UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE-MONTH PERIOD ENDED: JUNE 30, 2023
☐ 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: 001-39973
CUENTAS, INC.
(Exact name of Registrant as specified in its charter)
Florida | | 20-3537265 |
(State or Other Jurisdiction of
Incorporation or Organization) | | (I.R.S. Employer
Identification No.) |
235 Lincoln Rd., Suite 210, Miami Beach, FL
33139
(Address of principal executive offices)
800-611-3622
(Registrant’s telephone number)
Securities registered under Section 12(b) of the
Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | | CUEN | | The Nasdaq Stock Market LLC |
| | | | |
Warrants, each exercisable for one share of Common Stock | | CUENW | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each
of the issuer’s classes of common equity, as of the latest practicable date: As of August 14, 2023, the issuer had 2,103,365
shares of its common stock issued and outstanding.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CUENTAS, INC.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
june 30, 2023
TABLE OF CONTENTS
CUENTAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands except share and per
share data)
|
|
June 30,
2023 |
|
|
December 31,
2022 |
|
|
|
Unaudited |
|
|
Audited |
|
ASSETS |
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
271 |
|
|
$ |
466 |
|
Accounts Receivables net of allowance for credit losses of $177 as of June 30, 2023 and December 31, 2022, respectively. |
|
|
233 |
|
|
|
209 |
|
Related
parties recivables |
|
|
88 |
|
|
|
- |
|
Other current assets |
|
|
36 |
|
|
|
14 |
|
Total current assets |
|
|
628 |
|
|
|
689 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
5 |
|
|
|
6 |
|
Investment in unconsolidated entities |
|
|
3,000 |
|
|
|
776 |
|
Intangible assets |
|
|
100 |
|
|
|
28 |
|
Total assets |
|
|
3,733 |
|
|
|
1,499 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Trade payable |
|
$ |
1,286 |
|
|
$ |
1,231 |
|
Other accounts liabilities |
|
|
658 |
|
|
|
681 |
|
Deferred revenue |
|
|
113 |
|
|
|
113 |
|
Notes and Loan payable |
|
|
115 |
|
|
|
109 |
|
Stock based liabilities |
|
|
1 |
|
|
|
- |
|
Total current liabilities |
|
|
2,173 |
|
|
|
2,134 |
|
|
|
|
|
|
|
|
|
|
Other long-term loans |
|
|
89 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
2,262 |
|
|
|
2,223 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, authorized 360,000,000 shares, $0.001 par value; 2,103,365 and 1,473,645 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |
|
|
2 |
|
|
|
2 |
|
Additional paid in capital |
|
|
57,359 |
|
|
|
52,053 |
|
Treasury Stock |
|
|
(33 |
) |
|
|
(29 |
) |
Accumulated deficit |
|
|
(55,857 |
) |
|
|
(52,750 |
) |
Total stockholders’ equity |
|
|
1,471 |
|
|
|
(724 |
) |
Total liabilities and stockholders’ equity |
|
$ |
3,733 |
|
|
$ |
1,499 |
|
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements
CUENTAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
(U.S. dollars in thousands except share and per
share data)
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
REVENUE | |
$ | 40 | | |
$ | 670 | | |
$ | 104 | | |
$ | 1,064 | |
| |
| | | |
| | | |
| | | |
| | |
COST OF REVENUE | |
| 153 | | |
| 615 | | |
| 276 | | |
| 875 | |
| |
| | | |
| | | |
| | | |
| | |
GROSS (LOSS) PROFIT | |
| (113 | ) | |
| 55 | | |
| (172 | ) | |
| 189 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Amortization of Intangible assets | |
| 4 | | |
| 452 | | |
| 6 | | |
| 905 | |
Selling, General and Administrative | |
| 776 | | |
| 2,744 | | |
| 2,401 | | |
| 6,033 | |
TOTAL OPERATING EXPENSES | |
| 780 | | |
| 3,196 | | |
| 2,407 | | |
| 6,938 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING LOSS | |
| (893 | ) | |
| (3,141 | ) | |
| (2,579 | ) | |
| (6,749 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER EXPENSES | |
| | | |
| | | |
| | | |
| | |
Other loss | |
| (517 | ) | |
| (32 | ) | |
| (517 | ) | |
| (32 | ) |
Interest income (expense) | |
| 7 | | |
| (3 | ) | |
| 8 | | |
| (4 | ) |
Gain (loss) from Change in fair value of stock-based liabilities | |
| - | | |
| 1 | | |
| (1 | ) | |
| 1 | |
TOTAL OTHER EXPENSES | |
| (510 | ) | |
| (34 | ) | |
| (510 | ) | |
| (35 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS BEFORE EQUITY LOSSES | |
| (1,403 | ) | |
| (3,175 | ) | |
| (3,089 | ) | |
| (6,784 | ) |
| |
| | | |
| | | |
| | | |
| | |
Equity losses in unconsolidated entities | |
| (9 | ) | |
| (11 | ) | |
| (18 | ) | |
| (26 | ) |
NET LOSS | |
$ | (1,412 | ) | |
$ | (3,186 | ) | |
$ | (3,107 | ) | |
$ | (6,810 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per basic and diluted share | |
$ | (0.67 | ) | |
$ | (2.76 | ) | |
$ | (1.63 | ) | |
$ | (5.91 | ) |
Weighted average number of basic and diluted common shares outstanding | |
| 2,103,365 | | |
| 1,157,478 | | |
| 1,900,819 | | |
| 1,154,377 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements
CUENTAS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
(Unaudited)
(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 | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance as of 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
** | |
| 291,376 | | |
| * | | |
| 4,319 | | |
| - | | |
| - | | |
| 4,319 | |
Share based Compensation | |
| - | | |
| | | |
| 31 | | |
| - | | |
| - | | |
| 31 | |
Issuance of Shares of Common due to acquisition of an asset | |
| 295,282 | | |
| * | | |
| 700 | | |
| - | | |
| - | | |
| 700 | |
Treasury stock | |
| (227 | ) | |
| | | |
| - | | |
| (4 | ) | |
| - | | |
| (4 | ) |
Reverse split | |
| 145 | | |
| | | |
| - | | |
| - | | |
| - | | |
| - | |
Shares issued for services | |
| 27,759 | | |
| * | | |
| 136 | | |
| - | | |
| - | | |
| 136 | |
Shares issued due to a settlement | |
| 15,385 | | |
| * | | |
| 120 | | |
| - | | |
| | | |
| 120 | |
Net loss for the period ended June 30, 2023 | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,107 | ) | |
| (3,107 | ) |
Balance as of June 30, 2023 (unaudited) | |
| 2,103,365 | | |
$ | 2 | | |
$ | 57,359 | | |
$ | (33 | ) | |
$ | (55,857 | ) | |
$ | 1,471 | |
| |
Common Stock | | |
Additional Paid-in | | |
Treasury | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Stock | | |
Deficit | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance as of March 31, 2023 | |
| 2,103,365 | | |
$ | 2 | | |
$ | 57,355 | | |
$ | (33 | ) | |
$ | (54,445 | ) | |
$ | 2,879 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share based Compensation | |
| - | | |
| - | | |
| 4 | | |
| - | | |
| - | | |
| 4 | |
Net loss for the period ended June 30, 2023 | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,412 | ) | |
| (1412 | ) |
Balance as of June 30, 2023 (unaudited) | |
| 2,103,365 | | |
$ | 2 | | |
$ | 57,359 | | |
$ | (33 | ) | |
$ | (55,857 | ) | |
$ | 1,471 | |
CUENTAS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
(Unaudited)
(U.S. dollars in thousands, except share and per share data)
| |
Common Stock | | |
Additional Paid-in | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| |
Balance as of December 31, 2021 | |
| 14,965,690 | | |
| 15 | | |
| 47,654 | | |
| (38,219 | ) | |
| 9,450 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for services and for employees | |
| 100,000 | | |
| - | | |
| 1,204 | | |
| - | | |
| 1,204 | |
Net loss for the period ended June 30, 2022 | |
| - | | |
| - | | |
| - | | |
| (6,810 | ) | |
| (6,810 | ) |
Balance as of June 30, 2022 (unaudited) | |
| 15,065,690 | | |
$ | 15 | | |
$ | 48,858 | | |
$ | (45,029 | ) | |
$ | 3,844 | |
| |
Common Stock | | |
Additional Paid-in | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| |
Balance as of April 1, 2022 | |
| 14,965,690 | | |
| 15 | | |
| 48,191 | | |
| (41,843 | ) | |
| 6,363 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for services and for employees | |
| 100,000 | | |
| - | | |
| 667 | | |
| - | | |
| 667 | |
Net loss for the period ended June 30, 2022 | |
| - | | |
| - | | |
| - | | |
| (3,186 | ) | |
| (3,186 | ) |
Balance as of June 30, 2022 (unaudited) | |
| 15,065,690 | | |
$ | 15 | | |
$ | 48,858 | | |
$ | (45,029 | ) | |
$ | 3,844 | |
The accompanying notes are an integral part of
these consolidated financial statements
CUENTAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
| |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash Flows from Operating Activities: | |
| | |
| |
Net loss | |
| (3,107 | ) | |
| (6,810 | ) |
Adjustments to reconcile net loss to net cash used in
operating activities: | |
| | | |
| | |
Stock based compensation and shares issued for services | |
| 287 | | |
| 1,204 | |
Equity losses in non-consolidated entity | |
| 18 | | |
| 26 | |
Interest | |
| 6 | | |
| 6 | |
Impairment of an investment in an unconsolidated entity | |
| 537 | | |
| - | |
Loss (gain) from Change in on fair value of stock-based liabilities | |
| 1 | | |
| (2 | ) |
Depreciation and amortization expense | |
| 7 | | |
| 905 | |
Changes in Operating Assets and Liabilities: | |
| | | |
| | |
Increase in accounts receivable | |
| (24 | ) | |
| (351 | ) |
(Increase) decrease in other current assets | |
| (22 | ) | |
| 63 | |
Increase in accounts payable | |
| 55 | | |
| 1,109 | |
Decrease in other accounts liabilities | |
| (56 | ) | |
| (136 | ) |
Related Parties, net | |
| (55 | ) | |
| - | |
Decrease in deferred revenue | |
| - | | |
| (159 | ) |
Net Cash Used for Operating Activities | |
| (2,353 | ) | |
| (4,145 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities: | |
| | | |
| | |
Investment in unconsolidated entities | |
| (2,079 | ) | |
| (657 | ) |
Purchase of equipment | |
| - | | |
| (7 | ) |
Purchase of intangible asset | |
| (78 | ) | |
| - | |
| |
| | | |
| | |
Net Cash used for Investing Activities | |
| (2,157 | ) | |
| (664 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities: | |
| | | |
| | |
| |
| | | |
| | |
Proceeds from issuance of common stock, net of issuance expense | |
| 4,319 | | |
| - | |
Treasury stock | |
| (4 | ) | |
| - | |
Net Cash Provided by Financing Activities | |
| 4,315 | | |
| - | |
| |
| | | |
| | |
Net decrease in Cash | |
| (195 | ) | |
| (4,809 | ) |
Cash at Beginning of Period | |
| 466 | | |
| 6,607 | |
Cash at End of Period | |
$ | 271 | | |
$ | 1,798 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash financing activities | |
| | | |
| | |
| |
| | | |
| | |
Investment in unconsolidated entity against accounts receivables | |
$ | - | | |
$ | 233 | |
Issuance of Shares of common stock for investment in unconsolidated entity | |
$ | 700 | | |
$ | - | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts in U.S. dollar 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 derived its revenue from 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, the Company has an
agreement with Interactive Communications International, Inc. (“InComm”) a leading processor of general purpose reloadable
(“GPR”) debit cards, to market and distribute a line of 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’s real estate investments are intended to broaden its reach into the unbanked, underbanked and underserved communities
by using a patented, low cost, sustainable technology that should allow the Company 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 US.
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 installs WiFi6 shared
network (“WSN”) systems in locations in the New York metropolitan tristate area using access points and small cells to
provide users with access to the WSN.
On 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 for295,282
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 295,282 of the Company’s
shares were equal to 19.9% of the total number of issued and outstanding shares of the Company as of the date of the Agreement. The Company
closed this transaction on or about March 9th, 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.
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.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts in U.S. dollar thousands, except share
and per share data)
NASDAQ
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, the 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 April 14, 2023, the Nasdaq Listing Qualifications
Staff issued the Company a compliance letter citing that that the Company had regained compliance with the minimum bid price requirement.
REVERSE SPLIT
On March 24, 2023, the Company completed a reverse
stock split of its common stock. As a result of the reverse stock split, the following changes have occurred (i) every thirteen shares
of common stock have been combined into one share of common stock; (ii) the number of shares of common stock underlying each common stock
option or common stock warrant have been proportionately decreased on a 1-for-13 basis, and the exercise price of each such outstanding
stock option and common warrant has been proportionately increased on a 1-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 1-for-13 reverse stock split. On April 14, 2023, the Nasdaq Listing Qualifications
Staff issued the Company a compliance letter citing that that the Company had regained compliance with the minimum bid price requirement.
GOING CONCERN
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As of June 30, 2023, the Company had $271 in cash and cash equivalents,
$1,545 in negative working capital, shareholder’s equity of $1,471 and an accumulated deficit of $55,857. 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. These financial statements do not include
any adjustments that may be necessary should the Company be unable to continue as a going concern.
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. 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.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts in U.S. dollar thousands, except share
and per share data)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND BASIS OF PRESENTATION
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial
statements include the accounts of the Company and its subsidiaries, prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange
Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the financial statements presented herein have not been audited
by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows
for the for six-months ended June 30, 2023. However, these results are not necessarily indicative of results for any other interim period
or for the year ended December 31, 2023. The preparation of financial statements in conformity with GAAP requires the Company to make
certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect
the reported amounts of assets, liabilities, revenues, and expenses. Actual amounts could differ from these estimates.
Certain information and footnote disclosures normally
included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of
the U.S. Securities and Exchange Commission (“SEC”). The accompanying unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2022, filed with the SEC on March 31, 2023 (the “2022 Form 10-K”). For further information, reference
is made to the consolidated financial statements and footnotes thereto included in the 2022 Form 10-K.
Principles of Consolidation
The consolidated financial statements are prepared
in accordance with US GAAP. The consolidated financial statements of the Company include the Company and its wholly owned and majority-owned
subsidiaries. All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of unaudited condensed consolidated
financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, certain revenues and expenses, and disclosure of contingent
assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts in U.S. dollar thousands, except share
and per share data)
Derivative and Fair Value of Financial Instruments
Fair value of certain of the Company’s financial
instruments including cash, accounts receivable, accounts 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” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles and expands disclosures about fair value measurements.
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 nonperformance, which includes,
among other things, the Company’s credit risk.
Valuation techniques are generally classified
into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of
the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the
quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable
inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as
follows:
Level 1: Quoted prices (unadjusted) in active
markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities
in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market
data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs for the asset or
liability that are supported by little or no market activity, and that are 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), segregating those gains or losses included in earnings, and a description of where those gains
or losses included in earning are reported in the statement of income.
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 June 30, 2023 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| |
| | |
| | |
| | |
| |
Liabilities: | |
| | |
| | |
| | |
| |
Stock based liabilities | |
| 1 | | |
| - | | |
| - | | |
| 1 | |
Total liabilities | |
| 1 | | |
| - | | |
| - | | |
| 1 | |
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts in U.S. dollar thousands, except share
and per share data)
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments.” This updated guidance sets forth a current expected credit loss
model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience,
current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is
probable a loss has been incurred. This guidance becomes effective for the Company beginning in interim periods starting in fiscal year
2023. The impact of adopting the new standard did not have a material impact on the Company’s consolidated financial statements.
Other accounting standards that have been issued
or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a
material impact on our financial statements upon adoption.
NOTE 3 – STOCK OPTIONS
The following table summarizes all stock option
activity for the six months ended June 30, 2023:
| |
Shares | | |
Weighted- Average Exercise Price Per Share | |
Outstanding, December 31, 2022 | |
| 128,477 | | |
$ | 56.44 | |
Forfeited | |
| 6,093 | | |
$ | 186.55 | |
Outstanding, June 30, 2023 | |
| 122,384 | | |
$ | 49.96 | |
The following table discloses information regarding outstanding and
exercisable options as of June 30, 2023:
| | |
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 | |
| | |
| | |
| | |
| | |
| | |
| |
$ | 97.50 | | |
| 2,769 | | |
$ | 97.50 | | |
| 0.21 | | |
| 2,769 | | |
$ | 97.50 | |
$ | 67.99 | | |
| 1,538 | | |
$ | 67.99 | | |
| 0.74 | | |
| 1,538 | | |
$ | 67.99 | |
$ | 36.40 | | |
| 118,077 | | |
$ | 36.40 | | |
| 8.43 | | |
| 114,228 | | |
$ | 36.40 | |
| | | |
| 122,384 | | |
$ | 49.96 | | |
| 8.13 | | |
| 118,535 | | |
$ | 38.24 | |
The following table discloses information regarding outstanding and
exercisable options at June 30, 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 | | |
| 0.74 | | |
| 6,093 | | |
$ | 186.55 | |
$ | 97.50 | | |
| 2,769 | | |
$ | 97.50 | | |
| 1.21 | | |
| 2,769 | | |
$ | 97.50 | |
$ | 67.99 | | |
| 1,538 | | |
$ | 67.99 | | |
| 1.74 | | |
| 1,538 | | |
$ | 67.99 | |
$ | 36.40 | | |
| 142,308 | | |
$ | 36.40 | | |
| 9.38 | | |
| 61,538 | | |
$ | 36.40 | |
| | | |
| 152,708 | | |
$ | 47.97 | | |
| 9.09 | | |
| 71,938 | | |
$ | 52.13 | |
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts in U.S. dollar thousands, except share
and per share data)
NOTE 4 – RELATED PARTY TRANSACTIONS
Related parties’ balances at June 30, 2023 and December 31, 2022
consisted of the following:
Due from related parties
| |
June 30, 2023 | | |
December 31, 2022 | |
| |
(dollars in thousands) | |
| |
| | |
| |
Arik Maimon (Chairman of the Board and the CEO) | |
$ | 42 | | |
$ | - | |
Michael De Prado (Vice Chairman of the Board and President) | |
| 46 | | |
| - | |
SDI Cuentas LLC, net of allowance for credit losses of $157 as of June 30,
2023 and December 31, 2022. Refer to note 7. | |
$ | 223 | | |
$ | 198 | |
Total Due from related parties | |
$ | 311 | | |
$ | 198 | |
Related party transactions
|
|
6 Months ended at
June 30,
2023 |
|
|
6 Months ended at
June 30,
2022 |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
Sales to SDI Cuentas LLC |
|
$ |
30 |
|
|
$ |
732 |
|
|
|
|
|
|
|
|
|
|
Carol Pepper (b) |
|
|
- |
|
|
|
80 |
|
Cima Telecom Inc. (a) |
|
$ |
120 |
|
|
$ |
878 |
|
|
|
$ |
120 |
|
|
$ |
958 |
|
(a) | Composed of fees in the amount of $120 thousand for the maintenance
and support services during the first half of 2023. |
| |
3 Months ended at
June,
2023 | | |
3 Months ended at
June 30,
2022 | |
| |
(dollars in thousands) | |
| |
| | |
| |
Sales to SDI Cuentas LLC | |
$ | 18 | | |
$ | 518 | |
| |
| | | |
| | |
Carol Pepper (b) | |
| - | | |
| 40 | |
Cima Telecom Inc. (a) | |
$ | - | | |
$ | 559 | |
| |
$ | - | | |
$ | 599 | |
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts in U.S. dollar thousands, except share
and per share data)
NOTE 5 – 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 11th
Circuit for Miami-Dade County, Florida. On June 5, 2020, Secure IP Telecom, Inc. (“Secure IP”) filed a complaint against
Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company, case
no. 20-11972-CA-01. Secure IP alleges that the Company received certain transfers from Limecom during the period that the Company wholly
owned Limecom that may be an avoidable under Florida Statute § 725.105. On July 13, 2021, the two cases were consolidated, and are
now pending before the same trial court under the former case number. The Company has answered and denied any liability with respect to
both complaints. To the extent the Company has exposure for any transfers from Limecom, Heritage 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. As of June 30, 2023, the Company accrued $300 thousand
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 $630, which case
remains pending in the United States District Court for the Western District of Kentucky, case no. 3:22-CV-512-CHB. On November 8, 2022,
filed a Motion to Dismiss for Lack of Jurisdiction and a Motion to Change Venue. 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 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 June 30, 2023 the Company had paid $70
to the plaintiff under the above referenced settlement agreement.
On March 14, 2023, the Company was served with
a complaint for Breach of Contract of an Employment Agreement in excess of $30. The Company has retained counsel and is aggressively defending
its rights.
On April 1, 2021 the Company executed a lease
for office space effective April 1, 2021. The lease requires monthly rental payments of $9.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts in U.S. dollar thousands, except share
and per share data)
NOTE 6 – SEGMENTS OF OPERATIONS
The Company reports segment
information based on the “management” approach. The management approach designates the internal reporting used by management
for making decisions and assessing performance as the source of the Company’s reportable operating segments. The Company manages
its business primarily on a product basis. The accounting policies of the various segments are the same as those described in Note 2,
“Summary of Significant Accounting Policies.” The Company evaluates the performance of its reportable operating segments based
on net sales and gross profit.
Revenue by product for the six months ended June
30, 2023, and the six months ended June 30, 2022 are as follows:
| |
June 30, 2023 | | |
June 30, 2022 | |
| |
(dollars in thousands) | |
Telecommunications | |
$ | 35 | | |
$ | 318 | |
Digital products and General Purpose Reloadable Cards | |
| 69 | | |
| 746 | |
Total revenue | |
$ | 104 | | |
$ | 1,064 | |
Gross profit (loss) by product for the six months
ended June 30, 2023, and the six months ended June 30, 2022 are as follows:
| |
June 30, 2023 | | |
June 30, 2022 | |
| |
(dollars in thousands) | |
Telecommunications | |
$ | (44 | ) | |
$ | 200 | |
Digital products and General Purpose Reloadable Cards | |
| (128 | ) | |
| (11 | ) |
Total Gross (Loss) Profit | |
$ | (172 | ) | |
$ | 189 | |
Revenue by product for the three months ended
June 30, 2023, and the three months ended June 30, 2022 are as follows:
| |
June 30, 2023 | | |
June 30, 2022 | |
| |
(dollars in thousands) | |
Telecommunications | |
$ | 20 | | |
$ | 143 | |
Digital products and General Purpose Reloadable Cards | |
| 20 | | |
| 527 | |
Total revenue | |
$ | 40 | | |
$ | 670 | |
Gross profit (loss) by product for the three months
ended June 30, 2023, and the three months ended June 30, 2022 are as follows:
| |
June 30, 2023 | | |
June 30, 2022 | |
| |
(dollars in thousands) | |
Telecommunications | |
$ | (37 | ) | |
$ | 81 | |
Digital products and General Purpose Reloadable Cards | |
| (76 | ) | |
| (26 | ) |
Total Gross (Loss) Profit | |
$ | (113 | ) | |
$ | 55 | |
NOTE 7 – OTHER LOSS
Other loss is mainly composed from impairment
of an investment of $537 in Cuentas SDI. 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 with an Impairment of an investment
of $537 in Cuentas SDI.
NOTE 8 – SUBSEQUENT EVENTS
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. To date, Cuentas-SDI has paid the Company $121. The
balance is payable in five monthly installments of $21 commencing September 1, 2023.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
AND RESULTS OF OPERATIONS
You should read the following discussion and
analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere
in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022. Some of the information contained
in this discussion and analysis, particularly with respect to our plans and strategy for our business and related financing, includes
forward-looking statements within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, including statements regarding expectations, beliefs, intentions or strategies
for the future. When used in this report, the terms “anticipate,” “believe,” “estimate,” “expect,”
“can,” “continue,” “could,” “intend,” “may,” “plan,” “potential,”
“predict,” “project,” “should,” “will,” “would” and words or phrases of similar
import, as they relate to our company or our management, are intended to identify forward-looking statements. We intend that all forward-looking
statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements
are only predictions and reflect our views as of the date they are made with respect to future events and financial performance, and we
undertake no obligation to update or revise, nor do we have a policy of updating or revising, any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as
may be required under applicable law. Forward-looking statements are subject to many risks and uncertainties that could cause our actual
results to differ materially from any future results expressed or implied by the forward-looking statements as a result of several factors
including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,
2022.
The Company notes that in addition to the description
of historical facts contained herein, this report contains certain forward-looking statements that involve risks and uncertainties as
detailed herein and from time to time in the Company’s other filings with the Securities and Exchange Commission and elsewhere.
Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could
cause actual results to differ materially from those, described in the forward-looking statements. These factors include, among others:
(a) the Company’s fluctuations in sales and operating results; (b) regulatory, competitive and contractual risks; (c) development
risks; (d) the ability to achieve strategic initiatives, including but not limited to the ability to achieve sales growth across the business
segments through a combination of enhanced sales force, new products, and customer service; and (e) pending litigation.
Overview and Outlook
OVERVIEW AND OUTLOOK
The
Company was incorporated under the laws of the State of Florida on September 21, 2005 to act as an operational company and as a holding
company for its subsidiaries. Its subsidiaries are 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
Company mainly invests in financial technology and engages in use of certain licensed technology to provide innovative telecommunications,
mobility, and remittance solutions to unserved, unbanked, and emerging markets. The Company uses proprietary technology and certain licensed
technology to provide innovative telecommunications and telecommunications mobility and remittance solutions in emerging markets. The
Company also offers wholesale telecommunications minutes and prepaid telecommunications minutes to consumers through its Tel3 division.
the Since the first quarter of 2023, the Company has made a number of 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 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 generate
revenue. 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 generate revenue.
On
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 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 have two
and 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, 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 will be owned by Brooksville as an entity. 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. Cuentas had deposited as an initial capital contribution $2,000,000.00 (Two Million Dollars) 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. Brooksville owns the Vacant Land, free and clear of any liens,
claims and encumbrances with the sole exception being the Republic Bank loan. 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. On June 29, 2023,
the Company contributed additional $64,000 contribution for further development of the project.
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 $121,333. The
balance is payable in five monthly installments of $21,333 commencing September 1, 2023.
OUTLOOK
Business Environment
We are mainly a technology payment platform company
that enables digital and mobile payments on behalf of under-bank and unbanked individuals. During 2023-Q1, the Company initiated its first
investment into the Real Estate market and recently, made its second, more significant investment in Real Estate. We believe in providing
simple, affordable, secure and reliable financial services and digital payments to help our customers to achieve their financial goals.
The Company’s real estate investments are intended to broaden its reach into the unbanked, underbanked and underserved communities
by using a patented, 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 US.
We strive to increase our relevance for consumers,
and family to access and move their money anywhere in the world, anytime, on any platform and through any device (e.g., mobile, tablets,
personal computers or wearables). We provide safer and simpler ways for businesses of all sizes to accept payments from merchant websites,
mobile devices and applications, and at offline retail locations through a wide range of payment solutions. We also facilitate person
to person payments through Cuentas GPR Card.
We operate globally and in a rapidly evolving
regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry. That focus continues to
become even more heightened as regulators on a global basis focus on such important issues as countering terrorist financing, anti-money
laundering, privacy and consumer protection. Some of the laws and regulations to which we are subject were enacted recently and the laws
and regulations applicable to us, including those enacted prior to the advent of digital and mobile payments, are continuing to evolve
through legislative and regulatory action and judicial interpretation. Non-compliance with laws and regulations, increased penalties and
enforcement actions related to non-compliance, changes in laws and regulations or their interpretation, and the enactment of new laws
and regulations applicable to us could have a material adverse impact on our business, results of operations and financial condition.
Therefore, we monitor these areas closely to ensure compliant solutions for our customers who depend on us.
Industry Trends
Our industry is dynamic and highly competitive,
with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies,
or new ideas that can further transform the industry and our business. At Cuentas, we push the boundaries of what is possible through
a broad range of research and development activities that seek to anticipate the changing demands of customers, industry trends and competitive
forces. The Company’s entrance into the real estate market should allow it to provide reasonably priced rental apartments to working
class residents who should benefit from Cuentas’ financial solutions in parallel with the residential solutions.
RESULTS OF OPERATIONS
Comparison of the six months ended June 30, 2023 to the six months
ended June 30, 2022
Revenue
The Company generates revenues through the sale
and distribution of Digital products, General Purpose Reloadable Cards and other related telecom services. Revenues during the six months
ended June 30,2023, totaled $104.000 compared to $1,064,000 for the six months ended June 30, 2022. The decrease in our sales of digital
products and General-Purpose Reloadable Cards is mainly due to decreasing our sales with Cuentas SDI including online and other marketing
initiatives, including but not limited to distribution agreements. The decrease in our sales of digital products and General-Purpose Reloadable
Cards is mainly due to reducing our cooperation with Cuentas SDI including online and other marketing initiatives. The decrease in our
sales of telecommunications products is mainly due to reducing our activities in this segment. The Company has studied and evaluated its
previous mobile phone offerings and has modified its mobile phone program to be aggressively priced within marketing standards that have
been proven to be successful by other prepaid cellular carriers in the US. The Company has invested the past 9 months to re-organize its
“Cuentas Mobile” prepaid cellular phone service offering, website and marketing strategy and is currently in the testing and
provisioning phase. These efforts and testing are ongoing and should be fully implemented during the second half of 2023, allowing the
formal launch of the services. We expect to produce significant revenue with Cuentas Mobile due to its low-cost pricing structure which
has proven to be successful by other prepaid cellular phone carriers. Cuentas anticipates the real estate investments to produce direct
and indirect revenue streams as the projects come to completion and begin to produce rental revenue and the property values appreciate.
This is not anticipated to happen until 2024, at the earliest.
Revenue by product for the six months ended June
30, 2023, as compared to the six months ended June 30, 2022 are as follows:
| |
June 30, 2023 | | |
June 30, 2022 | |
| |
(dollars in thousands) | |
Telecommunications | |
$ | 35 | | |
$ | 318 | |
Digital products and General Purpose Reloadable Cards | |
| 69 | | |
| 746 | |
Total revenue | |
$ | 104 | | |
$ | 1,064 | |
Costs of Revenue and Gross profit
Cost of revenues during the six months ended June
30, 2023 totaled $276,000 compared to $875,000 for the six months ended June 30, 2022.
Cost of revenue consists of the purchase of wholesale
minutes for resale, related telecom platform costs and purchase of digital products in the amount of $113,000 during the six months ended
June 30, 2023 and $118,000 during the six months ended June 30, 2022.
Cost of revenue also consists of costs related
to the sale of the Company’s digital products and GPR Cards in the amount of $163,000 during the six months ended June 30, 2023
and $757,000 during the six months ended June 30, 2022.
Gross profit (loss) by product lines for six months
ended June 30, 2023 and 2022 are as follows:
| |
June
30, 2023 | | |
June
30, 2022 | |
| |
(dollars
in thousands) | |
Telecommunications | |
$ | (44 | ) | |
$ | 200 | |
Digital
products and General Purpose Reloadable Cards | |
| (128 | ) | |
| (11 | ) |
Total
Gross profit (loss) | |
$ | (172 | ) | |
$ | 189 | |
Gross profit margin for
the six months ended June 30, 2023 was negative for both the telecommunications segment and the digital product and general purpose reloadable
cards segment. 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 between the first half period in 2022 and
2023. 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.
Operating Expenses
Operating expenses consist of selling, general and administrative Expenses
and amortization of Intangible assets as discussed below and totaled $2407,000 during the six months ended June 30, 2023, compared to
$6,938,000 during the six months ended June 30, 2022 representing a net decrease of $4,531,000.
Selling, General and Administrative Expenses
The table below summarizes our general and administrative
expenses incurred during the periods presented:
|
|
Six Months Ended
June 30, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(Unaudited in thousands) |
|
General and Administrative Expenses: |
|
|
|
|
|
|
Officers compensation |
|
$ |
408 |
|
|
$ |
766 |
|
Directors fees |
|
|
104 |
|
|
|
124 |
|
Share-based compensation |
|
|
287 |
|
|
|
1,204 |
|
Directors’ and officers’ insurance |
|
|
- |
|
|
|
316 |
|
Professional services |
|
|
486 |
|
|
|
621 |
|
maintenance and support services |
|
|
120 |
|
|
|
700 |
|
Legal fees |
|
|
160 |
|
|
|
195 |
|
payments in accordance with the processing service agreement with Incomm |
|
|
125 |
|
|
|
375 |
|
Selling and Marketing |
|
|
229 |
|
|
|
1,089 |
|
Settlements |
|
|
299 |
|
|
|
- |
|
Other |
|
|
183 |
|
|
|
643 |
|
Total |
|
$ |
2,401 |
|
|
$ |
6,033 |
|
Selling, general and administrative expenses totaled
2,401 during the six months ended June 30, 2023, compared to $6,033,000 during the six months ended June 30, 2022, representing a net
decrease of $3,632,000. Included in in the Selling, general and administrative expenses, Officers compensation in the amount of $408,000
during the six months ended June 30, 2023 as opposed to $766,000 during the six months ended June 30, 2022. The decrease was due to the
departure of Jeffery Johnson in 2022 and the reduction in the number of the officers of the Company in 2023. Share-based compensation
and shares issued for services expenses amounted to $287,000 during the six months ended June 30, 2023, and $1,204,000 during the six
months ended June 30, 2022. The decrease is mainly due to the decrease in the amount of the vested option in 2023 as opposed to 2022 which
was mitigated by an increase in the number of shares that were issued for services and settlement. The decrease in the other operating
expenses is mainly due to a decrease in the maintenance and support services that were provided by CIMA in the amount of $580,000 from
$700,000 during the six months ended June 30, 2022, decrease in the agreed payments in accordance with the processing service agreement
with Incomm in the amount of $250,000 during the six months ended June 30, 2023 from $375,000 during the six months ended June 30, 2022,
decrease in Directors’ and officers’ insurance from $316,000 to 0 since the Company cancelled its policy during the fourth
quarter of 2022, an increase of approximately $299,000 in our settlements expenses and decrease of approximately $860,000 in our selling
and marketing expenses during the six months ended June 30, 2023 since the Company reduced significantly its selling and marketing campaigns
in 2023 due to its ineffectiveness and lack of resources.
Amortization of Intangible assets
Amortization of Intangible assets totaled $6,000
during the six months ended June 30, 2023 and $905,000 during the six months ended June 30, 2022. The amortization expense of $905,000
during the six months ended June 30, 2022, mainly stemmed 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 a perpetual software license had an estimated
fair value of $9,000,000. During the fourth quarter of 2022, the Company recorded an impairment
charge of $3,600,000 whereas as no amortization amount was assigned to the acquired platforms on December 31, 2022 and after.
Other Expenses
Other expenses totaled $510,000 during the six months ended June
30, 2023, mainly due to an impairment loss of $537,000 which resulted from a decrease in cost of an investment in Cuentas SDI LLC.
Net Income (Loss)
We incurred a net loss of $3,107,000 for the six-month period ended
June 30, 2023, as compared to a net loss of 6,810,000 for the six-month period ended June 30, 2022 due to the increase in selling and
general administrative expenses as described above.
Comparison of the three months ended June 30, 2023 to the three
months ended June 30, 2022
Revenue
The Company generates revenues through the sale
and distribution of prepaid telecom minutes, digital products, and other related telecom services. Revenues during the three months ended
June 30,2023, totaled $40,000 compared to $670,000 for the three months ended June 30, 2022. The decrease in our sales of digital products
and General-Purpose Reloadable Cards is mainly due to decreasing sales with Cuentas SDI including online and other marketing initiatives,
including but not limited to distribution agreements. The decrease in our sales of digital products and General-Purpose Reloadable Cards
is mainly due to reducing our cooperation with Cuentas SDI including online and other marketing initiatives. The decrease in our sales
of telecommunications products is mainly due to reducing our activities in this segment. The Company has studied and evaluated its previous
mobile phone offerings and has modified its mobile phone program to be aggressively priced within marketing standards that have been proven
to be successful by other prepaid cellular carriers in the US. The Company has invested the past 9 months to re-organize its “Cuentas
Mobile” prepaid cellular phone service offering, website and marketing strategy and is currently in the testing and provisioning
phase. These efforts and testing are ongoing and should be fully implemented during the second half of 2023, allowing the formal launch
of the services. We expect to produce significant revenue with Cuentas Mobile due to its low-cost pricing structure which has proven to
be successful by other prepaid cellular phone carriers. Cuentas anticipates the real estate investments to produce direct and indirect
revenue streams as the projects come to completion and begin to produce rental revenue and the property values appreciate. This is not
anticipated to happen until at least 2024.
Revenue by product for the three months ended
June 30, 2023, and the three months ended June 30, 2022 are as follows:
| |
June 30, 2023 | | |
June 30, 2022 | |
| |
(dollars in thousands) | |
Telecommunications | |
$ | 20 | | |
$ | 143 | |
Digital products and General Purpose Reloadable Cards | |
| 20 | | |
| 527 | |
Total revenue | |
$ | 40 | | |
$ | 670 | |
Costs of Revenue and Gross profit
Cost of revenues during the three months ended
June 30, 2023 totaled $153,000 compared to $615,000 for the three months ended June 30, 2022.
Cost of revenue consists of the purchase of wholesale
minutes for resale, related telecom platform costs and purchase of digital products in the amount of $57,000 during the three months ended
June 30, 2023 and $61,000 during the three months ended June 30, 2022.
Cost of revenue also consists of costs related
to the sale of the Company’s Digital products and GPR Card in the amount of $96,000 during the three months ended June 30, 2023
and $547,000 during the three months ended June 30, 2022.
Gross profit (loss) by product for the three months
ended June 30, 2023, and the three months ended June 30, 2022 are as follows:
| |
June 30, 2023 | | |
June 30, 2022 | |
| |
(dollars in thousands) | |
Telecommunications | |
$ | (37 | ) | |
$ | 81 | |
Digital products and General Purpose Reloadable Cards | |
| (76 | ) | |
| (26 | ) |
Total Gross profit (loss) | |
$ | (113 | ) | |
$ | 55 | |
Gross profit margin
for the three months ended June 30 , 2023 was negative for both the telecommunications segment and the digital product and general
purpose reloadable cards segment. 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 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 our revenue between the first half period in 2022 and 2023.
In May 2023, 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.
Operating Expenses
Operating expenses consist of selling, general
and administrative Expenses and amortization of Intangible assets as discussed below and totaled $780,000 during the three months ended
June 30, 2023, compared to $3,196,000 during the three months ended June 30, 2022 representing a net decrease of $2,416,000.
Selling, General and Administrative Expenses
The table below summarizes our general and administrative
expenses incurred during the periods presented:
|
|
Three Months Ended
June 30, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(Unaudited in thousands) |
|
General and Administrative Expenses: |
|
|
|
|
|
|
Officers compensation |
|
$ |
181 |
|
|
$ |
413 |
|
Directors fees |
|
|
54 |
|
|
|
68 |
|
Share-based compensation |
|
|
4 |
|
|
|
667 |
|
Directors’ and officers’ insurance |
|
|
- |
|
|
|
130 |
|
Professional services |
|
|
228 |
|
|
|
260 |
|
maintenance and support services |
|
|
- |
|
|
|
525 |
|
Legal fees |
|
|
60 |
|
|
|
153 |
|
payments in accordance with the processing service agreement with Incomm |
|
|
75 |
|
|
|
225 |
|
Selling and Marketing |
|
|
87 |
|
|
|
170 |
|
Other |
|
|
87 |
|
|
|
133 |
|
Total |
|
$ |
776 |
|
|
$ |
2,744 |
|
Selling, general and administrative expenses totaled 776,000_ during
the three months ended June 30, 2023, compared to $2,744,000 during the three months ended June 30, 2022, representing a net decrease
of $1,968,000. Included in the selling, general and administrative expenses, were officers compensation in the amount of $181,000 during
the three months ended June 30, 2023, as compared to $413,000 for the three months ended June 30, 2022. The decrease was due to the departure
of Jeffery Johnson in 2022 and the reduction in the number of the officers of the Company in 2023. Stock-based compensation and shares
issued for services expenses amounted to $4,000 during the three months ended June 30, 2023, and $667,000 during the three months ended
June 30, 2022. The decrease was mainly due to the decrease in the amount of the vested option in 2023 as opposed to 2022. The decrease
in the other operating expenses was mainly due to an decrease in the maintenance and support services that were provided by CIMA in the
amount of $525,000, decrease in the agreed payments in accordance with the processing service agreement with Incomm in the amount of $150,000
during the three months ended June 30, 2023 from $225,000 during the three months ended June 30, 2022, a decrease in Directors’
and Officers’ insurance from $130,000 to 0 since the Company cancelled its policy during the fourth quartr of 2022 and a decrease
of approximately $83,000 in our selling and marketing expenses during the three months ended June 30, 2023 since the Company reduced significantly
its selling and marketing campaigns in 2023 due to its ineffectiveness and lack of resources.
Amortization of Intangible assets
Amortization of Intangible assets totaled $4,000
during the three months ended June 30, 2023 and $452,000 during the three months ended June 30, 2022. The amortization expense of $452,000
during the three months ended June 30, 2022, mainly stemmed 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 a perpetual software license had an estimated
fair value of $9,000,000. During the fourth quarter of 2022, the Company recorded an impairment
charge of $3,600,000 whereas as no amount was assigned to the acquired platforms on December 31, 2022 and after.
Other Expenses
Other expenses totaled $510,000 during the
three months ended June 30, 2023, mainly due to impairment loss of $537,000 which was resulted from a decrease in cost of an investment
in Cuentas SDI LLC.
Net Income (Loss)
We incurred a net loss of $1,412,000 for the three-month period ended
June 30, 2023, as compared to a net loss of 3,186,000 for the three-month period ended June 30, 2022 due to the increase in selling and
general administrative expenses as 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 June 30, 2023, the Company had total current
assets of $628,000, including $271,000 of cash, accounts receivables of $233,000, related parties in the amount of $88,000 and other current
assets of $36,000 and total current liabilities of $2,173,000 creating a working capital deficit of $1,545,000.
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 deficit of $1,445,000.
The decrease in our working capital was mainly
due to our negative cash flow from operations activities in the amount of in the amount of $2,353,000 and negative cash flow from investment
activities in the amount of $2,157,000 which included investment in Brooksville Development Partners, LLC in the amount of $2,064,000,
investment in Cuentas Max, LLC in the amount of $15,000, and purchasing roof.com domain in the amount of $78,000. The negative cash flow
from operations and investment activities was mitigated by increase in our Cash and Cash equivalents from financing activities in the
amount of $4,3169,000 due to the sale of our shares.
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, General-Purpose Reloadable Cards and prepaid cellular phone services will provide us limited
financial resources for the near future to continue implementing our business strategy of further developing our digital products, General
Purpose Reloadable Card, enhance our digital products offering and increase our sales and marketing. We also may be required to invest
additional funds to support the real estate projects that we are invested in. Our ownership may change in the future, and we can incur
additional losses if we will not be able to raise sufficient financing to complete these projects. Management plans to secure additional
financing sources, including but not limited to the sale of our Common Stock in future financing. This is expected to be used to further
support our operations as described above and to complete the development of its new portal and financial technology capabilities and
the development of our real estate projects. There can be no assurance, however, that the company will be successful in raising additional
capital or that the company will have net income from operations to fund the business plan of the company for the near future or long
term.
Cash Flows – Operating Activities
The Company’s operating activities for the
six months ended June 30, 2023, resulted in net cash used of $2,353,000. Net cash used in operating activities consisted of a net loss
of $3,156,000, partially offset by non-cash expenses mainly consisting of share-based compensation of $287,000 and impairment loss due
to decrease in cost of an investment in a non-consolidated entity in the amount of $537,000, Changes in operating assets and liabilities
utilized cash of $102,000, resulting mainly from an increase in related parties of $88,000.
The Company’s operating activities for the
six months ended June 30, 2023, resulted in net cash used of $4,145,000. Net cash used in operating activities consisted of a net loss
of $6,810,000, partially offset by non-cash expenses consisting of share-based compensation of $1,204,000 and amortization of intangible
assets of $905,000. Changes in operating assets and liabilities generated cash of $526,000, resulting mainly from an increase in accounts
payables of $1,109,000 was mitigated by an increase in accounts receivables of $351,000 and decrease in accrued expenses and other current
liabilities of $136,000 .
Cash Flows – Investing Activities
The Company’s investment activities
for the six months ended June 30, 2023 resulted in net cash used of $2,157,000 due to the Company’s investment in Brooksville
Development Partners, LLC. in the amount of $2,064,000 , investment in the amount of $15,000 in Cuentas Max LLC and investment in
the amount of $78,000 in the roof.com domain
Cash Flows – Financing Activities
The Company’s financing activities for the
six months ended June 30, 2023, resulted in net cash received of $4,315,000 mainly consisting of $4,319,000 received from the sale of
our common stock.
The Company had no financing activities for the
six months ended June 30, 2022. Further, we have principally financed our operations through the sale of our Common Stock. We also may
be required to invest additional funds to support the real estate projects that we are invested in. Our ownership may change in the future,
and we can incur additional losses if we will not be able to raise sufficient financing to complete these projects. Management plans to
secure additional financing sources, including but not limited to the sale of our Common Stock in future financing. There can be no assurance,
however, that the company will be successful in raising additional capital or that the company will have net income from operations to
fund the business plan of the company for the near future or long term.
Inflation and Seasonality
In management’s opinion, our results of
operations have not been materially affected by inflation or seasonality, and management does not expect that inflation risk or seasonality
would cause material impact on our operations in the future.
Off-Balance Sheet Arrangements
As of June 30, 2023, we had no off-balance sheet arrangements of any
nature.
Critical Accounting Policies
The preparation of financial statements in conformity
with GAAP in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in
the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. Note 2 to our
consolidated audited financial statements filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2022, describes the significant accounting policies and methods used in the preparation of our financial statements.
Recently Issued Accounting Standards
New pronouncements issued but not effective as
of June 30, 2023, are not expected to have a material impact on the Company’s consolidated financial statements.
Other accounting standards that have been issued
or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a
material impact on our financial statements upon adoption.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
As a smaller reporting company, we are not required
to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls
and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure
controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions.
The Company’s Chief Executive Officer and
Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered
by this report. Based on such evaluation, and as discussed in greater detail below, the Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of the period covered by this report, disclosure controls and procedures are not effective:
|
● |
to give reasonable assurance that the information required to be disclosed in reports that are file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and |
|
● |
to ensure that information required to be disclosed in the reports that are file or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our CEO and our Treasurer, to allow timely decisions regarding required disclosure. |
Changes in Internal Control over Financial
Reporting
There were no changes in the Company’s internal
control over financial reporting during the three-month period ended June 30, 2023, that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. 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), who allegedly had a Reciprocal Carrier Services Agreement (“RCS”)
exclusively with Limecom and not with the Company. The arbitration demand originated from another demand for arbitration that Secure IP
received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,053 in damages allegedly caused by unpaid receivables
that Limecom assigned to VoIP based on the RCS. On or about October 5, 2020, the trial court appointed a receiver over Limecom, Inc. (“Limecom”)
in the matter of Spectrum Intelligence Communications Agency, LLC. v. Limecom, Inc., case no. 2018-027150-CA-01 pending in the 11th
Circuit for Miami-Dade County, Florida. On June 5, 2020, Secure IP Telecom, Inc. (“Secure IP”) filed a complaint against
Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company, case
no. 20-11972-CA-01. Secure IP alleges that the Company received certain transfers from Limecom during the period that the Company wholly
owned Limecom that may be an avoidable under Florida Statute § 725.105. On July 13, 2021, the two cases were consolidated, and are
now pending before the same trial court under the former case number. The Company has answered and denied any liability with respect to
both complaints. To the extent the Company has exposure for any transfers from Limecom, Heritage 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 $600,000.
The Company’s books and records reflect that the Company fully reimbursed Limecom through direct payment of expenses of Limecom
and through issuance of shares by the Company to employees or other vendors on behalf of Limecom for settlement and release of claims
the employees or vendors may have asserted against Limecom. The books and records of the Company therefore do not reflect an identifiable
avoidable transfer, but this analysis may change as the discovery process continues. At this time, based upon an analysis of the Company’s
books and records, the loss contingency is not capable of reasonable estimation under the above circumstances, and the likelihood of an
adverse judgment is not probable at this time. An adverse judgment in this matter is reasonably possible and based upon an analysis of
litigation costs and likelihood of a settlement. As of June 30, 2023, the company accrued $300 thousand 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 June 30, 2023 the Company has paid $70,000 to the plaintiff under the above
referenced settlement agreement.
On March 14, 2023, the Company was served with
a complaint for Breach of Contract of an Employment Agreement in excess of $30,000. As of June 30, 2023, the company accrued $35,000 due
to this matter.
ITEM 1A. RISK FACTORS
Reference
is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year
ended December 31, 2022 (the “2022 Form 10-K”) and our Registration Statement on Form S-1 (File No. 333-273552) declared
effective on August 9, 2023 (the “2023 Resale Registration Statement”) under the caption “Risk Factors,” which
sections are incorporated by reference into this report. Prospective investors are encouraged to consider the risks described in our
2022 Form 10-K, the 2023 Resale Registration Statement, our Management’s Discussion and Analysis of Financial Condition and Results
of Operations contained in this Report and other information publicly disclosed or contained in documents we file with the Securities
and Exchange Commission before purchasing our securities.
We
have relied upon vendors and other third parties to develop, manage and operate our fintech solutions. 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.
During
the early 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, 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, 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 business were a major reason for the decline in revenue between the Q1-Q2 periods in 2022 and 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.
We
own a minority equity interest 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.
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, minimum closing bid price or
minimum shareholders’ equity requirements, 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 other continued listing requirements. The Company
effected a 1-for 13 reverse stock split of its Common Stock on March 24, 2023 to bring it in compliance with Nasdaq’s minimum
bid price requirements. There can be no assurance that we will continue to comply with the minimum bid price or other continued
listing requirements to maintain our listing on Nasdaq in the future. We are required to maintain shareholders’ equity of at
least $2,500,000 for continued listing on The Nasdaq Capital Market. As of June 30, 2023, our shareholders’ equity was
$1,471,000. Unless we are able to regain compliance with the minimum shareholders’ equity requirement within the cure period
provided under Nasdaq rules, Nasdaq may take steps to delist our securities.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR DEBT
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
None
ITEM 6. EXHIBITS
SIGNATURES
In accordance with the requirements of the Exchange
Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Cuentas, Inc. |
|
(Registrant) |
|
|
Date: August
14, 2023 |
By: |
/s/ Shalom Arik Maimon |
|
|
Interim Chief Executive Officer |
|
|
|
|
By: |
/s/ Ran Daniel |
|
|
Chief Financial Officer |
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In connection with this Quarterly Report on Form
10-Q of Cuentas Inc. (the “Company”) for the three-months ended June 30, 2023, as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), Shalom Arik Maimon, Chief Executive Officer of the Company, hereby certifies, pursuant
to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
This certification accompanies each Report pursuant
to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed
filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement
required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.
In connection with this Quarterly Report on Form
10-Q of Cuentas Inc. (the “Company”) for the three-months ended June 30, 2023, as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), Ran Daniel, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
This certification accompanies each Report pursuant
to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed
filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement
required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.