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 endedDecember 31, 20162022

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

Commission File Number:333-148987

NEXT GROUP HOLDINGS, INCCUENTAS, 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.)

1111 BRICKEL AVE, SUITE 2200, MIAMI,235 Lincoln Rd., Suite 210, Miami Beach, FL 3313133139

(Address of principal executive offices)

800-611-3622

(Registrant’s telephone number)

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCUENThe Nasdaq Stock Market LLC
Warrants, each exercisable for one share of Common StockCUENWThe Nasdaq Stock Market LLC

Securities registered under Section 12(g) of the Act:Common Stock, $0.0001 par valueNone

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐ 

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 filerAccelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)

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.o ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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, 2022, 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, 2022, was $4,497,980.

The number of shares of Common Stock, $0.001 par value, outstanding on July 3, 2017March 31, 2023 was 280,326,4742,103,592 shares.

 

 

 

 

NEXT GROUP HOLDINGS, INC.

FOR THE YEAR ENDED

DECEMBER 31, 2016

 

Index to ReportTABLE OF CONTENTS

on Form 10-K

 

PART IPage
 Page
Item 1.Business1
Item 1A.Risk Factors9
Item 1B.Unresolved Staff Comments18
Item 2.Properties18
Item 3.Legal Proceedings18
PART III 
   
Item 1.Business1
Item 1A.Risk Factors9
Item 1B.Unresolved Staff Comments18
Item 2.Properties18
Item 3.Legal Proceedings18
Item 4.Mine Safety Disclosures18
PART II
Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities19
Item 6.[Reserved]Selected Financial Data1922
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations1922
Item 7A.Quantitative and Qualitative Disclosures About Market Risk2628
Item 8.Financial Statements and Supplementary Data2628
Item 9.Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure2628
Item 9A (T)Control and Procedures2729
Item 9B.Other Information30
Item 9C.Other InformationDisclosure Regarding Foreign Jurisdictions that Prevent Inspections2730
   
PART III
   
Item 10.Directors, Executive Officers and Corporate Governance2831
Item 11.Executive CompensationExecutive Compensation3035
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters3037
Item 13.Certain Relationships and Related Transactions, and Director Independence3138
Item 14.Principal Accounting Fees and Services3138
   
PART IV 
   
Item 15.Exhibits, Financial Statement Schedules3239
Item 16.Form 10-K Summary40

 

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FORWARD-LOOKING STATEMENTSSPECIAL NOTE

 

ThisAs used in this Annual Report on Form 10-K contains(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 involves risksExchange Commission in its rules, regulations and uncertaintiesreleases, 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 could materiallywe believe may affect expectedour financial condition, results of operations, liquidity, cash flows,business strategy and business prospects. 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 diversify our operations;
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, and/or purchase orders;operations;

inability to achieve future sales levels or other operating results;
inabilityour ability to raise additional financing for working capital;

inabilityour ability to efficiently manage our operations;

the inability of management to effectively implement our strategies and business plans;
the unavailability of funds for capital expenditures and/or general working capital;
the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain;

deterioration in general or regional economic conditions;
changes in U.S. GAAP or 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;operations.

 

Except as well as other statements regarding our future operations, financial conditionotherwise required by applicable laws and prospects, and business strategies. Theseregulations, we undertake no obligation to publicly update or revise any forward-looking statements are subject to certain risksor 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 uncertainties that could cause our actual results to differ materially from thosecircumstances reflected in the forward-looking statements. Factorsstatements will be achieved or occur. Although we believe that could causethe expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or contribute to such differences include, but are not limited to, those discussedachievements. 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 in particular, the risks discussed under the heading “Risk Factors” in Part I, Item 1A andall amendments to those discussed in other documents we filereports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. We undertake no obligationAny of the foregoing information is available in print to revise or publicly releaseany stockholder who requests it by contacting our Investor Relations Department. Alternatively, you may also access our reports at the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.SEC’s website at www.sec.gov.

 

Throughout this Annual Report references to “NXGH”, “we”, “our”, “us”, “the Company”, and similar terms refer to Next Group Holdings, Inc.

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PART I

 

ITEM 1.BUSINESS

ITEM 1. BUSINESS

 

Forward-Looking StatementsThe Company

 

This 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.

Other sections of this report may include additional factors which could adversely affect our business and financial performance. New risk factors emerge from time to time and it is not possible for us to anticipate all the relevant risks to our business, and we cannot assess the impact of all such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Those factors include, among others, those matters disclosed in this Annual Report on Form 10-K.

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, changed circumstances or any other reason after the date of this report. Neither the Private Securities Litigation Reform Act of 1995 nor Section 27A of the Securities Act of 1933 provides any protection to us for statements made in 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.

The Company maintains an internet website at www.nextgroupholdings.com. The Company makes available, free of charge, through the Investor Information section of the web site, 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.

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The Company

The Company. Next Group Holdings, Inc. (“Next Group Holdings”, the “Company”, or “we”) is a corporation formedwas incorporated under the laws of Florida whichon September 21, 2005, and currently focuses on the business of using proprietary fintech technology to provide enhanced mobilitymobile and e-commerce services for delivering financial, 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”). The Company is diversifying with its initial investment in the first affordable apartment building in Florida using patented, hurricane proof (up to CAT 5) technology. Cuentas sees great potential in developing similar projects in Florida and other area in the US while integrating many of its mobile and e-commerce solutions to unserved,help bridge the digital divide for unbanked, underbanked and emerging marketsunderserved communities.

Our Business

The Company’s historical business included its Mobile App & GPR card. The Company is now diversifying its product line to include its Mobile Payments and Mobility projects which will be integrated into a proprietary fintech ecosystem that will provide a more complete offering of e-commerce products and services designed for the unbanked, underbanked and underserved immigrant and underprivileged communities to help them bridge the e-commerce digital divide. The Cuentas Mobile App & GPR ecosystem protects its 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.

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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 platform with mobile app, mobile wallet and associated integrations that Cuentas has developed over the past 3 years. 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 its platform via dedicated APIs with Sutton Bank (the issuing bank), IDology (AML & KYC) and InComm (Processor, Load Network & 3rd Party Digital Products). During the fourth quarter of 2022, the Company performed its annual impairment test for the impairment of those intangible assets. Based on the Company's qualitative analysis, which considered the electronic products and General Purpose Reloadable Cards reporting unit results and additional business and industry specific considerations including the impact of the settlement agreement with CIMA Telecom, the Company performed a further revisions of the fair value of the acquired platforms. As a result of the factors discussed the company recorded an impairment charge of $3.6 million whereas no amount was assigned to the acquired platforms on December 31, 2022

Cuentas’ Mobile App includes a Mobile Wallet (“Wallet”) and a Digital Store (the “Cuentas Digital Store” or the “Digital 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. Active transit products include TAP in Los Angeles, GoCT in Connecticut and The Rapid from Grand Rapids, Michigan. These should include the digital availability of OMNY in New York when it launches officially. Additional transit products will be available as InComm rolls them out. Cuentas account holders may purchase TopUps (Prepaid Mobile Phone Recharges) 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. 

Cuentas e-commerce Distribution and Mobile Payments

The Cuentas e-commerce Distribution and Mobile Payments ecosystem will allow consumers to purchase Cuentas’s line of digital products and services through a nationwide network of retailers that specifically serve Cuentas’ target market. Cuentas’ distribution network includes certain neighborhood markets known as “Bodegas” and convenience stores as well as other retail establishments. This brings previously unavailable digital products and services to those neighborhoods affected by the e-commerce digital divide.

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 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 field.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. 

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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 current and potential revenue streams. The Company currently receives and expect that the Company will continue to receive monthly maintenance fees, reload fees, ATM fees and commissions for products sold as well as interchange and network fees from Mastercard and the Pulse Network (see “The Cuentas Ecosystem” herein).. 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.

 

Operating SubsidiariesThe Cuentas Digital Store produces revenue each time that consumers purchase third party gift cards, digital access, mass transit tickets and mobile phone top-ups (U.S. and international). The Company’s business operationsAdditionally, International remittances provided by the industry-leader Western Union “by Cuentas” are conducted primarily through its subsidiaries. The Company’s subsidiaries arecurrently available and International Bill Pay should be available in 2023. Both services should be major revenue driving factors for Cuentas as follows:they provide reliable, low-cost solutions to our target audience.

Next CALA, Inc. (94% owned by the Company), a corporation formed under the laws of Florida (“Next CALA”);
NxtGn, Inc. (65% owned by the Company), a corporation formed under the laws of Florida (“NxtGn”);
Meimoun & Mammon, LLC (100% owned by the Company), a limited liability company formed under the laws of Florida (“M&M”);
Next Mobile 360 LLC (100% owned by the Company), a limited liability company formed under the laws of Florida (“Next Mobile”); and
Tel3 (Tel3) (a sub division of M&M).

 

 

Properties.The Company’s headquartersCuentas offers rewards for free long distance calling to its account holders (“Cuentas Rewards”) who are locatedgiven 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. We can expand the Rewards program to include other products and/or services in Miami, Florida.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.

  

Recent DevelopmentsPrepaid 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 does not charge Activation Fees to our account holders as we have identified this as an important issue to our target demographic. Cuentas sends a personalized Prepaid Mastercard® directly to each approved applicant in the US, and we only charge a monthly fee of $4.50, fifteen days after activation and every thirty 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 and Prepaid Mastercard®.

 

The Cuentas Technology platform

The Cuentas technology platform has proven itself to be a robust, reliable system and Cuentas is now taking steps to raise the platform to the next level through symbiotic integration with The OLB Group Inc’s (“OLB”) advanced PCI compliant OMNIsolutions platform.

On August 25, 2016,22, 2022, Cuentas signed a Software Licensing And Transaction Sharing Agreement with OLB with the goal of mutually integrating capabilities, features and expertise to enable both systems to take advantage of this symbiotic relationship so both organizations may grow. The integration of upgrades to Cuentas’ system will include advanced intelligence and predictive trending to improve security, identify successful marketing campaigns and provide data for future project development.

The current Cuentas ecosystem and platforms function seamlessly as before, and upgrades will be introduced after careful evaluation, review and multi-level testing.

The newly upgraded Cuentas platform is designed to be PCI compliant and will include a complete POS system with credit card processing, marketing tools, integrated modules for inventory management, content management, concierge services, shipping and customer service. Additional features and capabilities include Real-time currency exchange rates (ECB), SSL support, Fully 100% customizable designs using templates, configurable list of allowed countries, ACL (Access control list), Activity Log, OpenID, Facebook and Twitter authentication, W3C compliance (XHTML) with all Bar-Codes Accepted, and much more.

The Cuentas platform will also have a multi functionable tax module that can apply taxes by country, state, Zipcode, product classes (e.g., goods, services, alcohol, etc.) and even including tax exempt, European Union Value Added Tax support,

The platform will include a Reward Points System, Marketing manager (Email & SMS campaigns), Customizable SEO (Search Engine Optimization) meta tags, discounts, coupons, affiliate programs, shopping, Froogle (google base), PriceGrabber / Yahoo Shopping, become.com product feeds, Google XML site map, CMS Topics as well as QuickBooks and Google AdSense integration.

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Additionally, the platform will provide a shipping and logistics department a complete solution that enables retailers to use UPS, USPS, FedEx and other shippers with a myriad of shipping calculation methods (weight, volume, product, etc.). Prevent shipping to restricted Countries, calculate shipping, defined shipping methods (e.g., Ground, Next Day, 2nd Day, etc.), shipping tracking numbers, etc.

Finally, the system’s Customer Service module will allow customers to register/login, create wish lists and registries, multiple billing and shipping addresses per customer, customer roles (groups), time zone support, built-in forums, password recovery, multiple account registration/activation types, automatic or manual registrations, Email validation & image capture during login/registration, “Email a friend” feature, Compare products feature, News RSS, Contact Us form, and more. Plugins are also available for US Postal, QuickBooks, FedEx, DHL and MailChimp.

CIMA Settlement 

On July 8, 2022, the Company announced that it entered intoreceived a definitive Market Partnernotice of default from CIMA related to that certain Platform Exclusive License Agreement, maintenance, and related agreements (collectively, the “License Agreement”) by and among Cuentas, CIMA, Knetik, Inc. (“Knetik”), and Auris, LLC (“Auris”). The notice, which was received May 25, 2022, provides that Cuentas has failed to pay $700,000 of maintenance and pass-through fees that CIMA alleges are owed under the License Agreement and also afforded Cuentas the required sixty-day period (through July 24, 2022) to cure the default as provided under the License Agreement.

On August 2, 2022, the Company and CIMA, along with Knetik and Auris executed a Settlement Agreement and General Release (“Settlement Agreement”) which resolves the issues related to the July 8, 2022, notice of default from CIMA related to the License Agreement. Pursuant to the terms of the Settlement Agreement, in exchange for the consideration provided in the Settlement Agreement, Cuentas paid CIMA $770,239.78 and the Company may assist CIMA in the sale of its Cuentas shares.

Further, in connection with the Settlement Agreement, Cuentas, Dinar Zuz, LLC, Michael De Prado and Arik Maimon provided signed waiver letters, expressly waiving any right of first refusal and co-sale rights granted in their favor under that certain letter agreement, dated December 31, 2019 (the “Side Letter”), by and among CIMA, Dinar Zuz, LLC, Michael Del Prado and Arik Maimon, and CIMA agreed (i) to restore immediately Cuentas’s access to its platform; (ii) provided Cuentas with a limited license to utilize the platform the terms of which are detailed specifically in Section 6 of the Settlement Agreement, and to use reasonable efforts, subject to Cuentas’ compliance thereto, to provide Cuentas’ customer data to Cuentas through the end of the limited license term described in Section 6 of the Settlement Agreement; (iii) deliver to Cuentas the Source Code (as that term is defined in paragraph 1.18 of the License Agreement) relating to “Out-Of-Scope Services,” and as further detailed in Section 6 of the Settlement Agreement; (iv) not enforce its rights under the Side Letter through and including August 31, 2022, and (v) shall not transfer, sale, or encumber its Cuentas shares through and including August 31, 2022, except as permitted therein. If Cuentas fails to comply with any term of this Settlement Agreement, Cuentas agreed to a Stipulated Judgment described in Section 5 of the Settlement Agreement, which, if triggered, the limited license set forth in Section 6 and any of CIMA’s obligations under this Settlement Agreement shall become null and CIMA shall have the right to shut off Cuentas access to the Platform without notice.

The Settlement Agreement also provides for mutual general releases by Cuentas for the benefit of CIMA and by CIMA for the benefit of Cuentas of all claims other than claims relating to a breach of the Settlement Agreement.

The Settlement Agreement by its terms in effect terminated substantially all the obligations under the license agreement, dated December 31, 2019, by and between Cuentas and CIMA.

Strategic Partners

Sutton Bank (“Sutton”)

Cuentas has a 5 year Prepaid Card Program Management Agreement with InsightPOS, LLC (“POS”), for distribution, market development and revenue sharing in a new, exciting cash register Interactive Point Of Sale (POS) system. Due to qualifying conditions that had to be met beforeSutton Bank as the agreement was fully accepted, this agreement was fully accepted on September 7, 2016 and can now be considered a “Definitive Material Agreement”.

InsightPOS is a “Stateissuer of the Art”, “Super Functional Point Of Sale” system that has received great attention due to its sleek, modern, efficient designCuentas 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 amazing combination of tools that make the retail experience friendlier, quickerprovides direct deposit capabilities, early pay functionality and better bothaccount balance functionality for the shopperCuentas Mobile App and Mobile Wallet. Cuentas pays Sutton monthly fees for store management. InsightPOS will allow retailerstheir assistance with compliance and regulatory concerns. 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 sell and manageconfirm their store’s inventory, with over 50 million SKUs already in the system and increase customer loyalty by offering important services and benefits.identity. These additional servicesforms 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 long distance telecom products, cellular account payments (USreceive a Cuentas Prepaid Mastercard® associated with their Cuentas Mobile App and International), utility bill payments (electric, water, cable, satellite, etc.Wallet account.

Interactive Communications International, Inc. (“InComm”) and others. InsightPOS will provide the ability for each retail store to offer financial

Cuentas has multiple agreements with InComm including: (a) Processing services, including(b) Resale of 3rd party Digital gift cards, reloadable debit(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 potentially money transfer services, which will increase store revenue organicallyCuentas currently resells a variety of these products through its Mobile App’s Digital Store and Cuentas-SDI distribution network, with possible expansion in a manner few have imagined possible. Insight POS can replace the entire cash register, inventory and management system.future.

 

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NXGH has secured vendor financingUnder the InComm PSA, InComm is the prepaid card processor and through its VanillaLoad network, allows the Company’s cardholders for a small fee, to providereload their Cuentas Mobile Wallet through a nationwide network of retailers including Walmart, 7-Eleven, Walgreens, CVS Pharmacy, Rite Aid, Dollar General and install terminals at no costmany more. In addition, the Company plans to qualified retail establishments, including training upon approval by InsightPOS. The revenues generated by system utilization should maintainextend the system at no costcash reload component of the Wallet through a select number of “bodegas” in the Cuentas-SDI network to each retailer. NXGH willincrease its market major brandpenetration and profitability.

Under the InComm PSA, InComm provides processing services, telephone support, data storage services, account servicing, reporting, output and hot carding services to the Company. Cuentas pays InComm monthly fees for its support as well as anti-fraud and compliance services. Processing services consist mainly of authorization and transaction processing services. InComm also processes authorizations for transactions made with or on prepaid products, along with its own brandedany 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 (General Purpose Reload)applications and reward cards.transactions.

 

NXGH, throughCuentas SDI, LLC

Cuentas SDI, LLC (the “Cuentas-SDI”) was incorporated in the State of Florida on January 4, 2022 and was a wholly owned subsidiary of SDI Black 011, Inc. (“SDI Black”). Cuentas-SDI is engaged in the business of electronic distribution and sales of virtual products via its affiliate, Next Communications, Inc., hasBlack 011 portal located at Yonkers, NY. Its electronic products range from prepaid wireless SIM activation, International mobile recharge services and international long distance phone services. During 2020, Cuentas-SDI also started sales of general merchandise to its retail reseller customers. Cuentas-SDI owns the assets of 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.

On May 27, 2022, the Company entered into a Membership Interest Purchase Agreement with SDI Black, the holders of all the membership interests of SDI Black and Cuentas-SDI, for the acquisition of 19.99% of the membership interests of Cuentas-SDI in exchange for $750,000. Cuentas also had the right to sell STI Mobile, Next Calaclose on the potential acquisition of the remaining 80.01% of the membership interests of Cuentas SDI within 60 days in exchange for a purchase price of an additional $2,459,000 which the Company did not exercise. 

The Company is working with a Vendor-Client relationship with Cuentas-SDI, who uses Least Cost Routing (LCR) to decide which vendor provides the products for sale. The LCR platform will determine the percentage and any Next productsquantity of revenue that is realized between Cuentas and Cuentas-SDI

The Cuentas Ecosystem

Cuentas’ goal is to 8,800 locations that were serviced by a prepaid distribution network. NXGH will offer the InsightPOS systemconsumer a one-stop shop, easy to clientsuse, Mobile App & Mobile wallet with Mastercard® rails that can provide new, important financial services and solve many of this distribution network as well via direct sales through its own sales forcetheir daily needs and affiliates. When a system is installed, NGH receives 50% ofdesires while saving the gross profits received by InsightPOS after retailer commissions are paid.

NXGH, through its vendor, InsightPOS has secured financing to deliverusers time and install 10,000 units.

Next CALA

Our Next CALA subsidiary promotes and distributes NextCALA-branded Prepaid Visa® General Purpose Reloadable (“GPR”) prepaid debit cards, bearing the Next CALA Debit™ and Visa® logos. Customers may register for our prepaid debit card athttp://www.nextcala.com. Each of our cards is issued by The Bancorp, MetaBank, Metropolitan Bank or Sutton Bank.

Based on projections by industry experts, we believe that prepaid debit cards are one of the fastest growing niches in the financial sector. The number of cards sold is expected to grow 22% annually from 2016 to 2020, according to projections by the Consumer Financial Protection Bureau. Millions of individuals in the U.S., including those in various minority communities, are unable to obtain access to the banking system due to various reasons, including but not limited to poor credit scores or a lack of exposure to the U.S. banking system. Prepaid debit cards are a convenient option for such individuals. Prepaid debit cards may also be an intermediate step toward such individuals ultimately joining the financial system. In addition, prepaid debit cards are a popular option for gift-giving due to fraud protection in the case of loss or theft. We believe that prepaid debit cards are replacing cash as a preferred gift for these reasons, in certain regards.

Card holders can upload funds onto their NextCALA prepaid cards via ACH wire transfer, online, or in person using Vanilla Reload machines, which are stationed in over 50,000 locations throughout the U.S., including but not limited to Walmart, CVS, Dollar General, Rite Aid and Walgreens retail stores, and anywhere in the Mio Reload Network, which includes more than 450,000 retail locations throughout the world. The card can be used like a traditional credit card or debit card and is accepted wherever Visa Debit® cards are accepted. Money spent using the card is deducted from the total balance of prepaid funds previously uploaded on the card. Unlike a credit card, prepaid debit card holders do not have the ability to spend more than the balance of prepaid funds previously uploaded on the card. Prepaid debit cards can be used and spent online and can be used at an ATM machine to retrieve cash.

Contractual Relationships with InComm, Bancorp, and Visa. Next CALA Prepaid Card® GPR cards are distributed and serviced by prepaid industry leader, InComm Financial Services, a wholly-owned subsidiary of InComm Holdings, Inc. (“InComm”). Next CALA has been indemnified by InComm, which possesses money transmitter licenses in all 50 states. InComm specifically also indemnifies Next CALA with respect to Anti Money Laundering and Know Your Client US banking regulations, as they capture and verify all of this as part of our agreement. In addition, The Bancorp Bank (“Bankcorp”), a member of the FDIC, pursuant to a license from Visa USA, Inc., acts as program manager and as clearing house and provides banking capacities in transactions involving the cards. Prepaid card deposits are held by Bankcorp, MetaBank, Metropolitan Bank or Sutton Bank.

money.

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NEXTCALA is unique in that InComm has granted NEXTCALAApproved Cuentas accountholders will have a complete white label of their $14 billion back end prepaid, GIFTCARD, GPR, 210,000 US retailers with electronic and hard plastic stored value open and closed loop licenses, products and our very own brand along with licensing their MIO brand that is branded at every 210,000 InComm retailer and online footprint. We are currently negotiating certain other terms with InComm, including the following:

InComm may grant us access to its retail partners for distribution of our prepaid card and other products;
InComm may provide us with an Application Protocol Interface on their hosted website;
InComm may provide us with most favored nation pricing to procure and resell electronic and physical starter cards, gift cards, closed loop products;
InComm may provide us with participation in pass through as a revenue share composition on any of our generated cards, revenue and usage;
InComm may enable additional identification categories to new registrants of our GPR Card program; and
InComm may use its best efforts to introduce our call center enablement for better quality customer experience to have our rewards component be first in sequence, followed by a soft hand off to Incomm for any financial Ccard customer service.

However, there is no guarantee that InComm will agree to any of these terms, and such terms remain subject to further negotiations between us and InComm.

Customer Service. Next CALA Prepaid Visa® GPR cards offer free customer service and reloads 24 hours per day.

Load Limits Per Card. The maximum load amount per registered Next CALA Prepaid Visa® is $10,000. Customers can load between $20 and $500 per load into a Next CALA Prepaid Visa® GPR card.

FDIC Insurance. Each Next CALA Prepaid Visa® GPR card account is insured by the Federal Deposit Insurance Corporation for a maximum amount of $50,000. The customer is always in charge of his or her prepaid account, including online access, unique routing and account numbers.

Retail and ATM Locations Accepting the Next CALA Card. Next CALA cards are acceptedMastercard® acceptable wherever Visa Debit®Mastercard® debit cards are accepted and can be used for purchases at retail locations, online, and over the phone, as well as for ATM withdrawals and other ATM functions, remittances, bill payments, mobile-banking, and virtual digital wallet functions.

Reloads at Retail Locations, and by Direct Deposithave their paychecks or Wire Transfer. Card holders can upload funds ontocertain government benefits checks directly deposited to their NextCALA prepaid cards via ACH wire transfer, online, or in person using Vanilla Reload machines, which are stationed in over 50,000 locations throughout the U.S., including but not limited to Walmart, CVS, Dollar General, Rite Aid and Walgreens retail stores, and anywhere in the Mio Reload Network, which includes more than 450,000 retail locations throughout the world.

Mobile Apps. Earlier this year, Next CALA released its NEXTCALA Mobile applications for both Android and iOS. The NEXTCALA mobile Android and iOS applications give users access to mobile banking and banking services 24 hours per day, 365 days per year. Users are able to use the application to make mobile-to-mobile payments, to transfer funds to family, friends, and retailers, and to see all balances and transactions, including retail transactions made online or in physical retail locations with the Next CALA Prepaid Visa® cardaccount associated with the app user’s account. Withcard, with funds available for use on the NEXTCALA Mobile app, users not only have an easier waycard up to bank, they also earn points that can be redeemed towards long distance calls either via voice or HD Video among other benefits provided under2 days earlier than standard direct deposits. Furthermore, the NEXTCALA Rewards program.

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)

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Next CALA’s new NEXTCALA Mobile Android and iOS apps gives users an easy way to check balances and account activity, make phone-to-phone payments, and send money to family, friends, and retailers.

Prepaid Card Solutions Democratize Banking and Payments. Prepaid cards democratize electronic payments and remittances for those outside the traditional banking system. The growing popularity of prepaid card solutions for both banked and unbanked consumers is driven by the prepaid card’s unique ability to solve almost any payment need.

Rapid Growth ofCuentas Digital Store in the Mobile Banking Market. Based on projections by industry experts, the Company believes that prepaid debitApp will allow accountholders to purchase certain mainstream gift cards are one of the fastest growing niches in the financial sector. The Prepaid Unbanked and underbanked segments of the USA, specifically the Latin demographic, is expanding rapidly and will reach approximately $421 billion in the United States and approximately $822 billion worldwide by 2017.

NEXTCALA Rewards. Through our Next CALA Rewards program, we offer benefits including allowing Next CALA subscribers to earn points for use in remittance transactions,a variety of stores, online portals and transit agencies – many at discounted prices. Accountholders can also “Top Up” or to be credited into reloadable internationalprepay their mobile phone accounts and domestic long distance calling cardsalso do the same for voice or HD video calls. During the second half of 2017, as Next CALA’s sibling company NxtGn, Inc. begins to roll out new products and services, the Next CALA Rewards program will also offer Next CALA subscribers the ability to use NxtGn’s proprietary HD Personal Telepresence products to participate in health care consultations, distance learning, and exclusive live entertainment events. The NEXTCALA Rewards platform is currently being developed and scheduled for releasefriends & family living in the second half of 2017.

Advertising and Promotion. Next CALA will increase its market presence and reach by aggressively advertising. CP &B is a 4% equity owner of NXGH and promoting its products and services. In the initial phase of the launch campaign which will begin upon release of the NEXTCALA Mobile applications, Next CALA will use advertising to increase consumer awareness and stimulate trial of the NEXTCALA Mobile apps and Next CALA Prepaid Card® GPR cards during the second half of 2017. Throughout the launch campaign, Next CALA will promote NEXTCALA Mobile apps and Next CALA Prepaid Card® GPR card enrollments by pushing promotional videos and offers to the Company’s telephony mobility users and to millions of existing customers of marketing partners who provide products and services to under-banked, non-banked, low-income Americans, immigrants, teens, and other natural niche markets for the Next CALA’s products and services.

Strategic Alliances with Marketing Partners. Next CALA intends to build strategic alliances and joint venture marketing partnerships with Lifeline service providers (who provide federally-subsidized free cell phones and free telephony services to millions of under-bankedUS or non-banked low-income Americans) and other companies and affinity groups which provide products and services to under-banked or non-banked immigrants, teens, and other emerging niche markets for mobile banking and prepaid card solutions.

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While the primary venue for Next CALA’s launch campaign will be web-based media, the campaign will also include push promotions, web videos, bench, bus, and subway advertising, podcast advertising, and other disruptive measures designed to rapidly increase consumer awareness and trial of the NEXTCALACuentas Mobile apps and Next CALA Prepaid Card® GPR cards in carefully selected target markets.

NxtGn

NxtGn.Our NxtGn subsidiary is a software company which designs, develops, produces, markets, and provides robust, scalable, high density, high performance HD video platforms, call processing engines, and worldwide telephony networks intended to give clients proprietary and sustainable competitive advantages in efficiency, stability, security, flexibility, and costs, allowing them to deliver premium quality voice, video, and data services at above-average profit margins.

Joint Venture with Telarix. NxtGn has entered into a joint venture with telephony platform industry leader Telarix, Inc. to develop and market the AVYDA Powered by Telarix™ HD telepresence platform. The AVYDA Powered by Telarix™ product is marketed throughout the world by the Telarix sales force.

AVYDA Powered by Telarix. Developed in a joint venture with industry-leader Telarix, Inc., NxtGn’s product AVYDA Powered by Telarix™ HD Video platform allows subscribers to use HD telepresence services that until recently were within reach only of Fortune 500 companies and very high net worth individuals. The AVYDA Powered by Telarix™ HD telepresence platform allows users to connect using their mobile phones, tablets, and personal computers, to telepresence rooms, health care and educational applications, exclusive online entertainment events, online gaming, and other special events. The AVYDA Powered by Telarix™ technology allows HD video conferencing connections point-to-multipoint, with up to 10,000 concurrent calls per session border control (SBC), and the platform is fully compatible with iOS, Android, and Cisco TelePresence operating systems.

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Vitco Technology. NxtGn telephony and HD video platforms use technology proprietary technology owned by NxtGN, Telarix, and Vitco LLC, US IP Series, a limited liability company formed under the laws of DelawareCuentas Mobile is our Mobile Virtual Network Operator (“Vitco”MVNO”), trade name, which licenses software solutions to several of the world’s largest and most successful telecommunications carriers. Through December 31, 2015 NxtGn owned an option to acquire Vitco in consideration for $5,000,000 of the Company’s common stock which expired unexercised. Vitco is currently the owner of 25% of the issued and outstanding shares of NxtGn. Upon exercise of the option, NxtGn would acquire all title, rights and interests in certain proprietary and patented technology and intellectual property owned by Vitco, including Inbound SIP Signaling Server technology, Outbound SIP Signaling Server technology, Packet Cable Accounting Server technology, RADIUS Accounting Server technology, Real-time Call Information Server technology, Routing Application Server technology, Signaling Monitoring & Analysis Server technology, and H.323 Signaling Server technology, as well as all of Vitco’s issued and outstanding shares of NxtGn. Vitco’s technology is currently licensed to NxtGn on a royalty-free basis.

Nextprovided Cuentas Mobile 360

Next Mobile 360. Our Next Mobile subsidiary is a mobile virtual network operator (or “MVNO”) which provides NextMobile360™ branded mobile phones andalong with attractively priced prepaid voice, text, and data mobile phone services to a limited customer base currently consistingbase. 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 approximately 2,500 MVNOthe top 3 mobile carriers. Cuentas Mobile Virtual Network Operators such as Virgin Mobile have been successful at creating a brand, and not own the hardware or network. Next Mobile operates this business pursuant to contracts with Sprint Corporation which allow Next Mobile to use Sprint’s network infrastructurewill continue to operate a virtual telecommunications network providing mobile voice, text, and data services ofwith essentially the same quality as those Sprint providesother 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 its own retail subscribers.make international calls to specific Spanish speaking countries in Central and South America.

 

 

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

 

Joint Venture. Because MVNO marketing is capital intensive, Next Mobile intends to sell a 50% interest in its MVNO rights to an operating partner who will be responsible for funding all future marketing expenses of the MVNO. The Company has been introduced to interested purchasers by Sprint, and believes it will be able to sell a 50% interest in the MVNO for $1.5 million in cash plus a commitment to fund all of the joint venture’s future marketing expenses.

Meimoun & Mammon LLC

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Meimoun & Mammon LLC (“M&M

M&M.&M”)Our M&M subsidiary is a wholesaleretail provider of domestic and international long distancelong-distance voice, text, and data telephony services to carriersconsumers 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.

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LSI Group S.A. (“LSI”)

On Aug 31, 2022, Cuentas signed a 1-year agreement which is extendable to 3 years total with completion of certain milestones. LSI will market the US based Cuentas Prepaid Debit Card and Mobile App in countries including El Salvador, Guatemala and Honduras with plans to expand to South America, starting with Colombia, with the goal to sign 200,000 US-based Cuentas customers in 1 year for international cross-border remittances. As of date, the Company has not generated revenues through LSI.

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 Federal Communications Commission,FCC, which may be suspended or revoked by the FCC if M&M does not strictly comply with all applicable regulations and operate the NextMobile360™ business through its wholly-owned subsidiary Next Mobile. Whileterms 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.

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 spend is distributed amongst these marketing vehicles and adjusted as acquisition data is received. Our initial program is designed 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.

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Marketing strategies for customer acquisition have focused on key markets, targeted audiences, lifestyle fit, brand awareness, key metrics and go-to-market plans, especially where Hispanic & Latino groups are concentrated, such as Southern California, Texas, New York, Florida, Arizona and New Mexico. The marketing relationship with the indoor professional MASL (Major Arena Soccer League) soccer league for the 2022-2023 season has historically provided wholesale long distance telephony serviceintroduced the Cuentas brand and services to sports fans throughout the 14 team cities, with additional reach through streaming of the pro soccer games through the Twitch streaming network. The demographics of soccer fans is directly in line with Cuentas’ target audience.

Cuentas will promote the newly integrated POS capabilities in its ecosystem and market these services to the 30,000 bodegas and convenience stores in the network, with the possibility of upgrading a select number of leading domesticthem to neighborhood financial centers to be able to load cash to the Cuentas prepaid debit card and international carriers, mostprovide other financial services.

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 M&M’sCUENTASMAX 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 now generated by demand from its sibling companies NxtGnin progress or has been completed. As of date, CuentasMax has installed 30 WiFi6 Access Points in New York City, Los Angeles, and Next Mobile.Puerto Rico at different small businesses including Bodegas, restaurants, beauty salons and gas stations. CuentasMax also has pilot project agreements with the Bodega Association and Business Group in NYC, Benelisha Group in LA, and Top Gasoline Inc in Puerto Rico. As of December 31,2022, the Company funded $80,000 in CUENTASMAX and recorded equity losses in the amount of $52,000.

 

NetworkEntry 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 2023.

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.

Acquisition of a 6% equity position in Lakewood Village

On March 7, 2023 Cuentas announced that it had completed the acquisition of a 6% equity position in Lakewood Village, the first sustainable rental housing project developed in the US using a patented MCFR Mineral Composite Fiber Reinforced Construction Technology that has been approved for hurricane-prone areas as such in Florida. The Lakewood Village project is an affordable multi-family real estate development located in Lake Worth, Palm Beach County, Florida, consisting of 96 apartments that are 2 and 3 bedrooms. An independent appraisal has valued the project, once completed, at approx. $25M, equating the Company’s equity position at approx. $1.5M. This investment will produce monthly income, expected to be about $100k per year or more. Due to the success of the Lakewood project, the Company has made plans to develop additional affordable real estate projects under the CuentasCasa brand and has entered negotiations to initiate other projects, initially in South Florida.

Entry into a supply agreement with Renco USA

In March 2023, the Company also signed a 10 year supply agreement with Renco USA, Inc, the provider of the innovative, green, structural construction technology components used in the Lakewood Village project, which is hurricane proof (up to CAT 5) and earthquake proof (Seismic Cat A & B – soon C, D & E). Renco USA has the exclusive rights in the USA to the patented process. The Renco Wall, Floor and Roofing System is a unique MCFR Building System that creates interlocking, fiber reinforced, composite building blocks and other construction related products that can be connected in an almost limitless variety of designs. Renco’s system can be used to create homes, apartment buildings, hotels, office buildings, warehouses, infrastructure products and more.

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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.

Reverse Split and Offering

On February 6, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”) for the purpose of raising approximately $5 million in gross proceeds for the Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell, in a registered direct offering, an aggregate of (i) 163,344 shares (the “Shares”) of the Company’s common stock (“Common Stock”) and (ii) pre-warrants to purchase up to 128,031 shares of Common Stock (the “Pre-Funded Warrants” and such shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, the “Pre-Funded Warrant Shares”) and, in a concurrent private placement, warrants (the “Purchase Warrants”) to purchase 291,375 shares of Common Stock (the shares of Common Stock issuable upon exercise of the Purchase Warrants, the “Purchase Warrant Shares”). The M&M Networkcombined purchase price per Share and Purchase Warrant is $17.16 and the private international network over whichcombined purchase price per Pre-Funded Warrant and Purchase Warrant of $17.16.

The Pre-Funded Warrants were sold, in lieu of shares of Common Stock, to any Investor whose purchase of shares of Common Stock in the Registered Offering would otherwise result in such Investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at such Investor’s option upon issuance, 9.99%) of the Company’s outstanding Common Stock immediately following the consummation of the Registered Offering. Each Pre-Funded Warrant represents the right to purchase one share of Common Stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants are exercisable immediately and may be exercised at any time until the Pre-Funded Warrants are exercised in full.

The Purchase Warrants will be exercisable on the six-month anniversary of the issuance date and will expire five and one-half years following the date of issuance at an exercise price of $17.36 per share.

The closing of the sales of these securities under the Purchase Agreement occured on or about February 8, 2023, subject to satisfaction of customary closing conditions.

H.C. Wainwright & Co., LLC (“Wainwright”) is acting as exclusive placement agent for the offering pursuant to an engagement agreement between the Company and Wainwright dated as of December 13, 2022. As compensation for such placement agent services, the Company has agreed to pay Wainwright an aggregate cash fee equal to 7.0% of the gross proceeds received by the Company from the offering, plus a management fee equal to 1.0% of the gross proceeds received by the Company from the offerings, a non-accountable expense of $65,000 and $15,950 for clearing expenses. The Company has also agreed to issue to Wainwright or its designees warrants to purchase 20,396 shares of Common Stock (the “PA Warrants” and the shares of Common Stock issuable upon exercise of the PA Warrants, the “PA Warrant Shares”). The PA Warrants have a term of five years from the commencement of sales in the offering, and have an exercise price of $23.17 per share. The fair market of those warrants was $267 thousand as of date of issuance.

The net proceeds to the Company from the registered direct offering and concurrent private placement, after deducting the Placement Agent’s fees and expenses and the Company’s offering expenses was approximately $4.3 million.

On February 7, 2023 the investor exercised 67,800 Pre-Funded Warrants and in March 13, 2023 the investor exercised 60,231 Pre-Funded Warrants.

As previously disclosed, on June 21, 2022, the Nasdaq Listing Qualifications Staff (the “Staff”) issued the Company a delist letter citing its failure to comply with the minimum bid price requirement under Listing Rule 5550(a)(2). In accordance with Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until December 19, 2022, to regain compliance with Rule 5550(a)(2). On December 20, 2022, Staff notified the Company that it had determined to delist the Company as it did not comply with bid price requirement for listing on the Exchange. On December 27, 2022, the Company requested a hearing, which was held on February 9, 2023. On February 28, 2023, the Company announced that it received on February 23 formal notification from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Nasdaq Hearings Panel (the “Panel”) had determined to grant the Company’s request for continued listing on The Nasdaq Capital Market, pursuant to an extension through April 6, 2023, to evidence compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). Such extension is capablesubject to the conditions that (1) on or before March 23, 2023, the Company shall effect a reverse stock split at a ratio that is sufficient to ensure compliance with the Bid Price Rule and (2) on April 6, 2023, the Company shall have demonstrated compliance with the Bid Price Rule, by evidencing a closing bid price of delivering large volumes$1 or more per share for a minimum of highest-quality international long distance voiceten consecutive trading sessions. The Company is taking definitive steps to timely evidence compliance with the terms of the Panel’s decision; however, there can be no assurance that it will be able to do so by April 6, 2023, or that the Panel will grant a further extension if required.

On March 24, 2023, 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 thirteen 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 13-for-1 basis, and data telephony services at significant cost savings. the exercise price of each such outstanding stock option and common warrant has been proportionately increased on a 13-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 13-for-1 reverse stock split.

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The network’s architecture is scalable and proprietary, and M&M plans to increase capacity as demand increases. The M&M Network consists of four principal elements:Company 2021 Share Incentive Plan

 

PointsOn June 17, 2021 the Board of Presence.Pointsthe 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 presence digitize voice signals into data, allowing transmissionshares of stock reserved and retrieval over a broadband data network. M&M’s points of presence, which areavailable for issuance under the gateways2021 Plan is 124,231 shares. The 2021 Plan is designed to enable the flexibility to grant equity awards to the M&M Network, are located within its Global Network Operations Center in Miami, Florida,Company’s officers, employees, directors and colocations throughout the world.

The Transmission Medium.This is the Internet, which is the backbone of the M&M Network.

The M&M Voice and Data Platform Controller.This is M&M’s proprietary software and switchless routing platform, which is the heart of the M&M Network. Developed by M&M and NxtGn in cooperation with Cisco, the system can scale to support more than 200,000 simultaneous sessions on a single chassis. M&M’s Next Voice and Data Platform Controller is located within the Company’s Global Network Operations Center in Miami, Florida.

The M&M Global Network Operations Center.This is the facility which houses the Company’s primary point of presence and the M&M Voice Platform Controller, and from which M&M monitors and manages the voice and data traffic transmitted through the network.

Focus on High-Margin Destinations in Difficult Operating Environments.By focusing its route development operations on building strategic partnerships with providers in difficult telephony operating environments in Latin America, Africa, and other emerging markets, M&M hopes to increase its market reach and overall revenues. By using NxtGn’s proprietary call processing technology, M&M can significantly reduce equipment costs and other capital expenditures required to enter difficult operating environments. The technological advantage which historically made M&M a market leader in long distance traffic terminated in Mexico and other destinations in Latin America will allow M&M to expand its market reach into Africa and the Middle East and other lucrative markets. Licensed FCC 214 long distance wholesaler, owner of Tel3 dba Pinless long distance.

Tel3.During the year ended December 31, 2016, the Company acquired 100% of the outstanding ownership interest in Tel3. Tel3 provides prepaid calling cards to consumers directly and operates in a complimentary spaceconsultants as M&M. Tel3 was originally acquireddetermined by the Company’s CEO in a private transactionCompensation Committee.

Employees

As of March 31, 2023, our management team consisted of the Interim Chief Executive Officer, Interim President, and soldChief Financial Officer. We have an additional three full-time employees: our Compliance Officer, IT Director, and Executive Assistant. For more information relating to the Company for $10 cash.

Next Communications, Inc. Bankruptcy

The Company has historically received financing from Next Communications, Inc., an entity controlled by our CEO, and had a related party payable balance of $2,961,271 and $3,025,522 due to Next Communications, Inc. as of December 31, 2016 and 2015. Duringemployment agreements, please see the first calendar quarter of 2017, Next Communications, Inc. filed for bankruptcy protection. As a result, the related party payable will be 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.

section below entitled “Item 11. Executive Compensation.”

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Employees

As of December 31, 2016, we have no employees, but have two (2) officers and four (4) directors who are compensated as consultants. We also have contract labor agreements with seven other persons on both a part time and full-time basis. We have no agreements with any of our management/subcontractors for any services. We consider our relations with our subcontractors to be good.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. All of our reports are able to be reviewed through the SEC’s Electronic Data Gathering Analysis and Retrieval System (EDGAR) which is publicly available through the SEC’s website (http://www.sec.gov).

We intend to furnish to our stockholders annual reports containing financial statements audited by our independent certified public accountants and quarterly reports containing reviewed unaudited interim financial statements for the first three-quarters of each fiscal year. You may contact the Securities and Exchange Commission at (800) SEC-0330 or you may read and copy any reports, statements or other information that we file with the Securities and Exchange Commission at the Securities and Exchange Commission’s public reference room at the following location:

Public Reference Room

100 F. Street N.W.

Washington, D.C. 2054900405

Telephone: (800) SEC-0330

ITEM 1A.RISK FACTORS

ITEM 1A. RISK FACTORS

 

OwningInvesting in our common sharessecurities 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 consideralso carefully the following risk factors and allconsider other information contained and incorporated by reference in this information statement.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 followingdescribed risks occur, theour business, financial condition liquidity,or results of operations or as well as our ability of to make distributions to our shareholders, could be materially and adversely affected.harmed. In thatsuch case, the market pricevalue of our common sharessecurities could decline significantly, and you couldmay lose all or a 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 valuetransactions contemplated by our letter of your ownershipintent 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 common shares. Some statements in this information statement, including statementsstockholders, that the transaction will be completed in the following risk factors, constitute forward-looking statements. Please refertime 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 the section in this information statement entitled “Forward-Looking Information.”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.

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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.

Risks Related to Next Group Holdings.the Company

 

You will not be afforded an opportunity to choose our future investments, which means we may invest in a company, including a company affiliated with a member of our Management team, even though you do not support such an investment. Furthermore, our management has broad discretion to use the proceeds from this offering, which it may not use effectively.

We may decide to invest any net capital we receive from operations or future investment in other companies that are affiliated with members of our Management team. Accordingly, investors will need to rely on the judgment of Management with respect to the use of these net proceeds and investors will not have the opportunity to assess whether such proceeds are being used or invested appropriately. Further, we cannot predict that the proceeds will be used to yield a favorable return and our failure to apply such proceeds effectively could diminish the value of your investment.

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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 or execute our business plan.profit.

 

The Company is now engaged in new businesses started in each 2016 and 2015. As a result, weWe have a limited operating history upon which you may evaluate our business and an investment in our common stockCommon Stock may entail significantly more risk than the shares of common stockCommon 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 long term capital appreciationmarket value of our common stock.

The Company has not yet achieved profitability from its business operations and is reliant on outside financing to fund operations.

As of December 31, 2016, the Company had a working capital deficit of $9,723,119 and an accumulated deficit of $13,946,938 including net losses after non-controlling interests of $9,890,111 and $1,199,925 during the years ended December 31, 2016 and 2015. This raises substantial doubt around our ability to continue as a going concern. The Company will be dependent on obtaining additional financing through equity or debt offerings which may cause future dilution.

Due to existing contractual obligations we may not achieve profitability.

Next Group Holdings and/or its subsidiaries are required to perform certain obligations under material contracts with third parties. Next Mobile is required to perform certain obligations under material contracts with Sprint Corporation, Auris, and EZ ILD. M&M is required to perform certain obligations under material contracts with Ariafone Telekom Ltd, Broadvox LLC, IP Network America LLC, Locus Telecommunications LLC, and SMT Telecom (also known in the telecommunications industry as “RAZA”). Next CALA is required to perform certain obligations under material contracts with ITC Financial Licenses, Inc., IH Financial Licenses, Inc., and The Bancorp Bank, and Visa USA, Inc. NxtGn is required to perform certain obligations under material contracts with Telarix, Inc., Vidyo, Inc., and Vitco.

Common Stock.

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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.

 

We have well-financed, well-managed competitors and may not be able to adequately compete in our market.

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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.

 

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.

 

If we cannot obtain financing, our growth may be limited.

Recent events in theCOVID-19 and its impact on businesses and financial markets could have had an adverse impact on the credit markets, and, as a result, credit has become significantly more expensive and difficult to obtain, if available at all. Some lenders are imposing more stringent credit terms and there has been and may continue to be a general reduction in the amount of credit available. Many banks are either unable or unwilling to provide new asset-based lending. Tightening credit markets may have anmaterial 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 obtain financing on favorable terms, thereby increasing financing costs and/or requiring us to accept financing with increasing restrictions. If adverse conditions in the credit markets, in particular with respectearn wages and subsequently could not load funds to our industry,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 deteriorate,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. Our long-term ability to grow through additional investmentsSee “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 limited if we cannot obtain additional financing. Market conditions may make it difficult to obtain financing, and we cannot assure you that we will be able to obtain debt or equity financing or that we will be able to obtain it on favorable terms.obtained in all cases.

 

We anticipate being involved in a variety of litigation.

Although we have not been subject to any litigation to date, we anticipate being involved in a range of court proceedings in the ordinary course of business as we continue to operate our business. While we intend to vigorously defend any non-meritorious action or challenge, no assurance can be given that we will not incur significant expense relating to these matters or that they will not require significant management attention and adversely affect us.

Our business plan involves a number of assumptions that may prove inaccurate, which may cause us to realize substantially different operating results than we hope for.

In developing our business plan and business model, we made a number of assumptions, including assumptions related to annual operating costs, market size and demand, customer retention rates, customer drop-out rates, default rates, and local, national, and worldwide economic conditions. These assumptions may prove inaccurate, causing us our performance and operating results to differ significantly from the performance and operating results we have projected while developing our business plan and business model.

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 on.operated.

 

We are substantially dependent on the CIMA Technical and Back-End support, 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. Pursuant to Section 6 of the Amended Settlement Agreement executed December 28, 2022, the License expired on November 30, 2022 and is extended for technical support and back-end services to a comparable level on a month by month basis as the Company coordinates its transition to an alternative platform.., We could lose access to the licensed technology that comprise the Cuentas technology platform prior to the complete transition, which will have a significant impact on our business, operations and financial results.

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Debt service obligations could adversely affect our operating results, and could adversely affect our ability to make or sustain distributions to our stockholders and the market price of our common stock.

Incurring debt could subject us to many risks, including the risks that: our cash flows from operations will be insufficient to make required payments of principal and interest; our debt may increase our vulnerability to adverse economic and industry conditions; we will be subject to restrictive covenants that require us to satisfy and remain in compliance with certain financial requirements or that impose limitations on the type or extent of activities we conduct; and we may be required to dedicate a substantial portion of our cash flows from operations to payments on our debt, thereby reducing cash available for distribution to our stockholders, funds available for operations and capital expenditures, future business opportunities or other purposes. Additionally, if we do not have sufficient funds to repay any debt we incur when it matures, we may need to refinance the debt or raise additional equity. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on refinancing, increases in interest expense could adversely affect our cash flows and, consequently, cash available for distribution to our stockholders. To the extent we are required to raise additional equity to satisfy such debt, existing stockholders would see their interests diluted. If we are unable to refinance our debt or raise additional equity on acceptable terms, we may be forced to dispose of assets on disadvantageous terms, potentially resulting in losses or the incurrence of special taxes and fees that apply to dispositions of assets. To the extent we cannot meet any existing or future debt service obligations, we will risk losing some or all of our assets that may be pledged to secure our obligations to foreclosure. Any unsecured debt agreements we enter into may contain specific cross-default provisions with respect to specified other indebtedness, giving the unsecured lenders the right to declare a default if we are in default under other loans in some circumstances.

Our financial results in future periods may not be reflective of our earning potential and may cause our stock price to decline.

Our financial results in future periods may not be representative of our future potential. Since we expect to experience rapid growth, we will have a greater percentage of our portfolio invested in assets in the process of stabilization than we would expect to have as a more mature operation. It will take time and significant cash resources to implement our business plan. In addition, future equity or debt financings may impact our financial results in the fiscal periods following such financings for the same reasons listed above.

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.

 

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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.

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)“Patriot Act”), the Bank Secrecy Act (the BSA)“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);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)“CARD Act”), and the Durbin Amendment to Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act)“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 Telecommunications Industry Regulation.

Our subsidiaries Next Mobile and M&M are subject to regulation by the Federal Communications Commission and other government agencies and task forces. M&M holds International and Domestic Section 214 licenses issued by the Federal Communications Commission, which may be suspended or revoked by the Federal Communications Commission 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. Next Mobile and M&M are also subject to foreign jurisdiction communications laws and regulations. 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.

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. Our subsidiary, Next CALA,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)(“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 our Next CALA subsidiary,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, Next CALACuentas 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.

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We are subject to Anti-Terrorism and Anti-Bribery Regulation.

We are also subject to an array of federal anti-terrorism and anti-bribery legislation. For example, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) administers a series of laws that impose economic and trade sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other entities that pose threats to the national security, foreign policy or economy of the United States. As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries, as well as those such as terrorists and narcotics traffickers designated under programs that are not country-specific and with whom U.S. persons are generally prohibited from dealing. The Foreign Corrupt Practices Act, or FCPA, prohibits the payment of bribes to foreign government officials and political figures and includes anti-bribery provisions enforced by the Department of Justice and accounting provisions enforced by the Securities and Exchange Commission. The statute has a broad reach, covering all U.S. companies and citizens doing business abroad, among others, and defining a foreign official to include not only those holding public office but also local citizens affiliated with foreign government-run or government-owned organizations. The statute also requires maintenance of appropriate books and records and maintenance of adequate internal controls to prevent and detect possible FCPA violations. 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” for additional information.

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.

 

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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)“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.

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We are subject to State Unclaimed Property Regulations.

For some of our prepaid products, we or our issuing banks are required to remit unredeemed funds to certain (but not all) states pursuant to unclaimed property laws. However, unclaimed property laws are subject to change. Costs of compliance or penalties for failure to comply with or changes in state unclaimed property laws and regulations and changes in state tax codes could have a material adverse effect on our business, financial condition and results of operations.

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, Next CALACuentas 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.

 

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We are subject to Foreign Regulation.

We are subject to regulation by foreign governments and must maintain permits and licenses in certain foreign jurisdictions in order to conduct our business. Foreign regulations also present obstacles to, or increased costs associated with, our expansion into international markets. For example, in certain jurisdictions we face costs associated with repatriating funds to the United States, administrative costs associated with payment settlement and other compliance costs related to doing business in foreign jurisdictions. We are also subject to foreign privacy and other regulations. These foreign regulations often differ in kind, scope and complexity from U.S. regulations. We are subject to added business, political, regulatory, operational, financial and economic risks associated with our international operations. We operate in a highly and increasingly regulated environment, and failure by us or the businesses that participate in our distribution network to comply with applicable laws and regulations could have a material adverse effect on our business, results of operations and financial condition. Changes in laws and regulations to which we are subject, or to which we may become subject in the future, may materially increase our costs of operation, decrease our operating revenues and disrupt our business.

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, our Next CALA subsidiaryCuentas 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.

 

AllOur success depends, in part, upon our ability to hire and retain highly skilled managerial, and operational personnel, and the past performance of the risks related particularlyour 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 subsidiaries Next Mobile, M&M, Next CALA,growth and NxtGn stated below are also risks related generally to Next Group Holdings:operating results could be adversely affected.

 

Risks Related to Next Mobile

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

 

Next MobileMost 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 from many strong and well-financed competitors and other 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.

Next Mobile is dependent on the performance of third-party network operators.

MVNO operators, including Next Mobile, earn revenues by purchasing network capacity from other network operators and reselling it to end users. Next Mobile uses Sprint’s network to offer its services, and is dependent on the performance of Sprint and its network.

Other Risks Related to Next Mobile.

Please see “Risks Related to Next Group Holdings” for other risks related to Next Mobile.

Risks Related to M&M

M&M has well-financed, well-managed competitors and may not be able to adequately compete in its market.

M&M faces competition from many strong and well-financed competitors and other competitors, engaged in the wholesale transmission and termination of domestic and international long distance voice, text, and data telephone services, including, without limitation, IDT, Skype, Verizon, WhatsApp, Viber, and others.

Other Risks Related to M&M.

Please see “Risks Related to Next Group Holdings” for other risks related to M&M.

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Risks Related to Next CALA

Next CALA has well-financed, well-managed competitors and may not be able to adequately compete in its market.

Next CALA faces competition from many strong and well-financed competitors. The prepaid financial services industry is highly competitive and includesincluding 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. Next CALACuentas also faces intense competition from existing players in the prepaid card industry. The Company began operations recently

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 ________ as an MVNO that operates on the largest 5G nationwide network from one of the top 3 mobile carriers and is much smaller thandependent on the performance of its competitors.underlying provider and its network.

 

To compete effectively, Next CALACuentas needs to continuously improve its offerings.offerings continuously.

 

Next CALA beganCuentas plans to begin operations recentlyshortly and isexpects to be substantially smaller than its competitors. As a result, to compete effectively, Next CALACuentas needs to improve its offerings rapidly and continuously improve its offerings.continuously.

 

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Next CALACuentas may be unable to attract and retain users.

 

As of the date of this filing, Next CALACuentas has an operating history of less than one year.e-commerce card business of almost three years. If Next CALACuentas cannot increase the number of cardholders using its Next CALA Prepaid Card® GPR cards,Cuentas Mastercard and retain its existing cardholders, this will significantly adversely affect Next CALA’sCuentas’ operating results, revenues, financial condition, and ability to remain in business.

 

Next CALACuentas 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. Next CALACuentas relies on third parties for certain transaction processing services, which subjects Next CALACuentas and its customers to risks related to the vulnerabilities of these third parties, as well as Next CALA’sCuentas’ 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 Next CALA’sCuentas’ 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 Company exercised a Reverse Stock Split of 13 shares for 1 share on March 24, 2023 to bring it in compliance with Nasdaq’s pricing requirements. Nasdaq is expected to issue a final decision on the 10th trading day after the reverse split. The Company believes it has complied with Nasdaq’s requirements but until Nasdaq delivers its decision, there is still possible risk of a de-listing.

Next CALAThe market price of our Common Stock and Warrants may be adversely affected by changeshighly 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 lawsresponse 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 regulations.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.

 

Next CALA operates in an ever-evolving

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The financial and complex legaloperational projections and regulatory environment. The provision of prepaid card services is highly regulated and the laws and regulations affecting the industry and the manner in which they are interpretedstatements regarding future milestones that we may make from time to time are subject to change. Changes in lawsinherent risks.

The projections and regulations could increase compliancestatements 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 costs of business activities, require significant systems redevelopment, or render products or services less profitable or obsolete, anymatters, all of which could have an adverse effect on Next CALA’s operating results.

Other Risks Relatedare difficult to Next CALA.

Please see “Risks Related to Next Group Holdings” for other risks related to Next CALA.

Risks Related to NxtGn

NxtGn has well-financed, well-managed competitorspredict 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 ableachieved. 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 adequately compete in its market.be a guaranteed prediction of future events, and the projections and such statements should not be relied upon as such.

 

NxtGn faces competition from many strong and well-financed competitors who engineer, market, and provide robust, innovative telecommunications call processing engines and other telecommunications and telephony platforms. These competitors include Viber, WhatsApp, Telarix, Speedflow, VoiPSwitch, and others. NxtGn began operations recently and is substantially smaller than many of its competitors.

NxtGn mayWe do not be ableexpect to operate effectively if it fails to acquire the Optioned Technology.

NxtGn has the option to acquire from Vitco, in considerationpay dividends for the Option Price,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 21.83% 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 title, rightsor substantially all of our assets; and interestsover the management and affairs of the Company. This concentration of ownership may also have the effect of delaying or preventing a change in Optioned Technology. The Optioned Technology is currently licensed to NxtGn on a royalty-free basis. If NxtGn fails to acquirecontrol of the Optioned Technology, NxtGn’s license to use the Optioned Technology basis might expireCompany or discouraging others from making tender offers for our shares and might not be renewed, or might not be renewed on favorable terms. The Optioned Technology is essential toaffect the operationmarket price of certain functions of NxtGn’s AVYDA Powered by Telarix™ products.our Common Stock.

Other Risks Related to NxtGn.

Please see “Risks Related to Next Group Holdings” for other risks related to NxtGn.

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ITEM 1B.UNRESOLVED STAFF COMMENTS

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

ITEM 2.PROPERTIES

ITEM 2. PROPERTIES

 

We currently lease office space at 1111 Brickell Avenue, Suite 2200,235 Lincoln Rd., Miami Beach, FL 3313133139 as our principal offices. We believe these facilities are in good condition and are sufficient for our current use but that we may need to expand our leased space as our business efforts increase.

 

ITEM 3.LEGAL PROCEEDINGS

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 October 14, 2014, one of our operating subsidiaries, NxtGn, Inc. and Next Communications, Inc., an entity controlled by our CEO, (collectively the “Plaintiffs”) filed suit in the United States District Court for the Southern district of New York against Viber Media, Inc.  Plaintiffs filed an Amended Complaint asserting four claims: misappropriation of a business idea, misappropriation of trade secrets, breach of contract, and unjust enrichment.  Viber moved the Court to dismiss the Amended Complaint.  On March 30, 2016, U.S. District Judge Richard Sullivan issued an opinion and order on Viber’s motion to Dismiss.  Specifically, Judge Sullivan ordered that Viber’s motion to dismiss is granted on Plaintiffs’ misappropriation of a business idea claim, but denied as to their misappropriation of trade secrets, breach of contract, and unjust enrichment claims.

On September 20, 2016,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 been namedexposure 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 defendantnamed party in a suit brought against Next Communications, an entity controlled by our CEO. In additionthis action due to being named a defendant, it was requestedthe fact that the Company provide certain documents forrescinded the Limecom Acquisition on January 30, 2019. Cuentas has provided requested discovery process. Dueand expects depositions to the original suit being filed against a related party and not against the Company or its subsidiaries, we believe it likely the Company and its subsidiaries be dismissed as defendants and has not accrued a contingent loss asscheduled shortly. As of December 31, 2016 as a result.2022 the company accrued $300,000 due to this matter.

 

During the year ended December 31, 2014,On February 8, 2023, a former employee filed a breach of Pleasant Kids (PLKD), Franjose Yglesias-Bertheau, filed lawsuit against PLKD claiming unpaid wagesemployment agreement alleging Cuentas failed to pay her for sixty days following her resignation and failed to pay her under an employee incentive plan. The Company disputes these allegations and denies that her employment agreement requires the payment of $622,968 andthis additional compensation. On March 10, 2023, the Company’s Registered Agent was initially awarded that amount in a judgement. However, the judgement was later revised and the Company settled for $80,000 in March 2017 which is included in accrued salariesserved with this complaint registered as of December 31, 2016.Miami-Dade County Local Case Number: 2023-002134-CA-01.

 

ITEM 4. MINE SAFETY DISCLOSUES.

Not applicable.

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PART II

 

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

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

 

Market Information

 

OurSince February 2, 2021, our common stock ishas 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. Without an active public trading market, a stockholder may not be able to liquidate their shares. Thetraded, 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. . A Reverse Stock Split of 13 shares for 1 share was exercised on March 24, 2023.

 

The ability of individual stockholders to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer’s securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state.

Holders of Common Stock

 

As of DecemberMarch 31, 2016,2023, our shares of common stock were held by 128 record holders and our warrants were held by 3 record holders. As of March 31, 2023, we had 249,225,683 common2,085,867 shares and 10,000,000 series B preferred sharesof Common Stock issued and outstanding. Additionally, there were 128,477 options to purchase common stock issued of which 120,782 are exercisable as of March 31, 2022. Furthermore, as of March 31, 2022 there were (1135,215 shares of Common Stock issuable upon exercise of the Warrants at an exercise price of $55.90 per share; (2) 3,077 shares of Common Stock issuable upon exercise of the representative’s warrants at an exercise price of $113.75 per share; (3623 shares of Common Stock issuable upon exercise of warrants at an exercise price of $260.00 per share; (4)324,926 shares of Common Stock issuable upon exercise of the Warrants at an exercise price of $7.67 per share (5) 22,745 shares of Common Stock issuable upon exercise of the representative’s warrants at an exercise price of $11.54 per share (6) 291,375 shares of Common Stock issuable upon exercise of the Warrants at an exercise price of $17.16 per share (7) 20,396 shares of Common Stock issuable upon exercise of the representative’s warrants at an exercise price of $23.17 per share;.

 

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 although a dividend was declared during the year ended December 31, 2016.inception. By reason of our present financial status and our contemplated financial requirements, we may not paydeclare additional dividends upon our common or preferred stock in the foreseeable future.

 

We have never paid any cash dividends. We currently intend to pay cash dividends for the dividend declared during the year ended December 31, 2016 but 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;

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.

 


Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information as of December 31, 2022 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  128,477   56.44   120,782 
Equity compensation plans not approved by security holders  -   -   - 
Total**  128,477   56.44   120,782 

 

We currently do not maintain anyOn 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 242,308 shares. The 2021 Plan is designed to enable the flexibility to grant equity compensation plans.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 .

 

In 2021 the Company issued 119,229 stock options and 38,461 in 2022 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.

NameNumber of OptionsExercise PriceVesting Schedule
Jeffery D Johnson38,462$36.40125,000 on 11/3/2021. 125,000 on each Employment Anniversary.
Shalom Arik Maimon15,385$36.4050% on 11/3/2021; 50% on 12 month anniversary of grant date
Michael DePrado11,538$36.4050% on 11/3/2021; 50% on 12 month anniversary of grant date
Ran Daniel7,692$36.4050% on 11/3/2021; 50% on 12 month anniversary of grant date
Richard Berman7,692$36.4050% on 11/3/2021
Yochanon Bruk7,692$36.4050% on 11/3/2021; 50% on 12 month anniversary of grant date
Jeff Lewis7, 692$36.4050% on 11/3/2021; 50% on 12 month anniversary of grant date
David Schottenstein7,692$36.4050% on 11/3/2021
Adiv Baruch7,692$36.4050% on 11/3/2021; 50% on 12 month anniversary of grant date
Carol Pepper7,692$36.4050% on 11/3/2021; 50% on 12 month anniversary of grant date
Anthony H. Meadows15,385$36.4033.3% on 2022, 33.3% on 12 month anniversary of grant date and 33.3% on second anniversary of grant date.
Sara Sooy7,692$36.4050% on /2022; 50% on 12 month anniversary of grant date
Sandra Orihuela7,692$36.4050% on /2022; 50% on 12 month anniversary of grant date
Lex Terrero7,692$36.4050% on /2022; 50% on 12 month anniversary of grant date


Recent Sales of Unregistered Securities

 

We have no recentOn April 6, 2022, the Company issued 7,693 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 $110,000.

On August 4, 2022, the Company, entered into a Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Purchaser”) pursuant to which the Purchaser agreed to purchase, and the Company agreed to issue and sell to the Purchaser in a private placement, an aggregate of 127,308 shares of the Company’s common stock, $0.001 par value, pre-funded warrants to purchase up to 197,620 shares of Common and warrants to purchase up to 324,928 shares of Common Stock. The purchase price per Share and associated Common Stock Warrant was $9.23 and the purchase price per Pre Funded Warrant and associated Common Stock Warrant was $9.23. Each Common Stock Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $7.67 per share. Each Pre Funded Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $0.0001 per share. The Common Stock Warrants are exercisable for a period of five years and six months commencing on the issuance date and the Pre Funded Warrants are exercisable until exercised. The Warrants also contain customary beneficial ownership limitations that may be waived at the option of each holder upon 61 days’ notice to the Company. The Private Placement closed on August 8, 2022. The gross proceeds to the Company, before deducting placement agent fees and other offering expenses, are approximately $3.0 million. On August 4, 2022, in connection with the Private Placement, the Company entered into a registration rights with the Purchaser, pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”) to register for resale the Shares and any shares of the Company’s common stock issuable upon exercise of the Warrants within 30 days of the signing of the Registration Rights Agreement, with such registration statement becoming effective within 60 days after the signing of the Registration Rights Agreement, subject to adjustment in the event of a review by the SEC. The Company is subject to customary penalties and liquidated damages in the event it does not meet certain filing requirements and deadlines set forth in the Registration Rights Agreement. Pursuant to an engagement agreement, H.C. Wainwright & Co., LLC (the “Placement Agent’) was engaged by the Company to act as its placement agent for the Private Placement. The Company agreed to pay the Placement Agent a cash fee equal to 7.0% of the gross proceeds received by the Company in the Private Placement, in addition to the reimbursement of certain expenses. The Company also agreed to issue to the Placement Agent warrants to purchase up to 22,745 shares of Common Stock, exercisable for a period of five years and six months commencing on the issuance date, at an exercise price of $11.54 per share. The fair market of those warrants was $165 thousand as of date of issuance.

On February 3, 2023, the Company (“ Cuentas” or “Buyer”) entered into a Membership Interest Purchase Agreement (MIPA) with Core. Core has agreed to sell 6% of its interest in the Lakewood Manager to Cuentas and Cuentas has agreed to issue to Core 295,282 of the Company’s common shares to acquire the 6% equity in the Lakewood Manager valued at $1,195,195. The 295,282 of the Company’s share was equal to 19.9% of the total number of current issued and outstanding shares of the Company as of the date of this Agreement. The Company closed this transaction on or about March 9th, 2023.

On August 4, 2022, the Company, entered into a Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Purchaser”) pursuant to which the Purchaser agreed to purchase, and the Company agreed to issue and sell to the Purchaser in a private placement, an aggregate of 127,308 shares of the Company’s common stock, $0.001 par value, pre-funded warrants to purchase up to 197,620 shares of Common and warrants to purchase up to 324,928 shares of Common Stock. The purchase price per Share and associated Common Stock Warrant was $9.23 and the purchase price per Pre Funded Warrant and associated Common Stock Warrant was $9.23. Each Common Stock Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $7.67 per share. Each Pre Funded Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $0.0001 per share. The Common Stock Warrants are exercisable for a period of five years and six months commencing on the issuance date and the Pre Funded Warrants are exercisable until exercised. The Warrants also contain customary beneficial ownership limitations that may be waived at the option of each holder upon 61 days’ notice to the Company. The Private Placement closed on August 8, 2022. The gross proceeds to the Company, before deducting placement agent fees and other offering expenses, are approximately $3.0 million. On August 4, 2022, in connection with the Private Placement, the Company entered into a registration rights with the Purchaser, pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”) to register for resale the Shares and any shares of the Company’s common stock issuable upon exercise of the Warrants within 30 days of the signing of the Registration Rights Agreement, with such registration statement becoming effective within 60 days after the signing of the Registration Rights Agreement, subject to adjustment in the event of a review by the SEC. The Company is subject to customary penalties and liquidated damages in the event it does not meet certain filing requirements and deadlines set forth in the Registration Rights Agreement. Pursuant to an engagement agreement, H.C. Wainwright & Co., LLC (the “Placement Agent’) was engaged by the Company to act as its placement agent for the Private Placement. The Company agreed to pay the Placement Agent a cash fee equal to 7.0% of the gross proceeds received by the Company in the Private Placement, in addition to the reimbursement of certain expenses. The Company also agreed to issue to the Placement Agent warrants to purchase up to 22,745 shares of Common Stock, exercisable for a period of five years and six months commencing on the issuance date, at an exercise price of $11.54 per share. The fair market of those warrants was $165 thousand as of date of issuance. The Company issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.


On February 6, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”) for the purpose of raising approximately $5 million in gross proceeds for the Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell, in a registered direct offering, an aggregate of (i) 163,344 shares (the “Shares”) of the Company’s common stock (“Common Stock”) and (ii) pre-warrants to purchase up to 128,031 shares of Common Stock (the “Pre-Funded Warrants” and such shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, the “Pre-Funded Warrant Shares”) and, in a concurrent private placement, warrants (the “Purchase Warrants”) to purchase 291,375 shares of Common Stock (the shares of Common Stock issuable upon exercise of the Purchase Warrants, the “Purchase Warrant Shares”). The combined purchase price per Share and Purchase Warrant is $17.16 and the combined purchase price per Pre-Funded Warrant and Purchase Warrant of $17.16. The Pre-Funded Warrants were sold, in lieu of shares of Common Stock, to any Investor whose purchase of shares of Common Stock in the Registered Offering would otherwise result in such Investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at such Investor’s option upon issuance, 9.99%) of the Company’s outstanding Common Stock immediately following the consummation of the Registered Offering. Each Pre-Funded Warrant represents the right to purchase one share of Common Stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants are exercisable immediately and may be exercised at any time until the Pre-Funded Warrants are exercised in full. The Purchase Warrants will be exercisable on the six-month anniversary of the issuance date and will expire five and one-half years following the date of issuance at an exercise price of $17.36 per share. The closing of the sales of unregistered securities.these securities under the Purchase Agreement occured on or about February 8, 2023, subject to satisfaction of customary closing conditions.

 

ITEM 6.SELECTED FINANCIAL DATA

H.C. Wainwright & Co., LLC (“Wainwright”) is acting as exclusive placement agent for the offering pursuant to an engagement agreement between the Company and Wainwright dated as of December 13, 2022. As compensation for such placement agent services, the Company has agreed to pay Wainwright an aggregate cash fee equal to 7.0% of the gross proceeds received by the Company from the offering, plus a management fee equal to 1.0% of the gross proceeds received by the Company from the offerings, a non-accountable expense of $65,000 and $15,950 for clearing expenses. The Company has also agreed to issue to Wainwright or its designees warrants to purchase 20,396 shares of Common Stock (the “PA Warrants” and the shares of Common Stock issuable upon exercise of the PA Warrants, the “PA Warrant Shares”). The PA Warrants have a term of five years from the commencement of sales in the offering, and have an exercise price of $23.17 per share. The fair market of those warrants was $267 thousand as of date of issuance. The net proceeds to the Company from the registered direct offering and concurrent private placement, after deducting the Placement Agent’s fees and expenses and the Company’s offering expenses was approximately $4.3 million. On February 7, 2023 the investor exercised 67,800 Pre-Funded Warrants and in March 13, 2023 the investor exercised 60,231 Pre-Funded Warrants.

 

On March 16, 2023, the Company issued 15,385 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 $112

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

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.

 

19

 

 

OVERVIEW AND OUTLOOK

 

The Company was incorporated inunder the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiariessubsidiaries. Its subsidiary is Meimoun and Mammon, LLC (100% owned) (“M&M”),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. The Company also owns 50% of CUENTASMAX LLC which is a joint venture and installs WiFi6 shared network (“WSN”) systems in locations in the technology, telecomNew York metropolitan tristate area using access points and banking industries.small cells to provide users with access to the WSN

 

Going ConcernThe 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.

 

On May 27, 2022, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with SDI Black 011, LLC (“SDI Black”), the holders of all the membership interests of SDI Black and Cuentas SDI, LLC, a Florida limited liability (“Cuentas SDI”), for the acquisition of 19.99% of the membership interests of Cuentas SDI in exchange for $750,000. . SDI Black previously transferred all of its assets including the platform, portals, domain names, and related software necessary to conduct its business to Cuentas SDI. The futureMIPA contains a number of representations and warranties by each of the parties thereto which we believe are customary for transactions similar to the transactions contemplated by the MIPA. In addition, the Company provided a loan in the amount of $100,000 that was provided to Cuentas SDI for marketing purposes. SDI Black previously transferred all of its assets including the platform, portals, domain names, and related software necessary to conduct its business to Cuentas SDI.   As of December 31, 2022, Cuentas SDI did not repay the loan to the Company and therefore that Company wrote off the entire loan. The investment in Cuentas SDI is recorded an investment in unconsolidated entity in our company is dependent uponfinancial statement.

On August 22, 2022, the Company entered into a Software Licensing and transaction sharing Agreement with The OLB Group, Inc. (“OLB), a Delaware corporation whereas OLB, through its abilitywholly-owned subsidiaries will establish a merchant services relationship whereby the parties will seek to obtain financingsell or rent OLB’s point-of-sale (POS) devices to merchants in the network established by Cuentas SDI, LLC for the merchants in the SDI network and upon future profitable operations. Management has plansthe Company will use reasonable best efforts to seek additional capitalinterconnect its reload agreement with the OLB POS platform for use in qualified merchant locations. The Company will market the OLB-branded products under the processing platform as a Cuentas white label application for payment processing and debit cards. OLB will develop for Cuentas’ Mobile App and associated products, an Application Programming Interface (API), databases and servers at no cost to the Company to allow for the registration, approval and onboarding of consumers onto the Cuentas GPR/Mobile App/Mobile Wallet platform with complete functions as currently available through the Cuentas App and associated products and services. OLB agreed to provide OLB’s Services for Cuentas’ benefit in exchange for revenue sharing and OLB will utilize its developers to enhance the Cuentas GPR-Mobile-App. Before the relaunch of the Cuentas GPR-Mobile-App, the OLB developers in consultation with Cuentas shall as necessary test the functionality, reliability and process of the Cuentas GPR-Mobile-App in a controlled testing environment. Upon approval by the Company of the results of the controlled testing environment to move the Cuentas GPR-Mobile-App into production, the OLB developers, in consultation with the Company, shall perform periodic test of the Cuentas GPR-Mobile-App to ensure continued functionality, reliability and process of the Cuentas GPR-Mobile-App and to remove and repair any bugs or malfunctions in the Cuentas GPR-Mobile-App as soon as practicable. All net revenue generated by OLB from the following: (i) net revenues from the sale or rental of OLB POS devices to Cuentas SDI Merchants, (ii) all other net revenues generated by OLB arising from or related to the OLB POS devices elected to be utilized by the Cuentas SDI Merchants, (iii) all net revenues generated by OLB from the Cuentas White Label Products/Services, and (iv) to the extent that the Reload Provider agrees to provide its reload capability through the OLB POS devices, the net revenues generated by OLB from the reloads shall be split between OLB and Cuentas. All net revenue generated by Cuentas from the following: (i) net revenues from each reload purchased though the OLB POS device through a private placementCuentas SDI Merchant, (ii) all retail digital products as set forth on Schedule A sold through a OLB POS device through a Cuentas SDI Merchant or the Cuentas White Label Products/Services, (iii) mobile top-ups net revenues sold through a OLB POS device through a Cuentas SDI Merchant: all net revenues to be split between OLB and public offeringCuentas. Net revenue will be shared between the Parties and profits will be calculated and settled on a 30 net 30 basis (after each 30-day period closes, the Parties have 30 days to calculate and settle net revenue). On August 22, 2022, the Company entered into an Independent Sales Organization Processing Agreement with eVance, Inc., a wholly owned subsidiary of The OLB Group, Inc.,. whereby eVance is in the business of providing credit and debit card processing services to merchants. The Company desires to solicit and refer merchants to eVance for those Services under the terms of this Agreement. eVance will provide Merchants with access to Third-Party Authorization Networks, Settlement and other services to authorize, capture and transmit data relating to transactions on major credit and debit card networks. As of the date of this report, the Company has not generated any revenue from this transaction since the development and the integration of the additional features is not completed as of date. The Company expects to complete the development during 2023 


On February 3, 2023, the Company (“ Cuentas” or “Buyer”) entered into a Membership Interest Purchase Agreement (MIPA) with Core Development Holdings Corporation (“Core” or “Seller”), a Florida corporation that holds approximately 29.3% of 4280 Lakewood Road Manager, LLC (“Lakewood Manager”), which in turn owns 86.45% of the membership interests in 4280 Lakewood Road, LLC (“4280 Project”), an affordable multi-family real estate project located in Lake Worth, Florida. Core has agreed to sell 6% of its interest in the Lakewood Manager to Cuentas. and Cuentas has agreed to issue to Core 295,282 of the Company’s common stock, if necessary. Our auditors have expressedshares to acquire $1,195,195 of equity in the Lakewood Manager. The 295,282 of the Company’s share was equal to 19.9% of the total number of current issued and outstanding shares of the Company as of the date of the Agreement. Core, Lakewood Manager an affiliate of RENCo USA, Inc., is constructing the 4280 Lakewood Project with RENCO Structural Building System, a going concern opinionproprietary composite structural system distributed by RENCo USA, Inc. The Company closed this transaction and issued the aforementioned shares on March 7, 2023.

On March 1, 2023, Cuentas announced that it signed a 10 year supply agreement with Renco USA, Inc (“Renco”), to provide its patented building materials for new, sustainable rental housing projects. Renco is an innovative green construction technology company that has a patented MCFR (Mineral Composite Fiber Reinforced) Construction System which raises substantial doubt aboutprovides cost efficiency, reduced build time, and sustainable benefits. Renco’s system is hurricane proof up to Category 5, which is a major benefit for developing housing projects in the Issuers abilitySouth Florida market and other hurricane prone areas where Cuentas is planning to continue asdevelop projects. Renco’s system is also earthquake resistant. Renco USA was the supplier of building technology and materials for the abovementioned affordable housing project in the USA using its MCFR system. Renco USA has the exclusive rights in the USA to the patented building process. The Renco Wall, Floor and Roofing System is a going concern.unique MCFR Building System that creates interlocking, fiber reinforced, composite building blocks and other construction related products that can be connected in an almost limitless variety of designs. Renco’s system can be used to create homes, apartment buildings, hotels, office buildings, warehouses, infrastructure products and more.

 

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.

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, 2022 to year ended December 31, 2021

Revenue

 

The Company generates revenues through the sale and distribution of prepaid telecom minutes, digital products, and other related telecom services.

  Year ended December 31,    
  2016  2015  Change 
Revenue $1,010,968  $98,611  $912,357 
Revenue, related party  17,016   168,522   (151,506)
Total revenue $1,027,984  $267,133  $760,851 

Total revenues were $1,027,984 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, 20162022, totaled $2,994,000 compared to $267,133$593,000 for the year ended December 31, 2021. The increase in our sales of digital products and General-Purpose Reloadable Cards is mainly due to an increase in the sales of our digital telecom products due to online and other marketing initiatives and realization of deferred revenue in the amount of $570,000 of our telecommunications products

Revenue by product for 2022 and 2021 are as follows:

  December 31,
2022
  December 31,
2021
 
  (dollars in thousands) 
Telecommunications $839  $525 
Digital products and General-Purpose ‘Reloadable Cards  2,155   68 
Total revenue $2,994  $593 

Costs of Revenue and Gross profit

Cost of revenues during the year ended December 31, 2015. The increase in revenue of $760,851, or 285%, is attributable2022 totaled $2,508,000 compared to our acquisition of Tel3 during$469,000 for the year ended December 31, 2016 which contributed $932,584 of revenue during the period subsequent to acquisition on July 31, 2016 to December 31, 2016.2021.

 

Costs of Revenue

CostsCost of revenue consists of the purchase of wholesale minutes for resale and related telecom platform costs.

  Year ended December 31,    
  2016  2015  Change 
Cost of revenue $1,058,778  $385,431  $673,347 

Total costs of revenues were $1,058,778approximately $232,000 during the year ended December 31, 2016 compared to $385,4312022 and $313,000 during the year ended December 31, 2015. The increase2021.

year ended  

Cost of $673,347, or 175%, is attributablerevenue also consists of costs related to our acquisitionthe sale of Tel3the Company’s Digital products and GPR Cards in the amount of $2,276,000 during the year ended December 31, 2016 which contributed $675,313 of costs of revenues during the period subsequent to acquisition on July 31, 2016 to December 31, 2016.

20

Operating Expenses

  Year ended December 31,    
  2016  2015  Change 
Officer compensation $1,620,204  $239,369  $1,380,835 
Professional fees  2,944,371   425,507   2,518,864 
General and administrative  608,394   440,813   167,581 
Impairment loss  2,673,546   -   2,673,546 
Total operating expenses $7,846,515  $1,105,689  $6,740,826 

During the years ended December 31, 20162022 and 2015, we incurred total operating expenses of $7,846,515 and $1,105,689, respectively. The increase in operating expenses of $6,740,826, or 610%,$156,000 during the year ended December 31, 2016 reflect increased professional2021. The costs related to the sale of the Company’s Digital products and compensation including stock based compensationGPR Cards were composed mainly from the cost of $3,260,895. General and administrative expenses increased $167,581, or 38%, and is reflectivethe Digital products in the amount of increased costs associated with maintaining our public filings. Additionally, the Company recorded impairment on goodwill of $2,673,546$2,087,000 during the year ended December 31, 2016 that was no present2022 as oppose to $68,000 during the year ended December 31, 2015.2021.

 

Other Income (Expense)Gross profit (loss) by product for 2022 and 2021 are as follows :

  Year ended December 31,    
  2016  2015  Change 
Other income $243,459  $30,000  $213,459 
Other expense  (45,000)  -   (45,000)
Loss on disposal of equipment  (2,926)  -   (2,926)
Excess derivative expense  (333,482)  -   (333,482)
Interest expense  (1,554,618)  -   (1,554,618)
Penalties on convertible notes payable  (14,490)  -   (14,490)
Gain on derivative liability  1,217,271   -   1,217,271 
Settlements  (44,974)  -   (44,974)
Total other income (expense) $(534,760) $30,000  $(564,760)

 

  December 31,
2021
  December 31,
2020
 
  (dollars in thousands) 
Telecommunications $607  $212 
Digital products and General Purpose Reloadable Cards  (121)  (88)
Total Gross profit $486  $124 

Gross profit margin for the year ended December 31, 2022 was 16% consisting of 72% gross profit margin for the telecommunications segment and offset by a gross loss margin of 6% for the digital product and general purpose reloadable cards segment. The gross loss for the sale of digital product and general-purpose reloadable cards in 2022 and 2021 stemmed from the lower margins of our digital products since these sales derived from the sale of digital products bears minimal gross margins. The Company is actively pursuing related and symbiotic business relationships and projects that will produce significant revenue with higher profit potential.


Other income (expense) was a net expense

Operating Expenses

Operating expenses consist of $534,760selling, general and administrative Expenses, impairments and amortization of Intangible assets as discussed below and totaled $14,841,000 during the year ended December 31, 20162022, compared to net income of $30,000$10,789,000 during the year ended December 31, 2015. 2021, representing a net increase of $4,052,000.

Selling, General and Administrative Expenses

The increase in net expense of $564,760 is attributable to non-cash items present in 2016 that were not present in 2015. Specifically, interest expensetable below summarizes our general and administrative expenses incurred during the periods presented:

  Year Ended December 31, 
  2022  2021 
  ($ in thousands) 
General and Administrative Expenses:        
Officers’ compensation $1,397  $1,180 
Performance bonuses  300   - 
Directors fees  233   249 
Share-based compensation  1,697   2,745 
Directors’ and officers’ insurance  490   670 
Professional services  661   516 
maintenance and support services in accordance with the software maintenance agreement with CIMA  700   500 
Legal fees  635   645 
payments in accordance with the processing service agreement with Incomm  860   590 
Credit losses  157   228 
Marketing  1,437   410 
Settlement  -   325 
Other  1,513   1,378 
Total $9,431  $8,980 

Selling, general and administrative expenses totaled $9,431,000 during the year ended December 31, 2016 totaled $1,554,618, and excess derivative expense totaled $333,482 where these were not present2022 compared to $8,980,000 during the year ended December 31, 2015.

Loss from Discounted Operations

  Year ended December 31,    
  2016  2015  Change 
Loss from discontinued operations $1,629,316  $-  $1,629,316 

Loss from discontinued operations were $1,629,3162021, representing a net increase of $451,000. Included in in the Selling, general and administrative expenses, Stock-based compensation amounted to $1,587,000 and shares issued for services expenses amounted to $110,000 during the year ended December 31, 202162022 compared to $0$2,745,000 during the year ended December 31, 2021. This was mainly due to issuance of 1,550,000 stock options to directors and officers of the Company in the 2021 and 500,000 stock options issued to officer and directors of the Company in the 2022. Such options can be exercised until 2032. The increase in the other operating expenses is mainly due to an increase in the agreed maintenance and support services in accordance with the software maintenance agreement with CIMA in the amount of $200,000, increase in the agreed payments in accordance with the processing service agreement with Incomm in the amount of $270,000 to $860,000 during the year ended December 31, 2022, increase in officers’ compensation of $217, 000, performance bonuses to the interim CEO and President of the Company in the amount of $300,000, credit losses of receivables due from Cuentas SDI LLC in the amount of $157,000, and increase of approximately of $1,027,000 in our selling and marketing expenses during 2022 mainly due to our marketing and social media campaigns with connection to the sales of our Digital products and General-Purpose ‘Reloadable Cards .

Amortization and impairment of Intangible assets

Amortization of Intangible assets totaled $1,810,000 during the year ended December 31, 2022 and $1,809,000 during the year ended December 31, 2021, respectively. 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. During the fourth quarter of 2022, the Company recorded an impairment charge of $3,600,000 whereas as no amount was assigned to the acquired platforms on December 31, 2022.

Other Income 

The Company recognized other expenses of $124,000 during the year ended December 31, 2022 compared to other loss of $61,000 during the year ended December 31, 2021. The increase is mainly due a write off a loan in the amount of $100,000 that was provided to Cuentas SDI LLC and was not repaid.

Net Loss

We incurred a net loss of $14,531,000 for the year ended December 31, 2015. The increase2022, as compared to a net loss of $1,629,316 was the result of discontinuing operations of AccentIntermedia during$10,729,000 for the year ended December 31, 2016 which was not present during2021, 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, 2022, the Company had total current assets of $689,000, including $466,000 of cash, accounts receivables of $209,000, and other current assets of $14,000. As of December 31, 2022, the Company had total current liabilities of $ 2,134,000 creating a negative working capital of $1,445,000.

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.

Cash Flows – Operating Activities

The Company’s operating activities for the year ended December 31, 2015.

2022, resulted in net cash used of $8,137,000. Net cash used in operating activities consisted of a net loss of $14,531,000 partially offset by non-cash expenses consisting of share-based compensation of $1,697,000, impairment of intangible assets of $3,600,000 and amortization of intangible assets of $1,810,000. Changes in operating assets and liabilities used cash of $777,000, resulting mainly from an increase of in accounts receivables of $431,000, decrease in other accounts payables of $ 712,000and decrease of deferred revenue of $570,000 which was offset by an increase in accounts payables of $421,000 and increase in accrual for bonuses in the amount of $300,000.

21

 

Net Loss

  Year ended December 31,    
  2016  2015  Change 
Net loss before non-controlling interest $(10,041,385) $(1,193,987) $(8,847,398)
Net income (loss) attributable to non-controlling interest  598,909   (5,938)  604,847 
Net loss attributable to Next Group Holdings, Inc. $(9,442,476) $(1,199,925) $(8,242,551)
Percentage of revenue  -919%  -449%    

Net loss attributable to Next Group Holdings, Inc. duringThe Company’s operating activities for the year ended December 31, 20162021, resulted in net cash used of $9,330,000. Net cash used in operating activities consisted of a net loss of $10,728,000, which was $9,442,476, or 919%offset partially by non-cash expenses consisting of revenue, compared to $1,219,457, or 456%share-based compensation of revenue, during$2,745,000 and amortization of intangible assets of $1,809,000. Changes in operating assets and liabilities utilized cash of $3,192,000, resulting mainly from decrease in accrued expenses and other current liabilities of $1,562,000, and a decrease in accounts payables of $1,544,000.

Cash Flows – Investing Activities

The Company’s investment activities for the year ended December 31, 2015.2022, resulted in net cash used of $664,000 and net cash used of $87,000 for the same period in 2021. The increase was mainly due to the investment in net loss of $8,242,51, or 687%, is the result of the increased stock based compensation and other non-cash expenses previously discussed. Specifically, the Company recorded impairment losses on goodwill and intangible assets totaling $3,916,976, total stock based compensation of $3,260,895, excel measurements of derivative liabilities of $333,482 and amortization of debt discounts of $987,797 duringCuentas SDI LLC.

Cash Flows – Financing Activities

The Company’s financing activities for the year ended December 31, 2016 that were not present during2022, resulted in net cash in the amount of $2,660,000 mainly from the sale of our common stock. The Company’s financing activities for the year ended December 31, 2015.

Liquidity2021, resulted in net cash received of $15,797,000, consisting of $10,614,000 received from the sale of our common stock and Capital Resources$6,264,000 from the issuance of shares due to exercise of warrants, partially offset by repayments of loans of $730,000 and repayments of $355,000 of loans from a related party. 

 


The decrease in 2022 in our working capital was mainly attributable to the increase in Accounts Payables in the amount of $ 371,000, decrease in our other Accounts Payables in the amount of $662,000 and decrease in our Cash and Cash equivalents in the amount of $ 6,141,000. 

To date, we have principally financed our operations through the sale of our Common Stock. Nevertheless, management anticipates that our current cash and cash equivalents position and generating revenue from the sales of our digital products and General-Purpose Reloadable Cards will provide us limited financial resources for the near future to continue implementing our business strategy of further developing our digital products and General Purpose Reloadable Card, enhance our digital products offering and increase our sales and marketing. Management has taken important steps to reduce the financial burn rate and has curtailed some ineffective marketing programs, concentrating on those programs that have been proven to produce good results. Reduction of some top-level personnel has brought savings to the company as current executives took over the vacant positions at no additional cost to the Company but offset by the bonuses. Management plans to secure additional financing sources, including but not limited to the sale of our Common Stock in future financings. 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 for the near future or long term. As of December 31, 2016,2022, the Company had $256,302 ofapproximately $466 thousand in cash total current assets of $600,938 and total current liabilities of $10,324,057 creating acash equivalents, approximately $1,445 thousand in negative working capital and an accumulated deficit of $9,723,119. Current assets as of December 31, 2016 consisted of $256,302 of cash, accounts receivable net of allowance of $9,661, finance deposits of $25,000, prepaid expenses of $48,091, a related party receivable of $36,000 and current assets from discontinued operations of $225,884.

As of December 31, 2015, the Company had $18,047 of cash, total current assets of $111,861 and total current liabilities of $4,204,340 creating a working capital deficit of $4,092,479. Current assets as of December 31, 2015 consisted of $18,047 of cash, accounts receivable net of allowance of $26,900, finance deposits of $25,000, and related party receivables of $41,914.

The Company expect to fund operations through the foreseeable future through debt financing, equity financing or a combination of both. We cannot be assured there will be a capital market robust enough for us to raise debt or equity based financing in the foreseeable future.

GOING CONCERN

The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs.approximately $52,750 thousand . These conditions raise substantial doubt about the company’sCompany’s ability to continue as a going concern.concern as of December 31, 2022.

 

Under

Further, on February 6, 2023, the going concern assumption,Company, sold an entity is ordinarily viewed as continuingaggregate 291,376 shares of Common and 291,376 warrants to purchase up to 291,376 shares of Common Stock in business forconsideration of $5.0 million. The net proceeds to the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assetsCompany, after deducting placement agent fees and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.

Theother offering expenses, were approximately $4.5 million. Company’s ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan describedraising capital from financing transactions and revenue from operations. Management anticipates their business will require substantial additional investments that have not yet been secured. Management is continuing in the Business paragraphprocess of fund raising in the private equity and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that may be necessary ifcapital markets as the Company is unablewill need to continue as a going concern.  

finance future activities.

22

 

During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with research and development associated with the launch of the company’s Cuentas branded NextCala general purpose reloadable card. The Company may experience a cash shortfall and be required to raise additional capital.

Historically, it has mostly relied upon internally generated funds and funds from the sale of shares of stock to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse affect upon it and its shareholders.  

Operating activities

The Company used $929,442 of cash in operating activities during the year ended December 31, 2016 compared to $794,377 during the year ended December 31, 2015 as summarized below:

  Year ended December 31, 
  2016  2015 
Net loss $(9,442,476) $(1,199,925)
Non-cash expenses and gains  7,208,857   242,943 
Change in accounts payable  1,236,021   180,253 
Other changes in working capital  68,156   (17,648)
Net cash used in operating activities $(929,442) $(794,377)

The change in accounts payable increased during the year ended December 31, 2016 due to increased legal fees associated with completing our reverse acquisition and increased costs associated with maintaining public filings. Additionally, we experienced increased costs associated with our Tel3 business and decreased cash flows from our day to day operations from which to pay these obligations. Non-cash expenses and gains increased during the year ended December 31, 2016 due to the amortization of debt discounts, stock based compensation and impairment losses that were not present during the year ended December 31, 2015.

Investing activities

Cash flows provided by investing activities was $94,712 during the year ended December 31, 2016 compared to $121,789 during the year ended December 31, 2015. Cash from investing activities during the year ended December 31, 2016 consisted of cash receipts from related party receivables of $5,914, cash contributed in acquisitions from related parties of $45,225 and cash acquired in acquisitions of $43,573. Cash from investing activities during the year ended December 31, 2015 consisted of $146,789 received form related party receivables and $25,000 paid for finance deposits.

Financing activities

Net cash provided by financing activities were $1,072,985 during the year ended December 31, 2016 compared to $661,880 during the year ended December 31, 2015 as summarized below:

  Year ended December 31, 
  2016  2015 
Bank overdraft $(1,081) $(57)
Proceeds from loans payable  50,000   30,000 
Repayments of loans payable�� (31,601)  - 
Proceeds from convertible notes  1,019,130   - 
Proceeds from related party loans  35,353   631,937 
Cash acquired through reverse recapitalization  1,184   - 
Net cash used in operating activities $1,072,985  $661,880 

23

During the year ended December 31, 2016, the Company relied less on related party loans and more on financing from convertible debt which resulted in an increase in proceeds from convertible notes payable of $1,019,130 and decrease in proceeds from related party loans of $596,584. The total increase in cash provided by financing activities of $456,330 during the year ended December 31, 2016 reflects the increased costs of operating our business post reverse acquisition.

Since inception, we have financed our cash flow requirements through issuance of common stock, related party advances and debt. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.

We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth.

To address these risks, we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continually develop and upgrade our website, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

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.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements between the Company and any other entity that have, or are reasonably likely to have, a current or future effect on financial conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

24

 

Going Concern

The Company has a working capital deficiency of $9,723,119 and accumulated deficit of $13,499,303 as of December 31, 2016. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern.

Critical Accounting Policies

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements, which we discuss under the heading “Results of Operations” following this section of our MD&A. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

We set forth below those material accounting policies that we believe are the most critical to an investor’s understanding of our financial results and condition and that require complex management judgment.

Use of Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s periodic filings with the Securities and Exchange Commission include, where applicable, disclosures of estimates, assumptions, uncertainties and markets that could affect the financial statements and future operations of the Company.

Fair value of financial instruments

The carrying amounts reflected in the balance sheets for cash, accounts payable and related party payables approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

25

Impairment of long-lived assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value or disposable value. At December 31, 2016, the Company performed an impairment analysis and determined the present value of future cash flows from its investment in a certain subsidiary to be $0. As such, impairment losses of $2.7 million and $1.2 million were recorded on goodwill and intangible assets during the year ended December 31, 2016. There was no impairment loss recorded during the year ended December 31, 2015.

Share-Based Compensation Expense

We calculate share-based compensation expense for option awards and warrant issuances (“Share-based Awards”) based on the estimated grant/issue-date fair value using the Black-Scholes-Merton option pricing model (“Black-Scholes Model”), and recognize the expense on a straight-line basis over the vesting period, net of estimated forfeitures. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the vesting period of the Share-based Award in determining the fair value of Share-based Awards. Although we believe our assumptions used to calculate share-based compensation expense are reasonable, these assumptions can involve complex judgments about future events, which are open to interpretation and inherent uncertainty. In addition, significant changes to our assumptions could significantly impact the amount of expense recorded in a given period.

New Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-26F-32 of this Form 10-K.

 

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

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 February 15, 2023, the Audit Committee of Cuentas, Inc. of the Company approved the dismissal of Halperin CPA as the Company’s independent registered public accounting firm. The decision to dismiss Halperin CPA was due to the partner rotation requirement under Section 203 of the Sarbanes-Oxley Act.The Company has provided Halperin with a copy of the above disclosures and requested that Halperin furnish the Company with a letter addressed to the Securities and Exchange Commission (“SEC”) stating whether or not it agrees with the above statement. The audit reports of HALPERIN on the consolidated financial statements of the Company for each of the two most recent fiscal years ended December 31, 2020 and December 31, 2021 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.


 26(b)Engagement of New Independent Registered Public Accounting Firm.

 

On February 16, 2023, the Audit Committee of the Board of Directors (the “Board”) of the Company approved the appointment of Yarel and Partner to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. 

ITEM 9A (T).CONTROLS AND PROCEDURES

 

During the Company’s fiscal years ended December 31, 2021 and 2022 and the subsequent interim period through February 15, 2023, neither the Company nor anyone on its behalf has consulted with Yarel regarding (i) the application of accounting principles to a specific transaction, either completed or proposed or (ii) the type of audit opinion that might be rendered on the Company’s financial statements and, neither a written report nor oral advice was provided to the Company that Yarel concluded was an important factor considered by the Company in reaching a decision as to accounting, auditing or financial reporting issues, or (iii) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions), or (iv) any “reportable event” (as described in Item 304(a)(1)(v) of Regulation S-K).

ITEM 9A.  CONTROLS AND PROCEDURES

Our Principal Executive Officer Arik Maimon, and Principal Financial Officer Michael DePrado, 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, 20162022 and 2015, our disclosure controls and procedures2021, 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, and that such informationforms. 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.

 

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, 2016.2020.

 

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 appropriate segregation of duties,

  

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

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

 

There is an overreliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material, nonstandard transactions.

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, 20162022 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

ITEM 9B. OTHER INFORMATION

 

None. 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.

 

27


 

 

PART III

 

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

The names of our director and executive officers as of December 31, 2016 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 Maimon46Chairman of the Board of Directors and Interim CEO
     
Arik MaimonRan Daniel 4153 Chief ExecutiveFinancial Officer and Director
     
Michael DePradoDe Prado 4652 President, Chief Financial OfficerVice Chairman of the Board of Directors and DirectorInterim President
     
Adiv Baruch
 5458Director

Yochanon Bruk

43 Director
     
Natali DadonSara Sooy 2930 Director
Haim Yeffet72Director
Lexi Terrero40Director

 

Directors and Executive Officers Promoters and Control Persons

 

Arik Maimon, our Chairman, is a founder and Chairman of the Board of Directors of the Company and has served as its CEO sincefrom its inception.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, and its Next CALA and NxtGn subsidiaries, Mr. Maimon founded the Company’s subsidiaries Next Mobile, andsubsidiary M&M. Prior to founding the Company and its subsidiaries,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 distancelong-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 boardBoard of directorsDirectors due to the perspective and experience he brings as our co-founder Chairman, CEO, and as our largest stockholder.Executive Chairman. 

 

Michael A. De Pradois a founder and Executive Vice Chairman of the Company and has served as its President sincefrom its inception. In addition to co-founding the Company, Mr. De Prado co-founded the Company’s Next CALA subsidiary.inception until February 2021. Prior to founding the Company, and Next CALA, 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 boardBoard of directorsDirectors due to the perspective and experience he brings as our co-founder, President, and COO.

 

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.

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 Chairmanchairman of Jerusalem Technology Investments Ltd. (“JTI”), which is engaged in the business of identifying, investing in, and mentoring emerging software and medical devices technology companies. JTI is a publicly-traded company whose shares are listed on the Tel-Aviv Stock Exchange. He also currently serves as Chairman of Maayan Ventures, a platform for investments in innovative technology companies, as President of Nyotron, a global cyber technology company, and as Chairman of Covertix, whose patented technology delivers real-time, non-invasive control, protection, and tracking of confidential files.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 NASDAQNasdaq under the symbol BOSC. Throughout his career, he has championed development and support of new talent in the high tech and entrepreneurial arenas. Mr. BaruchHe is a Technion graduate and the Chairman of Ness College, whichthe 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 a leader in educating Israeli technology professionalsthe managing partner of Dinar Zuz LLC and entrepreneurs.

Natali Dadon has served as a Director of the Company since its inception.  PriorDecember 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 joiningensure the Company’s boardseamless transportation of directors inmaterials for Felman Production, CCMA, and a non-executive capacity, Ms. Dadon served for five yearsnumber of European-based companies that operate alongside Felman Trading. Mr. Bruk serves as the Vice President for Sales of a privately-held wholesale long distance telecommunications services provider with more than $100 million in annual revenues. Ms. Dadon servesmember on the Company’s boardBoard of directorsDirectors due to the perspective and experience shehe brings to Our Board. 

Lexi Terrero is a marketing & financial executive with 15 years of experience in digital media, investor relations and private equity. Lexi’s experience combines deep industry knowledge of marketing and business development, sales development, raising capital, finance, and operational management. She received a BS in Finance and an MBA in Interdisciplinary Business from St. Johns University in New York City.

Sara Sooy has served as a seasoned telecommunications executiveSomerset County Commissioners since 2019 and onehas been on the North Jersey Transportation Planning Authority Board of Trustees since 2020. Previously Ms. Sooy worked as a Credit Analyst, and later as a Senior Commercial Real Estate Analyst. She earned a bachelor's degree in economics from Saint Francis College and an MBA in real estate development from Rutgers University.

Haim Yeffet has owned and managed 10 restaurants and served as the CEO of a public company. He is involved in his condo board at the Alexander in Miami Beach, and has served as the Vice President and as Secretary for the association for the last three years.

Family Relationships

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

 

Family Relationships

Natali Dadon and Arik Maimon are siblings.

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 NevadaFlorida law.

28

 

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


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 Yeffet as well as Ms. Sooy and Ms.Terrero are “independent” as defined by applicable rules and regulations. The Company is in the process to interviewing additional potential Independent Directors to fill additional 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.

The following table sets forth certain information concerning the annual compensation of our independent directors during the last two fiscal years.

Name and Principal Position Year (c)
Fee
  Bonus  Option
Awards
  share 
compensation
  Nonqualified
deferred
compensation
earnings
  All Other
Compensation
  (Total
Compensation
 
Adiv Baruch 2022 $67,000  $-  $110,781  $-  $     -  $-  $177,781 
  2021  56,750  $-  $155,093  $154,841  $-  $-  $366,684 
                               
Sara Sooy 2022 $31,250  $-  $81,250  $-  $-  $-  $112,500 
  2021  -  $-  $   $-  $-  $-  $- 
                               
Lexi Terreo 2022 $-  $-  $   $-  $-  $-  $- 
  2021 $-  $-  $   $-  $-  $                     $- 

Mr. Yeffet was elected to serve as a member of Board in 2023.

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

 

Audit Committee and Financial Expert

We do not have an Audit Committee. Our directors perform someBoard of the same functions ofDirectors has an Audit Committee, composed of Mr Baruch, Ms. Sooy and Ms. Terrero, 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 Audit 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.

Compensation Committee

Our Board of Directors has a Compensation Committee composed of Messrs. Baruch and Yeffet as well as Ms. Sooy, 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: recommendingas company benefit and insurance plans, including monitoring the performance thereof. The Compensation Committee has a firmcharter, which will be reviewed annually.

Nomination of independent certified public accountants to auditDirectors

Our Board of Directors, by resolution of the annual financial statements; reviewingfull Board of Directors addressing the nominations process and such related matters as may be required under the federal securities laws, has charged the independent auditor’s independence, the financial statements and their audit report; and reviewing management’s administration of the system of internal accounting controls. The Company does not currently havedirectors constituting a written audit committee charter or similar document.

We do not have a financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, becausemajority of our start-up operations, we believeBoard of Directors with the servicesresponsibility of a financial expert are not warranted.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 as amended (the “Exchange Act”), requires our directors and executive officers and directors, and persons who beneficially own more than ten percent10% of an issuer’s common stock, which has been registered under Section 12our outstanding shares of the Exchange Act,Common Stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership within our Common Stock and other equity securities. To the SEC. Based upon aCompany’s knowledge, based solely on its review of the copies of such forms furnished to us andreports received or written representations from our executive officers and Directors, we believecertain Reporting Persons that as ofno other reports were required, the date of thisCompany believes that during its fiscal year ended December 31, 2021, all filing theyrequirements applicable to the Reporting Persons were all current in their filings.timely met.

 

Corporate GovernanceStockholder Communications

 

Nominating Committee

WeAlthough we do not have a Nominating Committee or Nominating Committee Charter. Ourformal policy regarding communications with the Board, of Directors performs somestockholders 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 functions associated with a Nominating Committee. We have elected not to have a Nominating Committee in that we are an initial-stages operating company with limited operationsBoard may so specify, and resources.the communication will be forwarded, as appropriate.

 

29

 

 

ITEM 11.EXECUTIVE COMPENSATION

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation

 

Summary Compensation Table

 

The following table sets forth certain information concerning the annualcompensation of our Chief Executive Officer and our other executive officers during thelast 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  2016  $180,000   -   -        -        -  $28,000  $208,000 
CEO  2015  $151,000   -   -   -   -   -  $151,000 
                                 
Michael DePrado  2016  $130,000   -   -   -   -  $24,000  $154,000 
President and CFO  2015   -   -   -   -   -   -   - 

(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 2022 $295,000  $150,000  $257,895  $       -  $     -  $     -  $702,895 
Executive Chairman and Interim CEO 2021  295,000  $-  $326,667  $-  $-  $-  $621,667 
Michael De Prado 2022 $275,000  $150,000  $193,421  $-  $-  $-  $638,421 
Executive Vice Chairman 2021  268,400  $-  $245,000  $-  $-  $-  $513,400 
Ran Daniel 2022 $245,000  $-  $128,947  $-  $-  $-  $373,943 
CFO 2021 $274,196  $-  $163,333  $-  $-  $77,400  $514,929 

 

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. On August 19, 2022, the Company’s Board of Directors approved a motion to appoint Arik Maimon as Interim CEO (in addition to his current position as Chairman of the Board) and Michael De Prado as Interim President (in addition to his current position as Vice Chairman of the Board). Both Arik Maimon and Michael De Prado agreed to assume these positions with no additional compensation.

Employment Agreement with Mr. Daniel

On November 28, 2018, the Company entered into an Employment Agreement with Mr. Daniel. Pursuant to the terms of the Employment Agreement, among other things:

(1)    Mr. Daniel receives a base salary of $162,500 per annum for initial five years term. The Agreement will be automatically renewed for successive one-year periods unless either party provides ninety days’ prior notice of termination. Furthermore, during the term of his Employment Mr. Daniel’s compensation shall no less than any other officer or employee of the Company or its subsidiary. 

(2)    Mr. Daniel has the right, on the same basis as other senior executives of the Company, to participate in and to receive benefits under any of the Company’s employee benefit plans, as such plans may be modified from time to time, and provided that in no event shall Mr. Daniel receive less than four weeks paid vacation per annum and six paid sick and five paid personal days per annum.

(3)    Upon the successful up-listing of the Company’s shares of Common Stock to Nasdaq, Mr. Daniel receives a $100,000 bonus.

(4)    Mr. Daniel has agreed to a one-year non-competition agreement following the termination of his employment.

(5)     If Mr. Daniel’s employment with the Company terminates as a result of an involuntary termination (as defined in the Employment Agreement), then, in addition to any other benefits described in this Agreement, Mr. Daniel shall receive all compensation bonuses and benefits earned the date of his termination of employment. In addition, Mr. Daniel will be entitled to a lump sum payment equivalent to the remaining salary due Mr. Daniel to the end of the term of his Employment or six months’ salary, whichever is the greater.


Outstanding Equity Awards at Fiscal Year End. There were no

The following table sets forth information concerning the outstanding equity awards of each of the Named Executive Officers as of December 31, 2016.2022:

 

Board Committees

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)
Ran Daniel  9,230       -       -   3.20  1,538 options at April 6, 2024 and 7,692 at November 2, 2031      -       -       -  $128,947 
                                   
Arik Maimon  20,616   -   -  $5.12  3,385 options at March 29,2025 ,1,846 at September 12, 2023 and 15,385 at November 2, 2031  -   -   -  $257,895 
                                   
Michael De Prado  14,246   -   -  $5.00  $2,708 at March 29,2025 and 11,538 at November 2, 2031          -  $193,421 

 

We do not currently have any committees of the Board of Directors. Additionally, due to the nature of our intended business, the Board of Directors does not foresee a need for any committees in the foreseeable future.


 

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

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

The following table sets forth, as of DecemberMarch 31, 2016,2023, 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  145,308   6.90%
Chairman          
           
Michael De Prado (3) 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139  72,941   3.47%
Vice Chairman          
           
Adiv Baruch (4) 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139        
Director    12,564   0.60%
           
Ran Daniel (6) 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139  9,230   0.44%
           
Sara Sooy  (7) 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139  7,692   0.18%
           
Lexi Terreo  (5) 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139  3,846   0.18%
           
Yochanon Bruk (8) 1898 NW 74th Ave. Pembroke Pines, FL 33024  215,658   10.30%
           
Haim Yeffet (9) 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139  3,846   0.18%
           
All Directors and Officers as a Group (persons)    467,227   21.68%
           
5% or More Shareholders          
           
Alize Irrevocable Trust 255 Aragon Ave, Coral Gables FL 33134  111,769   5.36%
           
Dinar Zuz LLC (8) 1898 NW 74th Ave. Pembroke Pines, FL 33024  215,658   10.30%
           
Core Development Holdings Corporation 1001 NW 163rd Drive, Miami, Florida 33169  295,282   14.16%

 

Beneficial Owner Address Percent of
Class (**)
  Number of
Shares
Beneficially
Owned (*)
 
         
Airk Maimon 1111 Brickell Ave, Ste 2200  31.2%  77,812,309 
CEO Miami, FL 33131        
           
Michael DePrado 1111 Brickell Ave, Ste 2200  6.2%  15,428,848 
President and CFO Miami, FL 33131        
           
Adiv Baruch        0 
Director          
           
Natali Dadon 4019 194th Trail  0.09%  2,181,081 
Director Golden Beach, FL 33160        
           
All Directors and Officers as a Group (4 persons)    38.2%  95,422,238 

(*)       Beneficial ownership is determined in accordance with the rules of the SEC which generally attribute Beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities. Unless otherwise indicated, voting and investment power are exercised solely by the person named above or shared with members of such person’s household. This includes any shares such person has the right to acquire within 60 days.

(**)       Percent of class is calculated on the basis of the number of shares outstanding on December 31, 2016 of 249,225,683.

 30(1)Applicable percentages based on 2,085,867 shares of Common Stock.

(2)Arik Maimon is our Executive Chairman of the Board of Directors. Consists of (i) 124,693 shares of Common Stock, (ii) 1,846 stock options, exercisable until September 12, 2023 with an exercise price of $97.5 per share and (iii) 3,385 stock options, exercisable until March 29, 2023 with an exercise price of $186.55 per share (iv) 15,384 stock options, exercisable until November 2, 2031 with an exercise price of $36.40 per share.

(3)Michael De Prado is our Vice Executive Chairman and Director.  Consists of (i) 763,030 shares of Common Stock and (ii) 2,708 stock options, exercisable until March 29, 2023 with an exercise price of $186.55 per share (iii) 11,538 stock options, exercisable until November 2, 2031 with an exercise price of $36.40 per share.

(4)Adiv Baruch is our director. Consists of 4,872 shares of Common Stock and 7,692 stock options, exercisable until November 2, 2031 with an exercise price of $36.40 per share.

(5)Ran Daniel is our Chief Financial Officer. Consists of (i) 4,872 shares of Common Stock and (ii) 1,538 stock options, exercisable until April 6, 2024 with an exercise price of $67.93 per share (iii) 7,692 stock options, exercisable until November 2, 2031 with an exercise price of $36.40 per share.
 
(6)Lexi Terrero  is our director. Applicable percentages based on 3,846 stock options, exercisable until December 29, 2032 with an exercise price of $36.40 per share.

(7)Sara Sooy is our director. Applicable percentages based on 3,846 stock options, exercisable until May 15, 2032 with an exercise price of $36.40per share.

(8)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.

(9)Haim Yeffet is our director. Applicable percentages based on 3,846 stock options, exercisable until May 15, 2032 with an exercise price of $36.40 per share.


 

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 INDEPNDENCE

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

 

Director IndependenceOther 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

 

We currentlyStatement 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 independent directors, ascurrently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the term “independent”amount involved exceeds $120,000, and in which any director or executive officer, or any security holder who is defined in Section 803Aknown by us to own of record or beneficially more than 5% of any class of our Common Stock, or any member of the NYSE Amex LLC Company Guide. Since the OTC Markets does not have rules regarding director independence, the Board makes its determination as to director independence based on the definitionimmediate family of “independence” as defined under the rulesany of the New York Stock Exchange (“NYSE”)foregoing persons, has an interest (other than compensation to our officers and American Stock Exchange (“Amex”)directors in the ordinary course of business).

 

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

(1) AUDIT FEESAudit Fees

 

The Company incurred annual audit fees charged by Assurance Dimensions, Inc. forduring the years ended December 31, 2022 and December 31, 2021 with Halperin Ilanit CPA totaling approximately $55,000.

Audit-Related Fees

The Company incurred annual audit related fees during the year ended December 31, 20162022 totalling approximately $30,000. The Company incurred annual audit related fees during the year ended December 31, 2021 totalling approximately $32,500.

All Other Fees

There were approximately $60,000.

(2) AUDIT-RELATED FEES

None.

(3) TAX FEES

None.

(4) ALL OTHER FEES

None.

(5) AUDIT COMMITTEE POLICIES AND PROCEDURES

We do not have an audit committee.

(6) If greater than 50 percent, disclose the percentage of hours expended on theno other fees billed for products or services provided by our principal accountant’s engagement to audit the registrant’s financial statementsaccountant for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.years ended December 31, 2022 and December 31, 2021.

 

Not applicable.Our audit committee reviewed or ratified the engagement of the Company’s principal accountant or the fees disclosed above.

 

31

 

 

PART IV

 

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)Consolidated Financial Statements

 


NEXT GROUP HOLDINGS,

CUENTAS INC.

Consolidated Financial Statements

DecemberCONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 20162022

TABLE OF CONTENTS

Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMFIRMSF-1F-2
FINANCIAL STATEMENTS:
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 2022, and December 31, 2021F-2F-5
Consolidated Statements of OperationsComprehensive loss for the years ended December 31, 2022 and December 31, 2021F-3F-6
Consolidated Statements of Changes in Stockholders’ DeficitEquity for the years ended December 31, 2022 and December 31, 2021F-4F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and December 31, 2021F-5F-9
Notes to the Consolidated Financial StatementsF-6F-10

 

32

F-1

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CUENTAS, INC.

To

Opinion on the Shareholder’s and Board of DirectorsFinancial Statements

Next Group Holdings, Inc.

We have audited the accompanying consolidated balance sheetssheet of Next Group Holdings,Cuentas, Inc. (the Company) as of December 31, 2016 and 20152022 and the related consolidated statements of operations, changescomprehensive loss, Changes in stockholders’ deficit, and cash flows for eachthe year then ended, 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 two yearsCompany as of December 31, 2022 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the period endedUnited States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has incurred net losses since its inception, and has not yet generated sufficient revenues to support its operations. As of December 31, 2016.2022, there is an accumulated deficit of $52,750 thousand. These consolidatedconditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.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. OurAs part of our audit, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes

Our audits 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 supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidatedpresentation of the financial statement presentation.statements. We believe that our audits provide 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 financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the 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.

We determined that there are no critical audit matters.

Yarel + Partners

Certified Public Accountants (Isr.)

Tel-Aviv, Israel

March 31, 2023

We have served as the Company’s auditor since 2023

F-2

 

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 sheet of Cuentas Inc. (the “Company”) as of December 31, 2021, the related statements of operations and comprehensive loss, stockholders’ deficit and cash flows for the year in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Next Group Holdings, Inc.the Company as of December 31, 2016 and 20152021, and the results of theirits operations and theirits cash flows for each of the two yearsyear in the period ended December 31, 2016,2021, 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 accompanyingcritical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements have been prepared assuming that were communicated or required to be communicated to the Company will continue as a going concern. As discussed in Note 4audit 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-3

 

Going concern assessment

As discussed in Notes 1 to the consolidated financial statements, on February 4, 2021 the Company hadsold an aggregate of 2,790,697 units at a net loss before non-controlling interestprice to the public of $10,041,385$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 $1,193,987 and net cash used in operating activitiesa warrant exercisable for five years to purchase one share of $929,442 and $794,377, forCommon Stock at an exercise price of $4.30 per share (the “Warrants”). In light of the years ended December 31, 2016 and 2015, respectively. The Companyabove, the Company’s Management has a working capital deficit of $9,723,119 and $4,092,479, an accumulated deficit of $13,499,303 and $4,026,827 as of December 31, 2016 and 2015, respectively.These conditions raise substantialconcluded that there are no material uncertainties that give rise to significant doubt aboutover the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The consolidated financial statements do not include any adjustments that might resultconcern for at least twelve months from the outcomedate of this uncertainty. Our opinion is not modified with respect to that matter.the approval of the financial statements.

 

/s/ Assurance Dimensions

Certified Public Accountants

Coconut Creek,

July 3, 2017

 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.
 F-1 
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 till 2023

F-4

 

NEXT GROUP HOLDINGS, INC

CUENTAS, INC.

CONSOLIDATED BALANCE SHEETS

  December 31, 
  2016  2015 
ASSETS
Current Assets      
Cash $256,302  $18,047 
Accounts receivable, net  9,661   26,900 
Finance deposit  25,000   25,000 
Prepaid expenses and other current assets  48,091   - 
Related party receivable  36,000   41,914 
Assets from discontinued operations  225,884   - 
Total current assets  600,938   111,861 
         
License fee, net of accumulated amortization  118,056   201,385 
         
Total assets $718,994  $313,246 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current liabilities        
Bank overdraft $7  $- 
Accounts payable and accrued liabilities  1,330,789   389,289 
Dividends payable  30,000   - 
Customer deposits  715,642   - 
Loan payable  75,000   30,000 
Convertible notes payable, net of discounts and debt issue costs  1,076,302   - 
Derivative liability  1,210,281   - 
Related party payable  3,155,995   3,504,702 
Interest payable, related party  13,321   349 
Notes payable, related party  280,000   280,000 
Liabilities from discontinued operations  2,436,720   - 
Total current liabilities  10,324,057   4,204,340 
         
Stockholders’ Deficit        
Preferred stock, $0.001 par value, authorized 60,000,000 shares; Series A preferred stock; $0.001 par value, designated 50,000,000;  0 shares issued and outstanding as of December 31, 2016 and 2015, respectively.  -   - 
Series B preferred stock, $0.001 par value, designated 10,000,000; 10,000,000 issued and outstanding as of December 31, 2016 and 2015, respectively  10,000   10,000 
Common stock, authorized 360,000,000 shares, $0.001 par value, 249,225,683 and 177,539,180 issued and outstanding as of December 31, 2016 and 2015, respectively  249,226   177,539 
Additional paid in capital  6,791,750   (33,267)
Accumulated deficit  (13,499,303)  (4,026,827)
Total Next Group Holdings, Inc. stockholders’ deficit  (6,448,327)  (3,872,555)
         
Non-controlling interest in subsidiaries  (3,156,736)  (18,539)
         
Total liabilities and stockholders’ deficit $718,994  $313,246 

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

F-2

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

  December 31,
2022
  December 31,
2021
 
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents  466   6,607 
Accounts Receivables net of allowance for credit losses of $177 and $20 as of December 31, 2022 and December 31, 2021, respectively.  209   11 
Other current assets  14   162 
Total current assets  689   6,780 
         
Property and Equipment, net  6   2 
Investment in Unconsolidated Entities (Note 3)  776   38 
Intangible Assets (Note 4)  28   5,438 
Total assets  1,499   12,258 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
CURRENT LIABILITIES:        
Trade payable  1,231   810 
Other accounts liabilities (Note 5)  681   1,126 
Deferred revenue  113   683 
Notes and Loan payable  109   97 
Stock based liabilities  -   3 
Total current liabilities  2,134   2,719 
         
Other long term  89   89 
TOTAL LIABILITIES  2,223   2,808 
         
STOCKHOLDERS’ EQUITY (DEFICIT) (Note 9)        
         
Common stock, authorized 360,000,000 shares, $0.001 par value; 1,473,645 and 1,157,207 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively  19   15 
Additional paid in capital  52,036   47,654 
Treasury Stock  (29)  - 
Accumulated deficit  (52,750)  (38,219)
         
Total stockholders’ equity (deficit)  (724)  9,450 
Total liabilities and stockholders’ equity  1,499   12,258 

NEXT GROUP HOLDINGS, INC

CONSOLIDATED STATEMENTS OF OPERATIONS

  For the year ended
December 31,
 
  2016  2015 
Revenue $1,010,968  $98,611 
Revenue, related party  17,016   168,522 
Total revenue  1,027,984   267,133 
         
Cost of revenue  1,058,778   385,431 
Gross profit (loss)  (30,794)  (118,298)
         
Operating expenses        
Officer compensation  1,620,204   239,369 
Professional fees  2,944,371   425,507 
General and administrative  608,394   440,813 
Impairment loss  2,673,546   - 
Total operating expenses  7,846,515   1,105,689 
         
Loss from operations  (7,877,309)  (1,223,987)
         
Other income (expense)        
Other income  243,459   30,000 
Other expense  (45,000)  - 
Loss on disposal of equipment  (2,926)  - 
Excess derivative expense  (333,482)    
Interest expense  (1,554,618)  - 
Penalties on convertible notes payable  (14,490)  - 
Gain on derivative liability  1,217,271   - 
Settlements  (44,974)  - 
Total other income (expense)  (534,760)  30,000 
         
Loss from discontinued operations  (1,629,316)  - 
         
Net loss before income taxes  (10,041,385)  (1,193,987)
         
Income taxes  -   - 
         
Net loss before controlling interest  (10,041,385)  (1,193,987)
Net loss (income) attributable to non-controlling interest  598,909   (5,938)
Net loss attributable to Next Group Holdings, Inc. $(9,442,476) $(1,199,925)
         
Loss per share, basic and diluted $(0.04) $(0.01)
         
Weighted average number of common shares outstanding  234,519,235   219,259,332 

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

F-3

NEXT GROUP HOLDINGS, INC

STATEMENT OF STOCKHOLDERS’ DEFICIT

YEARS ENDED DECEMBER 31, 2016 AND 2015

                       Non-Controlling Interest 
   Series B Preferred
Stock
   Common Stock   Additional
Paid-in
   Accumulated    Subscription   Total
Stockholders’
   Additional
Paid-in
   Accumulated   Total Non-
Controlling
 
   Shares   Amount   Shares   Amount   Capital   Deficit   Receivable   Deficit   Capital   Deficit   Interest 
Balance, December 31, 2014  -  $-   219,373,975  $219,374  $(141,314) $(2,826,902) $10,000  $(2,738,842) $37,970  $(50,571) $(12,601)
Recapitalization  10,000,000   10,000   (41,834,795)  (41,835)  108,047   -   -   76,212   -   -   - 
Forgiveness of subscription receivable  -   -   -   -   -   -   (10,000)  (10,000)  -   -   - 
Net loss for period ending December 31, 2016  -   -   -   -   -   (1,199,925)  -   (1,199,925)  -   (5,938)  (5,938)
Balance, December 31, 2015  10,000,000   10,000   177,539,180   177,539   (33,267)  (4,026,827)  -   (3,872,555)  37,970   (56,509)  (18,539)
                                             
Recapitalization  -   -   44,784,795   44,785   (1,077,400)  -   -   (1,032,615)  -   -   - 
Common shares rescinded  -   -   (4,000,000)  (4,000)  4,000   -   -   -   -   -   - 
Stock based compensation  -   -   -   -   1,130,818   -   -   1,130,818   -   -   - 
Shares issued for services  -   -   9,274,959   9,275   2,120,803   -   -   2,130,078   -   -   - 
Shares issued for prepaid services  -   -   1,428,571   1,429   48,571   -   -   50,000   -   -   - 
Shares issued for other expense  -   -   200,535   200   44,800   -   -   45,000   -   -   - 
Shares issued in exchange for loan principal  -   -   450,000   450   12,810   -   -   13,260   -   -   - 
Shares issued for conversion of note principal  -   -   8,506,366   8,506   455,037   -   -   463,543   -   -   - 
Shares issued for conversion of accrued interest  -   -   1,041,277   1,042   38,648   -   -   39,690             
Shares issued for acquisition  -   -   10,000,000   10,000   1,260,000   -   -   1,270,000   -   -   - 
Net liabilities assumed in acquisition from related party  -   -   -   -   (720,348)  -   -   (720,348)  -   -   - 
Minority interest acquired  -   -   -   -   2,540,903   -   -   2,540,903   (2,540,903)  -   (2,540,903)
Forgiveness of imputed interest on related party payable  -   -   -   -   238,877   -   -   238,877   1,615   -   1,615 
Derivative liability write off due to conversion of debt  -   -   -   -   727,498   -   -   727,498   -   -   - 
Dividend declared  -   -   -   -   -   (30,000)  -   (30,000)            
Net loss for period ending December 31, 2016  -   -   -   -   -   (9,442,476)  -   (9,442,476)  -   (598,909)  (598,909)
Balance December 31, 2016  10,000,000  $10,000   249,225,683  $249,226  $6,791,750  $(13,499,303) $-  $(6,448,327) $(2,501,318) $(655,418) $(3,156,736)

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

F-4

F-5

 

CUENTAS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

 

NEXT GROUP HOLDINGS, INC

CONSOLIDATED OF CASH FLOWS

  Year Ended
December 31,
 
  2022  2021 
REVENUE  2,994   593 
         
COST OF REVENUE  2,508   469 
         
GROSS PROFIT (LOSS)  486   124 
         
OPERATING EXPENSES        
         
Selling, general and administrative  9,431   8,980 
Impairment of Intangible Assets  3,600   - 
Amortization of Intangible Assets  1,810   1,809 
TOTAL OPERATING EXPENSES  14,841   10,789 
         
OPERATING LOSS  (14,355)  (10,665)
         
OTHER INCOME (LOSS), NET        
         
Other income (expense), net  (132)  1 
Interest income (expense)  6   (172)
Gain from Change in fair value of stock-based liabilities  2   110 
TOTAL OTHER INCOME (LOSS), NET  (124)  (61)
         
NET LOSS BEFORE CONTROLLING INTEREST AND EQUITY LOSSES  (14,479)  (10,726)
         
Equity losses in non-consolidated entity  (52)  (2)
NET LOSS ATTRIBUTABLE TO CUENTAS INC.  (14,531)  (10,728)
         
Basic and Diluted net loss per share  (11.81)  (9.32)
         
Weighted average number of basic and diluted shares of common stock outstanding  1,230,577   1,070,541 

 

  For the year ended
December 31,
 
  2016  2015 
Cash Flows from Operating Activities:      
Net loss after non-controlling interest $(9,442,476) $(1,199,925)
Adjustments to reconcile net loss to net cash used in operating activities:        
Non-controlling interest  (598,909)  (5,938)
Impairment loss  2,673,546   - 
Impairment loss included in discontinued operations  1,243,430   - 
Imputed interest  240,493   - 
Stock based compensation  1,130,818   - 
Shares issued for services  2,130,077   - 
Shares issued for other expense  45,000   - 
Excess derivative liability expense  333,482   - 
Debt discount amortization  987,797   - 
Amortization of debt issue costs  37,670   - 
Amortization of intangible assets  93,190   - 
Allowance for doubtful accounts  8,000   200,266 
Depreciation expense  41,021   - 
Loss on disposal of equipment  2,926   - 
License fee amortization  83,329   48,615 
Default penalties on convertible notes  14,490   - 
Gain on derivative fair value adjustment  (1,217,271)  - 
Gain on forgiveness of account payable  (40,232)  - 
Changes in Operating Assets and Liabilities:        
Accounts receivable  28,363   (19,959)
Prepaid expenses  7,184   - 
Deferred tax asset  -   2,311 
Accounts payable  1,236,021   180,253 
Customer deposits  19,637   - 
Related party interest payable  12,972   - 
Net Cash Used in Operating Activities  (929,442)  (794,377)
         
Cash Flows from Investing  Activities:        
Due from related parties  5,914   146,789 
Finance deposit  -   (25,000)
Cash acquired in acquisition of Tel3, net of cash paid  45,225   - 
Cash acquired in acquisition of TPP, net of cash paid  43,573   - 
Net Cash Provided by Investing Activities  94,712   121,789 
         
Cash Flows from Financing Activities:        
Bank overdraft  (1,081)  (57)
Proceeds from loans payable  50,000   30,000 
Repayments of loans payable  (31,601)  - 
Proceeds from convertible notes  1,019,130   - 
(Repayments of) proceeds from related party loans  35,353   631,937 
Cash acquired through reverse recapitalization  1,184   - 
Net Cash Provided by Financing Activities  1,072,985   661,880 
         
Net Increase (Decrease) in Cash  238,255   (10,708)
Cash at Beginning of Period  18,047   28,755 
Cash at End of Period $256,302  $18,047 
         
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 as loan repayment $13,260  $- 
Common stock issued for conversion of note principal $449,940  $- 
Common stock issued for conversion of accrued interest $39,689  $- 
Declaration of common stock dividend $30,000  $- 
Assumption of liabilities in recapitalization $1,032,616  $- 
Shares issued for prepayment of services $50,000  $- 

The accompanying notes are an integral part of these consolidated financial statementsstatements.

F-6

 

CUENTAS, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

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

  Common Stock  Additional
Paid-in
  Treasury  Accumulated  Total
Stockholders’
 
  Shares  Amount  Capital  Stock  Deficit  Deficit 
Balance as of December 31, 2021  1,151,207  $15   47,654   -   (38,219)  9,450 
Issuance of Shares of Common Stock, net of issuance expenses **  324,928   4   2,685   -   -   2,689 
Shares issued for services  7,693   *   110       -   110 
Stock based compensation  -   -   1,587           1,587 
Treasury Stock  (10,183)  *   -   (29)  -   (29)
Net loss for the year ended December 31, 2022  -   -   -       (14,531)  (14,531)
Balance as of December 31, 2022  1,473,645  $19   52,036   (29)  (52,750) $(724)

*Less than $1.

 F-5**Issuance expenses totaled to $311

F-7

 

CUENTAS, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(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  814,654   11   28,411   (27,491)  931 
Issuance of Shares of Common Stock, net of issuance expenses **  214,669   3   10,611   -   10,614 
Issuance of Warrants  -   -   4   -   4 
Shares issued for services and for employees  11,026   *   611   -   611 
Stock based compensation  -   -   2,172   -   2,172 
Shares issued due to exercise of Warrants, net of issuance expenses ***  111,881   1   5,764   -   5,765 
Shares issued due to conversion of Convertible Note  2,326   *   81   -   81 
Return of Commitment Shares  (3,349)  *   -   -   - 
                     
Net income for the year ended December 31, 2021  -   -   -   (10,728)  (10,728)
Balance as of December 31, 2021  1,151,207  $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-8

 

NEXT GROUP HOLDINGS, INC

CUENTAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

  For the Year Ended
December 31,
 
  2022  2021 
Cash Flows from Operating Activities:      
Net loss $(14,531) $(10,728)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Stock based compensation and Shares issued for services  1,697   2,745 
Equity losses in non-consolidated entity  

52

   2 
Available for sale securities  -   3 
Loan to Cuentas SDI LLC that was not repaid  

100

   

-

 
Credit losses  

157

   

-

 
Interest expense and Debt discount amortization  12   90 
Gain (loss) on fair value measurement of stock-based liabilities  (3)  (61)
Depreciation expense  3   2 
Impairment of intangible assets  

3,600

   

-

 
Amortization of intangible assets  1,810   1,809 
Changes in Operating Assets and Liabilities:        
Accounts receivable  

(274

)  (11)
Other current assets  

148

   (150)
Accounts payable  421   (1,544)
Related party, net  

-

  44 
Other accounts liabilities  

445

  (1,562)
Deferred revenue  (570)  31 
Net Cash Used by Operating Activities  (8,137)  (9,330)
         
Cash Flows from Operating Activities:        
Investment in non-consolidated entity  (657)  (40)
Purchase of Property and Equipment  (7)  - 
Purchase of Intangible Asset  -   (47)
Net Cash used for Investing Activities  (664)  (87)
         
Cash Flows from Financing Activities:        
Proceeds from (Repayments of) short term loans  -   (730)
Proceeds from (Repayment of) Loans from Related parties  -   (355)
Purchase of Treasury Stock  (29)  - 
Proceeds from issuance of warrants  -   4 
Proceeds from issuance of common stock due to exercise of warrants  2,689   6,264 
Proceeds from issuance of shares, net of issuance cost  -   10,614 
Net Cash Provided by Financing Activities  2,660   15,797 
         
Net Increase (Decrease) in Cash  (6,141)  6,380 
Cash at Beginning of Period  6,607   227 
Cash at End of Period  466  $6,607 
         
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 $-   81 
Investment in non-consolidated entity in non-consolidated entity against accounts receivables  233  $- 
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-9

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

Next Group Holdings,Cuentas, Inc. (the “Company”) invests intogether with its subsidiaries, is focused on financial technology (“FINTECH”) services, delivering mobile financial services, prepaid debit and currentlydigital content services to unbanked, underbanked and underserved communities. The Company derives its revenuesrevenue from GPR “Debit” Card fees and the sales of prepaid calling minutes.products and services including third party digital content, gift cards, remittances, mobile phone topups and other digital services. Additionally, The Company has an agreement with Incomm,Interactive Communications International, Inc. (“InComm”) a leading processor of general purpose reloadable (“GPR”) debit cards, to market and distribute a unique line of GPRprepaid digital content and gift cards targeted towards the Latin American market. Cuentas is able to purchase InComm’s prepaid digital content and gift cards at a discount and resell these same products in real time through its mobile app and through the Cuentas SDI network of over 31,000 bodegas. Cuentas is able to offer these digital products to the public through its mobile app and the Cuentas SDI distribution network, many at discounted prices, while making a small profit margin which varies from product to product. The prepaid digital content and gift cards include Amazon Cash, XBox, PlayStation, Nintendo, Karma Koin, Transit System Loads & Reloads (LA TAP, NY Transit, Grand Rapids, CT GO and more coming in 2023), Burger King, Cabela’s, Bass Pro Shops, AT&T, Verizon, Mango Mobile, Black Wireless and many more prepaid wireless carriers in the US and in foreign countries. Cuentas accountholders can also send up to $500 anywhere in the world that WesternUnion operates at a discounted rate.

The Company intends to launch the cards upon successful completion of appropriate financing and had yet to generate revenues from this activity.

Next Group Holdings, Inc was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries, both current and future.subsidiaries. Its subsidiaries aresubsidiary is Meimoun and Mammon, LLC (100% owned) (“M&M”), Next Cala, Inc (94% owned), NxtGn, Inc. (65% owned) and Next Mobile 360, Inc. (100% owned) and Transaction Processing Products (100% owned). Additionally, Next Cala, Inc. has a 60% interest in NextGlocal, a subsidiary formed in May 2016. During the year ended December 31, 2016, the Company acquiredTel3, a business segment Tel3, from an existing corporation. Tel3 was merged intoof Meimoun and Mammon, LLC effective January 1, 2017.

Meimoun and Mammon, LLC (“M&M”) was formed under the laws of the State of Florida on May 21, 2001 as a real estate investment company. During the year ended December 31, 2010, M&M began winding down real estate operations and engaged in telecommunications services. M&M acquired telecom registrations, licenses and authorities to provide telecom services to the retail and wholesale markets including sales of prepaid long distance telecom services and Mobile Virtual Network Operator (MVNO) services. The services are sold under the brand name Next Mobile 360 and through the subsidiary of the same name.

Next Cala, Inc, (“Cala”) was formed under the laws of Florida on July 10, 2009 to the purpose of offering prepaid and reloadable debit cards to the retail market. Cala serves consumers in the underbanked and unbanked populations through Incomm, a leading provider of payment remittance services worldwide.

NxtGn, Inc. (“NxtGn”) was formed under the laws of Florida on August 24, 2011 to develop a unique High Definition telepresence product (AVYDA) which allows users to connect with celebrities, public figures, healthcare and education applications via a mobile phone, tablet or personal computer.

On January 1, 2016, NGH completed an Agreement and Plan of Merger (the “Merger Agreement”) with Pleasant Kids, Inc. (“Pleasant Kids”) and its wholly owned subsidiary, NGH Acquisition Corp. (“Acquisition Sub”), pursuant to which NGH merged with Acquisition Sub and Acquisition Sub was then merged into PLKD effective January 1, 2016. Under the terms of the Merger Agreement, the NGH shareholders received shares of PLKD common stock such that the NGH shareholders received approximately 80% of the total common shares and 100% of the preferred shares of PLKD issued and outstanding following the merger. Due to the nominal assets and limited operations of PLKD prior to the merger, the transaction was accorded reverse recapitalization accounting treatment under the provision of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805 whereby NGH became the accounting acquirer (legal acquiree) and PLKD was treated as the accounting acquiree (legal acquirer). The historical financial records of the Company are those of the accounting acquirer (NGH) adjusted to reflect the legal capital of the accounting acquired (PLKD).As the transaction was treated as a recapitalization, no intangibles, including goodwill, were recognized. Concurrent with the effective date of the reverse recapitalization transaction, the Company adopted the fiscal year end of the accounting acquirer of December 31.

On May 27, 2016, Next Cala entered into a Joint Venture Agreement (the “Agreement”) with Glocal Payments Solutions, Inc (“Glocal”) to form a joint venture, NextGlocal, in which Cala has a 60% controlling interest and Glocal has a 40% interest. The Joint Venture will seek to launch and activate up to 45,000 prepaid debit cards under the Cala brand by December 31, 2016 and 360,000 additional cards during the 2017 calendar year. Either party may terminate the agreement at December 31, 2016 if certain objectives are not met.

On July 22, 2016, the Company completed its acquisition of Transaction Processing Products, Inc. (“TPP”) which has a 64% interest in Accent InterMedia, LLC (“AIM”) and no other assets or liabilities. AIM operates as a leading gift card provider and in business activities very synergistic with those the Company is currently engaged in. See Note 16.

On August 10, 2016, M&M, a wholly owned subsidiary of the Company, closed the acquisition of Tel3 from a related party. Tel3 provides prepaid calling cards to consumers directly and operates in a complimentary space as M&M. Tel3Meimoun and Mammon, LLC. The Company also owns 50% of CUENTASMAX LLC which installs WiFi6 shared network (“WSN”) systems in locations in the New York metropolitan tristate area using access points and small cells to provide users with access to the WSN.

On March 3, 2022 the Company provided a loan to Cuentas SDI, LLC. As of December 31, 2022 the loan was originally acquirednot returned by Cuentas SDI, LLC and therefore the company recorded a loss of $100.

On May 27, 2022, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with SDI Black 011, LLC (“SDI Black”), the holders of all the membership interests of SDI Black and Cuentas SDI, LLC, a Florida limited liability (“Cuentas SDI”), for the acquisition of 19.99% of the membership interests of Cuentas SDI in exchange for $750,000. The Company also had the right to close on the potential acquisition of the remaining 80.01% of the membership interests of Cuentas SDI within 60 days (with a potential 30 day extension, the “Potential Acquisition Period”) in exchange for a purchase price of an additional $2,459,000. SDI Black previously transferred all of its assets including the platform, portals, domain names, and related software necessary to conduct its business to Cuentas SDI.  The MIPA further provides that during the Potential Acquisition Period, the Company will invoice and Cuentas SDI will pay invoices on a seven-net-ten day basis and during this same period, Cuentas SDI will allow the Company to realize 40% of the Cuentas SDI gross revenues and reflect 40% of the gross revenues on its books and records.The MIPA contains a number of representations and warranties by each of the parties thereto which we believe are customary for transactions similar to the transactions contemplated by the Company’s CEOMIPA. The 60-day option to acquire the remaining 80.01% of the membership interests of Cuentas SDI expired on July 27, 2022.

F-10

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On August 22, 2022, the Company entered into a Software Licensing and transaction sharing Agreement with The OLB Group, Inc. (“OLB), a Delaware corporation whereas OLB, through its wholly-owned subsidiaries will establish a merchant services relationship whereby the parties will seek to sell or rent OLB’s point-of-sale (POS) devices to merchants in the network established by Cuentas SDI, LLC for the merchants in the SDI network and the Company will use reasonable best efforts to interconnect its reload agreement with the OLB POS platform for use in qualified merchant locations. The Company will market the OLB-branded products under the processing platform as a Cuentas white label application for payment processing and debit cards. OLB will develop for Cuentas’ Mobile App and associated products, an Application Programming Interface (API), databases and servers at no cost to the Company to allow for the registration, approval and onboarding of consumers onto the Cuentas GPR/Mobile App/Mobile Wallet platform with complete functions as currently available through the Cuentas App and associated products and services. OLB agreed to provide OLB’s Services for Cuentas’ benefit in exchange for revenue sharing and OLB will utilize its developers to enhance the Cuentas GPR-Mobile-App. Before the relaunch of the Cuentas GPR-Mobile-App, the OLB developers in consultation with Cuentas shall as necessary test the functionality, reliability and process of the Cuentas GPR-Mobile-App in a controlled testing environment. Upon approval by the Company of the results of the controlled testing environment to move the Cuentas GPR-Mobile-App into production, the OLB developers, in consultation with the Company, shall perform periodic test of the Cuentas GPR-Mobile-App to ensure continued functionality, reliability and process of the Cuentas GPR-Mobile-App and to remove and repair any bugs or malfunctions in the Cuentas GPR-Mobile-App as soon as practicable. All net revenue generated by OLB from the following: (i) net revenues from the sale or rental of OLB POS devices to Cuentas SDI Merchants, (ii) all other net revenues generated by OLB arising from or related to the OLB POS devices elected to be utilized by the Cuentas SDI Merchants, (iii) all net revenues generated by OLB from the Cuentas White Label Products/Services, and (iv) to the extent that the Reload Provider agrees to provide its reload capability through the OLB POS devices, the net revenues generated by OLB from the reloads shall be split between OLB and Cuentas. All net revenue generated by Cuentas from the following: (i) net revenues from each reload purchased though the OLB POS device through a Cuentas SDI Merchant, (ii) all retail digital products as set forth on Schedule A sold through a OLB POS device through a Cuentas SDI Merchant or the Cuentas White Label Products/Services, (iii) mobile top-ups net revenues sold through a OLB POS device through a Cuentas SDI Merchant: all net revenues to be split between OLB and Cuentas. Net revenue will be shared between the Parties and profits will be calculated and settled on a 30 net 30 basis (after each 30-day period closes, the Parties have 30 days to calculate and settle net revenue). On August 22, 2022, the Company entered into an Independent Sales Organization Processing Agreement with eVance, Inc., a wholly owned subsidiary of The OLB Group, Inc., whereby eVance is in the business of providing credit and debit card processing services to merchants. The Company desires to solicit and refer merchants to eVance for those Services under the terms of this Agreement. eVance will provide Merchants with access to Third-Party Authorization Networks, Settlement and other services to authorize, capture and transmit data relating to transactions on major credit and debit card networks.

REVERSE SPLIT

On March 24, 2023, 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 thirteen 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 13-for-1 basis, and the exercise price of each such outstanding stock option and common warrant has been proportionately increased on a 13-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 13-for-1 reverse stock split.

GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2022, the Company had approximately $466 in cash and cash equivalents, approximately $1,445 in negative working capital, negative shareholder equity of $724 and an accumulated deficit of approximately $52750. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Company’s ability to continue as a going concern is dependent upon raising capital from financing transactions and revenue from operations. Management anticipates their business will require substantial additional investments that have not yet been secured. Management is continuing in the process of fund raising in the private transactionequity and capital markets as the Company will need to finance future activities. These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.

F-11

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 214,669 units at a price to the public of $55.90 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 $55.90 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 32,201 additional shares of Common Stock, and/or 32,201 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 $10 cash. See Note 16.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 17,174 shares of Common Stock (8% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $69.88 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. During 2021, 111,881 Warrants issued in the Offering were exercised for 111,881 shares of the Company’s common stock in consideration of $5,765.

 

F-6

On August 4, 2022, the Company, entered into a Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Purchaser”) pursuant to which the Purchaser agreed to purchase, and the Company agreed to issue and sell to the Purchaser in a private placement, an aggregate of 127,308 shares of the Company’s common stock, $0.001 par value, pre-funded warrants to purchase up to 197,620 shares of Common and warrants to purchase up to 324,928 shares of Common Stock. The purchase price per Share and associated Common Stock Warrant was $9.23 and the purchase price per Pre Funded Warrant and associated Common Stock Warrant was $9.23. Each Common Stock Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $7.67 per share. Each Pre Funded Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $0.0001 per share. The Common Stock Warrants are exercisable for a period of five years and six months commencing on the issuance date and the Pre Funded Warrants are exercisable until exercised. The Warrants also contain customary beneficial ownership limitations that may be waived at the option of each holder upon 61 days’ notice to the Company. The Private Placement closed on August 8, 2022. The gross proceeds to the Company, before deducting placement agent fees and other offering expenses, are approximately $3.0 million. On August 4, 2022, in connection with the Private Placement, the Company entered into a registration rights with the Purchaser, pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”) to register for resale the Shares and any shares of the Company’s common stock issuable upon exercise of the Warrants within 30 days of the signing of the Registration Rights Agreement, with such registration statement becoming effective within 60 days after the signing of the Registration Rights Agreement, subject to adjustment in the event of a review by the SEC. The Company is subject to customary penalties and liquidated damages in the event it does not meet certain filing requirements and deadlines set forth in the Registration Rights Agreement. Pursuant to an engagement agreement, H.C. Wainwright & Co., LLC (the “Placement Agent’) was engaged by the Company to act as its placement agent for the Private Placement. The Company agreed to pay the Placement Agent a cash fee equal to 7.0% of the gross proceeds received by the Company in the Private Placement, in addition to the reimbursement of certain expenses. The Company also agreed to issue to the Placement Agent warrants to purchase up to 22,745 shares of Common Stock, exercisable for a period of five years and six months commencing on the issuance date, at an exercise price of $11.54 per share.

F-12

 

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

Basis of Presentation

This summary of accounting policies for Next Group Holdings, Inc. is presented to assistThe consolidated financial statements have been prepared in understanding the Company’s financial statements. The Company uses the accrual basis of accounting andaccordance with generally accepted accounting principles generally accepted in the United States of America (“US GAAP” accounting) and have been consistently applied in the preparation of the consolidated financial statements.).

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, and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements.statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates are used when accounting forAs applicable to the consolidated financial statements, the most significant estimates and assumptions relate to allowances for bad debts, collectability of loans receivable, potential impairment losses of the capitalized license fee, impairment of goodwill, impairment of intangible assets stock basedand fair value of stock-based compensation and fair value calculations related to embedded derivative features of outstanding convertible notes payable.

Principles of consolidation

Cash

For purposesThe consolidated financial statements include the accounts of the statementsCompany 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 flows, theequivalents

The Company considers all short-term investments, which are highly liquid debt instruments purchasedinvestments with a maturityoriginal maturities of three months or less at the date of purchase, to be cash equivalents to the extent the funds are not being heldequivalents.

Allowance for investment purposes. credit losses

The Company heldadopted the Current Expected Credit Losses (“CECL”) guidance effective January 1, 2020. The Company maintains the allowance for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations.

Changes in the allowance for credit losses are recognized in, general and administrative expenses. Accounts receivables are written-off against the allowance for credit losses when management deems the accounts are no cash equivalentslonger collectible.

There was an allowance for doubtful accounts of $177 and $20 as of December 31, 20162022 and 2021.

Leases

The Company accounts for leases in accordance with ASC 842, The Company determines if an arrangement is a lease at inception. Balances related to operating leases are included in operating lease right-of-use (“ROU”) assets, current maturities of operating leases liabilities and Non-current operating leases liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized as of the commencement date based on the present value of lease payments over the lease term. The Company’s lease terms may include options to extend or 2015.terminate the lease when it is reasonably certain that the Company will exercise that option. The discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. As the Company’s leases do not provide an implicit rate, the Company’s uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term , As of December 31, 2016 and 2015,2022 the Company did not hold cash with any one financial institutionhas lease agreement of less than 12 months.

F-13

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in excess of the FDIC insured limit of $250,000.thousands, except share and per share data)

 

Revenue recognition

The Company follows paragraph 605-10-S99 of the FASBAccounting 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 sale of prepaid calling minutes to consumers through its Tel3 division. While the Company collects payment for such minutes in advance, revenue us recognized upon delivery to and consumption of minutes by the consumer. Next Cala generated revenues from commissions earned from Incomm, a leading financial services provider, and NxtGn generated revenues from the sale of voice over IP platform software during the years ended December 31, 2016 and 2015.

Property and equipmentEquipment

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

Impairment

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 Long-Lived Assets

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 Topic 360, formerly SFAS No. 144,Accounting for810, the Company perform ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.

Impairment or Disposal of Long-Lived Assets the Company reviews its

The Company’s long-lived assets, such as property, plant and equipment and identifiable intangible assets, are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of these assetsan asset may not be fullyrecoverable. Impairment indicators which could trigger an impairment may include, among others, any significant changes in the manner of our use of the assets or the strategy of our overall business, certain reorganization initiatives, significant negative industry, or economic trends or when we conclude that it is more likely than not that an asset will be disposed of or sold. Long-lived assets are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The assessmentrecoverability of possibleassets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is basedmeasured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. This measurement includes significant estimates and assumptions inherent in the estimate of the fair value of identifiable intangible assets. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value annually or when triggering events are present. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact on the Company’sour 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,and can result in an impairment charge is recognized forcharge. The Company did not record impairment losses during the difference between the asset’s estimated fair value and its carrying value.year ended December 31, 2021. The Company recorded impairment losses in the amount of $3,916,976, of which $1,243,430 is included in losses from discontinued operations, and $0$3,600 thousand during the yearsyear ended December 31, 20162022.

Derivative Liabilities and 2015. ReferFair 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 Note 15reflect 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 further discussion.measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

F-14

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:

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:

 

 F-7Balance as of December 31, 2022
Level 1Level 2Level 3Total
Assets:
Marketable securities----
Total assets----
Liabilities:
Stock based liabilities----
Total liabilities---- 

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

F-15

 

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

Derivative

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 Fair Valueearned. The Company considers revenue realized or realizable and earned when all the following criteria are met: (i) persuasive evidence of Financial Instruments

Fair value accounting requires bifurcationan 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 embedded derivative instruments such as conversion features in convertible debt or equity instrumentssales of minutes from one telecommunications carrier to another and measurementto a lesser extent the sales 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 470,prepaid calling minutes to consumers through its Tel3 division. While the Company will continue its evaluation processcollects payment for such minutes in advance, revenue is recognized upon delivery to and consumption of these instruments as derivative financial instruments under ASC 815.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.

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 valueis also recognize revenue in accordance with ASC 820, “Fair Value MeasurementsTopic 606, Revenue from Contracts with Customers (ASC 606), when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expect to receive in exchange for those goods or services. To determine whether arrangements are within the scope of ASC 606, the Company perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and Disclosure” defines fair value, establishes(v) recognize revenue when (or as) the Company satisfies its performance obligation. The Company apply the five-step model to contracts when it is probable that the Company will collect the consideration the Company are entitled to in exchange for the goods or services the Company transfer to the customer. At contract inception, once the contract is determined to be within the scope of this guidance, the Company assessed the goods or services promised within each contract and identify, as a framework for measuring fair value in accordance with generally accepted accounting principlesperformance obligation, and expands disclosures about fair value investments.

Fair value,assess whether each promised good or service is distinct. The Company then recognize as defined in ASC 820, isrevenue the amount of the transaction 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 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 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 significantis allocated to the fair values.respective performance obligation when (or as) the performance obligation is satisfied.

Business Segments

Fair value measurements are required to be disclosed by the Level within the fair value hierarchy

The Company operates 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 reconciliationtwo-business segments of the beginningtelecommunications and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.General Purpose Reloadable Cards.

F-8

Except as discussed inNote 7 – Derivative Liabilitiesthe Company did not identify any other assets or liabilities that are required to be presented on the consolidated balance sheet at fair value in accordance with ASC 825-10 as of December 31, 2016 and 2015. 

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 sectionSection 382 if a change of ownership occurs.

F-16

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Net Loss Per Basic Income (Loss) Perand Diluted Common Share

Basic income (loss)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, 2016, the Company had fifteen outstanding convertible notes payable with conversion rights that are exercisable. The remaining convertible notes outstanding2022, potentially dilutive securities consisted of 615,063shares which of 128,477 options to purchase of common stock at December 31, 2016 were not convertible until six months after issuance, or January 2017. The amountprices ranging from $36.40 to $186.55 per share and 486,587 warrants to purchase of outstanding principal on these convertible notes total $1,056,897 plus accrued interest of $202,068 for total convertible debts as of December 31, 2016 of $1,258,965 representing 75,347,762 new dilutive common shares if convertedstock at the applicable rates.prices ranging from $7.67 to $260.00 per share. The effects of these notes haveoptions and warrants been excluded as the conversion would be anti-dilutive due to the net loss incurred in each period presented.the year ended December 31, 2022.

 

Dividends

 

The Company has not adopted any policy regarding paymentAt December 31, 2021, potentially dilutive securities consisted of dividends. No dividends have been paid during any260,854 shares which of the periods shown.

As discussed in the 8K filed on May 18, 2016, the Company declared a special dividend on its outstanding common stock of one share of Class D Redeemable Preferred Stock.  Pursuant121,938 options to the dividend, the special stock dividend will be distributed to owners of the Company’s common stock as of the record date in a ratio of one share of Class D Redeemable Preferred Stock common stock for every 1 sharepurchase of common stock ownedat prices ranging from $36.40 to $186.55 per share and 138,915 warrants to purchase of common stock at prices ranging from $55.90 to $260.00 per share. The effects of these options and warrants been excluded as of the record date.  The Company originally had set the record date as June 10, 2016 but was later modified to July 22, 2016. The Class D Preferred Stock mustconversion would be redeemed within six months within six (6) months (or as soon thereafter as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia , Inc. (Next Communications, Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S. District Court for the Southern District of New York or any successor or other lawsuit relatinganti-dilutive due to the subject matter thereof in which the Corporation (or any successor-in-interest) is named as a plaintiff (the “Lawsuit”). The Designation fixes the redemption price of each share of class D Preferred stock as the greater of par value or the amount obtained by dividing (a) 9.03 percent of the net proceeds to the Corporation of the Lawsuit after payment of fees and expensesloss incurred in connection with such law suit and the resolution of  any creditor claims against Next Communications and all taxes on net income accrued or paid with respect to such amount, by (b) the total number of shares of Class D Preferred stock issued and outstanding as of the Redemption Date, which amount shall be rounded to the nearest whole cent.

��

The Company has accrued common stock dividends payable of $30,000 and $0 as ofyear ended December 31, 2016 and 2015.2021.

 

Advertising Costs

 

The Company’s policy regarding advertising is to expense advertising when incurred.

The Company incurred $1 and $37 of advertising costs during the years ended December 31, 2022 and 2021, respectively. 

F-9

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.

F-17

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Stock-Based Compensation

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of subtopic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”) and subtopic 718-20 for awards classified as equity to employees. 

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) Otherother 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.

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.

Derivative Liabilities

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 intrinsic 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 market values of derivative liabilities over the life of the convertible notes. Changes in value of the derivative liabilities that result from conversions of the underlying instrument to common stock are written off to additional paid in capital.

Accounts Receivable

Accounts receivable balances are established for amounts owed to the Company from its customers from the sales of services and products. The Company closely monitors the collectability of outstanding accounts receivable and provide an allowance for doubtful accounts based on estimated collections of outstanding amounts.

Loans Receivable

The Company carries loans receivable for unsecured amounts lent to unrelated and related parties. The balance due to the Company monitored for collectability. An allowance for uncollectible loans is established based on the estimated collectability of outstanding loans.

License Fee

On June 30, 2015 the Company entered into an agreement with a certain vendor whereby it obtained a license to market and distribute certain closed loop general purpose reloadable debit cards for an initial term of three years. The Company remitted $250,000 as a license fee in connection with the agreement which it is recognizing over the initial term of the agreement on a straight line basis. The unamortized balance of the license fee was $118,056 and $201,385 as of December 31, 2016 and 2015, respectively.

Finance Deposit

During December 2015, the Company made a deposit with a financial advisory firm as part of an agreement executed at that time. The agreement was cancelled soon thereafter within the cancellation period that would allow for a refund of the deposit made. However, the Company has not yet received the refund due and is currently working with the advisory firm to return the funds which we expect will occur during the third quarter of 2017. The Company carried a current asset of $25,000 as of December 31, 2016 and 2015 reflecting the amount of deposit due.

F-10

Subscription Receivable

During the year ended December 31, 2014, Cala accepted a $10,000 subscription receivable that was determined to be uncollectible and written off against additional paid in capital on December 31, 2015 pursuant to ASC 505.

Recently Issued Accounting Standards

Recently Issued Accounting Pronouncements Not Yet Adopted

In April 7, 2015June 2016, the FASB issued Accounting Standards Update “ASU” 2015-03No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on “Interest — ImputationFinancial Instruments. ASU 2016-13 requires measurement and recognition of Interest (Subtopic 835-30)” To simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidanceexpected credit losses for debt issuance costs would not be affected by the amendments in this Update. This ASU 2015-3is effective for annual periods ending after December 15, 2015, and interim periods and annual periods thereafter.We reviewed the provisions of this ASU and determined there was an impact on our consolidated financial position and results of operations.

assets. In May 2014,April 2019, the FASB issued Accounting Standards Update (“ASU”)clarification to ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“2016-13 within ASU 2014-09”)2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedgingthat outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goodsand Topic 825, Financial Instruments, or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09 to the beginning of 2018 for public companies, with an option that would permit companies to adopt the standard as early as the original effective date of 2017.2016-13. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP. ASU 2014-09 may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for those contracts. The updated standard is effective for us in the first quarter of 2018 and we do not plan to early adopt. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted.2022. The Company is currently evaluatingadopted ASU 2016-02 and its impact on its consolidated financial position or results of operations.

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations.” This Update provides clarifying guidance regarding the application of ASU No. 2014-09 - Revenue From Contracts with Customers when another party, along with the reporting entity, is involved in providing a good or a service to a customer. In these circumstances, an entity is required to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The amendments in the Update clarify the implementation guidance on principal versus agent considerations. The Update is effective, along with ASU 2014-09, for annual and interim periods beginning after2016-13 since December 15, 2017. The adoption of ASU 2016- 08 is not expected to have a material impact on our consolidated financial position or results of operations.2022.

 

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016- 09”). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company has implemented ASU 2016-09 effective January 1, 2017.

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-1O”). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduce the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The Company is currently evaluating ASU 2016-10 and its impact on its consolidated financial statements or disclosures.

F-11

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for the Company at the beginning of fiscal year 2019. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230)”, which provides guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective retrospectively for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. The new standard is effective for the Company at the beginning of fiscal year 2018. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and do not expect adoption to have a material impact.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax liabilities and assets be classified as noncurrent amounts on the balance sheet. ASU 2015-17 will be effective for interim and annuals periods beginning after December 15, 2016 and may be applied prospectively or retrospectively. Early adoption of the standard is permitted. The new standard is effective for the Company at the beginning of fiscal year 2017. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and do not expect adoption to have a material impact.

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.

F-18

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 –INVESTMENTS IN 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. 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 31,2022, the Company funded $80 in CUENTASMAX and recorded equity losses in the amount of $58. .

  

NOTE 3 – DISCONTINUED OPERATIONS

The Company has classified its former gift card processing business as discontinued operation. During the first quarter of 2017, the Company ceased activity in this business segment and disposed of its ownership interest. On April 26, 2017,May 27, 2022, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with SDI Black 011, LLC (“SDI Black”), the holders of all the membership interests of SDI Black and completedCuentas SDI, LLC, a Florida limited liability (“Cuentas SDI”), for the saleacquisition of 19.99% of the membership interests of Cuentas SDI in exchange for $750,000 in addition to a loan in the amount of $100,000 that was provided to Cuentas SDI, LLC for the marketing purposes. SDI Black previously transferred all of its assets including the platform, portals, domain names, and related software necessary to conduct its business to an unaffiliated third party.

Revenue Recognition for Discontinued Operations

Our discontinued operations generated revenue primarily from processing gift cards for local retailers. Commissions were recognized under service agreements withCuentas SDI.   As of December 31, 2022, Cuentas SDI did not repay the retailersloan to the Company and recorded as revenue when processing fees were earned.therefore that Company wrote off the entire loan.

The financial position of discontinued operations was as follows:

  December 31,
2016
  December 31,
2015
 
       
Cash (restricted and unrestricted) $7,163  $     - 
Accounts receivable  42,267   - 
Prepaid expenses  10,890   - 
Notes receivable  83,353   - 
Equipment, net of accumulated depreciation  82,210   - 
Net current assets of discontinued operations $225,884  $- 

F-12

F-19

 

  December 31,
2016
  December 31,
2015
 
       
Accounts payable $1,996,039  $     - 
Deferred revenue  48,585   - 
Loans payable  392,096   - 
Net current liabilities of discontinued operations $2,436,720  $- 

CUENTAS, INC.

The results of discontinued operations do not include any allocated or common overhead expenses. The results of operations of discontinued operations were as follows:NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

  For the Year Ended
December 31,
 
  2016  2015 
Revenues $207,053  $     - 
         
Operating expenses:        
Other general and administrative  592,938   - 
         
Impairment loss  1,243,430   - 
         
Loss from discontinued operations $1,629,316  $- 

NOTE 4 – GOING CONCERNINTANGIBLE ASSETS

The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.The Company had a net loss before non-controlling interest of $10,041,385 and $1,193,987 and net cash used in operating activities of $929,442 and $794,377, for the years endedOn December 31, 2016 and 2015, respectively. The Company has a working capital deficit of $9,723,119 and $4,092,479, and an accumulated deficit of $13,499,303 and $4,026,827 as of December 31, 2016 and 2015, respectively.These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company has a minimum cash balance available for payment of ongoing operating expense, has experienced losses from operations since inception, and it does not have a source of revenue sufficient to cover its operating costs. Its continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available, or will be available on terms acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management plans to fund operations through additional debt and equity financing. Debt instruments may be convertible or non-convertible and will vary based on the Company’s needs and financing options available at such times.

NOTE 5 – LOANS RECEIVABLE

At the time of the reverse recapitalization discussed inNote 1 – Organization and Description of Business,2019, the Company had a loan that was made to an individual totaling $40,000. This loan was not memorialized in writing and accordingly, carried no terms as to repayment, interest or default. The loan was determined to be uncollectible and written off during the year ended December 31, 2015. The write off is included in general and administrative expenses in the statements of operations.

Additionally, the Company acquired a total of $83,353 of loans receivable through its acquisition of TPP as discussed inNote 1 – Organization and Description of Business. The Company exited this business in December 2016 and the loan is included in assets from discontinued operations as of December 31, 2016.

As discussed inNote 8 – Related Party Transactions, during the year ended December 31, 2014, the Company made a series of loans to the sister of Mr. Arik Maimon, our Chief Executive Officer totaling $60,000. These loans were not memorialized in writing and accordingly, carry no terms as to repayment, interest or default. The loan was determined to be uncollectible and written off during the year ended December 31, 2015. The write off is included in general and administrative expenses in the statements of operations.

F-13

NOTE 6 – FIXED ASSETS

The Company acquired $4,572 of equipment net of accumulated depreciation of $1,430 through the reverse recapitalization discussed inNote 1 – Organization and Description of Business. The Company disposed of this property in April 2016 and recorded a loss on disposal of $2,926 during the year ended December 31, 2016.

Additionally, the Company acquired a total of $123,013 of equipment at fair value through its acquisition of TPP as discussed inNote 1 – Organization and Description of Business. The Company exited this business in March 2017 and the fixed assets are included in assets from discontinued operations as of December 31, 2016.

Depreciation expense was $41,021, of which $40,804 is included in loss from discontinued operations, and $0 during the years ended December 31, 2016 and 2015.

The Company had no property or equipment as of and December 31, 2016 or 2015.

NOTE 7 – CONVERTIBLE NOTES PAYABLE

The Company has 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. Under the License Agreement Cima received a one-time licensing fee in the amount of $9,000 in the form of a convertible notes payablenote that may be converted, at the option of Cima, into up to fund operations. While with differing noteholders, the terms25% of the outstanding convertible notes are substantially similar and accrue interest at 8% annually with a default interest ratetotal shares of 24% and allow for the conversionCommon Stock of outstanding principal and interest to common stock at a price equal to a 45% to 50% from the lowest trading price in the preceding 20 days.

In February 2017, the Company, agreed with certain noteholders to extendpar value $0.001 per share (the “Common Stock”) on a redemption freeze agreement wherebyfully 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 convertible note holders agreed to not convert outstanding principal and accrued interest into common stock forintangible assets on a periodstraight-line basis over their expected useful life of 60 days. Uponmonths. 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 expirationCompany purchased the domain www.cuentas.com in consideration of these agreements,$47. The Company will amortize the intangible assets on a 90 day extension was executed whereby the noteholders agreedstraight-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 not convert additional amounts through the first weektheir estimated residual values and reviewed periodically for impairment.

Amortization of July 2017. Under the termsintangible assets for each of the extension, each noteholdernext five years and thereafter is expected to be as follows:

Year ended December 31,   
2023 $

10

 
2024  

10

 
2025  8 
Total $

28

 

Amortization expense was granted the right to convert a limited amount of outstanding principal to common stock at a rate equal to the stated rate in the convertible note payable but not less than $0.02 per share and extended the due dates of the notes to July 2017. The convertible notes outstanding contain cross default features and the Company defaulted on all notes in November 2016.

The following table summarizes all convertible notes payable activity$1,810 for the year ended December 31, 2016:

Holder Issue Date Due Date Original Principal  Balance, December 31, 2015  Advances  Conversions to Common Stock  Balance, December 31, 2016 
Noteholder 1 8/12/2015 8/12/2016 $82,500  $82,500  $-  $(82,500) $- 
Noteholder 1 9/21/2015 9/21/2016  72,450   72,450   14,490   (86,940)  - 
Noteholder 1 10/15/2015 10/15/2016  82,500   82,500   -   (82,500)  - 
Noteholder 1 11/25/2015 11/24/2016  82,500   82,500   -   -   82,500 
Noteholder 1 12/21/2015 12/21/2016  27,000   27,000   -   -   27,000 
Noteholder 1 1/15/2016 1/15/2017  131,250   -   131,250   -   131,250 
Noteholder 1 3/8/2016 3/8/2017  50,000   -   50,000   -   50,000 
Noteholder 1 4/11/2016 4/11/2017  82,500   -   82,500   -   82,500 
Noteholder 1 4/11/2016 4/11/2017  82,500   -   82,500   -   82,500 
Noteholder 1 4/11/2016 4/11/2017  82,500   -   82,500   -   82,500 
Noteholder 1 5/16/2016 5/16/2017  100,000   -   100,000   -   100,000 
Noteholder 1 7/22/2016 7/22/2017  50,000   -   50,000   -   50,000 
Noteholder 1 8/2/2016 8/2/2017  50,000   -   50,000   -   50,000 
Noteholder 2 7/27/2015 7/27/2016  37,000   37,000   -   (37,000)  - 
Noteholder 2 11/20/2015 11/20/2016  37,000   37,000   -   -   37,000 
Noteholder 3 11/9/2015 11/9/2016  75,000   75,000   -   (75,000)  - 
Noteholder 3 3/8/2016 3/8/2017  50,000   -   50,000   (36,000)  14,000 
Noteholder 3 5/16/2016 5/16/2017  100,000   -   100,000   -   100,000 
Noteholder 3 7/22/2016 7/22/2017  50,000   -   50,000   -   50,000 
Noteholder 3 3/8/2016 3/8/2017  25,000   -   25,000   -   25,000 
Noteholder 4 1/19/2016 1/15/2017  131,250   -   131,250   -   131,250 
Noteholder 4 3/9/2016 3/8/2017  50,000   -   50,000   -   50,000 
Noteholder 5 11/9/2015 11/9/2016  100,000   100,000   -   (38,603)  61,397 
Noteholder 6 11/2/2016 11/2/2017  52,500   -   52,500   -   52,500 
Noteholder 7 11/9/2015 11/9/2016  25,000   25,000   -   (25,000)  - 
Totals     $1,708,450  $620,950  $1,101,990  $(463,543) $1,259,397 

F-14

The following is a summary of all convertible notes outstanding as of December 31, 2016:

Holder Issue Date Due Date Principal  Discount  Unamortized Debt Issue Costs  Carrying Value  Accrued Interest 
Noteholder 1 11/25/2015 11/24/2016 $82,500  $-  $-  $82,500   18,588 
Noteholder 1 12/21/2015 12/21/2016  27,000   -   -   27,000   5,930 
Noteholder 1 1/15/2016 1/15/2017  131,250   (16,279)  (255)  114,716   28,105 
Noteholder 1 3/8/2016 3/8/2017  50,000   (14,477)  (460)  35,063   8,811 
Noteholder 1 4/11/2016 4/11/2017  82,500   (22,380)  (1,142)  58,978   13,923 
Noteholder 1 4/11/2016 4/11/2017  82,500   (22,380)  (1,142)  58,978   13,923 
Noteholder 1 4/11/2016 4/11/2017  82,500   (22,380)  (1,142)  58,978   13,923 
Noteholder 1 5/16/2016 5/16/2017  100,000   (13,194)  (1,863)  84,943   14,619 
Noteholder 1 7/22/2016 7/22/2017  50,000   -   (1,390)  48,610   1,775 
Noteholder 1 8/2/2016 8/2/2017  50,000   -   (1,390)  48,610   1,655 
Noteholder 2 11/20/2015 11/20/2016  37,000   -   -   37,000   3,966 
Noteholder 3 3/8/2016 3/8/2017  14,000   (4,053)  (460)  9,487   6,200 
Noteholder 3 5/16/2016 5/16/2017  100,000   (13,194)  (1,863)  84,943   14,685 
Noteholder 3 7/22/2016 7/22/2017  50,000   -   (1,390)  48,610   1,775 
Noteholder 3 3/8/2016 3/8/2017  25,000   (7,238)  (242)  17,520   4,833 
Noteholder 4 1/19/2016 1/15/2017  131,250   (17,347)  (257)  113,646   27,990 
Noteholder 4 3/9/2016 3/8/2017  50,000   (14,622)  (459)  34,919   9,655 
Noteholder 5 11/9/2015 11/9/2016  61,397   -   -   61,397   16,916 
Noteholder 7 11/2/2016 11/2/2017  52,500   (2,096)  -   50,404   679 
Totals     $1,259,397  $(169,640) $(13,455) $1,076,302  $207,951 

Accrued Interest

There was $207,9512022, and $0 accrued interest due on all convertible notes as of December 31, 2016 and 2015, respectively. 

F-15

NOTE 8 – DERIVATIVE LIABILITIES

The Company analyzed the conversion features of the convertible notes payable as discussed in Note 7 for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative liability because the exercise price of these convertible notes are subject to a variable conversion rate with a floor of $0.02 per share.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change.  The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the reverse capitalization date of the convertible notes payable was $1,236,007 which was recorded as a derivative liability on the balance sheet.

As of December 31, 2016, the Company had a $1,210,281 derivative liability balance on the balance sheet and recorded a gain from derivative liability fair value adjustment of $1,217,271 and excess value of derivative liabilities upon initial measurement of $333,482 as interest expense during the year ended December 31, 2016.  The derivative liability activity comes from convertible notes payable as discussed in Note 7. In addition to derivative liabilities associated with convertible notes payable, the Company recorded a derivative liability due to a ratchet strike price feature associated with the options issued in the acquisition of TPP. The options are exercisable at $0.18 per share unless the Company’s common stock is quoted at a price greater than $0.50 per share at which point the options are exercisable at $0.001 per share.

A summary of outstanding derivative liabilities as of December 31, 2016 is as follows:

Holder Derivative Balance 
Noteholder 1  65,805 
Noteholder 1  21,481 
Noteholder 1  104,689 
Noteholder 1  39,882 
Noteholder 1  48,388 
Noteholder 1  48,388 
Noteholder 1  48,388 
Noteholder 1  68,211 
Noteholder 2  29,437 
Noteholder 3  12,205 
Noteholder 3  68,211 
Noteholder 3  19,941 
Noteholder 4  104,689 
Noteholder 4  39,882 
Noteholder 5  290,434 
Option Holder  200,250 
Total $1,210,281 

The value of the embedded derivative liabilities for the convertible notes payable and outstanding option awards was determined using the Black-Scholes option pricing model based on the following assumptions:

Year ended December 31,
2016
Expected volatility155% - 871%
Expected term.19 - 2.54 years
Risk free rate0.51% - 1.47%
Forfeiture rate0%
Expected dividend yield0%

F-16

A summary of the changes in derivative liabilities balance$1,809 for the year ended December 31, 20162021, respectively. Amortization expense for each period is as follows:

Fair Value of Embedded Derivative Liabilities:   
Balance, December 31, 2015 $- 
Acquired in reverse recapitalization  1,236,007 
Initial measurement of derivative liabilities on new convertible notes payable and options issued  1,919,043 
Change in fair market value  (1,217,271)
Write off due to conversion (recorded in additional paid in capital)  (727,498)
Balance, December 31, 2016 $1,210,281 

NOTE 9 – STOCK OPTIONS

The following table summarizes all stock option activity forincluded in operating expenses. During the year ended December 31, 2016:

  Shares  Weighted-
Average
Exercise
Price
Per Share
 
Outstanding, December 31, 2015  -  $- 
Granted  18,500,000   0.224 
Exercised  -   - 
Forfeited  (1,000,000)  1.00 
Expired  -   - 
Outstanding, December 31, 2016  17,500,000  $0.180 

The following table discloses information regarding outstanding and exercisable options at December 31, 2016:

   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
 
$0.18   17,500,000  $0.18   3.48   10,833,334  $0.18 
     17,500,000  $0.18   3.48   10,833,334  $0.18 

On May 31, 2016,2022, the Company issued 10,000,000 options to a board member pursuant to its agreement with the member. One third of the 10,000,000 options issued vested immediately upon execution of therecorded an impairment charges related agreement, resulting in an immediate stock based expense of $558,323 being recognized. The remaining shares of this issuance vest based on performance milestones which the Company believes is less than50% likely of occurring resulting in stock based expense of $558,328. The remaining fair value of the unvested shares will be recognized according to the estimated probabilityacquired intangible assets that consisted of perpetual software license in the performance obligations being achieved.

On July 14, 2016, the Company issued 7,500,000 options as partamount of its acquisition of TPP. The options are exercisable for a period of three years and carry an exercise price of $0.18 per share. The options carry a ratchet pricing feature whereby they become exercisable at $0.001 per share if the Company’s common stock trades at a price greater than $0.50 per share. The options carried a value of $898,490 which was recorded as a derivative liability as discussed inNote 7 – Derivative Liabilities.

$3,600.

F-17

F-20

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5 – OTHER ACCOUNTS LIABILITIES

The Company issued 1,000,000 stock options exercisable at $1.00 pursuant to its agreement with Glocal. This agreement was amended on August 9, 2016 in which the option owners forfeited these options. The fair value of the 1,000,000 stock options granted with an exercise price of $1.00 was amortized through the forfeiture resulting in stock based compensation expense of $14,166.

  December 31,
2022
  December 31,
2021
 
Accrued expenses, interest and other liabilities $309  $1,063 
Accrued salaries and wages  105   63 
Accrued bonuses  

267

   - 
Total $

681

  $1,126 

Total stock based compensation expense was $1,130,818 during the year ended December 31, 2016 leaving an unrecognized expense of $558,328 as of December 31, 2016. In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:

December 31,
2016
Expected term of options granted0 - 5 years
Expected volatility range778 - 850%
Range of risk-free interest rates0.82 - 1.41%
Expected dividend yield0%

NOTE 106 – RELATED PARTY TRANSACTIONS

 

The Company follows the provisions of ASC 850—Related Party Transactions & Disclosures relating to the identification of related parties and disclosure of related party transactions.

Our financial statements include disclosures of material related party transactions, other than expense allowances, and other similar items in the ordinary course of business. The disclosures include: (a) the nature of the relationship(s) involved; (b) a 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. 

The Company has had extensive dealings with related parties including those in which our interim Chief Executive Officer and Chairman of the Board holds a significant ownership interest as well as an executive position during the years ended December 31, 20162022 and 2015. Due to our operational losses,2021.

Employment Agreements

On July 24, 2020, the Company has relied to a large extent on funding received from Next Communications,Compensation Committee (the “Compensation Committee”) of the Board of Directors of Cuentas Inc., an organization in which our (the “Company”) approved the Amended and Restated employment agreements with each of Arik Maimon, the Company’s Chief Executive Officer (“Maimon”), and Chairman holds a controlling equity interestMichael De Prado, the Company’s President (“De Prado,” and holdstogether with Maimon, the “Executives,” each an executive position.“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 Zuz LLC (“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-21

 

With

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On February 24, 2021, the exceptionemployment 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 purchaseshares 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 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 9% interestdecision 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 Next Cala, Inc.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 related partybonus 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 August 19, 2022, the Company’s Board of Directors approved a motion to appoint Arik Maimon as described below, amounts scheduled belowInterim CEO (in addition to his current position as “dueChairman of the Board) and Michael De Prado as Interim President (in addition to related parties”his current position as Vice Chairman of the Board). Both Arik Maimon and “due from related parties” have not had their terms, including amounts, collection or repayment terms or similar provisions memorialized in formalized written agreements.Michael De Prado agreed to assume these positions with no additional compensation.

F-22

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 38,462 shares of Common Stock;  On August 18, 2022, Jeffery D. Johnson entered into a Separation of Employment Agreement between himself and the Company and resigned as the chief executive officer of the Company effective immediately. On August 19, 2022, the Board of Directors approved the Separation and General Release Agreement, approved the immediate acceleration of the vesting of 12,308 options previously issued to him under the Stock Option Plan that will be exercisable for a period of three years after the resignation and noted that the separation was cordial and positive. Mr. Johnson received a onetime Separation Payment of $100and the Company paid all costs for COBRA (health insurance) benefits through the end of calendar year 2022.

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 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

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 On August 2, 2022, the Company and CIMA, along with two of CIMA’s wholly-owned subsidiaries, Knetik and Auris executed a Settlement Agreement and General Release (“Settlement Agreement”) which provides the following: In exchange for the consideration provided in the Settlement Agreement, (1) the Company paid CIMA $350 on or about August 2, 2022 and (2) on or about August 15, 2022, Cuentas paid CIMA the balance of the unpaid Fees of $420 CIMA agreed: (i) to restore immediately Cuentas’s access to the Platform upon receipt of the $350 payment ; (ii) to provide Cuentas with a limited license to utilize the Platform the terms of which are detailed specifically in the Settlement Agreement, and to use reasonable efforts, subject to Cuentas’ compliance hereto, to provide the Company’s customer data to the Company through the end of the limited license term; (iii) deliver to the Company the Source Code relating to Out-Of-Scope Services, and as further detailed in the settlement agreement; The Settlement Agreement also provides other terms and for mutual general releases by the Company for the benefit of CIMA and by CIMA for the benefit of the Company of all claims other than claims relating to a breach of the Settlement Agreement. The settlement agreement by its terms in effect terminates the obligations under the license agreement, dated December 31, 2019 by and between the Company and CIMA. Per the settlement agreement, the ownership of the platforms will be maintained by the Company and Cima will not be obligated to provide services under the license agreement

F-23

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Related partyparties balances at December 31, 20162021 and 2015December 31, 2020 consisted of the following:

Due from related parties

  December 31,
2022
  December 31,
2021
 
  (dollars in thousands) 
       
SDI Cuentas LLC, net of allowance for credit losses of $157 and $0 as of December 31, 2022 and December 31,2021, respectively.  198   1 
Total Due from related parties  198   1 

Related party payables, net of discounts

  December 31,
2022
  December 31,
2021
 
  (dollars in thousands) 
(a) Due to Cima Telecom Inc. $     -   250 
Total Due from related parties $-  $250 

(a)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.

Related party transactions

  Year
ended at
December 31,
2022
  Year  
ended at
December 31,
2021
 
  (dollars in thousands) 
       
Sales to SDI Cuentas LLC $2,052  $62 
         
Consulting fees to Angelo De Prado (a)  6   - 
Consulting fees to Sima Maimon Bakhar (b)  10   - 
Doubtful accounts – Cuentas SDI LLC  157   - 
Consulting fees to Carol Pepper (d)  -   40 
Cima Telecom Inc. (c) $918   840 
  $1,051  $880 

(a)Angelo De Prado is the son of Michasel De Prado.

 

(b)Sima Maimon Bakhar isd the wife of Aril Maimon.

Loans Receivable, Related Party

(c)Composed of periodic fees in the amount of $700 thousand for the maintenance and support services in accordance with the software maintenance agreement and the a Settlement Agreement and General Release dated August 2, 2022 and $500 for the first half of the second calendar year from the effective date of the agreement, $218 thousand for software development and other services during 2022 and 340$ thousand for software development and other services during 2022. Refer to note 10. The maintenance and support services amd nost of the software development and other services were recorded in cost of goods sold in the Digital products and General-Purpose Reloadable Cards segment.

(d)Composed of consulting fee in additional to the directorship fees.

F-24

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8 – STOCK OPTIONS

DuringThe following table summarizes all stock option activity for the year ended December 31, 2014,2022:

  Shares  Weighted-
Average
Exercise
Price Per
Share
 
Outstanding, December 31, 2021  121,938  $47.97 
Granted  38,461   36.40 
Forfeited  (31,922)  36.40 
Outstanding, December 31, 2022  128,477  $56.44 

The following table discloses information regarding outstanding and exercisable options as of December 31, 2022:

   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
 
$186.55   6,093  $186.55   0.24   6,093  $186.55 
 97.50   2,769   97.50   0.71   2,769   97.50 
 67.99   1,538   67.99   1.24   1,538   67.99 
 36.40   118,077   36.40   8.88   110,382   36.40 
     128,477  $56.42   8.14   120,782  $45.78 

On December 30, 2022, the Company madeissued 7,692 options to its member of the board of the Directors of the Company. The options carry an exercise price of $36.40 per share. half of the options vested on December 30, 2022 and the balance shall vest on the first anniversary of grant date, so long as they engaged by the Company on that date. The Options are exercisable until December 30, 2032. The Company has estimated the fair value of such options at a seriesvalue of loans$18 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:

Common stock price

2.366

Dividend yield0%
Risk-free interest rate3.88%
Expected term (years)10
Expected volatility454%

On August 19, 2022, the Board of Directors approved the immediate acceleration of the vesting of 12,307 options previously issued under the Stock Option Plan to Jeffery D. Johnson that will be exercisable for a period of three years after his resignation.

On May 17, 2022, the sisterCompany issued 15,384 options to its two members of Mr. Arik Maimon, ourthe board of the Directors of the Company. The options carry an exercise price of $36.40 per share. half of the options vested on May17, 2022 and the balance shall vest on the first anniversary of grant date, so long as they engaged by the Company on that date. The Options are exercisable until May 17, 2032. The Company has estimated the fair value of such options at a value of $134 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:

Common stock price

8.71

Dividend yield0%
Risk-free interest rate2.98%
Expected term (years)10
Expected volatility480%

F-25

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On February 1, 2022, the Company issued 15,384 options to its Chief ExecutiveOperating Officer totaling $60,000. These loansof the Company. The options carry an exercise price of $36.40 per share. 3,847 of the options vested on February 1, 2022. The option shall vest on the first, second and third anniversary of grant date, so long as its Chief Operating Officer is employed by the Company on that date. The Options are exercisable until January 31, 2032. The Company has estimated the fair value of such options at a value of $213 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:

Common stock price

13.91

Dividend yield0%
Risk-free interest rate1.79%
Expected term (years)10
Expected volatility197%

On November 3, 2021, the Company issued 119,229 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 not memorialized in writing and accordingly, carry no terms as to repayment, interest or default. approved by the Company’s shareholders on December 15, 2021.

Name Number of
Options
  Exercise
Price
  Vesting Schedule
Jeffery D Johnson  38,462  $36.40  9,616 on grant date. 14,423 on each of the next 2 Employment Anniversaries.
Shalom Arik Maimon  15,385  $36.40  50% on grant date; 50% on 12 month anniversary of grant date
Michael DePrado  11,538  $36.40  50% on grant date; 50% on 12 month anniversary of grant date
Ran Daniel  7,692  $36.40  50% on grant date; 50% on 12 month anniversary of grant date
Richard Berman  7,692  $36.40  50% on grant date; 50% on 12 month anniversary of grant date
Yochanon Bruk  7,692  $36.40  50% on grant date; 50% on 12 month anniversary of grant date
Jeff Lewis  7,692  $36.40  50% on grant date; 50% on 12 month anniversary of grant date
David Schottenstein  7,692  $36.40  50% on grant date; 50% on 12 month anniversary of grant date
Adiv Baruch  7,692  $36.40  50% on grant date; 50% on 12 month anniversary of grant date
Carol Pepper  7,692  $36.40  50% on grant date; 50% on 12 month anniversary of grant date

The loans were determined to be uncollectible and written off as bad debt duringCompany 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

36.40

Dividend yield0%
Risk-free interest rate1.60%
Expected term (years)10
Expected volatility480%

The following table summarizes all stock option activity for the year ended December 31, 2015.2021:

F-18
  Shares  Weighted-
Average
Exercise
Price
Per Share
 
Outstanding, December 31, 2020  10,401  $145.34 
Granted  119,229  $36.40 
Forfeited  7,692  $36.40 
Outstanding, December 31, 2021  121,938  $47.97 

F-26

 

Due from related partiesCUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  December 31,
2016
  December 31,
2015
 
(a) Due from Next Cala 360, Inc. $-  $41,914 
(b) Glocal Card Services  36,000     
Total Due from related parties $36,000  $41,914 

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

Due to related parties

  December 31,
2016
  December 31,
2015
 
(c) Due to Next Communications, Inc. $2,961,271  $3,025,522 
(d) Due to Asiya Communications SAPI de C.V.  95,120   95,120 
(e) Michael DePrado  99,604   - 
(f) Due to Pleasant Kids, Inc.  -   384,060 
Total Due from related parties $3,155,995  $3,504,702 

(a)Next Cala 360, is a Florida corporation established and managed by our Chief Executive Officer.
(b)Glocal Card Services is our partner in the Glocal Joint Venture
(c)Next Communication, Inc. is a corporation in which our Chief Executive Officer holds a controlling interest and serves as the Chief Executive Officer
(d)Asiya Communications SAPI de C.V.is a telecommunications company organized under the laws of Mexico, in which our Chief Executive Officer holds a substantial interest and is involved in active management.
(e)Michael DePrado is our Chief Operating Officer and Chief Financial Officer
(f)Amount due to Pleasant Kids, Inc. for debt incurred throughout the period from the date of merger agreement to closing of merger. The Company was dependent on Pleasant Kids for financing during this time and its former officers later became shareholders of the Company as discussed inNote 1.

During the year ended December 31, 2016, the Company recorded interest expense of $240,492 using an interest rate equal to that on theThe following table discloses information regarding outstanding convertible notes payable as discussed inNote 6 – Convertible Notes Payable as imputed interest on the related party payable due to Next Communications. The interest was immediately forgiven by the related party and recorded to additional paid in capital.

Notes Payable, Related Party

During the year ended December 31, 2014, the Company entered into two notes with its President to purchase his interest in Next Cala, Inc. and separately his voting control in Next Cala. Inc. There was $280,000 of total principal and $13,321 of interest dueexercisable options at December 31, 2016.2021:

Revenues (Related Party)

The Company generated revenues of $17,016 and $168,522 from related parties during the years ended December 31, 2016 and 2015. During the year ended December 31, 2016, $16,874 was received from Next Cala 360 and $142 from Asiya Communications SAPI de C.V. During the year ended December 31, 2015, $113,107 was received from Next Cala 360 and $2,433 from XO Communications.

F-19
   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
 
$186.55   6,093  $186,055   1.24   6,093  $186.55 
 97.50   2,769   97.50   1.71   2,769   97.50 
 67.99   1,538   67.99   2.24   1,538   67.99 
 36.40   111,538   36.40   9.84   60,385   36.40 
     121,938  $56.44   9.13   70,785  $55.12 

NOTE 11 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following asAs of December 31, 2016:

  December 31,
2016
  December 31,
2015
 
Trade payables $851,339  $389,289 
Accrued expenses  133,892   - 
Accrued interest  209,771   - 
Accrued salaries and wages  135,787   - 
Total $1,330,789  $389,289 

During2022, 124,231 ordinary shares are reserved under the year ended December 31, 2014, a former employee of Pleasant Kids (PLKD), Franjose Yglesias-Bertheau, filed lawsuit against PLKD claiming unpaid wages of $622,968 and was initially awarded that amount in a judgement. However, the judgement was later revised and the Company settled for $80,000 in March 2017 which is included in accrued salaries as of December 31, 2016.2021 equity incentive plan.

NOTE 129 – STOCKHOLDERS’ EQUITY

Preferred Stock

At the time of incorporation, the Company was authorized to issue 60,000,000 shares of preferred stock with a par value of $0.001 of which 50,000,000 was designated Series A and 10,000,000 as Series B. With the completion of the recapitalization as discussed in Note 2, the outstanding Series A preferred shares were cancelled leaving a balance outstanding of Preferred Series A of -0-.

The Company has 10,000,000 shares of Preferred Stock designated as Series B. The Series B Preferred Stock is not convertible into Common Stock at any time and is not entitled to dividends of any kind or liquidation, dissolution rights of any kind. Activity During the Year Ended December 31, 2022

The holders of Series B Preferred Stock shall be entitled to 1,000 votes for each share of Series B Stock that is held when voting together with holders offollowing summarizes the Common Stock.

The Company has 36,000,000 shares of Preferred Stock designated as Series D. The Class D Preferred Stock must be redeemed within six(6) months (or as soon thereafter as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia , Inc. (Next Communications, Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S. District Courtactivity for the Southern District of New York or any successor or other lawsuit relating to the subject matter thereof in which the Corporation (or any successor-in-interest) is named as a plaintiff (the “Lawsuit”). There were no Series D Preferred shares issued or outstanding as of December 31, 2016 or 2015.

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. 

As discussed inNote 1 – Organization and Description of Businessthe Company is accounting for the exchange as though it were a reverse recapitalization. Through the recapitalization, the Company assumed total net liabilities of $1,032,616. 

During the year ended December 31, 2016, the Company has issued 8,506,366 shares of commons stock for the conversion of $463,543 of principal of convertible notes payable and 1,041,277 shares for the conversion of $39,689 of accrued interest. The conversion of principal and accrued interest on convertible notes payable to common stock were done so at the contractual terms of each respective agreement. Additionally, the Company issued 450,000 common shares valued at $13,260 as repayment of a non-convertible loan and rescinded 4,000,000 common shares previously issued in connection with the reverse recapitalization discussed inNote 1 – Organization and Description of Business.Common stock issued for services were valued using the close price of the Company’s common stock on the date of issuance as quoted on the OTCBB. The details of certain issuances of common stock are as follows:2022:

 F-20

Common Shares Issued for Services

The Company issued 8,774,959 common shares for services totaling $2,092,828 pursuant to an agreement whereby a third party would provide certain services on behalf of the Company for a period of six months effective April 7, 2016. The Company valued the common shares using the close price of the stock as listed on the OTCBB on April 7, 2016. The Company recognized the value of the shares over the term of the agreement resulting in $2,092,828 of expense during the year ended December 31, 2016.

Additionally, the Company issued a total of 500,000 shares for services in connection with its amendment to its Joint Venture agreement with Glocal Payment Solutions dated August 9, 2016. The shares were valued using the close price on the date of issuance as quoted by Nasdaq of $0.0745 resulting in total expense of $37,250.

Common Shares Issued for Prepayment of Services

The Company issued 1,428,571 common shares as a prepayment for services pursuant to an agreement with a third party whereby the third party would provide certain marketing and consulting services for a period of six months effective October 1, 2016. The shares were valued using the close price on the date of issuance as quoted by Nasdaq of $0.035 resulting in a total value of $50,000. The amount will be recognized as services are performed over the term of the agreement resulting in expense of $25,000 being recorded during the year ended December 31, 2016 with a prepaid balance of $25,000 as of December 31, 2016.

Common Shares Issued for Acquisitions

On July 22, 2016, the Company completed its acquisition of TPP as discussed inNote 1 – Organization and Description of Business.Pursuant to this agreement, the Company issued 10,000,000 shares of common stock valued at $1,270,000. 

Common Shares Issued for Other Expenses

The 200,535 common shares issued for other expenses were pursuant to an agreement executed on February 11, 2016 whereby the Company agreed to issue $45,000 of common shares plus a cash payment of $5,000 in exchange for the option to purchase a controlling interest in an Israeli business. The Company determined the number of shares to be issued pursuant to the agreement using the close price of our common stock as quoted by the OTCBB on February 11, 2016 of $0.2244 per share. The Company did not execute its option to purchase a controlling interest in the business and the fair value of the shares totaling $45,000 was expensed.

Common Shares Rescinded

On April 22, 2016, the Company entered into a settlement agreement with the former officers of Pleasant Kids, Inc. to settle certain claims the Company brought against former management. Under the terms of the agreement, former management agreed to return a total of 4,000,000 common shares to the Company and the Company agreed to lift a stop transfer order that was placed on other shares. There was no gain or loss recorded on the rescission.

Summary of common stock activity for the year ended December 31, 2016 Outstanding
shares
 
Balance, December 31, 20152021  177,539,1801,151,207 
RecapitalizationShares of Common Stock issued  44,784,795324,928 
Share rescission(4,000,000)
Shares issued for services  10,703,5307, 693 
Shares issued for other expenseTreasury stock  200,535(10,183
Shares issued as repayment of loan (a)450,000
Shares issued for acquisition10,000,000
Shares issued for conversion of convertible notes payable and accrued interest (b)9,547,643)
Balance, December 31, 20162021  249,225,6831,473,645 

(a)Shares issued as repayment of outstanding loan principal of $13,260. The lender did not have conversion rights to convert the principal to common stock. However, the lender agreed to accept shares in lieu of cash repayment.

On April 6, 2022, the Company issued 7,693 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 $110. 

 

(b)Shares issued in connection with outstanding convertible notes payable and convertible accrued interest on convertible notes payable in accordance with contractual terms of noteholders as discussed inNote 6 – Convertible Notes Payable.

On August 4, 2022, the Company, entered into a Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Purchaser”) pursuant to which the Purchaser agreed to purchase, and the Company agreed to issue and sell to the Purchaser in a private placement, an aggregate of 127,308 shares of the Company’s common stock, $0.001 par value, pre-funded warrants to purchase up to 197,620 shares of Common and warrants to purchase up to 324,928 shares of Common Stock. The purchase price per Share and associated Common Stock Warrant was $9.23 and the purchase price per Pre Funded Warrant and associated Common Stock Warrant was $9.23. Each Common Stock Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $7.67 per share. Each Pre Funded Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $0.0001 per share. The Common Stock Warrants are exercisable for a period of five years and six months commencing on the issuance date and the Pre Funded Warrants are exercisable until exercised. The Warrants also contain customary beneficial ownership limitations that may be waived at the option of each holder upon 61 days’ notice to the Company. The Private Placement closed on August 8, 2022. The gross proceeds to the Company, before deducting placement agent fees and other offering expenses, are approximately $3.0 million. On August 4, 2022, in connection with the Private Placement, the Company entered into a registration rights with the Purchaser, pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”) to register for resale the Shares and any shares of the Company’s common stock issuable upon exercise of the Warrants within 30 days of the signing of the Registration Rights Agreement, with such registration statement becoming effective within 60 days after the signing of the Registration Rights Agreement, subject to adjustment in the event of a review by the SEC. The Company is subject to customary penalties and liquidated damages in the event it does not meet certain filing requirements and deadlines set forth in the Registration Rights Agreement. Pursuant to an engagement agreement, H.C. Wainwright & Co., LLC (the “Placement Agent’) was engaged by the Company to act as its placement agent for the Private Placement. The Company agreed to pay the Placement Agent a cash fee equal to 7.0% of the gross proceeds received by the Company in the Private Placement, in addition to the reimbursement of certain expenses. The Company also agreed to issue to the Placement Agent warrants to purchase up to 22,745 shares of Common Stock, exercisable for a period of five years and six months commencing on the issuance date, at an exercise price of $11.54 per share. The fair market of those warrants was $165 thousand as of date of issuance.

F-21

F-27

 

NOTE 13 – CUSTOMER CONCENTRATIONCUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company did not have any one customer account for more than 10% of its revenues during the year ended December 31, 2016. The Company had four separate customers account for 10% or more of its revenues during the year ended December 31, 2015. The concentration of revenues during the years ended December 31, 2016(U.S. dollars in thousands, except share and 2015 were:per share data)

  Year ended December 31, 
  2016  2015 
  Revenues  % of Total  Revenues  % of Total 
Customer 1 $3,224   0% $-   0%
Customer 2  20,000   2%  -   0%
Customer 3  12,301   1%  -   0%
Customer 4  35,000   3%  -   0%
Customer 5  -   0%  32,675   13%
Customer 6  -   0%  27,000   11%
Customer 7  -   0%  -   0%
Customer 8  -   0%  27,787   11%
Customer 9, related party  16,874   2%  113,107   44%
Customer 10, related party  -   0%  2,433   1%
Customer 11, related party  142   0%  -   0%
All Others  950,974   92%  52,982   20%
Total $1,038,515   100% $255,984   100%

NOTE 1410 – 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.

If

On May 1, 2019, the assessmentCompany received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP), who allegedly had a contingency indicatesReciprocal Carrier Services Agreement (“RCS”) exclusively with Limecom and not with the Company. The arbitration demand originated from another demand for arbitration that it is probableSecure 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 material loss has been incurredreceiver 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 amountCompany, 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 has indemnified the Company for any such liability and the Company has a pending cross-claim against Heritage for purposes of enforcing the indemnification obligation. A review of the liability can be estimated, thenbooks and records of the estimated liability would be accrued inCompany reflect aggregate transfers from Limecom to the Company or its affiliates of less than $600. 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 consolidated financial statements. Ifbooks and records, the assessment indicates that a potential material loss contingency is not capable of reasonable estimation under the above circumstances, and the likelihood of an adverse judgment is not probable butat this time. An adverse judgment in this matter is reasonably possible and based upon an analysis of litigation costs and likelihood of a settlement.. As of December 31, 2022 the company accrued $300 thousand due to this matter.

On May 25, 2022, the Company received a notice of default from CIMA Telecom, Inc. (“CIMA”) related to that certain Platform Exclusive License Agreement, maintenance, and related agreements by and among Cuentas, CIMA, Knetik, Inc., and Auris, LLC. The notice provides that Cuentas has failed to pay $700 of maintenance and pass-through fees that CIMA alleges are owed under the License Agreement and also afforded Cuentas the required sixty-day period (through July 24, 2022) to cure the default as provided under the License Agreement.. On August 2, 2022, the Company and CIMA, along with two of CIMA’s wholly-owned subsidiaries, Knetik, Inc. and Auris, LLCexecuted a Settlement Agreement and General Release which resolves the issues related to the July 8, 2022 notice of default from CIMA related to that certain Platform Exclusive License Agreement, maintenance, and related agreements by and among Cuentas, CIMA, Knetik, Inc., and Auris, LLC. The Parties executed Mutual General Releases and the settlement terms are as follows: In exchange for the consideration provided in the Settlement Agreement, (1) the Company paid CIMA $350on August 2, 2022 and (2) on or is probable but cannot be estimated, thenbefore 5:00 p.m New York City time, on August 15, 2022, Cuentas will pay CIMA the naturebalance of the contingent liability, and an estimateUnpaid Fees ($420.239) by wire transfer (3) Cuentas will a period of 30 days from execution date, the range of possible losses, if determinable and material, would be disclosed.

On April 7, 2016, the Company executed an agreement withexclusive right to facilitate a third party (including to current shareholders and directors of Cuentas) purchase (without markup or broker fee) of, all of the shares of Cuentas held by CIMA at the higher of: (i) the average per share trading price for the three day average before notice in writing is provided by Cuentas of the intent to purchase CIMA’s Cuentas shares, or (ii) the minimum price of $0.50 per share on or before 5:00 p.m. New York City time, on August 31, 2022 pursuant to a purchase agreement delivered by and acceptable to CIMA without any changes thereto (provided, that CIMA shall not be required to provide any representations or warranties other than fundamental warranties related to (a) organization and good standing, (b) power and authority to undertake the transaction and (c) ownership of such shares, and ordinary representations and warranties that the Cuentas shares are being transferred free and clear of any liens, claims, or encumbrances); and (iv) on or before 5:00 p.m. New York City time, on August 2, 2022, Cuentas shall, and shall cause (x) Dinar Zuz, LLC, (y) Michael De Prado and (z) Arik Maimon to provide signed waiver letters, expressly waiving any right of first refusal and co-sale rights granted in their favor under that certain servicesletter agreement, dated December 31, 2019, by and among CIMA, Dinar Zuz, LLC, Michael Del Prado and Arik Maimon, and (y) CIMA agrees: (i) to restore immediately Cuentas’ access to the Platform upon receipt of the $350 payment ; (ii) to provide Cuentas with a limited license to utilize the Platform the terms of which are detailed specifically in Section 6 of the agreement, and to use reasonable efforts, subject to Cuentas’ compliance hereto, to provide Cuentas’ customer data to Cuentas through the end of the limited license term described below in Section 6 of the agreement; (iii) deliver to Cuentas the Source Code (as that term is defined in paragraph 1.18 of the License Agreement) relating to Out-Of-Scope Services, and as further detailed in Section 6 of the agreement; (iv) not enforce its rights under the Side Letter (as that term is defined in the paragraph 1.1 of the Purchase Agreement) through and including August 31, 2022, and (v) shall not transfer, sell, or encumber its Cuentas shares through and including August 31, 2022, except as permitted herein. Cuentas acknowledges and agrees that the amount of Unpaid Fees ($770.239) is valid and outstanding, and waives any right to dispute them. If Cuentas fails to comply with any term of this Settlement Agreement, in addition to the Stipulated Judgment described in Section 5 of the agreement, the limited license set forth in Section 6 and any of CIMA’s obligations under this Settlement Agreement shall become null and CIMA shall have the right to shut off Cuentas access to the Platform without notice. The Settlement Agreement also provides for mutual general releases by Cuentas for the Company. The agreement requires 1%benefit of CIMA and by CIMA for the benefit of Cuentas of all claims other than claims relating to a breach of the outstanding common share equivalentSettlement Agreement. The settlement agreement by its terms in effect terminates the obligations under the license agreement, dated December 31, 2019 by and between Cuentas and CIMA. The Company did not exercise its exclusive right to be issued to thefacilitate a third party when the market capitalizationpurchase of, all of the Company reaches $500,000,000 and an additional 1% when it reached $750,000,000. The probabilityshares of this event is uncertain at present and the Company has not accrued a contingent loss asCuentas held by CIMA. As of December 31, 2016 as a result.2022 the company fulfilled all its obligation under the settlement agreement.

F-28

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On October 14, 2014, one4, 2022, Crosshair Media Placement, LLC, a Kentucky based marketing company, filed and served a complaint on Cuentas for breach of our operating subsidiaries, NxtGn, Inc. and Next Communications, Inc., an entity controlled by our CEO, (collectively the “Plaintiffs”) filed suitcontract alleging breach of contract damages of $629,807.74, which case remains pending in the United States District Court for the Southern districtWestern District of New York against Viber Media, Inc.  Plaintiffs filed an Amended Complaint asserting four claims: misappropriation of a business idea, misappropriation of trade secrets, breach of contract, and unjust enrichment.  Viber moved the Court to dismiss the Amended Complaint.  On March 30, 2016, U.S. District Judge Richard Sullivan issued an opinion and order on Viber’s motion to Dismiss.  Specifically, Judge Sullivan ordered that Viber’s motion to dismiss is granted on Plaintiffs’ misappropriation of a business idea claim, but denied as to their misappropriation of trade secrets, breach of contract, and unjust enrichment claims.Kentucky, case no. 3:22-CV-512-CHB. The Company has not accrued any gains or losses associated withis vigorously defending itself against this case as it would becomplaint and on November 8, 2022, filed a contingent gainMotion to Dismiss for Lack of Jurisdiction and recorded when received.a Motion to Change Venue.

On September 20, 2016,April 1, 2021 the Company receivedexecuted a notice it has been namedlease 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 defendantproduct basis. The accounting policies of the various segments are the same as those described in a suit brought against Next Communications, an entity controlledNote 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 our CEO. In addition to being named a defendant, it was requested the Company provide certain documentsproduct for the discovery process. Due to the original suit being filed against a related party2022 and not against the Company or its subsidiaries, we believe it likely the Company2021 are as follows:

  December 31,
2022
  December 31,
2021
 
  (dollars in thousands) 
Telecommunications $839  $525 
Digital products and General Purpose Reloadable Cards  2,155   68 
Total revenue $2,994  $593 

Gross profit (loss) by product for 2022 and its subsidiaries be dismissed2021 are as defendantsfollows :

  December 31,
2022
  December 31,
2021
 
  (dollars in thousands) 
Telecommunications $607  $212 
Digital products and General Purpose Reloadable Cards  (121)  (88)
Total revenue $486  $124 

Long lived assets by product for 2022 and has not accrued a contingent loss2021 are as of December 31, 2016 as a result.follows:

  December 31,
2022
  December 31,
2021
 
  (dollars in thousands) 
Telecommunications $          -  $- 
Digital products and General Purpose Reloadable Cards  

-

   5,400 
Total revenue $

-

  $5,400 

During

For the year ended December 31, 2014,2022 and December 31, 2021, the Company’s sales to Cuentas SDI LLC were approximately 72% and 10.5% of the Company’s total revenue, respectively for the years ended December 31, 2022 and December 31, 2021. All of the Company’s sales were generated in the U.S in 2022 and 2021.

NOTE 12 – INCOME TAXES

Internal Revenue Code Section 382 (“IRC 382”) potentially limits the utilization of NOLs and tax credits when there is a former employeegreater than 50% change of Pleasant Kids (PLKD), Franjose Yglesias-Bertheau, filed lawsuit against PLKD claiming unpaid wages of $622,968ownership. 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 was initially awardedtax credits. The Company’s has added a note to its financial statements to disclose that amount in a judgement. However,there may be some limitations and that an analysis has not been performed. In the judgement was later revised andinterim, the Company settled for $80,000 in March 2017 which is included in accrued salaries as of December 31, 2016.has placed a full valuation allowance on its NOLs and other deferred tax items.

F-22

F-29

 

NOTE 15 – INCOME TAXESCUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

We did not provide any current or deferred U.S. federalrecognized income tax provision or benefit forbenefits of $0 during the yearyears ended December 31, 2016 due to the operating losses experienced during the year ended2022 and December 31, 2016.2021. When it is more likely than not that a tax asset cannotwill 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 201631, 2022 or 2015December 31, 2021 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.

The provision forReconciliation between the theoretical tax expense, assuming all income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:

Income tax provision at the federal statutory rate35.00%
Florida state corporation income tax rate, net of benefit from federal income tax3.58%
Combined tax rate38.58%
Effect of permeant differences between book and tax net losses(31.07)%
Change in valuation allowance(7.51)%
Effect on operating losses0.00%

Net deferred tax assets consist of the following:

  2016  2015 
Net operating loss carry forward $629,633  $  - 
Valuation allowance  (629,633)  - 
Net deferred tax asset $-  $- 

A reconciliation of income taxes computedis 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:

  2016  2015 
Computed federal income tax expense at statutory rate of 38.58% $(3,642,435) $   - 
Stock issued for services  1,275,249   - 
Amortization of deferred loan costs  14,531   - 
Amortization of debt discount  381,043   - 
Depreciation and amortization  51,772   - 
Change in derivative liability  (469,562)  - 
Imputed interest  92,770   - 
Impairment loss  1,510,973   - 
Excess derivative liability charged to interest  128,641   - 
Loss on disposal of equipment  1,129   - 
Non-deductible change in payroll accrual  26,256   - 
Change in valuation allowance  629,633   - 
Income tax expense $-  $- 

  Year ended
December 31,
 
  2022  2021 
Loss before taxes, as reported in the consolidated statements of operations $14,479  $10,728 
         
Federal and State statutory rate  26.5%  26.5%
         
Theoretical tax benefit on the above amount at federal statutory tax rate  3,837   2,842 
         
Permanent differences  (1,854)  (1,180)
         
Losses and other items for which a valuation allowance was provided or benefit from loss carry forward  (1,983)  (1,662)
         
Actual tax income (expense)  -   - 

  2022  2021 
  U.S. dollars in
thousands
 
Deferred tax assets:      
Net operating loss carry-forward $

8,165

  $5,464 
Adjustments  (1,118)  (1,015)
Valuation allowance  

(7,047

)  (4,449)
  $-  $- 

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, 2021 $4,449 
     
Increase  

2,598

 
Valuation allowance, December 31, 2022 $

7,047

 

The net federal operating loss carry forward will begin expire in 2036.2039. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.

382.

F-23

F-30

 

NOTE 16 – ACQUISITIONS 

Transaction Processing Products, Inc.CUENTAS, INC.

As discussed inNote 1 – Organization and Description of Business Company completed its acquisition of Transaction Processing Products, Inc. (“TPP”) on July 22, 2016. TPP operates as a gift card processor for retail stores which the Company can leverage as it launches its general purpose reloadable cards. Acquisition costs were expensed as incurred. The Company executed two separate agreements as part of the transaction; the first to purchase outstanding debt totaling $5.2 million owed by TPP to the sellerNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in exchange for 10,000,000 shares of common stockthousands, except share and 7,500,000 options to purchase additional shares of stock at $0.18 per share and the second to purchase the sellers interest in Accent InterMedia, LLC for cash consideration of $10. Where the agreements were executed simultaneously, they were accounted for as a single transaction. The common shares issued were valued at $1,270,000 and the options issued at $898,490 resulting in total consideration of $2,168,500 when combined with the $10 of cash paid. The Company assumed net liabilities of $1,792,912 at fair value and identifiable intangible assets totaling $1,310,058, resulting in goodwill of $2,651,354. Net liabilities assumed consisted of the following: 

Cash $43,583 
Restricted cash  44,654 
Accounts receivable  61,391 
Inventory  2,214 
Prepaid expenses and other current assets  9,435 
Equipment  123,013 
Note receivable  83,353 
Accounts payable  (1,741,858)
Notes payable  (418,697)
Net liabilities assumed (net of $5.2 million intercompany payable / receivable acquired)  (1,792,912)
     
Fair value of shares issued  1,270,000 
Fair value of options issued  898,490 
Cash paid  10 
Total consideration  2,168,500 
Identifiable intangible assets  1,310,058 
Goodwill recorded $2,651,354 

Goodwill

Goodwill of $2.65 million represents the excess of consideration transferred over the fair value of assets acquired including identifiable intangible assets and liabilities assumed and is attributable to TPPs strategic position value and projected profits from new products.

The preliminary purchase price allocation resulted in goodwill of $2.65 million, which is not deductible for income tax purposes. Goodwill consists of the excess of the purchase price over the fair value of the acquired assets and represents the estimated economic value attributable to future operations. The purchase price allocation is preliminary and subject to revision. At this time, except for the items noted below, the Company does not expect material changes to the value of the assets acquired or liabilities assumed in conjunction with the transaction. Specifically, the following assets and liabilities are subject to change: 

Intangible customer contracts
Intangible customer relationships
Deferred income tax assets and liabilities.

As management receives additional information during the measurement period, these assets and liabilities may be adjusted. Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement Example Disclosure: Accounting for Income Taxes 10 period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment, and we record the offset to goodwill. We record all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense. This accounting applies to all of our acquisitions regardless of acquisition date. 

Identifiable Intangible Assets

The Company acquired intangible assets that consisted of client contracts and client relationships which had estimated fair values of $93,190 and $1,216,868, respectively. The intangible assets were measured at fair value using an income approach that discounts expected future cash flows to present value. The Company will amortize the intangible assets on a straight line basis over their expected useful lives. Identifiable intangible assets were recorded as follows: 

Asset Amount  Life (months)
Client Contracts $93,190  9
Client Relationships  1,216,868  53
Total $1,310,058   

data)

F-24

The Company exited the business in March 2017 and recorded impairment losses totaling $3,894,784 during the year ended December 31, 2016. Of this total, $1,243,430 is included in losses from discontinued operations as intangible assets in TPP with the remaining impairment related to the goodwill with NGH. The Company applied the criteria under ASC205 and determined the business was held for sale as of December 31, 2016 and shown as discontinued operations as a result.

Tel3

As discussed inNote 1 – Organization and Description of Business Company completed its acquisition of Tel3 on August 9, 2016 from a related party for cash considerations of $10. Tel3 was formally a business segment of an existing wholesale calling minutes company and not a legal separate business entity. Initially, Tel3 was acquired by the Company’s CEO from the seller in a private transaction. Our CEO subsequently sold their interest in the business to the Company for minimal cash considerations. Tel 3 was merged into M&M, a subsidiary of the Company, effective January 1, 2017. As part of the acquisition, the company assumed net liabilities of $780,137 whose book values equaled fair values at the time of acquisition. The Company did not record goodwill for the amount of consideration in excess of the fair values of net liabilities assumed due to the acquisition being from a related party. The excess instead was recorded as a reduction to additional paid-in capital. Net liabilities assumed consisted of the following:

Cash $45,235 
Prepaid expenses  6,728 
Accounts payable  (76,294)
Customer deposits  (755,806)
Net liabilities assumed  (780,137)
     
Cash paid  10 
Total consideration  10 
Excess recorded as a reduction of additional paid-in capital $780,147 

Pro Forma Information

The unaudited pro forma information for the years ended December 31, 2015 and 2016 presented below include the effects of the Tel3 acquisition had it been consummated on January 1, 2015 with adjustments to give effect to pro forma events that are directly attributable to the acquisitions. These adjustments are based upon information and assumptions available to us at the time of filing this Annual Report on Form 10-K. Accordingly, the unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of what the actual results of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor is it indicative of the future results of operations.

  Year ended December 31, 
  2016  2015 
Revenue $2,491,082  $3,372,919 
Cost of sales  2,157,492   2,509,979 
Gross margin  333,590   862,940 
         
Operating expenses  8,134,108   1,971,263 
Loss from operations  (7,800,518)  (1,108,323)
         
Other income  (534,760)  30,000 
Net loss $(8,335,278) $(1,078,323)
         
Net loss per share, basic and diluted $(0.04) $(0.01)

F-25

NOTE 1713 – SUBSEQUENT EVENTS

Settlement of Accrued Salary Payable

On February 1, 2017, the Company entered into an agreement to settle a claim for accrued salary owed to a former employee of Pleasant Kids, Inc. for $80,000. The Company made a cash payment of $10,000 and entered into a convertible note payable for $70,000 as full settlement. The note carries interest at a rate of 8% and may be converted into common stock at the option of the noteholder at a rate equal to a 50% discount from the lowest trading price during the twenty days preceding the conversion with a $0.02 floor.

Convertible Notes Payable Redemption Freeze Agreements

In February 2017, the Company agreed with certain noteholders to extend a redemption freeze agreement whereby the convertible note holders agreed to not convert outstanding principal and accrued interest into common stock for a period of 60 days. Upon the expiration of these agreements, a 90 day extension was executed whereby the noteholders agreed to not convert additional amounts through the first week of July 2017. Under the terms of the extension, each noteholder was granted the right to convert a limited amount of outstanding principal to common stock at a rate equal to the stated rate in the convertible note payable but not less than $0.02 per share.

Common Stock Issuances

On various dates through June 30, 2017, the Company issued a total of 8,812,690 common shares in exchange for $167,069 of principal on convertible notes payable; 579,010 common shares in exchange for $11,580 of accrued interest on convertible notes payable; 8,449,654 common shares for the conversion of $280,000 of related party notes payable; 450,346 common shares for the conversion of $14,923 of related party interest payable and 11,900,000 common shares for services valued at a total of $620,200.

Advisory Agreement

On April 7, 2017, the Company executed an agreement with Jeff Lewis Advisory to act as a special advisor to the board of directors. The agreement is for one year effective May 1, 2017 and requires a monthly retainer of $5,000. In addition to monthly cash payments, the Company agreed to issue $100,000 of common shares which equated to 909,091 on the date of execution at a value of $0.11 per share. These 909,901 common shares are excluded from the shares issued for services as disclosed in “common stock issuances” in the preceding paragraph.

Next Communications, Inc. Bankruptcy

The Company has historically received financing from Next Communications, Inc., an entity controlled by our CEO, and had a related party payable balance of $2,961,271 and $3,025,522 due to Next Communications, Inc. as of December 31, 2016 and 2015. During the first calendar quarter of 2017, Next Communications, Inc. filed for bankruptcy protection. As a result, the related party payable will be 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.

Letters of Intent

Effective March 30, 2017,January 5, 2023, the Company entered into a non-binding letterBinding Letter of intent ("LOI")Intent with AZUGROUP USA,Core Development Holdings Corporation (“Core”), a Florida corporation that holds approximately 29.3% of 4280 Lakewood Road Manager, LLC ("AZUGROUPUSA"(“Lakewood Manager”), which in turn owns 86.45% of the membership interests in 4280 Lakewood Road, LLC (“4280 Project”), an affordable multi-family real estate project located in Lake Worth, Florida. Core has agreed to sell a portion of its interest in the Lakewood Manager to the Company and the Company has agreed to issue to Core a number of the Company’s common shares to acquire assets owned$2 million of equity in the Lakewood Manager . The Company has agreed to issue to Core a number of the Company’s common shares equal to 33.3% of the total number of post- issuance, authorized, issued and outstanding shares on a fully diluted basis measured on a going forward basis to account for the exercise in the future of any currently issued and outstanding warrants and options as of the date of the agreement, of the Company’s stock free and clear of any liens, claims or controlledencumbrances. If for any reason, the Company is unable to issue sufficient shares to satisfy the 33.3% Ownership Percentage or as a result of the exercise and issue of any stock warrants or options outstanding as of the date of the Agreement, the Percentage Membership Interest to be issued by AZUGROUP USA, LLC and its majority shareholder, Mr. Antonio Faranda. AZUGROUP USA, LLC and Mr. Antonio Faranda own or controlCore to Cuentas pursuant to the following Italian companies: AZUGROUP SRL Socio Unico, Cardnology S.R.L. and Go Card S.R.L. (collectively “AZUGROUP”), which together, generated €13.2 Million ($14.2 million USD) in revenue duringLetter of Intent shall be reduced by the 2016 calendar year.same percentage that the actual post-issuance ownership percentage falls below the 33.3% Ownership Ratio. The sole minority partner in AZUGROUPPercentage of Membership Interest Acquired will be compensated $267,000determined by selection of two competent valuation professionals, one by each Party, to prepare a written opinion of the fair market value of Core’s Interest in exchangeLakewood Managers as of the Closing Date provided that, the difference between two appraisals does not exceed 15%, then the average of the fair market value of the two appraisals shall represent the “Appraised Value Denominator” for purposes of determining the remainingPercentage Membership Interest to be transferred by Core to the Company. If the difference between two appraisals is more than 15%, then the Parties shall mutually select a third competent valuation expert who shall prepare a third opinion of the fair market value of Core’s Interest in Lakewood Manager, and the average of the three opinions of the fair market value of Core’s Interest in Lakewood Manager shall be the Appraised Value Denominator. The Percentage Membership Interest to be assigned and transferred shall equal the Purchase Price divided by the Appraised Value Denominator. Core’s transfer of the Percentage Membership Interest is subject to approval by Lakewood Manager. The Company agreed to be bound by the rights and obligations of the current Operating Agreement and other agreements of Lakewood Manager and Core shall have the right continue to exercise its management and other decision making rights at Lakewood Manager and will provide customary rights afforded minority interest holders in limited liability companies provided under Florida law. The Company’s obligation to consummate and enter into a definitive purchase and sale agreement is contingent on board of director and shareholder approval.

On February 3, 2023, the Company (“ Cuentas” or “Buyer”) entered into a Membership Interest Purchase Agreement (MIPA) with Core. Core has agreed to sell 6% of its interest in AZUGROUP. After the buyoutLakewood Manager to Cuentas and Cuentas has agreed to issue to Core 295,282 of the remaining minority partner, Antonio FarandaCompany’s common shares to acquire the 6% equity in the Lakewood Manager valued at $1,195,195. The 295,282 of the Company’s share was equal to 19.9% of the total number of current issued and outstanding shares of the Company as of the date of this Agreement. The Company closed this transaction on or about March 9th, 2023.

As previously disclosed, on June 21, 2022, the Nasdaq Listing Qualifications Staff (the “Staff”) issued the Company a delist letter citing its failure to comply with the minimum bid price requirement under Listing Rule 5550(a)(2). In accordance with Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until December 19, 2022, to regain compliance with Rule 5550(a)(2). On December 20, 2022, Staff notified the Company that it had determined to delist the Company as it did not comply with bid price requirement for listing on the Exchange. On December 27, 2022, the Company requested a hearing, which was held on February 9, 2023. On February 28, 2023, the Company announced that it received on February 23 formal notification from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Nasdaq Hearings Panel (the “Panel”) had determined to grant the Company’s request for continued listing on The Nasdaq Capital Market, pursuant to an extension through April 6, 2023, to evidence compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). Such extension is subject to the conditions that (1) on or before March 23, 2023, the Company shall effect a reverse stock split at a ratio that is sufficient to ensure compliance with the Bid Price Rule and (2) on April 6, 2023, the Company shall have demonstrated compliance with the Bid Price Rule, by evidencing a closing bid price of $1 or more per share for a minimum of ten consecutive trading sessions. The Company is taking definitive steps to timely evidence compliance with the terms of the Panel’s decision; however, there can be no assurance that it will be able to do so by April 6, 2023, or that the sole shareholder of AZUGROUP.Panel will grant a further extension if required.

 

Effective May 16, 2017,

F-31

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On March 9, 2023 the Board of Directors of the Company approved an annual Incentive of $150,000 for Michael De Prado for fiscal year 2022 and $150,000 for Arik Maimon for fiscal year 2022. Those annual Incentives were paid on March 10, 2023. On March 9, 2023 the Board of Directors of the Company approved an annual Incentive of $150,000 for Michael De Prado for fiscal year 2022 and $150,000 for Arik Maimon for fiscal year 2022. Those annual Incentives were paid on March 10, 2023.

On March 9, 2023, the Board of Directors of the Company approved a Retention Bonus to be included in the negotiation of an employment agreement or amended employment agreement for Shalom Arik Maimon and Michael De Prado.

On February 6, 2023, the Company entered into a non-binding letter of intent (“LOI”Securities Purchase Agreement (the “Purchase Agreement”) with LIMECOM INC. (“LIMECOM”an institutional investor (the “Investor”), for the purpose of raising approximately $5 million in gross proceeds for the Company. Pursuant to acquire assets owned or controlled by LIMECOM INC. and its President & CEO, Mr. Orlando Taddeo.

Under the terms of the LOI, subject to a definitive agreement and customary due diligence and shareholder approval, the Company will acquire the assets of or merge with LIMECOM, which is expected to generate approximately $125,000,000 of revenue with $2.5 million EBITA in fiscal year 2017.

F-26

Disposal of Transaction Processing Products

On April 26, 2017, the Company signed a Purchase and Sale Agreement with Dean Keatin Marketing, LLC ("DKM") and related parties to sell its interest in Transaction Processing Products (“TPP”). As per the Agreement, the Company shallagreed to sell, transfer and deliver to DKM, 100%in a registered direct offering, an aggregate of (i) 2,123,478 shares (the “Shares”) of the capitalCompany’s common stock (“Common Stock”) and (ii) pre-warrants to purchase up to 1,664,401 shares of TPP for $1. DKMCommon Stock (the “Pre-Funded Warrants” and such shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, the “Pre-Funded Warrant Shares”) and, in a concurrent private placement, warrants (the “Purchase Warrants”) to purchase 3,787,879 shares of Common Stock (the shares of Common Stock issuable upon exercise of the Purchase Warrants, the “Purchase Warrant Shares”). The combined purchase price per Share and Purchase Warrant is $1.32 and the combined purchase price per Pre-Funded Warrant and Purchase Warrant of $1.3199.

The Pre-Funded Warrants were sold, in lieu of shares of Common Stock, to any Investor whose purchase of shares of Common Stock in the Registered Offering would otherwise result in such Investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at such Investor’s option upon issuance, 9.99%) of the Company’s outstanding Common Stock immediately following the consummation of the Registered Offering. Each Pre-Funded Warrant represents the right to purchase one share of Common Stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants are exercisable immediately and may be exercised at any time until the Pre-Funded Warrants are exercised in full.

The Purchase Warrants will indemnifybe exercisable on the six-month anniversary of the issuance date and hold the Company harmless for anywill expire five and all liabilities or costs incurred by the Company arising from TPP and its majority owned subsidiary Accent InterMedia (“AIM”) prior to July 7, 2016. The Company is responsible for any and all costs associated with the termination of any employee of AIM that occurred after July 7, 2016 toone-half years following the date of this Agreement.issuance at an exercise price of $1.335 per share.

 

The closing of the sales of these securities under the Purchase Agreement occured on or about February 8, 2023, subject to satisfaction of customary closing conditions.

H.C. Wainwright & Co., LLC (“Wainwright”) is acting as exclusive placement agent for the offering pursuant to an engagement agreement between the Company shall be entitledand Wainwright dated as of December 13, 2022. As compensation for such placement agent services, the Company has agreed to 45%pay Wainwright an aggregate cash fee equal to 7.0% of the gross proceeds received by the Company from the offering, plus a management fee equal to 1.0% of any settlementthe gross proceeds received by the Company from the offerings, a non-accountable expense of $65,000 and $15,950 for clearing expenses. The Company has also agreed to issue to Wainwright or judgment obtained by AIM, DKM, TPP or anyits designees warrants to purchase 265,152 shares of their assignees or successorsCommon Stock (the “PA Warrants” and the shares of Common Stock issuable upon exercise of the PA Warrants, the “PA Warrant Shares”). The PA Warrants have a term of five years from the commencement of sales in interest from its litigation against ComData, Inc./FleetCor (the “FleetCor Litigation).the offering, and have an exercise price of $1.782 per share.

 

Employment Agreements

The net proceeds to the Company extended employment agreementsfrom the registered direct offering and concurrent private placement, after deducting the Placement Agent’s fees and expenses and the Company’s offering expenses are expected to be approximately $4.3 million.

On March 16, 2023, the Company issued 15,385 shares of its CEO, Arik Maimon, and COO, Michael DePrado,Common Stock pursuant to formalize their positions witha Settlement between the Company and compensation.a service provider. The agreements are in effect for a periodfair market value of five years and require annual salaries of $180,000 and $130,000 for our CEO and COO respectively. Additionally, our CEO is entitled to $10,000 and COO $6,000 in annual car allowances with each being entitled to $18,000 annually in board fees. The total base compensation amounts are summarized as follows:the shares at the issuance date was $112.

 

  Salary  Car Allowance  Board Fees  Total 
Arik Maimon (CEO) $180,000  $10,000  $18,000  $208,000 
Michael DePrado (COO) $130,000  $6,000  $18,000  $154,000 

Additionally, each the CEO and COO are eligible to receive a variable bonus based on the Company’s total annual consolidated revenues ranging from $0 to $80,000 and an additional bonus of $150,000 (CEO) and $125,000 (COO) in the event the Company is uplisted to the NASDAQ stock exchange.

Under the terms of the agreements,On March 27, 2023, the Company issued 12,785,07927,759 shares of its Common Stock pursuant to a Service Agreement between the Company and 1,328,063 stock options to Maimon and DePrado, respectively.a service provider. The options were issued and immediately vested on June 26, 2017, are exercisable for a periodfair market value of three yearsthe shares at $0.07 per share with cashless exercise provisions.

the issuance date was $112.

F-27

F-32

 

(b)Exhibits

Incorporated by reference

Exhibit

Number

Exhibit Description

Filed

herewith

Form

Period

ending

ExhibitFiling date
31.1Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley ActX
32.1Certification Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley ActX

      Incorporated by reference
Exhibit Number Exhibit Description Filed herewith Form Period ending Exhibit Filing date
3.1 Amended and Restated Bylaws, dated August 21, 2020.   

8-K

   3.1 

2020-08-21

3.2 Articles of Amendment to Articles of Association, dated January 28, 2021.   

8-K

   3.2 

2021-08-21

3.3 

Articles of Amendment to Amended and Restated Articles of Incorporation, filed on January 28, 2021.

   8-K   3.1 

2021-02-05

3.4 

Certificate of Amendment to the Amended and Restated Articles of Incorporation, filed on March 23, 2023.

   8-K   3.1 2023-03-30
4.1 Form of Common Stock Warrant   8-K   4.1 2022-08-09
4.2 Form of Pre-Funded Warrant   8-K   4.2 2022-08-09
4.3 Form of Placement Agent Warrant   8-K   4.3 2022-08-09
4.4 Form of Pre-Funded Warrant   8-K   4.1 2023-02-08
4.5 

Form of Purchase Warrant

   8-K   4.2 2023-02-08
4.6 Form of Placement Agent Warrant   8-K   4.3 2023-02-08
10.1 Binding letter of intent   8-K   10.1 

2022-01-11

10.2 Second & First Amendments to binding letter of intent   8-K   10.1 2022-05-03
10.3 Form of Securities Purchase Agreement dated August 4, 2022 between the Company and the Purchaser   8-K   10.1 2022-08-09
10.4 Form of Registration Rights Agreement dated August 4, 2022 between the Company and the Purchaser   8-K   10.2 2022-08-09
10.5 Form of Engagement Agreement dated August 3, 2022 between the Company and the Placement Agent.   8-K   10.3 2022-08-09
10.6 Settlement Agreement and General Release   8-K   10.1 2022-08-04
10.7 Separation Agreement, dated as of August 18, 2022, by and between Cuentas, Inc. and Jeffery D. Johnson   8-K   10.1 2022-08-24
10.8 Software licensing and transaction sharing agreement -Redacted   8-K   10.1  2022-08-26
10.9 Independent sales organization processing agreement – redacted   8-K   10.2  2022-08-26
10.10 Marketing Agreement   10-Q   10.4 2022-11-14
10.11 Binding Letter of Intent with Core Development Holdings Corporation (“Core”)   8-K   10.1 2023-01-05
10.12 

Amendment to Binding Letter of Intent

   

8-K

   10.3 2023-02-03
10.13 Membership Interest Purchase Agreement (MIPA)   8-K   10.1 2023-02-03
10.14 

Assignment and Assumption of Membership Interests 

   8-K   10.2 2023-02-03
10.15 Limited Guaranty Agreement   8-K   10.4 2023-02-03
10.16 

Form of Securities Purchase Agreement

   8-K   10.1 2023-02-08
10.17 Amendment to Ran Daniel Employment Agreement, dated August 5, 2021   10-Q   10.4 2021-08-23
10.18 2021 Share Incentive Plan   10-Q   10.5 2021-08-23
10.19 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 
10.20 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
23.1 Consent of Halperin Ilanit X        
23.2 

Consent of Yarel + Partners

 X        
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 16.33FORM 10-K SUMMARY

None.


 

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.

Next Group Holdings, Inc.

By:Cuentas, Inc.
By:/s/ Arik Maimon
Arik Maimon,
Chief Executive Officer
Interim CEO and Chairman of the Board of Directors
Date: July 3, 2017March 31, 2023

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.

SignatureTitleDate
/s/ Arik MaimonChief Executive OfficerInterim CEO and DirectorJuly 3, 2017March 31, 2023
Arik MaimonChairman of the Board of Directors
/s/ Ran DanielChief Financial OfficerMarch 31, 2023
Ran Daniel
/s/ Michael DePradoDe PradoPresident, Chief Financial OfficerVice Chairman and DirectorJuly 3, 2017March 31, 2023
Michael DePradoDe Prado
/s/ Adiv BaruchDirectorJuly 3, 2017March 31, 2023
Adiv Baruch
/s/ Natali DadonYochanon BrukDirectorJuly 3, 2017March 31, 2023
Natali DadonYochanon Bruk
/s/ Sara SooyDirectorMarch 31, 2023
Sara Sooy
/s/ Lexi TerreroDirectorMarch 31, 2023
Lexi Terrero
/s/ Haim YeffetDirectorMarch 31, 2023
 Haim Yeffet

3441

 

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