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

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

Securities registered under Section 12(g) of the Act:~~Common Stock, $0.0001 par value~~None

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

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

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of June 30, 2020, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock outstanding, other than shares held by persons who may be deemed affiliates of the registrant, computed by reference to the closing sales price of the common stock on June 30, 2020 was $11,065,110.

The number of shares of Common Stock, $0.001 par value, outstanding on ~~April 15, 2019~~March 24, 2021 was ~~2,057,016~~13,819,601 shares.

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

Except as otherwise required by applicable laws and regulations, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this report, whether as a result of new information, future events, changed circumstances after the date of this report. Neither the Private Securities Litigation Reform Act of 1995 nor Section 27A of the Securities Act of 1933 provides any protection to us for statements made in this report. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

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

Throughout this Annual Report references to ~~“Cuen”~~“Cuentas”, “we”, “our”, “us”, “the Company”, and similar terms refer to Cuentas, Inc.

~~Cuentas, Inc. (the “Company”)~~The Company is a corporation ~~formed~~incorporated under the laws of Florida on September 21, 2005, which focuses on the business of using proprietary technology to provide ~~FinTech Services~~e-banking and e-commerce services delivering mobile banking, online banking, prepaid debit and digital content services to the unbanked, underbanked and underserved communities. The Company’s exclusivity with CIMA’s proprietary software platform enables Cuentas to offer comprehensive financial services and additional robust functionality that is absent from other General-Purpose Reloadable Cards (“GPR”).

Operating Subsidiaries. The Company’s business operations are conducted primarily through its ~~subsidiaries. The Company’s~~ subsidiaries, ~~are as follows:~~described elsewhere in this report.

~~On June 25, 2018, our stockholders approved~~The Fintech Card is a ~~reverse split of our Common Stock. On June 28, 2018, we effectuated~~GPR integrated into a ~~reverse split of our Common Stock upon~~proprietary robust ecosystem that protects customers by depositing their funds in an FDIC insured bank account at the ~~filing of our Certificate of Amendment No. 2~~Issuing Bank. The comprehensive financial services include:

The ecosystem includes a mobile wallet for digital currency, stored value card balances, prepaid telecom minutes, loyalty reward points, and purchases made in the Cuentas Virtual Marketplace. The Fintech Card is integrated with the Los Angeles Metro, Connecticut Transit Authority and Grand Rapids Transit system to ~~our Amended~~store mass transit currency and ~~Restated Articles of Incorporation,~~pay for transit access via the Cuentas Digital Wallet

The Fintech Card stores products purchased in the Cuentas Virtual Market Place where Tier-1 retailers, virtual in-game currencies, Amazon Cash, and cellular telecom prepaid minutes “top ups”. Additionally, well-known brand name restaurants sell discounted prepaid gift cards in the Cuentas Virtual Marketplace.

The name “Cuentas” is a Spanish word that has multiple meanings and was chosen for strategic reasons, to develop a close relationship with the Spanish speaking population. It means “Accounts” as in “bank accounts” and it can also mean “You can count on me” as in “Cuentas conmigo”. Additionally, it can be used to “Pay or settle accounts” (saldar cuentas), “accountability” (rendición de cuentas), “to be accountable” (rendir cuentas) and other significant meanings.

The U.S. Latino population numbers 43.8 million U.S. immigrants, according to the 2017 FDIC Survey. It excludes immigrants, illegal aliens and undocumented individuals. The FDIC defines the “unbankable” as those adults without an account at a ~~ratio~~bank or other financial institution and are considered to be outside the mainstream for one reason or another. The Federal Reserve estimated that there were approximately 55 million unbanked or underbanked adult Americans in 2018, which account for 22 percent of ~~300-to-1 (the “2018 Reverse Stock Split”), such~~U.S. households. The Latino demographic is more distrusting of banking institutions and generally have more identification, credit, and former bank account issues more so than any other U. S. minority group.

The Fintech Card is positioned to service the Latino demographic with comprehensive financial products that ~~each 300 shares~~do not require any visits to bank branches, and our fees are completely transparent via the Cuentas Digital Wallet and online banking. Most importantly our strategic banking partner, Sutton Bank, is able to use various forms of ~~Common Stock~~U.S. and some foreign government issued identification to confirm qualification.

The Cuentas Mastercard acts as a comprehensive banking solution marketed toward the over 20 million unbanked U.S. Latino community. The “unbanked” is described by the FDIC as those adults without an account at a bank or other financial institution and ~~outstanding immediately prior~~are considered to be outside the mainstream for one reason or another. The Federal Reserve estimated that there were approximately 55 million unbanked or underbanked adult Americans in 2018, which account for 22 percent of U.S. households. The Cuentas Mastercard is enabling access to the ~~effective~~U.S. financial system to those without the necessary paperwork to bank at a traditional financial institution while enabling greater functionality than a traditional bank account. This proprietary GPR card allows consumers that reside in the U.S. to acquire a Cuentas Mastercard using their SSN or ITIN together with their U.S. or Foreign Passport, Driver’s License, Matricula Consular or certain U.S. residency documentation. The Cuentas Mastercard’s funds are protected in an FDIC-insured bank account at the Issuing Bank. Functionality includes ATM withdrawals, direct deposit, cash reload, fee free Cuentas App to Cuentas App fund transfers and mobile banking capabilities, among other key features such as purchasing discounted gift cards and adding “mass transit credits” to digital accounts (available in California, Connecticut, Michigan and other cities in the future). Upcoming Cuentas App upgrades should also include international remittance and other services. Consumers are able to use funds in their account to purchase third party digital and gift cards (many at discounted prices), U.S. and international mobile phone top-ups, mass transportation and tolling access (available in select markets - Connecticut, Grand Rapids, MI, Los Angeles, CA, etc.) as well as digital content for virtual gaming, dining, shopping and cash reloads.

The Cuentas App is available for download now on the Apple App Store and on the Google Play Store for Android. The Cuentas App allows consumers to easily activate their Cuentas Mastercard, review their account balance and conduct certain financial transactions. Cuentas offers fee free fund transfers to friends, family and vendors that have their own Cuentas App, which provides an advantage over other apps that charge fees for immediate fund transfers and availability on the same day.

The Cuentas business model leverages profitability from multiple revenue sources, many of which are synergistic market segments.

The Cuentas Mastercard has several revenue centers. The Company will receive a one-time activation charge for each activated Cuentas Mastercard and a monthly recurring charge. These charges were designed to be very reasonable to both consumers and the Company. In addition to these charges, Cuentas will receive a commission each time funds are loaded and reloaded to the Cuentas Mastercard.

The Cuentas Digital Wallet produces recurring revenue and is an integral part of the ~~2018 Reverse Stock Split automatically combined into 1 validly issued, fully paid~~Cuentas offering. It will produce revenue each time that consumers purchase third party gift cards, digital access, mass transit tickets and ~~non-assessable share of our Common Stock without any further action by~~mobile phone top-ups (U.S. and international) with most at discounted prices. The actual discount is shown to the ~~Company or the holder thereof. All share numbers in this Form 10-K reflect post-split stock number amounts.~~

~~On March 14, 2019, The Company has entered into a Letter of Intent with Facio Ltd, an Israeli FinTech company that has developed innovative artificial intelligence~~consumer and ~~big data technologies~~is immediately applied to ~~deliver digital banking services autonomously, without human intervention. This agreement, if consummated and implemented,~~their purchase, so smart shoppers will ~~enable the Cuentas GPR Card users~~be able to ~~purchase popular digital content,~~get everyday products and services at a discounted price within an advanced and personalized mobile app experience which combines traditional banking services with new innovative services. The Company will enable its Cuentas GPR Card users to use Facio’s innovative point of sale directly from their mobile phone using Facio’s Tap-to-pay NFC or QR technology.prices.

~~On October 24, 2017,~~In 2021 the Company received 100% of all outstanding shares of Limecom, Inc., as per the acquisition agreement which was effective as of October 24, 2017. The Company through its wholly-owned subsidiary, Next Group Acquisition Inc., purchased all of the issuedCuentas Digital Wallet is projected to add several new, profitable, mass market services including bill pay and outstanding shares of LimeCom, Inc. (“LimeCom”), a Florida corporation, from Heritage Ventures Limited (“Heritage”). LimeCom is engaged in the global telecommunications business. The Stock Purchase Agreement (“Limecom Purchase Agreement”) with Heritage provided for the delivery of the Company restricted common stock of the Company and the sum of $2,000,000. Additionally, the Company agreed to an initial cash payment equal to the net income of Limecom for the period of January 1, 2017 to October 23, 2017 which totaled approximately $1,000,000. The cash component of the purchase price is payable within eight (8) months from the closing date. 10,360,962 pre-reverse split (34,537 post reverse split) shares of the Company stock was to be held in escrow for a period of eight (8) months in the event that any unknown or undisclosed claims are made against LimeCom. The acquisition further provided that LimeCom must achieve $125,000,000 in revenues in fiscal year 2017 and $2,500,000 in EBITA which was achieved. The Company and Heritage have a mutual right of rescission if the $2,000,000 is not paid or any unknown or undisclosed material claims are made against Limecom as set forth in the Agreement.

As a part of the Agreement, Orlando Taddeo, President and CEO of LimeCom, and principal stockholder of Heritage, has agreed to enter into an Employment Agreement with LimeCom to be the President and CEO of LimeCom for all LimeCom business operations outside of the U.S., until such time as he qualifies to work in the U.S. His Employment Agreement further provides that his Agreement will be the same as that of Arik Maimon, CEO of the Company. He will also be appointed a Director of CUEN.

~~On January 29, 2019, the Company and Heritage agreed to extend the right of the Company to rescind the agreement, to sell the stock in Limecom back to Heritage as the follows:~~

(a) The 138,147 shares of the Company issued to Heritage and its Stockholders will not be returned to the Company, and the remaining 34,537 shares of the Company in escrow will not be issued to Heritage. Instead, the Company will issue an additional 90,000 shares of the Company as directed by Heritage.

~~(b) The $1,807,000 payment obligation 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, its Stockholders and the current management of Limecom agreed to indemnify and hold harmless Next Group Acquisition and the Company from any liabilities (known and unknown) incurred by Limecom (accrued, disclosed or undisclosed by Limecom) up to and including the rescission date.

(e) Heritage and Limecom’s current management agreed to cooperate with Next Group Acquisition and/or the Company with any information required to be disclosed to the Securities and Exchange Commission (“SEC”) as a part of Cuentas’ SEC disclosure obligations with respect to the recession.

~~(f) Heritage, Limecom and its current management and Stockholders agreed to cooperate with Cuentas’ auditors in providing all material information to Cuentas’ auditors as is reasonably required.~~

~~(g) Heritage and the Limecom current management agreed that the intercompany loan in the approximate sum of $231,000 will be cancelled.~~

(h) Cuentas agreed to issue 20,740 shares of Cuentas restricted stock to several Limecom employees in exchange for salaries due to them. Those shares will be issued and held in escrow until the full satisfaction of the terms of this Amendment.

(i) Cuentas agreed to advance the sum of $25,000 toward the payments agreed upon to be paid to American Express (“AMEX”) by Limecom, and Limecom agrees to pay the sum of $25,000 to AMEX and the balance of the payments under the Stipulation of Settlement with American Express as agreed upon by Limecom.

~~On January 30, 2019, Cuentas sent an executed document to Limecom rescinding the acquisition of Limecom, Inc. (“Limecom”) according to the Amendment signed January 29, 2019.~~international remittances.

Cuentas ~~fulfilled~~also offers rewards for free long distance calling to its ~~obligation~~cardholders (“Cuentas Rewards”) who earn value with certain transactions. Our target demographic uses both internet and prepaid calling services to ~~pay $25,000~~communicate with family members around the U.S. and in their country. This added benefit is designed, at a very low cost, to ~~AMEX pursuant~~provide extra benefits to ~~the Amendment dated January 29, 2019.~~our cardholders, which should help to maintain and solidify valuable relationships with them.

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

Major competitors to Cuentas are Green Dot, American Express Serve, Netspend Prepaid, Starbucks Rewards, Walmart Money card and Akimbo Prepaid.

Cuentas is strategically positioned in the marketplace to have a lower monthly fee and lower reload fees than most cards. Additional benefits and features should move the Cuentas Mastercard ahead of other offerings as consumers realize the value of the Cuentas Digital Wallet and the Cuentas Rewards program.

The Cuentas technology platform is comprised of CIMA Group’s Knetik and Auris software platforms (the “CIMA Licensed Technology”). The platform is built on a powerful integrated component framework delivering a variety of capabilities accessible by a set of industry standard REST-based API endpoints. In addition to handling electronic transactions such as deposits and purchasing, the platform will have the capability of organizing virtual currencies into wallets, essentially future proofing it in today’s evolving financial environment. It enables the organizing of the user’s monetary deposits into a tree-based set of wallets, through strictly enforced user permissions, to delineate proper controls in a tiered monetary asset organizational structure, thus providing a sound basis for family and/or corporate control and distribution of funds across individuals.

The platform also contains a sound and proven gamification engine, capable of driving user behaviors in a manner that entices and rewards using incentivization based on proven behavioral science patterns. At the heart of this gamification engine lies a proven and robust rules engine that can easily integrate and modify process flows and orchestrations between disparate platforms, allowing for a quick and easy integration of complex, orchestrated integrations between internal process automation and invocations of external systems. The platform will provide Android and iOS software for users to execute a wide variety of transactions including, but not limited to, account balances, account transfers and in-app purchases. User messaging are also integrated and are achieved via SMS, email, in-app messaging, and voice.

The user management application uses rich metadata CRM and single sign-on (“SSO”) to track user behavior and personalize the user experience. It is fully integrated with our Strategic Partners, scalable and manages the digital ecosystem entitlements. The platform can process both physical and virtual goods, digital assets, real time currency value exchange, virtual currency support with current exchange rates and support nontraditional assets, in addition to credit card, POS, debits, and digital wallet management.

The unique rules engine is capable of all aspects of gamification: badging, questing, leveling, points consumption, leader boards, loyalty and reward points and personalization with tracking and messaging to support behavior management. Business intelligence is used for reporting and communication of product management via Rate Deck Management, Pinless ANI Recognition, IV and Call Flows and Access Number Management. The platform has redundant reporting for enhanced billing and fraud control and integrates customer service with Business Intelligence and platform integrity.

On December 6, 2017, the Company completed its formation of SDI NEXT Distribution LLC (“SDI NEXT”) in which it owns a 51% membership interest, previously announced August 24, 2017 as a Letter of Intent with Fisk Holdings, LLC. As Managing Member of the newly formed LLC, the Company will contribute a total of $500,000, to be paid per an agreed-upon schedule over a twelve-month period. Fisk Holdings, LLC will contribute 30,000 ~~(thirty thousand)~~ 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 Reload (“GPR”) cards, prepaid gift cards, prepaid money transfer, prepaid utility payments, and other prepaid products. The completed formation of an established distribution business for third-party gift cards, digital content, mobile top up, financial services and digital content, which presently includes more than 31,600 U.S. active Point of Sale locations, including store locations, convenience stores, bodegas, store fronts, etc. The parties agreed that additional product lines may be added with unanimous decision by the Managing Members of the LLC. During 2018, it was agreed between the parties to distribute the Company’s recently announced CUENTAS GPR card and mobile banking solution aimed to the unbanked, underbanked and financially underserved consumers, making them available to customers at the more than 31,600 retail locations SDI NEXT presently serves. It was also agreed between the parties to renegotiate the terms of the Company’s investment in SDI NEXT once the development of the GPR card and the retail stores system are completed and the GPR card is ready for distribution in the retail locations of SDI NEXT.

~~Our Next CALA subsidiary owns~~The graphic below illustrates Cuentas’ strategic agreements with Sutton Bank and InComm, Sutton Bank is the ~~NextCALA-branded Prepaid Visa® General Purpose Reloadable (“GPR”) prepaid debit cards, bearing~~issuer of the ~~Next CALA Debit™~~Cuentas Mastercard while the InComm “Processor” relationship provides access to many third party products and ~~Visa® logos and has rights to develop and manage the MIO brand GPR card.~~services.

Sutton is our issuing bank for the Fintech Card. Sutton provides online banking, direct deposit, bank accounts, and debit functionality for our Cuentas Mastercards. Sutton is responsible for know your client (“KYC”) and Anti-Money Laundering (“AML”) compliance and enables customers to open Cuentas Prepaid Mastercard accounts electronically with non-conventional documentation that may not be accepted at traditional banks. They accept over 13 forms of identification, which, when used together with either Social Security or ITIN, can be used for confirmation of identity. These forms of identification include: Passport, Driver’s License, Matricula Consular and U.S. residency documentation, among others.

On July 23, 2019, the Company entered into a ~~software company~~Prepaid Services Agreement with InComm (the “InComm PSA”) to power and expand the Company’s GPR card network. InComm distributes gift and GPR cards through many major 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.

Under the InComm PSA, InComm will act as prepaid card processor and through its VanillaDirect network, expand the Company’s ability for cardholders to reload their Prepaid Cuentas Mastercards through a nationwide network of retailers. VanillaDirect is currently available at major retailers such as: Walmart, 7-Eleven, Walgreens, CVS Pharmacy, Rite Aid and many more. In addition, the Company is planning to implement the Vanillacash reload services into up to 31,600 U.S. locations through which ~~designs, develops, produces, markets,~~it has access.

Under the InComm PSA, InComm will provide processing services, telephone support, data storage services, account servicing, reporting, output and ~~provides robust, scalable, high density, high performance HD video platforms, call~~hot carding services to the Company. Processing services will consist mainly of authorization and transaction processing ~~engines,~~services whereby InComm will process authorizations for transactions made with or on a prepaid product, along with any payments or adjustments made to a prepaid product. InComm will also process the Company’s data and ~~worldwide telephony networks intended~~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 the Company through APIs designated by InComm, subject to ~~give clients proprietary and sustainable competitive advantages in efficiency, stability, security, flexibility, and costs, allowing them to deliver premium quality voice, video,~~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 agreed to pay an initial program setup and implementation fees in the amount of $500,000, of which, $300,000 was paid in 2020. Cuentas will then pay $50,000 each year at ~~above-average profit margins.~~the beginning of the second, third, fourth and fifth anniversary of the agreement. In addition, the Company agreed to pay a minimum monthly fee of $30,000 starting October 2020, $50,000 during the second year following the launch of the Cuentas Mastercard and $75,000 thereafter. The Company also agreed to pay 0.25% of all funds added to the Cuentas Mastercards, excluding VanillaDirect 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.

Cuentas is currently offering and is seeking to offer discounted prices to its cardholders, through the Cuentas Wallet for many of the digital products and services illustrated in the graphic below. We intend to work to increase the quantity of offerings considerably in the future.

The below graphic illustrates the elements that Cuentas has strategically developed to provide marketplace advantages.

Cuentas’ strategic overview to augment growth and minimize churn is illustrated in the graphic below. The goal is to offer the consumer a one-stop shop, easy to use, mobile wallet that can solve many of their daily needs and desires while saving them time and money.

On December 8, 2020, the Company entered into an Agency Agreement with ~~Telarix~~Western Union whereby the Company is appointed as Western Union’s delegate and authorized to offer Western Union Money Transfer Services. This cooperation would allow Cuentas cardholders to transfer money internationally via the Western Union network directly from the Cuentas Mobile App. Western Union has been providing money transfer services around the world for more than a century and currently has more than 500,000 agent locations worldwide.

On December 31, 2019, the Company entered into a ~~joint venture~~Platform Exclusive License Agreement with ~~telephony platform industry leader Telarix,~~CIMA Telecom, Inc. (“CIMA”) and two subsidiaries of CIMA (the “CIMA License Agreement”). Pursuant to ~~develop~~the CIMA License Agreement, the Company has an exclusive, non-transferable, non-sublicensable, royalty-free license to access and ~~market~~use the ~~AVYDA Powered~~CIMA Licensed Technology in the form provided to the Company via the Hosting Services (as defined in the CIMA License Agreement) and solely within the Fintech space for the Company’s business purposes. Under the CIMA License Agreement, CIMA received a one-time licensing fee in the amount of $9,000,000 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 on a fully diluted basis as of December 31, 2019. The transactions with CIMA closed on December 31, 2019 (the “CIMA Transaction Closing”). Pursuant to the CIMA 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 calendar year from the CIMA Transaction Closing, $300,000 to be paid on June 30, 2020; (ii) for the second calendar year from the CIMA Transaction Closing, $500,000 to be paid on December 31, 2020; (iii) for the third calendar year from the CIMA Transaction Closing, $700,000 to be paid on December 31, 2021; (iv) for the fourth) calendar year from the CIMA Transaction Closing, $1,000,000 to be paid on December 31, 2022; (v) for the fifth calendar year from the CIMA Transaction Closing, $640,000 to be paid on December 31, 2022; and (vi) for each calendar year thereafter, $640,000 to be paid on the anniversary date.

Contemporaneously with the CIMA Transaction Closing, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) by ~~Telarix™ HD telepresence platform.~~and between the Company, CIMA and Dinar Zuz LLC (“Dinar”), pursuant to which the Company made and sold (i) to CIMA a 3% convertible promissory note (the “CIMA Convertible Promissory Note”) in the principal amount of $9,000,000 and (ii) a warrant to each of CIMA and Dinar (as described below). The ~~AVYDA Powered by Telarix™ product is marketed throughout~~Purchase Agreement contained customary representations, warranties, covenants, and conditions, including indemnification. Among other conditions to closing, the ~~world by~~Company has agreed to take all necessary steps to amend and restate its Articles of Incorporation and to amend and restate its Bylaws.

On December 31, 2019 and pursuant to the ~~Telarix sales force.~~CIMA Convertible Promissory Note, CIMA exercised its option to convert the CIMA Convertible Promissory Note into 702,992 shares of Common Stock of the Company.

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

~~Vitco Technology~~Contemporaneously with the CIMA Transaction Closing, the Company made and sold a warrant to each of (a) CIMA (the “CIMA Warrant”) and (b) Dinar (the “Dinar Warrant”), each in accordance with the Purchase Agreement. Pursuant to the CIMA Warrant and Dinar Warrant, 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 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 of the CIMA Warrant and Dinar 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). ~~NxtGn telephony~~Pursuant to their terms, the CIMA Warrant and ~~HD video platforms use technology proprietary technology owned~~Dinar Warrant were exercisable, in whole and not in part during the term commencing on December 31, 2019 and ending on the earlier of (a) thirty 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 ~~NxtGN, Telarix,~~the Secretary of State of the State of Florida or (b) upon a Change of Control, as defined in such warrants. At that point, the Warrants are automatically exercised. On September 17, 2020, the Company issued 2,000,000 of its Common Stock to each of Dinar and ~~Vitco LLC, US IP Series, a limited liability company formed~~CIMA, under the ~~laws of Delaware (“Vitco”), which licenses software solutions to several~~automatic exercise of the ~~world’s largest and most successful telecommunications carriers. Through~~warrants.

Contemporaneously with the CIMA Transaction Closing, on December 31, ~~2015 NxtGn owned an option~~2019, the Company, CIMA, Dinar, Arik Maimon and Michael De Prado entered into a Voting Agreement (the “Voting Agreement”). Pursuant to ~~acquire Vitco in consideration for $5,000,000~~the Voting Agreement, each of CIMA, Dinar and Mr. De Prado shall have the right to designate one director to the Board, and Mr. Maimon will have the right to designate two directors to the Board as promptly as practicable after the CIMA Transaction Closing. At each meeting of the Company’s ~~common stock~~shareholders at which ~~expired unexercised. Vitco~~the election of directors is ~~currently~~to be considered, each of CIMA, Dinar, Mr. Maimon and Mr. De Prado shall have the ~~owner~~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 ~~25%~~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 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 (each 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 and Dinar Warrant are exercised, respectively. CIMA’s rights under the Voting Agreement automatically terminate upon the earliest to occur of: (a) the termination of the CIMA License Agreement; (b) the payment in full of all outstanding principal, accrued and unpaid interest, and all other amounts required to be paid by the Company to CIMA under the Debenture in cash and not as a result of the conversion of the debenture in the principal amount of $9,000,000 that is convertible into Common Stock of the Company; or (c) after the conversion of the Debenture into Common Stock of the Company, the date on which CIMA ceases to own 5% or more of the issued and outstanding ~~shares~~Common Stock of ~~NxtGn. Upon~~the Company. Dinar’s rights under the Voting Agreement automatically terminate when Dinar ceases to own 5% or more of the issued and outstanding Common Stock of the Company.

The Company also entered into an Asset Pledge Agreement with CIMA (the “Pledge Agreement”) pursuant to which 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 CIMA License Agreement to CIMA as a guarantee for the full and punctual fulfillment of its obligations under certain provisions of the Voting Agreement, which terms expire upon the exercise of the ~~option, NxtGn~~CIMA Warrant and Dinar Warrant, respectively, and the issuance of the securities under the CIMA Convertible Promissory Note and the CIMA Warrant. This occurred on September 21, 2020 and the Pledge Agreement expired.

Contemporaneously with the CIMA Transaction Closing, the Company, Mr. Maimon, Mr. De Prado, Dinar and CIMA entered into a side letter agreement (the “CIMA Side Letter”), dated December 31, 2019. Pursuant to the CIMA Side Letter, for as long as the CIMA License Agreement is in effect, the convertible promissory note (the “CIMA Convertible 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 CIMA Side Letter, upon conversion of the CIMA Convertible 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 that CIMA intends to sell to the bona fide third party purchaser on the same terms and conditions as CIMA would ~~acquire all title,~~have sold such shares of the Common Stock to any third party purchaser. Further, CIMA has a co-sale right to participate in a sale of shares of the 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 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, and interests in certain proprietary and patented technology and intellectual property owned by Vitco, including Inbound SIP Signaling Server technology, Outbound SIP Signaling Server technology, Packet Cable Accounting Server technology, RADIUS Accounting Server technology, Real-time Call Information Server technology, Routing Application Server technology, Signaling Monitoring & Analysis Server technology, and H.323 Signaling Server technology, as well as allsubject to their continued ownership of ~~Vitco’s~~the CIMA Convertible Note or of 5% or more shares of the Company’s issued and outstanding Common Stock. Furthermore, pursuant to the CIMA Side Letter, upon a successful up-listing of the Company’s shares on Nasdaq, and once the market capitalization of ~~NxtGn. Vitco’s technology~~the Company is ~~currently licensed~~greater than $50 million for a period of 10 consecutive trading days, each of Mr. Maimon and Mr. De Prado will have a right to ~~NxtGn on~~earn a ~~royalty-free basis.~~

Cuentas Mobile ~~subsidiary~~ is ~~a mobile virtual network operator (or “MVNO”~~our Mobile Virtual Network Operator (“MVNO”), which ~~provides NextMobile360™~~provided NextMobile branded mobile phones and prepaid voice, text, and data mobile phone services to a customer base currently consisting of approximately 1,000 ~~MVNO Mobile Virtual Network Operators such as Virgin Mobile have been successful at creating a~~subscribers. The brand ~~and not own the hardware or network. Next~~name of these services is being migrated to Cuentas Mobile. Cuentas Mobile operates this business pursuant to contracts with Sprint Corporation, which allow ~~Next~~Cuentas Mobile to use ~~Sprint’s~~T-Mobile’s (formerly Sprint)’s network infrastructure to operate a virtual telecommunications network providing voice, text, and data services of essentially the same quality as those Sprint provides to its own retail subscribers. MVNOs such as Cricket, Boost, Simple and Lyca Mobile have been successful at creating brands, without owning the towers, hardware or network. Cuentas is currently reactivating distribution projects through grass roots retailers that normally interact with Cuentas’ target audience, specifically offering low-cost mobile phone service with the ability to make international calls to specific Spanish speaking countries in Central and South America.

Graphic Description: Sample of creative message planned for future advertising campaign.

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

Meimoun & Mammon LLC (“M~~&M.~~&M”)~~Our M&M subsidiary~~ is a ~~wholesale~~retail provider of domestic and international long-distance voice, text, and data telephony services to ~~carriers~~consumers in the United States and throughout the world. M&M holds International and Domestic Section 214 ~~licenses~~authority issued by the ~~Federal Communications Commission, and operate~~FCC. M&M operates the ~~NextMobile360™~~retail Tel3 business ~~through its wholly-owned subsidiary Next Mobile. M&M has historically provided wholesale long distance telephone service to~~as a ~~number of leading domestic and international carriers.~~separate division.

~~Network~~~~. The~~ M&M ~~Network is the~~uses both private ~~international network over which the Company is capable of delivering large volumes of highest-quality international long distance voice~~ and ~~data telephony~~public Internet services ~~at significant cost savings. The network’s architecture is scalable and proprietary, and M&M plans~~ to ~~increase capacity~~function as ~~demand increases. The M&M Network consists of four principal elements:~~

~~Points of Presence.~~Points of presence digitize voice signals into data, allowing transmission and retrieval over a broadband data network. M&M’s points of presence, which are the gateways to the M&M Network, are located within its Global Network Operations Center in Miami, Florida, and colocations throughout the world.

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

Our subsidiaries Cuentas Mobile and M&M ~~Voice~~are subject to regulation by the FCC and ~~Data Platform Controller.This~~other government agencies and task forces. M&M holds International and Domestic Section 214 licenses issued by the FCC, which may be suspended or revoked by the FCC if M&M does not strictly comply with all applicable regulations and the terms and conditions under which the International and Domestic Section 214 licenses were issued. Cuentas Mobile and M&M are also subject to foreign jurisdiction communications laws and regulations. We believe that we, including our subsidiaries, are currently operating in compliance with all applicable laws and regulations, but there is ~~M&M’s proprietary software~~no certainty that laws and ~~switchless routing platform,~~regulations affecting our business will not change. Any such change of laws and regulations applicable to our business might adversely affect our ability to execute our business plan and achieve profitable operating results.

At the federal level, Congress and federal regulatory agencies have enacted and implemented new laws and regulations that affect the prepaid industry, such the CARD Act and FinCEN’s Prepaid Access Rule. Moreover, there are currently proposals before Congress that could further substantially change the way banks, including prepaid card issuing banks and other financial services companies, are regulated and are permitted to offer their products to consumers. Non-bank financial services companies, including money transmitters and prepaid access providers, are now regulated at the federal level by the Consumer Financial Protection Bureau (the “CFPB”), which isbegan operations in July 2011, bringing additional uncertainty to the ~~heart~~regulatory system and its impact on our business. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business. Abuse of our prepaid products for purposes of financing sanctioned countries, terrorist funding, bribery or corruption could cause reputational or other harm that could have a material adverse effect on our business, results of operations and financial condition. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. Failure by us to comply with federal banking regulation may subject us to fines and penalties and our relationships with our issuing banks may be harmed.

Most states regulate the business of sellers of traveler’s checks, money orders, drafts and other monetary instruments, which we refer to collectively as money transmitters. While many states expressly exempt banks and their agents from regulation as money transmitters, others purport to regulate the money transmittal businesses of bank agents or do not extend exemptions to non-branch bank agents. In those states where we are required to be licensed, we are subject to direct supervision and regulation by the relevant state banking departments or similar agencies charged with enforcement of the ~~M&M Network. Developed~~money transmitter statutes and must comply with various restrictions and requirements, such as those related to the maintenance of certain levels of net worth, surety bonding, selection and oversight of our authorized delegates, permissible investments in an amount equal to our outstanding payment obligations with respect to some of the products subject to licensure, recordkeeping and reporting, and disclosures to consumers. We are also subject to periodic examinations by ~~M&M~~the relevant licensing authorities, which may include reviews of our compliance practices, policies and ~~NxtGn~~procedures, financial position and related records, various agreements that we have with our issuing banks, retail distribution partners and other third parties, privacy and data security policies and procedures, and other matters related to our business. As a regulated entity, Cuentas may incur significant costs associated with regulatory compliance. We anticipate that compliance costs and requirements will increase in ~~cooperation with Cisco,~~ the ~~system can scale~~future for our regulated subsidiaries and that additional subsidiaries will need to ~~support more than 200,000 simultaneous sessions on~~become subject to these or new regulations. If we fail to maintain our existing money transmitter licenses or permits, or fail to obtain new licenses or permits in a ~~single chassis. M&M’s Next Voice~~timely manner, our business, results of operations and ~~Data Platform is operated~~financial condition could be materially and ~~managed through a dedicated cloud-based network with redundancy.~~adversely affected.

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 ~~M&M Global Network Operations Center.This is~~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 ~~facility which houses the Company’s primary point~~severity of ~~presence~~COVID-19 and the ~~M&M Voice Platform Controller,~~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 ~~from which M&M monitors and manages the voice and data traffic transmitted through the network.~~results of operations may be materially adversely affected.

~~Focus on High-Margin Destinations~~On August 21, 2020, in ~~Difficult Operating Environments.~~~~By focusing its route development operations on building strategic partnerships~~connection with providers in difficult telephony operating environments in Latin America, Africa, and other emerging markets, M&M hopes to increase its market reach and overall revenues. By using NxtGn’s proprietary call processing technology, M&M can significantly reduce equipment costs and other capital expenditures required to enter difficult operating environments. The technological advantage which historically made M&M a market leader in long distance traffic terminated in Mexico and other destinations in Latin America will allow M&M to expand its market reach into Africa and the Middle East and other lucrative markets. Licensed FCC 214 long distance wholesaler, ownerspecial meeting of ~~Tel3 dba Pinless long distance.~~

~~Tel3.~~During the year ended December 31, 2016, the Company acquired 100% of the outstanding ownership interest in Tel3. Tel3 provides prepaid calling cards to consumers directly and operates in a complimentary space as M&M. Tel3 was originally acquired by the Company’s CEO in a private transaction and sold to the Company for $10 cash.

~~Limecom was a wholly-owned subsidiary~~shareholders of the Company in 2018 and is a wholesale provider of international long distance Voice over IP (Non-interconnected VoIP) telephony services to carriers in the United States and throughout the world. Limecom Inc is a Florida corporation acquired by(the “Shareholders Meeting”), the Company ~~on October 24, 2017 in exchange for~~filed with the Secretary of State of the State of Florida the Company’s Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) to, among other things, cause all outstanding shares ~~and a future cash payment. Limecom had over $73 million in gross sales revenue during~~of Series B Preferred Stock, par value $0.001 per share (the “Preferred Stock”) to be converted into 5,000,000 shares of the ~~year ended December 31, 2018. The Company no longer owns Limecom as of January 2019.~~Company’s Common Stock.

~~The~~On December 30, 2020, in connection with the Company’s IPO, the Company has historically received financing from Next Communications, Inc., an entity controlled by our CEO, and had a related party payable balance of approximately $ 2,972,000 and approximately $2,920,000 dueamended its Bylaws to, Next Communications, Inc. as of December 31, 2018 and 2017. 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.among other items:

On January ~~29, 2019,~~28, 2021, the ~~United States Bankruptcy Court Southern District~~Company filed Articles of Amendment to the Articles of Incorporation of the Company with the Secretary of State of Florida, ~~Miami Division approved~~pursuant to which, effective as of February 2, 2021, the Company effected a ~~Plan~~1-for-2.5 reverse split of ~~Reorganization~~its authorized and issued and outstanding shares of Common Stock. No fractional shares will be issued as a result of the reverse stock split. Fractional shares will be rounded up the nearest whole share, after aggregating all fractional shares held by a stockholder.

On February 4, 2021 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for ~~Next Communications, Inc.~~five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), ~~whereby Cuentas Inc. would pay $600,000~~pursuant to that certain Underwriting Agreement, dated as of February 1, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Representative” or “Maxim”), as representative of the sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company granted the Underwriter a 45-day option to purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in connection with the Offering. The Company received gross proceeds of approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated Offering expenses. Pursuant to the Underwriting Agreement, the Company also issued to the Underwriter warrants (the “Underwriter’s Warrants”) to purchase up to a ~~specific creditor~~total of 223,256 shares of Common Stock (8% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $5.375 per share of Common Stock and have a term of five years.

The total expenses of the offering were approximately $1.4 million, which included Maxim’s expenses relating to the offering.

On March 4, 2021 and pursuant to the Underwriting Agreement, Maxim exercised its 45-day option to purchase up to 418,604 additional Warrants, to cover over-allotments in connection with the Offering.

On September 2, 2020, the Company issued the Labrys Note to Labrys Funds LP (“Labrys”). The Labrys Note bears interest at a rate of 12% per annum, and was to mature on September 2, 2021. An amortized, monthly payment of principal and interest in the sum of $67,760 started in December 2020, with ability to extend the starting date of such amortized payments for up to two months upon notice, and the remaining loan principal becomes payable on maturity. The Labrys Note had an original issue discount in the amount of $60,500, and the issuing expenses were $40,000, resulting in net proceeds of $505,000. The Company also issued 70,906 shares of its Common Stock to Labrys. Out of those, 16,500 shares of Common Stock were issued in consideration ~~for~~of a commitment fee and the ~~forgiveness~~balance are subject to return to the Company once the Labrys Note is paid in full, if there were no defaults. In the event of a default, as defined in the Labrys Note, Labrys would have the right, to convert all or any portion of the ~~balance~~then outstanding and unpaid principal amount and interest into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the date of the ~~payable~~Labrys Note, or any shares of capital stock or other securities of the Company into which such Common Stock shall be changed or reclassified, at the conversion price as set forth in the Labrys Note. On February 12, 2021, the Company prepaid its loan to ~~Next Communications, Inc.~~Labrys and Labrys returned the Second Commitment shares to the Company.

As of ~~December 31, 2018, we have two (2) officers who have employment agreements.~~March, 22, 2020, our management team consisted of the Chief Executive Officer, and Chief Financial Officer. We have ~~six~~an additional three full-time employees: our ~~chief financial officer, chief Strategy officer, compliance officer, VP Finance,~~Compliance Officer, IT Director and VP Retail Operations for the United States market. For more information relating to the employment agreements, please see the section below entitled “Item 11. Executive Compensation.”

We also make our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and related amendments, available free of charge through our website at www.cuentas.com as soon as reasonably practicable after we electronically file such material with (or furnish such material to) the Securities and Exchange Commission. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be part of this Annual Report on Form 10-K.

Copies of the reports and other information we file with the Securities and Exchange Commission may also be examined by the public without charge at 100 F Street, N.E., Room 1580, Washington D.C., 20549, or on the internet at www.sec.gov. Copies of all or a portion of such materials can be obtained from the SEC upon payment of prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information.

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

We have a limited operating history upon which you may evaluate our business and an investment in our Common Stock may entail significantly more risk than the shares of Common Stock of a company with a substantial operating history. Our ability to successfully develop our products, and to realize consistent, meaningful revenues and profit has not been established and cannot be assured. For us to achieve success, our products must receive broader market acceptance by consumers. Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation. If our products are not widely accepted by the market, our business may fail.

Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors.

Our business operations are subject to numerous risks, uncertainties, expenses and difficulties associated with early stage enterprises. You should consider an investment in our company in light of these risks, uncertainties, expenses and difficulties. Such risks include: the absence of a lengthy operating history; insufficient capital to fully realize our operating plan; our ability to anticipate and adapt to a developing market; a competitive environment characterized by well-capitalized competitors; our ability to identify, attract and retain qualified personnel; our reliance on key management personnel.

Because we are subject to these risks, evaluating our business may be difficult. We may be unable to successfully overcome these risks, which could harm our business and prospects. Our business strategy may be unsuccessful and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully address these risks, there may be an adverse effect on our business, results of operations, financial condition and cash flows.

We may never achieve profitability from operations or generate sufficient cash flows to make or sustain distributions to our shareholders.

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

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

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

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

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

COVID-19 and its impact on businesses and financial markets could have a material adverse effect on our operations.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (“COVID-19”) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. A significant outbreak of COVID-19 and other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, as well as our business and operations. 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.

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

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

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

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

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

We are substantially dependent on the CIMA License Agreement, which may be terminated under certain circumstances.

On December 31, 2019, the Company entered into the CIMA License Agreement, pursuant to which the Company has a perpetual, exclusive, non-transferable, non-sublicensable, royalty-free license to access and use the CIMA Licensed Technology in the form provided to the Company via the Hosting Services. While the license agreement provides us with a license in perpetuity, if the license agreement is terminated in accordance with its terms, we will lose access to the licensed technology that comprise the Cuentas technology platform, which will have a significant impact on our business, operations and financial results. Further, if the license agreement is terminated, there is no guarantee that we will be able to enter into a new license agreement on the same or similar terms, if at all, and our competitors could license the technology, which would result in a significant market disadvantage to the Company.

CIMA and Dinar may exert significant influence over our business and affairs as a result of their corporate governance and other rights under the Side Letter Agreement, which may adversely affect the management of our Company.

Pursuant to the Side Letter Agreement, dated December 31, 2019, by and among the Company, Mr. Maimon, Mr. De Prado, Dinar and CIMA (the “Side Letter Agreement”), for as long as the CIMA License Agreement is in effect 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. Further, CIMA has a co-sale right to participate in a sale of shares of the 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 Common Stock (on a fully diluted basis) proposes to sell any of his, her or its shares of Common Stock. This may hinder our ability to raise the capital needed to improve our financial condition. These rights may limit the ability of our Board of Directors and our management team to make necessary personnel decisions, which may adversely affect the management of our company, particularly if disputes arise between us and CIMA or Dinar (which disputes in and of themselves could have a material adverse effect on our ability to conduct business).

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business we use sophisticated call processing engines and other sophisticated telecommunications technology platforms, and we acquire and store sensitive data, including intellectual property, our proprietary business information and personally identifiable information of our prospective and current tenants, our employees and third-party service providers on our networks and website. The secure processing and maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in revenue losses, legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, which could adversely affect our results of operations and competitive position.

We are dependent on our executive officers and dedicated personnel, and the departure of any of our key personnel could materially and adversely affect us.

We rely on a small number of persons to carry out our business and investment strategies. An Executive Search Committee has been established to evaluate and propose qualified executive candidates for approval by the Board of Directors. Any member of our senior management may cease to provide services to us at any time. The loss of the services of any of our key management personnel, or our inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results. As we expand, we will continue to need to attract and retain qualified additional senior management but may not be able to do so on acceptable terms or at all. Cuentas does not yet have but intends to have key man life insurance policies in place. Pursuant to the employment agreement, the CEO’s term expired in February 2021. The Company has formed an Executive Search Committee and it will begin the process of searching for key executive personnel, including a new CEO. The current CEO will remain as the Chairman of the Board after the hiring of a new CEO.

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

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

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

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

At the federal level, Congress and federal regulatory agencies have enacted and implemented new laws and regulations that affect the prepaid industry, such the CARD Act and FinCEN’s Prepaid Access Rule. Moreover, there are currently proposals before Congress that could further substantially change the way banks, including prepaid card issuing banks and other financial services companies, are regulated and are permitted to offer their products to consumers. Non-bank financial services companies, including money transmitters and prepaid access providers, are now regulated at the federal level by the Consumer Financial Protection Bureau (the “CFPB”), which began operations in July 2011, bringing additional uncertainty to the regulatory system and its impact on our business. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business. Abuse of our prepaid products for purposes of financing sanctioned countries, terrorist funding, bribery or corruption could cause reputational or other harm that could have a material adverse effect on our business, results of operations and financial condition. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. Failure by us to comply with federal banking regulation may subject us to fines and penalties and our relationships with our issuing banks may be harmed.

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

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

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

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

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

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

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

Cuentas recently began e-commerce card operations and is much smaller than its competitors, faces competition in the prepaid financial services industry including competitors such as American Express, First Data, Total Systems Services, Green Dot, NetSpend, Money Network, Momentum, Blackhawk, Prepaid MasterCard, MasterCard RePower, PayPal, Apple Pay, Amex Serve, H&R Block Emerald, J.P. Morgan Chase, and others. Cuentas also faces intense competition from existing players in the prepaid card industry.

Cuentas Mobile faces competitors including, without limitation, AT&T, Sprint, Viber, WhatsApp, Skype, MetroPCS, TracFone, Telcel, StraightTalk, Simple Mobile, Virgin Mobile, Boost, Net 10, IDT, Boost, and others.

M&M faces competition from many strong and well-financed competitors and other competitors, engaged in the retail termination of domestic and international long distance as well a mobile voice, text, and data services, including, without limitation, IDT, NobelCom, Access Wireless, Boost Mobile, H2O mobile, Mint Mobile and others.

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

MVNO operators, including Cuentas Mobile, earn revenues by purchasing network capacity from other network operators and reselling it to end users. Cuentas Mobile uses T-Mobile’s (formerly Sprint) network to offer its services, and is dependent on the performance of Sprint and its network.

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

Cuentas began operations recently and is substantially smaller than its competitors. As a result, to compete effectively, Cuentas needs to improve its offerings rapidly and continuously.

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

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

Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Common Stock.

If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to de-list our securities. Such a de-listing would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a de-listing, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

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

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

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

The financial and operational projections and statements regarding future milestones that we may make from time to time are subject to inherent risks.

The projections and statements regarding future milestones that we provide herein or our management may provide from time to time reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business, regulatory, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections and targeted milestones themselves, will prove inaccurate or may not be achieved. There may be differences between actual and projected results, and actual results may be materially different from than those contained in the projections and statements regarding future milestones. The inclusion of the projections and statements regarding future milestones in this prospectus should not be regarded as an indication that we, our management or the underwriters considered or consider the projections or such statements to be a guaranteed prediction of future events, and the projections and such statements should not be relied upon as such.

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

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

Our directors, executive officers, principal shareholders and their affiliates beneficially own or control, directly or indirectly, in the aggregate, approximately 58.53% of our outstanding Common Stock. As a result, these shareholders, acting together, could have significant influence over the outcome of matters submitted to our shareholders for approval, including the election or removal of directors; any amendments to our articles of incorporation or bylaws; any merger, consolidation or sale of all or substantially all of our assets; and over the management and affairs of the Company. This concentration of ownership may also have the effect of delaying or preventing a change in control of the Company or discouraging others from making tender offers for our shares and might affect the market price of our Common Stock.

We are searching for a new Chief Executive Officer, and Chief Operating Officer the results of which may not be successful and may significantly change the management of the Company.

Pursuant to an employment agreement between the Company and Arik Maimon, our Chief Executive Officer, dated as of July 24, 2020 (the “2020 Maimon Employment Agreement”), Mr. Maimon agreed to resign as the Chief Executive Officer of the Company within four months of the effective date of the 2020 Maimon Employment Agreement (which term can be extended by the Board of Directors on a month-to-month basis with the approval of both Dinar and CIMA until a new CEO is appointed by the Board of Directors and was extended until February 24, 2021, when it expired) but continue as a member of the Company’s Board of Directors at the same salary compensation. An Executive Search Committee has been established to evaluate and propose qualified executive candidates for approval by the Board of Directors, including the Chief Executive Officer, President and Chief Operating Officer.

The Company is in the process of appointing a successor Chief Executive Officer. While we intend to do our diligence and identify a suitable person to fill this role, our search for a new Chief Executive Officer entails a risk that the newly appointed officer may bring changes to the management and operations of the Company. Such a change may affect shareholder value and the competitiveness of the Company in the public market.

Pursuant to an employment agreement between the Company and Michael De Prado, our President & Chief Operating Officer, dated as of July 24, 2020 (the “2020 De Prado Employment Agreement”), Mr. De Prado agreed to resign as the President & Chief Operating Officer of the Company within four months of the effective date of the 2020 De Prado Employment Agreement, which term can be extended by the Board of Directors on a month-to-month basis with the approval of both Dinar and CIMA until a new President& Chief Operating Officer is appointed by the Board of Directors (and was extended until February 24, 2021, when it expired), but continue as a member of the Company’s Board of Directors at the same salary compensation. An Executive Search Committee has been established to evaluate and propose qualified executive candidates for approval by the Board of Directors, including President and Chief Operating Officer.

As a “smaller reporting company”, we are not required to provide the information required by this Item.

We currently lease ~~approximately 1,200 square feet of~~ office space at 19 W. Flagler ~~St.,~~St, Suite 902, Miami, FL 33130 as our principal offices. We believe these facilities are in good condition and are sufficient for our current use, but ~~that we~~ may need to expand our leased space as our business efforts increase.

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

On October 14, 2014, one of our operating subsidiaries, NxtGn Inc., and Next Communications, Inc., an entity controlled by our CEO, (collectively the “Plaintiffs”) filed suit in the United States District Court for the Southern district of New York against Viber Media, Inc. (“Viber”). Plaintiffs filed an Amended Complaint asserting four claims: misappropriation of a business idea, misappropriation of trade secrets, breach of contract, and unjust enrichment. Viber moved the Court to dismiss the Amended Complaint. On March 30, 2016, U.S. District Judge Richard Sullivan issued an opinion and order on Viber’s motion to dismiss. Specifically, the Court ordered that Viber’s motion to dismiss is granted on Plaintiffs’ misappropriation of a business idea claim, but denied as to their misappropriation of trade secrets, breach of contract, and unjust enrichment claims. The Company has not accrued any gains associated with this case as it would be a contingent gain and recorded when received.

On December 20, 2017, a ~~Complaint~~complaint was filed by J. P. Carey Enterprises, Inc., (“JP Carey”) alleging a claim for ~~approximately~~ $473,000 related to ~~the~~ Franjose Yglesias-Bertheau, ~~filed lawsuit against PLKD listed above.~~a former Vice President of PLKD. Even though the Company made the agreed payment of $10,000 on January 2, 2017, and issued ~~12,003~~6,001 shares of Common Stock as conversion of the $70,000 note as agreed in ~~the~~its settlement agreement, ~~the Plaintiff~~JP Carey alleges damages ~~which~~that the Company claims are without merit because ~~they~~JP Carey received full compensation as agreed. The Company is in the process of defending itself against these claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On ~~October 20, 2018, J. P. Carey Enterprises, Inc. voluntarily withdrew its claim against the Company. On~~ January ~~28,~~29, 2019, ~~J. P. Carey Enterprises, Inc. filed a similar claim against the Company in Fulton County, Georgia. The Company is vigorously defending its position in this case.~~

~~On February 12, 2018,~~ the Company was served with another complaint by JP Carey claiming similar issues as to the previous complaint, with the new claimed damages totaling $1,108,037.85. JP Carey and the Company filed motions for a ~~complaint~~summary judgment. On October 1, 2020, the Superior Court of Fulton County, State of Georgia granted the Company’s motion for summary judgment and denied JP Carey’s motion for summary judgment. On October 30, 2020, JP Carey filed a notice of appeal to the trial court’s October 1 and 7, 2020 orders granting summary judgment in favor of Cuentas. The current briefing schedule calls for briefing in the appeal to be completed during the first quarter of 2021. Oral argument may be held, but no date for it has been set yet. On November 16, 2020, Cuentas filed a motion seeking payment from ~~Viber for reimbursement~~JP Carey of ~~attorney’s~~$140,970.82 in attorney fees and costs ~~totaling $528,000 arising from~~accrued as of November 13, 2020. JP Carey’s responded brief was filed on or about December 21, 2020 and thereafter Cuentas filed its reply. The trial court has not yet set a date to hear this motion.

On October 23, 2018, Cuentas was served by Telco Cuba Inc. for an amount in excess of $15,000 but the ~~litigation listed above.~~total amount was not specified. The Company iswas served on December 7, 2018, with a complaint alleging damages including unspecified damages for product, advertising and other damages in addition to $50,000 paid to Defendants. Cuentas has hired an attorney and has taken steps to defend itself vigorously ~~defending their rights~~ in this ~~case as we believe this demand is premature as litigation is ongoing. The Company has not accrued an estimated loss related to this complaint as~~case. Depositions are in process of ~~December 31, 2018 or December 31, 2017 given the premature nature of the motion.~~being scheduled.

On October 20, 2016, the Company received a notice that it has been named as a defendant in a suit brought against Next Communications, an entity controlled by our CEO. In addition to being named a defendant, it was requested the Company provide certain documents for the discovery process. Due to the original suit being filed against a related party and not against the Company or its subsidiaries, we believe it likely the Company and its subsidiaries will be dismissed as defendants and has not accrued a contingent loss as of December 31, 2018 or December 31, 2017 as a result.

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”). The Company believes the amended case is without merit and that, per its agreement to sell its interest in TPP, any claims brought against AIM or TPP would be the responsibilities of the current interest holders. Due to the original suit being filed against AIM and amended to include the Company after it disposed of its interest in TPP, which had a controlling interest in AIM, we believe it likely the Company and its subsidiaries will be dismissed as defendants.

~~Prior to October 23, 2017 (the date of Limecom acquisition), Limecom had entered into a settlement agreement with American Express~~.As of the date of the Limecom acquisition, there was a total outstanding balance of $892,000. The Company made repayments totaling $435,000 leaving a remaining balance due of $457,000, as of December 31, 2018. On December 18, 2018, Limecom had entered into a second Amendment of the Settlement Agreement with American Express. Under the second Amendment the Company paid $25,000 upon on December 19, 2018 and the remaining balance in 13 installments through December 15, 2019. The balance of $435,000 is included in other accounts. On November 26, 2018, the Company received notice of a complaint through its registered agent regarding a Complaint by American Express claiming damages incurred by Limecom for the amount of $507,000.

~~On November 7,~~25, 2018, the Company was served with a complaint by former company Chief Financial Officer, Michael Naparstek, claiming breach of contract for 833,333 shares (pre-2018 reverse stock split), $25,554 of compensation and $8,823 of expenses. This case was withdrawn in Palm Beach County and on January 11, 2019, a ~~service provider claiming Breach~~similar complaint was filed in Miami-Dade County. During the recent mediation, the Company and Mr. Naparstek reached an understanding of ~~Contract for $29,000. The Company~~full settlement amount of $2,500. This litigation has ~~not accrued any losses as of December 31, 2018 related to the complaint given the early nature of the process.~~been settled.

On November 7, 2018, the Company ~~was~~and its now former subsidiary, Limecom, were served with a complaint by IDT Domestic Telecom, Inc. ~~vs the Company and its subsidiary Limecom, Inc.~~ for telecommunications services provided to ~~the Subsidiary~~Limecom during 2018 in the amount of $50,000. The Company has no accrual expenses as of December 31, ~~2018~~2019, related to the complaint given the early nature of the process. Limecom was a subsidiary of the Company during this period but since the Limecom Acquisition was rescinded on January 30, 2019, and Limecom agreed to indemnify and hold harmless Cuentas from this and other debts. Cuentas hired an attorney and is defending itself vigorously in this case. A court ordered mandatory arbitration session took place and the arbitration findings were issued on June 19, 2020, and a request for trial de novo was filed on July 16, 2020, in order to have the matter docketed on the calendar. The motion for summary judgment filed by Cuentas Inc. with the New Jersey Superior Court initially set for October 16, 2020 was heard on October 30, 2020 after being rescheduled by the court. Oral arguments were held over the phone via conference call. The court came to the determination that while not indicative of success at trial, the court denied Plaintiff’s motion for summary judgment. Presently, there is a current trial date set for March 15, 2021.

On May 1, 2019, the Company ~~intends~~received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP”), who allegedly had a Reciprocal Carrier Services Agreement (“RCS”) exclusively with Limecom and not with Cuentas. The arbitration demand originated from another demand for arbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,052,838.09 in damages allegedly caused by unpaid receivables that Limecom assigned to ~~file~~VoIP based on the RCS. On June 5, 2020, SecureIP filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company. The complaint primarily concerns alleged indebtedness owed SecureIP by Limecom. SecureIP also alleges that Cuentas received certain transfers of funds which it alleges may be an avoidable transfer under Florida Statute §725.105 up to $1,052,838.09. Cuentas is contemplating filing a motion to dismiss the complaint and disputes that it received the alleged $1,052,838.09 from Limecom. Moreover, to the extent Cuentas has exposure for any transfers from Limecom, both Limecom and Heritage have indemnified Cuentas for any such liability. The Company will vigorously defend its position to be removed as a ~~defendant since~~named party in this action due to the ~~Company has no contractual relationship with~~fact that Cuentas rescinded the ~~plaintiff.~~

~~Our~~Since February 2, 2021, our common stock ishas been traded on the Nasdaq Capital Market with the symbol CUEN and our warrants have been traded on the Nasdaq Capital Market with the symbol CUEN.W. Prior to such date, our common stock was traded on the OTCQB market. As our shares are relatively thinly ~~traded. Without an active public trading market, a stockholder may not be able to liquidate their shares. The~~traded, the price for our securities may be highly volatile and may bear no relationship to our actual financial condition or results of operations. Factors we discuss in this report, including the many risks associated with an investment in our securities, may have a significant impact on the market price of our common stock.

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

The table below sets forth the high and low bid prices for our common stock as reflected on the OTC Bulletin Board for the last two fiscal years. Quotations represent prices between dealers, do not include retail markups, markdowns or commissions, and do not necessarily represent prices at which actual transactions were affected.

As of ~~December 31, 2018,~~March 23, 2021, our shares of common stock were held by 138 record holders and our warrants were held by 4 record holders. As of March 23, 2021, we had ~~1,588,942 common~~13,863,125 shares ~~and 10,000,000 series B preferred shares~~of Common Stock issued and outstanding. ~~There were an additional 16,667 common shares committed to be issued.~~ Additionally, there were ~~162,044~~338,000 options to purchase common stock issued of which ~~102,044~~338,000 are exercisable as of ~~December 31, 2018.~~March 23, 2021. Furthermore, as of March 23, 2020 there were (1) 2,790,697 shares of Common Stock issuable upon exercise of the Warrants issued in our public offering that closed in February 2021; (2) 223,256 shares of Common Stock issuable upon exercise of the representative’s warrants at an exercise price of $5.375 per share; (3) (a) 135,200 shares of our Common Stock issuable upon the exercise of outstanding options at a weighted average exercise price of $11.18 per share; (b) 54,762 shares of our Common Stock issuable upon exercise of our currently outstanding warrants at a weighted average exercise price of $10.34 per share; (c) 36,394 shares of our Common Stock issuable upon exercise of currently outstanding convertible note at a conversion price of $6.87 per share and (d) 76,666 shares of our Common Stock issuable upon the vesting of Common Stock awards granted to some of our employees and consultants. The Company is authorized to issue up to 360,000,000 shares of common ~~stock.~~stock and 50,000,000 shares of blank check preferred stock, par value $0.001.

During the year ended December 31, 2016, the Company declared a special dividend on its outstanding common stock of one share of Class D Redeemable Preferred Stock. The Class D Redeemable Preferred Stock was not issued as of December 31, 2018 and were cancelled.

The payment of dividends is subject to the discretion of our Board of Directors and depends, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid any dividends upon our common stock since our inception. By reason of our present financial status and our contemplated financial requirements, we may not declare additional dividends upon our common or preferred stock in the foreseeable future.

We have never paid any cash dividends. ~~The dividend declared during the year ended December 31, 2016 totaling $30,000 will be paid by the issuance of preferred stock.~~ We may not pay additional cash or stock dividends in the foreseeable future on the shares of common or preferred stock. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:

Therefore, there can be no assurance that any addition dividends on the common or preferred stock will be declared.

~~We currently do not maintain any~~The following table sets forth information as of December 31, 2020 relating to all our equity compensation ~~plans.~~plans:

On March 30, 2020, the Company issued 79,200 options to its Chief Executive Officer and President of the Company. The options carry an exercise price of $14.35 per share. All the options were vested immediately. The options are exercisable until March 30, 2022.

On March 21, 2019, the Company issued 20,000 options to its Chief Financial Officer. The options carry an exercise price of $5.23 per share. All the options were vested immediately. The options are exercisable until March 20, 2024.

On September 13, 2018, the Company issued 24,000 options to its President and Chief Executive Office. The options carry an exercise price of $7.5 per share. The options are exercisable until September 12, 2023.

On September 13, 2018, the Company issued 12,000 options to its member of the Board. The options carry an exercise price of $7.5 per share. The options are exercisable until September 12, 2023.

All share and per share information in this section reflects a proposed reverse stock split of the authorized and outstanding common stock at an anticipated ratio of 1-for-2 to occur immediately following the effective date but prior to the closing of the offering.

On January 3, 2020 Dinar Zuz provided $300,000 to the Company 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. Additionally, on January 3, 2020, the Company issued 40,000 shares of its Common Stock to Dinar Zuz, as a result of a conversion of the Dinar Zuz Convertible Note in the amount of $300,000.

On January 9, ~~2018,~~2020, the Company issued ~~11,483~~16,000 shares of its ~~common stock~~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 $240,000.

On January 14, 2020, the Company issued 49,867 shares of its Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was ~~$155,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.~~

On January 12, 2018, the Company issued 2,000 shares of its common stock to a note holder in connection with outstanding convertible note payable and convertible accrued interest on convertible notes payable in accordance with a settlement agreement. The fair market value of the shares was $27,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.$890,323.

On February ~~7, 2018,~~10, 2020, the Company issued ~~38,096~~4,000 shares of its ~~common stock~~Common Stock pursuant to a common stock subscription. The fair market value of the shares at the subscription date was $400,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On September 11, 2018, the Company issued 2,167 shares of its common stock to a note holder in connection with outstanding convertible note payable and convertible accrued interest on convertible notes payable in accordance with a settlement agreement. The fair market value of the shares was $11,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On September 27, 2018, the Company issued 13,333 shares of its common stock to a consultant, pursuant to a consulting agreement dated September 18, 2018, in consideration for consulting services. The fair market value of the shares at grant date was $60,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On September 27, 2018, the Company issued 61,002 shares of its common stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was $335,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

~~During 2018, the Company entered into various~~ securities purchase agreement to issue 146,669 shares of common stock in consideration of $440,000. One of the purchasers is the Company’s President and CEO who purchased 16,667 shares. Another purchaser is a current shareholder which controlled by the former owner of Limecom (a fully subsidiary of the Company), who purchased 16,667 shares. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

~~On October 25, 2018,~~between the Company ~~received $108,000 under~~and a private ~~placement of securities closed on~~investor, dated October 25, ~~2018 and issued 35,834 shares of its common stock. The issuance cost was $8. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.~~

On November 20, 2018 and November 28, 2018, the Company received $100,000 under a private placement of securities closed on December 13, 2018 and issued 36,667 shares of its common stock and warrants to purchase up to 36,667 shares of its common stock at an exercise price equal to $3.25 per share. The issuance cost was $10,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

During December, 2018, the Company received $248,000 under a private placement of and issued 82,667 shares of its common stock and warrants to purchase up to 82,667 shares of its common stock at an exercise price equal to $3.25 per share. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

~~On December 13, 2018 the Company issued 30,001 shares of its common stock for the consideration of $90,000 which it received of under the Securities Purchase Agreement which it entered on September 21~~^st, 2018. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities ~~Act.~~Act of 1933.

On March 3, 2020 Dinar Zuz provided an additional amount of $450,000 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. Additionally, on March 3, 2020 the Company issued 462,992 shares of its Common Stock to Dinar Zuz LLC, as a result of a conversion of the Dinar Convertible Note in the amount of $700,000.

On ~~December 28, 2018,~~April 2, 2020, the Company issued ~~134,327~~28,000 shares of its ~~common stock~~Common Stock pursuant to a ~~settlement of stock-based liabilities. We issued such shares in reliance on~~securities purchase agreement between the ~~exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.~~Company and a private investor, dated October 25, 2018.

On ~~January 7, 2019,~~May 22, 2020, the Company issued ~~16,667~~17,128 shares of its ~~common stock~~Common Stock pursuant to a ~~common stock subscription. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2)~~cashless conversion of ~~the Securities Act.~~

~~On January 7, 2019, the Company received $50,000 under a private placement of and issued 16,667 shares of its common stock and~~ warrants to purchase up to ~~16,667~~29,232 shares of its ~~common stock~~Common Stock at an exercise price equal to $3.25 per share. ~~We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.~~

On ~~February 12, 2019,~~August 20, 2020, the Company issued ~~warrants to purchase up to 35,834~~20,000 shares of its common stock at an exercise price equal to $3.25 per share required by the anti-dilution provisions under the October 25, 2018 private placement. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

~~On February 28, 2018, the Company issued 309,497 shares of its common stock~~Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was ~~$464,000. We~~$180,000.

On August 27, 2020, the Company converted all the outstanding shares of Series B Preferred Stock, par value $0.001 per share to 4,000,000 shares of the Company’s common stock, par value $0.001 per share in connection with the Company’s Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) which was adopted on August 17, 2020 to cause all outstanding shares of Series B Preferred Stock, par value $0.001 per share to be converted into shares of the Company’s common stock, par value $0.001 per share on a one-to-one basis.

On August 20, 2020, the Company issued ~~such~~20,000 shares of its Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was $180.

On September 17, 2020, the Company issued 2,000,000 of its Common Stock par value $0.001 per share to each of Dinar Zuz and Cima Telecom Inc., under a warrant dated December 31, 2019.

On September 17, 2020, the Company issued 56,725 shares of its Common Stock pursuant to promissory note, dated September 15, 2020. The fair market value of the shares at the issuance date was $350,000. Out of those, 13,200 shares of Common Stock were issued in consideration of Commitment fee and the balance are subject to return to the Company once the promissory note will be paid in full.

On September 30, 2020, the Company issued 40,000 of its Common Stock par value $0.001 per share to a private investor in consecration of cancellation of warrants to purchase up to 39,734 shares of its Common Stock at an exercise price equal to $8.12 per share.

Under the Labrys Note, the Company issued a self-amortization promissory note of the Company to Labrys in a sum of $605,000, consisting of $544,500.00 plus an original issue discount in the amount of $60,500 at an interest rate of 12% per annum convertible into shares of Common Stock, as well as 56,725 shares of Common Stock as Commitment Shares in reliance onupon the ~~exemptions~~exemption from securities registration ~~pursuant to~~afforded by Section 4(a)(2) of the Securities ~~Act.~~Act of 1933 and Rule 506(b) promulgated by the SEC. In the event of a default, as defined in the Labrys Note, Labrys has the right, to convert all or any portion of the then outstanding and unpaid principal amount and interest into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the date of the Labrys Note, or any shares of capital stock or other securities of the Company into which such Common Stock shall be changed or reclassified, at the conversion price as set forth in the Labrys Note.

On ~~February 28, 2019, The~~November 12, 2020, the Company ~~signed~~issued a ~~Binding Term Sheet with Optima Fixed Income LLC (“Optima”) for~~convertible promissory note to a ~~total investment~~private investor in the amount of ~~$2,500,000 over one year and received~~$250,000, which matures on November 12, 2021. Interest accrues from the ~~first deposit~~date of ~~$500,000~~the note on the ~~same date. Under~~unpaid principal amount at a rate equal to 10.00% per annum, calculated as simple interest. The holder may elect to convert all or any part of the ~~Binding Term Sheet, it was agreed that~~then outstanding principal and accrued but unpaid interest due under the ~~initial invested amount~~note into shares of ~~$500,000 will in consideration~~Common Stock until maturation. The conversion price of ~~166,667~~the note is $6.87 per share, which may be proportionately adjusted as appropriate to reflect any stock dividend, stock split, reverse stock split or other similar event affecting the number of outstanding shares of Common Stock of the ~~Company. These~~Company without the payment of consideration to the Company therefor at any time prior to conversion.

On November 20, 2020, the Company issued warrants to purchase up to 40,000 shares ~~will be~~of its Common Stock at an exercise price equal to $8.75 per share to an advisor.

On January 28, 2021, the Company issued 20,000 shares of its Common Stock to its Chief Financial Officer, 40,000 shares of its Common Stock to a member of the Board of Directors of the Company and 2,933 shares of its Common Stock to a former employee. The fair market value of the shares was $459.

Each of the transactions described in this Item II give effect to the Reverse Stock Split (as defined below) and were exempt from the registration requirements of the Securities Act of 1933, as amended (“Securities Act”), in reliance ~~on the exemptions from registration pursuant to~~upon Section 4(a)(2) of the Securities ~~Act. It was also agreed that Optima may purchase a Convertible Note~~Act, Regulation D promulgated under the Securities Act and, in the ~~amount~~case of ~~$2,000,000, which may be funded on a quarterly basis. The term of~~sales to investors who are non-US persons, Regulation S promulgated under the Convertible Note shall be three years and it may be converted with a discount of 25% on the share price at date of conversion, but in any case, not less than $3 per share. Optima will additionally get rights to vote some of the Series B Preferred. 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 this Binding Term Sheet.Securities Act.

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

The Company was incorporated in September 2005 to act as a holding company for its subsidiaries in the technology, telecom and banking industries.

The Company invests in financial technology and engages in use of certain licensed technology to provide innovative telecommunications, mobility, and remittance solutions to unserved, unbanked, and emerging markets. The Company uses proprietary technology and certain licensed technology to provide innovative telecommunications and telecommunications mobility and remittance solutions in emerging markets. The Company also offers wholesale telecommunications minutes and prepaid telecommunications minutes to consumers through its Tel3 division.

The Company was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries. Its subsidiaries are Meimoun and Mammon, LLC (100% owned) (“M&M”), Next Cala, Inc. (94% owned -was dissolved on July 3, 2020) (“Cala”), NxtGn, Inc. (65% owned-was dissolved on August 24, 2020) (“NxtGn”) and Cuentas Mobile LLC (formerly Next Mobile 360, LLC. - 100% owned). Additionally, Next Cala, Inc. had a 60% interest in NextGlocal Inc. (“NextGlocal”), 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.

On December 6, 2017, the Company completed its formation of SDI NEXT in which the Company owns a 51% membership interest, previously announced August 24, 2017 in a letter of intent with Fisk Holdings, LLC (“Fisk Holdings”). Per the Operating Agreement of SDI NEXT the Company and Fisk Holdings will serve as the Managing Members of SDI Next and the Company will contribute a total of $500,000, to be paid per an agreed-upon schedule over a twelve-month period. Fisk Holdings will contribute 30,000 (thirty thousand) 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 reload (“GPR”) cards, prepaid gift cards, prepaid money transfer, prepaid utility payments, and other prepaid products. The completed formation of an established distribution business for third-party gift cards, digital content, mobile top up, financial services and digital content, which presently includes more than 31,600 U.S. active Point of Sale locations, including store locations, convenience stores, bodegas, store fronts, etc. The parties agreed that additional product lines may be added with unanimous decision by the Managing Members of SDI NEXT. During 2018, it was agreed between the parties to distribute the Company’s recently announced CUENTAS GPR card and mobile banking solution aimed to the unbanked, underbanked and financially underserved consumers, making them available to customers at the more than 31,600 retail locations SDI NEXT presently serves. SDI NEXT was dissolved on August 22, 2020.

On October 23, 2017, the Company acquired 100% of the outstanding interests in Limecom.

On January 29, 2019, the Company and Heritage Ventures Ltd. (“Heritage”) agreed to amend the Share Purchase Agreement, dated September 19, 2017 (the “Limecom Purchase Agreement”) to extend the right of the Company to rescind the same Share Purchase Agreement and to return the stock in Limecom back to Heritage in the following manner:

(a) The 55,259 shares of the Company issued to Heritage and its stockholders will not be returned to the Company, and the remaining 13,815 shares of the Company in escrow will not be issued to Heritage. Instead, the Company will issue an additional 36,000 shares of the Company as directed by Heritage.

(b) The $1,807,000 payment obligation under the Limecom Purchase Agreement will be cancelled.

(d) Heritage, its Stockholders and the current management of Limecom agreed to indemnify and hold harmless Next Group Acquisition, Inc. and the Company from any liabilities (known and unknown) incurred by Limecom (accrued, disclosed or undisclosed by Limecom) up to and including the rescission date.

(f) Heritage, Limecom and its current management and stockholders agreed to cooperate with Cuentas’ auditors in providing all material information to Cuentas’ auditors as is reasonably required.

(g) Heritage and the Limecom current management agreed that the intercompany loan in the approximate sum of $231,000 will be cancelled.

(h) Cuentas agreed to issue 8,296 shares of Cuentas restricted stock to several Limecom employees in exchange for salaries due to them. Those shares will be issued and held in escrow until the full satisfaction of the terms of this Amendment.

(i) Cuentas agreed to advance the sum of $25,000 toward the payments agreed upon to be paid to American Express, Inc. (“AMEX”) by Limecom, and Limecom agrees to pay the sum of $25,000 to AMEX and the balance of the payments under the Stipulation of Settlement with AMEX as agreed upon by Limecom.

On January 30, 2019, Cuentas sent an executed Rescission Letter to Limecom rescinding the acquisition of Limecom according under the Amendment of the Limecom Purchase Agreement, dated January 29, 2019.

Cuentas fulfilled its obligation to pay $25,000 to AMEX pursuant to the Amendment of the Limecom Purchase Agreement dated January 29, 2019.

The Company has historically received financing from Next Communications, Inc. (“Next Communications”), an entity controlled by our CEO, and had a related party payable balance of approximately $0 and approximately $2,972,000 due to Next Communications as December 31, 2018. During the first calendar quarter of 2017, Next Communications filed for bankruptcy protection. As a result, the related party payable was handled by a court appointed trustee as an asset of Next Communications. On January 29, 2019, the United States Bankruptcy Court Southern District of Florida, Miami Division, approved a Plan of Reorganization for Next Communications., whereby the Company would pay $600,000 to a specific creditor in consideration for the forgiveness of the balance of the payable to Next Communications. On March 10, 2019, the Company paid $50,000 to the trust account of the specific creditor, per the order, and on May 10, 2019, the Company paid $550,000 to the same 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.

We are a leading technology payment platform company that enables digital and mobile payments on behalf of under-bank and unbanked individuals. We believe in providing simple, affordable, secure and reliable financial services and digital payments to help our customers to achieve their financial goals. We strive to increase our relevance for consumers, and family to access and move their money anywhere in the world, anytime, on any platform and through any device (e.g., mobile, tablets, personal computers or wearables). We provide safer and simpler ways for businesses of all sizes to accept payments from merchant websites, mobile devices and applications, and at offline retail locations through a wide range of payment solutions. We also facilitate person to person payments through Cuentas GPR Card.

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry. That focus continues to become even more heightened as regulators on a global basis focus on such important issues as countering terrorist financing, anti-money laundering, privacy and consumer protection. Some of the laws and regulations to which we are subject were enacted recently and the laws and regulations applicable to us, including those enacted prior to the advent of digital and mobile payments, are continuing to evolve through legislative and regulatory action and judicial interpretation. Non-compliance with laws and regulations, increased penalties and enforcement actions related to non-compliance, changes in laws and regulations or their interpretation, and the enactment of new laws and regulations applicable to us could have a material adverse impact on our business, results of operations and financial condition. Therefore, we monitor these areas closely to ensure compliant solutions for our customers who depend on us.

Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At Cuentas, we push the boundaries of what is possible through a broad range of research and development activities that seek to anticipate the changing demands of customers, industry trends and competitive forces.

Based on our assessment of key technology trends and our broad focus on long-term research and development of new products and services, we see significant opportunities to drive future growth.

Comparison of year ended December 31, 2020 to year ended December 31, 2019

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

Revenues during the year ended December 31, ~~2018~~2020 totaled ~~$ 74,650,000~~$558,000 compared to ~~$53,793,000~~$967,000 for the year ended December 31, ~~2017.~~2019. The ~~increase in the total revenue~~decrease is ~~mainly~~ due to our diminishing telecom business. The Company generated revenues through the ~~acquisition~~sale and distribution of ~~Limecom which was consolidated for~~prepaid telecom minutes, digital products and other related telecom services. The Company have begun to generate sales from its Fintech products and services during the ~~full twelve months ended December 31, 2018 and was consolidated only in the fourth~~third quarter of ~~2017. The Company no longer owns Limecom as of January 2019.~~2020.

~~Costs of revenue consists of the purchase of wholesale minutes for resale and related telecom platform costs.~~ Cost of revenues during the year ended December 31, ~~2018~~2020 totaled ~~$74,177,000~~$697,000 compared to ~~$51,399,000~~$808,000 for the year ended December 31, ~~2017.~~2019. The ~~increase in~~decrease is due to our diminishing telecom business. Cost of revenue consists mainly of the purchase of wholesale minutes for resale, related telecom platform costs and purchase of digital products. Since the soft launch of the Company’s GPR Product during the second quarter of 2020, cost of ~~revenues is mainly due~~revenue also consisted of costs related to the ~~acquisition~~sale of ~~Limecom which was consolidated for~~ the ~~full twelve months ended December 31, 2018 and was consolidated only~~Company’s GPR Card in the ~~fourth quarter~~amount of ~~2017. The Company no longer owns Limecom as of January 2019.~~

Operating expenses totaled ~~$5,686,000~~$7,640,000 during the year ended December 31, ~~2018~~2020 compared to ~~$3,956,000~~$2,305,000 during the year ended December 31, ~~2017~~2019 representing a net increase of ~~$1,730,000.~~$5,335,000. The increase in the operating expenses is mainly due to the ~~loss on disposal and impairment~~increase in the amortization expense of ~~Limecom’s good will and~~ intangible assets in the amount of ~~$1,917,000 which was recorded as a result~~$1,800,000, officers compensation in the amount of $1,325,000, increase in stock-based compensation in the ~~recession~~amount of $1,234,000 and increase in professional services in the ~~Limecom acquisition by the Company. The loss was recorded in accordance with ASC Topic 360; $1,334,000~~amount of ~~the total impairment charge related to Goodwill and the remaining $583,000 related to intangible assets.~~$172,000.

The Company recognized other income of ~~approximately $1,628,000~~$296,000 during the year ended December 31, ~~2018~~2020 compared to ~~$78,000~~other income of $860,000 during the year ended December 31, ~~2017.~~2019. The net change from the prior period is mainly due to other income in the amount of $2,362,000 from the satisfaction of the Company’s 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 pursuant to which we paid and recorded $600,000 to satisfy an obligation of approximately $2,962,000 in 2019. It is also due to the change in the gain recognized on the fair value measurement of our derivative and stock-based liabilities. The fair value measurements related to derivative liabilities is driven by market inputs and inherently subject to volatility. Gain from Change in Fair Value of stock-based liabilities for year ended December 31, ~~2018~~2020 was ~~$2,314,000~~$303,000, as compared to a ~~gain~~loss of ~~$497,000~~$560,000 for the year ended December 31, ~~2017. The gain is attributable to the decrease in the Fair Value of our stock-based liabilities mainly due to the decrease in the share price of our common stock.~~2019.

Loss from discontinued operations were $328,000 during the year ended December 31, 2017 compared to $0 during the year ended December 31, 2018. The loss was the result of discontinuing operations of Transaction Processing Products during the year ended December 31, 2016. The loss from discontinued operations recorded during the year ended December 31, 2017 was the loss recognized on the disposal of the Company’s interest in the former subsidiary.

The Company recorded an income tax benefit of $1,087,000 during the year ended December 31, 2017 compared to $0 during the year ended December 31, 2018. The income tax benefit recognized during the year ended December 31, 2017 is the result of releasing a portion of the Company’s valuation allowance against its deferred tax asset equal to the amount of net deferred tax liability assumed with our acquisition of Limecom.

We incurred a net loss of ~~$3,562,000~~$8,101,000 for the year ended December 31, ~~2018,~~2020, as compared to a net loss of ~~$708,000~~$1,320,000 for the year ended December 31, ~~2017~~2019, for the reasons described above.

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

As of December 31, ~~2018,~~2020, the Company had ~~$154,000~~$227,000 of cash, total current assets of ~~$4,033,000~~$296,000 and total current liabilities of ~~$11,581,000~~$6,480,000 creating a working capital deficit of ~~$7,548 thousand.~~$6,184,000. Current assets as of December 31, ~~2018~~2020 consisted of ~~$154,000~~$227,000 of cash, marketable securities in the amount of ~~$79,000, accounts receivable net~~$3,000, related parties of ~~allowance of $3,673,000~~$54,000 and other current assets of ~~$127,000.~~$12,000.

As of December 31, ~~2017,~~2019, the Company had ~~$93,000~~$16,000 of cash, total current assets of ~~$7,935,000~~$165,000 and total current liabilities of ~~$14,649,000~~$3,917,000 creating a working capital deficit of ~~$6,714,000.~~$3,752,000. Current assets as of December 31, ~~2017~~2019 consisted of ~~$93,000~~$16,000 of cash, ~~accounts receivable net~~marketable securities in the amount of ~~allowance~~$1,000, related parties of ~~$7,632,000~~$54,000 and other current assets of ~~$210,000~~$94,000.

The ~~decrease~~increase in our working capital deficit was mainly attributable to the ~~decrease~~increase of ~~$3,959,000~~$1,484,000 in other accounts liabilities, an increase of $829,000 in our trade account ~~receivables~~payables and an increase of ~~$1,886,000~~$703,000 in our short-term ~~related parties’ payables, which was mitigated by a decrease of $2,384,000 in our trade account payables.~~loans and convertible loans.

Net cash used in operating activities was ~~$517,000~~$1,738,000 for the year ended December 31, ~~2018,~~2020, as compared to net cash used in operating activities of ~~$309,000~~$1,315,000 for the year ended December 31, ~~2017.~~2019. The Company’s primary uses of cash have been for professional support, marketing expenses and working capital purposes.

Net cash ~~used in investing~~provided by financing activities was ~~$9,000~~approximately $1,949,000 for the year ended December 31, ~~2018,~~2020, as compared to ~~net cash generated from investing activities of $134,000~~approximately $1,177,000 for the year ended December 31, ~~2017.~~

~~Net cash provided by financing activities was approximately $587,000 for the year ended December 31, 2018, as compared to approximately $12,000 for the year ended December 31, 2017.~~2019. We have principally financed our operations in 2019 through the sale of our ~~common stock~~Common Stock and the issuance of debt. ~~Due~~

We have principally financed our operations in 2020 through the sale of our Common Stock to private investors, issuance of convertible loans debt and loans from our ~~operational losses,~~shareholders. On September 11, 2020, the Company issued a promissory note to Labrys Funds LP (“Labrys”) for $605,000 (the “Labrys Note”). On February 12, 2021, we ~~relied~~fully prepaid our loan to Labrys.

On November 12, 2020, we issued a convertible promissory note to a ~~large extent~~private investor in the amount of $250,000, which matures on ~~funding received~~November 12, 2021. Interest accrues from ~~Next Communications, Inc., an organization in~~the date of the note on the unpaid principal amount at a rate equal to 10.00% per annum, calculated as simple interest. The holder may elect to convert all or any part of the then outstanding principal and accrued but unpaid interest due under the note into shares of Common Stock until maturation. The conversion price of the note is $2.75 per share, which ~~our Chief Executive Officer and Chairman holds a controlling equity interest and holds an executive position. During~~may be proportionately adjusted as appropriate to reflect any stock dividend, stock split, reverse stock split or other similar event affecting the ~~first calendar quarter~~number 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~~outstanding shares of ~~Next Communications, Inc. and~~Common Stock of the Company ~~may need to begin repaying~~without the ~~amounts due on a more fixed schedule. There was $2,972,000 and $2,920,000 due to Next Communications, Inc as~~payment of December 31, 2018 and December 31, 2017, respectively. As discussed in an 8-K filed with the SEC on February 5, 2019, 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 Cuentas Inc. would pay $600,000 to a specific creditor in consideration ~~from forgiveness of the balance of the payable balance. Our financial statements have been prepared assuming that the Company will continue as a going concern.~~

~~These above conditions raise substantial doubt about our ability to continue as a going concern. Although we anticipate that cash resources will be available~~ to the Company ~~through its current operations, it believes existing cash will not be sufficient~~therefor at any time prior to ~~fund planned operations and projects investments through~~conversion. The Company issued such convertible promissory note in reliance on the ~~next 12 months. Therefore, we are still striving~~exemptions from registration pursuant to increase our sales, attain profitability and raise additional funds for future operations and any meaningful equity or debt financing will likely result in significant dilution to our existing stockholders. There is no assurance that additional funds will be available on terms acceptable to us, or at all.Section 4(a)(2) of the Securities Act.

~~Our liquidity needs for~~On February 4, 2021 the ~~next 12 months and beyond are principally for~~Company sold an aggregate of 2,790,697 units at a price to the ~~funding~~public of ~~our operations and the development and the launch~~$4.30 per unit (the “Offering”), each unit consisting of one share of the ~~Cuentas GPR Card. Based on the foregoing, On~~Company’s Common Stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of February ~~28, 2019, The Company signed a Binding Term Sheet with Optima Fixed Income LLC (“Optima”~~1, 2021 (the “Underwriting Agreement”) for a total investment of $2,500,000over one year and received the first deposit of $500,000on the same date. Management believes that those funds will provide the required financing of the operations of, between the Company and ~~the launch~~Maxim Group LLC (the “Representative” or “Maxim”), as representative of the ~~Cuentas GPR Card. Nevertheless,~~sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company ~~is continuing~~granted the Underwriter a 45-day option to ~~engage~~purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in ~~various strategies to ensure~~connection with the ~~continuance~~Offering. The Company received gross proceeds of ~~operations for~~approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the ~~foreseeable future.~~

~~Since inception, we have financed our cash flow requirements through issuance of common stock, related party advances~~gross proceeds and debt. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings,estimated Offering expenses. Pursuant to the ~~extent available, or to obtain additional financing~~Underwriting Agreement, the Company also issued to the ~~extent necessary~~Underwriter warrants (the “Underwriter’s Warrants”) to ~~augment our working capital. In~~purchase up to a total of 223,256 shares of Common Stock (8% of the future we need to generate sufficient revenues from sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.

~~We anticipate that we will incur operating losses~~shares of Common Stock sold in the ~~next twelve months.~~ Offering). The Underwriter’s Warrants are exercisable at $5.375 per share of Common Stock and have a term of five years. The total expenses of the offering were approximately $1.4 million, which included Maxim’s expenses relating to the offering.

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

To address these risks, we must, among other things, implement and successfully execute our business and marketing strategy surrounding ~~our~~the Cuentas ~~braded general-purpose reloadable cards,~~Mastercard, continually develop and upgrade our website, respond to competitive developments, lower our financing costs and specifically our accounts receivable factoring costs, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

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

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

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

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements, which we discuss under the heading “Results of Operations” following this section of ~~our MD&A.~~Item 7. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

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

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 ~~goodwill, 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.~~

Goodwill represents the excess cost over the fair value of the assets of an acquired business. Goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not amortized but are tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year. The Company determines the fair value of each subsidiary the goodwill relates to and compares the fair value to the carrying amount of the subsidiary. To the extent the carrying amount of the subsidiary exceeds the fair value of it, an impairment loss is recorded.

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.

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”, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.

Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.

The Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the fair value of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair values of derivative liabilities over the life of the convertible notes.

~~The Company 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. Next Cala generated revenues from commissions earned from Incomm, a leading financial services provider, and NxtGn generated revenues from the sale of voice over IP platform software during the years ended December 31, 2018 and 2017.

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.

On ~~February 14, 2018,~~August 2020, the FASB issued ASU ~~2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated~~No. 2020-06, Debt—Debt with Conversion and Other ~~Comprehensive Income. The amendments~~Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in ~~this Update allow a reclassification from accumulated other comprehensive income to retained earnings~~Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies an issuer’s accounting for ~~stranded tax effects resulting from the Tax Cuts~~convertible instruments 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 effectits application of the ~~change~~derivatives scope exception for contracts in ~~the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act~~its own equity. ASU 2020-06 is ~~recognized.~~

On March 9, 2018 the FASB issued ASU 2018-04, Investments—Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 (SEC Update). The amendments in this Update supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin No. 117. This amendment is effective upon issuance.

~~On March 14, 2018 the FASB issued Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This amendment is effective upon issuance.~~

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. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.

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 in this Update improve the effectiveness of fair value measurement disclosures and modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions and improves consistent application of Topic 740. ASU 2019-12 is effective for ~~annual reporting periods~~fiscal years beginning after December 15, 2020, ~~and~~including interim periods within ~~annual periods beginning after December 15, 2021.~~those fiscal years. The Company ~~is currently evaluating~~does not anticipate any immediate impact on its consolidated financial statements upon adoption.

In June 2016, the FASB issued an ASU that supersedes the existing impairment model for most financial assets to a current expected credit loss model. The new guidance requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. The Company adopted this guidance effective January 1, 2020, with no material impact on its consolidated financial statements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to ~~determine~~recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts.

The guidance became effective on January 1, 2020, including interim periods within that year and requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Under the modified retrospective method of adoption, prior year reported results are not restated. The Company has performed its analysis of the impact ~~it may have~~ on its financial instruments that are within the scope of this guidance and has concluded that there was no material impact to its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, ~~Fair~~“Fair Value Measurement (Topic 820): Disclosure Framework –— Changes to the Disclosure Requirements for Fair Value ~~Measurement. The amendments apply~~Measurement” (“ASU No. 2018-13”) as part of the FASB’s broader disclosure framework project. ASU No. 2018-13 removes, modifies and adds certain disclosures, providing greater focus on requirements that clearly communicate the most important information to ~~reporting entities that are required~~the users of the financial statements with respect to ~~make disclosures about recurring or nonrecurring~~ fair value ~~measurements and should improve~~measurements. The adoption of ASU No. 2018-13 as of January 1, 2020 did not have a material impact on 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 is currently evaluating this guidance to determine the impact it may have on itsCompany’s consolidated financial statements.

In ~~November 2018,~~December 2019, the FASB issued ASU ~~2018-18 “Collaborative Arrangements~~2019-12, Income Taxes (Topic ~~808)—Clarifying~~740): Simplifying the ~~interaction between Topic 808 and Topic 606”.~~Accounting for Income Taxes. The amendments ~~provide~~in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance 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~~improve consistent application among reporting entities. ASU 2019-12 is ~~not a customer. The guidance will be~~ effective for fiscal years beginning after December 15, ~~2019.~~2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. This standard is not expected to have a material impact to the Company’s consolidated financial statements after evaluation.

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, ~~and should be applied retrospectively.~~but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating ~~this guidance to determine~~ the impact ~~it may~~that the adoption of ASU 2020-06 will have on ~~its~~the Company’s consolidated financial statement presentation or disclosures.

Other new pronouncements issued but not effective as of December 31, 2020 are not expected to have a material impact on the Company’s consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

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

See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-36 of this Form 10-K.

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

On December 21, 2017, the Company voted unanimously to dismiss Assurance Dimensions (“AD”) as the Company’s independent registered public accounting firm. The decision to dismiss AD was in no way due to a lack of confidence or quality of work by AD. The Board was satisfied with the work done by AD and had no issues with their work product.

The audit reports of AD on the consolidated financial statements of the Company for each of the two most recent fiscal years ended December 31, 2016 and December 31, 2015 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the Company’s most recent fiscal year ended December 31, 2016 and during the subsequent interim period from January 1, 2017 through December 22, 2017, (i) there were no disagreements with AD on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures that, if not resolved to AD’s satisfaction, would have caused AD to make reference to the subject matter of the disagreement in connection with its reports and (ii) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

On February 23, 2018, the Company appointed Marcum LLP (“Marcum”) as its new independent registered public accounting firm to audit the Company’s consolidated financial statements as of and for the year ended December 31, 2017. The decision to retain Marcum was approved by the Board of Directors of the Company.

During the Company’s fiscal years ended December 31, 2017 and 2016 and the subsequent interim period through February 23 2018, neither the Company nor anyone on its behalf has consulted with Marcum regarding (i) the application of accounting principles to a specific transaction, either completed or proposed or (ii) the type of audit opinion that might be rendered on the Company’s financial statements and, neither a written report nor oral advice was provided to the Company that Marcum concluded was an important factor considered by the Company in reaching a decision as to accounting, auditing or financial reporting issues, or (iii) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions), or (iv) any “reportable event” (as described in Item 304(a)(1)(v) of Regulation S-K).

On November 28, ~~2018,~~2020, the Audit Committee of the ~~board~~Board of ~~directors~~Directors (the “Board”) of the Company approved the appointment of Halperin Ilanit, CPA ~~(“Halperin”)~~ to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018. During the fiscal years ended December 31, 2017 and 2016, and the subsequent interim period through November 28, 2018, neither the Company, nor anyone acting on the Company’s behalf, has consulted with Halperin regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, in any case where either a written report or oral advice was provided to the Company by Halperin that Halperin concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement” (within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).2020.

Our Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the year end covered by this Report. Based on that evaluation, they have concluded that, as of December 31, ~~2018~~2020 and ~~2017, our disclosure controls and procedures~~2019, are designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and ~~forms, and that such information~~forms.Such Information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining adequate internal control, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.

Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 ~~Framwork)~~Framework). Based upon this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, ~~2018.~~2020.

Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective due to the following material weakness identified:

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ~~During the last six months, we have hired a full time Chief Financial Officer to begin improving our existing control environment.~~

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, ~~2018~~2020 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company’s management, including the Chief Executive Officer and Principal Financial Officer, do not expect that its disclosure controls or internal controls will prevent all errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

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

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

Arik Maimon, our Chairman, is a founder and Chairman of the Company and ~~has~~ served as its CEO ~~since~~from its ~~inception.~~inception until February 2021, following which he continues to serve as interim CEO while the Company searches for a new CEO. In addition to co-founding the Company, ~~and its Next CALA and NxtGn subsidiaries,~~ Mr. Maimon founded the Company’s subsidiaries ~~Next~~Cuentas Mobile, and M&M. Prior to founding the Company and its subsidiaries, Mr. Maimon founded and ran successful telecommunications companies operating primarily in the United States and Mexico. In 1998, Mr. Maimon founded and ran a privately-held wholesaler of long-distance telecommunications services which, later, under Mr. Maimon’s management, grew from a start up to a profitable enterprise with more than $100 million in annual revenues. Mr. Maimon serves on the Company’s ~~board~~Board of ~~directors~~Directors due to the perspective and experience he brings as our co-founder, Chairman, Interim CEO, and as our largest stockholder.

Ran Danielhas served as Chief Financial Officer since November 23, 2018. He has over 2025 years of financial and business management experience, accounting, auditing, business forecasting, M&A, due diligence, SEC regulations and internal control experiences. He was responsible for the financial and accounting functions in several companies and has extensive experience working as a CFO in both rapidly growing companies and publicly traded companies. He has worked with real estate, fashion, high-tech companies as well as remote institutional and high net worth individuals. ~~Ran is licensed as a CPA, CFA and is admitted to practice law in New York.~~ Mr. Daniel is licensed as a Certified Public Accountant (CPA) in the United States and Israel, Chartered Financial Analyst (CFA) and is admitted to practice law in the State of New York. Mr. Daniel holds a Bachelor of Economics, a Bachelor of Accounting and an MBA in Finance from the Hebrew University, as well as a Graduate Degree in Law from the University of Bar-Ilan. Mr. Daniel serves on the Company’s Chief Financial Officer due to the perspective and experience he brings as our Chief Financial Officer.

Michael A. De Pradois a founder and Vice Chairman of the Company and ~~has~~ served as its President ~~since~~from its ~~inception. In addition to co-founding the Company, Mr. De Prado co-founded the Company’s Next CALA subsidiary.~~inception until February 2021. Prior to founding the Company, ~~and Next CALA,~~ Mr. De Prado spent 20 years in executive positions at various levels of responsibility in the banking, technology, and telecommunications industries. As President of Sales at telecommunications company Radiant/Ntera, Mr. De Prado grew Radiant/Ntera’s sales to more than $200 million in annual revenues. At theglobe.com, Mr. De Prado served as President, reporting directing to Michael S. Egan. Mr. De Prado serves on the Company’s ~~board~~Board of ~~directors~~Directors due to the perspective and experience he brings as our co-founder, President, and COO.

Adiv Baruch has been a director of the Company since May ~~2016 and the Company’s Chief Strategy Officer since February 2018.~~2016. Mr. Baruch is a global leader anchors in the Israeli high-tech industry as well as the Chairman of Israeli Export and International cooperation Institute and several private and public companies. Adiv has over 28 years of experience in equity investment and operation management under distress. Mr. Baruch also serves as ~~Chairman~~chairman of Jerusalem Technology Investments Ltd. (“JTI”), which is engaged in the business of identifying, investing in, and mentoring emerging software and medical devices technology companies. JTI is a publicly-traded company whose shares are listed on the Tel-Aviv Stock Exchange. He also currently serves as Chairman of Maayan Ventures, a platform for investments in innovative technology companies, as President of Nyotron, a global cyber technology company, and as Chairman of Covertix, whose patented technology delivers real-time, non-invasive control, protection, and tracking of confidential files.companies. Mr. Baruch has served as a director of the Bank of Jerusalem, and he served as CEO of BOS Better Online Solutions, which, under this leadership, grew into a highly-successful company traded on ~~NASDAQ~~Nasdaq under the symbol BOSC. Throughout his career, he has championed development and support of new talent in the high tech and entrepreneurial arenas. ~~Mr. Baruch~~He is a Technion graduate and the Chairman of ~~Ness College, which is a leader in educating Israeli technology professionals~~the Institute of Innovation and ~~entrepreneurs.~~

~~Natali Dadon~~ ~~has served~~Technology of Israel. Mr. Baruch serves as a Director of the Company since its inception. Prior to joining the Company’s board of directors in a non-executive capacity, Ms. Dadon served for five years as the Vice President for Sales of a privately-held wholesale long distance telecommunications services provider with more than $100 million in annual revenues. Ms. Dadon servesmember on the Company’s ~~board~~Board of ~~directors~~Directors due to the perspective and experience ~~she~~he brings ~~as a seasoned telecommunications executive and one of the first investors in Next CALA.~~to Our Board.

Richard J. Bermanhas served as a Director of the Company since September, 2018. Mr. Berman’s career spans over 35 years of venture capital, senior management and merger and acquisitions experience. He possesses a strong track record of providing senior leadership as an executive and ~~Board~~board member of public and private companies, with extensive experience in many business sectors including finance, technology, retail, bio-science and real estate. ~~Richard~~Mr. Berman currently serves as a Director of four public companies: Advaxis, Inc., Catasys, Inc., Cryoport ~~Inc~~Inc. and Immuron. He also served as a Director or Officer of more than a dozen public and private companies, including Chairman of National Investment Managers, a company with $12 billion in pension administration assets, from 2006 to ~~2011.Mr.~~2011. Mr. Berman has a strong track record of providing corporate leadership in the financial services sector, serving as Director of two leading private companies, Strategic Funding Source, an alternative lender to small businesses; and Honor Capitol, an organization that provides auto and home insurance loans to consumers. Mr. Baruch serves as a member on the Company’s Board of Directors due to the perspective and experience he brings to Our Board.

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

~~Natali Dadon~~Jeff Lewis has served as a director of the Company since February 2021. Mr. Lewis currently serves as Senior Vice President—Payments and ~~Arik Maimon are siblings.~~Prepaid of Sutton Bank and has been at Sutton Bank since April 2017. Prior to joining Sutton Bank, Mr. Lewis was a Vice President, General Manger Financial Services at InComm since November 2012. Mr. Lewis has 25 years of payment industry experience with knowledge and experience in networks, card processing, payment processing and program management disciplines. Previously, Mr. Lewis also held key executive positions at Discovery Inc., FIS Global and Metavante Technologies Inc. where he developed a strong background in technology, regulatory and payment processing. Mr. Lewis serves as a member on the Company’s Board of Directors due to the perspective and experience he brings to Our Board.

David B. Schottenstein has served as a director of the Company since February 2021. Mr. Schottenstein is currently the Chief Executive Officer of Privé Revaux, an eyewear company, since June 2017 and has previously served as the Chief Executive Officer of DSCN Capital, an investment fund. He received his Rabbinic degree from Oholei Torah in 2002. Mr. Schottenstein serves as a member on the Company’s Board of Directors due to the perspective and experience he brings to Our Board.

In order to meet the independence requirement of a majority of the members of the Board meeting the Nasdaq requirements the number of directors on the Board of the company may be raised to 11 members.

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

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

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

Directors are elected to serve until the next annual meeting of ~~stockholders~~shareholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board ~~of Directors~~ following the next annual meeting of ~~stockholders~~shareholders and until their successors have been elected and qualified. Currently, pursuant to the Voting Agreement, Dinar, Mr. De Prado and CIMA each have the right to appoint one director to the Board and Mr. Maimon has the right to appoint two directors to the Board.

At each meeting of the Company’s shareholders at which the election of directors is to be considered, each of CIMA, Dinar, Mr. Maimon and Mr. De Prado have the right to designate one nominee for election at such meeting, and Mr. Maimon has the right to appoint two directors for a total of five Board members. It is intended that, following the Company’s listing on Nasdaq, the Board may expand to 11 members with the same appointment rights as before with six additional independent board members elected by the shareholders of the Company pursuant to the Amended and Restated Articles and Amended and Restated Bylaws, each as further amended from time to time.

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

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

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

~~We do not have a financial expert. We believe the cost related~~Advisors to ~~retaining a financial expert at this time is prohibitive. Further, because of our start-up operations, we believe the services of a financial expert are not warranted.~~Management Team

~~Section 16(a) Beneficial Ownership Reporting Compliance~~On November 20, 2020, the Company entered into the Advisory Agreement, pursuant to which Mr. Wattenberg will provide certain management consulting services to the Company in relation to the operations of the Company, its management, strategic planning, marketing and financial matters until April 30, 2021. In exchange for such advisory services, the Company agreed to pay Mr. Wattenberg a cash fee in the amount of $25,000, payable in five equal installments of $5,000 each with the first payment due on the effective date of the Advisory Agreement and monthly thereafter for the balance of the term. In addition, upon the effective date, the Company issued to Mr. Wattenberg a five-year warrant to acquire up to 40,000 shares of common stock of the Company, exercisable at any time at $8.75 per share, on a cash or cashless basis.

~~Section 16(a)~~On December 15, 2020, the Company entered into a consulting agreement with Juan Martin Gomez, who is currently the chief executive officer and a 25% shareholder of CIMA (the “Consulting Agreement”). Pursuant to the ~~Securities Exchange Act~~Consulting Agreement, Mr. Martin will have access to the Company’s facilities once a week and provide consulting services to the Company, including support for marketing and corporate structuring, for a term of ~~1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent~~one year, which term may be extended upon satisfactory performance of ~~an issuer’s common stock, which has been registered under Section 12~~his duties. In exchange for his consulting services, the Company will pay Mr. Martin a monthly fee of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with the SEC. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and Directors, we believe that as of the date of this filing they were all current in their filings.$5,000.

We currently have ~~five~~seven directors serving on our Board of Directors. A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board consent in writing to the action.

Of our current directors, we have determined that Messrs. Berman, Baruch, Lewis and Schottenstein are ~~not~~“independent” as defined by applicable rules and regulations.

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

Our Board of Directors has an Audit Committee, composed of Messrs. Berman, Lewis and Baruch, each of whom are independent directors as ~~such term is~~ defined in accordance with section Rule 10A-3 of the Exchange Act and ~~are therefore not subject to director independence standards. However, using~~ the ~~definition~~rules of ~~“independent director” from NASDAQ Rule 5605(a)(2), the following directors would be considered independent: Richard~~Nasdaq. Mr. Berman ~~and Adiv Baruch.~~

~~Our directors are elected by the vote of a majority in interest~~serves as chairman of the holders of our Common Stock and Preferred B shares and hold office until the earlier of his or her death, resignation, removal or expiration of the term for which he or she was elected and until a successor has been elected and qualified. The Board may also appoint directors to fill vacancies on the Board created by the death, resignation or removal of any director. Our Board are elected every three years.

~~On September 13, 2018, our Board designated the following three committees of the Board: An Audit Committee, a Compensation Committee and an Administration and Management Committee.~~

Richard Berman is the Chairman of the Audit Committee, and Adiv Baruch is a member. The Audit Committee is responsible for, among other things, overseeing the financial reporting and audit process and evaluating our internal controls over financial reporting.

~~The Administration and Management Committee is responsible for, among other things, managing and overseeing daily operations and transactions in the ordinary course of our business.~~

Richard J. Berman is the Chairman of the Compensation Committee, and Adiv Baruch is a member. The Compensation Committee is responsible for, among other things, establishing and overseeing the Company’s executive and equity compensation programs, establishing performance goals and objectives, and evaluating performance against such goals and objectives.

We do not have a Nominating Committee or Nominating Committee Charter. Our Board of Directors performs some of the functions associated with a Nominating Committee. We have elected not to have a Nominating Committee in that we are an initial-stages operating company with limited operations and resources.

committee. The Board has determined that ~~Richard J.~~Mr. Berman is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.

Our Audit Committee oversees our corporate accounting, financial reporting practices and the audits of financial statements. For this purpose, the Audit Committee has a charter (which will be reviewed annually) and performs several functions. The Audit Committee:

Our Board of Directors has a Compensation Committee composed of Messrs. Berman and ~~Adiv~~ Baruch, ~~would~~ each ~~be considered “independent directors” within~~of whom is independent in accordance with rules of Nasdaq. Mr. Berman is the ~~meaning~~chairman of the ~~NASDAQ~~Compensation Committee. Our Compensation Committee reviews or recommends the compensation arrangements for our management and ~~Exchange Act rules.~~employees and also assists the Board of Directors in reviewing and approving matters such as company benefit and insurance plans, including monitoring the performance thereof. The Compensation Committee has a charter, which will be reviewed annually.

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

Our Board of Directors has adopted a Code of Ethical Conduct and an Insider Trading Policy.

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than 10% of our outstanding shares of Common Stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership in our Common Stock and other equity securities. To the Company’s knowledge, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended December 31, ~~2018,~~2020, all filing requirements applicable to the Reporting Persons were timely met.

Although we do not have a formal policy regarding communications with the Board, stockholders may communicate with the Board by writing to us at 19 W. Flagler St, Suite 902, Miami, FL 33130, Attention: Stockholder Communication. Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

The following table sets forth certain information concerning the annual compensation of our Chief Executive Officer and our other executive officers during the last two fiscal years.

On July 24, 2020, our Compensation Committee approved the amendments to the employment agreements with each of Mr. Maimon and Mr. De Prado. The Employment Agreements superseded the terms of the pre-existing Employment Agreements.

As the employment terms of the Executives terminated on February 24, 2021, Mr. Maimon became the chairman (and interim CEO) of the Company and Mr. De Prado became the vice chairman. Under the Employment Agreements, each of them continues to receive the Special Board Compensation described in clause 2 above.

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

The following table sets forth information concerning the outstanding equity awards of ~~December 31 2018, there were 137,044 stock options issued with a weighted average exercise price~~each of $9.18 and 77,044 exercisable with a weighted average exercise price of $13.99. As of December 31 2017, there were 80,377 stock options issued with a weighted average exercise price of $34.80 and 58,155 exercisable with a weighted average exercise price of $27.30the Named Executive Officers as of December 31, ~~2017.~~2020:

~~The fair value of the options that were issued in 2017 do not qualify for equity treatment and are included in stock based liabilities as of December 31, 2017.~~

The following table sets forth, as of ~~December 31, 2018,~~March 23, 2021, certain information with respect to the beneficial ownership of shares of our common stock by: (i) each person known to us to be the beneficial owner of more than five percent (5%) of our outstanding shares of common stock, (ii) each director or nominee for director of our Company, (iii) each of the executives, and (iv) our directors and executive officers as a group. Unless otherwise indicated, the address of each shareholder is c/o our company at our principal office address:

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

Other than compensation arrangements for our directors and executive officers, which are described elsewhere in this prospectus, below we describe transactions since January 1, 2018, to which we were a party or will be a party, in which (i) the amounts involved exceeded or will exceed $120,000; and (ii) any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest

On November 28, 2018, the Company entered in to Employment Agreement with Mr. Daniel. A description of the Employment Agreement is set forth under Item 11. Executive Compensation and incorporated herein by reference.

From February 28, 2019 thru March 3, 2020, the Company received a total investment of $2,500,000 from Dinar pursuant to a convertible promissory note. Dinar fully converted the note in exchange for 702,991 shares. Dinar received 2,000,000 additional shares on August 21, 2020 pursuant to which their anti-dilution rights expired.

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. See the section entitled “Business – Agreements and Arrangements with CIMA” for more information.

Pursuant to the Side Letter Agreement, dated December 31, 2019, it was agreed by and among Dinar, CIMA, Arik Maimon and Michael De Prado that the Company will borrow up to $462,000 from Dinar at an annual interest rate of nine percent (the “Second Dinar Note”). As of the date of this prospectus, the Company borrowed $355,000 under the Second Dinar Note.

On July 24, 2020, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of Cuentas Inc. (the “Company”) approved the Amended and Restated Employment Agreements with each of Arik Maimon, and Michael De Prado A description of the Employment Agreements is set forth under Item 11. Executive Compensation and incorporated herein by reference

On August 17, 2020, at the Shareholders Meeting, the shareholders voted to approve the adoption of the Amended and Restated Articles to provide for a reclassification of all Series B Preferred Stock into Common Stock on a one-to-one basis (not giving effect to 1-for-2.5 reverse stock split). In connection with this meeting, Mr. Maimon received 1,460,479 shares of Common Stock of the Company, and Mr. De Prado received 643,303 shares of Common Stock of the Company in connection with the conversion of Preferred B shares. Pursuant to the Voting Agreement, CIMA and Dinar were each granted a proxy by Messrs. Maimon and De Prado, to vote, in the aggregate, 25% of the voting power of the Series B Preferred Shares until such Series B Preferred Shares are converted into shares of the Common Stock. After such conversion, CIMA and Dinar would no longer be entitled to such voting proxy rights but would be entitled to receive shares of Common Stock from the Company to maintain their 25% interest in the Company pursuant to their agreements with the Company dated December 31, 2019, until after the conversion of the Series B Preferred Stock. Accordingly, each of Dinar and CIMA received 2.0 million shares. In addition, the Company issued 2,000,000 of Common Stock to each of Dinar and CIMA upon automatic exercise of the Warrants As a result, the Purchase Agreement, Pledge Agreement, and the respective notes, warrants and Voting agreements are no longer in effect.

On December 15, 2020, the Company entered into a consulting agreement with Juan Martin Gomez, who is currently the chief executive officer and a 25% shareholder of CIMA (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Martin will have access to the Company’s facilities once a week and provide consulting services to the Company, including support for marketing and corporate structuring, for a term of one year, which term may be extended upon satisfactory performance of his duties. In exchange for his consulting services, the Company will pay Mr. Martin a monthly fee of $5,000.

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

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

The Company incurred annual audit fees during the ~~year~~years ended December 31, ~~2018~~2020 and December 31, 2019 with Halperin Ilanit CPA totaling approximately $50,000, with Marcum, LLP approximately $219,500 and with Assurance Dimensions approximately $5,000. The Company incurred audit fees during the year ended December 31, 2017 with Marcum, LLP totaling approximately $150,000 and with Assurance Dimensions of approximately $45,000.$55,000.

The Company incurred an annual audit related fees during the year ended December 31, 2020 totaling approximately $35,000. Our principal accountant did not provide audit related services that are reasonably related to the performance of our audit or review of our financial statements for the fiscal ~~years~~year ended December 31, ~~2018 and for the fiscal years ended December 31 2017.~~2019.

There were no fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the fiscal years ended December 31 2018 and for the fiscal years ended December 31 2017.

There were no other fees billed for products or services provided by our principal accountant for the fiscal years ended December 31, ~~2018~~2020 and ~~2017.~~December 31, 2019.

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

We have audited the accompanying ~~consolidated~~ balance sheets of Cuentas Inc. ~~and its subsidiaries~~ (the “Company”) as of December 31, ~~2018~~2020 and ~~2017, and~~2019, the related ~~consolidated~~ statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the ~~two~~ years in the period ended December 31, ~~2018,~~2020 and 2019, and the related notes (collectively referred to as the ~~“consolidated financial~~“financial statements”). In our opinion, the ~~consolidated~~ financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2018~~2020 and ~~2017~~2019, and the results of its operations and its cash flows for ~~each of~~ the ~~two years~~year in the period ended December 31, ~~2018,~~2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, as of December 31, 2018, the Company has incurred accumulated deficit of $18,070 thousands, stockholder’s deficit of $6,450 thousands and negative operating cash flows. These factor among others, as discussed in Note 1 to the consolidated financial statements raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of’ these uncertainties.

These ~~consolidated~~ financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ~~consolidated~~ financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the ~~consolidated~~ financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the ~~consolidated~~ financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the ~~consolidated~~ financial statements. We believe that our audit provides a reasonable basis for our opinion.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

As discussed in Notes 11 to the consolidated financial statements, on February 4, 2020 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”). In light of the above, the Company’s Management has concluded that there are no material uncertainties that give rise to significant doubt over the Company’s ability to continue as a going concern for at least twelve months from the date of the approval of the financial statements.

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

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

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

CONSOLIDATED BALANCE SHEETS

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

	December 31, 2020			December 31, 2019

ASSETS
CURRENT ASSETS:
Cash and cash equivalents		227			16
Marketable securities		3			1
Related parties		54			54
Other current assets		12			94
Total current assets		296			165

Property and Equipment, net		4			5
Intangible Assets (Note 2)		7,200			9,000
Total assets		7,500			9,170

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payable		2,354			1,525
Other accounts liabilities (Note 4)		2,195			741
Deferred revenue		652			537
Notes and Loan payable		93			109
Convertible notes payable (Note 5)		719			250
Derivative liability		-			3
Related parties’ payables (Note 6)		365			10
Stock based liabilities		102			742
Total current liabilities		6,480			3,917


Other long term		89			-
TOTAL LIABILITIES		6,569			3,917

STOCKHOLDERS’ EQUITY (Note 7)

Series B preferred stock, $0.001 par value, designated 10,000,000; 0 issued and outstanding as of December 31, 2020 and 10,000,000 issued and outstanding as of December 31, 2019.		-			10
Common stock, authorized 360,000,000 shares, $0.001 par value; 10,590,491 and 1,855,656 issued and outstanding as of December 31, 2020 and December 31, 2019, respectively		11			2
Additional paid in capital		28,411			25,249
Accumulated deficit		(27,491	)		(19,390	)

Total Cuentas Inc. stockholders’ equity		931			5,871

Non-controlling interest in subsidiaries		-			(618	)
Total stockholders’ equity		931			5,253
Total liabilities and stockholders’ equity		7,500			9,170

December 31,
2018 December 31,
2017

ASSETS
CURRENT ASSETS:
Cash and cash equivalents 154 93
Marketable securities 79 -
Trade account receivables, net 3,673 7,632
Other current assets 127 210
Total current assets 4,033 7,935

Property and Equipment, net (Note 5) 13 6
Marketable securities - 250
Intangible assets (Note 2) 1,924 2,970
Goodwill (Note 2) - 1,334
Total assets 5,970 12,495

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable 3,184 5,568
Other accounts liabilities (Note 6) 2,560 1,992
Deferred revenue 583 686
Notes and Loan payable 110 146
Convertible notes payable, net of discounts and debt issue costs (Note 7) - 49
Derivative liability (Note 8) - 212
Related parties’ payables (Note 9) 4,919 3,033
Stock based liabilities 225 2,963
Total current liabilities 11,581 14,649

Related party payables – Long term (Note 9) 806 2,536
Derivative liabilities – long term (Note 8) 33 362
Other long-term liabilities - 120
TOTAL LIABILITIES 12,420 17,667

STOCKHOLDERS’ DEFICIT (Note 12)
Common stock subscribed 100 400
Series B preferred stock, $0.001 par value, designated 10,000,000; 10,000,000 issued and outstanding as of December 31, 2018 and 2017, respectively 10 10
Common stock, authorized 360,000,000 shares, $0.001 par value; 1,588,942 and 1,140,398 issued and outstanding as of December 31, 2018 and December 31, 2017, respectively 2 1
Additional paid in capital 12,160 9,555
Accumulated deficit (18,070 ) (14,208 )
Accumulated other comprehensive income - (300 )
Total Cuestas Inc. stockholders’ deficit (5,798 ) (4,542 )

Non-controlling interest in subsidiaries (652 ) (630 )
Total stockholders’ deficit (6,450 ) (5,172 )
Total liabilities and stockholders’ deficit 5,970 12,495

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

F-4

CUENTAS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

	Year Ended December 31,
	2020			2019

REVENUE		558			967

COST OF REVENUE		697			808

GROSS PROFIT (LOSS)		(139	)		159

OPERATING EXPENSES

General and administrative		5,840			2,305
Amortization of Intangible Assets		1,800			-
TOTAL OPERATING EXPENSES		7,640			2,305

OPERATING LOSS		(7,779	)		(2,146	)

OTHER INCOME, NET

Other income, net		98			2,482
Interest expense		(108	)		(1,092	)
Gain on derivative liability		3			30
Gain (loss) from Change in fair value of stock-based liabilities		303			(560	)
TOTAL OTHER INCOME, NET		296			860

NET LOSS BEFORE CONTROLLING INTEREST		(7,483	)		(1,286	)

NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST		(618	)		(34	)
NET LOSS ATTRIBUTABLE TO CUENTAS INC.		(8,101	)		(1,320	)

Basic and Diluted net loss per share		(1.16	)		(1.45	)

Weighted average number of basic and diluted shares of common stock outstanding		6,968,554			913,881

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

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~CONSOLIDATED~~ STATEMENTS OF ~~OPERATIONS~~CHANGES IN SHAREHOLDERS’ EQUITY

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

Year Ended
December 31,
2018 2017

REVENUE 74,650 53,793

COST OF REVENUE 74,177 51,399

GROSS PROFIT 473 2,394

OPERATING EXPENSES

General and administrative 3,769 3,956
Loss on disposal and impairment of assets (Note 2) 1,917 -
TOTAL OPERATING EXPENSES 5,686 3,956

OPERATING LOSS (5,213 ) (1,562 )

OTHER INCOME

Other income (expense), net (331 ) 730
Interest expense (978 ) (1,054 )
Gain (loss) on derivative liability 524 (975 )
Gain from Change in extinguishment of debt 99 880
Gain from Change in fair value of stock-based liabilities 2,314 497
TOTAL OTHER INCOME, NET 1,628 78

Loss from discontinued operations (Note 3) -   (328 )

NET LOSS BEFORE INCOME TAX (3,585 ) (1,812 )
Income tax benefit -   1,087

NET LOSS BEFORE CONTROLLING INTEREST (3,585 ) (725 )

NET INCOME ATTRIBUTILE TO NON-CONTROLLING INTEREST 23 17
NET LOSS ATTRIBUTILE TO NET LOSS ATTRIBUTILE TO CUENTAS INC. (3,562 ) (708 )

Basic and Diluted net loss per share (2.90 ) (*)(0.78 )

Weighted average number of basic and diluted common shares outstanding 1,227,992 (*)902,744

	Series B																		Non-Controlling Interest
	Preferred Stock						Common Stock				Additional Paid-in		Accumulated			Total Stockholders’			Additional Paid-in			Accumulated			Total Non- Controlling
	Shares			Amount			Shares		Amount		Capital		Deficit			Deficit			Capital			Deficit			Interest			Total

Balance December 31, 2019		10,000,000			10			1,855,656		2		25,249		(19,390	)		5,871			43			(661	)		(618	)		5,253

Shares of Common Stock were issued in consideration of Commitment fee		-			-			56,725		*		90		-			90			-			-			-			90
Conversion of Series B Preferred Stock into Common Stock		(10,000,000	)		(10	)		8,000,000		8		2		-			-			-			-			-			-
Shares issued for services		-			-			36,000		*		420		-			420			-			-			-			420
Shares issued for conversion of convertible note		-			-			503,115		1		1,004		-			1,005			-			-			-			1,005
Warrants and Stock options compensation		-			-			138,995		*		1,646		-			1,646			-			-			-			1,646
Net income for year ending December 31, 2020		-			-			-		-		-		(8,101	)		(8,101	)		(43	)		661			618			(7,483	)
Balance December 31, 2020		-		$	-			10,590,491	$	11	$	28,411	$	(27,491	)	$	931		$	-		$	-		$	-			931

~~(*)~~

~~Retrospectively adjusted to reflect the 300-for-1 reverse stock split~~*

Less than $1.

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

F-6

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~CONSOLIDATED~~ STATEMENTS OF ~~COMPREHENSIVE LOSS~~CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

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

For the Year Ended
December 31,
2018 2017
Net loss $ (3,585 ) $ (725 )
Other comprehensive income (loss)
Adoption of ASU 2016-01 300 (300 )
Total comprehensive loss (3,285 ) (1,025 )
Comprehensive income attributable to non-controlling interest 23 17
Comprehensive loss attributable to shareholders $ (3,262 ) $ (1,008 )

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

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT~~

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

Common Non-Controlling Interest
Series B Preferred Stock to Common Additional Other Total Additional Total Non-

Stock
Common Stock be Issued Stock Paid-in Accumulated Comprehensive Stockholders’ Paid-in Accumulated Controlling
Shares Amount Shares Amount Shares Amount Subscribed Capital Deficit Loss Deficit Capital Deficit Interest Total
Balance December 31, 2016 10,000,000 10 822,653 1 8,098 * - 7,041 (13,500 ) - (6,448 ) (2,501 ) (655 ) (3,156 ) (3,292 )

Committed shares issued - - 2,669 * (2,668 ) * - - - - - - - - -
Committed shares reclassified to liability - - - - (5,430 ) * - (95 ) - - (95 ) - - - (95 )
Shares issued for services - - 10,834 * - - - 288 - - 288 - - - 288
Shares issued for conversion of debt - - 147,679 * - - - 1,991 - - 1,991 - - - 1,991
Shares issued for conversion of interest payable - - 21,562 * - - - 195 - - 195 - - - 195
Shares issued for cash - - 8,334 * - 65 - - 65 - - - 65
Shares issued for acquisition - - 126,667 * - - - 950 - - 950 - - - 950
Common stock subscribed - - - - - - 400 - - - 400 - - - 400
Fair value of stock options issued reclassed to liability - - - - - - - (1,117 ) - - (1,117 ) - - - (1,117 )
Forgiveness of imputed interest on related party payable - - - - - - - 237 - - 237 2 - 2 239
Unrealized loss on investment - - - - - - - - - (300 ) (300 ) - - - (300 )
Effect on minority interest from deconsolidated entity - - - - - - - - - - - 2,541 2,541 2,541
Net income for year ending December 31, 2017 - - - - - - - - (708 ) - (708 ) - (17 ) (17 ) (725 )
Balance December 31, 2017 10,000,000 $ 10 1,140,398 $ 1 - $ - $ 400 $ 9,555 $ (14,208 ) $ (300 ) $ (4,542 ) $ 42 $ (672 ) $ (630 ) (5,172 )

~~F-6~~

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT~~

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

Common Non-Controlling Interest
Series B Preferred Stock to Common Additional Other Total Additional Total Non-
Stock Common Stock be Issued Stock Paid-in Accumulated Comprehensive Stockholders’ Paid-in Accumulated Controlling
Shares Amount Shares Amount Shares Amount Subscribed Capital Deficit Loss Deficit Capital Deficit Interest Total
Balance December 31, 2017 10,000,000 10 1,140,398 1 - - 400 9,555 (14,208 ) (300 ) (4,542 ) 42 (672 ) (630 ) (5,172 )

Committed shares issued - - 39,070 * - - (400 ) 400 - - - - - - -
Adoption of ASU 2016-01 - - - - - - - - (300 ) 300 - - - - -
Shares issued for services - - 13,333 * - - - 60 - - 60 - - - 60
Shares issued for conversion of debt - - 4,167 * - - - 37 - - 37 - - - 37
Extinguish of liability upon shares issuance - - 206,811 - - - - 893 - - 893 - - - 893
Issuance of common stock, net of issuance
cost ** - - 185,163 1 - 534 - - 535 - - - 535
Warrants and Stock options compensation - - - - - - - 444 - - 444 - - - 444
Common stock subscribed - - - - - - 100 - - - 100 - - - 100
Forgiveness of imputed interest on related party payable - - - - - - - 237 - - 237 1 - 1 238
Net income for year ending December 31, 2018 - - - - - - - - (3,562 ) - (3,562 ) - (23 ) (23 ) (3,585 )
Balance December 31, 2018 10,000,000 $ 10 1,588,942 $ 2 - $ - $ 100 $ 12,160 $ (18,070 ) $ - $ (5,798 ) $ 43 $ (695 ) $ (652 ) (6,450 )

	Series B Preferred Stock				Common Stock				Common Stock			Additional Paid-in		Accumulated			Total Stockholders’			Additional Paid-in		Accumulated			Total Non- Controlling
	Shares		Amount		Shares		Amount		Subscribed			Capital		Deficit			Deficit			Capital		Deficit			Interest			Total

Balance December 31, 2018		10,000,000		10		635,577		1		100			12,161		(18,070	)		(5,798	)		43		(695	)		(652	)		(6,450	)

Committed shares issued		-		-		13,600		*		(100	)		100		-			-			-		-			-			-
Shares issued for services		-		-		163,932		*		-			989		-			989			-		-			-			989
Shares issued for conversion of debt		-		-		836,325		1		-			11,017		-			11,018			-		-			-			11,018
Shares issued for cash**		-		-		163,058		*		-			539		-			539			-		-			-			539
Shares issued due to the Rescission of the Limecom Acquisition		-		-		43,164		*		-			376		-			376			-		-			-			376
Forgiveness of imputed interest on related party payable		-		-		-		-		-			67		-			67					-			-			67
Net income for year ending December 31, 2019	$	-		-		-		-		-			-		(1,320	)		(1,320	)		-		34			34			(1,286	)
Balance December 31, 2019		10,000,000	$	10		1,855,656		2	$	-		$	25,249	$	(19,390	)	$	5,871			43	$	(661	)		(618	)		5,253

~~less~~Less than $1.

Issuance cost during the period were ~~$18~~$10

F-7

CUENTAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

	For the Year Ended December 31,
	2020			2019
Cash Flows from Operating Activities:
Net loss	$	(7,483	)	$	(1,286	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock based compensation and Shares issued for services		1,444			487
Imputed interest		-			67
Available for sale securities		(2	)		78
Interest expense and Debt discount amortization		58			1,017
Gain on derivative liability		(3	)		(30	)
Gain (loss) on fair value measurement of stock-based liabilities		(220	)		560
Depreciation expense		1			1
Amortization of intangible assets		1,800			-
Changes in Operating Assets and Liabilities:
Accounts receivable		-			18
Other receivables		82			(24	)
Accounts payable		843			(217	)
Related party, net					(2,356	)
Other accounts payables		1,647			416
Deferred revenue		115			(46	)
Other liabilities		(20	)		-
Net Cash Used by Operating Activities		(1,738	)		(1,315	)

Cash Flows from Financing Activities:
Proceeds from (Repayments of) convertible notes		250			250
Related parties, net		-			(664	)
Proceeds from short term loans		505			-
Proceeds from Loans from Related parties		355			-
Proceeds from loans from a Government Agency		89
Proceeds from issuance of shares, net of issuance cost		750			1,591
Net Cash Provided by Financing Activities		1,949			1,177

Net Increase (Decrease) in Cash		211			(138	)
Cash at Beginning of Period		16			154
Cash at End of Period		227		$	16

Supplemental disclosure of cash flow information
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

Supplemental disclosure of non-cash financing activities
Common stock issued for conversion of convertible note principal	$	2,500		$	-
Common Stock issued for conversion of convertible note issued against Other Assets	$	-			9,000
Common stock issued for settlement of stock-based liabilities and accrued salaries	$	442		$	735
Shares of Common Stock were issued in consideration of Commitment fee		90		$	-
Common stock issued for settlement of common stock subscribed	$	-		$	100

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

~~F-7~~

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

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

For the Year Ended
December 31,
2018 2017
Cash Flows from Operating Activities:
Net loss $ (3,585 ) $ (725 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Shares issued for services 499 725
Stock based compensation 444 1,154
Imputed interest 237 237
Available for sale securities received as other income 171 (550 )
Gain from extinguishment of short-term loans (99 ) (880 )
Debt discount amortization 72 391
Excess loss on derivative liability (514 ) 975
License fee amortization 35 83
Allowance for doubtful accounts - 37
Loss due to Settlement 84 -
Loss on disposal of business - 328
Loss on disposal and impairment of assets 1,917 -
Gain on fair value measurement of stock-based liabilities (2,314 ) (497 )
Deferred tax benefit - (1,087 )
Depreciation expense 2 -
Amortization of intangible assets 428 71
Changes in Operating Assets and Liabilities:
Accounts receivable 3,960 5,866
Other receivables 142 1,009
Accounts payable (2,384 ) (8,692 )
Related party, net 84 178
Other accounts payables 407 1,158
Deferred revenue (103 ) (30 )
Other long-term liabilities - (60 )
Net Cash Used by Operating Activities (517 ) (309 )

Cash Flows from Investing Activities:
Purchase of equipment (9 ) (5 )
Cash acquired in acquisitions, net of cash paid - 139
Net Cash Provided by Investing Activities (9 ) 134

Cash Flows from Financing Activities:
Proceeds from loans payable - 200
Repayments of loans payable (36 ) (129 )
Repayments of convertible notes (12 ) (400 )
Repayments of related party loans - (1245 )
Proceeds from common stock subscriptions 100 400
Proceeds from issuance of shares, net of issuance cost 535 65
Net Cash Provided by Financing Activities 587 12

Net Increase (Decrease) in Cash 61 (163 )
Cash at Beginning of Period 93 256
Cash at End of Period $ 154 $ 93

Supplemental disclosure of cash flow information
Cash paid for interest $ 37 $ -
Cash paid for income taxes $ - $ -

Supplemental disclosure of non-cash financing activities
Common stock issued for conversion of convertible note principal $ 27 $ 1,075
Common stock issued for conversion of convertible accrued interest $ - $ 195
Common stock issued for settlement of stock-based liabilities $ 893 $ -
Common stock issued for settlement of common stock subscribed $ 400 $ -

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

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Cuentas, Inc. ~~(formerly Next Group Holdings, Inc., the~~(the “Company”) together with its subsidiaries, is focused on ~~Financial Technology~~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 ~~Incomm,~~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~~Inc. (94% ~~owned)~~owned -was dissolved on July 3, 2020) (“Cala”), NxtGn, Inc. (65% ~~owned)~~owned-was dissolved on August 24, 2020) (“NxtGn”) and Cuentas Mobile LLC (formerly Next Mobile 360, ~~Inc. (100 %~~LLC. - 100% owned). Additionally, Next Cala, Inc. ~~has~~had a 60% interest in NextGlocal Inc. (“NextGlocal”), a subsidiary formed in May ~~2016. During the year ended December 31,~~ 2016 ~~the Company acquired~~and which was dissolved on September 27, 2019. Tel3, a business segment ~~Tel3, from an existing corporation. Tel3~~of Meimoun and Mammon, LLC provides prepaid calling cards to consumers directly and operates in a complimentary space as Meimoun and Mammon, LLC. ~~Tel3 was merged into Meimoun and Mammon, LLC effective January 1, 2017.~~ On October 23, 2017, the Company acquired 100% of the outstanding ~~interests~~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 Limecom Acquisition, principally in an effort to reduce the Company’s continuing debt obligations associated with the Limecom Acquisition.

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

Next Cala, Inc, (“Cala”) was formed under the laws of Florida on July 10, 2009 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 3^rd ~~party gift cards, GPR debit cards and payment remittance services worldwide.~~

NxtGn, Inc. (“NxtGn”) was formed under the laws of Florida on August 24, 2011 to develop a High Definition telepresence product (AVYDA) which allows users to connect with celebrities, public figures, healthcare and education applications via a mobile phone, tablet or personal computer. 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~~its formation of SDI NEXT ~~Distribution~~DISTRUBUTION LLC (“SDI Next”) in which itthe Company owns a 51% membership ~~interest. The remainder~~interest, previously announced August 24, 2017 in a letter of ~~the membership interests is owned by~~intent with Fisk Holdings, ~~LLC. The~~LLC (“Fisk Holdings”). Per the Operating Agreement of SDI Next, the Company ~~acts~~and Fisk Holdings will serve as the Managing ~~Member~~Members of SDI ~~NEXT Distribution LLC. Under the Operating Agreement ,~~Next and the Company will contribute a total of ~~$500.~~$500,000, to be paid per an agreed-upon schedule over a twelve-month period. Fisk Holdings ~~LLC~~ will contribute 30,000 active ~~Point~~point of ~~Sale~~sale locations for distribution of retail telecommunications and prepaid financial products and services to include, but not be limited to: prepaid ~~general-purpose reloadable~~GPR cards, prepaid gift cards, prepaid money transfer, prepaid utility payments, and other prepaid products. The completed formation of an established distribution business for third-party gift cards, digital content, mobile top up, financial services and digital content, which presently includes more than 31,600 U.S. active Point of Sale locations, including store locations, convenience stores, bodegas, store fronts, etc. The parties agreed that additional product lines may be added with unanimous decision by the Managing Members of SDI Next. During 2018, it was agreed between the parties to distribute the Company’s recently announced CUENTAS GPR card and mobile banking solution aimed to the unbanked, underbanked and financially underserved consumers, making them available to customers at the more than 31,600 retail locations SDI Next presently serves. SDI Next was dissolved on August 22, 2020.

On ~~October 23, 2017,~~December 31, 2019, the Company ~~completed~~entered into a series of integrated transactions to license the ~~acquisition~~Platforms from CIMA, through CIMA’s wholly owned subsidiaries Knetik, and Auris (the “Transaction Closing”) pursuant to that certain Platform License Agreement, dated December 31, 2019 by and among (i) the Company, (ii) CIMA, (iii) Knetik and (iv) Auris (the “License Agreement”) and the various other agreements listed below. Under the License Agreement Cima received a one-time licensing fee in the amount of ~~Limecom, Inc. (“Limecom”), Limecom is~~$9,000 in the form of a ~~global telecommunication company, providing services~~convertible note that may be converted, at the option of Cima, into up to ~~telecommunication providers from all over~~25% of the ~~world. Limecom operates a network built on internet protocol (“IP”) switching equipment. It was organized as a Florida limited liability company (“LLC”~~total shares of Common Stock of the Company, par value $0.001 per share (the “Common Stock”) on ~~November 21, 2014 and known~~a fully diluted basis as Limecom LLC. On September 29, 2015, Limecom converted to a Florida C-Corporation. The Acquisition was completed for total consideration of $3,927, which included an issuance of 172,683 shares of common stock, which were valued at $1,295 as of the acquisition date.

~~GOING CONCERN~~

~~The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As~~ of December 31, ~~2018,~~2019. On December 31, 2019, CIMA exercised its option to convert the ~~Company had approximately $154 in cash and cash equivalents, approximately $7,548 in negative working capital, a stockholders’ deficiency~~Convertible Promissory Note into 702,992 shares of ~~approximately $6,450 and~~Common Stock of the Company. Upon the conversion of the Series B Preferred shares into common stock, CIMA received an ~~accumulated deficit of approximately $18,070. These conditions raise substantial doubt about the Company’s ability~~additional five million shares pursuant 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.

anti-dilution warrant agreement.

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The acquired intangible assets that consisted of perpetual software license had an estimated fair value of $9,000. The Company will amortize the intangible assets on a straight-line basis over their expected useful life of 60 months. Identifiable intangible assets were recorded as follows:

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

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

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

Year ended December 31,
2021	$	1,800
2022		1,800
2023		1,800
2024		1,800
Total	$	7,200

Amortization expense was $1,800 and $0 for the years ended December 31, 2020 and December 31, 2019, respectively. Amortization expense for each period is included in operating expenses.

Pursuant to the License Agreement, the Company shall pay CIMA annual fees for the maintenance and support services in accordance with the following schedule: (i) for the first (1st) calendar year from the Effective Date, $300 were paid in 2020; (ii) for the second (2nd) calendar year from the Effective Date, $500 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 (see Further explanation in Note 2).

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

REVERSE SPLIT

~~The~~On February 2, 2021, 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.~~stock. As a result of the reverse stock split, the following changes have occurred (i) every ~~three hundred~~two and a half shares of common stock have been combined into one share of common stock; (ii) the number of shares of common stock underlying each common stock option or common stock warrant ~~or any other convertible instrument of the Company~~ have been proportionately decreased on a ~~300-for-1~~2.5-for-1 basis, and the exercise price of each such outstanding stock option and common warrant ~~or any other convertible instrument of the Company have~~has been proportionately increased on a ~~300-for-1~~2.5-for-1 basis. Accordingly, all option numbers, share numbers, warrant numbers, share prices, warrant prices, exercise prices and losses per share have been adjusted within these consolidated financial statements, on a retroactive basis, to reflect this ~~300-for-1~~2.5-for-1 reverse stock split. ~~No fractional shares were issued~~

COVID-19

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. A significant outbreak of COVID-19 and other infectious diseases could result ofin a widespread health crisis that could adversely affect 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 shareeconomies and financial markets worldwide, as well as our business and operations. The extent to which heCOVID-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 ~~she was entitled.~~

~~NOTE 2 – ACQUISITION~~

~~On October 23, 2017,~~treat its impact, among others. If the ~~Company, completed the acquisition~~disruptions posed by COVID-19 or other matters 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 (“LLC”) on November 21, 2014concern continue for an extensive period of time, our business and ~~known as Limecom LLC. On September 29, 2015, Limecom converted to a Florida C-Corporation.~~

~~The Acquisition was completed for total consideration~~results of $3,927, which included an issuance of 172,683 shares of common stock, which were valued at $1,295 as of the acquisition date. As part of the acquisition, the Company assumed net liabilities of $407 at fair value and identifiable intangible assets totaling $3,000 resulting in goodwill of $1,334. Net liabilities assumed consisted of the following:

Cash $ 140
Accounts receivable 13,488
Accounts receivable, related party 370
Other receivable 208
Prepaid expenses and other current assets 927
Website 7
Related party receivable 120
Accounts payable and accrued liabilities (13,714 )
Accounts payable, related party (686 )
Deferred tax liability (1,087 )
Other long-term liabilities (180 )
Net liabilities assumed (407 )

Fair value of shares issued and committed to be issued 1,295
Initial cash payable 921
Note payable, net of discount of $96 1,711
Total consideration 3,927
Identifiable intangible assets (3,000 )
Goodwill recorded $ 1,334

operations may be materially adversely affected.

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

~~Identifiable Intangible Assets~~NOTE 2 – Cima Telecom Inc.

The Company acquired intangible assets that consisted of client relationships which had an estimated fair value of $3,000. The intangible asset was measured at fair value using an income approach that discounts expected future cash flows to present value. The Company will amortize the intangible assets on a straight-line basis over their expected useful life of 84 months. Identifiable intangible assets were recorded as follows:

Asset Amount Life (months)
Client relationships $ 3,000 84
Total $ 3,000 84

On ~~January 30,~~December 31, 2019, the Company ~~rescinded~~entered into a series of integrated transactions to license the ~~acquisition~~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 received a one-time licensing fee in the amount of ~~Limecom, Inc. Therefore,~~$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 702,992 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 ~~ASC Topic 360,~~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 ~~recorded~~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 ~~asset impairment charges~~aggregate of ~~$1,917~~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 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 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 702,992 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 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 days following the date on which the Company amends and restates its Articles of Incorporation, which is ~~included~~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 ~~consolidated statements~~Warrants. On September 17, 2020, the Company issued 2,000,000 of ~~operations within loss on disposal~~its Common Stock to each of Dinar and ~~impairment of assets; $1,334~~CIMA, under the automatic exercise of the ~~total impairment charge related~~warrants.

Asset Pledge Agreement

Contemporaneously with the Transaction Closing, the Company entered into an Asset Pledge Agreement with CIMA (the “Pledge Agreement”). Pursuant to ~~Goodwill~~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 ~~remaining $583 related to intangible assets. Please also refer to~~issuance of the securities under the CIMA Convertible Promissory Note ~~16, Subsequent events.~~and the CIMA Warrant.

~~Pro Forma Information (Unaudited)~~Side Letter Agreement

~~The unaudited pro forma information for~~Contemporaneously with the ~~years ended~~Transaction Closing, the Company entered into a side letter agreement (the “Side Letter Agreement”), dated December 31, ~~2017 presented below include~~2019, by and among the ~~effects~~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 ~~Limecom acquisition had it~~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 ~~consummated~~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 ~~January 1, 2017~~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 $500 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 year Processing Services Agreement (“PSA”) with ~~adjustments~~InComm, a leading payments technology company, to ~~give effect~~power and expand the Company’s GPR card network. InComm distributes Gift and GPR Cards to ~~pro forma events~~over 210,000 U.S. retailers and has long standing partnerships with over 1,000 of the most recognized brands that are ~~directly attributable~~eligible for Cuentas’ Discount Purchase Platform.

Under the PSA, InComm will provide processing services, Data Storage Services, Account Servicing, Reporting, Output and Hot Carding services to the ~~acquisitions. These~~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 ~~are based upon information~~made to a Prepaid Product. InComm will also process Company’s Data and ~~assumptions available to us at~~post entries in accordance with the ~~time~~Specifications. Data Storage Services will consist mainly of ~~filing this Annual Report on Form 10-K. Accordingly, the unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of what the actual results~~storage of the ~~combined~~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 ~~would have been if~~will pay an initial Program Setup & Implementation Fees in the ~~acquisition had occurred~~amount of $500, of which $300 were paid during 2020, then $50 each at the beginning of the ~~period presented, nor is it indicative~~second, third, fourth and fifth anniversary of the ~~future results~~agreement. In addition, the Company will pay a minimum monthly fee of ~~operations.~~$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.

For the Year Ended
December 31,
2017
Revenue $ 130,988
Cost of revenue 125,393
Gross margin 5,595

Operating expenses 6,225
Loss from operations (630 )

Other expense (212 )
Net loss before income tax benefit $ (842 )

Net loss per share, basic and diluted $ (0.93 )

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 ~~goodwill, impairment of~~ intangible assets and fair value of stock-based compensation and fair value calculations related to embedded derivative features of outstanding convertible notes ~~payable and Going Concern.~~

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

Principles of consolidation

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

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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, ~~2018~~2020 or ~~2017.~~2019. As of December 31, ~~2018,~~2020, and ~~2017,~~2019, 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 $550. Trading ~~losses~~gains (losses) for the years ~~2018~~2020 and ~~2017~~2019 amounted to approximately ~~$ 171~~$2 and $ ~~300~~(78), 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 C~~ompany~~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, ~~2018~~2020 and ~~2017.~~2019.

~~Accounts Receivable Factoring~~

Limecom executes factoring and security agreements with financial institutions from time to time, whereby it sells certain of its accounts receivable in exchange for cash. These factoring transactions qualify for sales treatment in accordance with FASB ASC 860, Transfers and Servicing. Upon purchase of the accounts receivable, the Company shall be deemed to have sold, transferred, assigned, set over and conveyed to the financial institution, without recourse except as expressly stated in the agreement, all of the Company’s right, title and interest in and to the purchased accounts receivable. The Company carries credit insurance policy covering all factored accounts receivable, under which the financial institution is the beneficiary on the policy if default were to occur.

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

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.

~~Goodwill and Intangible Assets~~

~~As discussed in~~~~Note2~~ the Company acquired Limecom Inc., which included the acquisition of intangible assets that consisted of client relationships which had an estimated fair value of $3,000. The intangible asset was measured at fair value using an income approach that discounts expected future cash flows to present value. The Company will amortize the intangible assets on a straight-line basis over their expected useful life of 84 months. As of the acquisition date Identifiable intangible assets were recorded as follows:

Asset Amount Life (months)
Client relationships $ 3,000 84
Total $ 3,000 84

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

Year ended December 31,
2019 $ 384
2020 384
2021 384
2023 384
2024 382
Total $ 1,918

Amortization expense was $1,011 (including impairment of $583) and $71 for the years ended December 31, 2018 and 2017, respectively. Amortization expense for each period is included in cost of revenue.

In accordance with ASC Topic 360, 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, 2017 (See Notes 2 and 15).

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

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~~years ended December 31, ~~2017 (See Notes 2~~2020 and ~~15).~~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 Topic 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC Topic 815.

Fair value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC Topic 820, ~~“Fair~~“Fair Value Measurements and Disclosure”, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Fair value, as defined in ASC Topic 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC Topic 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 also provides fair value hierarchy for inputs and resulting measurement as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 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.

~~(FORMERLY NEXT GROUP HOLDINGS, 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), (ii) segregating those gains or losses included in earnings and (iii) a description of where those gains or losses included in earning are reported in the statement of income.

A summary of the changes in derivative liabilities balance for the year ended December 31, 2020 is as follows:

Fair Value of Embedded Derivative Liabilities:
Balance, December 31, 2018	$	33
Change in fair value		(30	)

Balance, December 31, 2019		3
Change in fair value		(3	)

Balance, December 31, 2020	$	-

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
Common stock price		5.7
Expected volatility		220	%
Expected term		0.25 years
Risk free rate		1.55	%
Forfeiture rate		0	%
Expected dividend yield		0	%

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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, 2018								Balance as of December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Marketable securities		79		-		-		79		3		-		-		3
Total assets		79		-		-		79		3		-		-		3

Liabilities:
Stock based liabilities		225		-		-		225		102		-		-		102
Long term derivative value		33		-		-		33
Total liabilities		258		-		-		258		102		-		-		102

Balance as of December 31, 2017
Level 1 Level 2 Level 3 Total
Assets:
Marketable securities 250 - - 250
Total assets: 250 - - 250

Liabilities:
Stock based liabilities 2,963 - - 2,963
Short term derivative value 212 - - 212
Long term derivative value 362 - - 362
Total liabilities 3,537 - - 3,537

	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

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Deferred Revenue

The Company records deferred revenue for any upfront payments received in advance of the Company’s performance obligations being satisfied. These contract liabilities consist principally of unearned new minutes fees. Changes in the deferred revenue balance are driven primarily by the amount of new minutes fees recognized during the period, and the degree to which these reductions to the deferred revenue balance are offset by the deferral of new minutes fees associated with minutes sold during the period.

Non-Controlling Interest

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

Revenue ~~recognition~~Recognition

The Company follows paragraph 605-10-S99 of the FASBAccounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable and (iv) collectability is reasonably assured. The Company primarily generates revenues through the 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 12twelve consecutive months of non-use at which point the Company recognizes revenue from the forfeiture of prepaid minutes. Next Cala generated revenues from commissions earned from Incomm, a leading financial services provider, and NxtGn generated revenues from the sale of voice over IP platform software during the years ended December 31, 2018 and 2017.

Business Segments

The Company operates in a ~~single~~two business segment in ~~telecommunications.~~telecommunications and General Purpose Reloadable Cards.

Income Taxes

Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Use of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code ~~section~~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, ~~2017, the Company had two outstanding convertible notes payable with conversion rights that are exercisable. The amount~~2020, potentially dilutive securities consisted of ~~outstanding principal on these convertible notes total $49 plus accrued interest~~226,356 shares which of ~~$36 for total convertible debts as~~135,200 options to purchase of ~~December 31, 2017~~common stock at prices ranging from $5.22 to $14.35 per share and 54,762 warrants to purchase of ~~$84 representing 26,442 new dilutive~~ common ~~shares if converted~~stock at ~~the applicable rates.~~prices ranging from $8.12 to $20.00 per share. Additionally, the Company had ~~common stock subscriptions~~a Convertible note totaling ~~$400~~$250,000 representing an additional ~~38,195~~36,394 common shares. The effects of these options, warrants and note been excluded as the conversion would be anti-dilutive due to the net loss incurred in the year ended December 31, 2020.

At December 31, 2019, potentially dilutive securities consisted of 105,700 shares which the Company is obligated to issue and 84,818 options to purchase of common stock at prices ranging from $5.23 to $135 per share. Of these potentially dilutive securities, only 105,700 shares which the Company is obligated to issue and 56,000 options to purchase of common stock at price of $6.69 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 33,334 common shares ~~and 116,174 common shares committed but not yet issued.~~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, ~~2017.~~

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(U.S. dollars in thousands, except share and per share data)~~2019.

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.

Advertising Costs

The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred ~~$46~~$88 and ~~$28~~$25 of advertising costs during the years ended December 31, ~~2018~~2020 and ~~2017,~~2019, respectively.

Stock-Based Compensation

The Company applies ASC Topic 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors (including employee stock options under the Company’s stock plans) based on estimated fair values.

ASC Topic 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statement of operations.

The Company recognizes compensation expenses for the value of non-employee awards based on the straight-line method over the requisite service period of each award, net of estimated forfeitures.

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Related Parties

The registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 of the FASB Accounting Standards Codification, the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) ~~Other~~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.

~~(FORMERLY NEXT GROUP HOLDINGS, 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,~~August 2020, the FASB issued ASU ~~2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification~~No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments and its application of ~~Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments~~the derivatives scope exception for contracts 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 thatits own equity. ASU 2020-06 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~~2021, including interim periods within those fiscal years. ~~Early adoption~~The Company is ~~permitted. Organizations should apply~~currently evaluating the ~~proposed amendments either in the period~~provisions 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.~~ASU 2020-06, but do not expect any material impact on our consolidated financial statements.

~~On March 9, 2018~~In December 2019, the FASB issued ASU ~~2018-04, Investments—Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin~~ No. 117 and SEC Release No. 33-9273 (SEC Update). The amendments in this Update supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin No. 117. This amendment is effective upon issuance.

~~On March 14, 2018 the FASB issued~~2019-12, Income Taxes (Topic 740): ~~Amendments to SEC Paragraphs Pursuant to SEC Staff~~Simplifying the Accounting ~~Bulletin No. 118. This amendment is effective upon issuance.~~

~~In June 2018,~~for Income Taxes (“ASU 2019-12”), which simplifies the ~~FASB issued Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this Update expand the scope~~accounting for income taxes by removing certain exceptions and improves consistent application of Topic ~~718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update are~~740. ASU 2019-12 is effective ~~for public business entities~~ for fiscal years beginning after December 15, ~~2018,~~2020, including interim periods within those fiscal years. The Company does not anticipate any immediate impact on its consolidated financial statements upon adoption.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts.

The guidance became effective on January 1, 2020, including interim periods within that ~~fiscal year. Early~~year and requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Under the modified retrospective method of adoption, ~~is permitted, but no earlier than an entity’s adoption date of Topic 606.~~

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, whichprior year reported results are not ~~yet effective but can be early adopted. For entities~~restated. The Company has performed its analysis of the impact on its financial instruments that ~~have not adopted Topic 842 before~~are within the ~~issuance~~scope of this ~~Update, the effective date~~guidance and ~~transition requirements for the amendments in this Update related~~has concluded that there was no material impact 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.its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, ~~Fair~~“Fair Value Measurement (Topic 820)—: Disclosure ~~Framework—~~Framework — Changes to the Disclosure Requirements for Fair Value ~~Measurement. The amendments in this Update improve~~Measurement” (“ASU No. 2018-13”) as part of the ~~effectiveness~~FASB’s broader disclosure framework project. ASU No. 2018-13 removes, modifies and adds certain disclosures, providing greater focus on requirements that clearly communicate the most important information to the users of the financial statements with respect to fair value ~~measurement disclosures and modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based~~measurements. The adoption of ASU No. 2018-13 as of January 1, 2020 did not have a material impact on the ~~concepts in~~Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB ~~Concepts Statement, Conceptual Framework~~issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for ~~Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits.~~Income Taxes. The amendments in this ASU ~~are effective~~simplify the accounting for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted.

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 relatedincome taxes, eliminates certain exceptions to the ~~service contract~~general principles in Topic 740 and ~~which costs~~clarifies certain aspects of the current guidance to ~~expense. For public business entities, the amendments in this~~improve consistent application among reporting entities. ASU ~~are~~2019-12 is 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,~~2021 and interim periods within annual periods beginning after December 15, ~~2021. The Company~~2022, though early adoption is ~~currently evaluating this guidance~~permitted, including adoption in any interim period for which financial statements have not yet been issued. This standard is not expected to ~~determine~~have a material impact to the ~~impact it may have on its~~Company’s consolidated financial ~~statements.~~

statements after evaluation.

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In August ~~2018,~~2020, the FASB issued ASU ~~2018-13, Fair Value Measurement (Topic 820)~~No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): ~~Disclosure Framework – Changes~~Accounting for Convertible Instruments and Contracts in an Entity s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the ~~Disclosure Requirements~~host contract, that meet the definition of a derivative, and that do not qualify for ~~Fair Value Measurement. The amendments apply~~a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to ~~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.~~reduce form-over-substance-based accounting conclusions. 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 are2020-06 will be 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 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 effectivepublic companies for fiscal years beginning after December 15, ~~2019.~~2023, including interim periods within those fiscal years. Early adoption is permitted, ~~and should be applied retrospectively.~~but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating ~~this guidance to determine~~ the impact ~~it may~~that the adoption of ASU 2020-06 will have on ~~its~~the Company’s consolidated financial statement presentation or disclosures.

Other new pronouncements issued but not effective as of December 31, 2020 are not expected to have a material impact on the Company’s consolidated financial statements.

Depreciation expenses were $1 in the years ended December 31, 2020 and December 31, 2019.

NOTE 4 – ~~DISCONTINUED OPERATIONS~~OTHER ACCOUNTS LIABILITIES

The Company has classified its former gift card processing business as a discontinued operation. During the first quarter of 2017, the Company ceased activity in this business segment and disposed of its ownership interest. On April 26, 2017, the Company entered into and completed the sale of the business to an unaffiliated third party.

	December 31, 2020		December 31, 2019
Accrued expenses, interest and other liabilities	$	76	$	201
Accrued salaries, bonuses and wages		2,119		540
Total	$	2,195	$	741

F-24

~~Revenue Recognition for Discontinued Operations~~

Our discontinued operations generated revenue primarily from processing gift cards for local retailers. Commissions were recognized under service agreements with the retailers and recorded as revenue when processing fees were earned.

~~The results of discontinued operations do not include any allocated or common overhead expenses. The results of operations of discontinued operations were as follows:~~

For the Year Ended
December 31,
2017
Revenues $ -

Operating expenses:
Loss on disposal of business 328
Other general and administrative -

Impairment loss -

Loss from discontinued operations $ 328

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5 – ~~PROPERTY AND EQUIPRMNET, NET~~CONVERTIBLE NOTES PAYABLE

~~Property~~

On September 15, 2020, the Company issued a promissory note to Labrys Funds LP for $605 (the “Labrys Note”). The Labrys Note bears interest at a rate of 12% per annum and ~~equipment,~~matures on September 14, 2021. The interest is paid monthly. Payment of principle starts after three months with ability to extend for up to two months and the loan principal become payable on maturity. The Labrys Note bears an original issue discount in the amount of $60, and the issuing expenses were $40, resulting with net ~~consisted~~proceeds of $505. The Company also issued 56,725 shares of its Common Stock pursuant to the Labrys Note. Out of those, 13,200 shares of Common Stock were issued in consideration of the ~~following:~~

December 31,
2018 2017

Office Equipment $ 17 $ 8

Less—accumulated depreciation (4 ) (2 )

$ 13 $ 6

~~Depreciation expenses~~commitment fee and the balance, are subject to return to the Company once the Labrys Note will be paid in full if there were ~~$2 and $0 in the years ended December 31, 2018 and 2017, respectively.~~no defaults.

~~NOTE 6 – OTHER ACCOUNTS LIABILITIES~~

December 31,
2018 December 31,
2017
Settlements payable $ 1,029 $ 892
Accrued expenses and other liabilities 534 741
Dividend Payable (1) 30 30
Accrued salaries and wages 967 329
Total $ 2,560 $ 1,992

~~(1) During the year ended December 31, 2016,~~On November 12, 2020, the Company ~~declared~~issued a ~~special dividend~~convertible promissory note to a private investor in the amount of $250, which matures on ~~its outstanding common stock of one share of Class D Redeemable Preferred Stock. The Class D Redeemable Preferred Stock was not issued as of December 31, 2018 and were cancelled.~~

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 7 – CONVERTIBLE NOTES~~

~~The Company has entered into a series of convertible notes payable to fund operations. While with differing noteholders,~~November 12, 2021. Interest accrues from the ~~terms~~date of the ~~outstanding convertible notes are substantially similar and accrue interest at 8% annually with a default interest rate of 24% and allow for~~note on the ~~conversion of outstanding~~unpaid principal ~~and interest to common stock at a price equal to a 45% to 50% from the lowest trading price in the preceding 20 days.~~

In February 2017, the Company agreed with certain noteholders to extend a redemption freeze agreement whereby the convertible note holders agreed to not convert outstanding principal and accrued interest into common stock for a period of 60 days. Upon the expiration of these agreements, a 90-day extension was executed whereby the noteholders agreed to not convert additional amounts through the first week of July 2017. Under the terms of the extension, each noteholder was granted the right to convert a limited amount ~~of outstanding principal to common stock~~ at a rate equal to ~~the stated rate in the convertible note payable but not less than $0.02~~10.00% per ~~share and extended the due dates~~annum, calculated as simple interest. The holder may elect to convert all or any part of the ~~notes to July 2017. During~~then outstanding principal and accrued but unpaid interest due under the ~~year ended December 31, 2017, the Company accrued a total of $210 of penalties on convertible notes payable which was recorded as a loss on the extinguishment of debt.~~

~~During 2018 and 2017 the Company settled all its convertible notes payable for a combination of cash and~~note into shares of ~~common stock.~~

Common Stock until maturation. The ~~following table summarizes all convertible notes payable activity for the year ended December 31, 2018:~~

Holder Issue Date Due Date Original Principal Balance, December 31,
2017 Gain Penalties Accrued Repayments Conversions to Common Stock Balance, December 31,
2018
Noteholder 5 11/9/2015 11/9/2016 100 49 (10 ) - (12 ) (27 ) -
Totals $ 100 $ 49 $ (10 ) - $ (12 ) $ (27 ) $ -

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~The following table summarizes all convertible notes payable activity for the year ended December 31, 2017:~~

Holder Issue Date Due Date Original Principal Balance, December 31,
2016 Advances Penalties Accrued Repayments Conversions to Common Stock Balance, December 31,
2017
Noteholder 1 11/25/2015 11/24/2016 $ 83 $ 83 $ - $ - $ (47 ) $ (36 ) $ -
Noteholder 1 12/21/2015 12/21/2016 27 27 - - (27 ) - -
Noteholder 1 1/15/2016 1/15/2017 130 130 - - - (130 ) -
Noteholder 1 3/8/2016 3/8/2017 50 50 - - (50 ) - -
Noteholder 1 4/11/2016 4/11/2017 83 83 - - - (83 ) -
Noteholder 1 4/11/2016 4/11/2017 83 83 - - - (83 ) -
Noteholder 1 4/11/2016 4/11/2017 83 83 - - - (83 ) -
Noteholder 1 5/16/2016 5/16/2017 100 100 - 11 - (111 ) -
Noteholder 1 7/22/2016 7/22/2017 50 50 - 5 - (55 ) -
Noteholder 1 8/2/2016 8/2/2017 50 50 - 106 - (156 ) -
Noteholder 2 11/20/2015 11/20/2016 37 37 - - - (37 ) -
Noteholder 3 3/8/2016 3/8/2017 50 14 - - (14 ) - -
Noteholder 3 5/16/2016 5/16/2017 100 100 - - (22 ) (78 ) -
Noteholder 3 7/22/2016 7/22/2017 50 50 - 33 (23 ) (60 ) -
Noteholder 3 3/8/2016 3/8/2017 25 25 - - - (25 ) -
Noteholder 4 1/19/2016 1/15/2017 131 131 - 55 (60 ) (126 ) -
Noteholder 4 3/9/2016 3/8/2017 50 50 - - - (50 ) -
Noteholder 5 11/9/2015 11/9/2016 100 61 - - - (12 ) 49
Noteholder 6 11/2/2016 11/2/2017 52 52 - - - (52 ) -
Noteholder 7 1/2/2017 8/2/2017 70 - 70 - - (70 ) -
Totals $ 1,404 $ 1,259 $ 70 210 $ (243 ) $ (1,247 ) $ 49

~~Accrued Interest~~

~~There was $0 and $35 of accrued interest due on all convertible notes as of December 31, 2018 and 2017, respectively.~~

~~NOTE 8 – DERIVATIVE LIABILITIES~~

~~The Company analyzed the~~ conversion ~~features of the convertible notes payable as discussed in~~~~Note 7 – Notes Convertible Notes~~for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative liability because the exercise prices of these convertible notes are subject to a variable conversion rate with a floor of $6 per share. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion featureprice of the note ~~and recorded a derivative liability.~~is $6.875 per share, which may be proportionately adjusted as appropriate to reflect any stock dividend, stock split, reverse stock split or other similar event affecting the number of outstanding shares of Common Stock of the Company without the payment of consideration to the Company therefor at any time prior to conversion.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model.

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

As of December 31, 2018, and 2017, the Company had a derivative liability of $33 and $574, respectively and recorded a gain from derivative liability fair value adjustment of $514 and a loss of $831 during the years ended December 31, 2018 and 2017, respectively. The derivative liability activity comes from convertible notes payable as discussed in~~Note 7 – Convertible Notes~~. In addition to derivative liabilities associated with convertible notes payable, the Company recorded a derivative liability due to a ratchet strike price feature associated with the options issued in the acquisition of TPP. The options are exercisable at $54 per share unless the Company’s common stock is quoted at a price greater than $150 per share at which point the options are exercisable at $90 per share.

~~A summary of the changes in derivative liabilities balance for the nine months ended December 31, 2018 is as follows:~~

Fair Value of Embedded Derivative Liabilities:
Balance, December 31, 2016 $ 1,210
Initial measurement of derivative liabilities on new convertible notes payable 185
Change in fair value 975
Reclassification due to conversion and repayment (1,796 )
Balance, December 31, 2017 574
Change in fair value (514 )
Change due to conversion (27 )
Balance, December 31, 2018 $ 33

December 31,
2018 December 31,
2017
Common stock price 3.00 17.40
Expected volatility 233 % 178% - 334 %
Expected term 1.25 years .01 - 2.25 years
Risk free rate 2.56 % 0.97% - 1.89 %
Forfeiture rate 0 % 0 %
Expected dividend yield 0 % 0 %

~~A summary of outstanding derivative liabilities as of December 31, 2018 is as follows:~~

Holder Derivative Balance
Option Holder 33
Total $ 33

~~A summary of outstanding derivative liabilities as of December 31, 2017 is as follows:~~

Holder Derivative Balance
Noteholder 5 $ 212
Option Holder 362
Total $ 574

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

NOTE 96 – 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, ~~2018~~2020 and ~~2017.~~2019. 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.~~

~~With~~schedule On January 29, 2019, the ~~exception~~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 ~~Company’s purchase~~balance of ~~a 9% interest in Next Cala, Inc. from a related party and~~ the related party payable balance. On March 5, 2019, Cuentas paid $60,000 to ~~Orlando Taddeo~~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 ~~acquisition~~United States Bankruptcy Court Southern District of ~~Limecom as described below, amounts scheduled below as “due~~Florida, Miami Division, on January 29, 2019.

On July 1, 2020 and pursuant to ~~related parties”~~section 1 (e) of the Side Letter Agreement, dated December 31, 2019, it was agreed by and ~~“due~~among Dinar Zuz, Cima, Arik Maimom and Michael De Prado that the Company will borrow up to $462 from ~~related parties” have not had their terms, including amounts, collection or repayment terms or similar provisions memorialized~~Dinar Zuz LLC under the second Dinar Zuz Note. As of December 31, 2020, the Company borrowed $355 under the second Dinar Note.

On August 25, 2020 and Pursuant to section 1 (e) of the Side Letter Agreement, dated December 31, 2019, it was agreed by and among Dinar, Cima, Arik Maimon and Michael De Prado that the Company will borrow up to $50 from Arik Maimon at an annual interest rate of 9%. On September 30, 2020, the Company fully repaid its loan to Arik Maimon.

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in ~~formalized written agreements.~~thousands, except share and per share data)

Related ~~party~~parties balances at December 31, ~~2018~~2020 and ~~2017~~December 31, 2019 consisted of the following:

~~Related party receivable~~Due from related parties

	December 31, 2018		December 31, 2017		December 31, 2020		December 31, 2019
(a) Glocal Card Services	$	36	$	36
					(dollars in thousands)

(b) Next Cala 360						54		54
Total Due from related parties	$	36	$	36		54		54

Related party payables, net of discounts

December 31,
2018 December 31,
2017
(b) Due to Next Communications, Inc. (current) $ 2,972 $ 2,920
(c) Due to Asiya Communications SAPI de C.V. (current) 26 6
(d) Michael DePrado (current) 100 100
(e) Orlando Taddeo ($1,807 due to the acquisition of Limecom are due on July 21, 2019) 2,613 2,536
(f) Next Cala 360 (current) 14 7
Total Due from related parties $ 5,725 $ 5,569

	December 31, 2020		December 31, 2019
	(dollars in thousands)
(a) Due to Next Communications, Inc. (current)	$	10	$	10
(c) Principal and interest due to Dinar Zuz LLC due to Dinar Zuz LLC		355		-
(d) Due to Cima Telecom Inc.		417		-
Total Due from related parties	$	782	$	10

(a)

~~Glocal Card Services is the Company’s partner in the Glocal Joint Venture~~

~~(b)~~

Next Communication, Inc. is a corporation in which our Chief Executive Officer holds a controlling interest and serves as the Chief Executive Officer. 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. 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 Cuentas Inc. would pay $600 to a specific creditor in consideration for the forgiveness of the balance of the payable balance.

~~(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 DePrado is the Company’s President~~

~~(e)~~

~~Amount due to Orlando Taddeo from the acquisition of Limecom~~

~~(f)~~

Next Cala 360, is a Florida corporation established and managed by the Company’s Chief Executive Officer.

(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)	Due to the April 6, 2020 Loan Agreement with the Company to borrow up to $462 at an annual interest rate of nine percent (9.0%) (the second “Dinar Zuz Note”).

(d)	Composed from annual fees in the amount of $300 for the maintenance and support services in accordance with the software maintenance agreement for the first calendar year from the Effective Date, reimbursement of legal fees in the amount of $65 and other software development services.

During the ~~years~~twelve months period ended December 31, ~~2018 and 2017,~~2020, the Company recorded interest expense of ~~$237 and $237, respectively,~~$0 using an interest rate equal to that on the outstanding convertible notes payable as ~~discussed in~~~~Note 7 – Convertible Notes~~imputed interest on the related party payable due to Next Communications.

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. The interest was immediately forgiven by the related party and recorded to additional paid in capital.

~~Notes Payable, Related Party~~

During the year ended December 31, 2014, the Company entered into two notes with its President to purchase his interest in Next Cala, Inc. and separately his voting control in Next Cala. Inc. During the year ended December 31, 2017, the outstanding principal and accrued interest totaling $295 was agreed to be converted to 29,667 shares of common stock.

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

~~Trade Accounts Receivable, Related Parties~~

Employment Agreements

~~The Company had outstanding accounts receivable~~

On December 27, 2019, the Compensation Committee of ~~$3,006 from related parties as of December 31, 2018 of which $2,959 was due from Rubelite- C (which is a related to one~~ the ~~Company’s shareholders~~Board of the Company approved the amendments to the employment agreements with each of Arik Maimon and ~~a former owner of Limecom), $8 was due from Next Cala 360 and $39 was due from Asiya Communications SAPI de C.V.~~Michael De Prado. The ~~accounts receivable was recorded as a result~~New Employment Agreements shall supersede the terms of the ~~sale of wholesale telecommunications minutes~~Pre-existing Employment Agreements. Pursuant to ~~these entities.~~

~~The Company had outstanding accounts receivable of $ 9 from a related party as of December 31, 2017 which was due from Next Communications. The trade accounts receivable arose from~~ the ~~sale of wholesale telecommunications minutes to this entity.~~

~~Accounts Payable, Related Parties~~

The Company had outstanding accounts payable of $109 to related parties as of December 31, 2018 of which $17 was due to Asiya Communications S.A. de C.V., $67 was due to Airtime Sp.z.o.o. (a subsidiary of one the Company’s shareholdersterms of the ~~Company and a former owner of Limecom) and $25 was due to Next Communication Inc.~~New Employment Agreements, among other things:

~~The Company had outstanding accounts payable of $500 to a related party as of December 31, 2017 which was due to Next Communications.~~

~~Revenues (Related Parties)~~

~~The Company made sales to and generated revenues from related parties of $49,667 and $1,019 during the years ended December 31, 2018 and 2017, respectively, as itemized below:~~

For the Year Ended
December 31,
2018 2017
Next Communications, Inc. 14,310 343
VTX Corporation (a) 11,890 -
Airtime Sp.z.o.o. 5,095 -
Asiya Communications SAPI de C.V. 15,383 672
RUBELITE - C (a) 2,989 -
Next Cala 360 - 4
Total 49,667 1,019

~~(a)~~(1)

~~Corporations that are owned~~Michael De Prado will receive the following compensation: (1) (a) a base salary of $265 per annum which will increase by ~~one~~a minimum $15 or 5% on the 12 month anniversary of his employment agreement; (b) Restricted Stock Units; (c) a minimum grant of 40,000 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 ~~shareholders~~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 ~~a former owner of Limecom~~when in effect.

~~Costs of Revenues (Related Parties)~~

(2)

Arik Maimon will receive the following compensation: (a) a base salary of $295 per 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 40,000 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) a $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.

~~The Company made purchases from related parties totaling $59,217 and $0 during the years ended December 31, 2018 and 2017, respectively, as itemized below:~~

For the Year Ended
December 31,
2018 2017
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 -

(3)

Each of Mr. De Prado and Mr. 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.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

~~NOTE 10 – STOCK OPTIONS~~

(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)

Mr. De Prado will be granted of 35,200 stock options and Mr. Maimon will be granted 44,000 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.

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

~~The following table summarizes all stock option activity for~~

Pursuant to the ~~nine months ended December 31, 2018:~~terms of the New Employment Agreements, among other things:

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

(1)

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

~~The following table discloses information regarding outstanding and exercisable options at December 31, 2018:~~

(2)

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

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

~~The following table summarizes all stock option activity for the year ended December 31, 2017:~~

Shares Weighted-
Average
Exercise
Price
Per Share
Outstanding, December 31, 2016 58,334 $ 54
Granted 72,044 32.4
Exercised - -
Forfeited (25,000 ) 54
Expired - -
Outstanding, December 31, 2017 105,378 $ 39.27

(3)

For each Executive, the term of the Agreement shall end on the earlier of (i) the date that is four months following the Effective Date or (ii) the date that the Company appoints a new president or chief operating officer but the Company can extend the Employment Term on a month to month basis with the approval of both Dinar and CIMA until a new president or chief operating officer is appointed. Upon expiration of the Employment Term (other than a termination by the Company for “Cause”), the Executive will entitled to a special board compensation package with annual compensation equal to the Annual Base Salary (pro-rated for any partial year of service), beginning on the Expiration or Termination Date and ending 18 months later, provided that such payments will cease if the Executive resigns as a member of the Board during such period. The Board Compensation Period may be extended from year to year for an additional 12 months (for up to 36 months in total) if two of three of the then-current chief executive officer of the Company, Dinar and CIMA agree to extend the period for an additional 12 months. The Executive’s right to receive the Special Board Compensation shall be subject to the Board’s determination that he has complied with his obligations under this Agreement. The Executive will remain on the Board until he resigns, is not re-elected or is removed from the Board in accordance with the Company’s practice for removal of directors.

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(4)

(5)

Each of the Executives are entitled to travel and expense reimbursement;

(6)

The Executives have agreed to a one-year non-competition agreement following the termination of their employment.

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

(1)

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

(2)

Mr. Daniel shall have the right, on the same basis as other senior executives of the Company, to participate in and to receive benefits under any of the Company’s employee benefit plans, as such plans may be modified from time to time, and provided that in no event shall Mr. Daniel receive less than (4) four weeks paid vacation per annum and (6) six paid sick and (5) five paid personal days per annum.

(3)

Upon the successful up-listing of the Company’s shares of Common Stock to Nasdaq, Mr. Daniel would be entitled to receive a $100,000 bonus.

(4)

Mr. Daniel have agreed to a one-year non-competition agreement following the termination of their employment.

(5)

If Mr. Daniel’s employment with the Company terminates as a result of a Involuntary Termination, then, in addition to any other benefits described in this Agreement, Mr. Daniel shall receive all compensation bonuses and benefits earned the date of his termination of employment; In addition, Mr. Daniel will be entitled to a lump sum payment equivalent to the remaining Salary due Mr. Daniel to the end of the term of his Employment or six (6) months’ Salary, whichever is the greater;

Consulting Agreement

On December 15, 2020, the Company entered into a consulting agreement with Juan Martin Gomez, who is currently the chief executive officer and a 25% shareholder of CIMA. Pursuant to the Consulting Agreement, Mr. Martin will have access to the Company’s facilities once a week and provide consulting services to the Company, including support for marketing and corporate structuring, for a term of one year, which term may be extended upon satisfactory performance of his duties. In exchange for his consulting services, the Company will pay Mr. Martin a monthly fee of $5.

NOTE 7 – STOCK OPTIONS

The following table summarizes all stock option activity for the year ended December 31, 2020:

	Shares		Weighted- Average Exercise Price Per Share
Outstanding, December 31, 2019		84,818	$	31.97
Granted		79,200		14.35
Forfeited		28,818		81.12
Outstanding, December 31, 2020		135,200	$	11.18

The following table discloses information regarding outstanding and exercisable options at December 31, ~~2017:~~2020:

		Outstanding						Exercisable
Exercise Prices		Number of Option Shares		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)		Number of Option Shares		Weighted Average Exercise Price
$	14.35		79,200	$	14.35		4.24		79,200	$	14.35
	7.50		36,000		7.50		3.71		36,000		7.50
	5.23		20,000		5.23		3.24		20,000		5.23
			135,200	$	11.18		3.68		135,200	$	11.18

CUENTAS, INC.

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 58,334 $ 54.00 2.83 36,111 $ 54.00
21.00 47,044 21.00 2.49 47,044 21.00
105,378 $ 39.27 2.66 83,155 $ 35.40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On ~~September 13, 2018,~~March 30, 2020, the Company issued ~~60,000~~79,200 options to its ~~President and~~ Chief Executive ~~Office.~~Officer and President of the Company. The options carry an exercise price of $3$14.35 per share. ~~A third of~~All the options were vested ~~immediately with the remaining vesting over the course of two years.~~immediately. The Options are exercisable until ~~September 12, 2023.~~March 30, 2022. The Company has estimated the fair value of such options at a value of ~~$302~~$456 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:

Common stock price	~~5.05~~6.35
Dividend yield	0	%
Risk-free interest rate	~~2.87~~1.89	%
Expected term (years)	53
Expected volatility	~~374.26~~328	%

~~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-Scholesfollowing table summarizes all stock 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~~activity for 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~~2019:

	Shares		Weighted- Average Exercise Price Per Share
Outstanding, December 31, 2018		64,818	$	40.23
Granted		20,000		5.23
Forfeited		-		-
Outstanding, December 31, 2019		84,818	$	31.98

The following table discloses information regarding outstanding and exercisable options at December 31, ~~2018.~~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
$	135.00		10,000	$	135.00		0.25		10,000	$	135.00
	52.50		18,818		52.50		1.49		18,818		52.50
	7.50		36,000		7.50		4.71		24,000		7.50
	5.23		20,000		5.23		4.24		20,000		5.23
			84,818	$	31.98		2.75		72,818	$	36.00

On June 26, 2017, the Company issued a total of 47,044 options to certain officers pursuant to employment agreements executed on that date. The options vested immediately and can be exercised for a period of three years at a price of $21. The options were valued using a Black-Scholes model with the following inputs: an exercise price of $21, a stock price at the date of valuation of $.055, a risk-free rate of 1.36%, lives of 3 years and annual volatility of 885%. Annual volatility is derived by computing daily volatility and multiplying it by the square root of the number of trading days in a typical calendar year The Company recorded an expense of $776 related to these options during the year ended December 31, 2017. There is no unrecognized expense associated with these options.

~~Total stock-based compensation expense related to option grants was $1,111 during the year ended December 31, 2017, leaving an unrecognized expense of $223 as of December 31, 2017.~~

~~F-27~~F-30

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 118 – STOCKHOLDERS’ EQUITY

Series B Preferred Stock

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

The Company ~~has~~had 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~~outstanding as of ~~any kind or liquidation, dissolution rights of any kind.~~December 31, 2019. The holders of Series B Preferred Stock ~~shall be~~were entitled to 1,000 votes for each share of Series B Stock that is held when voting together with holders of the Common Stock. On August 21, 2020, in connection with a special meeting of shareholders of the Company, the Company filed with the Secretary of State of the State of Florida the Company’s Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) to, among other things, cause all outstanding shares of Series B Preferred Stock, par value $0.001 per share (the “Preferred Stock”) to be converted into 4,000,000 shares of the Company’s Common Stock. In connection with the conversion of these shares, the Company issued an additional 4,000,000 shares to each of CIMA and Dinar to cover certain anti-dilution rights.

The Company has 36,000,000 shares of Preferred Stock designated as Series D. The Series D Preferred Stock is reserved for the settlement of dividends payable which were $30 as of December 31, 2018 and 2017. The Class D Preferred Stock must be redeemed within six (6) months (or as soon thereafter as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia , Inc. (Next Communications, Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S. District Court for the Southern District of New York or any successor or other lawsuit relating to the subject matter thereof in which the Corporation (or any successor-in-interest) is named as a plaintiff (the “Lawsuit”). There were no Series D Preferred shares issued or outstanding as of December 31, 2018 or 2017.

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, ~~2018~~2020

The following summarizes the ~~common stock~~Common Stock activity for the ~~twelve months~~year ended December 31, ~~2018:~~2020:

Summary of common stock activity for the year ended December 31, ~~2018~~2020	Outstanding shares
Balance, December 31, ~~2017~~2019		~~1,140,398~~1,855,656
Shares issued for ~~common stock~~Common Stock		~~224,233~~32,000
Shares issued ~~as settlement~~due to conversion of Convertible Promissory Note		503,115
Settlement of stock-based liabilities		~~206,811~~26,534
Shares issued to a lender		56,725
Shares issued for services		~~13,333~~36,000
Shares issued ~~for settlement of convertible notes payable and accrued interest~~to employees		~~4,167~~23,333
Shares issued due to conversion of 8,000,000 Series B preferred stock, $0.001 par value shares		8,000,000
Shares issued due to conversion of Warrants		57,128
Balance, December 31, ~~2018~~2020		~~1,588,942~~10,590,491

On January ~~9, 2018,~~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 ~~11,483~~40,000 shares of its ~~common stock~~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 16,000 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 26,534 shares of its Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was ~~$155.~~$459.

~~On February 7, 2018, the Company issued 39,070 shares of its common stock pursuant to a common stock subscription. The fair market value of the shares at the subscription date was $400.~~

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On January 14, 2020, the Company issued 23,334 shares of Common Stock ~~Activity During~~to employees. All shares were issued pursuant to the ~~Year Ended December 31, 2018~~Company’s Share and Options Incentive Enhancement Plan (2016). The Company has estimated the fair value of such shares at $332.

On ~~September 21, 2018,~~February 10, 2019, the Company ~~entered into~~issued 4,000 shares of its Common Stock pursuant to a securities purchase agreement ~~with various purchasers~~between the Company and a private investor, dated October 25, 2018.

On March 3, 2020, Dinar Zuz provided an additional amount of $450 to ~~issue 146,669~~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. The Company issued 462,991 shares of ~~common stock in consideration~~its Common Stock to Dinar Zuz LLC, as a result of ~~$440. One~~a conversion of the ~~purchasers is~~Dinar Convertible Note in the ~~Company’s President and CEO who purchased 16,667 shares. Another purchaser is a current shareholder which controlled by the former owner~~amount of ~~Limecom (a fully subsidiary of the Company), who purchased 16,667 shares.~~ $700.

On ~~December 13, 2018~~April 2, 2020, the Company issued ~~30,001~~28,000 shares of its ~~common stock for~~Common Stock pursuant to a securities purchase agreement between the ~~consideration of $90 which it received of under the same Securities Purchase Agreement which it entered on September 21,~~Company and a private investor, dated October 25, 2018.

On ~~September 27, 2018,~~May 22, 2020, the Company issued ~~13,333~~17,128 shares of its ~~common stock to a consultant,~~Common Stock pursuant to a ~~consulting agreement dated September 18, 2018, in consideration for consulting services. The fair market value~~cashless conversion of ~~the~~warrants to purchase up to 29,232 shares of its Common Stock at ~~grant date was $60.~~an exercise price equal to $8.125 per share.

On ~~September 27, 2018,~~August 20, 2020, the Company issued ~~61,002~~20,000 shares of its ~~common stock~~Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was ~~$335.~~$180.

On ~~October 25, 2018,~~August 27, 2020, the Company ~~received $108 under a private placement of securities closed on October 25, 2018 and issued 35,834~~converted all the outstanding shares of ~~its common stock. The issuance cost was $8.~~

~~On November 20, 2018 and November 28, 2018, the Company received $100 under a private placement of securities closed on December 13, 2018 and issued 36,667~~Series B Preferred Stock, par value $0.001 per share to 4,000,000 shares of ~~its~~the Company’s common stock, ~~and warrants to purchase up to 36,667 shares of its common stock at an exercise price equal to $3.25 per share. The issuance cost was 10$.~~

During December, 2018, the Company received $248 under a private placement of securities closed on December 13, 2018 and issued 82,667 shares of its common stock and warrants to purchase up to 82,667 shares of its common stock at an exercise price equal to $3.25par value $0.001 per share.

On ~~December 13, 2018 and pursuant to a Debt Financing Service Agreement,~~September 17, 2020, the Company issued ~~warrants to purchase up to 74,866 shares~~2,000,000 of its Common Stock ~~at an exercise price~~par value $0.001 per share to each of ~~$3 in consideration for investment banking services. The Warrants are exercisable until February 14, 2024. The Company has estimated the fair value of such warrants at~~Dinar Zuz and Cima Telecom Inc., under a ~~value of $226 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:~~

	%
~~Dividend yield~~		0	%
~~Risk-free interest rate~~		~~2.56~~	%
~~Expected term (years)~~		5
~~Volatility~~		~~225~~	%

~~The Company recorded the fair value of such warrants as General and administrative expenses in the Income Statement of the Company for the year ended at~~warrant dated December 31, ~~2018.~~2019.

On ~~December 28, 2018,~~September 17, 2020, the Company issued ~~134,326~~56,725 shares of its ~~common stock~~Common Stock pursuant to ~~a settlement of stock-based liabilities.~~promissory note, dated September 15, 2020. The fair market value of the shares at the issuance date was ~~$403.~~$390. Out of those, 13,200 shares of Common Stock were issued in consideration of the commitment fee and the balance are subject to return to the Company once the promissory note will be paid in full.

~~During the year ended December 31, 2017,~~On September 30, 2020, the Company issued ~~147,679~~40,000 of its Common Stock par value $0.001 per share to a private investor in consecration of cancellation of warrants to purchase up to 39,734 shares of its Common Stock at an exercise price equal to $8.125 per share.

On November 12, 2020, the Company issued a convertible promissory note to a private investor in the amount of $250, which matures on November 12, 2021. Interest accrues from the date of the note on the unpaid principal amount at a rate equal to 10.00% per annum, calculated as simple interest. The holder may elect to convert all or any part of the then outstanding principal and accrued but unpaid interest due under the note into shares of Common Stock until maturation. The conversion price of the note is $6.87 per share, which may be proportionately adjusted as appropriate to reflect any stock dividend, stock split, reverse stock split or other similar event affecting the number of outstanding shares of Common Stock of the Company without the payment of consideration to the Company therefor at any time prior to conversion. The Company issued such convertible promissory note in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On November 20, 2020, the Company entered into an advisory agreement with an advisor, pursuant to which the advisor will provide certain management consulting services and in consideration the Company will issue to the advisor a five-year warrant to acquire up to 40,000 shares of common stock ~~for the conversion~~ of $1,075 of principal of convertible notes payable and 21,562 shares for the conversion of $195 of accrued interest. The conversion of principal and accrued interest on convertible notes payable to common stock were done so at the contractual terms of each respective agreement. The details of certain issuances of common stock are as follows:

~~On various dates during the year ended December 31, 2017,~~ the Company, exercisable at any time at $8.25 per share, on a cash or cashless basis. The Company issued ~~a total of 10,834 common shares for services totaling $288~~such Warrants in reliance on the exemptions from registration pursuant to ~~various agreements with third parties. The Company valued the common shares using the close price~~Section 4(a)(2) of the ~~stock as listed on the OTCBB on the dates of issuance.~~

~~On October 23, 2017, the Company completed its acquisition of Limecom as discussed in~~~~Note 2.~~~~Pursuant to this agreement, the Company issued 126,667 shares of common stock valued at $950.~~

During the year ended December 31, 2017, the Company accepted common stock subscription agreements from investors for common stock at $7.68 per share. Pursuant to these agreements, the Company issued a total of 8,334 shares of common stock resulting in cash proceeds to the Company of $65.

During the year ended December 31, 2017, the Company issued a total of 2,669 shares of common stock that were committed to be issued during the year ended December 31, 2016. Additionally, the Company reclassified the value of an additional 5,430 shares of common stock committed to be issued during the year ended December 31, 2016 to a liability as of December 31, 2017.

Securities Act.

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

~~Summary of common stock activity for the year ended December 31, 2017~~	~~Outstanding shares~~
~~Balance, December 31, 2016~~		~~822,653~~
~~Shares issued for services~~		~~10,834~~
~~Shares issued committed to be issued during prior year~~		~~2,669~~
~~Shares issued for acquisition~~		~~126,667~~
~~Shares issued for cash~~		~~8,334~~
~~Shares issued for conversion of convertible notes payable and accrued interest (a)~~		~~169,241~~
~~Balance, December 31, 2017~~		~~1,140,398~~

~~(a)~~

~~Shares issued in connection with outstanding convertible notes payable and convertible accrued interest on convertible notes payable in accordance with contractual terms of noteholders as discussed in~~~~Note 7 – Convertible Notes~~.

NOTE ~~12 – CUSTOMER CONCENTRATION~~

As of December 31, 2018, three separate customers accounted for approximately 56% of the Company’s total accounts receivable. As of December 31, 2017, three separate customers accounted for approximately 78% of the Company’s total accounts receivable.

~~NOTE 13~~9 – COMMITMENTS AND CONTINGENCIES

~~On April 7, 2016,~~From time to time, the Company ~~executed an agreement with a service provider~~may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to provide certain services for the Company. In addition to cash and stock compensation, the agreement requires 1% of the outstanding common share equivalent to be issued to the third party when the market capitalization of the Company reaches $500inherent uncertainties, and an additional 1% when it reaches $750. The Company recorded an expense associated with the non-variable portion of the agreement. However, the probability of the Company’s market capitalization reachingadverse result in these ~~thresholds is uncertain at present and the Company has not accrued a contingent fee as of December 31, 2018.~~

~~On February 12, 2018, the Company was served with a complaint~~or other matters may arise 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 relatedtime 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”). The Company believes the amended case is without merit andtime that per its agreement to sell its interest in TPP, any claims brought against AIM or TPP would be the responsibilities of the current interest holders. Due to the original suit being filed against AIM and amended to include the Company after it disposed of its interest in TPP, which had a controlling interest in AIM, we believe it likely the Company and its subsidiaries will be dismissed as defendants.may harm our business.

On December 20, 2017, a ~~Complaint~~complaint was filed by J. P. Carey Enterprises, Inc., (“JP Carey”) alleging a claim for ~~$473~~$473,000 related to ~~the~~ Franjose Yglesias-Bertheau, ~~filed lawsuit against PLKD listed above.~~a former Vice President of PLKD. Even though the Company made the agreed payment of ~~$10~~$10,000 on January 2, 2017, and issued ~~12,002~~6,001 shares of Common Stock as conversion of the ~~$70~~$70,000 note as agreed in ~~the~~its settlement agreement, ~~the Plaintiff~~JP Carey alleges damages ~~which~~that the Company claims are without merit because ~~they~~JP Carey received full compensation as agreed. The Company is in the process of defending itself against these claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On January ~~28,~~29, 2019, ~~J. P. Carey Enterprises, Inc. filed a similar claim against the Company in Fulton County, Georgia. The Company is vigorously defending its position in this case.~~

During 2016, Limecom had disputed accounts payable with three (3) carriers, for which the Company entered into separate settlement agreements, totaling approximately $1,147. Under the terms of these settlement agreements, the Company was ~~provided~~served with ~~extended payment terms on~~another complaint by JP Carey claiming similar issues as to the ~~outstanding balances. These settlement agreements are non-interest bearing~~previous complaint, with the new claimed damages totaling $1,108,037.85. JP Carey and ~~include certain default provisions~~the Company filed motions for a summary judgment. On June 23, 2020, the case was transferred to the Business Court at the request of the Superior Court Judge previously assigned to the case. Judge Ellerbe from the Business Court has been assigned as ~~disclosed~~the new judge. On October 1, 2020, the court granted the Company’s motion for summary judgment and denied JP Carey’s motion for summary judgment. On October 30, 2020, JP Carey filed a notice of appeal to the trial court’s October 1 and 7, 2020 orders granting summary judgment in favor of Cuentas. The current briefing schedule calls for briefing in the ~~related agreements.~~ appeal to be completed during the first quarter of 2021. Oral argument may be held, but no date for it has been set yet. On November 16, 2020, Cuentas filed a motion seeking payment from JP Carey of $140,970.82 in attorney fees and costs accrued as of November 13, 2020. JP Carey’s response brief was due on December 21, 2020 and thereafter Cuentas may reply. The trial court has not yet set a date to hear this motion.

On October 23, ~~2017,~~2018, the Company was served by Telco Cuba Inc. for an amount in excess of $15,000 but the total amount was not specified. The Company was served on December 7, 2018, with a complaint alleging damages including unspecified damages for product, advertising and other damages in addition to $50,000 paid to the Defendants. The Company retained an attorney and has taken steps to defend itself vigorously in this ~~liability~~case. Depositions are in process of being scheduled.

On October 25, 2018, the Company was ~~$676.~~served with a complaint by former company Chief Financial Officer, Michael Naparstek, claiming breach of contract for 833,333 shares (pre-2018 reverse stock split), $25,554 of compensation and $8,823 of expenses. This case was withdrawn in Palm Beach County and on January 11, 2019, a similar complaint was filed in Miami-Dade County. During the recent mediation, the Parties reached an understanding of full settlement amount of $2,500. The Company has deposited the settlement amount to an escrow account of its counsel until a stipulation of settlement will be executed by both parties.

On November 7, 2018, the Company and its now former subsidiary, Limecom, ~~repaid $10 from~~were served with a complaint by IDT Domestic Telecom, Inc. for telecommunications services provided to Limecom during 2018 in the ~~date~~amount of ~~acquisition through December 31, 2017 and $95 during the nine months ended September 30, 2018.~~$50,000. The ~~remaining outstanding principal balance of these settlement agreements amounted to approximately $571 and $666~~Company has no accrual expenses as of December 31, ~~2018and December 31, 2017, respectively. Of these totals, $571~~2019, related to the complaint given the early nature of the process. Limecom was a subsidiary of the Company during this period but since the Limecom Acquisition was rescinded on January 30, 2019, and ~~$546~~Limecom agreed to indemnify and hold harmless the Company from this and other debts. The Company retained an attorney and is defending itself vigorously in this case. A court ordered mandatory arbitration session took place and the arbitration findings were issued on June 19, 2020, and a request for trial de novo was filed on July 16, 2020, in order to have the matter docketed on the calendar. The court came to the determination that while not indicative of success at trial, the court denied Plaintiff’s motion for summary judgment. As of this time, there is a current ~~and included in accrued liabilities and $0 and $120 is long term and represented by other long-term liabilities as of December 31, 2018and December 31, 2017, respectively.~~trial date set for March 15, 2021

On May 1, 2019, the Company received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP), who allegedly had a Reciprocal Carrier Services Agreement (“RCS”) exclusively with Limecom and not with Cuentas. The arbitration demand originated from another demand for arbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,052,838.09 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On June 5, 2020, SecureIP filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company. The complaint primarily concerns alleged indebtedness owed SecureIP by Limecom. SecureIP also alleges that Cuentas received certain transfers of funds which it alleges may be an avoidable transfer under Florida Statute §725.105 up to $1,052,838.09. Cuentas is contemplating filing a motion to dismiss the complaint and disputes that it received the alleged $1,052,838.09 from Limecom. Moreover, to the extent Cuentas has exposure for any transfers from Limecom, both Limecom and Heritage have indemnified Cuentas for any such liability. 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.

CUENTAS, INC.

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On August 9, 2018, Limecom was served with a complaint by Spectrum Intelligence Communications Agency LLC (SICA) whereby SICA claims that Limecom owes them a total of $439. Limecom is in the process of defending and potentially negotiating a settlement with SICA. The Company is not listed as a Defendant in this matter.

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.

~~On October 23, 2017, the Company assumed a settlement liability Limecom had entered into with American Express as part of its acquisition as discussed in~~~~Note 1 – Organization and Description of Business.~~As of the date of acquisition, there was a total outstanding balance of $995,158. The Company made repayments totaling $102,727 from the period of October 23, 2017 to December 31, 2017 leaving a remaining balance due of $892,431 as of December 31, 2017. The balance due is included in accrued liabilities as of December 31, 2017.

On November 7, 2018, the Company was served with a complaint by a service provider claiming Breach of Contract for $29. The Company has not accrued any losses as of December 31, 2018 related to the complaint given the early nature of the process.

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, 2018 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.

~~The Company executed a lease for office space effective July~~NOTE 10 ~~2018 with a term to October 31, 2018. The lease requires monthly rental payments of $5. Total future guaranteed payments under this lease are $5.~~

~~NOTE 14~~ – INCOME TAXES

OnEffective December 22, 2017 ~~the U.S. enacted~~a new tax ~~reform legislation which~~bill was signed into law that reduced the ~~corporate~~federal income tax rate for corporations from 35% to 21% ~~effective~~. The new bill reduced the blended tax rate for ~~tax year beginning January 1, 2018.~~the Company from 39.50% to 26.50%. Under FASB ASC Topic 740, the effects of new tax legislation are recognized in the period which includes the enactment date. As a result, the deferred tax assets and liabilities existing on the enactment date must be revalued to reflect the rate at which these deferred balances will reverse. The corresponding adjustment would generally affect the Income Tax Expense (Benefit) shown on the financial statements. However, since the company has a full valuation allowance applied against all of its deferred tax asset, there is no impact to the Income Tax Expense for the year ending December 31, ~~2018.~~2020.

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

We recognized income tax benefits of $0 ~~and $1,087~~ during the years ended December 31, ~~2018~~2020 and ~~2017. The income tax benefit recognized during the year ended~~ December 31, 2017 is the result of releasing a portion of the Company’s valuation allowance against its deferred tax asset equal to the amount of net deferred tax liability assumed with our acquisition of Limecom as discussed in~~Note 2.~~2019. 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. 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%.

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

The SEC has issued guidance in Staff Accounting Bulletin No. 118 that allows for a measurement period of up to one year after the enactment date of the 2017 Tax Reform to finalize the recording of the related tax impacts. The Company currently anticipates finalizing and recording any resulting adjustments by the end of fiscal year 2018.

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 ~~2018~~31, 2020 or ~~2017~~December 31, 2019 applicable under FASB ASC Topic 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company remain open.

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

	Year ended December 31,						Year ended December 31,
	2018			2017			2020			2019
Loss before taxes, as reported in the consolidated statements of operations	$	3,585		$	1,812		$	7,483		$	1,286

Federal and State statutory rate		26.5	%		39.5	%		26.5	%		26.5	%

Theoretical tax benefit on the above amount at federal statutory tax rate		950			715			1,982			341

income tax benefit due to the acquisition of Limecom		-			1,087

Losses and other items for which a valuation allowance Was provided or benefit from loss carry forward		(950	)		(1,802	)
Losses and other items for which a valuation allowance was provided or benefit from loss carry forward								(1,982	)		(341	)

Actual tax income (expense)		-			-			-			-

CUENTAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	2018			2017			2020			2019
	U.S. dollars in thousands						U.S. dollars in thousands
Deferred tax assets:
Net operating loss carry-forward	$	2,015		$	962		$	3,185		$	1,830
Adjustments		(578	)		(219	)		(315	)		(163	)
Valuation allowance		(1,437	)		(743	)		(2,870	)		(1,667	)
	$	-		$	-		$	-		$	-

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Management has determined, based on its recurring net losses, lack of a commercially viable product and limitations under current tax rules, that a full valuation allowance is appropriate.

U.S. dollars in thousands
Valuation allowance, December 31, 2017 $ 743
Increase 694
Valuation allowance, December 31, 2018 $ 1,437

	U.S. dollars in thousands
Valuation allowance, December 31, 2019	$	1,667

Increase		1,203
Valuation allowance, December 31, 2020	$	2,870

��

The net federal operating loss carry forward will begin expire in ~~2038.~~2039. This carry forward may be limited upon the consummation of a business combination under IRC Section 382.

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

NOTE 1511 – SUBSEQUENT EVENTS

On January ~~29, 2019, the Company and Heritage agreed to extend the right of the Company to rescind at its option, to sell back the stock in Limecom back to Heritage in consideration for the following:~~

~~(a) The 138,147 shares of~~28, 2021, the Company issued ~~to Heritage and its Stockholders will not be returned to the Company, and the remaining 34,537~~20,000 shares of ~~the Company will not be issued~~its Common Stock to ~~Heritage. Instead, it was agreed that the Company will issue an additional 90,000~~its Chief Financial Officer, 40,000 shares of ~~the Company as directed by Heritage. The Company also agreed~~its Common Stock to ~~issue 20,740 shares~~a member of the ~~Company’s restricted stock to several Limecom employees in exchange for salaries due to them.~~

~~(b) The $1,807 payment under the Limecom Purchase Agreement will be cancelled.~~

~~(c) The Employment Agreement with Orlando Taddeo as International CEO~~Board of ~~Limecom will be terminated.~~

~~(d) Heritage and the Limecom agreed that the intercompany loans in the amount of $231 will be cancelled.~~

~~On January 30, 2019, Cuentas sent an executed document to Limecom rescinding the acquisition of Limecom, Inc. (“Limecom”) according to the Amendment signed January 29, 2019.~~

~~Pro forma results~~

~~The following are unaudited pro forma financial information for the years ended December 31, 2018 and 2017 presents the condensed consolidated and combined statements of operations~~Directors of the Company and the rescission of the acquisition described above, as if the acquisitions had not occurred. The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s condensed consolidated and combined statements of operations that would have been reported had these acquisitions 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 2017
Revenues $ 1,302 $ 2,149
Net Income (Loss) before controlling Interest 41 (3,212 )
Net Income (Loss) 65 (3,196 )
Basic and diluted net income (loss) earnings per common share 0.05 $ (3.54 )

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 Cuentas Inc. would pay $600 to a specific creditor in consideration for the forgiveness of the balance of the payable balance.

~~On January 7, 2019, the Company issued 16,667~~2,933 shares of its ~~common stock pursuant~~Common Stock to a ~~Securities Purchase Agreement which it entered on September 21, 2018. The fair market value of the shares at the subscription date was $50.~~

~~CUENTAS, INC.~~

~~(FORMERLY NEXT GROUP HOLDINGS, INC.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

On January 7, 2019, the Company received $50 under a private placement of 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 closed on December 13, 2018.

~~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 its common stock pursuant to a settlement of stock-based liabilities.~~former employee. The fair market value of the shares was ~~$464.~~$459.

On January 28, 2021, the Company filed Articles of Amendment to the Articles of Incorporation of the Company with the Secretary of State of Florida, pursuant to which, effective as of February 2, 2021, the Company effected a 1-for-2.5 reverse split of its authorized and issued and outstanding shares of Common Stock.

On February 2, 2021 the Company’s common stock and warrants began trading on The Nasdaq Capital Market under the symbols “CUEN” and “CUENW,” respectively. On February 4, 2020 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of February 1, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Representative” or “Maxim”), as representative of the sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company granted Maxim a 45-day option to purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in connection with the Offering. The Common Stock and the Warrants were offered and sold to the public pursuant to the Company’s registration statements on Form S-1 (File Nos. 333-249690 and 333-252642), filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), on October 28, 2020, as amended, and which became effective on February 1, 2021. The Company received gross proceeds of approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated Offering expenses, and intend to use the net proceeds from the Offering for sales and marketing; purchase of chip-based debit card stock for GPR and Starter cards; repayment of outstanding loans; research and development; and working capital and operating expenses purposes. The Underwriting Agreement contains customary representations, warranties, and covenants by the Company. It also provides for customary indemnification by each of the Company and the Underwriter for losses or damages arising out of or in connection with the offering, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement, certain existing stockholders and each of the Company’s directors and executive officers entered into “lock-up” agreements with the Underwriter that generally prohibit the sale, transfer, or other disposition of securities of the Company for a period of 180 days following February 1, 2021. The Company has also agreed that it will not issue or announce the issuance or proposed issuance of any common stock or common stock equivalents for a period of 180 days following the closing date, other than certain exempt issuances. Pursuant to the Underwriting Agreement, the Company also agreed to issue to Maxim warrants (the “Underwriter’s Warrants”) to purchase up to a total of 223,256 shares of Common Stock (8% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $5.375 per share of Common Stock and have a term of five years. The Underwriter’s Warrants are subject to a lock-up for 180 days from the commencement of sales in the Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and will be non-exercisable for six months after February 1, 2021. In addition, pursuant to the Underwriting Agreement, the Company granted Maxim a right of first refusal, for a period of twelve months from the commencement of sales in the Offering, to act as sole managing underwriter and bookrunner any and all future public or private equity, equity-linked or debt (excluding commercial bank debt) offerings. The total expenses of the offering are estimated to be approximately $1.4 million, which included Maxim’s expenses relating to the offering.

On February ~~28, 2019, The~~4, 2021, the Company ~~signed~~also entered into a ~~Binding Term Sheet~~Warrant Agency Agreement with ~~Optima Fixed Income LLC~~Olde Monmouth Stock Transfer Co., Inc. (“~~Optima”~~Warrant Agency Agreement”), pursuant to which Olde Monmouth Stock Transfer Co., Inc. agreed to act as transfer agent with respect to the Warrants.

On February 24, 2021, the employment agreement dated July 24, 2020 for Arik Maimon expired in accordance with its terms and as previously disclosed by the Company. As a ~~total investment~~result of ~~$2,500 over one year and received~~ the ~~first deposit~~expiration of ~~$500 on~~ the ~~same date. Under~~employment agreement, Mr. Maimon was no longer employed as the ~~Binding Term Sheet, it was agreed that~~Chief Executive Officer of the ~~initial invested amount~~Company, but he continued to act as Chairman of ~~$500 will in consideration~~the Board of ~~166,667 shares of Common Stock~~Directors of the Company. ~~It was also agreed that Optima may~~On February 25, 2021, the Board appointed Mr. Maimon to act as interim Chief Executive Officer, which position will terminate upon the earlier of August 25, 2021 or the date on which his successor is duly elected and appointed by the Board of the Company.

On February 24, 2021, the employment agreement dated July 24, 2020 for Michael De Prado expired in accordance with its terms and as previously disclosed by the Company. As a result of the expiration of the employment agreement, Mr. De Prado is no longer the President of the Company but has become the Vice Chairman of the Board.

On February 12 2021 the Company prepaid its loan to Labrys and Labrys returned the Second Commitment shares to the Company.

On March 4, 2021 and pursuant to the Underwriting Agreement, Maxim exercised its 45-day option to purchase up to 418,604 additional Warrants, to cover over-allotments in connection with the Offering.

On March 5,2020 Furthermore, and pursuant to the Side Letter Agreement, the Board of Directors of the Company approved a ~~Convertible Note~~special bonus in the amount of ~~$2,000, which may be funded on a quarterly basis. The term~~$500 to each of Mr. Maimon and Mr. De Prado due to the successful up-listing of the ~~Convertible Note shall be three years and it may be converted with a discount of 25%~~Company’s shares on the ~~share price at date~~Nasdaq Capital Markets. The bonus will be paid half in cash and half in Common shares of ~~conversion, but in any case, not less than $3 per share. In any case,~~ the ~~total investment in~~Company

On March 5, 2021 the Company ~~shall be not be less than 25% of the outstanding shares at the first anniversary of this Binding Term Sheet.~~

prepaid its loan to Dinar Zuz.

(b)

Exhibits

			Incorporated by reference
Exhibit Number	Exhibit Description	Filed herewith	Form	Period ending	Exhibit	Filing date
3.1	Amendment No. 16 to the Articles of Incorporation of the Company, Filed with the Florida Department of State on August 6, 2018		8-K/A		3.17	2020-04-24
3.2	Amended and Restated Articles of Incorporation, filed with the Florida Department of State on August 21, 2020.		8-K		3.1	2020-08-21
3.3	Amended and Restated Bylaws, dated August 21, 2020.		8-K		3.2	2020-08-21
	Articles of Amendment to Articles of Association, dated January 28, 2021.		8-k		3.1	2021-01-05
3.4	Amended and Restated Bylaws, dated August 21, 2020.	X
4.1	Underwriter’s Warrant, dated February 4, 2021.		8-k		4.1	2021-01-05
10.1	Promissory Note between Dinar Zuz LLC and Cuentas Inc. and Maimoun & Mammon LLC.		10-Q		10.1	2020-05-14
10.2	Credit Agreement between Dinar Zuz LLC and Cuentas Inc. and Maimoun & Mammon LLC.		10-Q		10.2	2020-05-14
10.3	Amended and Restated Agreement with Michael A. De Prado, dated July 24, 2020		8-K		10.1	2020-07-30
10.4	Amended and Restated Agreement with Arik Maimon, dated July 24, 2020		8-K		10.2	2020-07-30
10.5	$605,000 Promissory Note, dated September 15, 2020, issued by the Company to Labrys Fund, LP.		10-Q		10.3	2020-11-13
10.6	Securities Purchase Agreement and to the $605,000 Promissory Note, dated September 15, 2020, by and between the Company and Labrys Fund, LP.		10-Q		10.4	2020-11-13
10.7	Convertible Promissory Note, dated November 21, 2020, issued by Cuentas Inc. to Arie Gershonie	X
10.8	Bill Payment Processing And Prepayment Of Accounts Agency Agreement by and between Corporación en Investigación Tecnológica e Informática, S.A.P.I. de C.V and Cuentas, Inc., dated as of November 27, 2020 incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on December 15, 2020.		8-K		10.1	2020-12-15
10.9	Western Union North America Agency Agreement, by and between Western Union Financial Services, Inc. and Cuentas, Inc., dated as of December 8, 2020.		8-K		10.1	2020-12-17
10.10	Underwriting Agreement, dated February 1, 2021, by and between the Company and Maxim Group LLC, as representative of the several underwriters.		8-k		1.1	2021-02-05
10.11	Warrant Agency Agreement, dated February 4, 2021, by and between the Company and Olde Monmouth Stock Transfer Co., Inc.		8-k		10.1	2021-02-05
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act	X
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act	X
32.1	Certification Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act	X
32.2	Certification Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act	X
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase	X
101.LAB	XBRL Taxonomy Extension Label Linkbase	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	X

ITEM 16.

~~Incorporated by reference~~FORM 10-K SUMMARY

~~Exhibit~~

~~Number~~

~~Exhibit Description~~

~~Filed~~

~~herewith~~

~~Form~~

~~Period~~

~~ending~~

~~Exhibit~~

~~Filing date~~

~~31.1~~

~~Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act~~

~~31.2~~

~~Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act~~

~~32.1~~

~~Certification Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act~~

~~32.2~~

~~Certification Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act~~

~~101.INS~~

~~XBRL Instance Document~~

~~101.SCH~~

~~XBRL Taxonomy Extension Schema~~

~~101.CAL~~

~~XBRL Taxonomy Extension Calculation Linkbase~~

~~101.DEF~~

~~XBRL Taxonomy Extension Definition Linkbase~~

~~101.LAB~~

~~XBRL Taxonomy Extension Label Linkbase~~

~~101.PRE~~

~~XBRL Taxonomy Extension Presentation Linkbase~~

None.

SIGNATURES

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

	Cuentas, Inc.

	By:	/s/ Arik Maimon
		Arik Maimon,
		Chairman of the Board of Directors and Interim Chief Executive Officer
		Date: ~~April 15, 2019~~March 24, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Arik Maimon	Chairman of the Board of Directors and Interim Chief Executive Officer ~~and Director~~	~~April 15, 2019~~March 24, 2021
Arik Maimon

/s/ Ran Daniel	Chief Financial Officer	~~April 15, 2019~~March 24, 2021
Ran Daniel

/s/ Michael De Prado	~~President~~Vice Chairman and Director	~~April 15, 2019~~March 24, 2021
Michael De Prado

/s/ Adiv Baruch	~~Chief Strategy Officer and~~ Director	~~April 15, 2019~~March 24, 2021
Adiv Baruch

/s/ ~~Natali Dadon~~Yochanon Bruk	Director	~~April 15, 2019~~March 24, 2021
~~Natali Dadon~~Yochanon Bruk

/s/ Richard J. Berman	Director	~~April 15, 2019~~March 24, 2021
Richard Berman

/s/ Jeff Lewis	Director	March 24, 2021
Jeff Lewis

/s/ David B. Schottenstein	Director	March 24, 2021
David B. Schottenstein

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

Common Stock, par value $0.001 per share	CUEN	The Nasdaq Stock Market LLC

Warrants, each exercisable for one share of Common Stock	CUENW	The Nasdaq Stock Market LLC

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐☒	Smaller reporting company	☒
		Emerging growth company	☐

		Page
PART I

Item 1.	Business	1
Item 1A.	Risk Factors	514
Item 1B.	Unresolved Staff Comments	525
Item 2.	Properties	525
Item 3.	Legal Proceedings	525
Item 4.	Mine Safety Disclosures	26

PART II

Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	727
Item 6.	Selected Financial Data	930
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1030
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	1738
Item 8.	Financial Statements and Supplementary Data	1738
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	1838
Item 9A ~~(T)~~	Control and Procedures	1839
Item 9B.	Other Information	1939

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	2040
Item 11.	Executive Compensation	2345
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	2448
Item 13.	Certain Relationships and Related Transactions, and Director Independence	2550
Item 14.	Principal Accounting Fees and Services	2552

PART IV

Item 15.	Exhibits, Financial Statement Schedules	2553
Item 16.	Form 10-K Summary	2554

●	our ability to implement our business plan;

●	our ability to attract key personnel;

●	our ability to operate profitably;

●	our ability to efficiently and effectively finance our ~~operations, and/or purchase orders;~~operations;

●	~~inability~~our ability to raise additional financing for working capital;

●	~~inability~~our ability to efficiently manage our operations;

●	~~the fact~~ that our accounting policies and methods ~~are fundamental to how we report our financial condition and results of operations, and they~~ may require management to make estimates about matters that are inherently uncertain;

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

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

●	~~Meimoun & Mammon, LLC (100% owned by the Company), a limited liability company formed under the laws of Florida (“M&M”);~~

●	~~Next CALA, Inc. (94% owned by the Company), a corporation formed under the laws of Florida (“Next CALA”);~~

●	~~NxtGn, Inc. (65% owned by the Company), a corporation formed under the laws of Florida (“NxtGn”);~~

●	~~Next Mobile 360 LLC (100% owned by the Company), a limited liability company formed under the laws of Florida (“Next Mobile”); and~~

●	~~SDI Next Distribution LLC (“SDI Next”), a limited liability company formed under the laws of Florida (51% owned by the Company)~~

Direct ACH Deposits	ATM Cash Withdrawal	Bill Pay and Online Purchases
Debit Card Network Processing	Peer to Peer Payments	Cash Reload at over 50,000 retailers
Online banking	Transit Authority Fare Recharges	Discounted Gift Cards

Common Stock

Year Ended December 31, 2018	High		Low
First Quarter	$	6.00	$	1.48
Second Quarter	$	9.90	$	3.45
Third Quarter	$	12.01	$	7.24
Fourth Quarter	$	17.40	$	7.80

Common Stock

Year Ended December 31, 2017	High		Low
First Quarter	$	19.50	$	5.61
Second Quarter	$	18.30	$	8.70
Third Quarter	$	42.87	$	12.30
Fourth Quarter	$	12.36	$	4.14

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

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		135,200		11.18		-
Equity compensation plans not approved by security holders		-		-		-
Total		135,200		11.18		-

Name	Age	Position

Arik Maimon	4345	Chairman of the Board of Directors and Interim Chief Executive Officer ~~and Director~~

Ran Daniel	5052	Chief Financial Officer

Michael De Prado	4851	~~President~~Vice Chairman and Director

Adiv Baruch	5657	~~Chief Strategy Officer and~~ Director

Richard J. Berman	7677	Director

~~Natali Dadon~~Yochanon Bruk	3142	Director

Jeff Lewis	61	Director

David B. Schottenstein	37	Director

(a) Name and Principal Position	(b) Year	(c) Salary		(d) Bonus		(f) Option Awards		(g) Non-equity incentive plan compensation		(h) Nonqualified deferred compensation earnings		(i) All Other Compensation		(j) Total Compensation		(b) Year	(c) Salary		(d) Bonus		(f) Option Awards		(g) Non-equity incentive plan compensation		(h) Nonqualified deferred compensation earnings		(i) All Other Compensation		(j) Total Compensation
Arik Maimon	2018	$	180,000	$	80,000	$	302,984		-		-	$	30,000	$	592,984	2020	$	295,000	$	500,000	$	253,333	$	-	$	-	$	5,000	$	1,053,333
CEO	2017		180,000	$	70,000	$	703,169		-		-		28,000	$	981,168	2019		180,000	$	93,740	$	-	$	-	$	-	$	10,000	$	283,740

Adiv Baruch	2018	$	110,000											$	110,000
Director and CSO	2017

Michael De Prado	2018	$	130,000	$	80,000	$	-		-		-	$	22,000	$	232,000	2020	$	265,000	$	500,000	$	202,667	$	-	$	-	$	4,000	$	971,667
President	2017		130,000	$	70,000	$	73,033		-		-	$	24,000	$	297,033	2019		130,000	$	93,740	$	-	$	-	$	-	$	6,000	$	229,740

Ran Daniel	2018	$	5,000		-		-		-		-		-	$	5,000	2020	$	162,000	$	100,000	$	-	$	-	$	-	$	179,452	$	441,952
CFO	2017		-		-		-		-		-		-		-	2019	$	175,500	$	-	$	102,991	$	-	$	-	$	-	$	278,941

Bonus Percentage		Cash Consideration Received by Stockholders
0%		Less than $150 million
1% (one percent)		$150 million or more
2.5% (two and one-half percent)		$250 million or more
3.75% (three and three-fourths percent)		$500 million or more
5% (five percent)		$1 Billion or more

Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)	Number of Securities Underlying Unexercised Options (#) Unexercisable (c)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)	Option Exercise Price ($) (e)	Option Expiration Date (f)	Number of Shares or Units of Stock That Have Not Vested (#) (g) (9)	Market Value of Shares or Units of Stock That Have Not Vested ($) (h)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j)

Arik Maimon	68,000	-	-	11.93	44,000 options at March 29,2025 and the reminder at September 12, 2023	-	-	-	-

Michael De Prado	35,200	-	-	14.35	March 29,2025	-	-	-	-

Ran Daniel	20,000	-	-	5.29	April 6,2024	-	-	-	-

Beneficial Owner	Address	Percent of Class (**)			Number of Shares Beneficially Owned (*)
Arik Maimon	19 W. Flagler St, Suite 902		19.83	%		301,763
CEO	Miami, FL 33130

Michael De Prado	19 W. Flagler St, Suite 902		5.44	%		82,782	***
President	Miami, FL 33130

Adiv Baruch	19 W. Flagler St, Suite 902		2.19	%		33,334
Chief Strategy Officer and Director	Miami, FL 33130

Natali Dadon	4019 194^th Trail		1.00	%		15,217
Director	Golden Beach, FL 33160

Orlando Taddeo	19 W. Flagler St, Suite 902		8.59	%		130,669
President of Limecom

Harrison Vargas	10007 Vestal Place		7.14	%		104,310
	Coral Springs, Florida 33071

Richard J. Berman Director	19 W. Flagler St, Suite 902 Miami, FL 33130		0.66	%		10,000

All Directors and Officers as a Group (4 persons)			44.85	%		678,075

●	earnings;

Beneficial Owner	Address	Number of Shares Beneficially Owned		Percent of Class (1)
Arik Maimon (2)	200 S. Biscayne Blvd., Suite 5500		1,688,967		10.01%
CEO	Miami, FL 33131

Michael De Prado (3)	200 S. Biscayne Blvd., Suite 5500		798,229		4.73%
President	Miami, FL 33131

Adiv Baruch (4)	200 S. Biscayne Blvd., Suite 5500
Director	Miami, FL 33131		63,334		0.38%

CIMA Telecom Inc. (5)	1728 Coral Way, 6^th Floor
	Miami, Florida 33145		2,702,991		16.02%

Ran Daniel (6)	200 S. Biscayne Blvd., Suite 5500 Miami, FL 33131		40,000		0.24%

Jeff Lewis (7)	200 S. Biscayne Blvd., Suite 5500 Miami, FL 33131		6,667		0.04%

David B. Schottenstein	200 S. Biscayne Blvd., Suite 5500 Miami, FL 33131		-		-

Huseyin Kizanliki	1111 Brickell Ave., Suite 2200 Miami, FL 33131		1,087,442		6.45%

Richard J. Berman (8) Director	200 S. Biscayne Blvd., Suite 5500 Miami, FL 33131		22,000		0.22%

Yochanon Bruk (9)	1898 NW 74th Ave. Pembroke Pines, FL 33024		2,703,391		16.02%

All Directors and Officers as a Group (7 persons)			5,322,588		31.55%

5% or More Shareholders CIMA Telecom Inc. (5)	1728 Coral Way, 6^th Floor Miami, Florida 33145		2,703,391		16.02%

Dinar Zuz LLC (9)	1898 NW 74th Ave. Pembroke Pines, FL 33024		2,703,391		02%

	Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS	F-2

CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance ~~sheets~~Sheets as of December 31, ~~2018,~~2020, and December 31, ~~2017~~2019	~~F-3~~
~~Consolidated Statements of operations for the years ended December 31, 2018 and 2017~~	F-4
Consolidated Statements of ~~comprehensive loss~~Comprehensive for the years ended December 31, ~~2018~~2020 and ~~2017~~December 31,2019	F-5
Statements of ~~changes~~Changes in ~~stockholders’ equity deficit~~Stockholders’ Equity for the years ended December 31, ~~2018~~2020 and ~~2017~~December 31, 2019	F-6
Consolidated Statements of ~~cash flows~~Cash Flows for the years ended December 31, ~~2018~~2020 and ~~2017~~December 31, 2019	F-8
Notes to ~~consolidated financial statements~~Consolidated Financial Statements	F-9

									Common																			Non-Controlling Interest
	Series B Preferred								Stock to					Common		Additional						Other			Total			Additional						Total Non-
	Stock				Common Stock				be Issued					Stock		Paid-in			Accumulated			Comprehensive			Stockholders’			Paid-in			Accumulated			Controlling
	Shares		Amount		Shares		Amount		Shares			Amount		Subscribed		Capital			Deficit			Loss			Deficit			Capital			Deficit			Interest			Total
Balance December 31, 2016		10,000,000		10		822,653		1		8,098			*		-		7,041			(13,500	)		-			(6,448	)		(2,501	)		(655	)		(3,156	)	(3,292	)

Committed shares issued		-		-		2,669		*		(2,668	)		*		-		-			-			-			-			-			-			-		-
Committed shares reclassified to liability		-		-		-		-		(5,430	)		*		-		(95	)		-			-			(95	)		-			-			-		(95	)
Shares issued for services		-		-		10,834		*		-			-		-		288			-			-			288			-			-			-		288
Shares issued for conversion of debt		-		-		147,679		*		-			-		-		1,991			-			-			1,991			-			-			-		1,991
Shares issued for conversion of interest payable		-		-		21,562		*		-			-		-		195			-			-			195			-			-			-		195
Shares issued for cash		-		-		8,334		*							-		65			-			-			65			-			-			-		65
Shares issued for acquisition		-		-		126,667		*		-			-		-		950			-			-			950			-			-			-		950
Common stock subscribed		-		-		-		-		-			-		400		-			-			-			400			-			-			-		400
Fair value of stock options issued reclassed to liability		-		-		-		-		-			-		-		(1,117	)		-			-			(1,117	)		-			-			-		(1,117	)
Forgiveness of imputed interest on related party payable		-		-		-		-		-			-		-		237			-			-			237			2			-			2		239
Unrealized loss on investment		-		-		-		-		-			-		-		-			-			(300	)		(300	)		-			-			-		(300	)
Effect on minority interest from deconsolidated entity		-		-		-		-		-			-		-		-			-			-			-			2,541						2,541		2,541
Net income for year ending December 31, 2017		-		-		-		-		-			-		-		-			(708	)		-			(708	)		-			(17	)		(17	)	(725	)
Balance December 31, 2017		10,000,000	$	10		1,140,398	$	1		-		$	-	$	400	$	9,555		$	(14,208	)	$	(300	)	$	(4,542	)	$	42		$	(672	)	$	(630	)	(5,172	)

Cash	$	140
Accounts receivable		13,488
Accounts receivable, related party		370
Other receivable		208
Prepaid expenses and other current assets		927
Website		7
Related party receivable		120
Accounts payable and accrued liabilities		(13,714	)
Accounts payable, related party		(686	)
Deferred tax liability		(1,087	)
Other long-term liabilities		(180	)
Net liabilities assumed		(407	)

Fair value of shares issued and committed to be issued		1,295
Initial cash payable		921
Note payable, net of discount of $96		1,711
Total consideration		3,927
Identifiable intangible assets		(3,000	)
Goodwill recorded	$	1,334

Asset	Amount		Life (months)
Client relationships	$	3,000		84
Total	$	3,000		84

	Balance as of December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities		250		-		-		250
Total assets:		250		-		-		250

Liabilities:
Stock based liabilities		2,963		-		-		2,963
Short term derivative value		212		-		-		212
Long term derivative value		362		-		-		362
Total liabilities		3,537		-		-		3,537

	For the Year Ended December 31,
	2017
Revenues	$	-

Operating expenses:
Loss on disposal of business		328
Other general and administrative		-

Impairment loss		-

Loss from discontinued operations	$	328

	December 31,
	2018			2017

Office Equipment	$	17		$	8

Less—accumulated depreciation		(4	)		(2	)

	$	13		$	6

	December 31, 2018		December 31, 2017
Settlements payable	$	1,029	$	892
Accrued expenses and other liabilities		534		741
Dividend Payable (1)		30		30
Accrued salaries and wages		967		329
Total	$	2,560	$	1,992

Holder	Issue Date	Due Date	Original Principal		Balance, December 31, 2017		Gain			Penalties Accrued		Repayments			Conversions to Common Stock			Balance, December 31, 2018
Noteholder 5	11/9/2015	11/9/2016		100		49		(10	)		-		(12	)		(27	)		-
Totals			$	100	$	49	$	(10	)		-	$	(12	)	$	(27	)	$	-

Fair Value of Embedded Derivative Liabilities:
Balance, December 31, 2016	$	1,210
Initial measurement of derivative liabilities on new convertible notes payable		185
Change in fair value		975
Reclassification due to conversion and repayment		(1,796	)
Balance, December 31, 2017		574
Change in fair value		(514	)
Change due to conversion		(27	)
Balance, December 31, 2018	$	33

Holder	Derivative Balance
Noteholder 5	$	212
Option Holder		362
Total	$	574

	December 31, 2018		December 31, 2017
(b) Due to Next Communications, Inc. (current)	$	2,972	$	2,920
(c) Due to Asiya Communications SAPI de C.V. (current)		26		6
(d) Michael DePrado (current)		100		100
(e) Orlando Taddeo ($1,807 due to the acquisition of Limecom are due on July 21, 2019)		2,613		2,536
(f) Next Cala 360 (current)		14		7
Total Due from related parties	$	5,725	$	5,569

	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

		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

	Shares			Weighted- Average Exercise Price Per Share
Outstanding, December 31, 2016		58,334		$	54
Granted		72,044			32.4
Exercised		-			-
Forfeited		(25,000	)		54
Expired		-			-
Outstanding, December 31, 2017		105,378		$	39.27

	U.S. dollars in thousands
Valuation allowance, December 31, 2017	$	743
Increase		694
Valuation allowance, December 31, 2018	$	1,437

	Year Ended
	December 31
	2018		2017
Revenues	$	1,302	$	2,149
Net Income (Loss) before controlling Interest		41		(3,212	)
Net Income (Loss)		65		(3,196	)
Basic and diluted net income (loss) earnings per common share		0.05	$	(3.54	)