NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share data)
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Cuentas,
Inc. (the “Company”) together with its subsidiaries, is focused on financial technology
(“FINTECH”) services, delivering mobile banking, online banking, prepaid debit and digital content services to unbanked,
underbanked and underserved communities. The Company derives its revenue from the sales of prepaid and wholesale calling minutes.
Additionally, The Company has an agreement with Interactive Communications International, Inc. (“InComm”) a leading
processor of general purpose reloadable (“GPR”) debit cards, to market and distribute a line of GPR cards targeted
towards the Latin American market.
The Company was incorporated under the
laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries. Its subsidiaries are Meimoun
and Mammon, LLC (100% owned) (“M&M”), Next Cala, Inc (94% owned) (“Cala”), NxtGn, Inc. (65% owned)
(“NxtGn”) and Cuentas Mobile LLC (formerly Next Mobile 360, LLC. - 100% owned). Additionally, Next Cala, Inc. had
a 60% interest in NextGlocal Inc. (“Next Glocal”), a subsidiary formed in May 2016 and which was dissolved on September
27, 2019. 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. On October 23, 2017, the Company acquired 100% of the outstanding shares
in Limecom, Inc, (“Limecom” and such acquisition, the “Limecom Acquisition”) from Heritage Ventures Limited
(“Heritage”). On January 30, 2019, the Company exercised a right to rescind the Acquisition, principally in an effort
to reduce the Company’s continuing debt obligations associated with the Acquisition.
M&M
was formed under the laws of the State of Florida on May 21, 2001 as a real estate investment company. During the year ended December
31, 2010, M&M began winding down real estate operations and commenced the business of providing telecommunications services.
M&M acquired telecom registrations, licenses and authorities to provide telecom services to the retail and wholesale markets
including sales of prepaid long-distance telecom services and Mobile Virtual Network Operator (known as MVNO) services. The services
are sold under the brand name Cuentas Mobile and through the subsidiary of the same name.
Next Cala
was formed under the laws of Florida on July 10, 2009 for the purpose of offering prepaid and reloadable debit cards to the retail
market. Cala serves consumers in the underbanked and unbanked populations through Incomm, a leading provider of third-party gift
cards, general purpose reloadable (known as GPR) debit cards and payment remittance services worldwide.
NxtGn
was formed under the laws of Florida on August 24, 2011 to develop a high definition telepresence product (known as AVYDA) which
allows users to connect with celebrities, public figures, healthcare and education applications via a mobile phone, tablet or
personal computer. NxtGn has entered into a joint venture with telephony platform industry leader Telarix, Inc. to develop and
market the AVYDA Powered by Telarix™ HD telepresence platform. The AVYDA Powered by Telarix™ product is marketed throughout
the world by the Telarix sales force.
On
December 6, 2017, the Company completed the formation of SDI NEXT Distribution LLC (“SDI NEXT”), in which the Company
owns 51% a membership interest. The remainder of the membership interests of SDI are owned by Fisk Holdings, LLC (“Fisk”),
a non-related party of the Company. The Company acts as the Managing Member of SDI NEXT. Under SDI NEXT’s Operating Agreement,
the Company will contribute a total of $500 to SDI Next. Fisk will contribute 30,000 active point of sale locations for distribution
of retail telecommunications and prepaid financial products and services to include, but not be limited to: prepaid general-purpose
reloadable cards, prepaid gift cards, prepaid money transfer, prepaid utility payments, and other prepaid products.
CUENTAS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars in
thousands, except share and per share data)
On
October 23, 2017, the Company, completed the acquisition 100% of the outstanding shares of Limecom, Inc. (“Limecom”).
Limecom is a global telecommunication company, providing services to telecommunication providers from all over the world. Limecom
operates a network built on internet protocol (“IP”) switching equipment. It was organized as a Florida limited liability
company on November 21, 2014 and was known as Limecom LLC. On September 29, 2015, Limecom converted into a Florida corporation.
The Limecom Acquisition was completed for total consideration of $3,927,000 which included an issuance of 172,683 shares of the
Company’s common stock per value $0.001 (the “Common Stock”), which were valued at $1,295,000 as of the acquisition
date.
Pursuant
to the Share Purchase Agreement, dated September 19, 2017 (the “Limecom Purchase Agreement”) , the Company had rights
to rescind the Limecom Acquisition. On January 29, 2019, the Company and Heritage entered into an amendment to the Limecom Purchase
Agreement (the “Amendment”) under which the parties agreed to extend the right of the Company to rescind the Limecome
Acquisition at its discretion, and in connection therewith to return the shares of Limecom to Heritage in consideration for the
following:
(a)
The 138,147 shares of Common Stock previously issued to Heritage and its stockholders will not be returned to the Company, and
the remaining 34,537 shares Common Stock owed to Heritage will not be issued to Heritage. Instead, it was agreed that the Company
will issue an additional 90,000 shares of Common Stock as directed by Heritage. The Company also agreed to issue 20,740 shares
of the Company’s restricted Common Stock to several Limecom employees in exchange for salaries due to them.
(b)
The $1,807,000 payment due by the Company under the Limecom Purchase Agreement will be cancelled.
(c)
The Employment Agreement with Orlando Taddeo as International CEO of Limecom will be terminated.
(d)
Heritage and Limecom agreed that the intercompany loans in the amount of $231,000 will be cancelled.
On January 30, 2019, the Company rescinded
the acquisition of Limecom, Inc. Therefore, and in accordance with ASC Topic 360, the Company recorded in 2018 an asset impairment
charges of $1,917 which is included in the consolidated statements of operations within loss on disposal and impairment of
assets; $1,334 of the total impairment charge related to Goodwill and the remaining $583 related to intangible
assets
Pro forma results
The following are unaudited pro forma financial
information for the year ended December 31, 2018 and presents the condensed consolidated statements of operations of the Company
due to the rescission of the Limecome Acquisition as described above, as if the Limecom Acquisition had not occurred. The unaudited
pro forma financial information is not intended to represent or be indicative of the Company’s condensed consolidated statements
of operations that would have been reported had the Limecom Acquisitions not been completed as of the beginning of the period
presented and should not be taken as indicative of the Company’s future condensed consolidated statements of operations.
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2018
(In thousands)
|
|
|
Revenues
|
|
$
|
1,088
|
|
|
Net Income before controlling
Interest
|
|
|
334
|
|
|
Net Income
|
|
|
353
|
|
|
Basic net income earnings per
common share (in U.S Dollars)
|
|
|
0.30
|
|
|
Diluted net income earnings
per common share (in U.S Dollars)
|
|
$
|
0.27
|
|
GOING CONCERN
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As of December 31, 2019, the Company had approximately $16 in cash and cash
equivalents, approximately $3,752 in negative working capital, and an accumulated deficit of approximately $19,390. 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.
CUENTAS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars in
thousands, except share and per share data)
REVERSE SPLIT
The Company completed a reverse stock split
of its common stock, by filing articles of amendment to its Articles of Incorporation (the “Articles of Amendment”)
with the Secretary of State of Florida to effect the Reverse Stock Split on August 8, 2018. As a result of the reverse stock split,
the following changes have occurred (i) every three hundred 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, common stock warrant or any other convertible
instrument of the Company have been proportionately decreased on a 300-for-1 basis, and the exercise price of each such outstanding
stock option, common warrant or any other convertible instrument of the Company have been proportionately increased on a 300-for-1
basis. Accordingly, all option numbers, share numbers, warrant numbers, share prices, warrant prices, exercise prices and losses
per share have been adjusted within these consolidated financial statements, on a retroactive basis, to reflect this 300-for-1
reverse stock split. No fractional shares were issued as a result of the reverse stock split. In lieu of issuing fractional shares,
each holder of common stock who would otherwise have been entitled to a fraction of a share was entitled to receive one full share
for the fraction of a share to which he or she was entitled.
NOTE
2 – Cima Telecom Inc.
On
December 31, 2019, the Company entered into a series of integrated transactions to license the Platforms from CIMA, through CIMA’s
wholly owned subsidiaries Knetik, and Auris (the “Transaction Closing”) pursuant to that certain Platform License
Agreement, dated December 31, 2019 by and among (i) the Company, (ii) CIMA, (iii) Knetik and (iv) Auris (the “License Agreement”)
and the various other agreements listed below.
License
Agreement
Contemporaneously with the Transaction Closing,
on December 31, 2019 (the “Effective Date”) the Company entered into the License Agreement. Pursuant to the License
Agreement, the Company has an exclusive, non-transferable, non-sublicensable, royalty-free license to access and use the Knetik
and Auris technology platforms (collectively, the “Licensed Technology”) in the form provided to the Company via the
Hosting Services (as defined in the License Agreement) and solely within the FINTECH space for the Company’s business purposes.
Under the License Agreement Cima Group received a 1-time licensing fee in the amount of $9,000 in the form of a convertible note
that may be converted, at the option of Cima, into up to 25% of the total shares of Common Stock of the Company, par value $0.001
per share (the “Common Stock”) on a fully diluted basis as of December 31, 2019. On December 31, 2019, CIMA exercised
its option to convert the Convertible Promissory Note into 1,757,478 shares of Common Stock of the Company.
Pursuant to the License Agreement, the Company shall pay CIMA annual
fees for the maintenance and support services in accordance with the following schedule: (i) for the first (1st) calendar year
from the Effective Date, $300 to be paid on June 30, 2020; (ii) for the second (2nd) calendar year from the Effective Date, $500
to be paid on December 31, 2020; (iii) for the third (3rd) calendar year from the Effective Date, $700 to be paid on December 31,
2021; (iv) for the fourth (4th) calendar year from the Effective Date, $1,000 to be paid on December 31, 2022; (v) for the fifth
(5th) calendar year from the Effective Date, $640 to be paid on December 31, 2022; and (vi) for each calendar year thereafter,
$640 to be paid on the anniversary date.
Voting
Agreement
Contemporaneously
with the Transaction Closing, on December 31, 2019, the Company entered into that certain voting agreement and proxy (the “Voting
Agreement”), by and among the Company, Arik Maimon, the Company’s Chief Executive Officer, Michael De Prado, the Company’s
President, Dinar, and CIMA. Pursuant to the Voting Agreement, each of CIMA, Dinar and Mr. De Prado shall have the right to designate
one director to the Company’s Board of Directors and Mr. Maimon will have the right to designate two directors to the Board
as promptly as practicable after the Transaction Closing. At each meeting of the Company’s stockholders at which the election
of directors is to be considered, each of CIMA, Dinar, Mr. Maimon and Mr. De Prado shall have the right to designate one nominee
for election at such meeting. Additionally, the Company has granted CIMA board observer rights whereby CIMA shall have the right
to invite one representative to attend all meetings of the Board in a non-voting observer capacity. The size of the Board and
appointee rights are subject to change in the event that the Company’s shares of Common Stock become listed on the NASDAQ
Capital Market (or if there is any other similar transaction which ultimately involves the listing of the Company’s capital
stock, whether Common Stock or any other class or series of capital stock of the Company, on any exchange affiliated with or similar
to NASDAQ). Furthermore, pursuant to the Voting Agreement, each of Mr. Maimon and Mr. De Prado appointed each of CIMA and Dinar
as their proxy and attorney-in-fact, with full with full power of substitution and resubstitution, to vote or act by written consent
with respect to the shares of Voting Stock (as defined in the Voting Agreement) representing each individual’s pro rata
percentage of the CIMA Proxy Stock and Dinar Proxy Stock (as defined in the Voting Agreement), as may be recalculated from time
to time subject to the terms and conditions of the Voting Agreement, until the CIMA Warrant is exercised and until the Dinar Warrant
is exercised, respectively.
Note
and Warrant Purchase Agreement
Contemporaneously
with the Transaction Closing, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”)
by and between the Company and CIMA, pursuant to which the Company made and sold to (i) CIMA a 3% convertible promissory note
(the “Convertible Promissory Note”) in the principal amount of $9,000 and (ii) (a) CIMA a warrant (the “CIMA
Warrant”) , to purchase from the Company an aggregate of duly authorized, validly issued, fully paid and nonassessable shares
(the “Shares”) of common stock of the Company, par value $0.001 per share (the “Common Stock”), equal
to twenty-five percent (25%) of shares of Common Stock or any other equity issued upon the conversion of the Series B preferred
stock. The Purchase Agreement contained customary representations, warranties, covenants, and conditions, including indemnification.
Among other conditions to closing, the Company has agreed to take all necessary steps to amend and restate its Articles of Incorporation
(the “A&R Articles”) and to amend and restate its Bylaws (the “A&R Bylaws”) and properly file
and effect such A&R Articles and A&R Bylaws with the Secretary of State of the State of Florida and the U.S. Securities
and Exchange Commission, each as necessary, no later than June 30, 2020.
CUENTAS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars in
thousands, except share and per share data)
Convertible
Promissory Note
Contemporaneously
with the Transaction Closing, the Company made and sold to CIMA a convertible promissory note (the “CIMA Convertible Promissory
Note”) in accordance with the Purchase Agreement. Pursuant to the Convertible Promissory Note, at any time on or before
twelve (12) months after the date of the CIMA Convertible Promissory Note, CIMA may elect in its sole and absolute discretion
to convert all unpaid principal and accrued and unpaid interest under the CIMA Convertible Promissory Note into 25% of the issued
and outstanding Common Stock of the Company calculated on a fully diluted basis as of the conversion date, assuming the conversion,
exercise, and exchange of all equity and debt securities of the Company which are convertible into, or exercisable or exchangeable
for, Common Stock of the Company, but not including the Warrants. On December 31, 2019, CIMA exercised its option to convert the
Convertible Promissory Note into 1,757,478 shares of Common Stock of the Company, which constitutes 25% of the issued and outstanding
shares of Common Stock of the Company calculated on a fully diluted basis as of the same date.
Warrants
Contemporaneously
with the Transaction Closing, the Company made and sold a warrant to each of (a) CIMA (the “CIMA Warrant”) and (b)
Dinar (the “Dinar Warrant,” and together with the CIMA Warrant, the “Warrants”), each in accordance with
the Purchase Agreement. Pursuant to the Warrants, upon exercise, each of CIMA and Dinar shall be entitled to purchase from the
Company, in the aggregate, an amount of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock equal
to twenty-five percent (25%) of total outstanding shares of the Company on a fully-diluted basis (taking into account any warrants,
options, debt convertible into shares or other rights underlying shares of the Company) as of the conversion date; provided, however,
that each Warrant shall increase to include 25% of any additional shares (or warrants, options, debt convertible into shares or
other rights underlying shares of the Company) of the Company only to the extent such shares are issued in breach of the Voting
Agreement (as defined below). Pursuant to their terms, the Warrants are exercisable, in whole and not in part during the term
commencing on December 31, 2019 and ending on the earlier of (a) thirty (30) days following the date on which the Company amends
and restates its Articles of Incorporation, which is amendment and restatement is filed with and accepted by the Secretary of
State of the State of Florida or (b) upon a Change of Control, as defined in the Warrants.
Asset
Pledge Agreement
Contemporaneously
with the Transaction Closing, the Company entered into an Asset Pledge Agreement with CIMA (the “Pledge Agreement”).
Pursuant to the Pledge Agreement, the Company unconditionally and irrevocably pledged all of its rights, title and interest in
and to the Licensed Technology and any rights and assets granted pursuant to the License Agreement to CIMA as a guarantee for
the full and punctual fulfillment of its obligations under certain provisions of the Voting Agreement, and the issuance of the
securities under the CIMA Convertible Promissory Note and the CIMA Warrant.
Side
Letter Agreement
Contemporaneously
with the Transaction Closing, the Company entered into a side letter agreement (the “Side Letter Agreement”), dated
December 31, 2019, by and among the Company, Arik Maimon, Michael De Prado, Dinar and CIMA. Pursuant to the Side Letter Agreement,
for as long as the License Agreement is in effect, the Convertible Promissory Note is outstanding and unpaid, or CIMA is a shareholder
of the Company and owns at least 5% of the Company’s Common Stock, in addition to any other vote or approval required under
the Company’s Articles of Incorporation, Bylaws, or any other agreement, each as amended from time to time, the Company
has agreed not to take certain actions without certain approval thresholds of the directors appointed by CIMA, Dinar, Mr. Maimon
and Mr. De Prado. These negative covenants restrict, among other things, the Company’s ability to incur additional debt,
alter certain employment agreements currently in place, enter into any consolidation, combination, recapitalization or reorganization
transactions, and issue additional capital stock. Additionally, pursuant to the Side Letter Agreement, upon conversion of the
Convertible Promissory Note by CIMA, Cuentas shall have the primary right of first refusal, and each of Dinar, Mr. De Prado and
Mr. Maimon have a secondary right of first refusal, to purchase any shares of Common Stock which CIMA intends to sell to the bona
fide third party purchaser on the same terms and conditions as CIMA would have sold such shares of the Company’s Common
Stock to any third party purchaser. Further, CIMA has a co-sale right to participate in a sale of shares of the Company’s
Common Stock, in the event that Mr. De Prado, Mr. Maimon or any other director or officer of the Company holding greater than
1% of the Company’s Common Stock (on a fully diluted basis) proposes to sell any of his, her or its shares of Common Stock.
In addition, CIMA and/or Dinar have been granted certain information rights, subject to their continued ownership of the CIMA
Convertible Promissory Note or of 5% or more shares of the Company’s issued and outstanding Common Stock. Furthermore, pursuant
to the Side Letter Agreement, upon a successful up-listing of the Company’s shares on the NASDAQ Capital Markets and once
the market capitalization of the Company is greater than $50 million for a period of 10 consecutive trading days, Mr. Maimon and
Mr. De Prado will have a right to earn a special bonus in the amount of $250 each.
CUENTAS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars in
thousands, except share and per share data)
Interactive Communications International,
Inc. (“InComm”)
On July 23, 2019, the Company entered into
a five (5) year Processing Services Agreement (“PSA”) with Incomm, a leading payments technology company, to power
and expand the Company’s GPR card network. Incomm distributes Gift and GPR Cards to over 210,000 U.S. retailers and has long
standing partnerships with over 1,000 of the most recognized brands that are eligible for Cuentas’ Discount Purchase Platform.
Through its 94% owned subsidiary,
Under the PSA, Incomm will provide processing
services, Data Storage Services, Account Servicing, Reporting, Output and Hot Carding services to the Company. Processing Services
will consist mainly of Authorization and Transaction Processing Services whereas InComm will process authorizations for transactions
made with or on a Prepaid Product, and any payments or adjustments made to a Prepaid Product. InComm will also process Company’s
Data and post entries in accordance with the Specifications. Data Storage Services will consist mainly of storage of the Company’s
Data in a format that is accessible online by Company through APIs designated by InComm, subject to additional API and data sharing
terms and conditions. Incomm will also provide Web/API services for Prepaid Cuentas GPR applications and transactions.
In consideration for Incomm’s services
the company will pay an initial Program Setup & Implementation Fees in the amount of $500, which of $300will be paid at the
earlier of the Launch Date or three (3) months after contract execution, then $50,000 each at the beginning of the second, third,
fourth and fifth anniversary of the agreement. In addition, the Company will pay a minimum monthly fee of $30 starting on the fourth
month of the first year following the launch of the Cuentas GPR card, $50 during the second year following the launch of the Cuentas
GPR card and $75 thereafter. The Company will as also pay 0.25% of all funds added to the Cuentas GPR cards, excluding Vanilla
Direct Reload Network and an API Services fee of $0.005 per transaction. The Company may pay other fees as agreed between the Company
and Incomm.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (“US GAAP”).
Use
of Estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States (“‘US GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent
assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates. As applicable to the consolidated financial statements,
the most significant estimates and assumptions relate to allowances for impairment of intangible assets, fair value of stock-based
compensation and fair value calculations related to embedded derivative features of outstanding convertible notes payable and
Going Concern.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
Functional
currency
The
functional currency of the company and its subsidiaries is U.S dollar.
Reclassification
of Prior Year Presentation
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations.
Cash
and cash equivalents
The
Company considers all short-term investments, which are highly liquid investments with original maturities of three months or
less at the date of purchase, to be cash equivalents. The Company held no cash equivalents as of December 31, 2019 or 2018. As
of December 31, 2019, and 2018, the Company did not hold cash with any one financial institution in excess of the FDIC insured
limit of $250.
Marketable
securities
The Company accounts for investments in marketable
securities in accordance with ASC Topic 320-10, “Investments - Debt and Equity Securities” (“ASC Topic
320-10”). Management determines the appropriate classification of its investments in marketable securities at the time of
purchase and reassesses such determination at each balance sheet date. The investments in marketable securities covered by ASC
Topic 320-10 that were held by the Company during the reported periods were designated by management as trading securities. Trading
securities are stated at market value. The changes in market value are charged to financing income or expenses. During the year
ended December 31, 2017, the Company acquired 50,000 shares of common stock of Green Spirit Industries, a publicly held company,
as a referral fee. The total value of the common shares was recorded as other income using the price of the common stock as quoted
on Nasdaq on the date received resulting in other income of $550. Trading losses for the years 2019 and 2018 amounted to approximately
$78 and $171 respectively.
CUENTAS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share data)
Allowance
for doubtful accounts
The
allowance for doubtful accounts is determined with respect to amounts the Company has determined to be doubtful of collection.
In determining the allowance for doubtful accounts, the Company considers, among other things, its past experience with customers,
the length of time that the balance is post due, the customer’s current ability to pay and available information about the
credit risk on such customers. There was an allowance for doubtful accounts of $20 as of December 31, 2019 and 2018.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization
using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Maintenance
and repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are
capitalized. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations.
Impairment
of Long-Lived Assets
In
accordance with ASC Topic 360, formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
these assets may not be fully recoverable. The assessment of possible impairment is based on the Company’s ability to recover
the carrying value of its asset based on estimates of its undiscounted future cash flows. If these estimated future cash flows
are less than the carrying value of the asset, an impairment charge is recognized for the difference between the asset’s
estimated fair value and its carrying value. As a result, during the year ended December 31, 2018, the Company recorded asset
impairment charges of $1,917 which is included in the consolidated statements of operations within loss on disposal and impairment
of assets; $1,334 of the total impairment charge related to Goodwill and the remaining $583 related to intangible
assets. The Company did not record impairment losses during the year ended December 31, 2019.
Derivative
Liabilities and Fair Value of Financial Instruments
Fair
value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity
instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will
continue its evaluation process of these instruments as derivative financial instruments under ASC 815.
Once
determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease
in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
Fair
value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses,
notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports
fair value in accordance with ASC 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 investments.
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.
CUENTAS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share data)
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 records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates.
The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase
in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the fair value
of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the
change in fair values of derivative liabilities over the life of the convertible notes.
A summary of the changes in derivative liabilities
balance for the year ended December 31, 2019 is as follows:
|
Fair Value of Embedded Derivative Liabilities:
|
|
|
|
|
Balance, December 31, 2017
|
|
$
|
574
|
|
|
Change in fair value
|
|
|
(514
|
)
|
|
Reclassification due to conversion
|
|
|
(27
|
)
|
|
Balance, December 31, 2018
|
|
|
33
|
|
|
Change in fair value
|
|
|
(30
|
)
|
|
Change due to conversion
|
|
|
-
|
|
|
Balance, December 31, 2019
|
|
$
|
3
|
|
The value of the embedded derivative liabilities
for the convertible notes payable and outstanding option awards was determined using the Black-Scholes option pricing model based
on the following assumptions:
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Common stock price
|
|
|
5.7
|
|
|
|
3.00
|
|
|
Expected volatility
|
|
|
220
|
%
|
|
|
233
|
%
|
|
Expected term
|
|
|
0.25 years
|
|
|
|
.1.25 years
|
|
|
Risk free rate
|
|
|
1.55
|
%
|
|
|
2.56
|
%
|
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The
Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair
value hierarchy are as follows:
|
|
|
Balance as of December 31,
2019
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
Total assets
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based liabilities
|
|
|
742
|
|
|
|
-
|
|
|
|
-
|
|
|
|
742
|
|
|
Short term derivative value
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
Total liabilities
|
|
|
745
|
|
|
|
-
|
|
|
|
-
|
|
|
|
745
|
|
|
|
|
Balance as of December 31,
2018
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
79
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
|
Total assets
|
|
|
79
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based liabilities
|
|
|
225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225
|
|
|
Long term derivative value
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
|
Total liabilities
|
|
|
258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
258
|
|
CUENTAS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share data)
Non-Controlling
Interest
The
Company reports the non-controlling interest in its majority owned subsidiaries in the consolidated balance sheets within the
stockholders’ deficit section, separately from the Company’s stockholders’ deficit. Non-controlling interest
represents the non-controlling interest holders’ proportionate share of the equity of the Company’s majority-owned
subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the
earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share
of losses even if that attribution results in a deficit non-controlling interest balance.
Revenue
recognition
The Company follows paragraph 605-10-S99 of
the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized
or realizable and earned. The Company considers revenue realized or realizable and earned when all the following criteria are
met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to
the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company primarily
generates revenues through the brokering of sales of minutes from one telecommunications carrier to another through Limecom and
to a lesser extent the sales of prepaid calling minutes to consumers through its Tel3 division. While the Company collects payment
for such minutes in advance, revenue is recognized upon delivery to and consumption of minutes by the consumer. Minutes are forfeited
buy the consumer after 12 consecutive months of non-use at which point the Company recognizes revenue from the forfeiture of prepaid
minutes.
Business
Segments
The
Company operates in a single business segment in telecommunications.
Income
Taxes
Income
taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Use
of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code section 382 if a change of
ownership occurs.
Net
Loss Per Basic and Diluted Common Share
Basic
loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average
number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income
available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted
average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt
or equity.
CUENTAS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share data)
At
December 31, 2018, potentially dilutive securities consisted of 95,443 shares which the Company is obligated to issue and 162,044
options to purchase of common stock at prices ranging from $3 to $54 per share. Of these potentially dilutive securities, only
95,443 shares which the Company is obligated to issue and 90,000 options to purchase of common stock at price of $3 per share
are included in the computation of diluted earnings per share because the effect of including the remaining instruments would
be anti-dilutive. Additionally, the Company had common stock subscriptions totaling $100 representing an additional 33,334 common
shares. The effects of these notes, common shares subscribed and common shares committed have been excluded as the conversion
would be anti-dilutive due to the net loss incurred in the year ended December 31, 2018.
At December 31, 2019, potentially
dilutive securities consisted of 264,251 shares which the Company is obligated to issue and 212,044 options to purchase of
common stock at prices ranging from $2.09 to $54 per share. Of these potentially dilutive securities, only 264,251 shares
which the Company is obligated to issue and 140,000 options to purchase of common stock at price of $2.675 per share are
included in the computation of diluted earnings per share. Additionally, the Company had A Convertible note totaling $250,000
representing an additional 83,334 common shares included in the computation of diluted earnings per share because the effect
of including the remaining instruments would be anti-dilutive. The effects of these notes, common shares subscribed and
common shares committed have been excluded as the conversion would be anti-dilutive due to the net loss incurred in the year
ended December 31, 2019.
Advertising
Costs
The
Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred $25 and $46 of advertising
costs during the years ended December 31, 2019 and 2018, respectively.
Stock-Based
Compensation
The
Company applies ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation
expenses for all share-based payment awards made to employees and directors (including employee stock options under the Company’s
stock plans) based on estimated fair values.
ASC
718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion
of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s
statement of operations.
The
Company recognizes compensation expenses for the value of non-employee awards based on the straight-line method over the requisite
service period of each award, net of estimated forfeitures.
The
Company estimates the fair value of stock options granted as equity awards using a Black-Scholes options pricing model. The option-pricing
model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option
term (the time from the grant date until the options are exercised or expire). Expected volatility is estimated based on volatility
of similar companies in the technology sector. The Company has historically not paid dividends and has no foreseeable plans to
issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term.
The expected option term is calculated for options granted to employees and directors using the “simplified” method.
Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair
value of the options granted and the results of operations of the Company.
Related
Parties
The
registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and
disclosure of related party transactions.
Pursuant
to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their
equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section
825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees,
such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of
the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or
can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
CUENTAS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share data)
Recently
Issued Accounting Standards
On
February 14, 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update allow a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act
of 2017. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement—Reporting
Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive
income as required by GAAP. The amendments in this Update are effective for all organizations for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the
proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the
change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.
In
June 2018, the FASB issued Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting. The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring
goods and services from nonemployees. The amendments in this Update are effective for public business entities for fiscal years
beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted ASU 2018-07 effective
January 1, 2019, and the adoption of this standard did not have a material impact on the Company’s consolidated financial
In July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842): Targeted Improvements. The amendments in this Update related to separating components of a contract affect
the amendments in Update 2016-02, which are not yet effective but can be early adopted. For entities that have not adopted Topic
842 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update related
to separating components of a contract are the same as the effective date and transition requirements in Update 2016-02. For entities
that have adopted Topic 842 before the issuance of this Update, the transition and effective date of the amendments related to
separating components of a contract in this Update are as follows: 1. The practical expedient may be elected either in the first
reporting period following the issuance of this Update or at the original effective date of Topic 842 for that entity. 2. The practical
expedient may be applied either retrospectively or prospectively. All entities, including early adopters, that elect the practical
expedient related to separating components of a contract in this Update must apply the expedient, by class of underlying asset,
to all existing lease transactions that qualify for the expedient at the date elected.
In August 2018, the FASB issued ASU 2018-13, Fair
Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The
amendments apply to reporting entities that are required to make disclosures about recurring or nonrecurring fair value measurements
and should improve the cost, benefit, and effectiveness of the disclosures. ASU 2018-13 categorized the changes into those disclosures
that were removed, those that were modified, and those that were added. The primary disclosures that were removed related to transfers
between Level 1 and Level 2 investments, along with the policy for timing of transfers between levels. In addition, disclosing
the valuation processes for Level 3 fair value measurements was removed. The amendments are effective for all organizations for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The
Company notes that this guidance will impact its disclosures beginning January 1, 2020.
In
August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The
amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that
is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software
(and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer)
in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation
costs to capitalize as an asset related to the service contract and which costs to expense. For public business entities, the
amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal
years. For all other entities, the amendments are effective for annual reporting periods beginning after December 15, 2020, and
interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating this guidance to
determine the impact it may have on its consolidated financial statements.
In
November 2018, the FASB issued ASU 2018-18 “Collaborative Arrangements (Topic 808)—Clarifying the interaction between
Topic 808 and Topic 606”. The amendments provide guidance on whether certain transactions between collaborative arrangement
participants should be accounted for as revenue under ASC 606. It also specifically (i) addresses when the participant should
be considered a customer in the context of a unit of account, (ii) adds unit-of-account guidance in ASC 808 to align with guidance
in ASC 606, and (iii) precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC
606 if the collaborative arrangement participant is not a customer. The guidance will be effective for fiscal years beginning
after December 15, 2019. Early adoption is permitted and should be applied retrospectively. The Company is currently evaluating
this guidance to determine the impact it may have on its 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.
CUENTAS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share data)
NOTE
4 – PROPERTY AND EQUIPRMNET, NET
Property
and equipment, net, consisted of the following:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Office Equipment
|
|
$
|
9
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
Less—accumulated depreciation
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
13
|
|
Depreciation
expenses were $1 and $2 in the years ended December 31, 2019 and 2018, respectively.
NOTE
5 – OTHER ACCOUNTS LIABILITIES
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Settlements payable
|
|
$
|
-
|
|
|
$
|
1,029
|
|
|
Accrued expenses and other liabilities
|
|
|
201
|
|
|
|
564
|
|
|
Accrued salaries and wages
|
|
|
540
|
|
|
|
967
|
|
|
Total
|
|
$
|
741
|
|
|
$
|
2,560
|
|
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
NOTE 6 – RELATED PARTY TRANSACTIONS
The Company has had extensive dealings
with related parties including those in which our Chief Executive Officer holds a significant ownership interest as well as an
executive position during the years ended December 31, 2019 and 2018. Due to our operational losses, the Company has relied to
a large extent on funding received from Next Communications, Inc., an organization in which our Chief Executive Officer and Chairman
holds a controlling equity interest and holds an executive position. During the first calendar quarter of 2017, Next Communications,
Inc. filed for bankruptcy protection. As a result, the related party payable is being handled by a court appointed trustee as
an asset of Next Communications, Inc. and the Company may need to begin repaying the amounts due on a more fixed schedule On January
29, 2019, the United States Bankruptcy Court Southern District of Florida, Miami Division, approved a plan of reorganization for
Next Communications, Inc. whereby the Company would pay $600,000 to a specific creditor in consideration for the forgiveness of
the balance of the related party payable balance. On March 5, 2019, Cuentas paid $60,000 to the trust account of the specific
creditor and on May 10, 2019, the Company paid $550,000 to the trust account of the specific creditor per the order and satisfied
its obligation under the Approved Plan of the Reorganization for Next Communications, Inc., that was approved by the United States
Bankruptcy Court Southern District of Florida, Miami Division, on January 29, 2019.
Related parties balances at December 31, 2019 and December
31, 2018 consisted of the following:
Due from related parties
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
(dollars in thousands)
|
|
|
(a) Glocal Payments Solutions Inc. (d/b/a Glocal Card Services)
|
|
|
-
|
|
|
|
36
|
|
|
(f) Next Cala 360
|
|
|
54
|
|
|
|
-
|
|
|
Total Due from related parties
|
|
|
54
|
|
|
|
36
|
|
Related party payables, net of discounts
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
(dollars in thousands)
|
|
|
(b) Due to Next Communications, Inc. (current)
|
|
$
|
10
|
|
|
$
|
2,972
|
|
|
(c) Due to Asiya Communications SAPI de C.V. (current)
|
|
|
-
|
|
|
|
26
|
|
|
(d) Michael De Prado (current)
|
|
|
-
|
|
|
|
100
|
|
|
(e) Orlando Taddeo
|
|
|
-
|
|
|
|
2,613
|
|
|
(f) Next Cala 360 (current)
|
|
|
-
|
|
|
|
14
|
|
|
Total Due from related parties
|
|
$
|
10
|
|
|
$
|
5,725
|
|
|
|
(a)
|
Glocal Payments
Solutions Inc. (d/b/a Glocal Card Services) is the Company’s partner in the NextGlocal Inc. Next Glocal Inc. was
dissolved on September 27, 2019.
|
|
|
(b)
|
Next Communication,
Inc. is a corporation in which the Company’s Chief Executive Officer a controlling interest and serves as the Chief
Executive Officer. See disclosure above regarding payments by the Company in connection with the bankruptcy of Next Communication,
Inc..
|
|
|
(c)
|
Asiya Communications
SAPI de C.V.is a telecommunications company organized under the laws of Mexico, in which the Company’s Chief Executive
Officer holds a substantial interest and is involved in active management.
|
|
|
(d)
|
Michael De Prado
is the Company’s President. On February 28, 2019, the Company issued 66,402 shares of its Common Stock in settlement
of this debt.
|
|
|
(e)
|
Represents the amount
due to Orlando Taddeo from the Limecom Acquisition.
|
|
|
(f)
|
Next Cala 360, is
a Florida corporation established and managed by the Company’s Chief Executive Officer.
|
During the twelve months period ended
December 31, 2019, the Company recorded interest expense of $67, using an interest rate equal to that on the outstanding convertible
notes payable as imputed interest on the related party payable due to Next Communications. During the year ended December 31,
2018, the Company recorded interest expense of $237 using an interest rate equal to that on the outstanding convertible notes
as imputed interest on the related party payable due to Next Communications. The interest was immediately forgiven by the related
party and recorded to additional paid in capital.
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
Trade Accounts Receivable, Related
Parties
The Company had no outstanding accounts
receivable from any related parties as of December 31, 2019. The Company had outstanding accounts receivable of $3,006 from related
parties as of December 31, 2018 of which $2,989 was due from Rubelite- C (which is a related to one the Company’s shareholders
of the Company and a former owner of Limecom), $8 was due from Next Cala 360 and $39 was due from Asiya Communications SAPI de
C.V. The accounts receivable was recorded as a result of the sale of wholesale telecommunications minutes to these entities.
Revenues (Related Parties)
The Company made sales to and generated
revenues from related parties of $0 and $49,667 during the years ended December 31, 2019 and 2018, respectively, as itemized below:
|
|
|
For the Year Ended
December
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Next Communications, Inc.
|
|
|
-
|
|
|
|
14,310
|
|
|
VTX Corporation (a)
|
|
|
-
|
|
|
|
11,890
|
|
|
Airtime Sp.z.o.o.
|
|
|
-
|
|
|
|
5,095
|
|
|
Asiya Communications SAPI de C.V.
|
|
|
-
|
|
|
|
15,383
|
|
|
RUBELITE - C (a)
|
|
|
-
|
|
|
|
2,989
|
|
|
Total
|
|
|
-
|
|
|
|
49,667
|
|
|
|
(a)
|
Corporations that
are owned by one of the Company’s shareholders and a former owner of Limecom
|
Costs of Revenues (Related Parties)
The Company made purchases from related
parties totaling $0 and $59,217 during the years ended December 31, 2019 and 2018, respectively, as itemized below:
|
|
|
For the Year Ended
December
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Next Communications, Inc.
|
|
|
-
|
|
|
|
14,310
|
|
|
VTX Corporation
|
|
|
-
|
|
|
|
24,017
|
|
|
Airtime Sp.z.o.o.
|
|
|
-
|
|
|
|
5,529
|
|
|
Asiya Communications SAPI de C.V.
|
|
|
-
|
|
|
|
15,361
|
|
|
Total
|
|
|
-
|
|
|
|
59,217
|
|
Employment Agreement
On December 27, 2019,
the Compensation Committee of the Board of the Company approved the amendments to the employment agreements with each of Arik
Maimon and Michael De Prado. The New Employment Agreements shall supersede the terms of the Pre-existing Employment Agreements.
Pursuant to the terms of the New Employment Agreements, among other things:
|
|
(1)
|
Michael
De Prado will receive the following compensation: (1) (a) a base salary of $265 per annum
which will increase by a minimum $15 or 5% on the 12 month anniversary of his employment
agreement; (b) Restricted Stock Units; (c) a minimum grant of 100,000 stock options per
year, with the exercise price valued based on the Company’s stock price at the
date of exercise, pursuant to the terms and conditions of the Company’s Stock Option
Incentive Plan; (d) an $8,000 automobile expense allowance per year; (e) participation
in the Company’s employee benefits plan; (f) participation in the Company’s
Performance Bonus Plan, if and when in effect.
|
|
|
(2)
|
Arik
Maimon will receive the following compensation: (a) a base salary of $295per annum which
will increase by a minimum $15or 5% on the 12 month anniversary of his employment agreement;
(b) Restricted Stock Units; (c) a minimum grant of 100,000 stock options per year, with
share price valued at the date of exercise, pursuant to the terms and conditions of the
Company’s Stock Option Incentive Plan; (d) An $10 automobile expense allowance
per year; (e) participation in the Company’s employee benefits plan; (f) participation
in the Company’s Performance Bonus Plan, if and when in effect.
|
|
|
(3)
|
Each
of De Prado and Maimon will be employed for an initial term of five years which will
automatically renew for successive one-year period unless either party terminates the
New Employment Agreements with 90 days’ prior notice.
|
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
|
|
(4)
|
Upon
the successful up-listing of the Company’s shares of common stock, par value $0.001
per share, to the Nasdaq Stock Market (“NASDAQ”), each executive would be
entitled to receive a $250 bonus;
|
|
|
(5)
|
De Prado will be granted of 88,000 stock options and Maimon will be granted 110,000 stock options with the right to exercise the options to purchase the equivalent of a minimum of 4% and 5% of the Company’s issued and outstanding shares of Common Stock as of July 1, 2019, respectively;
|
|
|
(6)
|
Pursuant
to the terms of the New Employment Agreements, the Executives are entitled to severance
in the event of certain terminations of his employment. The Executives are entitled to
participate in the Company’s employee benefit, pension and/or profit-sharing plans,
and the Company will pay certain health and dental premiums on their behalf.
|
|
|
(7)
|
Each
of the Executives are entitled to Travel and expense reimbursement;
|
|
|
(8)
|
The
Executives have agreed to a one-year non-competition agreement following the termination
of their employment.
|
NOTE 7 – STOCK OPTIONS
The following table summarizes all stock
option activity for the year ended December 31, 2019:
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
Outstanding, December 31, 2018
|
|
|
162,044
|
|
|
$
|
16.09
|
|
|
Granted
|
|
|
50,000
|
|
|
|
2.09
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, December 31, 2019
|
|
|
212,044
|
|
|
$
|
12.79
|
|
The following table discloses information regarding outstanding
and exercisable options at December 31, 2019:
|
|
|
|
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
|
|
|
$
|
54.00
|
|
|
|
25,000
|
|
|
$
|
54.00
|
|
|
|
0.25
|
|
|
|
25,000
|
|
|
$
|
54.00
|
|
|
|
21.00
|
|
|
|
47,044
|
|
|
|
21.00
|
|
|
|
1.49
|
|
|
|
47,044
|
|
|
|
21.00
|
|
|
|
3.00
|
|
|
|
90,000
|
|
|
|
3.00
|
|
|
|
4.71
|
|
|
|
60,000
|
|
|
|
3.00
|
|
|
|
2.09
|
|
|
|
50,000
|
|
|
|
2.09
|
|
|
|
2.24
|
|
|
|
50,000
|
|
|
|
2.09
|
|
|
|
|
|
|
|
212,044
|
|
|
$
|
12.79
|
|
|
|
1.39
|
|
|
|
182,044
|
|
|
$
|
14.40
|
|
The following table summarizes all stock
option activity for the year ended December 31, 2018:
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
Outstanding, December 31, 2017
|
|
|
105,378
|
|
|
$
|
39.27
|
|
|
Granted
|
|
|
90,000
|
|
|
|
3.00
|
|
|
Forfeited
|
|
|
(33,334
|
)
|
|
|
54.00
|
|
|
Outstanding, December 31, 2018
|
|
|
162,044
|
|
|
$
|
16.09
|
|
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
The following table discloses information regarding outstanding
and exercisable options at December 31, 2018:
|
|
|
|
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
|
|
|
$
|
54.00
|
|
|
|
25,000
|
|
|
$
|
54.00
|
|
|
|
1.25
|
|
|
|
25,000
|
|
|
$
|
54.00
|
|
|
|
21.00
|
|
|
|
47,044
|
|
|
|
21.00
|
|
|
|
1.49
|
|
|
|
47,044
|
|
|
|
21.00
|
|
|
|
3.00
|
|
|
|
90,000
|
|
|
|
3.00
|
|
|
|
4.71
|
|
|
|
30,000
|
|
|
|
3.00
|
|
|
|
|
|
|
|
162,044
|
|
|
$
|
16.09
|
|
|
|
2.73
|
|
|
|
102,044
|
|
|
$
|
23.79
|
|
On March 21, 2019, the Company issued
50,000 options to its Chief Financial Office. The options carry an exercise price of $2.09 per share. All the options were vested
immediately. The Options are exercisable until March 20, 2024. The Company has estimated the fair value of such options at a value
of $103 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:
|
Common stock price
|
|
|
2.09
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
Risk-free interest rate
|
|
|
2.18
|
%
|
|
Expected term (years)
|
|
|
5
|
|
|
Expected volatility
|
|
|
281
|
%
|
On September 13, 2018, the Company issued
60,000 options to its President and Chief Executive Office. The options carry an exercise price of $3 per share. A third of the
options vested immediately with the remaining vesting over the course of two years. The Options are exercisable until September
12, 2023. The Company has estimated the fair value of such options at a value of $302 at the date of issuance using the Black-Scholes
option pricing model using the following assumptions:
|
Common stock price
|
|
|
5.05
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
Risk-free interest rate
|
|
|
2.87
|
%
|
|
Expected term (years)
|
|
|
5
|
|
|
Expected volatility
|
|
|
374.26
|
%
|
On September 13, 2018, the Company issued
30,000 options to its member of the Board. The options carry an exercise price of $3 per share. Third of the options vested immediately
with the remaining vesting over the course of two years. The Options are exercisable until September 12, 2023. The Company has
estimated the fair value of such options at a value of $151 at the date of issuance using the Black-Scholes option pricing model
using the following assumptions:
|
Common stock price
|
|
|
5.05
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
Risk-free interest rate
|
|
|
2.87
|
%
|
|
Expected term (years)
|
|
|
5
|
|
|
Expected volatility
|
|
|
374.26
|
%
|
During the year ended December 31, 2019, the
Company recorded an option-based compensation expense of $218, leaving an unrecognized expense associated with these grants of
$120 as of December 31, 2019.
During the year ended December 31, 2018,
the Company recorded an option-based compensation expense of $218, leaving an unrecognized expense associated with these grants
of $235 as of December 31, 2018.
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
NOTE 8 – STOCKHOLDERS’
EQUITY
Preferred Stock
The Company has 10,000,000 shares of Preferred
Stock designated as Series B issued and outstanding. The Series B Preferred Stock is not convertible into Common Stock at any
time and is not entitled to dividends of any kind or liquidation, dissolution rights of any kind. The holders of Series B Preferred
Stock shall be entitled to 1,000 votes for each share of Series B Stock that is held when voting together with holders of the
Common Stock.
Common Stock
Effective November 20, 2015 the Company
amended its Articles of Incorporation to decrease the common shares authorized from 9,500,000,000 to 360,000,000 with a par value
of $0.001.
Common Stock Activity During the
Year Ended December 31, 2019
The following summarizes the Common Stock
activity for the year ended December 31, 2019:
|
Summary of Common Stock activity for the year ended December 31, 2019
|
|
Outstanding shares
|
|
|
Balance, December 31, 2018
|
|
|
1,588,942
|
|
|
Shares issued for Common Stock subscriptions
|
|
|
441,645
|
|
|
Shares issued due to conversion of Convertible Promissory Note
|
|
|
2,090,811
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
100,334
|
|
|
Shares issued due to the rescission of Limecom acquisition
|
|
|
107,910
|
|
|
Shares issued as settlement of debt
|
|
|
309,497
|
|
|
Balance, December 31, 2019
|
|
|
4,639,139
|
|
On January 31, 2019, the Company issued
16,667 shares of Common Stock pursuant to a securities purchase agreement dated September 21, 2018 (the “Subscription Date”).
The fair market value of the shares at the Subscription Date was $50,000.
On January 31, 2019, the Company received
$50 under a private placement of equity and issued 16,667 shares of its Common Stock and warrants to purchase up to 16,667 shares
of its Common Stock at an exercise price equal to $3.25 per share under a private placement of securities which closed on December
13, 2018.
On January 31, 2019, the Company issued
17,333 shares of Common Stock pursuant to a securities purchase agreement. The fair market value of the shares at the Subscription
Date was $50.
On January 31, 2019, the Company issued
107,910 shares of Common Stock to Heritage and its officers under the Amendment to rescind the Company’s option to sell the
stock in Limecom back to Heritage.
On February 12, 2019, the Company issued
warrants to purchase up to 35,834 shares of its Common Stock at an exercise price equal to $3.25 per share under the October 25,
2018 private placement.
On February 28, 2018, the Company issued
309,497 shares of Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was $464.
On February 28, 2019, the Company signed
a binding term sheet (the “Optima Term Sheet”) with Optima Fixed Income LLC (“Optima”) for a total investment
of $2,500over one year and received $500on the same date. Under the Optima Term Sheet, it was agreed that the initial invested
amount would be $500in consideration for 166,667 shares of Common Stock of the Company. These shares will be issued in reliance
on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act. It was also agreed that Optima may purchase
a convertible note in the amount principle of $2,000, which may be funded on a quarterly basis (the “Optima Convertible
Note”). The term of the Optima Convertible Note is three years and it is convertible at a price per share that is equal
to 75% of the public share price at date of conversion, but in any case, not less than $3.00 per share. Optima will additionally
be granted a proxy to vote with the Company’s Series B Preferred shares, par value $0.001 per share (the “Preferred
Stock”) held by the Company’s Chief Executive Officer and President. In any case, the total investment in the Company
shall be not be less than 25% of the outstanding shares at the first anniversary of the Optima Term Sheet.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
On May 11, 2019, Optima made an additional
deposit of $550.
On May 28, 2019 Optima made an additional
deposit of $200. On July 30, 2019 Optima assigned its rights under the Optima Term Sheet to Dinar Zuz LLC (“Dinar Zuz”).
On the same date, the Company and Dinar Zuz executed a subscription agreement with the same terms as reflected in the Optima Term
Sheet, as amended. Under the subscription agreement, Dinar Zuz made an additional deposit of $250and agreed to provide an additional
amount of $1,000 to the Company, which will be provided in a form of a convertible note at the following dates:
|
Date
|
|
Amount
|
|
|
10/26/2019
|
|
$
|
500
|
|
|
01/26/2020
|
|
$
|
500
|
|
On August 12, 2019, the Company issued
Dinar Zuz. 500,000 shares of its Common Stock pursuant to a securities purchase agreement dated July 30, 2019.
On July 18, 2019, the Company issued 65,978
shares of its Common Stock pursuant to a securities purchase agreement dated October 25, 2018.
On September 11, 2019, the Company issued
25,000 shares of its Common Stock pursuant to a service agreement dated May 16, 2019. The fair market value of the shares at the
issuance date was $49.
On September 11, 2019, the Company issued
10,000 shares of its Common Stock pursuant to a service agreement dated April 17, 2019. The fair market value of the shares at
the issuance date was $20.
On September 18, 2019, the Company issued 61,226
shares of its Common Stock pursuant to a securities purchase agreement between the Company and a private investor, dated October
25, 2018.
On September 24, 2019, the Company issued
62,248 shares of its Common Stock in gross consideration of $62and net consideration of $54 pursuant to a securities purchase
agreement dated September 23, 2019.
On October 1, 2019, the Company issued
34,859 shares of its Common Stock in gross consideration of $34 and net consideration of $32 pursuant to a securities purchase
agreement dated September 27, 2019 between the Company and a private investor.
On October 23, 2019, Dinar Zuz provided
an additional amount of $250 to the Company in form of a convertible note pursuant to a securities purchase agreement which the
Company and Optima entered on July 30, 2019.
On November 5, 2019 our Compensation Committee
approved an issuance 200,000 Shares of Common Stock of the Company for certain employees of the Company at January 1, 2020 pursuant
to the Company’s Share and Options Incentive Enhancement Plan (2016) (the “2016 Incentive Plan). The shares will have
3 years vesting period which third will be vested at January 1, 2020, third will be vested on December 31, 2021 and the third
will be vested on December 31, 2022. The Company has estimated the fair value of such shares at $1,140.
On December 31, 2019, the Company issued
65,334 shares of its Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was
$372.
On December 31, 2019 and pursuant to the
CIMA Convertible Promissory Note, CIMA exercised its option to convert the Convertible Promissory Note into 1,757,478 shares of
Common Stock of the Company.
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
NOTE 9 – CUSTOMER CONCENTRATION
The Company did not have any one customer
account for more than 10% of its revenues during the year ended December 31, 2019.As of December 31, 2018, three separate customers
accounted for approximately 56% of the Company’s total accounts receivable.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
On February 12, 2018, the Company was
served with a complaint from Viber Media, Inc. (“Viber”) for reimbursement of attorney’s fees and costs totaling
$528 arising from a past litigation with Viber. The Company is vigorously defending their rights in this case as we believe this
demand is premature as litigation is ongoing. The Company has no accrual related to this complaint as of December 31, 2018 given
the premature nature of the motion.
On July 6, 2017, the Company received notice
an existing legal claim against Accent InterMedia (“AIM”) had been amended to include claims against the Company. The
claims brought against the Company include failure to comply with certain judgments for collection of funds by the plaintiff while
having a controlling interest in AIM via its ownership of Transaction Processing Products (“TPP”). On April 17, 2019,
the Company entered into a settlement agreement (the “SVS Settlement Agreement”) with Comdata, Inc. d/b/a Stored Value
Solutions (“SVS”) whereby the Company will pay a total of $37 over 7 months, starting July 1, 2019. Only in the event
that the Company defaults by failing to make timely payments, SVS may file in Kentucky for the judgment of $70. As of December
31, 2019, the Company paid $25 the stipulated amount in accordance with the SVS Settlement Agreement (See note 12).
On December 20, 2017, a Complaint was filed
by J. P. Carey Enterprises, Inc., alleging a claim for $473 related to the Franjose Yglesias-Bertheau filed lawsuit against PLKD
listed above. Even though the Company made the agreed payment of $10 on January 2, 2017 and issued 12,002 shares as conversion
of the $70 note as agreed in the settlement agreement, the Plaintiff alleges damages which the Company claims are without merit
because they received full compensation as agreed. The Company is in the process of defending itself against these claims. On January
29, 2019, the Company was served with a complaint by J.P. Carey Enterprises, Inc., (“JP Carey”) which was filed in
Fulton County, Georgia claiming similar issues as to the previous complaint, with the new claimed damages totaling $1,108. The
Company has hired an attorney and feels these claims are frivolous and is defending the situation vigorously.
On September 28, 2018, the Company was
notified of a complaint filed against it by a former supplier. The Company has not yet received formal service of the complaint
and is awaiting such service at which time it can fully assess the complaint. The Company has not accrued any losses as of December
31, 2018 related to the complaint given the early nature of the process.
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
On November 7, 2018, the Company was served
with a complaint by IDT Domestic Telecom, Inc. vs the Company and its subsidiary Limecom, Inc. for telecommunications services
provided to the Subsidiary during 2018 in the amount of $50. The Company has no accrual as of December 31, 2019 related to the
complaint given the early nature of the process. The Company intends to file a motion to dismiss the Company as a defendant since
the Company has no contractual relationship with the plaintiff.
On May 1, 2019, the Company received a
Notice of Demand for Arbitration (the “Demand”) from Secure IP Telecom, Inc. (“Secure IP), who allegedly had
a Reciprocal Carrier Services Agreement (RCS) exclusively with Limecom and not with Cuentas. The Demand originated from a 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. The Company will vigorously defend
its position to be removed as a named party in this action due to the fact that Cuentas rescinded the Limecom acquisition on January
30, 2019.
The Company executed a lease for office
space effective November 1, 2019. The lease requires monthly rental payments of $6.
NOTE 11 – INCOME TAXES
Effective December 22, 2017 a new tax bill was signed into law that
reduced the federal income tax rate for corporations from 35% to 21%. The new bill reduced the blended tax rate for the Company
from 39.50% to 26.50%. Under ASC 740, the effects of new tax legislation are recognized in the period which includes the enactment
date. As a result, the deferred tax assets and liabilities existing on the enactment date must be revalued to reflect the rate
at which these deferred balances will reverse. The corresponding adjustment would generally affect the Income Tax Expense (Benefit)
shown on the financial statements. However, since the company has a full valuation allowance applied against all of its deferred
tax asset, there is no impact to the Income Tax Expense for the year ending December 31, 2019.
IRC Section 382 potentially limits the
utilization of NOLs and tax credits when there is a greater than 50% change of ownership. The Company has not performed an analysis
under IRC 382 related to changes in ownership, which could place certain limits on the company’s ability to fully utilize
its NOLs and tax credits. The Company’s has added a note to its financial statements to disclose that there may be some
limitations and that an analysis has not been performed. In the interim, the Company has placed a full valuation allowance on
its NOLs and other deferred tax items.
We recognized income tax benefits of $0 during the years ended December
31, 2019 and 2018. When it is more likely than not that a tax asset will not be realized through future income the Company must
allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating
loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient
to realize the deferred tax assets during the carry forward period.
The Company has not taken a tax position that, if challenged, would
have a material effect on the financial statements for the years ended December 2019 or 2018 applicable under FASB ASC 740. We
did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the
beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company remain open.
Reconciliation between the theoretical
tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense
as reported in the Statement of Operations, is as follows:
|
|
|
Year ended
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Loss before taxes, as reported in the consolidated statements of operations
|
|
$
|
1,286
|
|
|
$
|
3,585
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal and State statutory rate
|
|
|
26.5
|
%
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Theoretical tax benefit on the above amount at federal statutory tax rate
|
|
|
341
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and other items for which a valuation allowance was provided or benefit from loss carry forward
|
|
|
(341
|
)
|
|
|
(950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax income (expense)
|
|
|
-
|
|
|
|
-
|
|
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share
and per share data)
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2019
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2018
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U.S. dollars in thousands
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Deferred tax assets:
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|
|
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|
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Net operating loss carry-forward
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|
$
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1,830
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|
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$
|
2,015
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|
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Adjustments
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|
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(163
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)
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(578
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)
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Valuation allowance
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|
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(1,667
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)
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(1,437
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)
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$
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-
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|
|
$
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-
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|
A valuation allowance is provided when
it is more likely than not that some portion of the deferred tax asset will not be realized. Management has determined, based
on its recurring net losses, lack of a commercially viable product and limitations under current tax rules, that a full valuation
allowance is appropriate.
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|
|
U.S. dollars in thousands
|
|
Valuation allowance, December 31, 2018
|
|
$
|
1,437
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|
|
Increase due to the recession of the acquisition of Limecom
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|
|
192
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|
|
Increase
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|
|
38
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|
|
Valuation allowance, December 31, 2019
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|
$
|
1,667
|
|
The net federal operating loss carry forward
will begin expire in 2039. This carry forward may be limited upon the consummation of a business combination under IRC Section
382.
NOTE 12 – SUBSEQUENT EVENTS
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world,
including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease
(COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services
Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding
to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. A significant
outbreak of COVID-19 and other infectious diseases could result in a widespread health crisis that could adversely affect the economies
and financial markets worldwide, as well as our business and operations. The extent to which COVID-19 impacts our business and
results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information
which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If
the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our business and
results of operations may be materially adversely affected.
On January 3, 2020 Dinar Zuz provided an additional
amount of $300 to the Company which was be provided in a form of the Optima Convertible Note pursuant to a securities purchase
agreement between the Company and Optima, dated July 30, 2019. Additionally, on January 3, 2020, the Company issued 100,000 shares
of its Common Stock to Dinar Zuz LLC, as a result of a conversion of the Dinar Convertible Note in the amount of $300.
On January 9, 2020, the Company issued 40,000
shares of its Common Stock pursuant to a service Agreement between the Company and a service provider, dated June 3, 2019. The
fair market value of the shares at the issuance date was $240.
On January 14, 2020, the Company issued 66,334
shares of its Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was $459.
On January 14, 2020, the Company issued 58,334
shares of Common Stock to employees. All shares were issued pursuant to the Company’s Share and Options Incentive Enhancement
Plan (2016). The Company has estimated the fair value of such shares at $332.
On January 24, 2020, the Company received a
Corrected Notice of Hearing regarding Qualtel SA de CV, a Mexican Company vs Next Communications, Inc. for a “Plaintiff’s
Motion for Order to Show Cause and/or for Contempt as to Non-Party, Cuentas, Inc.” The Company retained a counsel and will
vigorously defend its position.
On February 7, 2020 Dinar Zuz provided an additional
amount of $450 to the Company which was be provided in a form of the Dinar Zuz Convertible Note pursuant to a securities purchase
agreement between the Company and Dinar Zuz, dated July 30, 2019.
On February 13, 2020, the Company completed
the payments in accordance with the SVS Settlement Agreement and the case was dismissed.
On February 10, 2019, the Company issued 10,000
shares of its Common Stock pursuant to a securities purchase agreement between the Company and a private investor, dated October
25, 2018.
On March 3, 2020 the Company issued 1,157,478
shares of its Common Stock to Dinar Zuz LLC, as a result of a conversion of the Dinar Convertible Note in the amount of $700.
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Incorporated
by reference
|
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Exhibit
Number
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Exhibit
Description
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Filed
herewith
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Form
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Period
ending
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Exhibit
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|
Filing
date
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3.1
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|
Articles
of Incorporation, Filed with the Florida Department of State on September 21, 2005
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8-k
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3.1
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|
2020-02-21
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3.2
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|
Amendment
No. 1 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on July 15, 2009
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3.2
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2020-02-21
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3.3
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Amendment
No. 2 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on March 18, 2013
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3.3
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2020-02-21
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3.4
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Amendment
No. 3 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on April 1, 2013
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3.4
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2020-02-21
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3.5
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|
Amendment
No. 3 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on April 1, 2013
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|
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3.5
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|
2020-02-21
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3.6
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|
Amendment
No. 5 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on May 10, 2013
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3.6
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2020-02-21
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3.7
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Amendment
No. 6 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on October 1, 2013
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3.7
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|
2020-02-21
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3.8
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Amendment
No. 7 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on January 17, 2014
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3.8
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2020-02-21
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3.9
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Amendment
No. 8 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on May 8, 2014
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3.9
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2020-02-21
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3.10
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Amendment
No. 9 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on May 16, 2014
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3.10
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2020-02-21
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3.11
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Amendment
No. 10 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on September 8, 2014
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3.11
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2020-02-21
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3.12
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Amendment
No. 11 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on October 7, 2014
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3.12
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2020-02-21
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3.13
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Amendment
No. 12 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on December 9, 2014
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3.13
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2020-02-21
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3.14
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Amendment
No. 13 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on February 25, 2015
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3.14
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2020-02-21
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3.15
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Amendment
No. 14 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on March 19, 2015
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3.15
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2020-02-21
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3.16
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Amendment
No. 15 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on April 28, 2015
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3.16
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2020-02-21
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3.17
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Amendment
No. 16 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on November 20, 2015
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3.17
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2020-02-21
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3.18
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Amendment
No. 17 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on June 29, 2016
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3.18
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2020-02-21
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3.19
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Amendment
No. 18 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on July 21, 2016
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3.19
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2020-02-21
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3.20
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Amendment
No. 19 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on August 8, 2018
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3.20
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2020-02-21
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10.1
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Service
Agreement between NEXT GROUP HOLDINGS, INC. and COMTEL DIRECT, LLC
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8-k
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99.1
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2018-02-22
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10.2
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Service
Agreement between NEXT GROUP HOLDINGS, INC. AND WIZTEL USA INC
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8-k
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99.2
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2018-02-22
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10.3
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Factoring
Agreement with AEC YIELD CAPITAL, LLC
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8-k
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10.1
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2018-11-15
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10.4
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Agreement
with Think Equity dated May7, 2018.
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8-k
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10.5
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2018-11-15
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10.5
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Stock
Purchase Amendment dated January 29, 2019
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8-k
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9.1
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2019-02-05
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10.6
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Binding
Term Sheet dated February 28, 2019
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8-k
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9.1
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2019-03-04
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10.7
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Prepaid
Card Program Management Agreement (PCPMA) between Cuentas, Inc. and Sutton Bank
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8-k
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99.1
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2019-07-02
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10.8
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2019-0729
Dinar Zuz-Subscription Agreement
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8-k/A
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9.1
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2019-08-06
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10.9
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2019-0729
Dinar Zuz $2M Note
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8-k/A
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9.2
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2019-08-06
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10.10
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New
Employment Agreement with Michael A. De Prado
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8-k
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10.1
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2019-12-30
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10.11
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New
Employment Agreement with Arik Maimon
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8-k
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10.2
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2019-12-30
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10.12
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Note
and Warrant Purchase Agreement, dated as of December 31, 2019, by and between Cuentas Inc. and CIMA Telecom, Inc.
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8-k
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10.1
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2020-01-07
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10.13
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Convertible
Promissory Note issued to CIMA Telecom, Inc., dated December 31, 2019
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8-k
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10.2
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2020-01-07
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10.14
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Warrant
granted to CIMA Telecom, Inc., dated December 31, 2019
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8-k
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10.4
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2020-01-07
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10.15
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Warrant
granted to Dinar Zuz, LLC, dated December 31, 2019
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8-k
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10.5
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2020-01-07
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10.16
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Platform
License Agreement, dated December 31, 2019, by and among Cuentas Inc., CIMA Telecom, Inc., Knetik, Inc. and Auris, LLC
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8-k
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10.6
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2020-01-07
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10.17
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Voting
Agreement, dated December 31, 2019, by and among Cuentas Inc., Arik Maimon, Michael De Prado, Dinar Zuz, LLC, and CIMA Telecom,
Inc.
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8-k
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10.7
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2020-01-07
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10.18
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Asset
Pledge Agreement, dated December 31, 2019, by and among Cuentas Inc. and CIMA Telecom, Inc.
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8-k
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10.8
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2020-01-07
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10.19
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Letter Agreement, dated December 31, 2019, by and among Cuentas Inc., Arik Maimon, Michael De Prado, Dinar Zuz, LLC, and CIMA Telecom, Inc.
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8-K
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10.9
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2020-01-07
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31.1
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Certification
of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
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X
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31.2
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Certification
of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
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X
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32.1
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Certification
Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
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X
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32.2
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Certification
Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
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X
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101.INS
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XBRL
Instance Document
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X
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101.SCH
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XBRL
Taxonomy Extension Schema
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X
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101.CAL
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XBRL
Taxonomy Extension Calculation Linkbase
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X
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101.DEF
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XBRL
Taxonomy Extension Definition Linkbase
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X
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101.LAB
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XBRL
Taxonomy Extension Label Linkbase
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X
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101.PRE
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XBRL
Taxonomy Extension Presentation Linkbase
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X
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ITEM
16.
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FORM 10-K SUMMARY
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None.