August 4, 2021, the Company and Benelisha entered into a Definitive Marketing and Promotion Agreement (the “Benelisha Agreement”). Pursuant to the Benelisha Agreement, the Company and Benelisha will market and promote Cuentas GPR cards and the mobile phone application (“DC/MA”) products to Benelisha customers. During the term of the Benelisha Agreement, Benelisha’s goal is to register Benelisha customers to become active users of the Cuentas DC/MA products. The Company hopes to complete technical and program integration to be able to launch in Q2 of 2022.

 

If Benelisha reaches these milestone goals, it will be rewarded with Most Favored Nation (MFN) status along with compensation consisting of 32% of Net Revenue from new cardholders that Benelisha registers and maintains on the Cuentas GPR Platform. After year 3, Benelisha may continue to maintain MFN status by registering 50,000 new cardholders each year. If Benelisha does not maintain MFN status, it will still receive compensation of 32% of net revenue for the active cardholders it maintains.

 

8

 

 

Proposed Acquisition

 

On January 5, 2022, we signed a Binding Letter of Intent (the “Original LOI”) with Mango Tel LLC (“Mango Tel”), SDI Black, and Sohel Kapadia and Saheda Kapadia (collectively the “Owners”), for the potential acquisition of 100% of the assets of Mango Tel LLC and SDI Black 011 for a purchase price of $3.2 million. On February [9], 2022, we signed an amended Binding Letter of Intent amending the Original LOI (collectively, the “LOI”) to reflect that we would only purchase SDI Black (and not purchase Mango Tel which determination was made following our initial due diligence review of Mango Tel) for a purchase price of $2.95 million. The LOI provides that we will deposit $2 million into an escrow account while a definitive purchase and sale agreement is drafted and negotiated. To date, we have not made this deposit into escrow and we do not currently expect to make this deposit (if at all) until the company obtains additional financing. Pursuant to the agreement, we will acquire substantially all of the assets of SDI Black, which also include Black Wireless MVNO, Black 011 Long distance platform and operations and the SDI Black distribution platform and network of over 31,000 bodegas and convenience stores (the “Purchased Assets”). We expect to form a company (“Newco”) into which all of the Purchased Assets shall be transferred following the. As part of the LOI, SDI Black and the Owners have agreed to apply the purchase price paid by us to amounts due to repay U.S. Small Business Administration (“SBA”) loans taken by SDI Black and the sellers shall pay an additional $1,000,000 towards repayment of additional SBA loans. We have also agreed to offer employment agreements to certain Fisk/SDI key employees.

 

SDI Black and the Owners have agreed to indemnify and hold us harmless from and against any liability for any amount owing to SDI Black’s creditors with respect to the Purchased Assets or the business operation of SDI Black being transferred to us pursuant to the LOI, which liability arose prior to the transfer of the Purchased Assets and business operations from SDI Black to us. We have agreed to indemnify and hold SDI Black harmless from and against any liability for any amount owing with respect to the Purchased Assets and business operations of SDI Black transferred by SDI Black to us pursuant to the LOI, which liability arises subsequent to the transfer of the Purchased Assets and business operations from SDI Black to use under the LOI.

 

We are currently continuing our due diligence review of SDI and have not yet began negotiating the terms of a definitive purchase and sale agreement. Accordingly, we cannot provide any assurance that we will effect a transaction with SDI Black on the terms described above or at all or, if we are able to consummate such a transaction, that the terms of any such transaction will be favorable to our stockholders. See “Risk Factors” for further discussion surrounding the LOI and the transactions contemplated thereby.

 

Corporate Information

 

We were incorporated in Florida on September 21, 2005. Our principal executive offices are located at 235 Lincoln Rd., Suite 210, Miami Beach, Florida 33139, and our telephone number is (800) 611-3622. Our corporate website address is www.cuentas.com. The information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

9

 

 

Reverse Split and Offering

 

On January 28, 2021, the Company filed Articles of Amendment to the Articles of Incorporation of the Company with the Secretary of State of Florida, pursuant to which, effective as of February 2, 2021, the Company effected a 1-for-2.5 reverse split of its authorized and issued and outstanding shares of Common Stock. No fractional shares will be issued as a result of the reverse stock split. Fractional shares will be rounded up the nearest whole share, after aggregating all fractional shares held by a stockholder.

 

On February 4, 2021 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of February 1, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Representative” or “Maxim”), as representative of the sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company granted the Underwriter a 45-day option to purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in connection with the Offering. The Company received gross proceeds of approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated Offering expenses. Pursuant to the Underwriting Agreement, the Company also issued to the Underwriter warrants (the “Underwriter’s Warrants”) to purchase up to a total of 223,256 shares of Common Stock (8% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $5.375 per share of Common Stock and have a term of five years.

 

The total expenses of the offering were approximately $1.4 million, which included Maxim’s expenses relating to the offering.

 

On March 4, 2021 and pursuant to the Underwriting Agreement, Maxim exercised its 45-day option to purchase 418,604 additional Warrants, to cover over-allotments in connection with the Offering.

 

The Company 2021 Share Incentive Plan

 

On June 17, 2021 the Board of the Company approved the Cuentas Inc. 2021 Share Incentive Plan (the “2021 Plan”). which was approved by the shareholders during the Annual Shareholders Meeting held on December 15, 2021. The maximum number of shares of stock reserved and available for issuance under the 2021 Plan is 1,800,000 shares. The 2021 Plan is designed to enable the flexibility to grant equity awards to the Company’s officers, employees, directors and consultants as determined by the Company’s Compensation Committee.

 

Employees

 

As of March 31, 2022, our management team consisted of the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. We have an additional five full-time employees: our Compliance Officer, IT Director, VP of Product Development, Executive Assistant and VP Retail Operations for the United States market. For more information relating to the employment agreements, please see the section below entitled “Item 11. Executive Compensation.”

 

10

 

 

ITEM 1A. RISK FACTORS

 

Investing in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider the risk factors we describe below, in any prospectus supplement and in any related free writing prospectus for a specific offering of securities, as well as those incorporated by reference into this prospectus or such prospectus supplement.  You should also carefully consider other information contained and incorporated by reference in this prospectus and any applicable prospectus supplement, including our financial statements and the related notes thereto incorporated by reference in this prospectus. The risks and uncertainties described herein and in the applicable prospectus supplement and our other filings with the SEC incorporated by reference herein are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also adversely affect us. If any of the described risks occur, our business, financial condition or results of operations could be materially harmed. In such case, the value of our securities could decline and you may lose all or part of your investment.

 

While we have entered into a binding letter of intent with SDI Black, we have not entered into negotiations for a purchase and sale agreement therewith and we cannot assure you that the transactions contemplated by our letter of intent will be consummated or, that if such transactions are consummated, they will be accretive to stockholder value.

 

We entered into the LOI with SDI Black pursuant to which we agreed to explore an acquisition of the Purchased Assets from SDI Black. However, the LOI did not include many of the material terms to any potential transaction with SDI Black and there is no guarantee that we will agree to terms or definitive documentation with SDI Black in order to effect the proposed transaction. Further, even if we are able to agree to terms with SDI Black for a transaction, there is no guarantee that the terms will be favorable to our stockholders, that the transaction will be completed in the time frame or in the manner currently anticipated, or that we will recognize the anticipated benefits of the transaction.

 

We may engage in future acquisitions or strategic transactions, including the transaction with SDI Black, which may require us to seek additional financing or financial commitments, increase our expenses and/or present significant distractions to our management.

 

As described herein, we have recently entered into a LOI to acquire the Purchased Assets from SDI Black which enables us to conduct due diligence and negotiate the terms of a definitive purchase and sale agreement. In the event we engage in an acquisition or strategic transaction, we may need to acquire additional financing (particularly, if the acquired entity is not cash flow positive or does not have significant cash on hand). Obtaining financing through the issuance or sale of additional equity and/or debt securities, if possible, may not be at favorable terms and may result in additional dilution to our current stockholders. Additionally, any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, an acquisition or strategic transaction may entail numerous operational and financial risks, including the risks outlined above and additionally:

 

  exposure to unknown liabilities;

 

  disruption of our business and diversion of our management’s time and attention in order to develop acquired products or technologies;

 

  higher than expected acquisition and integration costs;

 

  write-downs of assets or goodwill or impairment charges;

 

  increased amortization expenses;

 

  difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;

 

  impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

 

  inability to retain key employees of any acquired businesses.

 

Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

11

 

 

Risks Related to the Company

 

We have a limited operating history and therefore we cannot ensure, either in the near- or long-term, that we will be able to generate cash flow or profit.

 

We have a limited operating history upon which you may evaluate our business and an investment in our Common Stock may entail significantly more risk than the shares of Common Stock of a company with a substantial operating history. Our ability to successfully develop our products, and to realize consistent, meaningful revenues and profit has not been established and cannot be assured. For us to achieve success, our products must receive broader market acceptance by consumers. Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation. If our products are not widely accepted by the market, our business may fail.

 

Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors.

 

Our business operations are subject to numerous risks, uncertainties, expenses and difficulties associated with early stage enterprises. You should consider an investment in our company in light of these risks, uncertainties, expenses and difficulties. Such risks include: the absence of a lengthy operating history; insufficient capital to fully realize our operating plan; our ability to anticipate and adapt to a developing market; a competitive environment characterized by well-capitalized competitors; our ability to identify, attract and retain qualified personnel; our reliance on key management personnel.

 

Because we are subject to these risks, evaluating our business may be difficult. We may be unable to successfully overcome these risks, which could harm our business and prospects. Our business strategy may be unsuccessful and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully address these risks, there may be an adverse effect on our business, results of operations, financial condition and cash flows.

 

We may never achieve profitability from operations or generate sufficient cash flows to make or sustain distributions to our shareholders.

 

We may never achieve profitability from operations. Even if we do achieve profitability, we cannot assure you that we will be able to sustain or increase profitability on a quarterly or annual basis in the future. There can be no assurance that future operations will be profitable or that we will be able to make or sustain distributions to our shareholders from cash from operations. Revenues and profits, if any, will depend upon various factors, including whether we will be able to successfully implement our business plan and operating strategy. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us. In addition, an inability to achieve profitability could have a detrimental effect on the market value of our Common Stock.

 

We are an early entrant in an emerging industry, and the long-term viability of our business strategy is unproven.

 

As an early entrant in this emerging Fintech industry, we are subject to the risk that our business model and business plan may not prove to be a viable long-term business strategy. If it turns out that our strategy is not a viable long-term business strategy, we may not be able to generate meaningful cash flows, which would materially and adversely affect the viability of our business and stock price.

 

12

 

 

We may not be able to secure sufficient capital to effectively execute our business plan.

 

We may not be able to attract and obtain sufficient capital from the equity and debt markets, or any other capital markets, to execute our business plan and grow our business. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital expenditures necessary to execute our business plan, and in that event our ability to generate revenue may be significantly impaired.

 

COVID-19 and its impact on businesses and financial markets could have a material adverse effect on our operations.

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (“COVID-19”) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. A significant outbreak of COVID-19 and other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, as well as our business and operations. COVID- 19 effectively reduced our capability to acquire accounts holders as a significant portion of our target demographic lost their ability to earn wages and subsequently could not load funds to our product. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our business and results of operations may be materially adversely affected.

 

We are involved in various litigation matters that are expensive and time consuming, and, if resolved adversely, could harm our business, financial condition, or results of operations.

 

Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal, or we may decide to settle lawsuits on similarly unfavorable terms. Any such negative outcome could result in payments of substantial monetary damages or fines, or changes to our products or business practices, and accordingly our business, financial condition, or results of operations could be materially and adversely affected. See “Business-Legal Proceedings” for a description of certain litigation involving the Company.

 

Although the results of lawsuits and claims cannot be predicted with certainty, we do not believe that the final outcome of those matters that we currently face will have a material adverse effect on our business, financial condition, or results of operations. However, defending these claims is costly and can impose a significant burden on management and employees, and we may receive unfavorable preliminary or interim rulings in the course of litigation, which could adversely affect the market price of our securities. There can be no assurances that a favorable final outcome will be obtained in all cases.

 

Operating our business on a larger scale could result in substantial increases in our expenses.

 

As our business grows in size and complexity, we can provide no assurance that we can successfully enter new markets or grow our business without incurring significant additional expenses, that our management platform will ultimately prove to be scalable, and/or that we will be able to achieve economies of scale or we will be able to operate our business on a larger scale than the scale on which we have historically operated.

 

We are substantially dependent on the CIMA License Agreement, which may be terminated under certain circumstances. 

 

On December 31, 2019, the Company entered into the CIMA License Agreement, pursuant to which the Company has a perpetual, exclusive, non-transferable, non-sublicensable, royalty-free license to access and use the CIMA Licensed Technology in the form provided to the Company via the Hosting Services. While the license agreement provides us with a license in perpetuity, if the license agreement is terminated in accordance with its terms, we will lose access to the licensed technology that comprise the Cuentas technology platform, which will have a significant impact on our business, operations and financial results. Further, if the license agreement is terminated, there is no guarantee that we will be able to enter into a new license agreement on the same or similar terms, if at all, and our competitors could license the technology, which would result in a significant market disadvantage to the Company.

 

13

 

 

CIMA and Dinar may exert significant influence over our business and affairs as a result of their corporate governance and other rights under the Side Letter Agreement, which may adversely affect the management of our Company.

 

Pursuant to the Side Letter Agreement, dated December 31, 2019, by and among the Company, Mr. Maimon, Mr. De Prado, Dinar and CIMA (the “Side Letter Agreement”), for as long as the CIMA License Agreement is in effect or CIMA is a shareholder of the Company and owns at least 5% of the Company’s Common Stock, in addition to any other vote or approval required under the Company’s articles of incorporation, bylaws, or any other agreement, each as amended from time to time, the Company has agreed not to take certain actions without certain approval thresholds of the directors appointed by CIMA, Dinar, Mr. Maimon and Mr. De Prado. These negative covenants restrict, among other things, the Company’s ability to incur additional debt, alter certain employment agreements currently in place, enter into any consolidation, combination, recapitalization or reorganization transactions, and issue additional capital stock. Further, CIMA has a co-sale right to participate in a sale of shares of the Common Stock, in the event that Mr. De Prado, Mr. Maimon or any other director or officer of the Company holding greater than 1% of the Common Stock (on a fully diluted basis) proposes to sell any of his, her or its shares of Common Stock. This may hinder our ability to raise the capital needed to improve our financial condition. These rights may limit the ability of our Board of Directors and our management team to make necessary personnel decisions, which may adversely affect the management of our company, particularly if disputes arise between us and CIMA or Dinar (which disputes in and of themselves could have a material adverse effect on our ability to conduct business).

 

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

 

In the ordinary course of our business we use sophisticated call processing engines and other sophisticated telecommunications technology platforms, and we acquire and store sensitive data, including intellectual property, our proprietary business information and personally identifiable information of our prospective and current tenants, our employees and third-party service providers on our networks and website. The secure processing and maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in revenue losses, legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, which could adversely affect our results of operations and competitive position.

 

We are dependent on our executive officers and dedicated personnel, and the departure of any of our key personnel could materially and adversely affect us.

 

We rely on a small number of persons to carry out our business and investment strategies. An Executive Search Committee has been established to evaluate and propose qualified executive candidates for approval by the Board of Directors. Any member of our senior management may cease to provide services to us at any time. The loss of the services of any of our key management personnel, or our inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results. As we expand, we will continue to need to attract and retain qualified additional senior management but may not be able to do so on acceptable terms or at all. Cuentas does not yet have but intends to have key man life insurance policies in place.

 

14

 

 

We are subject to regulation which may adversely affect our ability to execute our business plan.

 

We operate in an ever-evolving and complex legal and regulatory environment. We, the products and services that we offer and market, and those for which we provide processing services, are subject to a variety of federal, state and foreign laws and regulations, including, but not limited to: federal communications laws and regulations; foreign jurisdiction communications laws and regulations; federal anti-money laundering laws and regulations, including the USA PATRIOT Act (the “Patriot Act”), the Bank Secrecy Act (the “BSA”), anti-terrorist financing laws and anti-bribery and corrupt practice laws and regulations in the U.S., and similar international laws and regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in Canada; state unclaimed property laws and money transmitter or similar licensing requirements; federal and state consumer protection laws, including the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the “CARD Act”), and the Durbin Amendment to Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and regulations relating to privacy and data security; and foreign jurisdiction payment services industry regulations. We believe that we are currently operating in compliance with all applicable laws and regulations, but there is no certainty that laws and regulations affecting our business will not change. Any such change of laws and regulations applicable to our business might adversely affect our ability to execute our business plan and achieve profitable operating results.

 

We are subject to Anti-Money Laundering Regulation.

 

We are subject to a comprehensive federal anti-money laundering regulatory regime that is constantly evolving. The anti-money laundering regulations to which we are subject include the BSA, as amended by the Patriot Act, which criminalizes the financing of terrorism and enhances existing BSA regimes through: (a) expanding AML program requirements to certain delineated financial institutions; (b) strengthening customer identification procedures; (c) prohibiting financial institutions from engaging in business with foreign shell banks; (d) requiring financial institutions to have due diligence procedures and, where appropriate, enhanced due diligence procedures for foreign correspondent and private banking accounts; and (e) improving information sharing between financial institutions and the U.S. government. Pursuant to the BSA, we have instituted a Customer Identification Program, (CIP). The CIP is incorporated into our BSA/anti-money laundering compliance program. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business” for additional information. Cuentas is or may become subject to reporting and recordkeeping requirements related to anti-money laundering compliance obligations arising under the Patriot Act and its implementing regulations. In addition, provisions of the BSA enacted by the Prepaid Access Rule issued by the Financial Crimes Enforcement Network (“FinCEN”), impose certain obligations, such as registration and collection of consumer information, on “providers” of certain prepaid access programs, including the prepaid products issued by Cuentas and our issuing banks for which we serve as program manager. In order to qualify for certain exclusions under the Prepaid Access Rule, some of our content providers were required to modify operational elements of their products, such as limiting the amount that can be loaded onto a card in any one day. In addition, pursuant to the Prepaid Access Rule, Cuentas and some of our retail distribution partners have adopted policies and procedures to prevent the sale of more than $10,000 in prepaid access (including closed loop and open loop products that fall under the monetary thresholds outlined above) to any one person during any one day.

 

We are subject to Consumer Protection Regulation.

 

We are subject to various federal, state and foreign consumer protection laws, including those related to unfair and deceptive trade practices as well as privacy and data security. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. A data security breach could expose us to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.

 

15

 

 

We are subject to Federal Regulation.

 

At the federal level, Congress and federal regulatory agencies have enacted and implemented new laws and regulations that affect the prepaid industry, such the CARD Act and FinCEN’s Prepaid Access Rule. Moreover, there are currently proposals before Congress that could further substantially change the way banks, including prepaid card issuing banks and other financial services companies, are regulated and are permitted to offer their products to consumers. Non-bank financial services companies, including money transmitters and prepaid access providers, are now regulated at the federal level by the Consumer Financial Protection Bureau (the “CFPB”), which began operations in July 2011, bringing additional uncertainty to the regulatory system and its impact on our business. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business. Abuse of our prepaid products for purposes of financing sanctioned countries, terrorist funding, bribery or corruption could cause reputational or other harm that could have a material adverse effect on our business, results of operations and financial condition. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. Failure by us to comply with federal banking regulation may subject us to fines and penalties and our relationships with our issuing banks may be harmed.

 

We are subject to Money Transmitter Licenses or Permits.

 

Most states regulate the business of sellers of traveler’s checks, money orders, drafts and other monetary instruments, which we refer to collectively as money transmitters. While many states expressly exempt banks and their agents from regulation as money transmitters, others purport to regulate the money transmittal businesses of bank agents or do not extend exemptions to non-branch bank agents. In those states where we are required to be licensed, we are subject to direct supervision and regulation by the relevant state banking departments or similar agencies charged with enforcement of the money transmitter statutes and must comply with various restrictions and requirements, such as those related to the maintenance of certain levels of net worth, surety bonding, selection and oversight of our authorized delegates, permissible investments in an amount equal to our outstanding payment obligations with respect to some of the products subject to licensure, recordkeeping and reporting, and disclosures to consumers. We are also subject to periodic examinations by the relevant licensing authorities, which may include reviews of our compliance practices, policies and procedures, financial position and related records, various agreements that we have with our issuing banks, retail distribution partners and other third parties, privacy and data security policies and procedures, and other matters related to our business. As a regulated entity, Cuentas may incur significant costs associated with regulatory compliance. We anticipate that compliance costs and requirements will increase in the future for our regulated subsidiaries and that additional subsidiaries will need to become subject to these or new regulations. If we fail to maintain our existing money transmitter licenses or permits, or fail to obtain new licenses or permits in a timely manner, our business, results of operations and financial condition could be materially and adversely affected.

 

We are subject to Privacy Regulation.

 

In the ordinary course of our business, we collect and store or may collect and store personally identifiable information about customers, holders of our cards, subscribers, and users. This information may include names, addresses, email addresses, social security numbers, driver’s license numbers and account numbers. We also maintain or may maintain a database of cardholder data for our proprietary cards relating to specific transactions, including account numbers, in order to process transactions and prevent fraud. These activities subject us to certain privacy and information security laws, regulations and rules in the United States, including, for example, the privacy provisions of the Gramm-Leach-Bliley Act and its implementing regulations, various other federal and state privacy and information security statutes and regulations, and the Payment Card Industry Data Security Standard. These federal and state laws, as well as our agreements with our issuing banks, contain restrictions relating to the collection, processing, storage, disposal, use and disclosure of personal information, and require that we have in place policies regarding information privacy and security. We have in effect a privacy policy relating to personal information provided to us in connection with requests for information or services, and we continue to work with our issuing banks and other third parties to update policies and programs and adapt our business practices in order to comply with applicable privacy laws and regulations. Certain state laws also require us to notify affected individuals of certain kinds of security breaches of computer databases that contain their personal information. These laws may also require us to notify state law enforcement, regulators or consumer reporting agencies in the event of a data breach. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. A data security breach could expose us to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.

 

16

 

 

We are subject to Card Association and Network Organization Rules.

 

In addition to the federal, state, local, and foreign jurisdiction laws and regulations discussed above, we, Cuentas and our issuing banks, are also subject to card association and debit network rules and standards. The operating rules govern a variety of areas, including how consumers and merchants may use their cards and data security. Each card association and network organization audits us from time to time to ensure our compliance with these standards. Noncompliance with these rules or standards due to our acts or omissions or the acts or omissions of businesses that work with us could result in fines and penalties or the termination of the card association registrations held by us or any of our issuing banks. Changes in card association rules or standards set by Visa or Vanilla Reload, or changes in card association and debit network fees or products or interchange rates, could materially and adversely affect our business, financial condition and results of operations.

 

Our success depends, in part, upon our ability to hire and retain highly skilled managerial, and operational personnel, and the past performance of our senior management may not be indicative of future results.

 

The implementation of our business plan may require that we employ additional qualified personnel. Competition for highly skilled managerial, telecommunications, financial and operational personnel is intense, and we cannot assure our stockholders that we will be successful in attracting and retaining such skilled personnel. If we are unable to hire and retain qualified personnel as required, our growth and operating results could be adversely affected.

 

The Company and its subsidiaries have well-financed, well-managed competitors and may not be able to adequately compete in its market.

 

Most of our competitors are larger and have greater financial, technical, marketing, and other resources than we do. Some of our competitors have seasoned management teams with more experience and expertise in our industry than we do. Some competitors may enjoy significant competitive advantages that result from, among other things, having substantially more available capital, having a lower cost of capital, having greater economies of scale, and having enhanced operating efficiencies compared to ours.

 

Cuentas recently began e-commerce card operations and is much smaller than its competitors, faces competition in the prepaid financial services industry including competitors such as American Express, First Data, Total Systems Services, Green Dot, NetSpend, Money Network, Momentum, Blackhawk, Prepaid MasterCard, MasterCard RePower, PayPal, Apple Pay, Amex Serve, H&R Block Emerald, J.P. Morgan Chase, and others. Cuentas also faces intense competition from existing players in the prepaid card industry.

 

Cuentas Mobile will be the new marketing identity for the new MVNO agreement starting in 2022-Q2 and will face prepaid competitors including, without limitation, AT&T, Sprint, Viber, WhatsApp, Skype, MetroPCS, TracFone, Telcel, StraightTalk, Simple Mobile, Virgin Mobile, Boost, Net 10, IDT, Boost, and others.

    

M&M faces competition from many strong and well-financed competitors and other competitors, engaged in the retail termination of domestic and international long distance as well a mobile voice, text, and data services, including, without limitation, IDT, NobelCom, Access Wireless, Boost Mobile, H2O mobile, Mint Mobile and others.

 

Cuentas Mobile will be dependent on the performance of third-party network operators.

 

MVNO operators, including Cuentas Mobile, earn revenues by purchasing network capacity from other network operators and reselling it to end users. Cuentas Mobile will sell mobile services starting in 2022-Q2 as an MVNO that operates on the largest 5G nationwide network from one of the top 3 mobile carriers and is dependent on the performance of its underlying provider and its network.

 

To compete effectively, Cuentas needs to improve its offerings continuously.

 

Cuentas plans to begin operations shortly and expects to be substantially smaller than its competitors. As a result, to compete effectively, Cuentas needs to improve its offerings rapidly and continuously.

 

17

 

 

Cuentas may be unable to attract and retain users.

 

As of the date of this filing, Cuentas has an operating history of e-commerce card business of less than one year. If Cuentas cannot increase the number of cardholders using its Cuentas Mastercard and retain its existing cardholders, this will significantly adversely affect Cuentas’ operating results, revenues, financial condition, and ability to remain in business.

 

Cuentas may be adversely affected by fraudulent activity.

 

Criminals, including, without limitation, cyber-organized criminal syndicates, and others, use increasingly sophisticated methods to engage in illegal activities involving prepaid cards, reload products, and customer information. Cuentas relies on third parties for certain transaction processing services, which subjects Cuentas and its customers to risks related to the vulnerabilities of these third parties, as well as Cuentas’ own vulnerabilities to criminals engaged in fraudulent activities. Fraudulent activity could result in the imposition of regulatory sanctions, including significant monetary fines, which could adversely affect Cuentas’ business, operating results, and financial condition.

 

Risks Related to an Investment in Our Securities

 

Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Common Stock.

 

If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to de-list our securities. Such a de-listing would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a de-listing, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

 

The market price of our Common Stock and Warrants may be highly volatile, and you could lose all or part of your investment.

 

The trading price of our Common Stock and Warrants is likely to be volatile. This volatility may prevent you from being able to sell your securities at or above the price you paid for your securities. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include:

 

whether we achieve our anticipated corporate objectives;

 

actual or anticipated fluctuations in our quarterly or annual operating results;

 

changes in financial or operational estimates or projections;

 

changes in the economic performance or market valuations of companies similar to ours; and

 

general economic or political conditions in the United States or elsewhere.

 

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Common Stock, regardless of our actual operating performance.

 

18

 

 

The financial and operational projections and statements regarding future milestones that we may make from time to time are subject to inherent risks.

 

The projections and statements regarding future milestones that we provide herein or our management may provide from time to time reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business, regulatory, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections and targeted milestones themselves, will prove inaccurate or may not be achieved. There may be differences between actual and projected results, and actual results may be materially different from than those contained in the projections and statements regarding future milestones. The inclusion of the projections and statements regarding future milestones in this prospectus should not be regarded as an indication that we, our management or the underwriters considered or consider the projections or such statements to be a guaranteed prediction of future events, and the projections and such statements should not be relied upon as such.

 

We do not expect to pay dividends for the foreseeable future.

 

We do not expect to pay dividends on our Common Stock for the foreseeable future. Accordingly, any potential investor who anticipates the need for current dividends should not purchase our securities.

 

Our existing directors, executive officers and principal shareholders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.

 

Our directors, executive officers, principal shareholders and their affiliates beneficially own or control, directly or indirectly, in the aggregate, approximately 52.86% of our outstanding Common Stock. As a result, these shareholders, acting together, could have significant influence over the outcome of matters submitted to our shareholders for approval, including the election or removal of directors; any amendments to our articles of incorporation or bylaws; any merger, consolidation or sale of all or substantially all of our assets; and over the management and affairs of the Company. This concentration of ownership may also have the effect of delaying or preventing a change in control of the Company or discouraging others from making tender offers for our shares and might affect the market price of our Common Stock.

 

19

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

ITEM 2. PROPERTIES

 

We currently lease office space at 235 Lincoln Rd., Miami Beach, FL 33139 as our principal offices. We believe these facilities are in good condition and are sufficient for our current use but may need to expand our leased space as our business efforts increase.

 

ITEM 3. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

On December 20, 2017, a complaint was filed by J. P. Carey Enterprises, Inc. (“JP Carey”) alleging a claim for $473,000 related to Franjose Yglesias-Bertheau, a former Vice President of PLKD. Even though the Company made the agreed payment of $10,000 on January 2, 2017, and issued 6,001 shares of Common Stock as conversion of the $70,000 note as agreed in its settlement agreement, JP Carey alleges damages that the Company claims are without merit because JP Carey received full compensation as agreed. The Company is in the process of defending itself against these claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On January 29, 2019, the Company was served with another complaint by JP Carey claiming similar issues as to the previous complaint, with the new claimed damages totaling $1,108,037.85. JP Carey and the Company filed motions for a summary judgment. On October 1, 2020, the Superior Court of Fulton County, State of Georgia granted the Company’s motion for summary judgment and denied JP Carey’s motion for summary judgment. On October 30, 2020, JP Carey filed a notice of appeal to the trial court’s October 1 and 7, 2020 orders granting summary judgment in favor of the Company. The briefing in the appeal was completed during the first quarter of 2021. Oral argument held on April 13, 2021 but no decision has been rendered yet. On November 16, 2020, the Company filed a motion seeking payment from JP Carey of $140,970.82 in attorney fees and costs accrued as of November 13, 2020. JP Carey’s responded brief was filed on or about December 21, 2020 and thereafter the Company filed its reply. JP Carey's petition to the Georgia Supreme Court for a writ of certiorari remains pending and is fully briefed as of January 14, 2022. The Georgia Supreme Court is not required to accept the case and whether it accepts or not is entirely within its discretion. If the Georgia Supreme Court grants certiorari, additional briefing will be due in 2022 and a briefing schedule will be set. n the trial court proceedings, the case remains stayed pending the final outcome after all appeals are exhausted. After the appeal decision is final and no longer subject to further appeal, the trial court will consider Cuentas' motion seeking payment from JP Carey of Cuentas' attorneys' fees and costs and JP Carey's claim for default interest, attorney fees, and costs.

 

On October 23, 2018, the Company was served by Telco Cuba Inc. for an amount in excess of $15,000 but the total amount was not specified. The Company was served on December 7, 2018, with a complaint alleging damages including unspecified damages for product, advertising and other damages in addition to $50,000 paid to Defendants. The Company has hired an attorney and has taken steps to defend itself vigorously in this case. Depositions are in process of being scheduled.

 

On November 7, 2018, the Company and its now former subsidiary, Limecom, were served with a complaint by IDT Domestic Telecom, Inc. for telecommunications services provided to Limecom during 2018 in the amount of $50,000. The Company has no accrual expenses as of December 31, 2019, related to the complaint given the early nature of the process. Limecom was a subsidiary of the Company during this period but since the Limecom Acquisition was rescinded on January 30, 2019, and Limecom agreed to indemnify and hold the Company harmless from this and other debts. The Company hired an attorney and is defending itself vigorously in this case. A court ordered mandatory arbitration session took place and the arbitration findings were issued on June 19, 2020, and a request for trial de novo was filed on July 16, 2020, in order to have the matter docketed on the calendar. The motion for summary judgment filed by the Company with the New Jersey Superior Court initially set for October 16, 2020 was heard on October 30, 2020 after being rescheduled by the court. Oral arguments were held over the phone via conference call. The court came to the determination that while not indicative of success at trial, the court denied Plaintiff’s motion for summary judgment.. The Company settled this lawsuit in February 7, 2022 for a settlement payment of $20,000.

 

20

 

 

On May 1, 2019, the Company received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP”), who allegedly had a Reciprocal Carrier Services Agreement (“RCS”) exclusively with Limecom and not with the Company. The arbitration demand originated from another demand for arbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,052,838.09 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On June 5, 2020, Secure IP filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company. The complaint primarily concerns alleged indebtedness owed Secure IP by Limecom. Secure IP also alleges that the Company received certain transfers of funds which it alleges may be an avoidable transfer under Florida Statute §725.105 up to $1,052,838.09. The Company is contemplating filing a motion to dismiss the complaint and disputes that it received the alleged $1,052,838.09 from Limecom. Moreover, to the extent the Company has exposure for any transfers from Limecom, both Limecom and Heritage have indemnified the Company for any such liability. The Company continues to vigorously defend its position to be removed as a named party in this action due to the fact that the Company rescinded the Limecom Acquisition on January 30, 2019. Cuentas has provided requested discovery and expects depositions to be scheduled shortly. As of December 31, 2021 the company accrued $300,000 due to this matter.

 

On May 25, 2021, the Company received a notice of demand from Vitco LLC and Vitaliy Yurchenko, who allegedly had a licensing agreement entered into with NextGn LLC, a former subsidiary of the Company. The alleged terms of the agreement require payment of $180,000 per annum for use of software and Vitco LLC’s consulting. The alleged amount due to Vitco LLC and Vitaliy Yurchenko is $1,095,000. Vitco LLC and Vitaliy Yurchenko will also seek all attorneys’ fees and costs associated with the filing, maintenance, and enforcement of any formal action.

 

On or about July 15, 2021, the Company, its CEO and other third parties were served with a complaint by Larry Kolb (“Kolb”), Vitco LLC and Vitaliy Yurchenko as part as shareholder’s derivative action under the law of the State of Florida for Breach of Agreement, Breach of Contract, Wage theft, Fraud, Fraudulent Transfer, Breach of Covenant against the Company, its CEO and other third parties. The Complaint demands a transfer of 74,558 Common Shares of the Company or a payment of $265,000. Kolb also demands a payment of $59,652.05 for stolen wages and on order awarding him a reasonable attorney’s fees. The Company retained an attorney. On or about March 1, 2022 the company agreed to settle this matter together with the previous matter listed above involving Yurchenko and Vitco for a total settlement payment of $200,000 which will be effective once a settlement agreement is filed with the court.

 

ITEM 4. MINE SAFETY DISCLOSUES.

 

Not applicable.

 

21

 

 

PART II

 

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES

 

Market Information

 

Since February 2, 2021, our common stock has been traded on the Nasdaq Capital Market with the symbol CUEN and our warrants have been traded on the Nasdaq Capital Market with the symbol CUEN.W. Prior to such date, our common stock was traded on the OTCQB market. As our shares are relatively thinly traded, the price for our securities may be highly volatile and may bear no relationship to our actual financial condition or results of operations. Factors we discuss in this report, including the many risks associated with an investment in our securities, may have a significant impact on the market price of our common stock.

 

Holders of Common Stock

 

As of March 31, 2022, our shares of common stock were held by 128 record holders and our warrants were held by 3 record holders. As of March 31, 2022, we had 14,965,690 shares of Common Stock issued and outstanding. Additionally, there were 135,200 options to purchase common stock issued of which 135,200 are exercisable as of March 31, 2022. Furthermore, as of March 31, 2022 there were (1) 1,757,801 shares of Common Stock issuable upon exercise of the Warrants at an exercise price of $4.30 per share; (2) 40,000 shares of Common Stock issuable upon exercise of the representative’s warrants at an exercise price of $8.75 per share; (3) 8,095 shares of Common Stock issuable upon exercise of warrants at an exercise price of $20.00 per share; (4) 23,334 shares of our Common Stock issuable upon the vesting of Common Stock awards granted to some of our employees and consultants. The Company is authorized to issue up to 360,000,000 shares of common stock and 50,000,000 shares of blank check preferred stock, par value $0.001.

 

Dividends

 

The payment of dividends is subject to the discretion of our Board of Directors and depends, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid any dividends upon our common stock since our inception. By reason of our present financial status and our contemplated financial requirements, we may not declare additional dividends upon our common or preferred stock in the foreseeable future.

 

We have never paid any cash dividends. We may not pay additional cash or stock dividends in the foreseeable future on the shares of common or preferred stock. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:

 

our financial condition;

   

earnings;

   

need for funds;

   

capital requirements;

   

prior claims of preferred stock to the extent issued and outstanding; and

   

other factors, including any applicable laws.

 

Therefore, there can be no assurance that any addition dividends on the common or preferred stock will be declared.

 

22

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth information as of December 31, 2021 relating to all our equity compensation plans:

 

Plan category   Number of securities to be issued upon exercise of outstanding options, warrants and rights     Weighted-average exercise price of outstanding options, warrants and rights     Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))  
    (a)     (b)     (c)  
Equity compensation plans approved by security holders     1,585,200       3.69       1,600,000  
Equity compensation plans not approved by security holders     -       -       -  
Total**     1,585,200       3.69       1,600,000  

 

On June 17, 2021 the Board of the Company approved the Cuentas Inc. 2021 Share Incentive Plan (the “2021 Plan”). The maximum number of shares of stock reserved and available for issuance under the 2021 Plan is 3,150,000 shares. The 2021 Plan is designed to enable the flexibility to grant equity awards to the Company’s officers, employees, directors and consultants as determined by the Company’s Compensation Committee. On December 15, 2021, the shareholders of the Company approved the 2021 Plan .

 

On November 3, 2021, the Company issued 1,550,000 stock options to executives’ officers and non-employee directors. The options vest on the terms set forth on the table below. Such options can be exercised until, November 2, 2031, and were approved by the Company’s shareholders on December 15, 2021.

 

Name   Number of
Options
    Exercise
Price
    Vesting Schedule
Jeffery D Johnson     500,000     $ 2.80     125,000 on 11/3/2021. 125,000 on each Employment Anniversary.
Shalom Arik Maimon     200,000     $ 2.80     50% on 11/3/2021; 50% on 12 month anniversary of grant date
Michael DePrado     150,000     $ 2.80     50% on 11/3/2021; 50% on 12 month anniversary of grant date
Ran Daniel     100,000     $ 2.80     50% on 11/3/2021; 50% on 12 month anniversary of grant date
Richard Berman     100,000     $ 2.80     50% on 11/3/2021
Yochanon Bruk     100,000     $ 2.80     50% on 11/3/2021; 50% on 12 month anniversary of grant date
Jeff Lewis     100,000     $ 2.80     50% on 11/3/2021; 50% on 12 month anniversary of grant date
David Schottenstein     100,000     $ 2.80     50% on 11/3/2021
Adiv Baruch     100,000     $ 2.80     50% on 11/3/2021; 50% on 12 month anniversary of grant date
Carol Pepper     100,000     $ 2.80     50% on 11/3/2021; 50% on 12 month anniversary of grant date
Anthony H. Meadows    

150,000

   

$

2.80

   

33.3% on 2/2/2021, 33.3% on 12 month anniversary of grant date and 33.3% on second anniversary of grant date.

 

On March 30, 2020, the Company issued 79,200 options to its former Chief Executive Officer and 79,200 options to the former President of the Company. The options carry an exercise price of $14.35 per share. All the options were vested immediately. The options are exercisable until March 31, 2022.

 

23

 

 

Recent Sales of Unregistered Securities  

 

On September 14, 2021, the Company issued 70,000 shares of its Common Stock pursuant to a service Agreement between the Company and a service provider, dated May 16, 2019. The fair market value of the shares at the issuance date was $223,000.

 

Each of the transactions described in this Item II give effect to the Reverse Stock Split (as defined below) and were exempt from the registration requirements of the Securities Act of 1933, as amended (“Securities Act”), in reliance upon Section 4(a)(2) of the Securities Act, Regulation D promulgated under the Securities Act and, in the case of sales to investors who are non-US persons, Regulation S promulgated under the Securities Act.

 

ITEM 6. [RESERVED]

 

Not applicable.

  

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect.

 

OVERVIEW AND OUTLOOK

 

The Company was incorporated in September 2005 to act as a holding company for its subsidiaries in the technology, telecom and banking industries.

 

The Company invests in financial technology and engages in use of certain licensed technology to provide innovative telecommunications, mobility, and remittance solutions to unserved, unbanked, and emerging markets. The Company uses proprietary technology and certain licensed technology to provide innovative telecommunications and telecommunications mobility and remittance solutions in emerging markets. The Company also offers wholesale telecommunications minutes and prepaid telecommunications minutes to consumers through its Tel3 division.

 

The Company’s subsidiary, Meimoun and Mammon, LLC (100% owned) (“M&M”), through. Tel3, a business segment of Meimoun and Mammon, LLC provides prepaid calling cards to consumers directly. 

 

OUTLOOK

 

Business Environment

 

We are a technology payment platform company that enables digital and mobile payments on behalf of under-bank and unbanked individuals. We believe in providing simple, affordable, secure and reliable financial services and digital payments to help our customers to achieve their financial goals. We strive to increase our relevance for consumers, and family to access and move their money anywhere in the world, anytime, on any platform and through any device (e.g., mobile, tablets, personal computers or wearables). We provide safer and simpler ways for businesses of all sizes to accept payments from merchant websites, mobile devices and applications, and at offline retail locations through a wide range of payment solutions. We also facilitate person to person payments through Cuentas GPR Card.

  

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry. That focus continues to become even more heightened as regulators on a global basis focus on such important issues as countering terrorist financing, anti-money laundering, privacy and consumer protection. Some of the laws and regulations to which we are subject were enacted recently and the laws and regulations applicable to us, including those enacted prior to the advent of digital and mobile payments, are continuing to evolve through legislative and regulatory action and judicial interpretation. Non-compliance with laws and regulations, increased penalties and enforcement actions related to non-compliance, changes in laws and regulations or their interpretation, and the enactment of new laws and regulations applicable to us could have a material adverse impact on our business, results of operations and financial condition. Therefore, we monitor these areas closely to ensure compliant solutions for our customers who depend on us.

 

24

 

 

Industry Trends

 

Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At Cuentas, we push the boundaries of what is possible through a broad range of research and development activities that seek to anticipate the changing demands of customers, industry trends and competitive forces.

 

RESULTS OF OPERATIONS

 

Comparison of year ended December 31, 2021 to year ended December 31, 2020

 

Revenue

 

The Company generates revenues through the sale and distribution of prepaid telecom minutes, digital products and other related telecom services. The Company also generated sales from its Fintech products and services commencing in the third quarter of 2020. Revenues during the year ended December 31, 2021, totaled $593,000 compared to $558,000 for the year ended December 31, 2020. Revenue by product for 2021 and 2020 are as follows: 

 

    December 31,
2021
    December 31,
2020
 
    (dollars in thousands)  
Telecommunications   $ 525     $ 439  
General Purpose Reloadable Cards     68       119  
Total revenue   $ 593     $ 558  

 

The Company generated sales in the amount of $19,000 from its Fintech products and services during the fourth quarter of 2021 as opposed to $42,000 from its Fintech products and services during the fourth quarter of 2020. We expect to start generating significant income from our Fintech products and services

 

Costs of Revenue and Gross profit

 

Cost of revenues during the year ended December 31, 2021 totaled $469,000 compared to $ 697,000 for the year ended December 31, 2020.

 

Cost of revenue consists of the purchase of wholesale minutes for resale, related telecom platform costs and purchase of digital products in the amount of $ 313,000 during the year ended December 31, 2021 and $459,000 during the year ended December 31, 2020. Cost of revenue also consists of costs related to the sale of the Company’s GPR Card in the amount of $156,000 during the year ended December 31, 2021 and $238,000 during the year ended December 31, 2020. Gross profit (loss) by product lines for 2021 and 2020 are as follows: 

 

    December 31,
2021
    December 31,
2020
 
    (dollars in thousands)  
Telecommunications   $ 212     $ (20 )
General Purpose Reloadable Cards     (88 )     (119 )
Total revenue   $ 124     $ (139 )

  

25

 

 

Operating Expenses

 

Operating expenses consist of selling, general and administrative Expenses and amortization of Intangible assets as discussed below and totaled $ 10,789,000 during the year ended December 31, 2021 compared to $7,640,000 during the year ended December 31, 2020 representing a net increase of $ 3,149,000

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses totaled $ 8,980,000 during the year ended December 31, 2021 compared to $5,840,000 during the year ended December 31, 2020, representing a net increase of $3,140,000. Included in in the Selling, general and administrative expenses, Stock-based compensation and shares issued for services expenses in the amount of $ 2,745,000 during the year ended December 31, 2021 and $1,444,000 during the year ended December 31, 2020. This increase was mainly due to issuance of 1,550,000 stock options to directors and officers of the Company. Such options can be exercised until, November 2, 2031, and were approved by the Company’s shareholders on December 15, 2021. The increase in the other operating expenses is mainly due to an increase in the agreed Incomm payment in the amount of $429,000 to $590,000 in 2021, increase in the agreed maintenance and support services in accordance with the software maintenance agreement with CIMA in the amount of $200,000 to $700,000 in 2021, increase in our D&O insurance expenses in the amount of $513,000 to $513,000 in 2021, settlement expense in the amount of $625,000 (mainly due to the Secure IP legal matter and Kolb and Vitco lawsuit as mentioned aforesaid) in 2021 and increase in our compensation and director fees in the approximate amount of $340,000 to $1,519,000 in 2021.

 

Amortization of Intangible assets

 

Amortization of Intangible assets totaled $1,809,000 during the year ended December 31, 2021 and $1,800,000 during the year ended December 31, 2020, respectively. The increase in 2021 is due to the additional amortization of the domain cuentas.com which was purchased by the Company during the year ended December 31, 2021 in consideration of approximately $47,000. The amortization expense mainly stems from the one-time licensing fee in the amount of $9,000,000 that was paid in shares to Cima, on December 31, 2019. The acquired intangible assets that consisted of perpetual software license had an estimated fair value of $9,000,000. The Company amortizes the intangible assets on a straight-line basis over their expected useful life of 60 months.

 

Other Income 

 

The Company recognized other loss of $61,000 during the year ended December 31, 2021 compared to other income of $296,000 during the year ended December 31, 2020. The net change from the prior period is mainly due to the change in our stock-based liabilities and interest expenses that we incurred. Gain from Change in Fair Value of stock-based liabilities for the year ended December 31, 2021, was $110,000 as compared to a gain of $303,000 for the year ended December 31, 2020. The gain is attributable to the decrease in the Fair Value of our stock-based liabilities mainly due to the decrease in the price of shares of our common stock.

 

Net Loss 

 

We incurred a net loss of $10,729,000 for the year ended December 31, 2021, as compared to a net loss of $8,101,000 for the year ended December 31, 2020, for the reasons described above.

 

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 December 31, 2021, the Company had total current assets of $6,780,000, including $6,607,000 of cash, accounts receivables of $11,000, and other current assets of $162,000 and total current liabilities of $ 2,719,000 creating a working capital of $4,061,000.

 

As of December 31, 2020, the Company had $227,000 of cash, total current assets of $296,000 and total current liabilities of $6,480,000 creating a working capital deficit of $6,184,000. Current assets as of December 31, 2020 consisted of $227,000 of cash, marketable securities in the amount of $3,000, related parties of $54,000 and other current assets of $12,000.

 

26

 

 

The increase in 2021 in our working capital was mainly attributable to the decrease in Accounts Payables in the amount of $ 1,544,000, decrease in our other Accounts Payables in the amount of $1,069,000 and increase in our Cash and Cash equivalents in the amount of $ 6,380,000. 

 

During 2021, we sold 4,245,140 shares of common stock (including warrants that were exercised) under our equity offering. We generated approximately $18,270,000 in gross proceeds from the Offering and warrant exercises and paid fees to the underwriter of $1,459,000, underwriter expense of $100,000, legal fees of $500,000, advisory fees of $120,000 and installment of our director and officer insurance premium in the amount of $138,000. From the net proceeds of approximately $16,375,000 we repaid the loan and accrued interest to Labrys in approximate amount of $635,000 and a convertible note and accrued interest from a private investor in the approximate amount of $130,000. We also repaid our loan and accrued interest from Dinar Zuz in the approximate amount of $378,000. In total, we repaid an approximate amount of $1,143,000 in principal loans and accrued interest. Additionally, we paid a special bonus in the amount of $500,000 to each of Mr. Maimon and Mr. De Prado due to the successful up-listing of the Company’s shares on the Nasdaq Capital Markets. We also paid a special bonus in the amount of $100,000 to Mr. Daniel due to the successful up-listing of the Company’s shares on the Nasdaq Capital Markets. We paid $200,000 in sales and marketing fees to SDI for sale and marketing our GPR card in the New York and Connecticut. We also paid a settlement amount of $95,000. We have used and intend to continue to use the rest of the net proceeds generated from the Offering to execute our business plan and mainly for Sales and Marketing, Purchase of chip-based debit card stock for GPR and Starter cards, Research and Development and Working capital, accrued salaries and other operating expenses. 

  

To date, we have principally financed our operations through the sale of our Common Stock. Nevertheless, management anticipates that cash resources will be available to the Company from generating anticipated net income from the sales of General Purpose Reloadable Cards, digital content and the sale of our Common Stock in future financings. Therefore, we believe that existing cash and financings will be sufficient to fund planned operations and investments through the next 12 months. There can be no assurance, however, that the company will be successful in raising additional capital or that the company will have net income from operations to fund the business plan of the company

 

Off-balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements and does not anticipate entering into any such arrangements in the foreseeable future.

 

Impact of Inflation

 

The Company does not expect inflation to be a significant factor in operation of the business.

 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

This item is not applicable as we are currently considered a smaller reporting company.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-28 of this Form 10-K.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

We have had no disagreements with our independent auditors on accounting or financial disclosures.

 

On November 12, 2021, the Audit Committee of the Board of Directors (the “Board”) of the Company approved the appointment of Halperin Ilanit, CPA to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. 

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

Our Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the year end covered by this Report. Based on that evaluation, they have concluded that, as of December 31, 2021 and 2020, are designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Such Information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

27

 

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.

 

Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

 

Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 Framework). Based upon this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2020.

 

Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective due to the following material weakness identified:

 

Lack of appropriate segregation of duties,

  

Lack of information technology (“IT”) controls over revenue, and

 

Lack of adequate review of internal controls to ascertain effectiveness, and

 

Lack of control procedures that include multiple levels of supervision and review.

 

Implemented or Planned Remedial Actions in response to the Material Weaknesses

 

We will continue to strive to correct the above noted weakness in internal control once we have adequate funds to do so. We believe appointing a director who qualifies as a financial expert will improve the overall performance of our control over our financial reporting.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2021 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

 

The Company’s management, including the Chief Executive Officer and Principal Financial Officer, do not expect that its disclosure controls or internal controls will prevent all errors or 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. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. 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 a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

 

ITEM 9B. OTHER INFORMATION

 

None. 

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

The names of our director and executive officers and their ages, positions, and biographies are set forth below. Our executive officers are appointed by, and serve at the discretion of, our board of directors.

 

Directors and Executive Officers

 

Set forth below is information regarding our current directors and executive officers. Each director holds his office until he resigns or is removed and his successor is elected and qualified

 

Name   Age   Position
         
Arik Maimon   46   Chairman of the Board of Directors
         
Jeffery D. Johnson   54   Chief Executive Officer
         
Ran Daniel   53   Chief Financial Officer
         
Anthony Hugh Meadows   61   Chief Operating Officer
         
Michael De Prado   52   Vice Chairman of the Board of Directors
         
Adiv Baruch   58   Director
         
Yochanon Bruk   43   Director
         
Jeff Lewis   62   Director
         
Edward Maldonado   53   Director
         
Carol Pepper   59   Director  

 

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Directors and Executive Officers

 

Arik Maimon, our Chairman, is a founder and Chairman of the Board of Directors of the Company and served as its CEO from its inception until August 2021, following which he continues to serve as Executive Chairman of the Board of Directors of the Company. In addition to co-founding the Company, Mr. Maimon founded the Company’s subsidiary M&M. Prior to founding the Company and its subsidiary, Mr. Maimon founded and ran successful telecommunications companies operating primarily in the United States and Mexico. In 1998, Mr. Maimon founded and ran a privately-held wholesaler of long-distance telecommunications services which, later, under Mr. Maimon’s management, grew from a start up to a profitable enterprise with more than $100 million in annual revenues. Mr. Maimon serves on the Company’s Board of Directors due to the perspective and experience he brings as our co-founder and as Executive Chairman. 

 

Michael A. De Prado is a founder and Executive Vice Chairman of the Company and served as its President from its inception until February 2021. Prior to founding the Company, Mr. De Prado spent 20 years in executive positions at various levels of responsibility in the banking, technology, and telecommunications industries. As President of Sales at telecommunications company Radiant/Ntera, Mr. De Prado grew Radiant/Ntera’s sales to more than $200 million in annual revenues. At theglobe.com, Mr. De Prado served as President, reporting directing to Michael S. Egan. Mr. De Prado serves on the Company’s Board of Directors due to the perspective and experience he brings as our co-founder, President, and COO.

 

Jeffery D. Johnson, has served as Chief Executive Officer since August 25, 2021. Jeff Johnson brings more than 20 years of experience in the payments industry with extensive experience in the product development and distribution of payment solutions. Jeff worked most recently as Senior Vice President and General Manager at Netspend (Feb 2017 to June 2020) where he was responsible for Commercial Prepaid products. Prior to Netspend, Jeff held positions with Card Compliant as Chief Sales and Marketing Officer and Chief Revenue Officer (July 2012-Jan 2017) and as Senior Vice President of Prepaid Solutions and Division Manager for Prepaid Services at First Data Corporation (2006-2012). Throughout his career, he has worked to innovate products, expand revenue and manage costs while maintaining strong industry relationships. He has also served on the board of the Network Branded Prepaid Card Association for the last five years. Jeff began his career in the payments industry with Stored Value Systems, a FleetCor company (NYSE:FLT) where he led sales for their payroll card and gift card product sets. He also served as Senior Vice President at Money Network, the payroll card company that was acquired by First Data (now Fiserv (NASDAQ: FISV). He also led the prepaid group of First Data, a $300M+ division of the company. He currently sits on the board of AI payments company DataSeers.

 

Ran Daniel has served as Chief Financial Officer since November 23, 2018. He has extensive experience working as a CFO in both rapidly growing companies and publicly traded companies. Mr. Daniel served as the CFO of the IDH Group, the head and the CFO of Elie Tahari family office from 2014 to 2016, the CFO of Blue Sphere Corporation from 2016 to 2018 and Nanox from 2021 ( NNOX, a public reporting company). He has over 25 years of financial and business management experience, accounting, auditing, business forecasting, M&A, due diligence, SEC regulations and internal control experiences. He was responsible for the financial and accounting functions in several companies and has extensive experience working as a CFO in both rapidly growing companies and publicly traded companies. He has worked with real estate, fashion, high-tech companies as well as remote institutional and high net worth individuals. Mr. Daniel is licensed as a Certified Public Accountant (CPA) in the United States and Israel, Chartered Financial Analyst (CFA) and is admitted to practice law in the State of New York. Mr. Daniel holds a Bachelor of Economics, a Bachelor of Accounting and an MBA in Finance from the Hebrew University, as well as a Graduate Degree in Law from the University of Bar-Ilan. Mr. Daniel serves on the Company’s Chief Financial Officer due to the perspective and experience he brings as our Chief Financial Officer.

 

Anthony Hugh Meadows has served as Chief Operating Officer since February 1, 2022. Hugh has over 30 years experience in the banking industry with an emphasis in the card space. From 2017 until 2021, Mr. Meadows ran Meadows Consulting LLC. Hugh served as the COO of Green Dot Bank from 2014 – 2017; Served as EVP of Payments for UMB Bank from 2011- 2014; Served as President of LifeNexus from 2010 – 2012; assisted with the startup of an Industrial Loan Coporation Bank called Optum Bank where he served as EVP and CRO from 2003 – 2010; He has also worked with a number of start-up and early-stage companies focused on integrating multiple industry solutions into unique products and services in the marketplace. His expertise spans card services, operations, and risk management, among other areas. He holds a Bachelor’s Degree in Economics from the University of Utah. Mr. Meadows is currently serving or has previously served on the following Boards: The Road Home (Salt Lake City homeless shelter), Junior Achievement of Utah, and the Network Branded Prepaid Card Association (NBPCA), now known as the Innovative Payments Association (IPA).

 

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Adiv Baruch has been a director of the Company since May 2016. Mr. Baruch is a global leader anchors in the Israeli high-tech industry as well as the Chairman of Israeli Export and International cooperation Institute and several private and public companies. Adiv has over 28 years of experience in equity investment and operation management under distress. Mr. Baruch also serves as chairman of Jerusalem Technology Investments Ltd. He also currently serves as Chairman of Maayan Ventures, a platform for investments in innovative technology companies. Mr. Baruch has served as a director of the Bank of Jerusalem, and he served as CEO of BOS Better Online Solutions, which, under this leadership, grew into a highly-successful company traded on Nasdaq under the symbol BOSC. Throughout his career, he has championed development and support of new talent in the high tech and entrepreneurial arenas. He is a Technion graduate and the Chairman of the Institute of Innovation and Technology of Israel. Mr. Baruch serves as a member on the Company’s Board of Directors due to the perspective and experience he brings to Our Board. 

 

Yochanon Bruk is the managing partner of Dinar Zuz LLC and has served as a Director of the Company since December 2019. Mr. Bruk joined Felman Trading in August 2009 as Logistics Manager and was appointed Corporate Logistics & Transportation Manager in 2011. In this role, he oversees the logistical operations and international distribution networks to ensure the seamless transportation of materials for Felman Production, CCMA, and a number of European-based companies that operate alongside Felman Trading. Mr. Bruk serves as a member on the Company’s Board of Directors due to the perspective and experience he brings to Our Board. 

 

Jeff Lewis has served as a director of the Company since February 2021. Mr. Lewis is currently Senior Vice President at ECHO Health. Mr. Lewis previously served as Senior Vice President—Payments and Prepaid of Sutton Bank and was Sutton Bank from April 2017 to February 2021. Prior to joining Sutton Bank, Mr. Lewis was a Vice President, General Manger Financial Services at InComm from November 2012. Mr. Lewis has 25 years of payment industry experience with knowledge and experience in networks, card processing, payment processing and program management disciplines. Previously, Mr. Lewis also held key executive positions at Discovery Inc., FIS Global and Metavante Technologies Inc. where he developed a strong background in technology, regulatory and payment processing. Mr. Lewis serves as a member on the Company’s Board of Directors due to the perspective and experience he brings to Our Board.

 

Carol Pepper has served as a director of the Company since November 3, 2021. Carol is celebrating 20 years as the owner of the top Female-Owned Wealth Advisory Boutique, Pepper International. She is a Member of the Advisory Committee of the United Nations Capital Development Fund. Carol was named a Power Woman North America by Citywealth in 2019. Pepper International was named Boutique Firm of the Year by STEP in 2017. Carol was named one of the Top 50 CEOs in Wealth Management in 2017. She was also nominated for three Private Asset Management Awards in 2017. She was named one of the 50 Most Influential Women in Private Wealth in 2016 and 2015. She is a global thought leader in the Family Office industry and in Social Impact Investing.

 

Edward Maldonado has served as a director of the Company since November 3, 2021. Edward Maldonado has served as a director of the Company since November 3, 2021. Mr. Maldonado is a Florida and federal attorney recognized for his work in the communications services, TV and radio broadcast licensure, online business, and regulated technologies. The Law Offices of Edward A. Maldonado PA is a boutique communications, technology and business law practice based in Coral Gables, Florida and was established in 2001. He maintains both a litigation practice and transactional practice the firm. His federal litigation practice focuses on cases under Federal Communications Act and the Federal Trade Act, as well as those involving intellectual property, statutory actions, international law and appeals of federal regulatory decisions and monetary fines. Mr. Maldonado’s Florida litigation practice focuses on civil and administrative matters unique to communications, new technologies, e-commerce business, Internet of Things (IOT), mobile applications and marketing as well as internet-based media and advertising. He holds a Juris Doctorate from the Illinois Institute of Technology, Chicago-Kent College of Law with a further certificate in international & comparative law. He appeared in federal and state cases through the country based on his knowledge of his practice areas

 

In order to meet the independence requirement of a majority of the members of the Board meeting the Nasdaq requirements the number of directors on the Board of the company may be raised to 11 members.

 

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Family Relationships

 

There are no family relationships, or other arrangements or understandings between or among any of the directors, director nominees, executive officers or other person pursuant to which such person was selected to serve as a director or officer.

 

Indemnification of Directors and Officers

 

Our Articles of Incorporation and Bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by Florida law.

 

Limitation of Liability of Directors

 

Pursuant to the Florida Statutes, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.

 

Election of Directors and Officers

 

Directors are elected to serve until the next annual meeting of shareholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board following the next annual meeting of shareholders and until their successors have been elected and qualified.

 

At each meeting of the Company’s shareholders at which the election of directors is to be considered, each of CIMA, Dinar and Mr. De Prado have the right to designate one nominee for election at such meeting, and Mr. Maimon has the right to appoint two directors for a total of five Board members. Following the Company’s listing on Nasdaq, the Board had a total of nine Directors with five considered to be Independent but 2 of these Independent Directors resigned in December 2021 to dedicate time to personal issues and projects. The Company is looking to expand the Board up to 11 members with the same appointment rights as before, including six independent board members elected by the shareholders of the Company pursuant to the Amended and Restated Articles and Amended and Restated Bylaws, each as further amended from time to time.

 

Involvement in Certain Legal Proceedings

 

No Executive Officer or Director of the Corporation has been the subject of any Order, Judgment, or Decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him/her from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.

  

No Executive Officer or Director of the Corporation has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending.

 

No Executive Officer or Director of the Corporation is the subject of any pending legal proceedings.

 

32

 

 

Corporate Governance

 

Board of Directors

 

We currently have seven directors serving on our Board of Directors. A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business.

 

Board Committees and Director Independence

 

Director Independence

 

Of our current directors, we have determined that Messrs., Baruch and Lewis and Ms. Pepper are “independent” as defined by applicable rules and regulations. The Company is in the process to interviewing additional potential Independent Directors to fill board positions with goals of Gender, Age and Racial diversity as well as Cyber protection experience as indicated by the SEC to be important goals.

 

Board Committees

 

Our Board of Directors has established two standing committees—Audit and Compensation. All standing committees operate under a charter that has been approved by our Board of Directors. In addition, in lieu of a Nominating and Corporate Governance committee, our Board of Directors has designated the independent directors of the Board of Directors by resolution to select, or recommended for the Board of Director’s selection, any and all nominees to the Board of Directors (see Nomination of Directors below).

 

Audit Committee

 

Our Board of Directors has an Audit Committee, composed of Messrs., Lewis and Baruch, each of whom are independent directors as defined in accordance with section Rule 10A-3 of the Exchange Act and the rules of Nasdaq. Mr. Baruch serves as chairman of the committee.

 

Our Audit Committee oversees our corporate accounting, financial reporting practices and the audits of financial statements. For this purpose, the Audit Committee has a charter (which will be reviewed annually) and performs several functions. The Audit Committee:

 

evaluates the independence and performance of, and assesses the qualifications of, our independent auditor and engages such independent auditor;

 

approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services and approves in advance any non-audit service and fees therefor to be provided by the independent auditor;

 

monitors the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law;

 

reviews the financial statements to be included in our annual report on Form 10-K and quarterly Reports on Form 10-Q and reviews with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements;

 

oversees all aspects of our systems of internal accounting and financial reporting control and corporate governance functions on behalf of the board; and

 

provides oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the board, including compliance with requirements of Sarbanes-Oxley and makes recommendations to the Board of Directors regarding corporate governance issues and policy decisions.

 

The Audit Committee has a charter, which is reviewed annually.

 

33

 

 

Compensation Committee

 

Our Board of Directors has a Compensation Committee composed of Messrs., Lewis and Baruch, each of whom is independent in accordance with rules of Nasdaq. Mr. Baruch is the chairman of the Compensation Committee. Our Compensation Committee reviews or recommends the compensation arrangements for our management and employees and also assists the Board of Directors in reviewing and approving matters such as company benefit and insurance plans, including monitoring the performance thereof. The Compensation Committee has a charter, which will be reviewed annually.

 

Nomination of Directors

 

Our Board of Directors, by resolution of the full Board of Directors addressing the nominations process and such related matters as may be required under the federal securities laws, has charged the independent directors constituting a majority of our Board of Directors with the responsibility of reviewing our corporate governance policies and with proposing potential director nominees to the Board of Directors for consideration. The independent directors will consider director nominees recommended by security holders.

 

Code of Business Conduct and Ethics and Insider Trading Policy

 

Our Board of Directors has adopted a Code of Ethical Conduct and an Insider Trading Policy.

 

Compliance under Section 16(a) Beneficial Ownership Reporting Compliance 

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than 10% of our outstanding shares of Common Stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership in our Common Stock and other equity securities. To the Company’s knowledge, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended December 31, 2021, all filing requirements applicable to the Reporting Persons were timely met.

 

Stockholder Communications 

 

Although we do not have a formal policy regarding communications with the Board, stockholders may communicate with the Board by writing to us at 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139, Attention: Stockholder Communication. Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

 

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ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation

 

Summary Compensation Table

 

The following table sets forth certain information concerning the annual compensation of our Chief Executive Officer and our other executive officers during the last two fiscal years.

  

(a)
Name and
Principal Position
  (b)
Year
    (c)
Salary
    (d)
Bonus
    (f)
Option Awards
    (g)
Non-equity
incentive plan
compensation
    (h)
Nonqualified
deferred
compensation
earnings
    (i)
All Other
Compensation
    (j)
Total
Compensation
 
***Arik Maimon   2021     $ 295,000     $ -     $ 326,667     $             -     $             -     $ -     $ 621,667  
Executive Chairman   2020       295,000     $ 500,000     $ 253,333     $ -     $ -     $ 5,000     $ 1,053,333  
                                                               
Michael De Prado   2021     $ 268,400     $ -     $ 245,000     $ -     $ -     $ -     $ 513,400  
Executive Vice Chairman   2020       265,000     $ 500,000     $ 202,667     $ -     $ -     $ 4,000     $ 971,667  
                                                               
Jeffery Johnson   2021     $ 102,823     $ 100,000     $ 456,944     $ -     $ -     $ 10,000     $ 669,777  
CEO   2020     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                               
Ran Daniel   2021     $ 274,196     $ -     $ 163,333     $ -     $ -     $ 77,400     $ 514,929  
CFO   2020     $ 162,000     $ 100,000     $ -     $ -     $ -     $ -     $ 278,941  
                                                               
Anthony Hugh Meadows   2021     $ 45,000     $ -     $ -     $ -     $ -     $ -     $ 45,000  
COO   2020     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

Appointment of Jeffery D. Johnson as Chief Executive Office

 

On August 25, 2021, Cuentas, Inc. (the “Company”) and Jeffery D. Johnson entered into an employment agreement (the “Employment Agreement”), pursuant to which Mr. Johnson agreed to serve as the Company’s new Chief Executive Officer. The Employment Agreement commenced and became effective as of August 25, 2021, and shall continue for an initial term of three (3) years, ending on August 24, 2024. The initial term would be automatically extended for additional one (1) year periods on the same terms and conditions as set out in the Employment Agreement; however, the Employment Agreement will not renew automatically if either the Company or Mr. Johnson provide a written notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term or any subsequently renewed one (1) year term. Pursuant to the terms of the Employment Agreement, Mr. Johnson will receive an annual base salary of three hundred thousand dollars ($300,000) per year, and will be eligible for an annual incentive payment of up to one hundred percent (100%) of his base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s Board of Directors in consultation with Mr. Johnson. This annual incentive shall have a twelve (12) month performance period and will be based on a January 1 through December 31 calendar year, with Mr. Johnson’s entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the Board of Directors. Pursuant to the terms of the Employment Agreement, Mr. Johnson has the option to have any such earned annual incentive be paid in fully vested shares of the Company’s Common Stock, but must elect such option by the end of the first quarter following the relevant performance calendar year period. In consideration of Mr. Johnson’s agreement to enter into the Employment Agreement and remain with the Company, Mr. Johnson will receive a one-time signing bonus in the amount of two hundred thousand dollars ($200,000), which is to be paid in two (2) installments: the first installment of one hundred thousand dollars ($100,000) to be paid on the Company’s next regular payday following the hire date of August 25, 2021, and the second installment of one hundred thousand dollars ($100,000) to be paid on Company’s next regular payday following the first (1st) anniversary of the hire date of August 25, 2021, provided that Mr. Johnson is employed by the Company on such relevant payment date. Pursuant to the terms of the Employment Agreement, subject to the shareholder approval of the Company’s 2021 Share Incentive Plan, the Company shall issue to Mr. Johnson an option to purchase up to an aggregate of five hundred thousand (500,000) shares of Common Stock; furthermore, if the Company’s shareholders do not approve the Company’s 2021 Share Incentive Plan, Mr. Johnson will have the right to immediately terminate the Employment Agreement. These options shall vest on the following schedule: (1) options to purchase one hundred twenty-five thousand (125,000) shares of Common Stock shall vest on the date of the grant; and, (2) one hundred eighty seven thousand and five hundred (187,500) shares of Common Stock shall vest on each of the first and second year anniversary of the date of grant, provided that Mr. Johnson remains continuously employed with the Company through such vesting date. In case of a change in control event, as defined under the terms of the Employment Agreement, any outstanding unvested portion of the options shall become fully vested and exercisable, as long as Mr. Johnson remained continuously employed with the Company through such date. Additionally, Mr. Johnson shall be entitled to a bonus payment in connection with a change in control of the Company, which bonus shall be based upon a percentage of the cash consideration received by shareholders of the Company in the change in control transaction, as determined in the sole discretion of the Board of Directors of the Company. Under the Employment Agreement, Mr. Johnson is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and non-disparagement, among others. The Employment Agreement is governed by the laws of the State of Florida. The Employment Agreement may be terminated by the Company for cause or without cause, and by Mr. Johnson for good reason or without good reason, as such terms are defined under the Employment Agreement.

 

35

 

 

Founder/Executive Chairman Compensation Agreement with Arik Maimon, and Founder/Executive Vice-Chairman Compensation Agreement with Michael De Prado

 

On August 26, 2021, the Company and Arik Maimon entered into a Founder/Executive Chairman Compensation Agreement (the “Chairman Compensation Agreement”). Additionally, on August 26, 2021, the Company and Michael De Prado entered into a Founder/Executive Vice-Chairman Compensation Agreement (the “Vice-Chairman Compensation Agreement” and collectively with the Chairman Compensation Agreement, the “Chairman Compensation Agreements”). The term of each of these Chairman Compensation Agreements became effective as of August 26, 2021 and replaces any prior arrangements or employment agreements between the Company and each of Mr. Maimon and Mr. De Prado (each such individual, an “Executive” and together, the “Executives”). Under the terms of the Chairman Compensation Agreements, the Executives agreed to be employed by the Company for an initial continuous twelve-month term beginning on the effective date of August 26, 2021, and ending on August 25, 2022. The initial term would be automatically extended for additional one (1) year periods on the same terms and conditions as set out in the Chairman Compensation Agreements; however, the Chairman Compensation Agreements, respectively, will not renew automatically if either the Company or the respective Executive provide a written notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term or any subsequently renewed one (1) year term. Pursuant to the terms of the Chairman Compensation Agreement, Mr. Maimon will receive an annual base salary of two hundred ninety-five thousand dollars ($295,000) per year, and pursuant to the terms of the Vice-Chairman Compensation Agreement, Mr. De Prado will receive an annual base salary of two hundred seventy-five thousand dollars ($275,000) per year, and each will be eligible for an annual incentive payment of up to one hundred percent (100%) of their respective base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s Board of Directors in consultation with each Executive, respectively. This annual incentive shall have a twelve (12) month performance period and will be based on a January 1 through December 31 calendar year, with the Executives’ entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the Board of Directors. Any such annual incentive shall be paid by the end of the second quarter following the calendar year to which each respective Executive’s performance relates. Pursuant to the terms of the Chairman Compensation Agreements, each Executive has the option to have any such earned annual incentive be paid in fully vested shares of the Company’s Common Stock, but must elect such option by the end of the first quarter following the relevant performance calendar year period. In the event of a change in control of the Company, as defined under the terms of the Chairman Compensation Agreements, that takes place (i) during the term of the Chairman Compensation Agreement or (ii) prior to the date which is twenty-four (24) months from the effective date of the Chairman Compensation Agreements, if the Executive’s employment otherwise terminates prior to such date (other than if the Executive’s employment was terminated for cause or the Executive resigned his employment without good reason, as such terms are defined under the Chairman Compensation Agreements), each respective Executive shall be entitled to a bonus payment equal to two and one-half percent (2.5%) of the cash consideration received by the shareholders of the Company in the change in control transaction. Under the Chairman Compensation Agreements, each Executive is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and non-disparagement, among others. The Chairman Compensation Agreements are each governed by the laws of the State of Florida. The Chairman Compensation Agreements may be terminated by the Company for cause or without cause, and by each respective Executive for good reason or without good reason, as such terms are defined under the Chairman Compensation Agreements.

 

Amendment to the Employment Agreement with Ran Daniel

 

As of November 28, 2018, the Company and Ran Daniel entered into an employment agreement (the “Employment Agreement”) pursuant to which Mr. Daniel serves as the Company’s Chief Financial Officer. On August 5, 2021, the Company and Mr. Daniel entered into an amendment to the Employment Agreement (the “Amendment”). Pursuant to the Amendment, Mr. Daniel’s annual base salary will be $245,000 and Mr. Daniel will not be entitled to a cash payment of his accrued vacation and sick days.

 

36

 

 

Outstanding Equity Awards at Fiscal Year End

 

The following table sets forth information concerning the outstanding equity awards of each of the Named Executive Officers as of December 31, 2021:

 

Name
(a)
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c)
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d)
    Option
Exercise
Price ($)
(e)
    Option
Expiration
Date
(f)
  Number of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
(g)
(9)
    Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
(h)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
(i)
    Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
(j)
 
                                                     
Jeffery D Johnson     500,000                -                 -       2.80     November 2, 2031              -                  -       375,000     $ 943,056  
                                                                     
Ran Daniel     120,000       -       -       3.20     20,000 options at April 6, 2024 and 100,000 at November 2, 2031     -       -       50,000     $ 116,667  
                                                                     
Arik Maimon     268,000       -       -     $ 5.12     44,000 options at March 29,2025 ,24,000 at September 12, 2023 and 200,000 at November 2, 2031     -       -       100,000     $ 233,333  
                                                                     
Michael De Prado     185,200       -       -     $ 5.00     $35,200 at March 29,2025 and 150,000 at November 2, 2031                     75,000     $ 175,000  

 

37

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth, as of March 31, 2021, certain information with respect to the beneficial ownership of shares of our common stock by: (i) each person known to us to be the beneficial owner of more than five percent (5%) of our outstanding shares of common stock, (ii) each director or nominee for director of our Company, (iii) each of the executives, and (iv) our directors and executive officers as a group. Unless otherwise indicated, the address of each shareholder is c/o our company at our principal office address:

 

Beneficial Owner   Address   Number of Shares Beneficially Owned     Percent of Class (1)  
Arik Maimon (2)   235 Lincoln Rd., Suite 210, Miami Beach, FL 33139     1,788,967       11.74 %
Chairman                    
                     
Michael De Prado (3)   235 Lincoln Rd., Suite 210, Miami Beach, FL 33139     873,230       5.76 %
Vice Chairman                    
                     

Jeffery Johnson

CEO

  235 Lincoln Rd., Suite 210, Miami Beach, FL 33139     125,000       0.81 %
                     

Anthony Hugh Meadows

COO

  235 Lincoln Rd., Suite 210, Miami Beach, FL 33139    

50,000-

      0.33 %
                     
Adiv Baruch (4)   235 Lincoln Rd., Suite 210, Miami Beach, FL 33139                
Director         113,334       0.60 %
                     
CIMA Telecom Inc. (5)   1728 Coral Way, 6th Floor Miami, Florida 33145     2,702,991       18.06 %
                     
Ran Daniel (6)   235 Lincoln Rd., Suite 210, Miami Beach, FL 33139     140,000       0.60 %
                     
Jeff Lewis (7)   235 Lincoln Rd., Suite 210, Miami Beach, FL 33139     56,667       0.38 %
                     
Carol Pepper (8)   235 Lincoln Rd., Suite 210, Miami Beach, FL 33139     50,000       0.33 %
                     
Yochanon Bruk (9)   1898 NW 74th Ave. Pembroke Pines, FL 33024     2,753,551       18.28 %
                     
All Directors and Officers as a Group (persons)         5,850,709       35.59 %
                     
5% or More Shareholders                    
                     
Huseyin Kizanliki   1111 Brickell Ave., Suite 2200 Miami, FL 33131     1,087,442       7.27 %
                     
CIMA Telecom Inc. (5)    1728 Coral Way, 6th Floor Miami, Florida 33145     2,703,391       18.28 %
                     
Dinar Zuz LLC (9)   1898 NW 74th Ave. Pembroke Pines, FL 33024     2,875,551       18.08 %

 

(1) Applicable percentages based on 14,965,690 shares of Common Stock..

 

38

 

 

*

(2)

Arik Maimon is our Executive Chairman of the Board of Directors. Consists of (i) 1,620,967 shares of Common Stock, (ii) 24,000 stock options, exercisable until September 12, 2023 with an exercise price of $7.5 per share and (iii) 44,000 stock options, exercisable until March 29, 2023 with an exercise price of $14.35 per share (iv) 100,000 stock options, exercisable until November 2, 2031 with an exercise price of $2.80 per share.

 

(3)

Michael De Prado is our Vice Executive Chairman and Director.  Consists of (i) 763,030 shares of Common Stock and (ii) 35,200 stock options, exercisable until March 29, 2023 with an exercise price of $14.35 per share (iii) 75,000 stock options, exercisable until November 2, 2031 with an exercise price of $2.80 per share.

 

(4)

Adiv Baruch is our director. Consists of 63,334 shares of Common Stock and 50,000 stock options, exercisable until November 2, 2031 with an exercise price of $2.80 per share.

 

(5) Pursuant to a Schedule 13G filed by CIMA with the SEC on January 10, 2020, CIMA is the beneficial owner of the shares disclosed therein. Juan M. Gomez is the CEO.

 

(6) Ran Daniel is our Chief Financial Officer. Consists of (i) 20,000 shares of Common Stock and (ii) 20,000 stock options, exercisable until April 6, 2024 with an exercise price of $5.23 per share (iii) 50,000 stock options, exercisable until November 2, 2031 with an exercise price of $2.80 per share.

 

(7) Jeff Lewis is our director. Consists of 6,667 shares of Common Stock and 50,000 stock options, exercisable until November 2, 2031 with an exercise price of $2.80 per share

 

(8) Carol Pepper is our director. Applicable percentages based on 50,000 stock options, exercisable until November 2, 2031 with an exercise price of $2.80 per share.

 

(9) Pursuant to a Schedule 13G filed by Dinar with the SEC on March 5, 2020, Dinar is the beneficial owner of the shares reported therein, and Yochanon Bruk (also known as Jonathan Brook) is the sole manager of Dinar and exercises voting and investment power over the shares of Common Stock. As a result, Dinar and Yochanon Bruk may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act) of the shares reported therein. Yochanon Bruk does not own any shares.

 

Changes in Control

 

There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Other than compensation arrangements for our directors and executive officers, which are described elsewhere in this prospectus, below we describe transactions since January 1, 2019, to which we were a party or will be a party, in which (i) the amounts involved exceeded or will exceed $120,000; and (ii) any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest

 

Statement of Policy

 

All future transactions between us and our officers, directors or five percent stockholders, and respective affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of our independent directors who do not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel.

 

To the best of our knowledge, during the past three fiscal years, other than as set forth above and herein, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds $120,000, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our Common Stock, or any member of the immediate family of any of the foregoing persons, has an interest (other than compensation to our officers and directors in the ordinary course of business).

  

39

 

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

(1) Audit Fees

 

The Company incurred annual audit fees during the years ended December 31, 2021 and December 31, 2020 with Halperin Ilanit CPA totaling approximately $55,000.

 

Audit-Related Fees

 

The Company incurred annual audit related fees during the year ended December 31, 2021 totaling approximately $32,500. The Company incurred an annual audit related fees during the year ended December 31, 2020 totaling approximately $3,000.

 

All Other Fees

 

There were no other fees billed for products or services provided by our principal accountant for the fiscal years ended December 31, 2021 and December 31, 2020.

 

Our audit committee reviewed or ratified the engagement of the Company’s principal accountant or the fees disclosed above.

 

40

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

  (a) Consolidated Financial Statements

 

41

 

 

CUENTAS INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2021

 

TABLE OF CONTENTS

 

  Page
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
   
CONSOLIDATED FINANCIAL STATEMENTS:  
Consolidated Balance Sheets as of December 31, 2021, and December 31, 2020 F-4
Consolidated Statements of Comprehensive loss for the years ended December 31, 2021 and December 31,2020 F-5
Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021 and December 31, 2020 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and December 31, 2020 F-8
Notes to Consolidated Financial Statements F-9

 

F-1

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF

CUENTAS, INC.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Cuentas Inc. (the “Company”) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the years in the period ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the year in the period ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

 

F-2

 

 

 

Going concern assessment

 

As discussed in Notes 1 to the consolidated financial statements, on February 4, 2021 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”). In light of the above, the Company’s Management has concluded that there are no material uncertainties that give rise to significant doubt over the Company’s ability to continue as a going concern for at least twelve months from the date of the approval of the financial statements.

 

We identified management’s assumptions used to assess the Company’s ability to continue as a going concern as a critical audit matter due to inherent complexities and uncertainties related to the Company’s Management’s plans. Auditing these assumptions involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.

 

The primary procedures we performed to address this critical audit matter included the following:

 

Assessing the reasonableness of key assumptions underlying management’s forecast operating cash flows, including revenue growth and gross margin assumptions and evaluating the reasonableness of management’s forecast operating cash flows.

 

Evaluating the probability that the Company will be able to reduce capital expenditures and other operating expenditures if required.

 

Assessing management’s plans in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusions reached by management.

 

Assessing the effect of events and agreement signed after balance sheet date.

 

/s/ Halperin Ilanit.

Certified Public Accountants (Isr.)

PCAOB number 650100001

 

Tel Aviv, Israel

March 31, 2022

 

We have served as the Company’s auditor since 2018

 

F-3

 

 

CUENTAS, INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands except share and per share data)

 

    December 31,
2021
    December 31,
2020
 
             
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents     6,607       227  
Accounts Receivables     11       -  
Marketable securities    
-
      3  
Related parties    
-
      54  
Other current assets     162       12  
Total current assets     6,780       296  
                 
Property and Equipment, net     2       4  
Investment in Unconsolidated Entities(Note 3)     38       -  
Intangible Assets (Note 4)     5,438       7,200  
Total assets     12,258       7,500  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES:                
Trade payable     810       2,354  
Other accounts liabilities (Note 5)     1,126       2,195  
Deferred revenue     683       652  
Notes and Loan payable     97       93  
Convertible notes payable (Note 6)    
-
      719  
Related parties’ payables (Note 7)    
-
      365  
Stock based liabilities     3       102  
Total current liabilities     2,719       6,480  
                 
Other long term     89       89  
TOTAL LIABILITIES     2,808       6,569  
                 
STOCKHOLDERS’ EQUITY (Note 9)                
                 
Common stock, authorized 360,000,000 shares, $0.001 par value; 14,965,690 and 10,590,491 issued and outstanding as of December 31, 2021 and December 31, 2020, respectively     15       11  
Additional paid in capital     47,654       28,411  
Accumulated deficit     (38,219 )     (27,491 )
                 
Total stockholders’ equity     9,450       931  
Total liabilities and stockholders’ equity     12,258       7,500  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-4

 

 

CUENTAS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(U.S. dollars in thousands except share and per share data)

 

    Year Ended
December 31,
 
    2021     2020  
             
REVENUE     593       558  
                 
COST OF REVENUE     469       697  
                 
GROSS PROFIT (LOSS)     124       (139 )
                 
OPERATING EXPENSES                
                 
Selling, general and administrative     8,980       5,840  
Amortization of Intangible Assets     1,809       1,800  
TOTAL OPERATING EXPENSES     10,789       7,640  
                 
OPERATING LOSS     (10,665 )     (7,779 )
                 
OTHER INCOME (LOSS), NET                
                 
Other income, net     1       98  
Interest expense     (172 )     (108 )
Gain on derivative liability    
-
      3  
Gain from Change in fair value of stock-based liabilities     110       303  
TOTAL OTHER INCOME (LOSS), NET     (61 )     296  
                 
NET LOSS BEFORE CONTROLLING INTEREST AND EQUITY LOSSES     (10,726 )     (7,483 )
                 
Equity losses in non-consolidated entity     (2 )    
-
 
Net  losses attributable to non-controlling interest    
-
      (618 )
NET LOSS ATTRIBUTABLE TO CUENTAS INC.     (10,728 )     (8,101 )
                 
Basic and Diluted net loss per share     (0.77 )     (1.16 )
                 
Weighted average number of basic and diluted shares of common stock outstanding     13,917,032       6,968,554  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-5

 

 

CUENTAS, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in thousands, except share and per share data)

 

    Common Stock     Additional
Paid-in
    Accumulated     Total
Stockholders’
 
    Shares     Amount     Capital     Deficit     Deficit  
                               
Balance as of December 31, 2020     10,590,491       11       28,411       (27,491 )     931  
Issuance of Shares of Common Stock, net of issuance expenses **     2,790,697       3       10,611      
-
      10,614  
Issuance of Warrants     -      
-
      4      
-
      4  
Shares issued for services and for employees     143,334      
*
      611      
-
      611  
Stock based compensation     -       -       2,172      
-
      2,172  
Shares issued due to exercise of Warrants, net of issuance expenses ***     1,454,443       1       5,764      
-
      5,765  
Shares issued due to conversion of Convertible Note     30,233      
*
      81      
-
      81  
Return of Commitment Shares     (43,525 )    
*
     
-
     
-
     
-
 
Roundup Differences due to Reverse Split     17      
*
     
-
     
-
     
-
 
Net income for the year ending December 31, 2021     -      
-
     
-
      (10,728 )     (10,728 )
Balance as of December 31, 2021     14,965,690     $ 15     $ 47,654     $ (38,219 )   $ 9,450  

  

* Less than $1.

** Issuance expenses totaled to $1,386

*** Issuance expenses totaled to $499

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-6

 

 

CUENTAS, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(U.S. dollars in thousands, except share and per share data)

 

                                        Non-Controlling Interest        
    Series B
Preferred Stock
    Common
Stock
    Additional
Paid-in
    Accumulated     Total
Stockholders’
    Additional
Paid-in
    Accumulated     Total Non-
Controlling
       
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit     Capital     Deficit     Interest     Total  
                                                                   
Balance December 31, 2019     10,000,000       10       1,855,656       2       25,249       (19,390 )     5,871       43       (661 )     (618 )     5,253  
                                                                                         
Shares of Common Stock were issued in consideration of Commitment fee     -      
-
      56,725      
*
      90      
-
      90      
-
     
-
     
-
      90  
Conversion of Series B Preferred Stock into Common Stock     (10,000,000 )     (10 )     8,000,000       8       2      
-
     
-
     
-
     
-
     
-
     
-
 
Shares issued for services     -      
-
      36,000      
*
      420      
-
      420      
-
     
-
     
-
      420  
Shares issued for conversion of convertible note     -      
-
      503,115       1       1,004      
-
      1,005      
-
     
-
     
-
      1,005  
Warrants and Stock options compensation     -      
-
      138,995      
*
      1,646      
-
      1,646      
-
     
-
     
-
      1,646  
Net income for the year ending December 31, 2020     -      
-
      -      
-
     
-
      (8,101 )     (8,101 )     (43 )     661       618       (7,483 )
Balance December 31, 2020    
-
    $
-
      10,590,491     $ 11     $ 28,411     $ (27,491 )   $ 931     $
-
    $
-
    $
-
      931  

 

* Less than $1.

 

F-7

 

 

CUENTAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands, except share and per share data)

 

    For the Year Ended
December 31,
 
    2021     2020  
Cash Flows from Operating Activities:            
Net loss   $ (10,728 )   $ (7,483 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Stock based compensation and Shares issued for services     2,745       1,444  
Equity losses in non-consolidated entity     2       -  
Available for sale securities     3       (2 )
Interest expense and Debt discount amortization     90       58  
Gain on derivative liability    
-
      (3 )
Gain (loss) on fair value measurement of stock-based liabilities     (61 )     (220 )
Depreciation expense     2       1  
Amortization of intangible assets     1,809       1,800  
Changes in Operating Assets and Liabilities:                
Accounts receivable     (11 )    
-
 
Other current assets     (150 )     82  
Accounts payable     (1,544 )     843  
Related party, net     44      
-
 
Other accounts liabilities     (1,544 )     1,647  
Deferred revenue     31       115  
Other liabilities    
-
      (20 )
Net Cash Used by Operating Activities     (9,330 )     (1,738 )
                 
Cash Flows from Operating Activities:                
Investment in non-consolidated entity     (40 )     -  
Purchase of Intangible Asset     (47 )    
-
 
Net Cash used for Investing Activities     (87 )    
-
 
                 
Cash Flows from Financing Activities:                
Proceeds from (Repayments of) convertible notes    
-
      250  
Proceeds from (Repayments of) short term loans     (730 )     505  
Proceeds from (Repayment of) Loans from Related parties     (355 )     355  
Proceeds from loans from a Government Agency    
-
      89  
Proceeds from issuance of warrants     4      
-
 
Proceeds from issuance of common stock due to exercise of warrants     6,264      
-
 
Proceeds from issuance of shares, net of issuance cost     10,614       750  
Net Cash Provided by Financing Activities     15,797       1,949  
                 
Net Increase (Decrease) in Cash     6,380       211  
Cash at Beginning of Period     227       16  
Cash at End of Period     6,607     $ 227  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest   $
-
    $
-
 
Cash paid for income taxes   $
-
    $
-
 
                 
Supplemental disclosure of non-cash financing activities                
Common stock issued for conversion of convertible note principal   $
-
    $ 2,500  
Common Stock issued for conversion of convertible note   $ 81      
-
 
Common stock issued for settlement of stock-based liabilities and accrued salaries   $
 
    $ 442  
Shares of Common Stock were issued in consideration of Commitment fee    
-
    $ 90  
Issuance fee in connection with of common stock due to exercise of warrants   $ 499     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-8

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Cuentas, Inc. (the “Company”) together with its subsidiaries, is focused on financial technology (“FINTECH”) services, delivering mobile banking, online banking, prepaid debit and digital content services to unbanked, underbanked and underserved communities. The Company derives its revenue from the sales of prepaid and wholesale calling minutes. Additionally, The Company has an agreement with Interactive Communications International, Inc. (“InComm”) a leading processor of general purpose reloadable (“GPR”) debit cards, to market and distribute a line of GPR cards targeted towards the Latin American market.

 

The Company was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries. Its subsidiaries are Meimoun and Mammon, LLC (100% owned) (“M&M”), Next Cala, Inc. (94% owned -was dissolved on July 3, 2020) (“Cala”), NxtGn, Inc. (65% owned-was dissolved on August 24, 2020) (“NxtGn”) and Cuentas Mobile LLC (formerly Next Mobile 360, LLC. - 100% owned). Tel3, a business segment of Meimoun and Mammon, LLC provides prepaid calling cards to consumers directly and operates in a complimentary space as Meimoun and Mammon, LLC.

 

REVERSE SPLIT

 

On February 2, 2021, the Company completed a reverse stock split of its common stock. As a result of the reverse stock split, the following changes have occurred (i) every two and a half shares of common stock have been combined into one share of common stock; (ii) the number of shares of common stock underlying each common stock option or common stock warrant have been proportionately decreased on a 2.5-for-1 basis, and the exercise price of each such outstanding stock option and common warrant has been proportionately increased on a 2.5-for-1 basis. Accordingly, all option numbers, share numbers, warrant numbers, share prices, warrant prices, exercise prices and losses per share have been adjusted within these consolidated financial statements, on a retroactive basis, to reflect this 2.5-for-1 reverse stock split.

 

SECURITIES OFFERING

 

On February 2, 2021 the Company’s common stock and warrants began trading on The Nasdaq Capital Market under the symbols “CUEN” and “CUENW,” respectively. On February 4, 2021 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of February 1, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Representative” or “Maxim”), as representative of the sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company granted Maxim a 45-day option to purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in connection with the Offering. The Common Stock and the Warrants were offered and sold to the public pursuant to the Company’s registration statements on Form S-1 (File Nos. 333-249690 and 333-252642), filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), on October 28, 2020, as amended, and which became effective on February 1, 2021. The Company received gross proceeds of approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated Offering expenses, and intend to use the net proceeds from the Offering for sales and marketing; purchase of chip-based debit card stock for GPR and Starter cards; repayment of outstanding loans; research and development; and working capital and operating expenses purposes. The Underwriting Agreement contains customary representations, warranties, and covenants by the Company. It also provides for customary indemnification by each of the Company and the Underwriter for losses or damages arising out of or in connection with the offering, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement, certain existing stockholders and each of the Company’s directors and executive officers entered into “lock-up” agreements with the Underwriter that generally prohibit the sale, transfer, or other disposition of securities of the Company for a period of 180 days following February 1, 2021. The Company has also agreed that it will not issue or announce the issuance or proposed issuance of any common stock or common stock equivalents for a period of 180 days following the closing date, other than certain exempt issuances. Pursuant to the Underwriting Agreement, the Company also agreed to issue to Maxim warrants (the “Underwriter’s Warrants”) to purchase up to a total of 223,256 shares of Common Stock (8% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $5.375 per share of Common Stock and have a term of five years. The Underwriter’s Warrants are subject to a lock-up for 180 days from the commencement of sales in the Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and will be non-exercisable for six months after February 1, 2021. In addition, pursuant to the Underwriting Agreement, the Company granted Maxim a right of first refusal, for a period of twelve months from the commencement of sales in the Offering, to act as sole managing underwriter and bookrunner any and all future public or private equity, equity-linked or debt (excluding commercial bank debt) offerings. The total expenses of the offering are estimated to be approximately $1.4 million, which included Maxim’s expenses relating to the offering. On June 30, 2021, 298,500 Warrants issued in the Offering were exercised for 298,500 shares of the Company’s common stock in consideration of $1,204. On July 1, 2021, 57,500 Warrants issued in the Offering were exercised for 57,500 shares of the Company’s common stock in consideration of $247.  On July 2, 2021, 1,095,500 Warrants issued in the Offering were exercised for 1,095,500 shares of the Company’s common stock in consideration of $4,711.

 

F-9

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

COVID-19

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. A significant outbreak of COVID-19 and other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, as well as our business and operations. COVID- 19 effectively reduced thew Company’s capability to acquire accounts holders as a significant portion of our target demographic lost their ability to earn wages and subsequently could not load funds to the Company’s product. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our business and results of operations may be materially adversely affected

 

JOINT- VENTURE AGREEMENT WITH BENLISHA GROUP, INC. (“Benelisha”)  

 

On August 4, 2021, the Company and Benelisha entered into a Definitive Marketing and Promotion Agreement (the “Belisha Agreement”). Pursuant to the Belisha Agreement, the Company and Benelisha will market and promote Cuentas GPR cards and the mobile phone application (“DC/MA”) products to Benelisha customers. During the Term, Benelisha’s goal is to register Benelisha customers to become activated users of Cuentas DC/MA products by the following milestone goals.

 

F-10

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

 

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“‘US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. As applicable to the consolidated financial statements, the most significant estimates and assumptions relate to allowances for impairment of intangible assets and fair value of stock-based compensation and fair value calculations related to embedded derivative features of outstanding convertible notes payable.

   

Principles of consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 

Functional currency

 

The functional currency of the company and its subsidiaries is U.S dollar.

 

Reclassification of Prior Year Presentation

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

 

Cash and cash equivalents

 

The Company considers all short-term investments, which are highly liquid investments with original maturities of three months or less at the date of purchase, to be cash equivalents. The Company held no cash equivalents as of December 31, 2021 or 2020.

 

Marketable securities

 

The Company accounts for investments in marketable securities in accordance with ASC Topic 320-10, “Investments - Debt and Equity Securities” (“ASC Topic 320-10”). Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reassesses such determination at each balance sheet date. The investments in marketable securities covered by ASC Topic 320-10 that were held by the Company during the reported periods were designated by management as trading securities. Trading securities are stated at market value. The changes in market value are charged to financing income or expenses. Trading gains (losses) for the years 2021 and 2020 amounted to approximately $0 and $2, respectively.

 

F-11

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

Allowance for doubtful accounts

 

The allowance for doubtful accounts is determined with respect to amounts the Company has determined to be doubtful of collection. In determining the allowance for doubtful accounts, the Company considers, among other things, its past experience with customers, the length of time that the balance is post due, the customer’s current ability to pay and available information about the credit risk on such customers. There was an allowance for doubtful accounts of $20 as of December 31, 2021 and 2020.

  

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Maintenance and repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are capitalized. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations.

 

Variable Interest Entities

 

The Company account for variable interest entities in accordance with ASC Topic 810, Consolidation ("ASC 810").  Under ASC 810, a variable interest entity ("VIE") is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity's equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity's equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE.  In accordance with ASC 810, the Company perform ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.

 

Impairment of Long-Lived Assets

 

In accordance with ASC Topic 360, formerly SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of its asset based on estimates of its undiscounted future cash flows. If these estimated future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the difference between the asset’s estimated fair value and its carrying value. The Company did not record impairment losses during the years ended December 31, 2021 and December 31, 2020.

 

Derivative Liabilities and Fair Value of Financial Instruments

 

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC Topic 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC Topic 815.

 

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.

 

Fair value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC Topic 820, “Fair Value Measurements and Disclosure”, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

 

F-12

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

Fair value, as defined in ASC Topic 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.

 

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC Topic 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 also provides fair value hierarchy for inputs and resulting measurement as follows:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

 

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.

 

Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), (ii) segregating those gains or losses included in earnings and (iii) a description of where those gains or losses included in earning are reported in the statement of income.

 

The Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the fair value of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair values of derivative liabilities over the life of the convertible notes.

 

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy are as follows:

 

    Balance as of December 31, 2021  
    Level 1     Level 2     Level 3     Total  
Assets:                                  
Marketable securities    
      -
     
         -
     
      -
     
-
 
Total assets    
--
     
-
     
-
     
-
 
                                 
Liabilities:                                
Stock based liabilities     3      
-
     
-
      3  
Total liabilities     3      
-
     
-
      3  

  

    Balance as of December 31, 2020  
    Level 1     Level 2     Level 3     Total  
Assets:                        
Marketable securities         3      
    -
     
     -
      3  
Total assets     3      
-
     
-
      3  
                                 
Liabilities:                                
Stock based liabilities     102      
-
     
-
      102  
Total liabilities     102      
-
     
-
      102  

 

F-13

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

Deferred Revenue

 

The Company records deferred revenue for any upfront payments received in advance of the Company’s performance obligations being satisfied. These contract liabilities consist principally of unearned new minutes fees. Changes in the deferred revenue balance are driven primarily by the amount of new minutes fees recognized during the period, and the degree to which these reductions to the deferred revenue balance are offset by the deferral of new minutes fees associated with minutes sold during the period.

 

Non-Controlling Interest

 

The Company reports the non-controlling interest in its majority owned subsidiaries in the consolidated balance sheets within the stockholders’ deficit section, separately from the Company’s stockholders’ deficit. Non-controlling interest represents the non-controlling interest holders’ proportionate share of the equity of the Company’s majority-owned subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.

 

Revenue Recognition

 

The Company follows paragraph 605-10-S99 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable and (iv) collectability is reasonably assured. The Company primarily generates revenues through the brokering of sales of minutes from one telecommunications carrier to another and to a lesser extent the sales of prepaid calling minutes to consumers through its Tel3 division. While the Company collects payment for such minutes in advance, revenue is recognized upon delivery to and consumption of minutes by the consumer. Minutes are forfeited buy the consumer after twelve consecutive months of non-use at which point the Company recognizes revenue from the forfeiture of prepaid minutes.

  

Business Segments

 

The Company operates in a two business segment in telecommunications and General Purpose Reloadable Cards.

 

Income Taxes

 

Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Use of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code Section 382 if a change of ownership occurs.

 

F-14

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

Net Loss Per Basic and Diluted Common Share

 

Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity.

 

At December 31, 2021, potentially dilutive securities consisted of 1,941,906 shares which of 135,200 options to purchase of common stock at prices ranging from $5.22 to $14.35 per share and 1,805,896 warrants to purchase of common stock at prices ranging from $4.30 to $20.00 per share. The effects of these options and warrants been excluded as the conversion would be anti-dilutive due to the net loss incurred in the year ended December 31, 2021.

 

At December 31, 2020, potentially dilutive securities consisted of 226,356 shares which of 135,200 options to purchase of common stock at prices ranging from $5.22 to $14.35 per share and 54,762 warrants to purchase of common stock at prices ranging from $8.12 to $20.00 per share. Additionally, the Company had a Convertible note totaling $250,000 representing an additional 36,394 common shares. The effects of these options, warrants and note been excluded as the conversion would be anti-dilutive due to the net loss incurred in the year ended December 31, 2020.

 

Advertising Costs

 

The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred $37 and $88 of advertising costs during the years ended December 31, 2021 and 2020, respectively. 

 

Stock-Based Compensation

 

The Company applies ASC Topic 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors (including employee stock options under the Company’s stock plans) based on estimated fair values.

 

ASC Topic 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statement of operations.

 

The Company recognizes compensation expenses for the value of non-employee awards based on the straight-line method over the requisite service period of each award, net of estimated forfeitures.

 

The Company estimates the fair value of stock options granted as equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option term (the time from the grant date until the options are exercised or expire). Expected volatility is estimated based on volatility of similar companies in the technology sector. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected option term is calculated for options granted to employees and directors using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the options granted and the results of operations of the Company.

 

Related Parties

 

The registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 of the FASB Accounting Standards Codification, the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

F-15

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Recently Issued Accounting Standards 

 

On August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently evaluating the provisions of ASU 2020-06, but do not expect any material impact on our consolidated financial statements.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. This standard is not expected to have a material impact to the Company’s consolidated financial statements after evaluation.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures.

 

Other new pronouncements issued but not effective as of December 31, 2021 are not expected to have a material impact on the Company’s consolidated financial statements.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

 

Depreciation expenses were $1 in the years ended December 31, 2021 and December 31, 2020. 

 

F-16

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

 

NOTE 3 –INVESTMENTSIN UNCONSOLIDATED ENTITIES

 

On July 21, 2021, The Company and WaveMAX entered into a Definitive Joint-Venture Agreement (the “Agreement”). Pursuant to the Agreement, Cuentas and WaveMax are to form a joint venture (“CUENTASMAX”) which would install WiFi6 shared network (“WSN”) systems in 1,000 retail locations in the New York metropolitan tristate area using access points and small cells to provide users with access to the WSN (the “JV Project”). The WSN will allow CUENTASMAX to generate location-based advertising configured by advertisers using WaveMAX’s advertising dashboard technology directly to users over the WSN, or permit users to pay a service fee for ad-free access to the WSN. The ownership and management of CUENTASMAX shall be as follows: 50% to Cuentas, 25% to WaveMAX and 25% to Consultoria y Asesoria de Redes, S.A. de C.V. (“Execon”). Execon currently manages approximately 20,000 WiFi endpoints with WaveMax in Mexico. Each of the Company and WaveMAX agrees to fund $120,000 (for a total of $240,000) initially upon execution of the Agreement. In addition, each of Cuentas and WaveMAX has agreed to fund an additional $127,500 over the succeeding five months, in each case, subject to approval of each party’s board of directors and expected to produce up to $500,000 from revenue in the first year of operation. The expenses of the JV Project shall include acquiring the Access Points hardware, the installation and configuration of the Access Points hardware for use with the broadband internet service at each Retail Location, entering into the necessary agreements with the Retail Locations, instore marketing and promotion of the WSN program, and expenses relating to commercialization of the digital advertising program. The Board of Directors of CUENTASMAX shall initially be comprised of four persons, two designated by Cuentas, one designated by WaveMAX, and one designated by Execon. The officers of CUENTASMAX shall be the persons from time to time designated by mutual agreement of Cuentas and WaveMAX, with the initial officers to be determined. Up to 1,000 high traffic, prime location convenience stores and “bodegas” (small community markets) will be signed up in conjunction with Cuentas’ distribution network that sells prepaid debit card, e-store, e-wallet and digital services. A fee of 2% (two percent) of the Net Revenue of CUENTASMAX will be paid by CUENTASMAX on a monthly basis as a commission to Innovateur Management SAPI de CV. WaveMax and Innovateur Management, SAPI de CV will be included in the Cuentas Share Incentive plan subject to approval by the Cuentas BOD and approval by Cuentas shareholders and Side Letter Participants at the next scheduled Annual Shareholders meeting. WaveMAX grants CUENTASMAX exclusive rights to use and deploy the WaveMAX Technology, including any and all patents owned or to be owned by WaveMAX and any and all related enhancements or applications of the WaveMAX Technology and any and all prior and subsequent improvements and/or new technology developed by WaveMAX solely in Cuentas BODEGAS network throughout the United States. The parties have agreed to expand CUENTASMAX to other areas of the US once the current deployment is in progress or has been completed. As of December 31,2021 the Company funded $40,000 in CUENTASMAX in agreement with the other parties, funded CuentasMax $40,000 in February of 2022. The parties have agreed to make the third installment by April 15, 2022.

 

F-17

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

NOTE 4 – INTANGIBLE ASSETS

 

On December 31, 2019, the Company entered into a series of integrated transactions to license the Platforms from CIMA, through CIMA’s wholly owned subsidiaries Knetik, and Auris (the “Transaction Closing”) pursuant to that certain Platform License Agreement, dated December 31, 2019 by and among (i) the Company, (ii) CIMA, (iii) Knetik and (iv) Auris (the “License Agreement”) and the various other agreements listed below. Under the License Agreement Cima received a one-time licensing fee in the amount of $9,000 in the form of a convertible note that may be converted, at the option of Cima, into up to 25% of the total shares of Common Stock of the Company, par value $0.001 per share (the “Common Stock”) on a fully diluted basis as of December 31, 2019. 

 

The acquired intangible assets that consisted of perpetual software license had an estimated fair value of $9,000. The Company will amortize the intangible assets on a straight-line basis over their expected useful life of 60 months. Identifiable intangible assets were recorded as follows: 

 

Asset   Amount     Life
(months)
 
Intangible Assets   $ 9,000       60  
Total   $ 9,000       60  

 

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment.

 

On March 5, 2021, the Company purchased the domain www.cuentas.com in consideration of $47. The Company will amortize the intangible assets on a straight-line basis over their expected useful life of 60 months. Identifiable intangible assets were recorded as follows: 

 

Asset   Amount     Life
(months)
 
Intangible Assets   $ 47       60  
Total   $ 47       60  

 

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment.

 

Amortization of intangible assets for each of the next five years and thereafter is expected to be as follows:

 

Year ended December 31,      
2022   $ 1,810  
2023     1,810  
2024     1,810  
2025     8  
Total   $ 5,438  

 

Amortization expense was $1,809 for the year ended December 31, 2021, and $1,800 for the year ended December 31, 2020, respectively. Amortization expense for each period is included in operating expenses.

 

F-18

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

NOTE 5 – OTHER ACCOUNTS LIABILITIES

 

    December 31,
2021
    December 31,
2020
 
Accrued expenses, interest and other liabilities   $ 1,063     $ 76  
Accrued salaries, bonuses and wages     63       2,119  
Total   $ 1,126     $ 2,195  

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE

 

On September 15, 2020, the Company issued a promissory note to Labrys Funds LP for $605 (the “Labrys Note”). The Labrys Note bears interest at a rate of 12% per annum and matures on September 14, 2021. The interest is paid monthly. Payment of principle starts after three months with ability to extend for up to two months and the loan principal become payable on maturity. The Labrys Note bears an original issue discount in the amount of $60, and the issuing expenses were $40, resulting with net proceeds of $505. The Company also issued 56,725 shares of its Common Stock pursuant to the Labrys Note. Out of those, 13,200 shares of Common Stock were issued in consideration of the commitment fee and the balance, are subject to return to the Company once the Labrys Note will be paid in full if there were no defaults. On February 12, 2021, the Company prepaid its loan to Labrys and Labrys returned the Second Commitment shares to the Company.

 

On November 12, 2020, the Company issued a convertible promissory note to a private investor in the amount of $250, which matures on November 12, 2021. Interest accrues from the date of the note on the unpaid principal amount at a rate equal to 10.00% per annum, calculated as simple interest. The holder may elect to convert all or any part of the then outstanding principal and accrued but unpaid interest due under the note into shares of Common Stock until maturation. The conversion price of the note is $6.875 per share, which may be proportionately adjusted as appropriate to reflect any stock dividend, stock split, reverse stock split or other similar event affecting the number of outstanding shares of Common Stock of the Company without the payment of consideration to the Company therefor at any time prior to conversion. On April 20, 2021 the Company paid off its loan and accrued interest in the amount of $260 to the private investor. The Company paid an amount equal to $125 plus $5, which represents the amount of interest accrued on such $125 since the date on which the loan was made under the Note through April 16, 2021. In addition, The Company issued 30,233 shares of Common Stock of the Company.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

The Company has had extensive dealings with related parties including those in which our Chief Executive Officer holds a significant ownership interest as well as an executive position during the years ended December 31, 2021 and 2020. Due to our operational losses, the Company has relied to a large extent on funding received from Next Communications, Inc., an organization in which our Chief Executive Officer and Chairman holds a controlling equity interest and holds an executive position. During the first calendar quarter of 2017, Next Communications, Inc. filed for bankruptcy protection. As a result, the related party payable is being handled by a court appointed trustee as an asset of Next Communications, Inc. and the Company may need to begin repaying the amounts due on a more fixed schedule On January 29, 2019, the United States Bankruptcy Court Southern District of Florida, Miami Division, approved a plan of reorganization for Next Communications, Inc. whereby the Company would pay $600,000 to a specific creditor in consideration for the forgiveness of the balance of the related party payable balance. On March 5, 2019, Cuentas paid $60,000 to the trust account of the specific creditor and on May 10, 2019, the Company paid $550,000 to the trust account of the specific creditor per the order and satisfied its obligation under the Approved Plan of the Reorganization for Next Communications, Inc., that was approved by the United States Bankruptcy Court Southern District of Florida, Miami Division, on January 29, 2019.

 

F-19

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

On July 1, 2020 and pursuant to section 1 (e) of the Side Letter Agreement, dated December 31, 2019, it was agreed by and among Dinar Zuz, Cima, Arik Maimom and Michael De Prado that the Company will borrow up to $462 from Dinar Zuz LLC under the second Dinar Zuz Note. As of December 31, 2020, the Company borrowed $355 under the second Dinar Note.

 

On August 25, 2020 and Pursuant to section 1 (e) of the Side Letter Agreement, dated December 31, 2019, it was agreed by and among Dinar, Cima, Arik Maimon and Michael De Prado that the Company will borrow up to $50 from Arik Maimon at an annual interest rate of 9%. On September 30, 2020, the Company fully repaid its loan to Arik Maimon.

 

Employment Agreements

 

On July 24, 2020, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of Cuentas Inc. (the “Company”) approved the Amended and Restated employment agreements with each of Arik Maimon, the Company’s Chief Executive Officer (“Maimon”), and Michael De Prado, the Company’s President (“De Prado,” and together with Maimon, the “Executives,” each an “Executive”), the “New Employment Agreements”. The New Employment Agreements shall supersede the terms of the Pre-existing Employment Agreements.

 

Pursuant to the terms of the New Employment Agreements, among other things: 

 

  (1) De Prado will receive the following compensation: (1) (a) a base salary of $265,000 per annum; (b) a Funding Bonus equal to 0.5% of the amount of the funding that exceeds the Funding Threshold; (c) a change of control bonus, if applicable; (d) participation in the Company’s employee benefits plan;

 

  (2) Maimon will receive the following compensation: (a) a base salary of $295,000 per annum; (b) a Funding Bonus equal to 0.5% of the amount of the funding that exceeds the Funding Threshold; (c) a change of control bonus, if applicable; (d) participation in the Company’s employee benefits plan;

 

  (3) For each Executive, the term of the Agreement shall end on the earlier of (i) the date that is four months following the Effective Date or (ii) the date that the Company appoints a new president or chief operating officer but the Company can extend the Employment Term on a month to month basis with the approval of both Dinar and CIMA until a new president or chief operating officer is appointed. Upon expiration of the Employment Term (other than a termination by the Company for “Cause”), the Executive will entitled to a special board compensation package with annual compensation equal to the Annual Base Salary (pro-rated for any partial year of service), beginning on the Expiration or Termination Date and ending 18 months later, provided that such payments will cease if the Executive resigns as a member of the Board during such period.  The Board Compensation Period may be extended from year to year for an additional 12 months (for up to 36 months in total) if two of three of the then-current chief executive officer of the Company, Dinar and CIMA agree to extend the period for an additional 12 months. The Executive’s right to receive the Special Board Compensation shall be subject to the Board’s determination that he has complied with his obligations under this Agreement.  The Executive will remain on the Board until he resigns, is not re-elected or is removed from the Board in accordance with the Company’s practice for removal of directors.

 

  (4) Pursuant to the terms of the New Employment Agreements, the Executives are entitled to severance in the event of certain terminations of his employment. The Executives are entitled to participate in the Company’s employee benefit, pension and/or profit-sharing plans, and the Company will pay certain health and dental premiums on their behalf.

 

  (5) Each of the Executives are entitled to travel and expense reimbursement;

 

  (6) The Executives have agreed to a one-year non-competition agreement following the termination of their employment.

 

F-20

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

On February 24, 2021, the employment agreement dated July 24, 2020 for Arik Maimon expired in accordance with its terms and as previously disclosed by the Company. As a result of the expiration of the employment agreement, Mr. Maimon was no longer employed as the Chief Executive Officer of the Company, but he continued to act as Chairman of the Board of Directors of the Company. On February 25, 2021, the Board appointed Mr. Maimon to act as interim Chief Executive Officer, which position will terminate upon the earlier of August 25, 2021 or the date on which his successor is duly elected and appointed by the Board of the Company. On February 24, 2021, the employment agreement dated July 24, 2020 for Michael De Prado expired in accordance with its terms and as previously disclosed by the Company. As a result of the expiration of the employment agreement, Mr. De Prado is no longer the President of the Company but has become the Vice Chairman of the Board. On March 5, 2021 and pursuant to the Side Letter Agreement, the Board of Directors of the Company approved a special bonus in the amount of $500 to each of Mr. Maimon and Mr. De Prado due to the successful up-listing of the Company’s shares on the Nasdaq Capital Markets. Half of the bonus $250 was paid in cash and half will be paid in Common stock of the Company . On August 2, 2021, the Company’s Board of Directors approved the payment of the remainder of the up-listing bonus to Mr. Maimon and Mr. De Prado in the amount of $250 for each of them. On the same date, the Company paid $250 to Mr. Maimon and $250 for Mr. De Prado as described above. 

 

On August 5, 2021, the Company and its Chief Financial Officer entered in an Amendment of his Employment Agreement where his annual base salary will be $245 and he will not be entitled to a cash payment of his accrued vacation and sick days. 

 

On August 25, 2021, the Company and Jeffery D. Johnson entered into an employment agreement, pursuant to which Mr. Johnson agreed to serve as the Company’s new Chief Executive Officer (“The Johnson Employment Agreement”). The Johnson Employment Agreement commenced and became effective as of August 25, 2021, and shall continue for an initial term of three (3) years, ending on August 24, 2024. The initial term would be automatically extended for additional one (1) year periods on the same terms and conditions as set out in the Johnson Employment Agreement; however, the Employment Agreement will not renew automatically if either the Company or Mr. Johnson provide a written notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term or any subsequently renewed one (1) year term. Pursuant to the terms of the Johnson Employment Agreement, Mr. Johnson will receive an annual base salary of three hundred thousand dollars ($300) per year, and will be eligible for an annual incentive payment of up to one hundred percent (100%) of his base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s Board of Directors in consultation with Mr. Johnson. This annual incentive shall have a twelve (12) month performance period and will be based on a January 1 through December 31 calendar year, with Mr. Johnson’s entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the Board of Directors. Pursuant to the terms of the Johnson Employment Agreement, Mr. Johnson has the option to have any such earned annual incentive be paid in fully vested shares of the Company’s Common Stock, but must elect such option by the end of the first quarter following the relevant performance calendar year period. In consideration of Mr. Johnson’s agreement to enter into the Johnson Employment Agreement and remain with the Company, Mr. Johnson was to receive a one-time signing bonus in the amount of two hundred thousand dollars ($200), which is to be paid in two (2) installments: the first installment of one hundred thousand dollars ($100) to be paid on the Company’s next regular payday following the hire date of August 25, 2021, which was paid on August 30, 2021, and the second installment of one hundred thousand dollars ($100) to be paid on Company’s next regular payday following the first (1st) anniversary of the hire date of August 25, 2021, provided that Mr. Johnson is employed by the Company on such relevant payment date. Pursuant to the terms of the Johnson Employment Agreement, subject to the shareholder approval of the 2021 Plan, the Company shall issue to Mr. Johnson an option to purchase up to an aggregate of five hundred thousand (500,000) shares of Common Stock; furthermore, if the Company’s shareholders do not approve the 2021 Plan, Mr. Johnson will have the right to immediately terminate the Johnson Employment Agreement. These options shall vest on the following schedule: (1) options to purchase one hundred twenty-five thousand (125,000) shares of Common Stock shall vest on the date of the grant; and, (2) one hundred eighty-seven thousand and five hundred (187,500) shares of Common Stock shall vest on each of the first and second year anniversary of the date of grant, provided that Mr. Johnson remains continuously employed with the Company through such vesting date. In case of a change in control event, as defined under the terms of the Employment Agreement, any outstanding unvested portion of the options shall become fully vested and exercisable, as long as Mr. Johnson remained continuously employed with the Company through such date. Additionally, Mr. Johnson shall be entitled to a bonus payment in connection with a change in control of the Company, which bonus shall be based upon a percentage of the cash consideration received by shareholders of the Company in the change in control transaction, as determined in the sole discretion of the Board of Directors of the Company.  

 

F-21

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

On August 26, 2021, the Company and Arik Maimon entered into a Founder/Executive Chairman Compensation Agreement. Additionally, on August 26, 2021, the Company and Michael De Prado entered into a Founder/Executive Vice-Chairman Compensation Agreement (the “Compensation Agreements”). The term of each of these Compensation Agreements became effective as of August 26, 2021 and replaces any prior arrangements or employment agreements between the Company and each of Mr. Maimon and Mr. De Prado. Under the terms of the Compensation Agreements, the Executives agreed to be employed by the Company for an initial continuous twelve-month term beginning on the effective date of August 26, 2021, and ending on August 25, 2022. The initial term would be automatically extended for additional one (1) year periods on the same terms and conditions as set out in the Compensation Agreements; however, the Compensation Agreements, respectively, will not renew automatically if either the Company or the respective Executive provide a written notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term or any subsequently renewed one (1) year term. Pursuant to the terms of his Compensation Agreement, Mr. Maimon will receive an annual base salary of two hundred ninety-five thousand dollars ($295) per year, and pursuant to the terms of his Compensation Agreement, Mr. De Prado will receive an annual base salary of two hundred seventy-five thousand dollars ($275) per year, and each will be eligible for an annual incentive payment of up to one hundred percent (100%) of their respective base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s Board of Directors in consultation with each Executive, respectively. This annual incentive shall have a twelve (12) month performance period and will be based on a January 1 through December 31 calendar year, with the Executives’ entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the Board of Directors. Any such annual incentive shall be paid by the end of the second quarter following the calendar year to which each respective Executive’s performance relates. Pursuant to the terms of the Compensation Agreements, each of Mr. Maimon and Mr. De Prado has the option to have any such earned annual incentive be paid in fully vested shares of the Company’s Common Stock, but must elect such option by the end of the first quarter following the relevant performance calendar year period. In the event of a change in control of the Company, as defined under the terms of the Compensation Agreements, that takes place (i) during the term of the Compensation Agreement or (ii) prior to the date which is twenty-four (24) months from the effective date of the Compensation Agreements, if the Executive’s employment otherwise terminates prior to such date, each respective Executive shall be entitled to a bonus payment equal to two and one-half percent (2.5%) of the cash consideration received by the shareholders of the Company in the change in control transaction.

 

On December 31, 2019, the Company entered into a series of integrated transactions to license the Platforms from CIMA, through CIMA’s wholly owned subsidiaries Knetik, and Auris (the “Transaction Closing”) pursuant to that certain Platform License Agreement, dated December 31, 2019 by and among (i) the Company, (ii) CIMA, (iii) Knetik and (iv) Auris (the “License Agreement”) and the various other agreements listed below. Under the License Agreement Cima received a one-time licensing fee in the amount of $9,000 in the form of a convertible note that may be converted, at the option of Cima, into up to 25% of the total shares of Common Stock of the Company, par value $0.001 per share (the “Common Stock”) on a fully diluted basis as of December 31, 2019. 

 

F-22

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

Pursuant to the License Agreement, the Company shall pay CIMA annual fees for the maintenance and support services in accordance with the following schedule: (i) for the first (1st) calendar year from the Effective Date, $300 were paid in 2020; (ii) for the second (2nd) calendar year from the Effective Date, $500 , were paid in 2021; (iii) for the third (3rd) calendar year from the Effective Date, $700 to be paid during 2022; (iv) for the fourth (4th) calendar year from the Effective Date, $1,000 to be paid on December 31, 2022; (v) for the fifth (5th) calendar year from the Effective Date, $640 to be paid on December 31, 2022; and (vi) for each calendar year thereafter, $640 to be paid on the anniversary date 

 

Related parties balances at December 31, 2021 and December 31, 2020 consisted of the following:

  

Due from related parties

 

    December 31,
2021
    December 31,
2020
 
    (dollars in thousands)  
             
(b) Next Cala 360    
     -
      54  
Total Due from related parties    
-
      54  

 

Related party payables, net of discounts

 

    December 31,
2020
    December 31,
2020
 
    (dollars in thousands)  
(a) Due to Next Communications, Inc. (current)   $
-
    $ 10  
(c) Principal and interest due to Dinar Zuz LLC due to Dinar Zuz LLC    
-
      355  
(d) Due to Cima Telecom Inc.     250       417  
Total Due from related parties   $ 250     $ 782  

 

(a) Next Cala 360, is a Florida corporation established and managed by the Company’s Executive Chairman.

 

(b) Next Communication, Inc. is a corporation in which the Company’s Executive Chairman holds a controlling interest and serves as the Chief Executive Officer of Next Communications. See disclosure above regarding payments by the Company in connection with the bankruptcy of Next Communication, Inc.

 

(c) Due to the April 6, 2020 Loan Agreement with the Company to borrow up to $462 at an annual interest rate of nine percent (9.0%) (the second “Dinar Zuz Note”). On March 5, 2021 the Company fully prepaid its loan to Dinar Zuz.

 

(d) Composed from annual fees in the amount of $250 for the maintenance and support services in accordance with the software maintenance agreement for the second calendar year from the Effective Date and other software development services.

  

Consulting Agreement

 

On December 15, 2020, the Company entered into a consulting agreement with Juan Martin Gomez, who is currently the chief executive officer and a 25% shareholder of CIMA. Pursuant to the Consulting Agreement, Mr. Martin will have access to the Company’s facilities once a week and provide consulting services to the Company, including support for marketing and corporate structuring, for a term of one year, which term may be extended upon satisfactory performance of his duties. In exchange for his consulting services, the Company will pay Mr. Martin a monthly fee of $5.

 

F-23

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

NOTE 8 – STOCK OPTIONS

 

On November 3, 2021, the Company issued 1,550,000 stock options to executives’ officers and non-employee directors. The options vest on the terms set forth on the table below. Such options can be exercised until, November 2, 2031, and were approved by the Company’s shareholders on December 15, 2021.

 

Name   Number of
Options
    Exercise
Price
    Vesting Schedule
Jeffery D Johnson     500,000     $ 2.80     125,000 on grant date. 187,5,000 on each of the next 2 Employment Anniversaries.
Shalom Arik Maimon     200,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date
Michael DePrado     150,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date
Ran Daniel     100,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date
Richard Berman     100,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date
Yochanon Bruk     100,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date
Jeff Lewis     100,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date
David Schottenstein     100,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date
Adiv Baruch     100,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date
Carol Pepper     100,000     $ 2.80     50% on grant date; 50% on 12 month anniversary of grant date

 

The Company has estimated the fair value of such options at a value of $4,340 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:

 

Common stock price     2.80  
Dividend yield     0 %
Risk-free interest rate     1.60 %
Expected term (years)     10  
Expected volatility     480 %

  

The following table summarizes all stock option activity for the year ended December 31, 2021:

 

    Shares     Weighted-
Average
Exercise
Price
Per Share
 
Outstanding, December 31, 2020     135,200     $ 11.18  
Granted     1,550,000     $ 2.80  
Forfeited     100,000     $ 2.80  
Outstanding, December 31, 2021     1,585,200     $ 3.69  

  

The following table discloses information regarding outstanding and exercisable options at December 31, 2021:

 

      Outstanding     Exercisable  
Exercise Prices     Number of
Option Shares
    Weighted Average
Exercise Price
    Weighted Average
Remaining Life
(Years)
    Number of
Option Shares
    Weighted Average
Exercise Price
 
$ 14.35       79,200     $ 14.35       1.24       79,200     $ 14.35  
  7.50       36,000       7.50       1.71       36,000       7.50  
  5.23       20,000       5.23       2.24       20,000       5.23  
  2.80       1,450,000       2.80       9.84       785,000       2.80  
          1,585,200     $ 3.69       9.13       920,200     $ 4.24  

 

F-24

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

The following table summarizes all stock option activity for the year ended December 31, 2020:

 

    Shares     Weighted-
Average
Exercise
Price
Per Share
 
Outstanding, December 31, 2019     84,818     $ 31.97  
Granted     79,200       14.35  
Forfeited     28,818       81.12  
Outstanding, December 31, 2020     135,200     $ 11.18  

 

The following table discloses information regarding outstanding and exercisable options at December 31, 2020:

 

      Outstanding     Exercisable  
Exercise Prices     Number of
Option Shares
    Weighted Average
Exercise Price
    Weighted Average
Remaining Life
(Years)
    Number of
Option Shares
    Weighted Average
Exercise Price
 
$ 14.35       79,200     $ 14.35       2.24       79,200     $ 14.35  
  7.50       36,000       7.50       2.71       36,000       7.50  
  5.23       20,000       5.23       3.24       20,000       5.23  
          135,200     $ 11.18       2.51       135,200     $ 11.18  

 

NOTE 9 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

Effective November 20, 2015, the Company amended its Articles of Incorporation to decrease the common shares authorized from 9,500,000,000 to 360,000,000 with a par value of $0.001. 

 

Common Stock Activity During the Year Ended December 31, 2021

 

The following summarizes the Common Stock activity for the year ended December 31, 2021:

 

  Outstanding
shares
 
Balance, December 31, 2020     10,590,491  
Shares of Common Stock issued in public offering     2,790,697  
Shares issued due to exercise of Warrants     1,454,443  
Roundup Differences due to Reverse Split     17  
Shares issued due to conversion of Convertible Note     30,233  
Return of commitment shares     (43,525 )
Shares issued for services     80,000  
Shares issued to employees     63,334  
Balance, December 31, 2021     14,965,690  

 

On February 2, 2021, the Company issued 20,000 shares of its Common Stock to its Chief Financial Officer, 40,000 shares of its Common Stock to a member of the Board of Directors of the Company and 3,334 shares of its Common Stock to a former employee. The fair market value of the shares was $245.

 

F-25

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

On February 2, 2021 the Company’s common stock and warrants began trading on The Nasdaq Capital Market under the symbols “CUEN” and “CUENW,” respectively. On February 4, 2020 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of February 1, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Representative” or “Maxim”), as representative of the sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company granted Maxim a 45-day option to purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in connection with the Offering. The Common Stock and the Warrants were offered and sold to the public pursuant to the Company’s registration statements on Form S-1 (File Nos. 333-249690 and 333-252642), filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), on October 28, 2020, as amended, and which became effective on February 1, 2021. The Company received gross proceeds of approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated Offering expenses. Pursuant to the Underwriting Agreement, the Company also agreed to issue to Maxim warrants (the “Underwriter’s Warrants”) to purchase up to a total of 223,256 shares of Common Stock (8% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $5.375 per share of Common Stock and have a term of five years. The Underwriter’s Warrants are subject to a lock-up for 180 days from the commencement of sales in the Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and will be non-exercisable for nine months after February 1, 2021. The total expenses of the offering are estimated to be approximately $1.4 million, which included Maxim’s expenses relating to the offering.

  

On March 4, 2021 and pursuant to the Underwriting Agreement, Maxim exercised its 45-day option to purchase up to 418,604 additional Warrants, to cover over-allotments in connection with the Offering.

 

On March 17, 2021, the Company issued 10,000 shares of its Common Stock pursuant to a service Agreement between the Company and a service provider, dated May 16, 2019. The fair market value of the shares at the issuance date was $38. 

 

On April 20, 2021, the Company paid off its loan and accrued interest in the amount of $260 to Arie Gershonie. The Company paid an amount equal to $125 plus $5, which represents the amount of interest accrued on such $125 since the date on which the loan was made under the Note through April 16, 2021. In addition, the Company issued 30,233 shares of Common Stock of the Company. The fair market value of the shares at the issuance date was $81. 

 

On June 17, 2021, the Board of the Company approved the 2021 Plan, which will be approved by the shareholders in a future date. The maximum number of shares of stock reserved and available for issuance under the 2021 Plan is 1,800,000 shares. The 2021 Plan is designed to enable the flexibility to grant equity awards to the Company’s officers, employees, directors and consultants as determined by the Company’s Compensation Committee.

 

On June 30, 2021, 298,500 Warrants issued in the Offering were exercised for 298,500 shares of the Company’s common stock in consideration of $1,204.

 

On July 1, 2021, 57,500 Warrants issued in the Offering were exercised for 57,500 shares of the Company’s common stock in consideration of $247.

 

On July 1, 2021, the Company issued 2,943 shares of its Common Stock to a private investor due to a cashless exercise of warrants to purchase up to 6,667 shares of its Common Stock at an exercise price equal to $4.30 per share.

 

On July 2, 2021, 1,095,500 Warrants issued in the Offering were exercised for 1,095,500 shares of the Company’s common stock in consideration of $4,711.

 

On September 14, 2021, the Company issued 70,000 shares of its Common Stock pursuant to a Service Agreement between the Company and a service provider. The fair market value of the shares at the issuance date was $223. 

 

F-26

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

On December 20, 2017, a complaint was filed by J. P. Carey Enterprises, Inc. (“JP Carey”) alleging a claim for $473 related to Franjose Yglesias-Bertheau, a former Vice President of PLKD. Even though the Company made the agreed payment of $10on January 2, 2017 and issued 6,001 shares of Common Stock as conversion of the $70,000 note as agreed in its settlement agreement, JP Carey alleges damages that the Company claims are without merit because JP Carey received full compensation as agreed. The Company is in the process of defending itself against these claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On January 29, 2019, the Company was served with another complaint by JP Carey claiming similar issues as to the previous complaint, with the new claimed damages totaling $1,108. JP Carey and the Company filed motions for a summary judgment. On June 23, 2020, the case was transferred to the Business Court at the request of the Superior Court Judge previously assigned to the case. Judge Ellerbe from the Business Court has been assigned as the new judge. On October 1, 2020, the court granted the Company’s motion for summary judgment and denied JP Carey’s motion for summary judgment. On October 30, 2020, JP Carey filed a notice of appeal to the trial court’s October 1 and 7, 2020 orders granting summary judgment in favor of the Company. The briefing in the appeal was completed during the first quarter of 2021. Oral argument held on April 13, 2021 but no decision has been rendered yet. On November 16, 2020, the Company filed a motion seeking payment from JP Carey of $141 in attorney fees and costs accrued as of November 13, 2020. JP Carey’s responded brief was filed on or about December 21, 2020 and thereafter the Company filed its reply. JP Carey's petition to the Georgia Supreme Court for a writ of certiorari remains pending and is fully briefed as of January 14, 2022. The Georgia Supreme Court is not required to accept the case and whether it accepts or not is entirely within its discretion. If the Georgia Supreme Court grants certiorari, additional briefing will be due in 2022 and a briefing schedule will be set. In the trial court proceedings, the case remains stayed pending the final outcome after all appeals are exhausted. After the appeal decision is final and no longer subject to further appeal, the trial court will consider the Company's motion seeking payment from JP Carey of the Company’s attorneys' fees and costs and JP Carey's claim for default interest, attorney fees, and costs.

  

On October 23, 2018, the Company was served by Telco Cuba Inc. for an amount in excess of $15 but the total amount was not specified. The Company was served on December 7, 2018, with a complaint alleging damages including unspecified damages for product, advertising and other damages in addition to $50 paid to the Defendants. The Company retained an attorney and has taken steps to defend itself vigorously in this case. Depositions are in process of being scheduled.

 

On November 7, 2018, the Company and its now former subsidiary, Limecom, were served with a complaint by IDT Domestic Telecom, Inc. for telecommunications services provided to Limecom during 2018 in the amount of $50. The Company has no accrual expenses as of December 31, 2019, related to the complaint given the early nature of the process. Limecom was a subsidiary of the Company during this period but since the Limecom Acquisition was rescinded on January 30, 2019, and Limecom agreed to indemnify and hold harmless the Company from this and other debts. The Company retained an attorney and is defending itself vigorously in this case. A court ordered mandatory arbitration session took place and the arbitration findings were issued on June 19, 2020, and a request for trial de novo was filed on July 16, 2020, in order to have the matter docketed on the calendar. The court came to the determination that while not indicative of success at trial, the court denied Plaintiff’s motion for summary judgment. As of the date hereof, depositions are set to be taken during the fourth quarter of 2021.

 

On May 1, 2019, the Company received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP), who allegedly had a Reciprocal Carrier Services Agreement (“RCS”) exclusively with Limecom and not with the Company. The arbitration demand originated from another demand for arbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,053 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On or about October 5, 2020, the trial court appointed a receiver over Limecom, Inc. (“Limecom”) in the matter of Spectrum Intelligence Communications Agency, LLC. v. Limecom, Inc., case no. 2018-027150-CA-01 pending in the 11th Circuit for Miami-Dade County, Florida. On June 5, 2020, Secure IP Telecom, Inc. (“Secure IP”) filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company, case no. 20-11972-CA-01. Secure IP alleges that the Company received certain transfers from Limecom during the period that the Company wholly owned Limecom that may be an avoidable under Florida Statute § 725.105. On July 13, 2021, the two cases were consolidated, and are now pending before the same trial court under the former case number. The Company has answered and denied any liability with respect to both complaints. To the extent the Company has exposure for any transfers from Limecom, Heritage have indemnified the Company for any such liability and the Company has a pending cross-claim against Heritage for purposes of enforcing the indemnification obligatiion. A review of the books and records of the Company reflect aggregate transfers from Limecom to the Company or its affiliates of less than $600,000. The Company’s books and records reflect that the Company fully reimbursed Limecom through direct payment of expenses of Limecom and through issuance of shares by the Company to employees or other vendors on behalf of Limecom for settlement and release of claims the employees or vendors may have asserted against Limecom. The books and records of the Company therefore do not reflect an identifiable avoidable transfer, but this analysis may change as the discovery process continues. At this time, based upon an analysis of the Company’s books and records, the loss contingency is not capable of reasonable estimation under the above circumstances, and the likelihood of an adverse judgment is not probable at this time. An adverse judgment in this matter is reasonably possible and based upon an analysis of litigation costs and likelihood of a settlement, the undersigned recommends a litigation reserve of $200,000 to $300,000.As of December 31, 2021 the company accrued $300 thousand due to this matter.

 

On May 25, 2021, the Company received a notice of demand from Vitco LLC and Vitaliy Yurchenko, who allegedly had a licensing agreement entered into with NextGn LLC, a former subsidiary of the Company. The alleged terms of the agreement require payment of $180 per annum for use of software and Vitco LLC’s consulting. The alleged amount due to Vitco LLC and Vitaliy Yurchenko is $1,095. Vitco LLC and Vitaliy Yurchenko are also seeking all attorneys’ fees and costs associated with the filing, maintenance, and enforcement of any formal action.

 

F-27

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

On or about July 15, 2021, the Company, its CEO and other third parties were served with a complaint by Larry Kolb (“Kolb”), Vitco LLC and Vitaliy Yurchenko as part as shareholder’s derivative action under the law of the State of Florida for Breach of Agreement, Breach of Contract, Wage theft, Fraud, Fraudulent Transfer, Breach of Covenant against the Company, its CEO and other third parties. The Complaint demands a transfer of 74,558 shares of Common Stock of the Company or a payment of $265. Kolb also demands a payment of $60 for stolen wages and an order awarding him a reasonable attorney’s fees. The Company retained an attorney. On or about March 1, 2022 the company agreed to settle this matter together with the previous matter listed above involving Yurchenko and Vitco for a total settlement payment of $200,000 which will be effective once a settlement agreement is filed with the court.

 

On April 1, 2021 the Company executed a lease for office space effective April 1, 2021. The lease requires monthly rental payments of $7.

 

NOTE 11 – SEGMENTS OF OPERATIONS

 

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable operating segments. The Company manages its business primarily on a product basis. The accounting policies of the various segments are the same as those described in Note 2, “Summary of Significant Accounting Policies.” The Company evaluates the performance of its reportable operating segments based on net sales and gross profit.

 

Revenue by product for 2021 and 2020 are as follows:

 

    December 31,
2021
    December 31,
2020
 
    (dollars in thousands)  
Telecommunications   $ 525     $ 439  
General Purpose Reloadable Cards     68       119  
Total revenue   $ 593     $ 558  

 

Gross profit (loss) by product for 2021 and 2020 are as follows (in millions):

 

    December 31,
2021
    December 31,
2020
 
    (dollars in thousands)  
Telecommunications   $ 212     $ (20 )
General Purpose Reloadable Cards     (88 )     (119 )
Total revenue   $ 124     $ (139 )

 

Long lived assets by product for 2021 and 2020 are as follows:

 

    December 31,
2021
    December 31,
2020
 
    (dollars in thousands)  
Telecommunications   $
-
    $
-
 
General Purpose Reloadable Cards     5,400       7,200  
Total revenue   $ 5,400     $ 7,200  

 

F-28

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

NOTE 12 – INCOME TAXES

 

Effective December 22, 2017 a new tax bill was signed into law that reduced the federal income tax rate for corporations from 35% to 21%. The new bill reduced the blended tax rate for the Company from 39.50% to 26.50%. Under FASB ASC Topic 740, the effects of new tax legislation are recognized in the period which includes the enactment date. As a result, the deferred tax assets and liabilities existing on the enactment date must be revalued to reflect the rate at which these deferred balances will reverse. The corresponding adjustment would generally affect the Income Tax Expense (Benefit) shown on the financial statements. However, since the company has a full valuation allowance applied against all of its deferred tax asset, there is no impact to the Income Tax Expense for the year ending December 31, 2021.

 

Internal Revenue Code Section 382 (“IRC 382”) potentially limits the utilization of NOLs and tax credits when there is a greater than 50% change of ownership. The Company has not performed an analysis under IRC 382 related to changes in ownership, which could place certain limits on the company’s ability to fully utilize its NOLs and tax credits. The Company’s has added a note to its financial statements to disclose that there may be some limitations and that an analysis has not been performed. In the interim, the Company has placed a full valuation allowance on its NOLs and other deferred tax items.

  

We recognized income tax benefits of $0 during the years ended December 31, 2021 and December 31, 2020. When it is more likely than not that a tax asset will not be realized through future income, the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.

 

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended December 31, 2021 or December 31, 2020 applicable under FASB ASC Topic 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company remain open.

 

Reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the Statement of Operations, is as follows:

 

    Year ended
December 31,
 
    2021     2020  
Loss before taxes, as reported in the consolidated statements of operations   $ 10,728     $ 7,483  
                 
Federal and State statutory rate     26.5 %     26.5 %
                 
Theoretical tax benefit on the above amount at federal statutory tax rate     2,842       1,983  
                 
Losses and other items for which a valuation allowance was provided or benefit from loss carry forward     (2,842 )     (1,983 )
                 
Actual tax income (expense)    
-
     
-
 

 

    2021     2020  
    U.S. dollars in
thousands
 
Deferred tax assets:                
Net operating loss carry-forward   $ 5,464     $ 3,185  
Adjustments     (1015 )     (315 )
Valuation allowance     (4,449 )     (2,870 )
    $
-
    $
-
 

  

F-29

 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share data)

 

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Management has determined, based on its recurring net losses, lack of a commercially viable product and limitations under current tax rules, that a full valuation allowance is appropriate.

 

    U.S.
dollars in
thousands
 
Valuation allowance, December 31, 2020   $ 2,870  
         
Increase     1,579  
Valuation allowance, December 31, 2021   $ 4,449  

 

The net federal operating loss carry forward will begin expire in 2039. This carry forward may be limited upon the consummation of a business combination under IRC Section 382.

  

NOTE 13 – SUBSEQUENT EVENTS

 

On January 5, 2022, The Company entered into a Binding Letter of Intent with Mango Tell LLC (“Mango Tel”), SDI Black 011, LLC and Sohel Kapadia and Saheda Kapadia (collectively the “Owners”), for the potential acquisition of 100% of the assets of Mango Tel LLC and SDI Black 011(“SDI Group”) in exchange for $3.2 Million.The LOI provides that the Company will deposit $2 Million into an escrow account while a definitive purchase and sale agreement is drafted and negotiated. The parties agree that the LOI is binding on each of them and that they will use their best efforts and good faith to enter into the Agreement with terms and conditions consistent with this Agreement. Pursuant to the Agreement, Cuentas will acquire substantially all of the assets of SDI Black, and Mango Tel which also include the Mango Mobile MVNO, Black Wireless MVNO, Black 011 Long distance platform and operations and the SDI distribution platform and network of over 31,000 bodegas and convenience stores (the “Purchased Assets”). Following the execution of the LOI, the Company shall form a company (“Newco”) into which all of the Purchased Assets shall be transferred and, following the closing of the purchase and sale, all of the interests in Newco shall be transferred to the Company. The Sellers and the Owners have agreed to apply the purchase price paid by the Company to amounts due to the repay U.S. Small Business Administration (“SBA”) loans taken by the Sellers and that Owners shall pay an additional $1,000 towards repayment of additional SBA loans. The Company Cuentas agreed to offer employment agreements to certain Fisk/SDI key employees.

 

The Company reached a settlement with IDT Domestic Telecom for a settlement payment of $20.

 

The Company reached a settlement agreement with Larry Kolb (“Kolb”), Vitco LLC and Vitaliy Yurchenko of $200 and is expected to finalize this settlement in 2022.

 

F-30

 

 

  (b) Exhibits

 

            Incorporated by reference
Exhibit Number   Exhibit Description   Filed herewith   Form   Period ending   Exhibit   Filing date
                         
4.4   Form of Indenture       S-3       4.4   02-14-2022
10.1   Amendment to Convertible Promissory Note and Payoff Agreement       10-Q       10.1   2021-05-05
10.2   Definitive Joint- Venture Agreement with WaveMAX Corporation.       8-k       10.1   2021-07-14
10.3   Definitive Marketing and Promotion Agreement with the Belisha Group       8-K       10.1   2021-08-04
10.4   Amendment to Ran Daniel Employment Agreement, dated August 5, 2021       10-Q       10.4   2021-08-23
10.5  

2021 Share Incentive Plan

      10-Q       10.5   2021-08-23
10.6  

Employment Agreement, dated as of August 25, 2021, by and between Cuentas, Inc. and Jeffery D. Johnson  

      8-K       10.1   2021-08-31
10.7   Founder/Executive Chairman Compensation Agreement, dated as of August 26, 2021, by and between Cuentas, Inc. and Shalom Arik Maimon       8-K       10.2    2021-08-31 
10.8  

Founder/Executive Vice-Chairman Compensation Agreement, dated as of August 26, 2021, by and between Cuentas, Inc. and Michael De Prado

      8-K       10.3   2021-08-31
10.9   Binding Letter of Intent       8-K       10.1   2022-01-11
31.1   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act   X                
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act   X                
32.1   Certification Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act   X                
32.2   Certification Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act   X                
101.INS   Inline XBRL Instance Document   X                
101.SCH   Inline XBRL Taxonomy Extension Schema Document   X                
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document   X                
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document   X                
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document   X                
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document   X                

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

  X                

 

ITEM 16. FORM 10-K SUMMARY

 

None.

 

42

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Cuentas, Inc.
     
  By: /s/ Jeffery D. Johnson
    Jeffery D. Johnson,
    Chief Executive Officer
    Date: April 1, 2022

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Arik Maimon   Chairman of the Board of Directors   April 1, 2022
Arik Maimon        
         

/s/ Jeffery D. Johnson

  Chief Executive Officer   April 1, 2022
Jeffrey Johnson        
         
/s/ Ran Daniel   Chief Financial Officer   April 1, 2022
Ran Daniel        
         
/s/ Michael De Prado   Vice Chairman and Director   April 1, 2022
Michael De Prado        
         
/s/ Adiv Baruch   Director   April 1, 2022
Adiv Baruch        
         
/s/ Yochanon Bruk   Director   April 1, 2022
Yochanon Bruk        
         
/s/ Jeff Lewis   Director   April 1, 2022
Jeff Lewis        
         
/s/ Carol Pepper   Director   April 1, 2022
Carol Pepper        
         
/s/ Edward Maldonado   Director   April 1, 2022
Edward Maldonado        

 

 

43

 

800 611-3622 6501 Issuance expenses totaled to $1,386 Issuance expenses totaled to $499 Next Communication, Inc. is a corporation in which the Company’s Chief Executive Officer a controlling interest and serves as the Chief Executive Officer. See disclosure above regarding payments by the Company in connection with the bankruptcy of Next Communication, Inc. Due to the April 6, 2020 Loan Agreement with the Company to borrow up to $462 at an annual interest rate of nine percent (9.0%) (the second “Dinar Zuz Note”). On March 5, 2021 the Company fully prepaid its loan to Dinar Zuz. Next Cala 360, is a Florida corporation established and managed by the Company’s Chief Executive Officer. 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