(U.S. dollars in thousands, except share and per
share data)
The accompanying notes are an integral part of
these consolidated financial statements
The accompanying notes are an integral part of
these consolidated financial statements
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.
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.
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.
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.
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 | |
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.
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.
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.
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.
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.
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.
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. |
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.
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.
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.
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 | |
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.
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.
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.
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 | |
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 | ) |
| | |
$ | - | | |
$ | - | |
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.
| |
|
|
|
|
|
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.