UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

 

For the fiscal year ended December 31, 20222023

 

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

For the transition period from _______________ to _______________

 

Commission File Number: 333-148987000-54923

 

CUENTAS, INC.

(Exact name of Registrant as specified in its charter)

 

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

 

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

(Address of principal executive offices)

 

800-611-3622

(Registrant’s telephone number)

 

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

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each classTrading Symbol(s)Name of each exchange on which registered

Common Stock, $0.001 par value $0.001 per share

CUENThe 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: NoneWarrants

 

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

 

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

 

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

 

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

 

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

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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. ☐

 

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, 2022,2023, 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 affiliatesnon-affiliates was $5,240,809 based on 1,224,488 shares of the registrant, computedcommon stock outstanding held by reference tonon-affiliates and a price of $4.28 per share, the closing sales price of the common stock on June 30, 2022, was $4,497,980.2023, as reported by Nasdaq.

 

The number of shares of Common Stock, $0.001 par value, outstanding on March 31, 202329, 2024 was 2,103,5922,730,058 shares.

 

 

 

TABLE OF CONTENTS

 

 Page
PART I 
   
Item 1.Business1
Item 1A.Risk Factors912
Item 1B.Unresolved Staff Comments1823
Item 1C.Cybersecurity23
Item 2.Properties1823
Item 3.Legal Proceedings1824
Item 4.Mine Safety Disclosures1824
   
PART II 
   
Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities1925
Item 6.[Reserved]2228
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations2228
Item 7A.Quantitative and Qualitative Disclosures About Market Risk2833
Item 8.Financial Statements and Supplementary Data2833
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure2834
Item 9AControl and Procedures2934
Item 9B.Other Information3035
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections3035
   
PART III
   
Item 10.Directors, Executive Officers and Corporate Governance3136
Item 11.Executive Compensation3539
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters3743
Item 13.Certain Relationships and Related Transactions, and Director Independence3844
Item 14.Principal Accounting Fees and Services3845
   
PART IV 
   
Item 15.Exhibits, Financial Statement Schedules3946
Item 16.Form 10-K Summary4048

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SPECIAL NOTE

 

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

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

These statements include, among other things, statements regarding:

 

our ability to implement our business plan;

our ability to attract key personnel;

our ability to operate profitably;

our ability to efficiently and effectively finance our operations;

our ability to raise additional financing for working capital;

our ability to efficiently manage our operations;

that our accounting policies and methods may require management to make estimates about matters that are inherently uncertain;

changes in the legal, regulatory and legislative environments in the markets in which we operate; and

adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations.

 

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

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

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PART I

 

ITEM 1. BUSINESS

 

The CompanyOur Business

 

The Company was incorporated under the laws of Florida on September 21, 2005, and currently focuses on theOur business ofis mainly focused on using proprietary fintech technologytechnologies to provide mobileintegrate FinTech (Financial Technology), e-finance and e-commerce services for deliveringinto solutions that deliver mobile financial services, prepaid debit and digital content services to the unbanked, underbankedunder-banked and underserved Latino, Hispanicpopulations nationally in the USA. The Cuentas technology platform integrates Cuentas Mobile, the Company’s Telecommunications solution, with its core financial services offerings to help entire communities enter the modern financial marketplace. Our General Purpose Reloadable (GPR) “Debit Card” is designed to allow customers to purchase prepaid products and immigrant communities. The Company’s proprietary software platformservices, including third party digital content, gift cards, remittances, mobile phone topups and other digital services. An agreement with Interactive Communications International, Inc. (“InComm”) a leading processor of general purpose reloadable (“GPR”) debit cards, enables us to market and distribute a line of prepaid 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 comprehensive financial servicesthese digital products to the public through its mobile app and robust functionality that is absentthe 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), Burger King, Cabela’s, Bass Pro Shops, AT&T, Verizon, Mango Mobile, Black Wireless and other Mobile Apps through the use of our Prepaid Debit Mastercard®/General-Purpose Reloadable cards (“GPR”). The Company is diversifying with its initial investmentprepaid wireless carriers in the United States.

Since the first affordable apartment buildingquarter of 2023, we have made two equity investments in Florida using patented, hurricane proof (up to CAT 5) technology. Cuentas sees great potential in developing similarreal estate projects in Florida under the name Cuentas Casa. Cuentas Casa partners with leading edge developers and other areaconstruction technology companies to create sustainable, inclusive and affordable residential communities specifically designed to provide high quality housing alternatives at extremely competitive pricing. Our goal is to source land zoned and ready for development of multi-family buildings in the US while integrating many of its mobilestrategic areas where rental prices are increasing dramatically, placing financial stress and e-commerce solutionspressure on working class families. Our real estate investments are intended to help bridge the digital divide for unbanked, underbanked and underserved 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 integratedbroaden our reach 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 communities by using a patented, low cost, sustainable technology that should allow us to provide reasonably priced rental apartments to working class residents who have been priced out of rental communities due to severe rent hikes in Florida and other areas in the United States. We believe that providing affordable apartments to the Hispanic Latino and other immigrant communities in Florida will enable us to introduce them our fintech solutions and underprivileged communitiesgenerate revenue. Due to help them bridgeliquidity issues impeding the e-commerce digital divide.operation and development of its core mobile fintech and carrier services, on April 3, 2024, the limited liability company in which Cuentas has a 63.9% equity interest (“Brooksville Development Partners, LLC” or “BDP”), entered into an agreement to sell the vacant land located in Brooksville, Florida (the “Brooksville Property”) for a purchase price of $7.2 million. The Brooksville Property was originally purchased by BDP on April 28, 2023 for $5.05 million, $2 million of which was contributed by Cuentas. Cuentas Mobile App & GPR ecosystem protectswill use its customers by depositing their funds in an FDIC insured bank account at Sutton Bank,pro rata portion of the issuing bank.net proceeds of the sale, estimated between $1.625 million and $1.9 million, as working capital and for other opportunities that may become available.

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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Our wholly-owned subsidiary, Meimoun and Mammon, LLC (“M&M”), provides wholesale and retail telecommunications services. Tel 3, a division of M&M, is a retail long distance calling platform which provides prepaid calling services to consumers directly and operates in a complimentary space as M&M. We also own 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.

Efforts to Upgrade our Technology Platforms and Increase Sales of our Fintech Products and Services Through Cuentas-SDI and Introduction of New Fintech Solutions

In April 2023, CIMA Telecom, which provided maintenance and support services for our fintech mobile app technology platform, shut down access to the platform as we were transitioning to a new, improved platform. The Cuentas prepaid Mastercard platform has continued to be active and the associated prepaid fintech platform behind it has continued to function properly. Cuentas is working to integrate the fintech mobile app software with an industry-proven platform and expects to make an announcement in 2024-Q2 related to this development.

During the first quarter of 2023, we reduced product availability to Cuentas-SDI to allow Cuentas-SDI to catch up on its payments and during the second quarter of 2023 we curtailed all services to Cuentas-SDI and marketing initiatives with Cuentas-SDI due to its inability to reduce its debt significantly. These disruptions to our fintech solutions and technology business were a major reason for the decline in revenue between the Q1-Q2 periods in 2022 and 2023.

In May 2023, The OLB Group (NASDAQ: OLB) (“OLB”) terminated a Software Licensing and Transaction Sharing Agreement with the Company for the purpose of upgrading the Cuentas Mobile App and digital distribution system. In June 2023, OLB acquired 80.01% of Cuentas-SDI. In July 2023, the Company and Cuentas-SDI settled certain payment issues and have re-opened the digital distribution network and systems through Cuentas-SDI’s convenience store distribution network of over 31,000 locations, including many across the New York, New Jersey and Connecticut tri-state area.

A major factor that provides technical strength and reliability to Cuentas’ project is the fintech ecosystem that it hashad developed. The foundation of Cuentas’ ecosystem is the software developed for the fintech platform with mobile app, mobile wallet and associated integrations that Cuentas hashad developed, designed & implemented over the past 3 years. We believe that thisthe upgraded, retooled & reengineered platform has been provenwill prove to be a robust, reliable transactional, marketing, financial and predictive, Tier-1 transactional platform. Cuentas’ ecosystem currently integrates its prepaid platform via dedicated APIs with Sutton Bank (the issuing bank), IDology (AML & KYC) and InComm (Processor, Load Network & 3rd3rd 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'sCompany’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 companyCompany recorded an impairment charge of $3.6 million whereas no amount was assigned to the acquired platforms on December 31, 20222022.

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.

 

AccountCuentas has agreed with Sutton Bank to wind down its relationship during 2024 and transition to a different US bank for issuance of its Prepaid Financial products. Cuentas is in the final stages of negotiation to determine the best banking partner for its future in the prepaid fintech marketplace.

Cuentas Prepaid Mastercard 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)(b) 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 will allow them to have an associated Cuentas Account with the Mobile App, Digital Wallet, Digital Store and Long Distance Telecom services included. It actswill act as a comprehensive banking solution which enables access to the U.S. financial system for those who are unbanked or underbanked, while also enabling greater functionality than a traditional bank account. The cardholders’ deposited funds are currently protected in an FDIC-insured bank account at Sutton Bank. 

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Bank and should be protected likewise with the new issuing bank. 

 

The Cuentas Business Model

 

The Cuentas business model provides or, we expect will provide, forcontemplates 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 continueexpects 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 Cuentasthe "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.


 

The Cuentas Digital Store produceswill produce revenue each time that consumers purchase third party gift cards, digital access, mass transit tickets and mobile phone top-ups (U.S. and international). Additionally, International remittances provided by the industry-leader Western Union “by Cuentas” are currently available and International Bill Pay shouldare anticipated to be available in 2023.Q3 2024. Both services should be major revenue driving factors for Cuentas as they provide reliable, low-cost solutions to our target audience.

 

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

  

Prepaid Debit Card Market Overview

 

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

  

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

 

Cuentas 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® Mastercard® directly to each approved applicant in the US, and we only charge a fixed 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 forIn recognition of the limited financial resources of our target demographic, keepingwe strive to keep fees and costs reasonably low so theypotential customers 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 stepsengaged in negotiations with and expects 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 22, 2022, Cuentas signedenter into a Management & Software Licensing And Transaction Sharing Agreement with OLBa major, field-proven fintech company with the goal of mutually integrating capabilities, features and expertise to enable both systems to take advantage of thisa 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 received a notice 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 Sutton Bank as the issuer of the Cuentas Prepaid Mastercard®- Debit/GPR card which is effective through October 2026, with automatic 1 year renewals..but the parties have agreed to wind-down the Cuentas operation during 2024 as Cuentas transitions to a different US issuing bank. Sutton insures account holders’ funds through the FDIC and provides direct deposit capabilities, early pay functionality and account balance functionality for the Cuentas Mobile App and Mobile Wallet.Prepaid Mastercard®. Cuentas pays Sutton monthly fees for their 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 confirm their identity. These forms of identification may include but are not limited to: Passport, Driver’s License, Matricula Consular and U.S. residency documentation. Only applicants that reach a certain score that is coordinated between Sutton and IDology, are approved to receive a Cuentas Prepaid Mastercard® associated with their Cuentas Mobile App and Wallet account.

 

Interactive Communications International, Inc. (“InComm”)

 

Cuentas has multiple agreements with InComm including: (a) Processing services, (b) Resale of 3rd3rd party Digital gift cards, (c) Resale of InComm Digital Solutions, and (d) Reload Commission Agreement. The agreements are effective through July 2024 and then renew automatically for 1 year periods. InComm is an instrumental partner of Cuentas as it provides the operational core of Cuentas’ transaction processing platform, the cash reload component and access to many third party products and services.

 

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

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

 

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 any payments or adjustments made to prepaid products. InComm also processes the Company’s data and post entries in accordance with the specifications. Data storage services consist mainly of storage of the Company’s data in a format that is accessible online by the Company through APIs designated by InComm, subject to additional API and data sharing terms and conditions. InComm also provides Web/API services for prepaid Cuentas GPR applications and transactions.

 

Cuentas SDI, LLC


Cuentas SDI, LLC (the

Cuentas SDI, LLC ( “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 Black 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 close 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. As a result of an evaluation of the acquired interest during the second quarter of 2023, the Company recorded an impairment charge of $0.5 million.

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 quantity of revenue that is realized between Cuentas and Cuentas-SDI

The Cuentas Ecosystem

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

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

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

 

Cuentas Mobile

 

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

 

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

 

Meimoun & Mammon LLC

 

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

 


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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 FCC, which may be suspended or revoked by the FCC if M&M does not strictly comply with all applicable regulations and the terms and conditions under which the International and Domestic Section 214 licenses were issued. M&M is also subject to certain foreign jurisdiction communications laws and regulations as it provides limited access to its prepaid calling platform internationally .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 introduced 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 them to neighborhood financial centers to be able to load cash to the Cuentas prepaid debit card and provide 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 CUENTASMAX shall be as follows: 50% to the Company, 25% to WaveMAX and 25% to Consultoria y Asesoria de Redes, S.A. de C.V. (“Execon”). Execon currently manages approximately 20,000 WiFi endpoints with WaveMax in Mexico. Each of the Company and WaveMAX agreed to fund $120,000 (for a total of $240,000) initially upon execution of the Agreement .Agreement. In addition, each of the Company and WaveMAX has agreed to fund an additional $127,500 over the succeeding five months, in each case, subject to approval of each party’s board of directors. The expenses of the JV Project shall include acquiring the Access Points hardware, the installation and configuration of the Access Points hardware for use with the broadband internet service at each Retail Location, entering into the necessary agreements with the Retail Locations, instore marketing and promotion of the WSN program, and expenses relating to commercialization of the digital advertising program. The Board of Directors of CUENTASMAX shall initially be comprised of four persons, two designated by the Company, one designated by WaveMAX, and one designated by Execon. The officers of CUENTASMAX shall be the persons from time to time designated by mutual agreement of the Company and WaveMAX, with the initial officers to be determined. It is hoped that up to 1,000 high traffic, prime location convenience stores and “bodegas” (small community markets) will be signed up in conjunction with the Company’s distribution network that sells prepaid debit card, e-store, e-wallet and digital services. A fee of 2% (two percent) of the net revenue of CUENTASMAX will be paid by CUENTASMAX on a monthly basis as a commission to Innovateur Management SAPI de CV. WaveMAX grants CUENTASMAX exclusive rights to use and deploy the WaveMAX Technology, including any and all patents owned or to be owned by WaveMAX and any and all related enhancements or applications of the WaveMAX Technology and any and all prior and subsequent improvements and/or new technology developed by WaveMAX solely in the Company’s BODEGAS network throughout the United States. The parties have agreed to expand CUENTASMAX to other areas of the U.S. once the current deployment is in progress or has been completed. As of date, CuentasMax has installed 30 WiFi6 Access Points in New York City, Los Angeles, and 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 31,2022,31, 2023, the Company funded $80,000$20,000 in CUENTASMAX and recorded equity losses in the amount of $52,000.$38,000.

Competition

Cuentas has strategically established its fee structure to be attractive to the unbanked, underbanked and undeserved population with no activation fee, no-cost direct deposit, no-cost Cuentas card to Cuentas card transfers, low cost for reloads, reasonable ATM fees and No dormancy fee.

This pricing strategy places Cuentas in an attractive, reasonably priced category which, coupled with the products and services it offers, enhances its competitiveness.


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

Cuentas is much smaller than its competitors in its e-commerce card operations, and faces competition in the prepaid financial services industry from 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. Cuentas also faces intense competition from existing players in the prepaid card industry.

Cuentas Mobile 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, and Boost. Cuentas Mobile plans to implement e-SIMS which will reduce the need for physical mobile phone SIMs that need to be shipped to consumers who want Cuentas Mobile service. There can be no assurance that the introduction of e-SIMS will be successful and generate significant revenue.

M&M faces competition from many strong and well-financed competitors, engaged in the retail termination of domestic and international long distance as well a mobile voice, text, and data services, including, IDT, NobelCom, Access Wireless, Boost Mobile, H2O mobile and Mint Mobile.

 

Entry into a Joint-Venture Agreement with Benelisha Group, Inc. (“Benelisha”)  Investments in Real Estate Developments in Florida

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.Lakewood Village

 

Acquisition of a 6% equity position in Lakewood Village

On March 7, 2023 Cuentas announced that it had completed the acquisition ofCompany acquired a 6%six percent (6%) equity positioninterest in Lakewood Village from Core Development Holdings Corporation (“Core”), pursuant to a Membership Interest Purchase Agreement (“MIPA”), in exchange for 295,282 shares of Common Stock, representing approximately19.99% of the then outstanding shares of Common Stock. Core 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. As a result of the transaction, the Company acquired $700,000 of equity in the Lakewood Manager. Lakewood Manager, an affiliate of RENCo USA, Inc. (“Renco”), is constructing the 4280 Lakewood Project with RENCO Structural Building System, a proprietary composite structural system distributed by Renco. Lakewood Village is 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 2have two and 3three bedrooms. An independent appraisal has valued the project, once completed, at approx. $25M,approximately $25 million, 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.approximately $1.5 million.

Entry into a supply agreementSupply Agreement with Renco USA

 

In March 2023, the Company also signedentered 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, whichto provide Renco’s patented building materials for new, sustainable rental housing projects. Renco’s patented MCFR (Mineral Composite Fiber Reinforced) Construction System provides cost efficiency, reduced build time, and sustainable benefits. Renco’s system is hurricane proof (upup to CAT 5)Category 5, which is a major benefit for developing housing projects in the South Florida market and other hurricane prone areas where we are planning to develop projects. Renco’s system is also earthquake proof (Seismic Cat A & B – soon C, D & E).resistant. Renco USA has the exclusive rights in the USA to the patented building 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.

 

Operating Agreement with Brooksville Development Partners, LLC

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On April 13, 2023, Cuentas entered into an Operating Agreement for Brooksville Development Partners, LLC (“BDP”), a limited liability company formed for the purpose of acquiring land for the development of a residential apartment community consisting of approximately 360 apartments in Brooksville, Florida. Cuentas has a 63.9% equity interest in BDP and two others own the remaining 36.1% equity interest in BDP. All real and personal property owned by BDP will be owned by BDP as an entity. One of the other members is the manager of the project.

  


On April 28, 2023, BDP acquired a 21.8 acre site for development of the Brooksville project for a purchase price of $5.05 million. The Company deposited as an initial capital contribution $2,000,000 into a title insurance escrow account which was released from escrow by the Title Agent to fund the balance of the purchase price of the vacant land, together with a $3.05 million bank loan from Republic Bank of Chicago, which was amended and restated on January 27, 2024 for $3.055 million. BDP and ALF Trust u/a/d 09/28/2023 executed a $500,000 Loan Extension Agreement to ensure the promissory note necessary to fund the interest reserve and fees relating to the Loan Extension Agreement and the working capital needs of BDP. Cuentas contributed an additional $64,000 for further development of the Brooksville project on June 29, 2023 and has paid almost $65,000 for engineering expenses. BDP owns the vacant land (the “Brookville Property”), free and clear of any liens, claims and encumbrances with the sole exception being the Republic Bank loan.

On April 3, 2024 (the “Effective Date”), BDP entered into a purchase and sale agreement (the “Brooksville Sale Agreement”) with a purchaser for the Brooksville Property. The purchase price for the sale of the Brooksville Property is $7.2 million. The purchaser has deposited $75,000 with an escrow agent (the “Initial Escrow Deposit”), which is non-refundable after the end of a 60-day inspection period commencing on the Effective Date (the “Inspection Period”) during which the purchaser may terminate the agreement due to title defects or other issues identified in a title report or survey of the premises or the existence of monetary liens not remedied or removed by BDP at the request of purchaser. The closing is to occur within fifteen days following the end of the Inspection Period, or an additional 30 days thereafter if purchaser requests an extension and deposits an additional $25,000 with the escrow agent (the “Extension Deposit,” together with the Initial Escrow Deposit, the “Escrow Deposit”). The Escrow Deposit will be credited against the purchase price at closing. The closing is subject to certain conditions customary to closing for the sale of real property. There is no assurance that the Brooksville Property will be sold on the terms set forth in the Brooksville Sale Agreement, if at all.

Corporate Information

 

We were incorporated in the state of 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,report, and the inclusion of our website address in this prospectusreport is an inactive textual reference only.

Reverse Split and Offering2023 Equity Financings

 

On February 6,8, 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,sold an aggregate of (i) 163,344 shares (the “Shares”) of the Company’s common stock (“Common Stock”) and (ii) pre-warrantspre-funded 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,to Armistice Capital Master Fund Ltd., an institutional investor, in a registered direct offering (the “Registered Offering”), pursuant to a Securities Purchase Agreement dated February 6, 2023 (the “Purchase Agreement”). In a concurrent private placement, the Company sold to Armistice Capital Master Fund Ltd. 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 iswas $17.16 and the combined purchase price per Pre-Funded Warrant and Purchase Warrant ofwas $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$0.0013 per share. TheArmistice Capital Master Fund Ltd. exercised 67,800 Pre-Funded Warrants are exercisable immediatelyon February 8, 2023 and may be exercised at any time until the remaining 60,231 Pre-Funded Warrants are exercised in full.on March 13, 2023.

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 atwhich had an exercise price of $17.36 per share.share, were exercisable commencing on August 8, 2023 and expire on August 8, 2028. On August 24, 2023, the exercise price of the Purchase Warrants was reduced to $3.30 pursuant to the Inducement Letter, described below.

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 actingacted 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 agreedissued to issue todesignees of Wainwright or its designees warrants to purchase 20,396 shares of Common Stock (the “PA“February PA Warrants” and the shares of Common Stock issuable upon exercise of the February PA Warrants, the “PA“February PA Warrant Shares”). The February PA Warrants have a term of five years from the commencement of sales in the offering, and which have an exercise price of $23.17 per share. The fair market of those warrants was $267 thousand as of date of issuance.share, became exercisable on August 8, 2023 and will expire on February 6, 2028.

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.

Inducement Letter for the Exercise of the Existing Warrants in Consideration for the Issuance of the Inducement Warrant

On February 7,August 21, 2023, the investorCompany offered to reduce the exercise price of warrants to purchase 616,303 shares of Common Stock held by Armistice Capital Master Fund Ltd. (the “Existing Warrants”), including warrants to purchase 324,928 shares of Common Stock that initially had an exercise price of $7.67 per share, issued on August 8, 2022, and warrants to purchase 291,375 shares of Common Stock that initially had an exercise price of $17.16 per share, issued on February 8, 2023, to $3.30 per share as an inducement to the exercise of the Existing Warrants, provided Armistice Capital Master Fund Ltd. agreed to exercise for cash the Existing Warrants in consideration for the Company’s agreement to issue a new warrant (the “Inducement Warrant”) to purchase 1,232,606 shares of Common Stock (the “Warrant Exercise and Inducement Transaction”). On August 24, 2023, Armistice Capital Master Fund Ltd. exercised 67,800 Pre-Fundedthe Existing Warrants and in March 13, 2023consideration for such exercise the investor exercised 60,231 Pre-Funded Warrants.Company issued the Inducement Warrant to Armistice Capital Master Fund Ltd. The Inducement Warrant has an exercise price of $3.30 per share, subject to certain anti-dilution adjustments, and is exercisable until June 20, 2029.

As previously disclosed, on June 21, 2022,Wainwright acted as the Nasdaq Listing Qualifications Staff (the “Staff”) issuedexclusive placement agent in connection with the Warrant Exercise and Inducement Transaction. The Company paid Wainwright a cash fee of $142,366 (7.0% of the gross proceeds received from the exercise of the Existing Warrants) as well as a management fee of $20,338 (1.0% of the gross proceeds from the exercise of the Existing Warrants). In addition, 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 Companypaid Wainwright $65,000 for non-accountable expenses and $15,950 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.fee. The Company is taking definitive stepsalso issued to timely evidence compliance withdesignees of Wainwright warrants (the “August 2023 PA Warrants”) to purchase up to 43,141 shares of Common Stock which have the same terms ofas the Panel’s decision; however, there can be no assurance that it will be ableInducement Warrant, except for an exercise price equal to do so by April 6, 2023, or that the Panel will grant a further extension if required.$4.455 per share.

Reverse Stock Split

On March 24, 2023, the Company completed a 1-for 13 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-11-for-13 basis, and the exercise price of each such outstanding stock option and common warrant has been proportionately increased on a 13-for-11-for-13 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-11-for-13 reverse stock split. The reverse split was effected to cure a failure to comply with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2) for continued listing.

Nasdaq Delisting

At the opening of business on December 20, 2023, trading in the Common Stock and publicly-traded warrants was suspended and subsequently the Common Stock and publicly-traded warrants were delisted from Nasdaq for the Company’s failure to comply with Nasdaq Marketplace Rule 5550(b)(1) which requires the Company to maintain shareholders’ equity of not less than $2,500,000 for continued listing on The Nasdaq Capital Market.

 


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The Company 2021 Share Incentive Plan

On June 17, 2021Company’s Common Stock and publicly-traded warrants began trading on the BoardPink Current Information tier of the Company approvedover-the-counter market operated by OTC Markets Group effective with the Cuentas Inc. 2021 Share Incentive Plan (the “2021 Plan”). which was approved by the shareholders during the Annual Shareholders Meeting heldopen of business on December 15, 2021. The maximum number of shares of stock reserved20, 2023, under its trading symbol: CUEN and available for issuance under the 2021 Plan is 124,231 shares. The 2021 Plan is designed to enable the flexibility to grant equity awards to the Company’s officers, employees, directors and consultants as determined by the Company’s Compensation Committee.CUENW, respectively.

 

Employees

 

As of March 31, 2023,2024, our management team consisted of the Interim Chief Executive Officer, Interim President, and Chief Financial Officer. We have an additional three full-time employees: our Compliance Officer, IT Director, and Executive Assistant. For more information relating to the employment agreements, please see the section below entitled Item 11. Executive Compensation.“Executive Compensation.

 

ITEM 1A. RISK FACTORS

 

Investing in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider the risk factors we describerisks described below in any prospectus supplement and in any related free writing prospectus for a specific offering together with all of securities, as well as those incorporated by reference into this prospectus or such prospectus supplement.  You should also carefully considerthe other information contained and incorporated by reference in this prospectus and any applicable prospectus supplement,report, including our financial statements, the notes thereto and the related notes thereto incorporated by reference in this prospectus. The riskssection entitled “Management’s Discussion and uncertainties described hereinAnalysis of Financial Condition 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. Results of Operations.” If any of the described risks occur, our business, financial condition or results of operations could be materially harmed. In such case, the value of our securities could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also adversely affect us. There also may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results.

Risks Related to Our Financial Position and Need for Additional Capital

We will require additional funding to progress our business. Such financing may only be available on disadvantageous terms, or may not be available at all. Any new equity financing could have a substantial dilutive effect on our existing stockholders.

At December 31, 2023, we had cash and cash equivalents of approximately $205,000, a working capital deficit of approximately $3,000,000 and an accumulated deficit of approximately $55,000,000. Our cash position may decline in the future, and we may not be successful in maintaining an adequate level of cash resources. Accordingly, we will be required to seek additional debt or equity financing in order to support our growing operations. We may not be able to obtain additional financing on satisfactory terms, or at all, and any new equity financing could have a substantial dilutive effect on our existing stockholders. If we cannot obtain additional financing, we will not be able to achieve the sales growth that we need to cover our costs, and our results of operations would be negatively affected.


As a result of our current lack of financial liquidity, there is substantial doubt regarding our ability to continue as a “going concern,” within one year from the issuance date of our financial statements.

As a result of our current lack of financial liquidity, our auditors’ report for our 2023 consolidated financial statements contains a statement concerning substantial doubt regarding our ability to continue as a going concern. Our lack of sufficient liquidity could make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing that we may obtain and our public stock price generally.

Our continuation as a going concern is dependent upon, among other things, achieving positive cash flow from operations and, if necessary, augmenting such cash flow using external resources to satisfy our cash needs. However, we may be unable to achieve these goals and therefore may be unable to continue as a going concern.

Our 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 equity and capital markets as we will need to finance future activities.

No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, if needed, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

This going concern opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities and future reports on our financial statements may also include an explanatory paragraph with respect to our ability to continue as a going concern.

Risks Related to Our Company

 

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

 

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


 

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

 

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

 

exposure to unknown liabilities;

 

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

 

higher than expected acquisition and integration costs;

 

write-downs of assets or goodwill or impairment charges;

 

increased amortization expenses;

 

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

 

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

 

inability to retain key employees of any acquired businesses.

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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 the Company

  

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

 

We have a limited operating history upon which you may evaluate our business and an investment in our Common Stock may entail significantly more risk than the shares of Common 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 have incurred substantial losses from operations to date and we may never achieve profitability from operations or generate sufficient cash flows to make or sustain distributions to our shareholders.

 

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

 

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

 

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

 

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

 

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

 


COVID-19We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting.

Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. As discussed in Item 9A – “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and in our quarterly report for the period ended September 30, 2023 we have evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2023 or September 30, 2023. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses we identified are:

Lack of appropriate segregation of duties;

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

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

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

The Company is committed to remediating its impact on businessesmaterial weaknesses as promptly as possible. Implementation of the Company’s remediation plans has commenced and is being overseen by the board. However, there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise in the future. Even effective internal control can provide only reasonable assurance with respect to the preparation and fair presentation of financial marketsstatements. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements, which in turn could have a material adverse effect on our operations.financial condition and the trading price of our Common Stock and we could fail to meet our financial reporting obligations. We have identified weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.

 

In December 2019, a novel strain of coronavirus was reportedIf not remediated, our failure to have surfaced in Wuhan, China, which hasestablish and is continuing to spread throughout Chinamaintain effective disclosure controls 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. Healthprocedures 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 diseasesinternal control over financial reporting could result in material misstatements in our financial statements and a widespread health crisis that could adversely affect the economiesfailure to meet our reporting and financial markets worldwide, as well asobligations, each of which could have a material adverse effect on our businessfinancial condition and operations. COVID- 19 effectively reduced our capability to acquire accounts holders as a significant portionthe trading price of our target demographic lost their ability to earn wages and subsequently could not load funds to our product. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our business and results of operations may be materially adversely affected.Common Stock.

 

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

 

Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal, or we may decide to settle lawsuits on similarly unfavorable terms. Any such negative outcome could result in payments of substantial monetary damages or fines, or changes to our products or business practices, and accordingly our business, financial condition, or results of operations could be materially and adversely affected. See “Business-LegalItem 3. “Legal Proceedings” for a description of certain litigation involving the Company.

 

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

 

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

 

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

 


We are substantially dependent onhave relied upon vendors and other third parties to develop, manage and operate our fintech solutions. To the CIMA Technicalextent our vendors and Back-End support, whichother third parties encounter financial and operational difficulties, our business, results of operations and financial conditions may be terminated under certain circumstances.materially and adversely affected.

On December 31, 2019,During the Company entered intoearly stages of our financial solutions and technology business, due to our limited financial resources, we have relied upon vendors and other third parties to develop, manage and operate those businesses, To the extent our vendors and other third parties encounter financial and operational difficulties, our business, results of operations and financial conditions may be materially and adversely affected.

In April 2023, CIMA, License Agreement, pursuant to which the Company has a perpetual, exclusive, non-transferable, non-sublicensable, royalty-free license to accessprovided maintenance 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 extendedsupport services 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 loseour technology platform, shut down access to the licensedplatform as we were transitioning to a new, improved platform, and during the first quarter of 2023, we reduced product availability to Cuentas-SDI to allow Cuentas-SDI to catch up on its payments and during the second quarter of 2023 we curtailed all services to Cuentas-SDI and marketing initiatives with Cuentas-SDI due to its inability to reduce its debt significantly. These disruption to our fintech solutions and technology that comprisebusiness were a major reason for the Cuentas technology platform prior todecline in revenue between the complete transition, which will have a significant impact on our business, operationsQ1-Q2 periods in 2022 and financial results.2023.

The success of our equity investments in real estate projects in Florida will depend upon the ability of the real estate developers, contractors, property managers and operators to develop, construct, manage and operate those projects and other factors beyond our control.

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We own equity interests in certain real estate development projects in Florida. The success of those projects will depends upon ability of the real estate developers, contractors, property managers and operators to develop, construct, manage and operate those projects and certain factors beyond our control, including occupancy and rental rates, economic conditions in the areas where the properties are located as well as changes in population, employment and household earnings and expenses, the condition of the financial and real estate markets and the economy, in general, the ability of developers to identify attractive acquisition opportunities consistent with our investment strategy and to obtain financing, inflation, interest rates levels and volatility, title litigation, litigation with guests, legal compliance, real estate taxes, HOA fees and insurance; and our ability to obtain financing to invest in projects on terms acceptable to us.

 

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

 

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

 

We are subject to Anti-Money Laundering Regulation.

 

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

 


We are subject to Consumer Protection Regulation.

 

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

 

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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.consumers [Matthew – any update]. Non-bank financial services companies, including money transmitters and prepaid access providers, are now regulated at the federal level by the Consumer Financial Protection Bureau (the “CFPB”), which began operations in July 2011, bringing additional uncertainty to the regulatory system and its impact on our business. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business. Abuse of our prepaid products for purposes of financing sanctioned countries, terrorist funding, bribery or corruption could cause reputational or other harm that could have a material adverse effect on our business, results of operations and financial condition. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. Failure by us to comply with federal banking regulation may subject us to fines and penalties and our relationships with our issuing banks may be harmed.

 

We are subject to Money Transmitter Licenses or Permits.

 

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

 

We are subject to Privacy Regulation.

 

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

 


14

 

We are subject to Card Association and Network Organization Rules.

 

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

 

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

 

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

 

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

 

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

 

Cuentas recently began e-commerce card operations and is much smaller than its competitors in its credit card operations and faces competition in the prepaid financial services industry includingfrom 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 and J.P. Morgan Chase, and others.Chase. Cuentas also faces intense competition from existing players in the prepaid card industry.

 

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

    

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 and Mint Mobile and others.Mobile.

 

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 sellcommenced selling mobile services starting in ________at [_] as an MVNO that operates on the largest 5G nationwide network from one of the top 3 mobile carriers and is dependent on the performance of its underlying provider and its network.

 

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

 

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

 


15

 

Cuentas may be unable to attract and retain users.

 

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

 

Cuentas may be adversely affected by fraudulent activity.

 

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

 

Increased attention to environmental, social, and governance (“ESG”) matters and conservation measures may adversely impact our business or that of our manufacturers.

Public companies are facing increasing scrutiny related to ESG practices and disclosures from certain investors, capital providers, shareholder advocacy groups, other market participants, and other stakeholder groups. For example, certain institutional and individual investors have requested various ESG-related information and disclosures as they increasingly incorporate ESG criteria in making investment and voting decisions. With this increased focus, public reporting regarding ESG practices is becoming more broadly expected. Such increased scrutiny may result in increased costs, enhanced compliance or disclosure obligations, or other adverse impacts on our business, financial condition or results of operations. If our ESG practices and reporting do not meet investor or other stakeholder expectations, which continue to evolve, we may be subject to investor or regulator engagement regarding such matters.

In addition, new sustainability rules and regulations have been adopted and may continue to be introduced in various states and other jurisdictions. For example, in June 2022, the SEC published a proposed climate disclosure rule, subject to which we would be required to disclose certain climate-related information such as governance of climate-related risks and relevant risk management processes that could affect us, a climate related financial statements matrix and more. While the proposed rule has yet to be finalized and we cannot predict the ultimate scope and impact this will have on our business, if finalized, it would likely result in additional legal, accounting and financial compliance and increased general and administrative expenses. Moreover, this could result in increased management time and attention to ensure we are compliant with the regulations and expectations. Our failure to comply with any applicable rules or regulations could lead to penalties and adversely impact our reputation, access to capital and employee retention. Such ESG matters may also impact third parties on which we rely, which may augment or cause additional impacts on our business, financial condition, or results of operations.

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.

 

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

 

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

 

whether we achieve our anticipated corporate objectives;

 

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

 

changes in financial or operational estimates or projections;

 


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

 

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

 

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

 

16

The financial and operational projections and statements regarding future milestones that we may make from time to timeOur shares are subject to inherent risks.the penny stock rules, which make it more difficult to trade our shares.

 

The projectionsSEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and statements regarding future milestones that we provide herein or our management may provide from time to time reflect numerous assumptions made by management, including assumptionsvolume information with respect to transactions in such securities is provided by the exchange or system. As long as the price of our specific as well as general business, regulatory, economic, market and financial conditions and other matters, all of which are difficultCommon Stock is less than $5.00, our Common Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to predict and many of which are beyond our control. Accordingly, theredeliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk thatdisclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the assumptions made in preparingeffect of reducing the projections, or the projections and targeted milestones themselves, will prove inaccurate or may not be achieved. There may be differences between actual and projected results, and actual results may be materially different from than those containedtrading activity in the projectionssecondary market for our Common Stock, and statements regarding future milestones. The inclusion of the projections and statements regarding future milestones in this prospectus should not be regarded as an indication that we, our management or the underwriters considered or consider the projections or such statements to be a guaranteed prediction of future events, and the projections and such statements should not be relied upon as such.therefore shareholders may have difficulty selling their shares.

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

 

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

 

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

Our directors, executive officers, principal shareholders and their affiliates beneficially own or control, directly or indirectly, in the aggregate, approximately 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 or substantially all of our assets; and over the management and affairs of the Company. This concentration of ownership may also have the effect of delaying or preventing a change in control of the Company or discouraging others from making tender offers for our shares and might affect the market price of our Common Stock.


17

 

Item 1C. Cybersecurity

Cybersecurity Risk Management and Strategy

Our Board and management recognize the critical importance of maintaining the trust and confidence of our customers, clients, business partners and employees.

In general, we seek to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.

Our cybersecurity risk management efforts include:

risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment;

a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; and

a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents.

Cybersecurity Governance

Our board of directors considers cybersecurity risk as part of its risk oversight function. The board of directors oversees management’s implementation of our cybersecurity risk management program.

Our management team, including our CEO, is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants.

Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment. 

To date, we have not experienced any cybersecurity incidents that materially affected our business strategy, results of operations or financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

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

 

ITEM 2. PROPERTIES

 

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

 


ITEM 3. LEGAL PROCEEDINGS

 

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

 

On May 1, 2019, the Company received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP”)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$1,053 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On or about October 5, 2020, the trial court appointed a receiver over Limecom, Inc. (“Limecom”) in the matter of Spectrum Intelligence Communications Agency, LLC. v. Limecom, Inc., case no. 2018-027150-CA-01 pending in the 11th Circuit for Miami-Dade County, Florida. On June 5, 2020, Secure IP Telecom, Inc. (“Secure IP”) filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company. The complaint primarily concerns alleged indebtedness owedCompany, case no. 20-11972-CA-01. Secure IP by Limecom. Secure IP also alleges that the Company received certain transfers of funds which it allegesfrom Limecom during the period that the Company wholly owned Limecom that may be an avoidable transfer under Florida Statute §725.105 up to $1,052,838.09.§ 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 is contemplating filing a motionhas answered and denied any liability with respect to dismiss the complaint and disputes that it received the alleged $1,052,838.09 from Limecom. Moreover, toboth complaints. To the extent the Company has exposure for any transfers from Limecom, both Limecom and Heritage havehas indemnified the Company for any such liability. Theliability and the Company continues to vigorously defend its position to be removed ashas a named party in this action duepending cross-claim against Heritage for purposes of enforcing the indemnification obligation. A review of the books and records of the Company reflect aggregate transfers from Limecom to the factCompany or its affiliates of less than $600,000. The Company’s books and records reflect that the Company rescindedfully 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 Acquisition on January 30, 2019. Cuentas has provided requestedfor settlement and release of claims the employees or vendors may have asserted against Limecom. The books and records of the Company therefore do not reflect an identifiable avoidable transfer, but this analysis may change as the discovery process continues. At this time, based upon an analysis of the Company’s books and expects depositions to be scheduled shortly.records, the loss contingency is not capable of reasonable estimation under the above circumstances, and the likelihood of an adverse judgment is not probable at this time. An adverse judgment in this matter is reasonably possible and based upon an analysis of litigation costs and likelihood of a settlement. As of December 31, 20222023, the company accrued $300,000 due to this matter.

 

On October 4, 2022, Crosshair Media Placement, LLC, a Kentucky based marketing company, filed and served a complaint on Cuentas for breach of contract alleging breach of contract damages of $629,807.74, which case remains pending in the United States District Court for the Western District of Kentucky, case no. 3:22-CV-512-CHB. On May 9, 2023, the Company and the plaintiff attended a court settlement conference before the federal magistrate judge presiding over the matter. The parties reached a settlement that the Company will make the following installments in the amount of $630,000 to fully resolve the matter: $50,000 on or about June 1, $20,000 on or about July 1, and nine equal $15,000 monthly payments due the first of each month, then a final payment of $425,000 due May 1, 2024. As of December 31, 2023 the Company has paid $70,000 to the plaintiff under the above referenced settlement agreement.

On February 8, 2023, a former employee of the Company, filed a complaint for breach of employment agreement alleging Cuentasthe Company failed to pay her for sixty days followingcertain compensation she alleges she was entitled to upon her resignationresignation.. The Company and failedthe employee are discussing a settlement agreement and estimates that the maximum amount the Company will be required to pay her under an employee incentive plan. The Company disputes these allegations and denies that her employment agreement requires the payment of this additional compensation. On March 10, 2023, the Company’s Registered Agent was served with this complaint registered as Miami-Dade County Local Case Number: 2023-002134-CA-01.will not exceed $30,000.

 

ITEM 4. MINE SAFETY DISCLOSUES.

 

Not applicable.

 


 

PART II

 

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

 

Market Information

 

SinceFrom February 2, 2021 to December 19, 2023, our common stock has beenwas traded on the Nasdaq Capital Market with the symbol CUEN and a class of our warrants have beenwas traded on the Nasdaq Capital Market with the symbol CUEN.W. Prior to such date,CUENW. Since December 20, 2023, our common stock wasand our class of publicly-traded warrants have been traded on the OTCQB market.Pink Current Information tier of OTC Markets with the symbols CUEN and CUEN.W, respectively. As our shares are relatively thinly traded, the price for our securities may be highly volatile and may bear no relationship to our actual financial condition or results of operations. Factors we discuss in this report, including the many risks associated with an investment in our securities, may have a significant impact on the market price of our common stock. . A Reverse Stock SplitWe cannot assure you that there will be a market for our common stock and our publicly-traded warrants in the future. We effected a 1-for-13 reverse stock split of 13 shares for 1 share was exercisedour common stock on March 24, 2023. All share and per share information in this report gives effect to the reverse split.

 

Holders of Common Stock and Warrants

 

As of March 31, 2023,2024, our shares of common stock were held by 128approximately 130 record holders and our publicly-traded warrants were held by 3approximately three record holders. As of March 31, 2023, we had 2,085,867 shares of 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. By reason of our present financial status and our contemplated financial requirements, we may not declare additional dividends upon our common or preferred stock in the foreseeable future.Dividends

 

We have never paid any cash dividends. We maydividends on our shares of common stock and we do not intend to declare and pay additional cash ordividends on our shares of common stock dividends in the foreseeable future on the shares of common or preferred stock.future.. We intend to reinvest any earnings infor the development and expansion of our business. AnyThe payment of cash dividends inon our shares of common stock is subject to the future to common stockholders will be payable when, as and if declared bydiscretion of our Board of Directors, based upon the Board’s assessment of:

 

our financial condition;

 

earnings;

 

need for funds;

 

capital requirements;

 

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

 

covenants in any loan or other credit facilities we may enter into in the future; 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, 20222023 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  84,999   36.97   678,847 
Equity compensation plans not approved by security holders      -   - 
Total**  84,999   36.97   678,847 

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 

Stock Option Plans

 

The Company has two stock option plans, which are intended to provide incentives in the form of equity grants which will attract, retain and motivate highly competent persons as officers, employees and non-employee director, of, and consultants to, the Company and its subsidiaries and affiliates and to assist in further aligning the interests of the Company’s officers, employees and consultants to those of its other stockholders. The plans are administered by the Compensation Committee of the Board.

On June 17, 2021 the Board of the Company approvedadopted the Cuentas Inc. 2021 Share Incentive Plan (the “2021 Plan”)., which was approved by the Company’s shareholders at the Annual Meeting of Shareholders on December 15, 2021. The maximum number of shares of stock reserved and availableauthorized for issuance under the 2021 Plan is 242,308 shares. The 2021 Plan is designedshares (after giving effect to enable the flexibility to grant equity awardsreverse stock split effected in March 2023). See Note 7 to the Company’s officers, employees, directors and consultants as determined byfinancial statements for information concerning stock options granted pursuant to the Company’s Compensation Committee. 2021 Plan

On December 15, 2021,November 17, 2023 the shareholdersBoard of the Company approvedadopted the 2021Cuentas Inc. 2023 Share Incentive Plan (the “2023 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 which was approved by the Company’s shareholders at the Annual Shareholders Meeting held on December 15, 2021.20, 2023. The maximum number of shares of stock authorized for issuance under the 2023 Plan is 1,000,000  shares, subject to annual increases on January 1 of each year beginning in 2025 and ending with a final increase on January 1, 2033 in an amount equal to 5% of the total number of shares of common stock outstanding on such date; provided, however, that the Committee may provide that there will be no January 1 increase in the number of shares which may be issued pursuant to the 2023 Plan for any such year or that the increase for any such year will be a smaller number of shares. On February 23, 2024, the Committee granted options to purchase a total of 520,000 shares, including options to purchase a total of 434,540 shares to non-employee directors and officers, exercisable at an exercise price of $0.32 per share.

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

 


Penny Stock Regulations

The SEC has regulations which generally define so-called “penny stocks” to be equity securities that have a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule required by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

 

Recent Sales of Unregistered Equity Securities  

 

On April 6, 2022,During the Company issued 7,693 sharesfourth quarter 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 and2023, we did not have 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 theseequity 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 thetransactions that were not 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 ofunder the Securities Act of 1933, as amended, (“Securities Act”),that have not been previously reported in reliance upon Section 4(a)(2) ofa report filed pursuant to 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 SecuritiesExchange Act.


 

ITEM 6. [RESERVED]

 

Not applicable.

  

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

 

Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “RiskItem 1A Business -- Risk Factors” and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect.


OVERVIEW AND OUTLOOK

 

The Company was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries. 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 New York metropolitan tristate area using access points and small cells to provide users with access to the WSN

The Companymainly 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 itsthe 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 alldivision of its assets including the platform, portals, domain names,wholly-owned subsidiary, Meimoun and related software necessary to conduct its business to Cuentas SDI.Mammon, LLC. The MIPA containsCompany also owns 50% of CUENTASMAX LLC which is a number of representationsjoint venture 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 loaninstalls WiFi6 shared network (“WSN”) systems in locations 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,New York metropolitan tristate area using access points 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 financial 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 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 agreedsmall cells 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 Merchantsusers 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 shares 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 proprietary 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 provides 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 South Florida market and other hurricane prone areas where Cuentas is planning to develop 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 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.WSN. 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 the Cuentas GPR Card.

 

We operate globallySince the first quarter of 2023, the Company has made two equity investments in real estate projects in Florida. Cuentas partners with leading edge developers and construction technology companies to create sustainable, inclusive and affordable residential communities specifically designed to provide high quality housing alternatives at extremely competitive pricing. The Company’s goal is to source land zoned and ready for development of multi-family buildings in strategic areas where rental prices are increasing dramatically, placing financial stress and pressure on working class families.  The Company’s real estate investments are intended to broaden its reach into the unbanked, underbanked and underserved communities by using a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspectspatented, low cost, sustainable technology that should allow it to provide reasonably priced rental apartments to working class residents who have been priced out of rental communities due to severe rent price hikes in Florida and other areas in 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 priorUS. The Company believes that providing affordable apartments to the advent of digitalHispanic Latino and mobile payments, are continuingother immigrant communities in Florida will enable it to evolve through legislativeintroduce them its fintech solutions 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.generate revenue.

 

Industry Trends

Our industryOn March 7, 2023, the Company acquired a six percent (6%) equity interest in Lakewood Village from Core Development Holdings Corporation (“Core”), pursuant to a Membership Interest Purchase Agreement (“MIPA”), in exchange for 295,282 shares of Common Stock, representing approximately19.99% of the then outstanding shares of Common Stock. Core 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. Lakewood Manager, an affiliate of RENCo USA, Inc. (“Renco”), is dynamic and highly competitive,constructing the 4280 Lakewood Project with frequent changesRENCO Structural Building System, a proprietary composite structural system distributed by Renco. Lakewood Village is the first sustainable rental housing project developed in both technologies and business models. Each industry shiftthe 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 opportunity to conceive new products, new technologies, or new ideasaffordable multi-family real estate development located in Lake Worth, Palm Beach County, Florida, consisting of 96 apartments that can further transform the industryhave two 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.three bedrooms.

 


In March 2023, the Company signed a 10 year supply agreement with Renco to provide Renco’s 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 provides 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 South Florida market and other hurricane prone areas where we are planning to develop projects. Renco’s system is also earthquake resistant. Renco has the exclusive rights in the USA to the patented building 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.

On April 13, 2023, Cuentas entered into an Operating Agreement in Brooksville Development Partners, LLC (“BDP”), a limited liability company formed for the purpose of acquiring land for the development of a residential apartment community consisting of approximately 360 apartments in Brooksville, Florida. Cuentas has a 63.9% equity interest in BDP and two others own the remaining 36.1% equity interest in BDP. All real and personal property owned by BDP will be owned by BDP as an entity. One of the other members is the manager of the project.

On April 28, 2023, BDP acquired a 21.8 acre site (“Brooksville Property”) for development of the Brooksville project for a purchase price of $5.05 million. Cuentas had deposited as an initial capital contribution $2 million into a title insurance escrow account which was released from escrow by the Title Agent to fund the balance of the purchase price of the Brooksville Property, together with a $3.05 million bank loan from Republic Bank of Chicago, which was amended and restated on January 27, 2024 for $3.055 million. BDP and ALF Trust u/a/d 09/28/2023 executed a $500,000 Loan Extension Agreement to ensure the promissory note necessary to fund the interest reserve and fees relating to the Loan Extension Agreement and the working capital needs of BDP. Brooksville owns the Brooksville Property, free and clear of any liens, claims and encumbrances with the sole exception being the Republic Bank loan. Cuentas contributed an additional $64,000 for further development of the Brooksville project on June 29, 2023 and has paid almost $65,000 for engineering expenses.

In April 2023, CIMA, which provided maintenance and support services for our technology platform, shut down access to the platform as we were transitioning to a new, improved platform. During the first quarter of 2023, we reduced product availability to Cuentas-SDI to allow Cuentas-SDI to catch up on its payments and during the second quarter of 2023 we curtailed all services to Cuentas-SDI and marketing initiatives with Cuentas-SDI due to its inability to reduce its debt significantly. These disruptions to our fintech solutions and technology business were a major reason for the decline in revenue between the Q1-Q2 periods in 2022 and 2023. In May 2023, The OLB Group (NASDAQ: OLB) (“OLB”) terminated a Software Licensing and Transaction Sharing Agreement with the Company for the purpose of upgrading the Cuentas Mobile App and digital distribution system. In June 2023, OLB acquired 80.01% of Cuentas-SDI. In July 2023, the Company and Cuentas-SDI settled certain payment issues and renewed discussions and cooperation to re-open the digital distribution network and systems through Cuentas-SDI’s convenience store distribution network of over 31,000 locations, including many across the New York, New Jersey and Connecticut Tri State area. On July 14, 2023, the Company entered into an agreement with OLB and Cuentas-SDI (the “OLB Agreement”) in which OLB agreed to cause Cuentas-SDI to enter into an agreement with the Company pursuant to which Cuentas-SDI would agree to pay the Company $228,752 to satisfy outstanding invoices and, subject to the Company’s receipt of the first $100,373, for the Company to restore the services it had previously provided Cuentas-SDI on a purchase or services order basis (the “Payment Agreement”). On July 14, 2023 the Company and Cuentas-SDI entered into the Payment Agreement pursuant to which Cuentas-SDI agreed to pay amounts due under the outstanding invoices in the amount of $228,752. To date, Cuentas-SDI has paid the Company $142,666. The balance, which was payable in four monthly installments of $21,333 commencing September 1, 2023, has not been paid.


 

RESULTS OF OPERATIONS

 

Comparison of year ended December 31, 20222023 to year ended December 31, 20212022

Revenue

 

The Company generates revenues through the sale and distribution of prepaid telecom minutes, digitalDigital products, General Purpose Reloadable Cards, wholesale telecommunication services and other related telecom services. The Company also generated sales from its Fintech products and services commencing in the third quarter of 2020. Revenues during the year ended December 31, 2022,2023, totaled $2,994,000$2,346,000 compared to $593,000$2,994,000 for the year ended December 31, 2021.2022. The increasedecrease in our sales of digital products and General-Purpose Reloadable Cards is mainly due to an increase in thedecreasing our sales of our digital telecom products due towith Cuentas SDI including online and other marketing initiatives, and realization of deferred revenueincluding but not limited to distribution agreements partially offset by increase in wholesale telecommunication services in the amount of $570,000$2,177,000 from our Bilateral Wholesale Carrier Agreement with Next Communications INC., a company controlled by Arik Maimon our Chairman of the Board and our telecommunications productsCEO.

 

Revenue by product for 20222023 and 20212022 are as follows:

 

 December 31,
2022
  December 31,
2021
  December 31,
2023
  December 31,
2022
 
 (dollars in thousands)  (Dollars in thousands) 
Telecommunications $839  $525 
Retail telecommunications $78  $839 
Wholesale telecommunication services  2,177   - 
Digital products and General-Purpose ‘Reloadable Cards  2,155   68   91   2,155 
Total revenue $2,994  $593  $2,346  $2,994 

 

Costs of Revenue and Gross profit

Cost of revenues during the year ended December 31, 20222023 totaled $2,508,000$2,733,000 compared to $469,000$2,508,000 for the year ended December 31, 2021.2022.

 

Cost of revenue consists of the purchase of wholesale minutes were approximatelyfor resale, related telecom platform costs and purchase of digital products in the amount of $2,170,000 during the year ended December 31, 2023 and $232,000 during the year ended December 31, 2022 and $313,000 during the year ended December 31, 2021.2022.

 

year ended  

Cost of revenue also consists of costs related to the sale of the Company’s Digitaldigital products and GPR Cards in the amount of $219,000 during the year ended December 31, 2023 and $2,276,000 during the year ended December 31, 2022 and $156,000 during the year ended December 31, 2021.2022. The costs related to the sale of the Company’s Digitaldigital products and GPR Cards were composed mainly from the cost of the Digital products in the amount of $209,000 during the year ended December 31, 2023 as opposed to $2,087,000 during the year ended December 31, 2022 as oppose to $68,000 during the year ended December 31, 2021.2022.

 

Gross profit (loss) by product for 20222023 and 20212022 are as follows :follows:

 

 December 31,
2021
  December 31,
2020
  December 31,
2023
  December 31,
2022
 
 (dollars in thousands)  (Dollars in thousands) 
Telecommunications $607  $212  $(265) $607 
Wholesale telecommunication services  6   - 
Digital products and General Purpose Reloadable Cards  (121)  (88)  (128)  (121)
Total Gross profit $486  $124  $(387) $486 

 


Gross profit margin for the year ended December 31, 2023 was negative for both the telecommunications segment and the digital product and general purpose reloadable cards segment but slightly positive for wholesale which by its nature has a tiny markup. The gross loss for the sale of digital product and general-purpose reloadable cards stemmed from ceasing all activities with Cuentas SDI LLC. In addition, in April 2023, CIMA, which provided maintenance and support services for our technology platform, shut down access to the platform as we were transitioning to a new, improved platform. During the first quarter of 2023, we reduced product availability to Cuentas-SDI to allow Cuentas-SDI to catch up on its payments and during the second quarter of 2023 we curtailed all services to Cuentas-SDI and marketing initiatives with Cuentas-SDI due to its inability to reduce its debt significantly. These disruptions to our fintech solutions and technology business were a major reason for the decline in revenue year ended December 31, 2023 as compare to the year ended December 31, 2022. In May 2023, The OLB Group terminated a Software Licensing and Transaction Sharing Agreement with the Company for the purpose of upgrading the Cuentas Mobile App and digital distribution system. In June 2023, OLB acquired 80.01% of Cuentas-SDI. In July 2023, the Company and Cuentas-SDI settled certain payment issues and renewed discussions and cooperation to re-open the digital distribution network and systems through Cuentas-SDI’s convenience store distribution network of over 31,000 locations, including many across the New York, New Jersey and Connecticut tri state area.

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.


 

Operating Expenses

 

Operating expenses consist of selling, general and administrative Expenses, impairments and amortization of Intangible assets as discussed below and totaled $5,722,000 during the year ended December 31, 2023, compared to $14,841,000 during the year ended December 31, 2022, compared to $10,789,000 during the year ended December 31, 2021, representing a net increasedecrease of $4,052,000.$9,119,000.

Selling, General and Administrative Expenses

The table below summarizes our general and administrative expenses incurred during the periods presented:

 

 Year Ended December 31,  Year Ended December 31, 
 2022  2021  2023  2022 
 ($ in thousands)  ($ in thousands) 
General and Administrative Expenses:        
Selling, General and Administrative Expenses:     
Officers’ compensation $1,397  $1,180  $981  $1,397 
Performance bonuses  300   -   -   300 
Directors fees  233   249   150   233 
Share-based compensation  1,697   2,745   622   1,697 
Directors’ and officers’ insurance  490   670   -   490 
Professional services  661   516   968   661 
maintenance and support services in accordance with the software maintenance agreement with CIMA  700   500   120   700 
Legal fees  635   645   663   635 
payments in accordance with the processing service agreement with Incomm  860   590 
Payments in accordance with the processing service agreement with Incomm  350   860 
Credit losses  157   228   -   157 
Marketing  1,437   410 
Settlement  -   325 
Selling and Marketing  388   1,437 
Settlements  300   - 
Other  1,513   1,378   1,469   864 
Total $9,431  $8,980  $6,011  $9,431 

 

Selling, general and administrative expenses totaled $6,011,000 during the year ended December 31, 2023, a net decrease of $3,420,000, or 36% compared to $9,431,000 during the year ended December 31, 2022 compared to $8,980,0002022. The decrease in our Selling, general and administrative expenses during the year ended December 31, 2021, representing a net increase of $451,000. Included in2023 compare to the year ended December 31, 2022, is primarily attributable to the decrease in the Selling, generalamount of $416,000 in officers compensation attributable to the departure of Jeffery Johnson in 2022 and administrative expenses, Stock-basedthe reduction in the number of the officers of the Company in 2023, decrease in the amount of $1,075,000 in Share-based compensation amounted to $1,587,000 and shares issued for services expenses amountedattributable to $110,000 during the year ended December 31, 2022 compared to $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 Companydecrease in the 2021 and 500,000 stock options issuedamount of our vested option in 2023 as opposed 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 to2022 partially mitigated by an increase in the agreednumber of shares that were issued for services and settlement, decrease in the amount of $580,000 in maintenance and support services in accordance with the software maintenance agreement withthat were provided by CIMA, in the amount of $200,000, increasedecrease 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$510,000 decrease in Directors’ and officers’ compensation of $217, 000, performance bonuses to the interim CEO and President of the Companyinsurance in the amount of $300,000, credit losses$490,000 since the Company cancelled its policy during the fourth quarter of receivables due from Cuentas SDI LLC2022 and a decrease in the amount of $157,000, and increase of approximately of $1,027,000 in our selling and marketing expenses during 2022 mainlyof $1,049,000 since the Company reduced significantly its selling and marketing campaigns in 2023 due to its ineffectiveness and lack of resources, partially offset by increase of approximately $300,000 in our marketing and social media campaigns with connection to the sales of our Digital products and General-Purpose ‘Reloadable Cards .settlements expenses.


 

Amortization and impairment of Intangible assets

 

Amortization of Intangible assets totaled $11,000 during the year ended December 31, 2023 and $1,810,000 during the year ended December 31, 2022. The amortization expense of $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 stemsstemmed 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 for the remaining unamortized cost of $3,600,000 whereas as no amount was assigned to the acquired platforms on December 31, 2022.

$3,600,000.

 

Other Income ( Expenses )

 

The Company recognized other expensesOther income (expenses) totaled an income of $124,000$4,741,000 during the year ended December 31, 2022 compared to other2023. Other income (expenses) are mainly comprised of Gain from Change in fair value of derivative warrants liability issued as part of our February 2023 and August 2023 security offering as detailed in note 8 of the December 31, 2023 financial statements, partially offset by impairment loss of $61,000 during$441,000 which resulted from a decrease in cost of an investment in Cuentas SDI LLC.

During the year ended December 31, 2021. The increase is2022, the Company recognized other expenses of $124,000 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 $2,196,000 for the year ended December 31, 2023, as compared to a net loss of $14,531,000 for the year ended December 31, 2022, as compared to a net loss of $10,729,000 for the year ended December 31, 2021, 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, 2023, the Company had total current assets of $1,760,000, including $205,000 of cash, accounts receivables of $1,307,000, related parties in the amount of $172,000 and other current assets of $76,000. As of December 31, 2023, the Company had total current liabilities of $ 4,689,000 creating a negative working capital of $2,929,000.

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, 2023, resulted in net cash used of $4,193,000. Net cash used in operating activities consisted of a net loss of $2,196,000 and change in fair value of derivative warrants liability of $6,852,000, partially offset by non-cash expenses consisting of Issuance expenses and a day-one loss on derivative warrants liability of $3,127,000, share-based compensation of $622,000, and amortization of intangible assets of $11,000. Changes in operating assets and liabilities provided cash of $529,000, resulting mainly from a decrease in other accounts payables of $1,548,000 and increase in accounts payables offset by an increase of in related parties accounts receivables of $1,102,000 and an increase in other current assets of $87,000.

 

The Company’s operating activities for the year ended December 31, 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$712,000 and 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.

 

Cash Flows – Investing Activities

The Company’s operatinginvestment activities for the year ended December 31, 2021,2023 resulted in net cash used of $9,330,000. Net cash used$2,098,000 due to the Company’s investment in operating activities consistedBrooksville Development Partners, LLC. in the amount of a net loss$2,065,000, investment in the amount of $10,728,000,$20,000 in Cuentas Max LLC and investment in the amount of $303,000 in the roof.com domain which was offset partially by non-cash expenses consisting of share-based compensation of $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 Activitieslater sold for $301,000.

 

The Company’s investment activities for the year ended December 31, 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 Cuentas SDI LLC.

 


Cash Flows – Financing Activities

The Company’s financing activities for the year ended December 31, 2023, resulted in net cash received of $6,030,000 mainly consisting of $6,034,000 received from the sale of our common stock. 

 

The Company’s financing activities for the year ended December 31, 2022, 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, 2021, resulted in net cash received of $15,797,000, consisting of $10,614,000 received from the sale of our common stock and $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 20222023 in our working capital was mainly attributable to the increase in Accounts Payables and Trade Payables in the amount of $ 371,000, decrease in our other Accounts Payables in the amount of $662,0001,815,000 and decrease in our Cash and Cash equivalents in the amount of $ 6,141,000. 261,000, partially offset by increase in Accounts Receivables of $1,102,000.

 

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 companyCompany will be successful in raising additional capital or that the companyCompany will have net income from operations to fund theits business plan of the company for the near future or long term. As of December 31, 2022,2023, the Company had approximately $466 thousand$205,000 in cash and cash equivalents, approximately $1,445 thousand$2,929,000 in negative working capital and an accumulated deficit of approximately $52,750 thousand .$54,946,000. These conditions raise substantial doubt about the Company’s ability to continue as a going concern as of December 31, 2022.2023.

 

Further, on February 6, 2023,On April 3, 2024, BDP, in which Cuentas has a 63.9% equity interest, entered into an agreement to sell the Company, sold an aggregate 291,376 sharesBrooksville Property for a purchase price of Common and 291,376 warrants to purchase up to 291,376 shares of Common Stock in consideration of $5.0$7.2 million. The sale, which is expected to close before the end of Q2 2024, is subject to certain conditions customary for similar real estate transactions. The purchaser has the right to terminate the agreement during an inspection period prior to June 3, 2024 due to title defects or other issues identified in a title report or survey of the premises or the existence of monetary liens not remedied or removed by BDP at the request of purchaser. There can be no assurance that the sale will be completed on the terms set forth in the agreement, if at all. Cuentas will use its pro rata portion of the net proceeds toof the Company, after deducting placement agent feessale, estimated between $1.625 million and $1.9 million, as working capital and for other offering expenses, were approximately $4.5 million. 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 investmentsopportunities that have not yet been secured. Management is continuing in the process of fund raising in the private equity and capital markets as the Company will need to finance future activities.may become available.

 

Off-balance Sheet Arrangements

 

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

 

Impact of Inflation

 

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

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-32F-31 of this Form 10-K.

 


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

 

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

On February 15, 2023, the Audit Committee(b) Engagement 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.New Independent Registered Public Accounting Firm.


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

 

On February 16, 2023, the Audit Committee of the Board of Directors (the “Board”)Directors) 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.

 

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 OfficerDisclosure Controls and Principal Financial Officer evaluated the effectivenessProcedures

Management of ourCuentas Inc. is responsible for maintaining 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, 2022 and 2021, are designed at a reasonable assurance level and are not effective to provide reasonable assuranceensure that information we are required to disclosebe disclosed in the reports that we filethe Company files or submitsubmits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms. Such InformationIn addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to ourthe Company’s management, including our principal executive officerits Chief Executive Officer and principal financial officer, or persons performing similar functions,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.financial and other required disclosures.

At December 31, 2023, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based on their evaluation of our disclosure controls and procedures, they concluded that at December 31, 2023, such disclosure controls and procedures were not effective. This was due to our limited resources and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses].”

 

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.over our financial reporting. These internal controls over financial reporting 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 undertakenOur management conducted an assessmentevaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our internal control over financial reporting as of December 31, 2023. This evaluation was 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, managementour Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective as of December 31, 2020.2023.


 

Based on that evaluation, managementupon such assessment, our Chief Executive Officer and Chief Financial Officer have concluded that during the period covered by this report, suchas of December 31, 2023 our internal controls and proceduresover financial reporting were not effective due to the following material weaknessweaknesses identified:

 

Lack of appropriate segregation of duties,

  

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

 

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

 

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

Implemented or Planned Remedial Actions in response to the Material Weaknesses

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


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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2022 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.

 

Implemented or Planned Remedial Actions in response to the Material Weaknesses

The deficiencies identified above are in large part due to our limited resources and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.”

We plan, if our available cash will increase, to seek to recruit individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. The rules of the SEC do not require an attestation of the Management’s report by our registered public accounting firm in this annual report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our fiscal quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

 

None. 

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

None.

 


 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

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

 

Directors and Executive Officers

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

 

Name Age Position
Arik Maimon 4648 Chairman of the Board of Directors and Interim CEO
Ran Daniel53Chief Financial Officer
     
Michael De Prado 5254 Vice Chairman of the Board of Directors and Interim President
Shlomo Zakai53CFO
     
Adiv Baruch
 58Director

Yochanon Bruk

43Director
Sara Sooy3061 Director
     
Haim Yeffet 7273 Director
     
Lexi Terrero 4051 Director

 

Directors and Executive Officers

 

Arik Maimon, our Chairman, is a founder, the Chief Executive Officer and Chairman of the Board of Directors of the Company andBoard. Mr. Maimon served as itsthe Company’s CEO from its inception until2016 to February 2021 and as Interim CEO from February 2021 to August 2021, following which he continues to serve as Executive Chairman of the Board of Directors of the Company.2023. In addition to co-founding the Company, Mr. Maimon founded the Company’s subsidiarysubsidiaries Cuentas Mobile, and M&M. Prior to founding the Company and its subsidiary,subsidiaries, Mr. Maimon founded and ran successful telecommunications companies operating primarily in the United States and Mexico. In 1998, Mr. Maimon founded and ran a privately-held wholesaler of long-distance telecommunications services which, later, under Mr. Maimon’s management, grew from a start up to a profitable enterprise with more than $100 million in annual revenues. Mr. Maimon serves on the Company’s Board of Directors due to the perspective and experience he brings as our co-founder, Chairman and asChief Executive Chairman. Officer.

 

Michael A. De Prado is a founder, the President and Executive Vice Chairman of the Company andBoard. Mr. De Prado also served as its President from its inception until2016 to February 2021.2021, and as Interim President from February 2021 to August 2023. Prior to founding the Company, Mr. De Prado spent 20 years in executive positions at various levels of responsibility in the banking, technology, and telecommunications industries. As President of Sales at telecommunications company Radiant/Ntera, Mr. De Prado grew Radiant/Ntera’s sales to more than $200 million in annual revenues. At theglobe.com, Mr. De Prado served as President, reporting directing to Michael S. Egan. Mr. De Prado serves on the Company’s Board of Directors due to the perspective and experience he brings as our co-founder President, and COO.President.

 

Ran DanielShlomo Zakai has has servedserves as our Chief Financial Officer since November 23, 2018. HeOctober 2023. Mr. Zakai brings extensive and proven experience in similar positions with companies operating in international markets and related industries. Zakai has extensive experience working as a CFO in both rapidly growing companies and publicly traded companies. Mr. Daniel served as the CFOchief financial officer 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 workingUAS Drone Corp. (OTC: USDR) since May 2020, 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 dueof Save Foods, Inc. (SAFO:OTC) (August 2017 to December 2021), Sonovia Ltd. (NNTTF:OTC) (October 2014 to August 2020) and of Todos Medical Ltd. (TOMDF:OTC) (February 2017 till January 2018). Prior to that, Mr. Zakai worked as an accountant for nine years at Kost, Forer, Gabbay & Kasierer, an independent registered public accounting firm and a member firm of Ernst & Young Global, where he last served as a Senior Manager and worked with technology companies publicly traded on the perspectiveNasdaq Stock Market and experience he brings as our Chief Financial Officer.on the Tel Aviv Stock Exchange. Mr. Zakai holds a B.A. in accounting from the College of Management in Rishon Le’Zion, Israel.

 

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. AdivMr. Baruch has over 28 years of experience in equity investment and operation management under distress. Mr. Baruch also serves as chairman of Jerusalem Technology Investments Ltd. He also currently serves as Chairman of Maayan Ventures, a platform for investments in innovative technology companies. Mr. Baruch has served as a director of the Bank of Jerusalem, and he served as CEO of BOS Better Online Solutions, which, under this leadership, grew into a highly-successfulhighly successful company traded on Nasdaq under the symbol BOSC. Throughout his career, he has championed development and support of new talent in the high tech and entrepreneurial arenas. He is a Technion graduate and the Chairman of the Institute of Innovation and Technology of Israel. Mr. Baruch servesis qualified to serve as a member ondirector of the Company’s BoardCompany because of Directors due to the perspective and experience he brings to Ourour Board.

 


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

 

Lexi Terrero is a marketing &and financial executive with over 15 years of experience in digital media, investor relations and private equity. Lexi’s experience combinesMs. Terrero is qualified to serve as a director of the Company because of her 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. JohnsJohn’s University in New York City.

 

Sara Sooy has served as a Somerset County Commissioners since 2019 and has 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 Yeffethas 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.

Mr. Yeffet is qualified to serve as a director of the Company because of his business experience, including his experience as CEO of a public company.

 

Family Relationships

 

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

 

Indemnification of Directors and Officers

 

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

 

Limitation of Liability of Directors

 

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

 

Election of Directors and Officers

 

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

 

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

Involvement in Certain Legal Proceedings

 

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

  

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

 

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

 


Corporate Governance

 

Board of Directors

 

We currently have sevenfive 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.TerreroTerrero, 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. Non-employee directors receive $50,000 per annum and the chairman of the Audit Committee and Compensation Committee receives an additional $16,000 per annum. 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  2023  $67,000  $        -  $-  $            -  $            -  $         -  $67,000 
   2022  $67,000  $-  $110,781  $-  $-  $-  $177,781 
                                 
Haim Yeffet  2023  $45,192  $-  $-  $-  $-  $-  $45,192 
   2022  $-  $-  $-  $-  $-  $-  $- 
                                 
Lexi Terrero  2023  $50,000  $-  $9,100  $-  $-  $-  $59,100 
   2022  $-  $-  $   $-  $-  $-  $- 

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 $-  $-  $   $-  $-  $                     $- 

Ms. Terrero was appointed a director on December 30, 2022 and Mr. Yeffet was elected to serve asappointed a member of Board in 2023.director on February 2, 2023

Board Committees

 

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

Audit Committee

 

Our Board of Directors has an Audit Committee composed of MrMr. Baruch, Ms. SooyMr. Yeffet and Ms. Terrero, each of whom areis an independent directorsdirector 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. The Board of Directors has determined that Mr. Baruch possesses accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the Nasdaq Marketplace Rules and that he is an “audit committee financial expert” as defined by the rules and regulations of the SEC.

 

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 reportAnnual Report on Form 10-K and quarterlyQuarterly 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 company benefit and insurance plans, including monitoring the performance thereof. The Compensation Committee has a charter, which will be reviewed annually.

 

Nomination of Directors

 

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

Code of Business Conduct and Ethics and Insider Trading Policy

 

Our Board of Directors has adopted a Code of EthicalBusiness Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and an Insider Trading Policy. We will provide a copy of our Code of Business Conduct and Ethics to any person without charge, upon written request to our Compliance Officer, at Cuentas Inc., 235 Lincoln Road, Suite 210, Miami Beach, Florida, 33139.

 

Compliance underDelinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than 10% of our outstanding shares of Common Stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership in our Common Stock and other equity securities. To the Company’s knowledge, based solely on its review of Forms 3 and 4 filed electronically with the copies of such reports received or written representations from certain Reporting Persons that no other reports were required,SEC during the registrant’s most recent fiscal year, the Company believes that during its fiscal year ended December 31, 2021,2023, all filing requirements applicable to the Reporting Persons were timely met.met, except that Messrs. Yeffet and Zakai failed to file Form 3s.

 

StockholderShareholder Communications 

 

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

 


ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation

 

Summary Compensation Table

 

The following table sets forth for the last two fiscal years certain information concerning the annual compensation of our Chief Executive Officer and our other executive officers whose compensation was in excess of $100,000 during the last two fiscal years.year ended December 31, 2023.

 

(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
  (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   2023  $295,000  $100,000  $162,265  $         -  $          -  $            -  $557,265 
Executive Chairman and Interim CEO 2021 295,000 $- $326,667 $- $- $- $621,667 
Executive Chairman and Chief Executive Officer  2022  $295,000  $150,000  $257,895  $-  $-  $-  $702,895 
Michael De Prado 2022 $275,000 $150,000 $193,421 $- $- $- $638,421   2023  $275,000  $100,000  $167,797  $-  $-  $-  $542,797 
Executive Vice Chairman 2021 268,400 $- $245,000 $- $- $- $513,400 
Executive Vice Chairman and President  2022  $275,000  $150,000  $193,421  $-  $-  $-  $638,421 
Ran Daniel 2022 $245,000 $- $128,947 $- $- $- $373,943   2023  $224,583  $-  $-  $-  $-  $-  $373,943 
CFO 2021 $274,196 $- $163,333 $- $- $77,400 $514,929 
Former CFO  2022  $245,000  $-  $128,947  $-  $-  $-  $373,943 

Mr. Daniel’s employment with the Company terminated on November 27, 2023, the date of the expiration of his employment agreement.


 

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.

 

On August 21, 2023, the Company entered into an employment agreement with Arik Maimon pursuant to which Mr. Maimon agreed to serve as Executive Chairman and Chief Executive Officer of the Company (the “Maimon Employment Agreement”).

Additionally, on August 26, 2023, the Company entered into an employment agreement with Michael De Prado pursuant to which Mr. De Prado agreed to serve as Executive Vice Chairman and President of the Company (the “De Prado Employment Agreement”). the “Maimon Employment Agreement” and collectively with the De Prado Employment Agreement, the “2023 Compensation Agreements”). The term of each of these 2023 Compensation Agreements became effective as of August 21, 2023 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 2023 Compensation Agreements, the Executives 2023 Compensation Agreements are for a term of five years, subject to the early termination provisions, commencing August 21, 2023 (the “Effective Date”). The 2023 Compensation Agreements are subject to early termination upon Executives’s death, or by the Company for Cause, adjudicated incompetency or adjudicated bankruptcy, the date upon which the Company give the Executives notice of termination on account of Disability, and by the Executives in the event of an Adverse Change in Executive’s Employment Circumstances.


Pursuant to the terms of the Maimon Employment Agreement, Mr. Maimon will receive an annual base salary of two hundred ninety-five thousand dollars ($295,000) per year, subject to increase by the Company’s by Board of Directors upon the recommendation of the Compensation Committee of the Company’s Board of Directors. Mr. Maimon is also entitled to receive as compensation for past services to and to ensure his future services to the Company, subject to shareholder approval, 131,866 shares of the Company’s common stock to increase his ownership interest in the Company to 10.0% calculated on a fully diluted basis, 50% of which shares are to be issued by the Company as soon as practicable after shareholder approval has been obtained, with the remaining 50% of the shares to be issued equally at the end of each of the three calendar years following the Effective Date. The Maimon Employment Agreement provides that if Mr. Maimon’s 10% fully diluted equity interest in the Company is reduced upon issuance by the Company of additional shares, options, or warrants of any kind or nature, the Company shall issue to Mr. Maimon additional shares in number sufficient to preserve and maintain his 10% fully diluted equity interest in the Company, with such shares to be issued under the same terms set forth above. Mr. Maimon is also entitled to a monthly automobile allowance. Mr. Maimon is eligible to participate in such benefit plans as are, or from time-to-time may be, provided by the Company for its senior executive officers.

Pursuant to the terms of the De Prado Employment Agreement Mr. De Prado will receive an annual base salary of two hundred eight-five thousand dollars ($285,000) per year, subject to increase by the Company’s by Board of Directors upon the recommendation of the Compensation Committee of the Company’s Board of Directors. Mr. De Prado is also entitled to receive as compensation for past services to and to ensure his future services to the Company, subject to shareholder approval, 117,214 shares of the Company’s common stock to increase his ownership interest in the Company to 7.0% calculated on a fully diluted basis, 50% of which shares are to be issued by the Company as soon as practicable after shareholder approval has been obtained, with the remaining 50% of the shares to be issued equally at the end of each of the three calendar years following the Effective Date. The De Prado Employment Agreement provides that if Mr. De Prado’s 7% fully diluted equity interest in the Company is reduced upon issuance by the Company of additional shares, options, or warrants of any kind or nature, the Company shall issue to Mr. De Prado additional shares in number sufficient to preserve and maintain his 7% fully diluted equity interest in the Company, with such shares to be issued under the same terms set forth above. Mr. De Prado is entitled to a monthly automobile allowance of $2,000. Mr. De Prado is also eligible to participate in such benefit plans as are, or from time-to-time may be, provided by the Company for its senior executive officers.

The Executives are eligible to receive a discretionary annual performance-based payment of up to 100% of his base salary, which performance-based payment shall be determined by the Compensation Committee of the Board of Directors based on the Company’s performance as compared to the goals established by the Compensation Committee and the Company’s management, including the Annual Budget (as defined in the Maimon Employment Agreement), in consultation with the Executives. At the discretion of the Compensation Committee, this review may be performed each fiscal quarter but not less than semi-annually, and the Performance-Based Bonus awarded, if any, may be paid accordingly. The Performance-Based Bonus shall be prorated for any partial fiscal year in which the Executive was employed by the Company. Executives shall not be entitled to receive any portion of the Annual Incentive Bonus for any year in which his employment is terminated for Cause. Pursuant to the terms of the 2023 Compensation Agreements, The Bonus shall be prorated, based on each fiscal quarter of employment, for any partial fiscal year.

Notwithstanding the limitation on the payment in cash of the Performance-Based Bonus, the Compensation Committee based upon certain criteria specified in the 2023 Compensation Agreements may at its discretion award the Executives stock or stock options as an additional Performance-Based Bonus in addition to the cash component but only an annual basis and only for fiscal years in which the Company’s financial results substantially exceed the Annual Budget. 

Employment Agreement with Mr. Daniel, our former Chief Financial Officer

On November 28, 2018, the Company entered into an Employment Agreement with Mr. Daniel.Daniel for an initial term of five years, which renewed automatically for successive one-year periods unless either party provided ninety days’ prior notice of termination.. Pursuant to the terms of the Employment Agreement, among other things:

 

(1)Mr. Daniel was entitled to receive a base salary of $162,500 per annum for the initial five year term. Furthermore, during the term of his Employment Mr. Daniel’s compensation would not be less than any other officer or employee of the Company or its subsidiary.

(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 had 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.

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

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

 

(2)    Mr. Daniel hasIn accordance with the right, on the same basis as other senior executivesterms of his Employment Agreement, the Company to participate in and to receive benefits under any ofnotified Ran Daniel, that the Company’s employee benefit plans, as such plans mayEmployment Agreement would not 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)     Ifrenewed. 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 toterminated on November 27, 2023, the end of the term of his Employment or six months’ salary, whichever is the greater.Agreement.

 


Engagement of Shlomo Zakai, our CFO

Shlomo Zakai has served as our Chief Financial Officer since October 2023. Mr. Zakai is entitled to $10,000 per month for his services. Mr. Zakai provides the Company with accounting, financial and general business services and advice on current standard practices and trends in his area of expertise.

Clawback Policy

Our Board of Directors adopted a clawback policy covering our executive officers. An executive officer is our chief executive officer, president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president in charge of a significant principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for us.  As of the date of this annual report, our only executive officers are our Chairman of the Board and Chief Executive Officer, our Vice Chairman of the Board and President. and our Chief Financial Officer.  The clawback policy relates to incentive-based compensation, which is any compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure.  The clawback policy covers the recovery of incentive-based compensation from an executive officer only in the event that we are required to prepare an accounting restatement due to the material noncompliance of our financial reporting requirement under the United States securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.  Questions as to “materiality” will be made by the Compensation Committee in coordination with the Audit Committee.

The incentive-based compensation subject to recovery is the incentive-based compensation received during the three completed fiscal years immediately preceding the date that we are required to prepare an accounting restatement as described above, provided that the person served as an executive officer at any time during the performance period applicable to the incentive-based compensation in question provided that the clawback policy shall only apply if the incentive-based compensation is received while we have a class of securities listed on Nasdaq and on or after October 2, 2023.   Each of Arik Maimon, our Chairman of the Board and Chief Executive Officer, and Michael De Prado, our Vice Chairman of the Board and President, have an employment agreement which provides for incentive-based compensation during the term of their employment agreements with the Company.

 

Outstanding Equity Awards at Fiscal Year End

 

The following table sets forth information concerning the outstanding equity awards of each of the Named Executive Officers as of December 31, 2022:2023:

 

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)
 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 
Shlomo Zakai  -        -        -   -   -       -       -        -  $     - 
                                                                    
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   15,385   -   -  $36.40   15,385 at November 2, 2031   -   -   -  $- 
                                                                    
Michael De Prado  14,246   -   -  $5.00  $2,708 at March 29,2025 and 11,538 at November 2, 2031          -  $193,421   11,538   -   -  $36.40   11,538 at November 2, 2031           -  $- 

 


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

The following table sets forth, as of March 31, 2023,29, 2024, 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,our executive officers, and (iv) our directors and executive officers as a group. There were 2,730,058 shares of our common stock outstanding as of March 29, 2024.

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security which such person has the right to acquire sole or shared voting or investment power within sixty (60) days through the conversion or exercise of any convertible security, warrant, option, or other right. More than one (1) person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within sixty (60) days, by the sum of the number of shares outstanding as of such date including the number of such shares which such person has the right to acquire. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.

Unless otherwise indicated, the address of each shareholder is c/o our companyCompany at our principal office address:address, 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139.

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 Number of
Shares
Beneficially
Owned
  Percent of
Class
 
Arik Maimon (1)
Chief Executive Officer and Chairman
  282,520(1)  9.79%
         
Michael De Prado (2)
President and Vice Chairman
  183,498(2)  6.43%
         
Adiv Baruch (3)
Director
  52,564(3)  1.89%
         
Lexi Terrero (4)
Director
  47,692(4)  1.72%
         
Haim Yeffet (5)
Director
  40,000(5)  1.44%
         
Shlomo Zakai (5)
Chief Financial Officer
  40,000(5)  1.44%
         
All Directors and Officers as a Group (6) persons)  646,274   20.29%
         
5% or More Shareholders        
         
Alize Irrevocable Trust  195,420   7.16%
         
Dinar Zuz LLC (6)  207,924   7.62%
         
Core Development Holdings Corporation (7)  295,282   10.82%
         
Armistice Capital Master Fund Ltd.(8)  1,232,606(8)  31.11%(8)

(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) 124,693127,072 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)to purchase 15,384 stock options,shares, exercisable until November 2, 2031 with an exercise price of $36.40 per share.

(3)Michael De Prado is our Vice Executive Chairmanshare, and Director.  Consists(iii) options to purchase 140,063 shares (of a total of (i) 763,030 shares of Common Stock and (ii) 2,708 stock options,131,866 shares) exercisable within 60 days, exercisable until March 29, 2023February 22, 2034 with an exercise price of $186.55$0.32 per share (iii)share.

(2)Consists of (i) 58,697 shares, (ii) options to purchase 11,538 stock options,shares, exercisable until November 2, 2031 with an exercise price of $36.40 per share, and (iii) options to purchase 113,263 shares (of a total of 117,214 shares), exercisable until February 22, 2034 with an exercise price of $0.32 per share.


(4)(3)Adiv Baruch is our director. Consists of (i) 4,872 shares, of Common Stock and(ii) options to purchase 7,692 stock options,shares, 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) 4,872share, and (iii) options to purchase 40,000 shares, of Common Stock and (ii) 1,538 stock options, exercisable until April 6, 2024February 22, 2034 with an exercise price of $67.93$0.32 per share (iii)share.

(4)Consists of (i) options to purchase 7,692 stock options,shares, 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 stockshare, and (ii) options to purchase 40,000 shares, exercisable until December 29, 2032February 22, 2034 with an exercise price of $36.40$0.32 per share.

(5)(7)Sara Sooy is our director. Applicable percentages based on 3,846 stockConsists of options to purchase 40,000 shares, exercisable until May 15, 2032February 22, 2034 with an exercise price of $36.40per$0.32 per share.

(8)(6)Pursuant to a Schedule 13G filed by Dinar Zuz LLC (“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.

Dinar’s (9)Haim Yeffetaddress 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.1898 NW 74th Ave. Pembroke Pines, FL 33024.

 

(7)Core Development Holdings Corporation’s address is 1001 NW 163rd Drive, Miami, Florida 33169.


(8)Consists of 1,232,606 issuable upon exercise of the Inducement Warrant, all of which are directly held by Armistice Capital Master Fund Ltd. (the “Master Fund”), a Cayman Islands exempted company, and may be deemed to be indirectly beneficially owned by Armistice Capital, LLC (“Armistice”), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital.  Armistice and Steven Boyd disclaim beneficial ownership of the reported securities except to the extent of their respective pecuniary interest therein.  The Inducement Warrant is subject to a 4.99% beneficial ownership limitation, which limitation prohibits the Master Fund from exercising any portion of the Inducement Warrant if, following such exercise, the Master Fund’s ownership of our shares of common stock would exceed the beneficial ownership limitation. The address of the Master Fund is c/o Armistice Capital, LLC, 510 Madison Avenue, Seventh Floor, New York, NY 10022.

Changes in Control

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

 

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

Other than compensation arrangements for our directors and executive officers, which are described elsewhere in this prospectus,Except as set forth 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 will2023, there have a direct or indirect material interest

Statement of Policy

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

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

 

During the third and fourth quarters of 2023, we made wholesale telecommunication revenues of $2,176,000 pursuant to a Bilateral Wholesale Carrier Agreement with Next Communications Inc., a company controlled by Arik Maimon our Chairman of the Board and our CEO. We realized a gross profit of approximately $6,000 after payment of expenses related to this transaction. We believe that the terms of this transaction were as favorable to us as could have been obtained from an unaffiliated third party.


Related Person Transaction Approval Policy

While we have no written policy regarding approval of transactions between us and a related person, our Board, as matter of appropriate corporate governance, reviews and approves all such transactions, to the extent required by applicable rules and regulations. Generally, management would present to the Board for approval at the next regularly scheduled Board meeting any related person transactions proposed to be entered into by us. The Board may approve the transaction if it is deemed to be in the best interests of our shareholders and the Company.

All future transactions between us and our officers, directors or five percent shareholders, 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.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Independent Public Accounting Firm

Yarel + Partners, located in Tel Aviv, Israel, has served as the Company’s independent public accounting firm since 2023.

 

(1) Audit and Accounting Fees

 

The Company incurred annual audit fees duringfollowing table sets forth 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, 2022 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 no other fees billed to our Company for products orprofessional services providedrendered by Yarel + Partners our principal accountantindependent registered public accounting firm, for the fiscal years ended December 31, 20222023 and December 31, 2021.2022.

Services 2023  2022 
Audit fees $50,000  $55,000 
Audit related fees  45,000   30,000 
Tax fees  -   - 
All other fees  -   - 
Total fees $95,000  $85,000 

 

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

 

Board of Directors’ Pre-Approval Policies 

Our Board of Directors’ policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit related services, tax services, and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the board of directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.

Our Board of Directors reviewed our audited financial statements contained in our Annual Report on Form 10-K for the 2023 fiscal year. The Board of Directors also has been advised of the matters required to be discussed pursuant to PCAOB Rule 3526 (Communication with Audit Committees Concerning Independence), which includes, among other items, matters related to the conduct of the audit of our financial statements.

Our Board of Directors considered whether the provision of services other than audit services is compatible with maintaining auditor independence. Based on the review and discussions referred to above, the Board of Directors has determined that the audited financial statements be included in our Annual Report on Form 10-K for our 2023 fiscal year for filing with the SEC.


 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Consolidated Financial Statements

 

(a)Consolidated Financial Statements


 

 

CUENTAS, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 20222023

CUENTAS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

 

TABLE OF CONTENTS

 Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMSF-2
  
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Firm Name: YAREL + PARTNERS / PCAOB ID No. 1024/ Location: Tel Aviv, Israel)
F-2
CONSOLIDATED FINANCIAL STATEMENTS: 
Consolidated Balance Sheets as of December 31, 2022,2023 and December 31, 20212022F-5F-3
Consolidated Statements of Comprehensive lossLoss for the years ended December 31, 20222023 and December 31, 20212022F-6F-4
Statements of Changes in Stockholders’ EquityShareholders’ Deficit for the years ended December 31, 20222023 and December 31, 20212022F-7F-5
Consolidated Statements of Cash Flows for the years ended December 31, 20222023 and December 31, 20212022F-9F-6
Notes to Consolidated Financial StatementsF-10F-8 – F-31

 

F-1


 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheetsheets of Cuentas, Inc. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of loss, comprehensive loss, Changes in stockholders’ deficit, and cash flows for each of the year thenyears in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the year thenyears in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United 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 consolidated 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, 2022,2023, there is an accumulated deficit of $52,750 thousand.approximately $55 million and a negative working capital of approximately $3 million. These conditions, 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

 

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 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 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 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 regarding the amounts and disclosures in the financial statements. Our audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

 

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.

/s/ Yarel + Partners

Certified Public Accountants (Isr.)

Tel-Aviv, Israel

Tel-Aviv, IsraelApril 15, 2024

March 31, 2023

We have served as the Company’s auditor since 2023


CUENTAS, INC.

CONSOLIDATED BALANCE SHEETS

(USD in thousands except share and per share data)

  December 31,  December 31, 
  2023  2022 
Assets      
Current Assets      
Cash and cash equivalents $205  $466 
Accounts Receivables – related parties  1,300   198 
Accounts Receivables – others  7   11 
Related parties receivables  172   - 
Other current assets  76   14 
Total Current Assets  1,760   689 
         
Non-Current Assets        
Property and equipment, net  13   6 
Investment in unconsolidated entities  2,928   776 
Intangible assets  19   28 
Total Non-Current Assets  2,960   810 
         
Total assets $4,720  $1,499 
         
Liabilities and Stockholders’ Deficit        
Current Liabilities        
Trade payable $1,497  $1,231 
Other accounts liabilities  2,230   681 
Warrants liability, net  785   - 
Deferred revenue  151   113 
Notes and Loan payable  26   109 
Total Current Liabilities  4,689   2,134 
         
Non-Current Liabilities        
Other long-term loans  101   89 
Total Non-Current Liabilities  101   89 
         
Total Liabilities  4,790   2,223 
         
Stockholders’ Deficit        
Common stock, 0.001 par value each: 50,000,000 and 11,076,923 shares authorized as of December 31, 2023 and 2022, respectively; issued and outstanding 2,719,668 and 1,473,645 shares as of December 31, 2023 and 2022, respectively.  3   2 
Additional paid-in capital  54,906   52,053 
Treasury Stock  (33)  (29)
Accumulated deficit  (54,946)  (52,750)
Total Stockholders’ Deficit  (70)  (724)
Total Liabilities and Stockholders’ Deficit $4,720  $1,499 

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


CUENTAS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(USD in thousands except share and per share data)

  Year ended 
  December 31, 
  2023  2022 
       
Revenues from related parties $2,250  $2,052 
Other revenues  96   942 
Total revenues  2,346   2,994 
Cost of revenues  (2,733)  (2,508)
Gross (loss) profit  (387)  486 
         
Operating expenses        
Amortization of Intangible assets, net  (11)  (1,810)
Impairment of Intangible Assets  -   (3,600)
Selling, General and administrative expenses  (6,011)  (9,431)
Total Operating expenses  (6,022)  (14,841)
         
Operating loss  (6,409)  (14,355)
         
Other expenses        
Other expenses, net  (441)  (132)
Interest income  -   6 
Gain from Change in fair value of derivative warrants liability, net  4,741   2 
Total other income (expenses)  4,300   (124)
         
Net loss before equity losses  (2,109)  (14,479)
         
Equity losses in unconsolidated entities  (87)  (52)
Net loss $(2,196) $(14,531)
         
Loss per share (basic and diluted) $(0.95) $(11.81)
         
Basic and diluted weighted average number of shares of common stock outstanding  2,317,213   1,230,577 

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


CUENTAS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(USD in thousands, except share and per share data)

  Number of
Shares
(**)
  Amount  Additional
paid-in
capital
  Treasury
stock
  Accumulated
deficit
  Total
stockholders’
deficit
 
                   
BALANCE AT DECEMBER 31, 2021  1,151,207  $2  $47,667  $-  $(38,219) $9,450 
Issuance of Shares of Common Stock for cash, net
of issuance expenses (***)
  324,928   *   2,689   -   -   2,689 
Share based Compensation  -   -   1,587   -   -   1,587 
Shares issued for services  7,693   *   110   -   -   110 
Treasury Stock  (10,183)  *   -   (29)  -   (29)
Net loss for the year ended December 31, 2022  -   -   -   -   (14,531)  (14,531)
BALANCE AT DECEMBER 31, 2022  1,473,645   2   52,053   (29)  (52,750)  (724)
Issuance of Shares of Common Stock for cash, net
of issuance expenses (****)
  907,679   1   1,531   -   -   1,532 
Share based Compensation  43,144   -   622   -   -   622 
Issuance of Shares of Common Stock due to acquisition of an asset  295,282   *   700   -   -   700 
Treasury stock  (227)  *   -   (4)  -   (4)
Reverse split  145   *   *   -   -   - 
Net loss for the year ended December 31, 2023  -   -   -   -   (2,196)  (2,196)
BALANCE AT DECEMBER 31, 2023  2,719,668  $     3  $54,906  $(33) $(54,946) $(70)

(*)represents amount less than $1 thousand.
(**)Adjusted to reflect one (1) for thirteen (13) reverse stock split in March 2023 (see note 1).
(***)Issuance expenses totaled $312
(****)Issuance expenses totaled $408

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


CUENTAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(USD in thousands)

  Year ended 
  December 31, 
  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $(2,196) $(14,531)
Adjustments required to reconcile net loss        
to net cash used in operating activities:        
Stock based compensation and shares issued for services  622   1,697 
Equity losses in non-consolidated entity  87   52 
Interest  (70)  12 
Loan to Cuentas SDI LLC that was not repaid  -   100 
Credit losses  -   157 
Change in fair value of derivative warrants liability  (6,852)  (3)
Issuance expenses and a day-one loss on derivative warrants liability  3,127   - 
Impairment of investments in unconsolidated entities  545   - 
Depreciation expense  4   3 
Impairment of intangible assets  -   3,600 
Amortization of intangible assets  11   1,810 
Changes in Operating Assets and Liabilities:        
(Increase) in accounts receivable – related parties  (1,102)  (588)
Decrease in accounts receivable – other  4   - 
(Increase) decrease in other current assets  (87)  148 
(Increase) in related parties, net  (172)  - 
Increase in accounts payable  299   421 
Increase (decrease) in other accounts liabilities  1,548   (445)
Increase (decrease) in deferred revenue  39   (570)
Net cash used in operating activities  (4,193)  (8,137)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Investment in unconsolidated entities  (2,085)  (657)
Purchase of equipment  (11)  (7)
Purchase of intangible asset  (303)  - 
Proceeds from sale of intangible asset  301   - 
Net cash used in investing activities  (2,098)  (664)
         
CASH FLOWS FROM FINANCE ACTIVITIES:        
Proceeds from issuance of common stock and warrants, net of issuance expense  6,034   2,689 
Treasury stock  (4)  (29)
Net cash provided by finance activities  6,030   2,660 
         
(DECREASE) IN CASH AND CASH EQUIVALENTS  (261)  (6,141)
         
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR  466   6,607 
         
CASH AND CASH EQUIVALENTS AT END OF YEAR $205  $466 

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

 

F-2


 

 

CUENTAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (USD in thousands)

 

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 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year in the period ended December 31, 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 critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-3

 

Going concern assessment

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

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

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

Non-cash investing and financing activities:      
Investment in unconsolidated entity against accounts receivables $-  $233 
Issuance of Shares of common stock for investment in unconsolidated entity $700  $- 
Warrants liability converted into shares of common stock $832  $- 

 

Supplemental disclosure of cash flow information: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.
   
Cash paid for taxesEvaluating the probability that the Company will be able to reduce capital expenditures and other operating expenditures if required.$
-  $- 
Cash paid for interestAssessing management’s plans in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusions reached by management.$
    -  $- 
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 asThe accompanying notes are an integral part of the Company’s auditor since 2018 till 2023consolidated financial statements.

F-4


 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED BALANCE SHEETSFINANCIAL STATEMENTS

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

 

  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 

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

F-5

CUENTAS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

  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 

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

F-6

CUENTAS, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

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

  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.

**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

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

Cuentas, Inc. (the “Company”) together with its subsidiaries, is mainly focused on financial technology (“FINTECH”) services, delivering mobile financial services, prepaid debit and digital content services to unbanked, underbanked and underserved communities. During 2023-Q1, the Company initiated its first investment into the Real Estate market and, made its second, more significant investment in Real Estate in the second quarter of 2023. The Company derivesderived its revenue from wholesale telecommunication services, GPR “Debit” Card fees and the sales of prepaid products and services including third party digital content, gift cards, remittances, mobile phone topups and other digital services.   Additionally, Thethe Company has an agreement with Interactive Communications International, Inc. (“InComm”) a leading processor of general purpose reloadable (“GPR”) debit cards, to market and distribute a line of prepaid 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 was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries.2005. Its subsidiary, is Meimoun and Mammon, LLC (100% owned) (“M&M”),Tel3, a business segment of Meimoun and Mammon, LLCthe Company, provides prepaid calling cards to consumers directly and operates in a complimentary space as Meimoun and Mammon, LLC. The Company also ownsinvested $46, of which $20 were invested during 2023, for 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.

NASDAQ

 

On March 3, 2022August 18, 2023, the Company providedreceived a loan to Cuentas SDI, LLC. Asdeficiency letter from Nasdaq Regulation stating that based upon its Quarterly Report on Form 10-Q for the period ended June 30, 2023 which reported shareholders’ equity of December 31, 2022$1,471, the loanCompany was not 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”)in compliance 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 allowNasdaq Marketplace Rule 5550(b)(1) which requires the Company to realize 40%maintain shareholders’ equity of the Cuentas SDI gross revenues and reflect 40% of the gross revenuesnot less than $2,500 for continued listing 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 MIPA. The 60-day option to acquire the remaining 80.01% of the membership interests of Cuentas SDI expired on July 27, 2022.Nasdaq Capital Market.

 

F-10

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On August 22, 2022,October 3 2023, the Company entered intoreceived a Software Licensing and transaction sharing AgreementStaff Determination Letter from Nasdaq Regulation stating that due to the Company’s failure by October 2, 2023, to submit a plan to regain compliance with The OLB Group, Inc. (“OLB)Nasdaq Listing Rule 5550(b)(1), 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$2,500 stockholders’ equity requirement, the Company will use reasonable best effortswould be subject to interconnect its reload agreement with the OLB POS platform for use in qualified merchant locations.delisting unless it timely requests a hearing before a Nasdaq Hearings Panel (the “Panel”). The Company will markethas requested a hearing before 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 forthPanel which was held 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.December 7, 2023.

 

REVERSE SPLITOn December 18, 2023, the Company received written notice from the Panel notifying the Company that the panel has determined to delist the Company’s shares and warrants from Nasdaq and that trading of its common stock and warrants will be suspended as of the opening of business on December 20, 2023. Company securities began trading on the Pink Current Information tier of the over-the-counter market operated by OTC Markets Group effective with the open of business on December 20, 2023, under its trading symbol: CUEN.

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 authorized shares of common stock has been proportionately reduced; (iii) the number of shares of common stock underlying each common stock option or common stock warrant have been proportionately decreased on a 13-for-11-for-13 basis, and (iv) the exercise price of each such outstanding stock option and common warrant has been proportionately increased on a 13-for-11-for-13 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-11-for-13 reverse stock split.


CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

GOING CONCERNNOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)

 

GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2022,2023, the Company had approximately $466$205 in cash and cash equivalents, approximately $1,445$2,929 in negative working capital, negative shareholder equityshareholder’s deficit of $724$70 and an accumulated deficit of approximately $52750.$54,946. 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 equity and capital markets as the Company will need to finance future activities. The Company, through M&M is negotiating to sell mobile services as a Mobile Virtual Network Operator (“MVNO”) through an operator on the largest 5G nationwide network and plans to offer low-cost mobile phone service with the ability to make international calls to specific Spanish speaking countries in Central and South America. In addition, as noted in note 14, on March 13, 2024, the Company approved the signing of a letter of intent to sell the “Brooksville Property” for gross proceeds of $7,200 (see note 14 for further information). 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 OFFERINGNOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

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 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.

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

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

 

Use of Estimates

A.Use of Estimates

 

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

   

Principles of consolidation

B.Principles of consolidation

 

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

 

Functional currency

C.Functional currency

 

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

 

Reclassification of Prior Year Presentation

D.Cash and cash equivalents

 

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

Cash and cash equivalents

The Company considers all short-term investments, which are highly liquid investments with original maturities of three months or less at the date of purchase, to be cash equivalents.

 

E.Property, plant and equipment, net

Allowance for credit losses

The Company adopted 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 longer collectible.

There was an allowance for doubtful accounts of $177 and $20 as of December 31, 2022 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 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, 2022 the Company has lease agreement of less than 12 months. 

1.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.

 

F-13


 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Property and Equipment

2.Rates of depreciation:

 

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.

%
Computers33

 

Variable Interest Entities

F.Variable Interest Entities

 

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

 

Impairment of Long-Lived Assets

G.Impairment of Long-Lived Assets

 

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 an asset may not be recoverable. 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 recoverability of assets 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 measured 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 our ability to recover the carrying value and can result in an impairment charge. The Company did not record impairment losses during the year ended December 31, 2021.2023. The Company recorded impairment losses in the amount of $3,600 thousand during the year ended December 31, 2022.

Derivative Liabilities and Fair Value of Financial Instruments

 

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

H.Investments in equity securities

 

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 valueaccounts for investments for which it does not have a controlling interest in accordance with ASC Topic 820, “Fair Value Measurements323, Investments – Equity Method and Disclosure”,Joint Ventures. The Company recognizes its pro-rata share of income and losses in the investment in “Loss from equity method investment” on the consolidated statement of operations and comprehensive loss, with a corresponding change to the investment in equity method investment in the consolidated balance sheet until such investment is reduced to zero.

The Company accounts for its investments that represent less than 20% ownership, and for which definesthe Company does not have the ability to exercise significant influence, using ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The Company measure investments in equity securities without a readily determinable fair value establishesusing a framework for measuring fair valuemeasurement alternative that measures these securities at the cost method minus impairment, if any. Gains and losses on these securities are recognized in accordance with generally accepted accounting principlesother income and expands disclosures about fair value investments.expenses.

 

F-14


 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollarsUSD 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:

Balance 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)thousands)

 

Deferred RevenueNOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)

 

I.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 amountnumber 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

J.Revenue Recognition

 

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

Revenue Recognition

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

 

The Company is also recognizerecognizes revenue in accordance with ASC Topic 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 (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 performance obligation, and assess whether each promised good or service is distinct. The Company then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

K.Business Segments

The Company operates in three-business segments: (i) telecommunications (ii) wholesale telecommunication services (iii) digital products and general purpose reloadable cards.

L.Concentrations of credit risk

Business SegmentsFinancial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents as well as certain other current assets that do not amount to a significant amount. Cash and cash equivalents, which are primarily held in Dollars, are deposited with major banks in the United States. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company does not have any significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

 

The Company operates in a two-business segments of telecommunications and General Purpose Reloadable Cards.


 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes(USD in thousands)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)

M.Commitments and Contingencies

The Company records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.

 

N.Income Taxes

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

 

F-16

O.Net Loss Per Basic and Diluted Common Share

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Net Loss Per Basic and Diluted Common Share

Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earningsloss per share is calculated by dividing the Company’s net income availableloss applicable 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, 2023, potentially dilutive securities consisted of 1,523,561 shares of which 84,999 options to purchase of common stock at prices ranging from $36.40 to $67.93 per share and 1,438,850 warrants to purchase of common stock at prices ranging from $1.782 to $69.88 per share. The effects of these options and warrants been excluded as the conversion would be anti-dilutive due to the net loss incurred in the year ended December 31, 2023.

At December 31, 2022, potentially dilutive securities consisted of 615,063shares615,063 shares of which of 128,477 options to purchase of common stock at prices ranging from $36.40 to $186.55 per share and 486,587 warrants to purchase of common stock at prices ranging from $7.67 to $260.00 per share. The effects of these options and warrants been excluded as the conversion would be anti-dilutive due to the net loss incurred in the year ended December 31, 2022.

 At December 31, 2021, potentially dilutive securities consisted of 260,854 shares which of 121,938 options to purchase of common stock at 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 the conversion would be anti-dilutive due to the net loss incurred in the year ended December 31, 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. 

Stock-Based Compensation

 

P.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 accounts for forfeitures as they occur.

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 whichincluding the most significant are share price, expected volatility, the expected life of the award, the risk-free interest rate 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.dividend yield. 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. dollarsUSD in thousands, except share and per share data)thousands)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Q.Fair Value Measurements

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 820, “Fair Value Measurements and Disclosure” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

Related Parties

Fair value, as defined in ASC 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 non-performance, 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 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: 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 comprehensive loss.

R.Allocation of proceeds and related issuance costs

When multiple instruments are issued in a single transaction (package issuance), the total net proceeds from the transaction are allocated among the individual freestanding instruments identified. The allocation occurs after identifying all the freestanding instruments and the subsequent measurement basis for those instruments.

Financial instruments that are required to be subsequently measured at fair value (i.e. derivative warrants liability and derivative liability related to bifurcated embedded conversion feature) are measured at fair value and the remaining consideration is allocated to other financial instruments that are not required to be subsequently measured at fair value (i.e. certain convertible bridge loans, warrants eligible for equity classification) and common stock, based on the relative fair value basis for such instruments.

The allocation of issuance costs to freestanding instruments was based on an approach that is consistent with the allocation of the proceeds, as described above.

Issuance costs allocated to the derivative warrant liability or bifurcated embedded conversion feature were immediately expensed, as discussed above. Issuance costs allocated to warrants stock classified as equity component were recorded as a reduction of additional paid-in capital. Issuance costs allocated to convertible bridge loan (or to the host component of convertible bridge loan if bifurcation was applied) are recorded as a discount of the host component and accreted over the contractual term of loans up to face value of such loans using the effective interest method.

 


CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)

S.Derivative Warrants Liability

The registrant follows subtopic 850-10Company accounts for certain warrants to purchase Ordinary Shares in connection with certain transactions, held by investors, that include a fundamental transaction feature pursuant to which such warrants could be required to be settled in cash upon certain events, as current liability according to the provisions of ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity” (“ASC 815-40”). The Company accounted for these warrants as a financial liability measured upon initial recognition and on subsequent periods at fair value by using the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.Black-Scholes Option Pricing Model.

 

PursuantCertain warrants that were granted by the Company in connection with certain transactions (see also Note 8) entitle the investors to Section 850-10-20exercise the warrants for a variable number of shares and/or for a variable exercise price and thus the FASB Accounting Standards Codification,fixed-for-fixed criteria is not met. Accordingly, the Related parties include (a) affiliateswarrants were classified as a non-current liability according to the provisions of the registrant; (b) entitiesASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity” (“ASC 815-40”). The Company accounted for which investments in their equity securities would be required, absent the election of thethese warrants as a financial derivative liability measured upon initial recognition and on subsequent periods at fair value option underby using the Fair ValueBlack-Scholes Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.Pricing Model.

 

The financial statements shall include disclosuresfair value of material related party transactions, other than compensation arrangements, expense allowances,the aforesaid warrants derivative liability is estimated using the Black-Scholes Model which requires inputs such as the expected term of the warrants, share price volatility and other similar itemsrisk-free interest rate. These assumptions are reviewed on a regular basis and changes in the ordinary courseestimated fair value of business. However, disclosurethe outstanding warrants are recognized each reporting period as part of transactionsin the “Financing (income) expenses, net” line in operations in the accompanying consolidated statement of net loss, until such warrants are exercised or expired. When applicable, direct issuance expenses that were allocated to the above warrants were expensed as incurred.

T.Recently Adopted Accounting Standards

From time to time, the Financial Accounting Standards Board (the “FASB”) or other standard-setting bodies issue accounting standards that are eliminated inadopted by 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 partiesCompany as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.specified effective date.

Recently Issued Accounting Standards

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses:Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments,. ASU 2016-13 requires measurement and recognition of expected which replaces the “incurred loss” credit losses framework with a new accounting standard that requires management’s measurement of the allowance for financial assets. In April 2019, the FASB issued clarificationcredit losses to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivativesbe based on a broader range of reasonable and Hedgingand Topic 825, Financial Instruments, or ASU 2016-13. Thesupportable information for lifetime credit loss estimates. This guidance is effective for fiscal years beginning after December 15, 2022. The Company adopted ASU 2016-13 since December 15, 2022.

Other accounting standards that have been issued or proposed by2022, and the FASB or other standards-setting bodies that doadoption of this standard in 2023 did not require adoption until a future date are not expected to have a material impact on ourthe Company’s consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40); Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which addresses issues identified as a result of the complexities associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. This update addresses, among other things, the number of accounting models for convertible debt instruments and convertible preferred stock, targeted improvements to the disclosures for convertible instruments and earnings-per-share (“EPS”) guidance and amendments to the guidance for the derivatives scope exception for contracts in an entity’s own equity, as well as the related EPS guidance. This update applies to all entities that issue convertible instruments and/or contracts in an entity’s own equity. This guidance is effective for financial statements upon adoption.issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The adoption of ASU 2020-06 on January 1, 2022 did not have a material impact on the Company’s consolidated financial statements and disclosures.

F-18


 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

 

CUENTAS, INC.NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40); Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the FASB Emerging Issues Task Force (“ASU 2021-04”), which aims to clarify and reduce diversity in issuer's accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. This update applies to all entities that issue freestanding written call options that are classified in equity. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on the Company’s consolidated financial statements and disclosures.

U.Recently Issued Accounting Standards Not Yet Effective

Improvements to Reportable Segment disclosures (Topic 280):

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses and segment-related data. For public companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. The Company does not expect this ASU to have a material effect on its consolidated financial statements.

Improvements to Income Tax Disclosure (Topic 740):

In December 2023, the FASB issued ASU No. 2023-09, Income Tax (Topic 740) - Improvements to Income Tax Disclosures which requires companies to break out their income tax expense, income tax rate reconciliation and income tax payments made in more detail. For public companies, the requirements will become effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect this ASU to have a material effect on its consolidated financial statements.


CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 –INVESTMENTS– INVESTMENTS IN UNCONSOLIDATED ENTITIES

The following table presents Company’s investments in unconsolidated entities as of December 31, 2023 and 2022:

  Holding  As of
December 31,
  As of
December 31,
 
  %  2023  2022 
          
Lakewood (a)  6% $700  $   - 
Brooksville development (b)  63%  2,015   - 
Cuentas Max LLC (c)  50%  -   26 
Cuentas SDI (d)  19.99%  213   750 
      $2,928  $776 

(a)On February 3, 2023, the Company entered into a Membership Interest Purchase Agreement (MIPA) with Core Development Holdings Corporation (“Core”). Core 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 agreed to sell to the Company 6% of its interest in the Lakewood Manager to the Company in exchange for 295,282 shares of the Company’s common stock, representing 19.99% of the then outstanding shares of the Company’s common stock. The 6% equity in the Lakewood Manager was valued at approximately $700. The Company closed this transaction on or about March 9, 2023.

The company used the measurement alternative which provides an accounting framework for valuing an equity security investment in the absence of a readily determinable fair value. Accordingly, the investment was accounted for at a cost basis. The Company performed an impairment test in accordance with its internal procedures, no indicators triggered impairment.

(b)On April 13, 2023, the Company signed an Operating Agreement to be a majority member in Brooksville Development Partners, LLC (“Brooksville”) with 2 minority members for the purpose of acquiring land for the development of a residential apartment community consisting of approximately 360 apartments. All real and personal property owned by Brooksville shall be owned by Brooksville as an entity, and neither the Members nor the Manager will have any ownership interest in such property. One of the minority members will be the manager of the project.

On April 28, 2023, the Company and minority partners in Brooksville closed on the transaction to acquire a 21.8 acre site for development of the Brooksville project. The Company had deposited an “Initial Capital Contribution” of $2,000 into a title insurance escrow account which was released from escrow by the Title Agent to fund the balance of the purchase price of the Vacant Land, together with a $3,050 bank loan to Brooksville from  Republic Bank of Chicago. The Company is currently a 63% interest holder in Brooksville but that may change in the future if the Company is not able to raise sufficient financing to complete the project. Since the Company does not manage or control the LLC and its losses are limited to the cost amount, the Brooksville transaction was accounted for as an investment in an unconsolidated entity in accordance with ASC 323, using the equity method of accounting with the Company as the acquirer. 

See note 14, Subsequent Events, for additional information.

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. .

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 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 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.

F-19


 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 – INVESTMENTS IN UNCONSOLIDATED ENTITIES (continued)

 

(c)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 (for a total of $240) initially upon execution of the Agreement. In addition, each of Cuentas and WaveMAX has agreed to fund an additional $127.5 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. 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 31,2023, the Company funded $100 in CUENTASMAX and recorded equity losses of $92 and impairment losses of $8.

(d)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 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 Cuentas SDI. During the year ended December 31, 2022, Cuentas SDI did not repay the loan to the Company and therefore that Company wrote off the entire loan.

On June 15, 2023, the OLB Group, Inc. entered into a Membership Interest Purchase Agreement dated as of June 15, 2023 with SDI Black 001, LLC whereby it acquired 80.01% of the membership interests of Cuentas SDI, LLC for a purchase price of $850. This purchase price resulted in an impairment loss of $537.

NOTE 4 – INTANGIBLE ASSETS

 

The following table presents the Company’s intangible assets as of December 31, 2023 and 2022:

  December 31, 2023  December 31, 2022 
Asset Carrying
Amount
  Accumulated
Amortization
  Net Book
Value
  Carrying
Amount
  Accumulated
Amortization
  Net Book
Value
 
CIMA perpetual software license $9,000  $9,000   -  $9,000  $9,000   - 
Domain  47   28   19   47   19   28 
Total    9,047   9,028   19   47   9,019   28 

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. 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. On December 31, 2022 the Company recorded an impairment charge related to the acquired intangible assets that consisted of CIMA perpetual software license in the amount of $3,600. Such amount was recorded as part of the operating expenses.


 

The acquired intangible assets that consistedCUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 4 – INTANGIBLE ASSETS (continued)

On March 5, 2021, the Company purchased the domain www.cuentas.com in consideration of perpetual software license had an estimated fair value of $9,000.$47. The Company will amortizeamortizes the intangible assets on a straight-line basis over theirits expected useful life of 60 months. Identifiable intangible assets were recorded as follows: 

On May 18, 2023, the Company purchased the domain www.roofs.com in consideration of $303. On October 24, 2023 the Company entered into a sale agreement with a third party according to which, the Company sold its rights in the domain for $301.

 

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

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

 

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

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

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

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

 

Year ended December 31,   
2023 $

10

 
Asset Amount 
2024  

10

  $10 
2025  8   9 
Total $

28

   19 

 

Amortization expense was $11 for the year ended December 31, 2023, and $1,810 for the year ended December 31, 2022, and $1,809 for the year ended December 31, 2021, respectively. Amortization expense for each period is included in operating expenses. During the year ended December 31, 2022, the Company recorded an impairment charges related to the acquired intangible assets that consisted of perpetual software license in the amount of $3,600.

 

F-20

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5 – OTHER ACCOUNTSACCOUNT LIABILITIES

  December 31, 
  2023  2022 
       
Accrued expenses and other liabilities $2,135  $309 
Accrued salaries and directors’ fee  95   105 
Accrued bonuses  -   267 
  $2,230  $681 

  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 

NOTE 6 – WARRANTS LIABILITY, NET

  December 31, 
  2023  2022 
       
Outstanding at January 1 $-  $- 
Issued to investors  8,049   - 
Issued to placement agents  420   - 
Exercised  (832)  - 
Changes in fair value  (6,852)  - 
Outstanding at December 31 $785  $- 

For additional information see Note 9 – Stockholders’ Equity.

 


CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 67 – RELATED PARTY TRANSACTIONS

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, 2022 and 2021.

Employment Agreementsagreements

 

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

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

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

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

(3)For each Executive, the term of the Agreement shall end on the earlier of (i) the date that is four months following the Effective Date or (ii) the date that the Company appoints a new president or chief operating officer but the Company can extend the Employment Term on a month to month basis with the approval of both Dinar 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

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On February 24, 2021, the employment agreement dated July 24, 2020 for Arik Maimon expired in accordance with its terms and as previously disclosed by the Company. As a result of the expiration of the employment agreement, Mr. Maimon was no longer employed as the Chief Executive Officer of the Company, but he continued to act as Chairman of the Board of Directors of the Company. On February 25, 2021, the Board appointed Mr. Maimon to act as interim Chief Executive Officer, which position will terminate upon the earlier of August 25, 2021 or the date on which his successor is duly elected and appointed by the Board of the Company. On February 24, 2021, the employment agreement dated July 24, 2020 for Michael De Prado expired in accordance with its terms and as previously disclosed by the Company. As a result of the expiration of the employment agreement, Mr. De Prado is no longer the President of the Company but has become the Vice Chairman of the Board. On March 5, 2021 and pursuant to the Side Letter Agreement, the Board of Directors of the Company approved a special bonus in the amount of $500 to each of Mr. Maimon and Mr. De Prado due to the successful up-listing of the Company’s shares on the Nasdaq Capital Markets. Half of the bonus $250 was paid in cash and half will be paid in Common stock of the Company . On August 2, 2021, the Company’s Board of Directors approved the payment of the remainder of the up-listing bonus to Mr. Maimon and Mr. De Prado in the amount of $250 for each of them. On the same date, the Company paid $250 to Mr. Maimon and $250 for Mr. De Prado as described above. On August 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 replacesreplaced any prior arrangements or employment agreements between the Company and each of Mr. Maimon and Mr. De Prado. Under the terms of the Compensation Agreements, the Executives agreed to be employed by the Company for an initial continuous twelve-month term beginning on the effective date of August 26, 2021, and ending on August 25, 2022. The initial term would be automatically extended for additional one (1) year periods on the same terms and conditions as set out in the Compensation Agreements; however, the Compensation Agreements, respectively, will not renew automatically if either the Company or the respective Executive provide a written notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term or any subsequently renewed one (1) year term. Pursuant to the terms of his Compensation Agreement, Mr. Maimon will receive an annual base salary of two hundred ninety-five thousand dollars ($295) per year, and pursuant to the terms of his Compensation Agreement, Mr. De Prado will receive an annual base salary of two hundred seventy-five thousand dollars ($275) per year, and each will be eligible for an annual incentive payment of up to one hundred percent (100%) of their respective base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s Board of Directors in consultation with each Executive, respectively. This annual incentive shall have a twelve (12) month performance period and will be based on a January 1 through December 31 calendar year, with the Executives’ entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the Board of Directors. Any such annual incentive shall be paid by the end of the second quarter following the calendar year to which each respective Executive’s performance relates. Pursuant to the terms of the Compensation Agreements, each of Mr. Maimon and Mr. De Prado has the option to have any such earned annual incentive be paid in fully vested shares of the Company’s Common Stock, but must elect such option by the end of the first quarter following the relevant performance calendar year period. In the event of a change in control of the Company, as defined under the terms of the Compensation Agreements, that takes place (i) during the term of the Compensation Agreement or (ii) prior to the date which is twenty-four (24) months from the effective date of the Compensation Agreements, if the Executive’s employment otherwise terminates prior to such date, each respective Executive shall be entitled to a bonus payment equal to two and one-half percent (2.5%) of the cash consideration received by the shareholders of the Company in the change in control transaction. On 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.

 

F-22

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On August 25, 2021,21, 2023, the Company and Jeffery D. Johnson entered into an employment agreement with Arik Maimon pursuant to which Mr. JohnsonMaimon agreed to serve as the Company’s newExecutive Chairman and Chief Executive Officer (“The Johnsonof the Company (the “Maimon Employment Agreement”).

The JohnsonMaimon Employment Agreement commenced and became effective as of August 25, 2021, and shall continueis for an initiala term of three (3)five years, endingsubject to the early termination provisions of the Maimon Employment Agreement, commencing August 21, 2023 (the “Effective Date”) and replaces any prior arrangements or employment agreements between the Company and Mr. Maimon. The Maimon Employment Agreement is subject to early termination upon Mr. Maimon’s death, or by the Company for Cause, adjudicated incompetency or adjudicated bankruptcy, the date upon which the Company gives Mr. Maimon notice of termination on August 24, 2024. The initial term would be automatically extended for additional one (1) year periods on the same termsaccount of Disability, and conditions as set outby Mr. Maimon in the Johnsonevent of an Adverse Change in Executive’s 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. Circumstances.

Pursuant to the terms of the JohnsonMaimon Employment Agreement, Mr. JohnsonMaimon will receive an annual base salary of three hundred thousand dollars ($300)$295 per year, and will besubject to increase by the Company’s Board of Directors upon the recommendation of the Compensation Committee of the Company’s Board of Directors.

Mr. Maimon is eligible for anto receive a discretionary annual incentiveperformance-based payment of up to one hundred percent (100%)100% of his base salary, which annual incentiveperformance-based payment shall be determined by the Compensation Committee of the Board of Directors based on the Company’s performance as compared to the goals established by the Compensation Committee and the Company’s Board of Directorsmanagement, including the Annual Budget (as defined in the Maimon Employment Agreement), 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 toMaimon. At the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the BoardCompensation Committee, this review may be performed each fiscal quarter but not less than semi-annually, and the Performance-Based Bonus awarded, if any, may be paid accordingly. The Performance-Based Bonus shall be prorated for any partial fiscal year in which the Executive was employed by the Company. Executive shall not be entitled to receive any portion of Directors.the Annual Incentive Bonus for any year in which his employment is terminated for Cause. Pursuant to the terms of the JohnsonMaimon Employment Agreement, Mr. Johnson has the option to haveThe Bonus shall be prorated, based on each fiscal quarter of employment, for 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. partial fiscal year.

 


CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 7 – RELATED PARTY TRANSACTIONS (continued)

Notwithstanding the limitation on the payment in cash of the Performance-Based Bonus, the Compensation Committee based upon certain criteria specified in the Maimon Employment Agreement may at its discretion award Mr. Maimon stock or stock options as an additional Performance-Based Bonus in addition to the cash component but only an annual basis and only for fiscal years in which the Company’s financial results substantially exceed the Annual Budget. 

Mr. Maimon is also entitled to receive as compensation for past services and to ensure his future services to the Company, subject to shareholder approval, 131,866 shares of the Company’s common stock valued at $140, 50% of which shares are to be issued by the Company as soon as practicable after shareholder approval has been obtained, with the remaining 50% of the shares to be issued equally at the end of each of the three calendar years following the Effective Date. The Maimon Employment Agreement provides that if Mr. Maimon’s 10% fully diluted equity interest in the Company is reduced upon issuance by the Company of additional shares, options, or warrants of any kind or nature, the Company shall issue to Mr. Maimon additional shares in number sufficient to preserve and maintain his 10% fully diluted equity interest in the Company, with such shares to be issued under the same terms set forth above. As of December 31, 2023 Mr. Maimon was entitled to additional 148,259 shares of the Company’s common stock valued at $157, under the 10% equity interest preservation term provided in the Maimon Employment Agreement.

Mr. Maimon is also entitled to a monthly automobile allowance. Mr. Maimon is eligible to participate in such benefit plans as are, or from time-to-time may be, provided by the Company for its senior executive officers.

The Company will pay or reimburse Mr. Maimon for all reasonable business expenses incurred or paid by him in the performance of his duties and responsibilities for the Company, provided that any expense in excess of $10 must be preapproved by the Board and subject to any maximum limit and other restrictions on such expenses set by specified by the Company from time to time.

Mr. Maimon is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and ownership of works (e.g., inventions and discoveries created or developed during the course of Mr. Maimon’s employment are owned by the Company).

During the year ended December 31, 2023, the Company paid Mr. Maimon an annual performance bonus for the year 2022 of $100,000. As of the date of the approval of these financial statements, the Compensation Committee did not convene to approve bonuses for 2023, accordingly no bonuses were accrued or paid on behalf of 2023.

In addition, on August 21, 2023, the Company entered into an employment agreement with Michael De Prado pursuant to which Mr. De Prado agreed to serve as Executive Vice Chairman and President of the Company (the “De Prado Employment Agreement”). The De Prado Employment Agreement is for a term of five years, subject to the early termination provisions of the De Prado Employment Agreement, commencing August 21, 2023 (the “Effective Date”) and replaces any prior arrangements or employment agreements between the Company and Mr. De Prado.

The De Prado Employment Agreement is subject to early termination upon Mr. De Prado’s death, or by the Company for Cause, Mr. De Prado’s adjudicated incompetency or adjudicated bankruptcy, the date upon which the Company gives Mr. De Prado notice of termination on account of Disability, and by Mr. De Prado in the event of an Adverse Change in Executive’s Employment Circumstances. Pursuant to the terms of the De Prado Employment Agreement, Mr. De Prado will receive an annual base salary of $285 per year, subject to increase by the Company’s by Board of Directors upon the recommendation of the Compensation Committee of the Company’s Board of Directors.

Mr. De Prado is eligible to receive a discretionary annual performance-based payment of up to 100% of his base salary, which performance-based payment shall be determined by the Compensation Committee of the Board of Directors based on the Company’s performance as compared to the goals established by the Compensation Committee and the Company’s management, including the Annual Budget (as defined in the De Prado Employment Agreement), in consultation with Mr. De Prado. At the discretion of the Compensation Committee, this review may be performed each fiscal quarter but not less than semi-annually, and the Performance-Based Bonus awarded, if any, may be paid accordingly. The Performance-Based Bonus shall be prorated for any partial fiscal year in which the Executive was employed by the Company. Executive shall not be entitled to receive any portion of the Annual Incentive Bonus for any year in which his employment is terminated for Cause. Pursuant to the terms of the De Prado Employment Agreement, The Bonus shall be prorated, based on each fiscal quarter of employment, for any partial fiscal year. Notwithstanding the limitation on the payment in cash of the Performance-Based Bonus, the Compensation Committee based upon certain criteria specified in the De Prado Employment Agreement may at its discretion award Mr. De Prado stock or stock options as an additional Performance-Based Bonus in addition to the cash component but only an annual basis and only for fiscal years in which the Company’s financial results substantially exceed the Annual Budget. 


CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 7 – RELATED PARTY TRANSACTIONS (continued)

Mr. De Prado is also entitled to receive as compensation for past services to and to ensure his future services to the Company, subject to shareholder approval, 117,214 shares of the Company’s common stock valued at $124 to increase his ownership interest in the Company to 7.0% calculated on a fully diluted basis, 50% of which shares are to be issued by the Company as soon as practicable after shareholder approval has been obtained, with the remaining 50% of the shares to be issued equally at the end of each of the three calendar years following the Effective Date. The De Prado Employment Agreement provides that if Mr. De Prado’s 7% fully diluted equity interest in the Company is reduced upon issuance by the Company of additional shares, options, or warrants of any kind or nature, the Company shall issue to Mr. De Prado additional shares in number sufficient to preserve and maintain his 7% fully diluted equity interest in the Company, with such shares to be issued under the same terms set forth above. As of December 31, 2023 Mr. De Prado was entitled to additional 109,312 shares of the Company’s common stock valued at $116, under the 7% equity interest preservation term provided in the De Prado Employment Agreement.

Mr. De Prado is entitled to a monthly automobile allowance of $2. Mr. De Prado is also eligible to participate in such benefit plans as are, or from time-to-time may be, provided by the Company for its senior executive officers.

The Company will pay or reimburse Mr. De Prado for all reasonable business expenses incurred or paid by him in the performance of his duties and responsibilities for the Company, provided that any expense in excess of $10 must be preapproved by the Board and subject to any maximum limit and other restrictions on such expenses set by specified by the Company from time to time.

Mr. De Prado is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and ownership of works (e.g., inventions and discoveries created or developed during the course of Mr. De Prado’s employment are owned by the Company).

During the year ended December 31, 2023, the Company paid Mr. De Prado an annual performance bonus for the year 2022 of $100,000. As of the date of the approval of these financial statements, the Compensation Committee did not convene to approve bonuses for 2023, accordingly no bonuses were accrued or paid on behalf of 2023.

CIMA License Agreement:

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 datedate. 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 ;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.

During the year ended December 31, 2023 the Company paid CIMA a total of $120.

F-23


 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

(U.S. dollars in thousands, except share and per share data)NOTE 7 – RELATED PARTY TRANSACTIONS (continued)

Related parties balances at December 31, 2021 and December 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.Transactions with related parties

  

Year ended

December 31

 
  2023  2022 
       
Sales:      
Sales to SDI Cuentas LLC $73  $2,052 
Sales to Next Communications INC (a company controlled by Arik Maimon, Company's Chairman of the Board and CEO) (a)  2,181   - 
Total sales to related parties $2,254  $2,052 
         
Consulting fees to Angelo De Prado (b) $-  $6 
Consulting fees to Sima Maimon Bakhar (c)  -   10 
Doubtful accounts – Cuentas SDI LLC  -   157 
Cima Telecom Inc. (d)  120   918 
Total transactions with related parties $120  $1,051 

B.Due from related parties:

  As of December 31, 
  2023  2022 
       
Arik Maimon (Chairman of the Board and the CEO) $73  $- 
Michael De Prado (Vice Chairman of the Board and President)  99   - 
Current assets - Related parties  172   - 
         
Next Communications INC (a company controlled by Arik Maimon Company's Chairman of the Board and CEO)  1,300   - 
SDI Cuentas LLC.  -   198 
Current assets – Accounts receivables  1,300   198 
         
Total Due from related parties $1,472  $198 
         

(a)ComposedOn June 26, 2009 the Company and Next Communications INC (“Next”) entered into Bilateral Wholesale Carrier Agreement according to which the Company and Next will provide and purchase from annual feestime to time telecommunications transport services from each other and to other carriers at price determined in the amountagreement and as may mutually change from time to time. The Agreement shall continue on a month-to-month basis unless either Party notifies the other in writing not less than 30 days prior 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.its intent to terminate this Agreement

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)(b)Angelo De Prado is the son of MichaselMichael De Prado.

(b)(c)Sima Maimon Bakhar isdis the wife of ArilArik Maimon.

(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. dollarsUSD in thousands, except share and per share data)thousands)

NOTE 8 – STOCK OPTIONS

On June 17, 2021 the Board of Directors of the Company approved the Cuentas Inc. 2021 Share Incentive Plan (the “2021 Plan”). which was approved by the shareholders during the Annual Shareholders Meeting held on December 15, 2021. The maximum number of shares of stock reserved and available for issuance under the 2021 Plan is 242,308 shares. The purpose of the 2021 Plan is to promote the long-term success of the Company and the creation of stockholder value by encouraging service providers to focus on critical long-range corporate objectives and linking service provides directly to stockholder interest through increase stock ownership.

On November 17, 2023, the Board of Directors of the Company approved the 2023 Share Incentive Plan (the “2023 Plan”), which was approved by the shareholders during the Annual Shareholders Meeting held on December 20, 2023. The maximum number of shares of stock reserved and available for issuance under the 2023 Plan is 520,000 shares. The purpose of the 2023 Plan is to provide incentives which will attract, retain and motivate highly competent persons as officers, employees and non-employee directors, of, and consultants to, the Company and its subsidiaries and affiliates.

The following table summarizes allpresents the Company’s stock option activity for employees and directors of the Company for the year ended December 31, 2023 and 2022:

  Number of Options  Weighted Average Exercise Price 
Outstanding at January 1, 2022  121,938  $47.97 
Granted  38,461   36.40 
Exercised  -   - 
Forfeited  (31,922)  36.40 
Expired  -     
Outstanding at January 1, 2023  128,477   56.44 
Granted  -   - 
Exercised  -   - 
Forfeited  (34,616)  36.40 
Expired  (8,862)  158.73 
Outstanding at December 31, 2023  84,999   36.97 
Number of options exercisable at December 31, 2023  84,999   36.97 

  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 issued 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 value of $18 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:

Common stock price  

2.366

 
Dividend yield  0%
Risk-free interest rate  3.88%
Expected term (years)  10 
Expected volatility  454%

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 Company issued 15,384 options to its two members 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 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 yield  0%
Risk-free interest rate  2.98%
Expected term (years)  10 
Expected volatility  480%

F-25


 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8 – STOCK OPTIONS (continued)

 

On February 1, 2022, the Company issued 15,384 options to its Chief Operating Officer of 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 yield  0%
Risk-free interest rate  1.79%
Expected term (years)  10 
Expected volatility  197%

On November 3, 2021, the Company issued 119,229The stock options to executives’ officersoutstanding as of December 31, 2023, have been separated into exercise prices, as follows:

Exercise price Stock options outstanding  Weighted average remaining contractual
life – years
  Stock options exercisable 
  As of December 31, 2023 
67.93  1,538   0.27   1,538 
36.40  83,461   6.38   83,461 
   84,999       84,999 

The stock options outstanding as of December 31, 2022, have been separated into exercise prices, as follows:

Exercise price Stock options outstanding  Weighted average remaining contractual
life – years
  Stock options vested 
  As of December 31, 2022 
186.55  6,093   0.24   6,093 
97.50  2,769   0.71   2,769 
67.93  1,538   1.27   1,538 
36.40  118,077   8.88   110,382 
   128,477       120,782 

The aggregate intrinsic value of the awards outstanding as of December 31, 2023 and non-employee directors. The options vest2022 is $0. These amounts represent the total intrinsic value, based on the terms set forth onCompany’s stock price of $ 0.68 and $2.366 as of December 31, 2023 and 2022, respectively, less the table below. Such options can be exercised until, November 2, 2031, and were approvedweighted exercise price. This represents the potential amount received by the Company’s shareholders on December 15, 2021.option holders had all option holders exercised their options as of that date.

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 Company has estimated the fair valueExpenses incurred in respect of suchstock 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 activityfor employees and directors, for the year ended December 31, 2021:2023 and 2022 were $37 and $1,587, respectively. The Company did not recognize an income tax benefit related to stock-based compensation as it’s not recognized for tax purposes and a full valuation allowance was recorded as it relates to the deferred tax asset of the Company.

As of December 31, 2023, there are 158,847 options available for future grants under the 2021 Plan and 520,000 options available for future grants under the 2023 Share Incentive Plan.

  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


 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

   Outstanding  Exercisable 
Exercise Prices  Number of
Option
Shares
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Life
(Years)
  Number of
Option
Shares
  Weighted
Average
Exercise
Price
 
$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 

As of December 31, 2022, 124,231 ordinary shares are reserved under the 2021 equity incentive plan.

NOTE 9 – STOCKHOLDERS’ EQUITY

Common Stock Activity During the Year Ended December 31, 2022

The following summarizes the Common Stock activity for the year ended December 31, 2022:

Outstanding
shares
Balance, December 31, 20211,151,207
Shares of Common Stock issued324,928
Shares issued for services7, 693
Treasury stock(10,183)
Balance, December 31, 20211,473,645

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. 

 

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 March 7, 2023 the Company issued 295,282 shares of its Common Stock pursuant to its February 3, 2023 Membership Interest Purchase Agreement detailed in Note 1 above.

On March 16, 2023, the Company issued 15,385 shares of its Common Stock pursuant to a settlement agreement with a shareholder of the Company. The fair market value of the shares at the issuance date was approximately $112.

On March 27, 2023, the Company issued 27,759 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 approximately $143.

SECURITIES 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 $5,000 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 $0.0013 per share. As of March 31, 2023 the Pre-Funded Warrants were exercised in full. The Purchase Warrants will be exercisable on or before August 5, 2023 and will expire on August 5, 2028 at an exercise price of $17.36 per share. The closing of the sales of these securities under the Purchase Agreement occurred on or about February 8, 2023. H.C. Wainwright & Co., LLC (“Wainwright”) acted as exclusive placement agent for the offering pursuant to an engagement agreement between the Company and Wainwright dated as of December 13, 2022.

F-27


 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 9 – STOCKHOLDERS’ EQUITY (continued)

As compensation for such placement agent services, the Company 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 and $16 for clearing expenses. The Company has also agreed to issue to Wainwright or its designees warrants to purchase 20,397 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 issuance date and have an exercise price of $23.17 per share. 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 were $4,319.

The Purchase Warrants and the PA Warrant Shares were classified as financial liability because of the repurchase provisions in such warrants that permit the holders of such warrants, in the event of a fundamental transaction, to receive a cash consideration that is not the same as the consideration payable to the common stockholders (see also Note 2R). The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, expected stock price volatility, expected term of the warrants and other assumptions. Expected volatility was calculated based upon historical volatility of the Company. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on historical dividend payments, which have been zero to date. The expected term of the warrants is based on the time to expiration of the warrants from the measurement date.

The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities issued in February 2023:

  February 6,
2023
  December 31,
2023
 
Share price (U.S. dollars) $14.69  $0.68 
Exercise price (U.S. dollars) $17.3 - $23.17  $23.17 
Expected volatility  177.76%  141.19%
Risk-free interest rate  4.44%  4.23%
Dividend yield  -   - 
Expected term (years)  5.00   4.10 
Fair value $4,422  $7 

On August 21, 2023, the Company entered into a common stock warrant exercise inducement offer letter (the “Inducement Letter”) with a certain holder (the “Holder”) of existing warrants to purchase shares of the Company’s common stock at an exercise price of $7.67 per share, issued on August 8, 2022 and of the Purchase Warrants having an exercise price of $17.16 per share which were issued on February 8, 2023 (together, the “Existing Warrants”). Pursuant to the Inducement Letter, the Holder agreed to exercise for cash its Existing Warrants to purchase an aggregate of 616,303 shares of the Company’s common stock, at a reduced exercised price of $3.30 per share, in consideration for the Company’s agreement to issue a new warrant (the “Inducement Warrant”), to purchase up to 1,232,606 shares of the Company’s common stock at an exercise price of $3.30, subject to certain anti-dilution adjustments. The Inducement Warrant is exercisable for five and a half years commencing on the date shareholders of the Company approve the issuance of the Inducement Warrant (“Shareholder Approval”) under applicable rules of Nasdaq. The Company received aggregate gross proceeds of approximately $2,033,799 from the exercise of the Existing Warrants by the Holder and the sale of the Inducement Warrants, before deducting placement agent fees and other offering expenses payable by the Company. The Company engaged H.C. Wainwright & Co., LLC (“Wainwright”) to act as its exclusive placement agent in connection with the transactions summarized above and paid Wainwright a cash fee of $142,366 (7.0% of the gross proceeds received from the exercise of the Existing Warrants) as well as a management fee of $20,338 (1.0% of the gross proceeds from the exercise of the Existing Warrants). The Company also paid Wainwright $65,000 for non-accountable expenses and $15,950 as a closing fee. The Company also issued to designees of Wainwright warrants to purchase up to an aggregate of 43,141 shares of common stock of the Company having the same terms as the Inducement Warrant except for an exercise price equal to $4.455 per share.


CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 9 – STOCKHOLDERS’ EQUITY (continued)

(The Inducement Warrant and the PA Warrant Shares were classified as financial liability because of the repurchase provisions in such warrants that permit the holders of such warrants, in the event of a fundamental transaction, to receive a cash consideration that is not the same as the consideration payable to the common stockholders (see also Note 2R). The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, expected stock price volatility, expected term of the warrants and other assumptions. Expected volatility was calculated based upon historical volatility of the Company. Risk-free interest rates are derived from the yield on U.S. dollarsTreasury debt securities. Dividend yields are based on historical dividend payments, which have been zero to date. The expected term of the warrants is based on the time to expiration of the warrants from the measurement date.

The following table summarizes the observable inputs used in thousands, except share and per share data)the valuation of the derivative warrant liabilities issued in August 2023:

  August 21,
2023
  December 31,
2023
 
Share price (U.S. dollars) $3.3  $0.68 
Exercise price (U.S. dollars) $3.3 - $4.455   $3.3 - $4.455 
Expected volatility  172.37%  169.28%
Risk-free interest rate  4.44%  4.23%
Dividend yield  -   - 
Expected term (years)  5.5   5.5 
Fair value $4,047  $778 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

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

On May 1, 2019, the Company received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP), who allegedly had a Reciprocal Carrier Services Agreement (“RCS”) exclusively with Limecom and not with the Company. The arbitration demand originated from another demand for arbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,053 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On or about October 5, 2020, the trial court appointed a receiver over Limecom, Inc. (“Limecom”) in the matter of Spectrum Intelligence Communications Agency, LLC. v. Limecom, Inc., case no. 2018-027150-CA-01 pending in the 11th11th Circuit for Miami-Dade County, Florida. On June 5, 2020, Secure IP Telecom, Inc. (“Secure IPIP”) filed a complaint against Limecom, Heritage Ventures Limited (“HeritageHeritage”), an unrelated third party and owner of Limecom, and the Company, case no. 20-11972-CA-01. Secure IP alleges that the Company received certain transfers from Limecom during the period that the Company wholly owned Limecom that may be an avoidable under Florida Statute § 725.105. On July 13, 2021, the two cases were consolidated, and are now pending before the same trial court under the former case number. The Company has answered and denied any liability with respect to both complaints. To the extent the Company has exposure for any transfers from Limecom, Heritage 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 books and records of the Company 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 books and records, the loss contingency is not capable of reasonable estimation under the above circumstances, and the likelihood of an adverse judgment is not probable at this time. An adverse judgment in this matter is reasonably possible and based upon an analysis of litigation costs and likelihood of a settlement.. As of December 31, 20222023, the companyCompany 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 before 5:00 p.m New York City time, on August 15, 2022, Cuentas will pay CIMA the balance of the Unpaid Fees ($420.239) by wire transfer (3) Cuentas will a period of 30 days from execution date, the exclusive 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 letter 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 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 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 facilitate a third party purchase of, all of the shares of Cuentas held by CIMA. As of December 31, 2022 the company fulfilled all its obligation under the settlement agreement.

F-28


 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

thousands)

NOTE 10 – COMMITMENTS AND CONTINGENCIES (continued)

On October 4, 2022, Crosshair Media Placement, LLC, a Kentucky based marketing company, filed and served a complaint on Cuentas for breach of contract alleging breach of contract damages of $629,807.74,$630, which case remains pending in the United States District Court for the Western District of Kentucky, case no. 3:22-CV-512-CHB. The Company is vigorously defending itself against this complaint and onOn November 8, 2022, filed a Motion to Dismiss for Lack of Jurisdiction and a Motion to Change Venue.

On April 1, 2021May 9, 2023, the Company and the plaintiff attended a court settlement conference before the federal magistrate judge presiding over the matter. The parties reached a settlement that the Company will make the following payments to fully resolve the matter: $50 on or about June 1, $20 on or about July 1, and nine equal $15 monthly payments due the first of each month, then a final payment of $425 due May 1, 2024. As of December 31, 2023 the Company had paid $145 to the plaintiff under the above referenced settlement agreement.

On February 8, 2023, a former employee of the Company, filed a complaint for breach of employment agreement alleging the Company failed to pay her certain compensation she alleges she was entitled to upon her resignation.. The Company and the employee are discussing a settlement agreement and estimates that the maximum amount the Company will be required to pay will not exceed $30.

The Company executed aan annual lease agreement for office space effective April 1, 2021.space. The lease requires monthly rental payments of $7.$9.

On July 14, 2023, the Company entered into an agreement with OLB and Cuentas-SDI (the “OLB Agreement”) in which OLB agreed to cause Cuentas-SDI to enter into an agreement with the Company pursuant to which Cuentas-SDI would agree to pay the Company $229 to satisfy outstanding invoices and, subject to the Company’s receipt of the first $100, for the Company to restore the services it had previously provided Cuentas-SDI on a purchase or services order basis (the “Payment Agreement”). On July 14, 2023 the Company and Cuentas-SDI entered into the Payment Agreement pursuant to which Cuentas-SDI agreed to pay amounts due under the outstanding invoices in the amount of $229. As of December 31, 2023, Cuentas-SDI has paid the Company $121. The balance is payable in monthly installments of $21 through and including January 1, 2024.

NOTE 11 – SEGMENTS OF OPERATIONS

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

A.Revenue by product:

  Year ended December 31, 
  2023  2022 
       
Telecommunications $87  $839 
Wholesale telecommunication services  2,181   - 
Digital products and General Purpose Reloadable Cards  78   2,155 
  $2,346  $2,994 

B.Gross profit (loss) by product:

  Year ended December 31, 
  2023  2022 
       
Telecommunications $(265) $607 
Wholesale telecommunication services (*)  10   - 
Digital products and General Purpose Reloadable Cards  (132)  (121)
  $(387) $486 

(*)On July 17, 2023 the Company and ASAL Communication, S.A. DE C.V (“ASAL”) entered into an Interconnection Agreement according to which ASAL shall provide the Company intermediary telecommunication services consisting of data, voice and other traffic though ASAL’s public telecommunication network, in order to terminate them in Mexico at price determined in the agreement and as may mutually change from time to time. The agreement shall be in effect for the initial period of one year and may be terminated by either party after the laps of the initial period by providing a written notice of termination of at least 90 days in advance.

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 

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

  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 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long lived assets by product for 2022 and 2021 are as follows:

(USD in thousands)

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

-

   5,400 
Total revenue $

-

  $5,400 

NOTE 11 – SEGMENTS OF OPERATIONS (continued) 

C.Long lived assets by product:

  Year ended December 31, 
  2023  2022 
       
Telecommunications $2  $      - 
Wholesale telecommunication services  -   - 
Digital products and General Purpose Reloadable Cards  11   - 
  $13  $- 

For the year ended December 31, 20222023 and December 31, 2021,2022, the Company’s sales to Next Communications INC were approximately 93% and 0% and to Cuentas SDI LLC were approximately 72%3% and 10.5%69% of the Company’s total revenue, respectively for the years ended December 31, 2022 and December 31, 2021.respectively. All of the Company’s sales were generated in the U.S in 20222023 and 2021.2022.

NOTE 12 – INCOME TAXESTAX

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

F-29

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

We recognized income tax benefits of $0 during the years ended December 31, 20222023 and December 31, 2021.2022. When it is more likely than not that a tax asset will not be realized through future income, the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended December 31, 20222023 or December 31, 20212022 applicable under FASB ASC Topic 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company remain open.

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

  Year ended
December 31,
 
  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.

CUENTAS, INC.

  U.S.
dollars in
thousands
 
Valuation allowance, December 31, 2021 $4,449 
     
Increase  

2,598

 
Valuation allowance, December 31, 2022 $

7,047

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 12 – INCOME TAX (continued)

A.The following is reconciliation between the theoretical tax on pre-tax income, at the tax rate applicable to the Company and the tax expense reported in the financial statements:

  Year ended December 31 
  2023  2022 
  US Dollars 
       
Pretax loss $(2,196) $(14,479)
Federal and State statutory rate  26.5%  26.5%
Income tax computed at the ordinary tax rate  582   3,837 
Stock-based compensation  (54)  - 
Non-deductible expenses  -   - 
Other permanent differences  1,254   (1,854)
Losses and timing differences in respect of which no deferred taxes were generated  (1,782)  (1,983)
  $-  $- 

B.Deferred taxes result primarily from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes. Significant components of the Company’s future tax assets are as follows:

  Year ended December 31 
  2023  2022 
Composition of deferred tax assets: US Dollars 
       
Non capital loss carry forwards $10,305  $8,523 
Valuation allowance  (10,305)  (8,523)
  $-  $- 

C.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.

  US Dollars 
    
Valuation allowance, December 31, 2022 $8,523 
Increase  1,782 
Valuation allowance, December 31, 2023 $10,305 

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

F-30


 

CUENTAS, INC.

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollarsUSD in thousands, except share andthousands)

NOTE 13 – LOSS PER SHARE

Basic loss per share data)is computed by dividing net loss by the weighted average number of shares outstanding during the year. The weighted average number of shares of common stock used in computing basic and diluted loss per share for the years ended December 31, 2023 and 2022, are as follows:

  Year ended December 31 
  2023  2022 
  Number of shares 
       
Weighted average number of shares of common stock outstanding attributable to shareholders  2,317,213   1,230,577 
Total number of shares of common stock related to outstanding options and warrants, excluded from the calculations of diluted loss per share  1,523,849   603,514 

NOTE 1314 – SUBSEQUENT EVENTSEVENTS

On January 5, 2023,March 13, 2024, the Company through its 63% participation in Brooksville Development Partners, LLC approved the signing of a Letter of Intent to sell the “Brooksville Property” located at 19200 Cortez Boulevard, Brooksville, Florida 34601.

The property was originally purchased on April 28, 2023 for $5,050. The $3,050 mortgage with Republic Bank of Chicago was amended and restated on January 27, 2024 for $3,055. Additionally, a $500 Loan Extension Agreement was executed between the Company and ALF Trust u/a/d 09/28/2023 to ensure the Promissory Note necessary to fund the interest reserve and fees relating to the Loan Extension Agreement and the working capital needs of the Company. On April 3, 2024 the Company entered into a Binding Letter of Intent with Core Development Holdings Corporation (“Core”), 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 agreedprovisional agreement 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 $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 encumbrances. 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 Core to Cuentas pursuant to the Letter of Intent shall be reduced by the same percentage that the actual post-issuance ownership percentage falls below the 33.3% Ownership Ratio. The Percentage of Membership Interest Acquired will be determined 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 Lakewood 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 Percentage 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 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.

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“Brooksville Property” for a minimumtotal consideration of ten consecutive trading sessions. The Company is taking definitive steps$7,200 whereby the buyer placed a non-refundable $100k deposit in escrow and has 60 days to timely evidence compliance withdecide whether to complete 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.

transaction.

F-31


 

 

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

 

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.

Exhibit   Filed Incorporated by reference
Number Exhibit Description herewith Form Exhibit Filing date
3.1 Amended and Restated Articles of Incorporation, dated August 21, 2020.   8-K 3.1 2020-08-21
3.2 Amended and Restated Bylaws, dated August 21, 2020.   8-K 3.2 2020-08-21
3.3 Certificate 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 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
4.7 Form of Inducement Warrant issued to Armistice   8-K 4.1 2023-08-23
4.8 Form of Placement Agent Warrant   S-3* 4.8 2023-11-22
4.9 Description of Registrant’s Capital Stock   X      
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

 

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 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) 2,123,478 shares (the “Shares”) of the Company’s common stock (“Common Stock”) and (ii) pre-warrants to purchase up to 1,664,401 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 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 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 $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 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 265,152 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 $1.782 per share.

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 are expected to be approximately $4.3 million.

On March 16, 2023, the Company issued 15,385 shares of its Common Stock pursuant to a Settlement between the Company and a service provider. The fair market value of the shares at the issuance date was $112.

On March 27, 2023, the Company issued 27,759 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.

F-32


 

Exhibit   Filed Incorporated by reference
Number Exhibit Description herewith Form Exhibit Filing date
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
10.21 2023 Share Incentive Plan X   
10.22 Employment Agreement dated as of August 21, 2023 between Cuentas and Arik Maimon   8-K 10.1 2023-8-22
10.23  Employment Agreement dated as of August 21, 2023 between Cuentas and Michael De Prado   8-K 10.2 2023-8-22
10.24  Form of Inducement Letter   8-K 10.1 2023-8-23
10.25 Agreement for Purchase and Sale of Brooksville Property X   
10.26 First Amendment to Mortgage and Assignment of Leases   8-K 10.2 2024-3-14
10.27 Amended and Restated Promissory Note   8-K 10.4 2024-3-14
10.28 Operating Agreement for Brooksville Development Partners, LLC X      
14.1 Code of Business Conduct and Ethics X      
19.1 Insider Trading Policy X      
21.1 Subsidiaries X      
23.1 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      
97.1 Executive Compensation Clawback Policy 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      

*(b)ExhibitsForm S-3 (Registration No. 333-275724).

      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.

ITEM 16. FORM 10-K SUMMARY

None.

Not applicable.


 

SIGNATURES

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

Cuentas, Inc.
Date: April 15, 2024
By:/s/ Arik Maimon
Arik Maimon,
Interim CEOChief Executive Officer and Chairman of the Board of Directors
Date: March 31, 2023(principal executive officer)

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 MaimonInterim CEOChief Executive Office andMarch 31, 2023April 15, 2024
Arik Maimon

Chairman of the Board of Directors

/s/ Shlomo Zakai

Chief Financial Officer

April 15, 2024
Shlomo Zakai
/s/ Ran DanielChief Financial OfficerMarch 31, 2023
Ran Daniel
/s/ Michael De PradoVice Chairman and DirectorMarch 31, 2023April 15, 2024
Michael De Prado
/s/ Adiv BaruchDirectorMarch 31, 2023April 15, 2024
Adiv Baruch
/s/ Lexi Terrero
/s/ Yochanon BrukDirectorMarch 31, 2023
Yochanon Bruk
/s/ Sara SooyDirectorMarch 31, 2023
Sara Sooy
/s/ Lexi TerreroDirectorMarch 31, 2023April 15, 2024
Lexi Terrero
/s/ Haim YeffetDirectorMarch 31, 2023April 15, 2024
Haim Yeffet

4149

 

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