UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE NINE MONTH PERIOD ENDED: SEPTEMBER 30, 2017MARCH 31, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number:333-148987
NEXT GROUP HOLDINGS, INCCUENTAS, INC.
(Exact name of Registrant as specified in its charter)
Florida | 20-3537265 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
1111 BRICKEL AVE,19 W. FLAGLER ST, SUITE 2200,902, MIAMI, FL 3313133130
(Address of principal executive offices)
800-611-3622
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 10, 2017,May 14, 2019, the issuer had 301,422,6582,057,016 shares of its common stock issued and outstanding.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
PartPART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CUENTAS, INC.
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NEXT GROUP HOLDINGS, INCAS OF MARCH 31, 2019
Table of ContentsTABLE OF CONTENTS
Page | ||
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | ||
as of March 31, 2019 (Unaudited) and December 31, 2018 | 2 | |
and Comprehensive Income (Loss) for the three-months ended March 31, 2019 and 2018 (Unaudited) | 3 | |
for the three months ended March 31, 2019 and 2018 (Unaudited) | 4 | |
Notes to |
CUENTAS, INC.
NEXT GROUP HOLDINGS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands except share and per share data)
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 57,432 | $ | 256,302 | ||||
Accounts receivable, net | 9,078 | 9,661 | ||||||
Accounts receivable, related party | 199,894 | - | ||||||
Finance deposit | - | 25,000 | ||||||
Prepaid expenses and other current assets | 8,408 | 48,091 | ||||||
Investments | 550,000 | - | ||||||
Assets from discontinued operations | - | 225,884 | ||||||
Total current assets | 824,812 | 564,938 | ||||||
License fee, net of accumulated amortization | 55,556 | 118,056 | ||||||
Related party receivable | 36,000 | 36,000 | ||||||
Total assets | $ | 916,368 | $ | 718,994 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities | ||||||||
Bank overdraft | $ | - | $ | 7 | ||||
Accounts payable and accrued liabilities | 1,697,524 | 1,330,789 | ||||||
Dividends payable | 30,000 | 30,000 | ||||||
Deferred revenue | 706,378 | 715,642 | ||||||
Loan payable | 75,000 | 75,000 | ||||||
Convertible notes payable, net of discounts and debt issue costs | 981,960 | 1,076,302 | ||||||
Derivative liability | 1,143,186 | 1,210,281 | ||||||
Related party payable | 3,225,453 | 3,155,995 | ||||||
Notes payable, current | 116,395 | - | ||||||
Interest payable, related party | - | 13,321 | ||||||
Notes payable, related party | - | 280,000 | ||||||
Liabilities from discontinued operations | - | 2,436,720 | ||||||
Total current liabilities | 7,975,896 | 10,324,057 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders' Deficit | ||||||||
Preferred stock, $0.001 par value, authorized 60,000,000 shares; Series A preferred stock; $0.001 par value, designated 50,000,000; 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively. | - | - | ||||||
Series B preferred stock, $0.001 par value, designated 10,000,000; 10,000,000 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 10,000 | 10,000 | ||||||
Common stock, authorized 360,000,000 shares, $0.001 par value, 289,961,684 and 249,225,683 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 289,962 | 249,226 | ||||||
Additional paid in capital | 6,702,788 | 6,791,750 | ||||||
Accumulated deficit | (13,436,542 | ) | (13,499,303 | ) | ||||
Total Next Group Holdings, Inc. stockholders' deficit | (6,433,792 | ) | (6,448,327 | ) | ||||
Non-controlling interest in subsidiaries | (625,736 | ) | (3,156,736 | ) | ||||
Total liabilities and stockholders' deficit | $ | 916,368 | $ | 718,994 |
March 31, 2019 | December 31, 2018 | |||||||
Unaudited | Audited | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | 179 | 154 | ||||||
Marketable securities | 55 | 79 | ||||||
Trade account receivables | 6 | 3,673 | ||||||
Other current assets | 88 | 127 | ||||||
Total current assets | 328 | 4,033 | ||||||
Property and Equipment, net | 6 | 13 | ||||||
Intangible assets | - | 1,924 | ||||||
Total assets | 334 | 5,970 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | 1,444 | 3,184 | ||||||
Other accounts liabilities | 440 | 2,560 | ||||||
Deferred revenue | 552 | 583 | ||||||
Notes and Loan payable | 106 | 110 | ||||||
Related parties payables | 2,952 | 4,919 | ||||||
Stock based liabilities | 71 | 225 | ||||||
Total current liabilities | 5,565 | 11,581 | ||||||
Related party payables – Long term | - | 806 | ||||||
Derivative liabilities – long term | 34 | 33 | ||||||
TOTAL LIABILITIES | 5,599 | 12,420 | ||||||
STOCKHOLDERS’ DEFICIENCY | ||||||||
Common stock subscribed | 500 | 100 | ||||||
Series B preferred stock, $0.001 par value, designated 10,000,000; 10,000,000 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | 10 | 10 | ||||||
Common stock, authorized 360,000,000 shares, $0.001 par value; 2,057,016 and 1,588,942 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | 2 | 2 | ||||||
Additional paid in capital | 13,265 | 12,160 | ||||||
Accumulated deficit | (18,390 | ) | (18,070 | ) | ||||
Total Cuestas Inc. stockholders’ deficit | (4,613 | ) | (5,798 | ) | ||||
Non-controlling interest in subsidiaries | (652 | ) | (652 | ) | ||||
Total stockholders’ deficit | (5,265 | ) | (6,450 | ) | ||||
Total liabilities and stockholders’ deficit | 334 | 5,970 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
CUENTAS, INC.
NEXT GROUP HOLDINGS, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED) (Unaudited)
(U.S. dollars in thousands except share and per share data)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 470,014 | $ | 502,472 | $ | 1,467,238 | $ | 587,482 | ||||||||
Revenue, related party | 155,174 | 12,758 | 232,605 | 12,818 | ||||||||||||
Total revenue | 625,188 | 515,230 | 1,699,843 | 600,300 | ||||||||||||
Cost of revenue | 503,231 | 441,907 | 1,288,663 | 591,261 | ||||||||||||
Gross profit (loss) | 121,957 | 73,323 | 411,180 | 9,039 | ||||||||||||
Operating expenses | ||||||||||||||||
Officer compensation | 327,831 | 166,684 | 691,774 | 1,611,419 | ||||||||||||
Professional fees | 69,869 | 1,370,885 | 1,202,756 | 2,843,656 | ||||||||||||
General and administrative | 124,483 | 330,840 | 354,063 | 548,347 | ||||||||||||
Total operating expenses | 522,183 | 1,868,409 | 2,248,593 | 5,003,422 | ||||||||||||
Loss from operations | (400,226 | ) | (1,795,086 | ) | (1,837,413 | ) | (4,994,383 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Other income | 550,000 | - | 729,580 | 10,245 | ||||||||||||
Other expense | - | - | - | (45,000 | ) | |||||||||||
Loss on disposal of asset | - | - | - | (2,926 | ) | |||||||||||
Interest expense | (150,419 | ) | (412,017 | ) | (748,138 | ) | (1,302,199 | ) | ||||||||
Penalties on convertible notes payable | - | - | - | (14,490 | ) | |||||||||||
Excess derivative liability expense | - | - | (144,143 | ) | - | |||||||||||
(Loss) gain on derivative liability | 1,687,253 | 1,191,239 | (161,746 | ) | 1,583,425 | |||||||||||
Gain on disposal of business | - | - | 2,213,103 | - | ||||||||||||
Total other income (expense) | 2,086,834 | 779,222 | 1,888,656 | 229,055 | ||||||||||||
Net income (loss) before income taxes | 1,686,608 | (1,015,864 | ) | 51,243 | (4,765,328 | ) | ||||||||||
Income taxes | - | - | - | - | ||||||||||||
Net income (loss) before controlling interest | 1,686,608 | (1,015,864 | ) | 51,243 | (4,765,328 | ) | ||||||||||
Net loss attributable to non-controlling interest | 1,888 | 65,374 | 11,518 | 70,757 | ||||||||||||
Net income (loss) attributable to Next Group Holdings, Inc. | $ | 1,688,496 | $ | (950,490 | ) | $ | 62,761 | $ | (4,694,571 | ) | ||||||
Income (loss) per share, basic | $ | 0.01 | $ | (0.00 | ) | $ | 0.00 | $ | (0.02 | ) | ||||||
Income (loss) per share, diluted | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.02 | ) | ||||||
Weighted average number of common shares outstanding, basic | 284,502,410 | 234,060,228 | 271,845,362 | 230,017,361 | ||||||||||||
Weighted average number of common shares outstanding, diluted | 357,482,680 | 234,060,228 | 344,825,632 | 230,017,361 |
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
REVENUE | 302 | 19,998 | ||||||
COST OF REVENUE | 237 | 19,258 | ||||||
GROSS PROFIT | 65 | 740 | ||||||
OPERATING EXPENSES | ||||||||
General and administrative | 490 | 871 | ||||||
TOTAL OPERATING EXPENSES | 490 | 871 | ||||||
OPERATING LOSS | (425 | ) | (131 | ) | ||||
OTHER INCOME (EXPENSE) | ||||||||
Other Income (expense) | 220 | (25 | ) | |||||
Interest expense | (60 | ) | (403 | ) | ||||
Gain (loss) on derivative liability | (1 | ) | 413 | |||||
Gain from Change in extinguishment of debt | - | 99 | ||||||
Gain (loss) from Change in fair value of stock-based liabilities | (54 | ) | 1,563 | |||||
TOTAL OTHER INCOME | 105 | 1,647 | ||||||
NET INCOME (LOSS) BEFORE CONTROLLING INTEREST | (320 | ) | 1,516 | |||||
NET INCOME ATTRIBUTILE TO NON-CONTROLLING INTEREST | - | 8 | ||||||
NET INCOME (LOSS) ATTRIBUTILE TO NET INCOME (LOSS) ATTRIBUTILE TO CUENTAS INC. | (320 | ) | 1,524 | |||||
Net income (loss) per basic share | (0.18 | ) | (*) 1.30 | |||||
Net income (loss) per diluted share | (0.18 | ) | (*) 1.19 | |||||
Weighted average number of basic common shares outstanding | 1,808,142 | (*) 1,175,045 | ||||||
Weighted average number of diluted common shares outstanding | 1,808,142 | (*) 1,278,893 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
(*) | Retrospectively adjusted to reflect the 300-for-1 reverse stock split |
NEXT GROUP HOLDINGS, INC
CONSOLIDATED OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income (loss) after non-controlling interest | $ | 62,761 | $ | (4,694,571 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Non-controlling interest | (11,518 | ) | (70,757 | ) | ||||
Imputed interest | 179,008 | 180,845 | ||||||
Shares issued for services | 720,200 | 2,130,078 | ||||||
Shares issued for other expense | - | 45,000 | ||||||
Debt discount amortization | 351,765 | 636,302 | ||||||
Stock based compensation | 378,274 | 1,130,818 | ||||||
Excess derivative liability expense | 144,143 | 333,482 | ||||||
Available for sale securities received as other income | (550,000 | ) | ||||||
Loss on disposal of equipment | - | 2,926 | ||||||
Depreciation expense | - | 25,012 | ||||||
Amortization of debt issue costs | 13,455 | 24,511 | ||||||
Amortization of intangible assets | - | 66,629 | ||||||
Debt issue costs expensed | - | |||||||
Default penalties on convertible notes | - | 14,490 | ||||||
License fee amortization | 62,500 | 62,495 | ||||||
Write off of finance deposit | 25,000 | - | ||||||
Gain on disposal of business | (2,213,103 | ) | - | |||||
(Gain) loss on derivative fair value adjustment | 161,746 | (1,583,425 | ) | |||||
Changes in Operating Assets and Liabilities: | ||||||||
Restricted cash | - | 3,678 | ||||||
Inventory | - | 2,214 | ||||||
Accounts receivable | 583 | 31,392 | ||||||
Accounts receivable, related party | (199,894 | ) | - | |||||
Prepaid expenses | 39,683 | (26,192 | ) | |||||
Accounts payable | 458,343 | 706,184 | ||||||
Related party interest payable | - | 13,130 | ||||||
Customer deposits | - | (30,035 | ) | |||||
Deferred revenue | (7,662 | ) | 28,058 | |||||
Net Cash Used by Operating Activities | (384,716 | ) | (967,736 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Due from related parties | - | 41,913 | ||||||
Cash acquired in acquisitions, net of cash paid | - | 43,573 | ||||||
Net Cash Provided by Investing Activities | - | 85,486 | ||||||
Cash Flows from Financing Activities: | ||||||||
Bank overdraft | (7 | ) | 1,704 | |||||
Proceeds from loans payable | 116,395 | 50,000 | ||||||
Repayments of loans payable | - | (20,961 | ) | |||||
Proceeds from convertible notes | - | 969,130 | ||||||
(Repayments of) proceeds from related party loans | 69,458 | (47,481 | ) | |||||
Cash acquired through reverse recapitalization | - | 1,184 | ||||||
Cash contributed in acquisition from related party net of cash paid | - | 45,225 | ||||||
Net Cash Provided by Financing Activities | 185,846 | 998,801 | ||||||
Net Increase (Decrease) in Cash | (198,870 | ) | 116,551 | |||||
Cash at Beginning of Period | 256,302 | 18,047 | ||||||
Cash at End of Period | $ | 57,432 | $ | 134,598 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
Supplemental disclosure of non-cash financing activities | ||||||||
Common stock issued as related party loan and accrued interest repayment | $ | 294,923 | $ | - | ||||
Common stock issued for conversion of convertible note principal | $ | 344,773 | $ | 449,940 | ||||
Common stock issued for conversion of convertible accrued interest | $ | 19,341 | $ | 35,956 | ||||
Change in derivative liability written off to additional paid in capital due to conversion of convertible notes payable | $ | 557,773 | $ | 703,992 | ||||
Initial measurement of derivative liabilities recorded as debt discount | $ | 184,789 | - | |||||
Common stock issued as loan repayment | $ | - | $ | 13,260 | ||||
Common stock issued for prepayment of services | $ | - | $ | 50,000 | ||||
Common stock dividends declared | $ | - | $ | 30,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
CUENTAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(U.S. dollars in thousands)
NEXT GROUP HOLDINGS, INC
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss before non-controlling interest | (320 | ) | 1,516 | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Stock based compensation and shares issued for services | 57 | - | ||||||
Imputed interest | 58 | 60 | ||||||
Gain on extinguishment of debt | - | (99 | ) | |||||
Loss on fair value of marketable securities | 24 | - | ||||||
Interest and Debt discount amortization | (4 | ) | 36 | |||||
Gain on derivative fair value adjustment | 1 | (413 | ) | |||||
License fee amortization | 21 | |||||||
Gain from Change in on fair value of stock-based liabilities | 53 | (1,563 | ) | |||||
Depreciation and amortization expense | - | 108 | ||||||
Changes in Operating Assets and Liabilities: | ||||||||
Accounts receivable | 12 | 1,576 | ||||||
Other receivables | 18 | (410 | ) | |||||
Accounts payable | (298 | ) | (786 | ) | ||||
Other Accounts payable | (35 | ) | - | |||||
Deferred revenue | (31 | ) | (32 | ) | ||||
Net Cash Used by Operating Activities | (465 | ) | 14 | |||||
Cash Flows from Investing Activities: | ||||||||
Proceeds from the recession of the Limecom shares – net of cash divested | - | - | ||||||
Purchase of equipment | - | (14 | ) | |||||
Net Cash Provided by Investing Activities | - | (14 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Repayments of convertible notes | - | (46 | ) | |||||
Proceeds from (Payments to) related party | (60 | ) | 3 | |||||
Repayments of related party loans | - | (12 | ) | |||||
Proceeds from issuance of common stock, net of issuance expense | 50 | - | ||||||
Proceeds from common stock subscriptions | 500 | - | ||||||
Net Cash Provided by Financing Activities | 490 | (55 | ) | |||||
Net Increase (Decrease) in Cash | 25 | (55 | ) | |||||
Cash at Beginning of Period | 154 | 93 | ||||||
Cash at End of Period | 179 | 38 | ||||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | - | 334 | ||||||
Supplemental disclosure of non-cash financing activities | ||||||||
Common stock issued for conversion of convertible note principal | - | 27 | ||||||
Common stock issued for settlement of stock-based liabilities | 464 | 155 | ||||||
Common stock issued for settlement of common stock subscribed | 100 | 400 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollar thousands, except share and per share data)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESSGENERAL
Cuentas, Inc. (formerly Next Group Holdings, Inc, (theInc., the “Company”) together with its subsidiaries, is focused on Financial Technology (“FINTECH”) services, delivering mobile banking, online banking, prepaid debit and digital content services to unbanked, underbanked and underserved communities. The Company derives its revenue from the sales of prepaid and wholesale calling minutes. Additionally, The Company has an agreement with 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, both current and future.subsidiaries. Its subsidiaries are Meimoun and Mammon, LLC (100% owned), Next Cala, Inc (94% owned), NxtGn, Inc. (65% owned) and Next Mobile 360, Inc. (100%(100 % owned). Additionally, Next Cala, Inc. has a 60% interest in NextGlocal, a subsidiary formed in May 2016.
On January 1, During the year ended December 31, 2016, NGH completedthe Company acquired a business segment, Tel3, from an Agreementexisting corporation. Tel3 provides prepaid calling cards to consumers directly and Plan of Merger (the “Merger Agreement”) with Pleasant Kids, Inc. (“Pleasant Kids”)operates in a complimentary space as Meimoun and its wholly owned subsidiary, NGH Acquisition Corp. (“Acquisition Sub”), pursuant to which NGH merged with Acquisition Sub and Acquisition SubMammon, LLC. Tel3 was then merged into PLKDMeimoun and Mammon, LLC effective January 1, 2016. Under2017. On October 23, 2017, the terms of the Merger Agreement, the NGH shareholders received shares of PLKD common stock such that the NGH shareholders received approximately 80% of the total common shares andCompany acquired 100% of the preferred shares of PLKD issuedoutstanding interests in Limecom, Inc, and outstanding followingin January 30, 2019 it rescinded the merger. Due to the nominal assets and limited operations of PLKD prior to the merger, the transaction was accorded reverse recapitalization accounting treatment under the provision of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805 whereby NGH became the accounting acquirer (legal acquiree) and PLKD was treated as the accounting acquiree (legal acquirer). The historical financial records of the Company are those of the accounting acquirer (NGH) adjusted to reflect the legal capital of the accounting acquire (PLKD).As the transaction was treated as a recapitalization, no intangibles, including goodwill, were recognized. Concurrent with the effective date of the reverse recapitalization transaction, the Company adopted the fiscal year end of the accounting acquirer of December 31.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 distancelong-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 tofor 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 3rd 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 unique High Definition telepresence product (AVYDA) which allows users to connect with celebrities, public figures, healthcare and education applications via a mobile phone, tablet or personal computer. NxtGn has entered into a joint venture with telephony platform industry leader Telarix, Inc. to develop and market the AVYDA Powered by Telarix™ HD telepresence platform. The AVYDA Powered by Telarix™ product is marketed throughout the world by the Telarix sales force.
On December 6, 2017, the Company completed the formation of SDI NEXT Distribution LLC in which it owns 51% of the membership interests. The remainder of the membership interests is owned by Fisk Holdings, LLC. The Company acts as the Managing Member of SDI NEXT Distribution LLC. Under the Operating Agreement, the Company will contribute a total of $500. Fisk Holdings, LLC will contribute 30,000 active Point of Sale locations for distribution of retail telecommunications and prepaid financial products and services to include, but not be limited to: prepaid general-purpose reloadable cards, prepaid gift cards, prepaid money transfer, prepaid utility payments, and other prepaid products.
On May 27, 2016,October 23, 2017, the Cala entered intoCompany, completed the acquisition of Limecom, Inc. (“Limecom”), Limecom is a Joint Venture Agreement (the “Agreement”global telecommunication company, providing services to telecommunication providers from all over the world. Limecom operates a network built on internet protocol (“IP”) with Glocal Payments Solutions, Incswitching equipment. It was organized as a Florida limited liability company (“Glocal”LLC”) on November 21, 2014 and known as Limecom LLC. On September 29, 2015, Limecom converted to form a joint venture inFlorida C-Corporation. The Acquisition was completed for total consideration of $3,927,000 which Cala has a 60% controlling interest and Glocal has a 40% interest. The Joint Venture will seek to launch and activate up to 45,000 prepaid debit cards underincluded an issuance of 172,683 shares of common stock, which were valued at $1,295,000 as of the Cala brand by December 31, 2016 and 360,000 additional cards during the 2017 calendar year. Either party may terminate the agreement at December 31, 2016 if certain objectives are not met.acquisition date.
On July 22, 2016,January 29, 2019, the Company completedand 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 the Company issued to Heritage and its Stockholders will not be returned to the Company, and the remaining 34,537 shares of the Company will not be issued to Heritage. Instead, it was agreed that the Company will issue an additional 90,000 shares of the Company as directed by Heritage. The Company also agreed to issue 20,740 shares 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 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 Transaction Processing Products,Limecom, Inc. (“TPP”Limecom”) which has a 64% interestaccording to the Amendment signed January 29, 2019.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Accent InterMedia, LLC (“AIM”)U.S. dollar thousands, except share and no other assets or liabilities. AIM operates as a leading gift card provider and in business activities very synergistic with thoseper share data)
Pro forma results
The following are unaudited pro forma financial information for the Company is currently engaged in. The Company sold its interest in TPP during the three monthsperiod ended March 31, 2017 to an unaffiliated third party.
On August 10, 2016, M&M, a wholly owned subsidiary2018 and presents the condensed consolidated statements of operations of the Company closeddue to 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 Tel3the Company’s condensed consolidated 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.
Period Ended | ||||
March 31, | ||||
2018 | ||||
Revenues | $ | 411 | ||
Net Income before controlling Interest | 1,534 | |||
Net Income | 1,541 | |||
Basic net income earnings per common share | 1.31 | |||
Diluted net income earnings per common share | $ | 1.21 |
GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of March 31, 2019, the Company had approximately $179 in cash and cash equivalents, approximately $5,237 in negative working capital, a stockholders’ deficiency of approximately $5,265 and an accumulated deficit of approximately $18,390. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Company’s ability to continue as a going concern is dependent upon raising capital from financing transactions and revenue from operations. Management anticipates their business will require substantial additional investments that have not yet been secured. Management is continuing in the process of fund raising in the private equity and capital markets as the Company will need to finance future activities. These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a related party. Tel3 provides prepaid international long distance telephone services.going concern.
REVERSE SPLIT
The Company completed a reverse stock split of its common stock, by filing articles of amendment to its Articles of Incorporation (the “Articles of Amendment”) with the Secretary of State of Florida to effect the Reverse Stock Split on August 8, 2018. As a result of the reverse stock split, the following changes have occurred (i) every three hundred shares of common stock have been combined into one share of common stock; (ii) the number of shares of common stock underlying each common stock option, common stock warrant or any other convertible instrument of the Company have been proportionately decreased on a 300-for-1 basis, and the exercise price of each such outstanding stock option, common warrant or any other convertible instrument of the Company have been proportionately increased on a 300-for-1 basis. Accordingly, all option numbers, share numbers, warrant numbers, share prices, warrant prices, exercise prices and losses per share have been adjusted within these consolidated financial statements, on a retroactive basis, to reflect this 300-for-1 reverse stock split. No fractional shares were issued as a result of the reverse stock split. In lieu of issuing fractional shares, each holder of common stock who would otherwise have been entitled to a fraction of a share was entitled to receive one full share for the fraction of a share to which he or she was entitled.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollar thousands, except share and per share data)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Unaudited Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant toinclude the rules and regulationsaccounts of the SecuritiesCompany and Exchange Commission (“SEC”) for reporting of interim financial information. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statementsits subsidiaries, prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted.of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, these statementsthey do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the for three-months ended March 31, 2019. However, these results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2019. The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.
Certain information and footnote disclosures normally required byincluded in financial statements in accordance with generally accepted accounting principles generally accepted inhave been omitted pursuant to the United States for annualrules of the U.S. Securities and Exchange Commission (“SEC”). The accompanying unaudited consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on April 15, 2019 (the “Annual Report”). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and notes thereto and other pertinent information contained in our annual report on form 10-K as filed with the Securities and Exchange Commission on July 3, 2017. The unaudited condensed consolidated statements of operations and cash flows for the three and nine months ended September 30, 2017 are not necessarily indicative of the consolidated results of operations or cash flows to be expected for any future period or for the year ending December 31, 2017.2018.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have beenare prepared by management and in the opinion of management, the accompanying unauditedaccordance with US GAAP. The consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position and results of operations as of the dates and for the periods presented.
Basis of Presentation
This summary of accounting policies forCompany include the Company is presented to assist in understanding the Company’s financial statements. The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting)its wholly-owned and majority-owned subsidiaries. All inter-company balances and transactions have been consistently applied in the preparation of the unaudited consolidated financial statements.eliminated.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, certain revenues and expenses, and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. Estimates are used when accounting for allowances for bad debts, stock basedstock-based compensation collectability of loans receivable, potential impairment losses of the capitalized license fee and fair value calculations related to embedded derivative features of outstanding convertible notes payable.
Cash
For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. The Company held no cash equivalents as of September 30, 2017 or December 31, 2016. As of September 30, 2017payable and December 31, 2016, the Company did not hold cash with any oneother financial institution in excess of the FDIC insured limit of $250,000.
Revenue recognition
The Company follows paragraph 605-10-S99 of the FASBAccounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company primarily generates revenues through the sale of prepaid calling minutes to consumers through its Tel3 division. While the Company collects payment for such minutes in advance, revenue is recognized upon delivery to and consumption of minutes by the consumer. Next Cala generated revenues from commissions earned from Incomm, a leading financial services provider during the three and nine months ended September 30, 2017 and 2016.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the related assets, which range from three to five years.Maintenance and repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are capitalized. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations.
Impairment of Long-Lived Assets
In accordance with ASC Topic 360, formerly SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of its asset based on estimates of its undiscounted future cash flows. If these estimated future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the difference between the asset’s estimated fair value and its carrying value. There was no impairment losses recorded to long-lived assets during the three or nine months ended September 30, 2017 or 2016.instruments.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollar thousands, except share and per share data)
Deferred Revenue
Deferred revenue is comprised mainly of unearned revenue related to prepayments from retail consumers for telecommunications minutes. The following table represents the changes in deferred revenue for the three months ended March 31, 2019:
Deferred Revenue | ||||
Balance at December 31, 2018 | $ | 583 | ||
Change in deferred revenue | (31 | ) | ||
Balance at March 31, 2019 | $ | 552 |
Non-Controlling Interest
TheRevenue allocated to remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized”). Contracted not recognized revenue was $654 as of March 31, 2019, of which 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 shareexpects to recognize 100% of the equity ofrevenue over 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.
next 12 months.
Derivative and Fair Value of Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
Fair value of certain of the Company’s financial instruments including cash, accounts receivable, accountaccounts payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.measurements.
Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollar thousands, except share and per share data)
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.
Except as discussed inNote 7 – Derivative Liabilitiesthe Company did not identify any otherThe Company’s financial assets orand liabilities that are required to be presented on the consolidated balance sheetmeasured at fair value in accordance with ASC 825-10on a recurring basis by level within the fair value hierarchy are as of September 30, 2017 or December 31, 2016.follows:
Balance as of March 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Marketable securities | 55 | - | - | 55 | ||||||||||||
Total assets | 55 | - | - | 55 | ||||||||||||
Liabilities: | ||||||||||||||||
Stock based liabilities | 71 | - | - | 71 | ||||||||||||
Long term derivative value | 34 | - | - | 34 | ||||||||||||
Total liabilities | 105 | - | - | 105 |
Balance as of December 31, 2018 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Marketable securities | 79 | - | - | 79 | ||||||||||||
Total assets | 79 | - | - | 79 | ||||||||||||
Liabilities: | ||||||||||||||||
Stock based liabilities | 225 | - | - | 225 | ||||||||||||
Long term derivative value | 33 | - | - | 33 | ||||||||||||
Total liabilities | 258 | - | - | 258 |
A summary of the changes in derivative liabilities balance for the three months ended March 31, 2019 is as follows:
Fair Value of Embedded Derivative Liabilities: | ||||
Balance, December 31, 2018 | 33 | |||
Change in fair value | 1 | |||
Balance, March 31, 2019 | 34 |
Income TaxesCUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollar thousands, except share and per share data)
Income taxes are accounted for underThe value of the assets and liability method. Deferred tax assets andembedded derivative liabilities are recognized for the estimated future tax consequences attributable to differences betweenconvertible notes payable and outstanding option awards was determined using 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 forBlack-Scholes option pricing model based on the year in which those temporary differences are expected to be recovered or settled. Use of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code section 382 if a change of ownership occurs.following assumptions:
March 31, 2019 | December 31, 2018 | |||||||
Common stock price | 2.09 | 3 | ||||||
Expected volatility | 264 | % | 233 | % | ||||
Expected term (in years) | 1.01 | 1.26 | ||||||
Risk free rate | 2.56 | % | 2.81 | % | ||||
Forfeiture rate | 0 | % | 0 | % | ||||
Expected dividend yield | 0 | % | 0 | % |
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity.
At September 30, 2017, the Company had eighteen outstanding convertible notes payable with conversion rights that are exercisable. The amount of outstanding principal on these convertible notes total $984,624 plus accrued interest of $387,927 for total convertible debts as of September 30, 2017 of $1,327,551 representing 72,980,270 new dilutive common shares if converted at the applicable rates. The effects of these notesReclassified Amounts
Certain prior year amounts have been included in net income per diluted sharereclassified for consistency with the three and nine months ended September 30, 2017.current year presentation. These reclassifications did not have material effect on the reported results of operations, shareholder’s deficit or cash flows.
Dividends
The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.
As discussed in the report on form 8K filed on May 18, 2016, the Company declared a special dividend on its outstanding common stock of one share of Class D Redeemable Preferred Stock. Pursuant to the dividend, the special stock dividend will be distributed to owners of the Company’s common stock as of the record date in a ratio of one share of Class D Redeemable Preferred Stock common stock for every 1 share of common stock owned as of the record date. The Company originally had set the record date as June 10, 2016 but was later modified to July 22, 2016. The Class D Preferred Stock must be redeemed within six months within six (6) months (or as soon thereafter as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia, Inc. (Next Communications, Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S. District Court for the Southern District of New York or any successor or other lawsuit relating to the subject matter thereof in which the Corporation (or any successor-in-interest) is named as a plaintiff (the “Lawsuit”). The Designation fixes the redemption price of each share of class D Preferred stock as the greater of par value or the amount obtained by dividing (a) 9.03 percent of the net proceeds to the Corporation of the Lawsuit after payment of fees and expenses incurred in connection with such law suit and the resolution of any creditor claims against Next Communications and all taxes on net income accrued or paid with respect to such amount, by (b) the total number of shares of Class D Preferred stock issued and outstanding as of the Redemption Date, which amount shall be rounded to the nearest whole cent.
The Company has accrued common stock dividends payable of $30,000 as of September 30, 2017.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred.
Stock-Based Compensation
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of subtopic 505-50 of the FASBRecent Accounting Standards Codification (“Sub-topic 505-50”) and subtopic 718-20 for awards classified as equity to employees.
Derivative Liabilitiesannounced
The Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. An instrument determined to be a derivative liability is recorded at fair value with a debt discount being recorded up to the face value of the related convertible note payable with any excess value being recognized as a day one loss on initial measurements of derivative liabilities. The debt discount is amortized as interest expense over the life of the convertible notes. Changes in value of the derivative liabilities that result from conversions of the underlying instrument to common stock are written off to additional paid in capital.
Related Parties
The registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Accounts Receivable
Accounts receivable balances are established for amounts owed to the Company from its customers from the sales of services and products. The Company closely monitors the collectability of outstanding accounts receivable and provide an allowance for doubtful accounts based on estimated collections of outstanding amounts.
License Fee
The Company entered into an agreement with a certain vendor whereby it obtained a license to market and distribute certain closed loop general purpose reloadable debit cards for an initial term of three years. The Company remitted $250,000 as a license fee in connection with the agreement which it is recognizing over the initial term of the agreement on a straight line basis. The unamortized balance of the license fee was $55,556 and $118,056 as of September 30, 2017 and December 31, 2016, respectively.
Investments
The Company accounts for equity investments under ASC 321. Equity investments with a readily determinable market price are measured at fair value as of the date of the financial statements with any unrealized gains or losses being recognized in current period income or loss.
During the three months ended September 30, 2017, the Company accepted 50,000 shares of common stock in a publicly traded company as a referral fee. The Company classified these securities as available for sale and recorded the initial market value of the shares received as other income during the nine months ended September 30, 2017 and in accordance withASC 321-10-35 Investmentsany gains or losses recognized are recorded through other income or loss. On the date of receipt, the common stock was valued at $11 per share, equal to the close price of the security, for a total of $550,000 and recorded the value of the shares as other income. The Company marked the securities to market as of the reporting date which was $11 per share for a total balance of $550,000 as of September 30, 2017. There were no additional gains or losses recognized in other income or loss on investments available for sale during the three or nine months ended September 30, 2017 and 2016.
Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09 to the beginning ofAugust 2018, for public companies, with an option that would permit companies to adopt the standard as early as the original effective date of 2017. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP. ASU 2014-09 may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for those contracts. The updated standard is effective for us in the first quarter of 2018 and we do not plan to early adopt. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases2018-13, Fair Value Measurement (Topic 842)” (“820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments apply to reporting entities that are required to make disclosures about recurring or nonrecurring fair value measurements and should improve the cost, benefit, and effectiveness of the disclosures. ASU 2016-02”). ASU 2016-02 requires an entity2018-13 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 recognize assetstransfers between Level 1 and liabilities arising from a leaseLevel 2 investments, along with the policy for both financing and operating leases.timing of transfers between levels. In addition, disclosing the valuation processes for Level 3 fair value measurements was removed. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 isamendments are effective for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations.” This Update provides clarifying guidance regarding the application of ASU No. 2014-09 - Revenue From Contracts with Customers when another party, along with the reporting entity, is involved in providing a good or a service to a customer. In these circumstances, an entity is required to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The amendments in the Update clarify the implementation guidance on principal versus agent considerations. The Update is effective, along with ASU 2014-09, for annual and interim periods beginning after December 15, 2017. The adoption of ASU 2016- 08 is not expected to have a material impact on our consolidated financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016- 09”). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company has implemented ASU 2016-09 effective January 1, 2017.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-1O”). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduce the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The Company is currently evaluating ASU 2016-10 and its impact on its consolidated financial statements or disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for the Company at the beginning of fiscal year 2019. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230)”, which provides guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective retrospectively for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. The new standard is effective for the Company at thenotes that this guidance will impact its disclosures beginning of fiscal year 2018. We are currently evaluating the impact of adopting this ASU on our consolidated financial statementsJanuary 1, 2020.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollar thousands, except share and do not expect adoption to have a material impact.per share data)
In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax liabilities and assets be classified as noncurrent amounts on the balance sheet. ASU 2015-17 will be effective for interim and annuals periods beginning after December 15, 2016 and may be applied prospectively or retrospectively. Early adoption of the standard is permitted. The new standard is effective for the Company at the beginning of fiscal year 2017. There was no impact on the Company’s unaudited condensed consolidated financial statements as the Company does not currently have a deferred tax asset or liability.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
NOTE 3 – GOING CONCERN
The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.The Company had a net income before non-controlling interest of $51,243 and a loss of $4,765,328 and net cash used in operating activities of $384,716 and $967,736, for the nine months ended September 30, 2017 and 2016, respectively. The Company has a working capital deficit of $7,151,084 and $9,759,119, and an accumulated deficit of $13,436,542 and $13,499,303 as of September 30, 2017 and December 31, 2016, respectively.These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of issuance of this report. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has a minimum cash balance available for payment of ongoing operating expense, has experienced losses from operations since inception, and it does not have a source of revenue sufficient to cover its operating costs. Its continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available, or will be available on terms acceptable to the Company.
Management plans to fund operations through additional debt and equity financing. Debt instruments may be convertible or non-convertible and will vary based on the Company’s needs and financing options available at such times.
NOTE 4 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
Notes Payable
During the nine months ended September 30, 2017, the Company entered into two separate loans to be paid by collection of its future accounts receivable and secured by substantially all assets of the Company including accounts receivable, cash, equipment, intangible assets, inventory and other receivables. The first loan resulted in cash proceeds $125,000 to the Company for future payments totaling $168,750 from future receivables and requires daily repayments of $1,339. The second resulted in cash proceeds of $50,000 for future payments totaling $68,000 from future receivables and requires daily cash repayments of $540. There was $91,395 due for the agreements as of September 30, 2017 included in current notes payable.
On May 1, 2017, the Company received a loan from an unrelated party for $25,000. The loan is due on demand and as such is included in current notes payable. The note does not accrue interest and had a principal balance due of $25,000 as of September 30, 2017.
Convertible Notes Payable
The Company has entered into a series of convertible notes payable to fund operations. While with differing noteholders, the terms of the outstanding convertible notes are substantially similar and accrue interest at 8% annually with a default interest rate of 24% and allow for the conversion of outstanding principal and interest to common stock at a price equal to a 45% to 50% from the lowest trading price in the preceding 20 days. The convertible notes outstanding contain cross default features and the Company defaulted on all notes in November 2016.
In February 2017, the Company agreed with certain noteholders to extend a redemption freeze agreement whereby the convertible note holders agreed to not convert outstanding principal and accrued interest into common stock for a period of 60 days. Upon the expiration of these agreements, a 90 day extension was executed whereby the noteholders agreed to not convert additional amounts through the first week of July 2017. Under the terms of the extension, each noteholder was granted the right to convert a limited amount of outstanding principal to common stock at a rate equal to the stated rate in the convertible note payable but not less than $0.02 per share and extended the due dates of the notes to July 2017. These agreements were extended again through August 23, 2017.
On September 18, 2017, the Company agreed with Noteholder 3 to make monthly cash repayments of $9,234 over a period of eight months. If the Company repays 70% of the total outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December 31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018.
On October 9, 2017, the Company agreed with Noteholder 4 to make monthly cash repayments of $11,000 over a period of eight months. If the Company repays 70% of the total outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December 31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018. Additionally, the Company agreed to use 30% of any gross proceeds raised in any financing to retire outstanding principal due.
On October 9, 2017, the Company agreed with Noteholder 1 to make monthly cash repayments of $44,000 over a period of eight months. If the Company repays 70% of the total outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December 31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018. Additionally, the Company agreed to use 30% of any gross proceeds raised in any financing to retire outstanding principal due.
The following table summarizes all convertible notes payable activity for the nine months ended September 30, 2017:
Holder | Issue Date | Due Date | Original Principal | Balance, December 31, 2016 | Advances | Conversions to Common Stock | Principal Balance, September 30, 2017 | |||||||||||||||||
Noteholder 1 | 11/25/2015 | 11/24/2016 | $ | 82,500 | $ | 82,500 | $ | - | $ | (35,971 | ) | $ | 46,529 | |||||||||||
Noteholder 1 | 12/21/2015 | 12/21/2016 | 27,000 | 27,000 | - | - | 27,000 | |||||||||||||||||
Noteholder 1 | 1/15/2016 | 1/15/2017 | 131,250 | 131,250 | - | - | 131,250 | |||||||||||||||||
Noteholder 1 | 3/8/2016 | 3/8/2017 | 50,000 | 50,000 | - | - | 50,000 | |||||||||||||||||
Noteholder 1 | 4/11/2016 | 4/11/2017 | 82,500 | 82,500 | - | - | 82,500 | |||||||||||||||||
Noteholder 1 | 4/11/2016 | 4/11/2017 | 82,500 | 82,500 | - | - | 82,500 | |||||||||||||||||
Noteholder 1 | 4/11/2016 | 4/11/2017 | 82,500 | 82,500 | - | - | 82,500 | |||||||||||||||||
Noteholder 1 | 5/16/2016 | 5/16/2017 | 100,000 | 100,000 | - | (60,000 | ) | 40,000 | ||||||||||||||||
Noteholder 1 | 7/22/2016 | 7/22/2017 | 50,000 | 50,000 | - | - | 50,000 | |||||||||||||||||
Noteholder 1 | 8/2/2016 | 8/2/2017 | 50,000 | 50,000 | - | - | 50,000 | |||||||||||||||||
Noteholder 2 | 11/20/2015 | 11/20/2016 | 37,000 | 37,000 | - | - | 37,000 | |||||||||||||||||
Noteholder 3 | 3/8/2016 | 3/8/2017 | 50,000 | 14,000 | - | - | 14,000 | |||||||||||||||||
Noteholder 3 | 5/16/2016 | 5/16/2017 | 100,000 | 100,000 | - | (77,500 | ) | 22,500 | ||||||||||||||||
Noteholder 3 | 7/22/2016 | 7/22/2017 | 50,000 | 50,000 | - | - | 50,000 | |||||||||||||||||
Noteholder 3 | 3/8/2016 | 3/8/2017 | 25,000 | 25,000 | - | (25,000 | ) | - | ||||||||||||||||
Noteholder 4 | 1/19/2016 | 1/15/2017 | 131,250 | 131,250 | - | (22,704 | ) | 108,546 | ||||||||||||||||
Noteholder 4 | 3/9/2016 | 3/8/2017 | 50,000 | 50,000 | - | (16,098 | ) | 33,902 | ||||||||||||||||
Noteholder 5 | 11/9/2015 | 11/9/2016 | 100,000 | 61,397 | - | (12,500 | ) | 48,897 | ||||||||||||||||
Noteholder 6 | 11/2/2016 | 11/2/2017 | 52,500 | 52,500 | - | (25,000 | ) | 27,500 | ||||||||||||||||
Noteholder 7 | 1/2/2017 | 8/2/2017 | 70,000 | - | 70,000 | (70,000 | ) | - | ||||||||||||||||
Totals | $ | 1,404,000 | $ | 1,259,397 | $ | 70,000 | $ | (344,773 | ) | $ | 984,624 |
The following is a summary of all convertible notes outstanding as of September 30, 2017:
Holder | Issue Date | Due Date | Principal | Discount | Unamortized Debt Issue Costs | Carrying Value | Accrued Interest | |||||||||||||||||
Noteholder 1 | 11/25/2015 | 11/24/2016 | $ | 46,529 | $ | - | $ | - | $ | 46,529 | $ | 22,912 | ||||||||||||
Noteholder 1 | 12/21/2015 | 12/21/2016 | 27,000 | - | - | 27,000 | 10,776 | |||||||||||||||||
Noteholder 1 | 1/15/2016 | 1/15/2017 | 131,250 | - | - | 131,250 | 51,666 | |||||||||||||||||
Noteholder 1 | 3/8/2016 | 3/8/2017 | 50,000 | - | - | 50,000 | 17,786 | |||||||||||||||||
Noteholder 1 | 4/11/2016 | 4/11/2017 | 82,500 | - | - | 82,500 | 28,733 | |||||||||||||||||
Noteholder 1 | 4/11/2016 | 4/11/2017 | 82,500 | - | - | 82,500 | 28,733 | |||||||||||||||||
Noteholder 1 | 4/11/2016 | 4/11/2017 | 82,500 | - | - | 82,500 | 28,733 | |||||||||||||||||
Noteholder 1 | 5/16/2016 | 5/16/2017 | 40,000 | - | - | 40,000 | 30,873 | |||||||||||||||||
Noteholder 1 | 7/22/2016 | 7/22/2017 | 50,000 | - | - | 50,000 | 10,751 | |||||||||||||||||
Noteholder 1 | 8/2/2016 | 8/2/2017 | 50,000 | - | - | 50,000 | 10,630 | |||||||||||||||||
Noteholder 2 | 11/20/2015 | 11/20/2016 | 37,000 | - | - | 37,000 | 10,607 | |||||||||||||||||
Noteholder 3 | 3/8/2016 | 3/8/2017 | 14,000 | - | - | 14,000 | 8,713 | |||||||||||||||||
Noteholder 3 | 5/16/2016 | 5/16/2017 | 22,500 | - | - | 22,500 | 28,559 | |||||||||||||||||
Noteholder 3 | 7/22/2016 | 7/22/2017 | 50,000 | - | - | 50,000 | 10,751 | |||||||||||||||||
Noteholder 3 | 3/8/2016 | 3/8/2017 | - | - | - | - | - | |||||||||||||||||
Noteholder 4 | 1/19/2016 | 1/15/2017 | 108,546 | - | - | 108,546 | 43,687 | |||||||||||||||||
Noteholder 4 | 3/9/2016 | 3/8/2017 | 33,902 | - | - | 33,902 | 11,839 | |||||||||||||||||
Noteholder 5 | 11/9/2015 | 11/9/2016 | 48,897 | - | - | 48,897 | 26,852 | |||||||||||||||||
Noteholder 6 | 11/2/2016 | 11/2/2017 | 27,500 | (2,664 | ) | - | 24,836 | 5,326 | ||||||||||||||||
Noteholder 7 | 1/2/2017 | 8/2/2017 | - | - | - | - | - | |||||||||||||||||
Totals | $ | 984,624 | $ | (2,664 | ) | $ | - | $ | 981,960 | $ | 387,927 |
Accrued Interest
There was $387,927 and $207,951 of accrued interest due on all convertible notes as of September 30, 2017 and December 31, 2016, respectively which is included in accounts payable and accrued liabilities on the balance sheet (seeNote 8 – Accounts Payable and Accrued Liabilities).
NOTE 5 – DERIVATIVE LIABILITIES
The Company analyzed the conversion features of the convertible notes payable as discussed in Note 4 for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative liability because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the reverse capitalization date of the convertible notes payable and certain outstanding option grants was $1,236,007 which was recorded as a derivative liability on the balance sheet.
As of September 30, 2017, the Company had a $1,143,186 derivative liability balance on the balance sheet and recorded a loss from derivative liability fair value adjustment of $161,746 during the nine months ended September 30, 2017. The derivative liability activity comes from convertible notes payable as discussed in Note 4. 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 sale of TPP. The options are exercisable at $0.18 per share unless the Company’s common stock is quoted at a price greater than $0.50 per share at which point the options are exercisable at $0.001 per share.
A summary of outstanding derivative liabilities as of September 30, 2017 is as follows:
Holder | Derivative Balance | |||
Noteholder 1 | $ | 39,944 | ||
Noteholder 1 | 23,179 | |||
Noteholder 1 | 112,676 | |||
Noteholder 1 | 42,924 | |||
Noteholder 1 | 70,825 | |||
Noteholder 1 | 70,825 | |||
Noteholder 1 | 70,825 | |||
Noteholder 1 | 34,339 | |||
Noteholder 1 | 42,924 | |||
Noteholder 1 | 42,924 | |||
Noteholder 2 | 31,764 | |||
Noteholder 3 | 12,019 | |||
Noteholder 3 | 19,316 | |||
Noteholder 3 | 42,924 | |||
Noteholder 4 | 93,185 | |||
Noteholder 4 | 29,104 | |||
Noteholder 5 | 93,636 | |||
Option Holder | 223,500 | |||
Noteholder 6 | 46,353 | |||
Total | $ | 1,143,186 |
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:
September 30, 2017 | December 31, 2016 | |||||||
Expected volatility | 72% - 796 | % | 155% - 871 | % | ||||
Expected term | .09 - 2.50 years | .19 – 2.54 years | ||||||
Risk free rate | 0.96% - 1.62 | % | .51% - 1.47 | % | ||||
Forfeiture rate | 0 | % | 0 | % | ||||
Expected dividend yield | 0 | % | 0 | % |
A summary of the changes in derivative liabilities balance for the nine months ended September 30, 2017 is as follows:
Fair Value of Embedded Derivative Liabilities: | ||||
Balance, December 31, 2016 | $ | 1,210,281 | ||
Initial measurement of derivative liabilities | 328,932 | |||
Change in fair market value | 161,746 | |||
Write off to additional paid in capital due to conversion | (557,773 | ) | ||
Balance, September 30, 2017 | $ | 1,143,186 |
NOTE 6 – STOCK OPTIONS
The following table summarizes all stock option activity for the nine months ended September 30, 2017: March 31, 2019:
Shares | Weighted- Average Exercise Price Per Share | |||||||
Outstanding, December 31, 2016 | 17,500,000 | $ | 0.18 | |||||
Granted | 7,500,000 | 0.18 | ||||||
Exercised | - | - | ||||||
Forfeited | (7,500,000 | ) | (0.18 | ) | ||||
Expired | - | - | ||||||
Outstanding, September 30, 2017 | 17,500,000 | $ | 0.18 |
Shares | Weighted- Average Exercise Price Per Share | |||||||
Outstanding, December 31, 2018 | 162,044 | $ | 16.09 | |||||
Granted | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding, March 31, 2019 | 162,044 | $ | 16.09 |
The following table discloses information regarding outstanding and exercisable options at September 30, 2017:March 31, 2019:
Outstanding | Exercisable | Outstanding | Exercisable | |||||||||||||||||||||||||||||||||||||||||
Exercise Prices | Exercise Prices | Number of Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | Number of Option Shares | Weighted Average Exercise Price | Exercise Prices | Number of Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | Number of Option Shares | Weighted Average Exercise Price | ||||||||||||||||||||||||||||||||
$ | 0.18 | 17,500,000 | $ | 0.18 | 3.23 | 10,833,334 | $ | 0.18 | 54.00 | 25,000 | $ | 54.00 | 1.0 | 25,000 | $ | 54.00 | ||||||||||||||||||||||||||||
17,500,000 | $ | 0.18 | 3.23 | 10,833,334 | $ | 0.18 | 21.00 | 47,044 | 21.00 | 1.24 | 47,044 | 21.00 | ||||||||||||||||||||||||||||||||
3.00 | 90,000 | 3.00 | 4.46 | 30,000 | 3.00 | |||||||||||||||||||||||||||||||||||||||
162,044 | $ | 16.09 | 2.48 | 102,044 | $ | 23.79 |
On May 31, 2016, the Company issued 10,000,000 options to a board member pursuant to its agreement with the member. One third of the 10,000,000 options issued vested immediately upon execution of the related agreement, resultingCUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in an immediate stock based expense of $558,323 being recognized. The remaining shares of the issuance vest based on performance milestones which the Company believes is 80% likely of occurring resulting in stock based expense of $558,328 during the year ended December 31, 2016, at which point there was a 50% probability of attainment,U.S. dollar thousands, except share and $334,997 during the nine months ended September 30, 2017 at which point the probability of attainment was updated to 80%. The remaining fair value of the unvested shares of $223,331 will be recognized according to the estimated probability of the performance obligations being achieved.per share data)
On July 14, 2016, the Company issued 7,500,000 options as part of its acquisition of TPP. The options were exercisable for a period of three years and carried an exercise price of $0.18 per share. The options carried a ratchet pricing feature whereby they become exercisable at $0.001 per share if the Company’s common stock trades at a price greater than $0.50 per share. The options carried a value of $898,490 which was recorded as a derivative liability as discussed inNote 5NOTE 4 – Derivative Liabilities. On March 31, 2017, the Company, as part of its sale of TPP, cancelled these options and reissued 7,500,000 options that are exercisable for a period of three years and carry an exercise price of $0.18 per share. The options carry a ratchet pricing feature whereby they become exercisable at $0.05 per share if the Company’s common stock trades at a price greater than $0.50 per share.STOCKHOLDERS’ EQUITY
Common Stock
The Company issued 1,000,000following summarizes the common stock options exercisable at $1.00 pursuant to its agreement with Glocal. This agreement was amended on August 9, 2016 in whichactivity for the option owners forfeited these options. The fair value of the 1,000,000 stock options granted with an exercise price of $1.00 was amortized through the forfeiture resulting in stock based compensation expense of $14,166.three months ended March 31, 2019:
Total stock based compensation expense was $334,997 and $1,123,735 during the nine months ended September 30, 2017 and 2016 leaving an unrecognized expense of $223,331 as of September 30, 2017. In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
Summary of common stock activity for the nine months ended September 30, 2018 | ||||
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company follows the provisions of ASC 850—Related Party Transactions & Disclosures relating to the identification of related parties and disclosure of related party transactions.
Our financial statements include disclosures of material related party transactions, other than expense allowances, and other similar items in the ordinary course of business. The disclosures include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
The Company has had extensive dealings with related parties including those in which our Chief Executive Officer holds a significant ownership interest as well as an executive position during the nine months ended September 30, 2017 and 2016. 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 our Chief Executive Officer holds an executive position.
With the exception of the Company’s purchase of a 9% interest in Next Cala, Inc. from a related party as described below, amounts scheduled below as “due to related parties” and “due from related parties” have not had their terms, including amounts, collection or repayment terms or similar provisions memorialized in formalized written agreements.
Related party balances at September 30, 2017 and December 31, 2016 consisted of the following:
Due from related parties
September 30, 2017 | December 31, 2016 | |||||||
(a) Glocal Card Services | 36,000 | 36,000 | ||||||
Total Due from related parties | $ | 36,000 | $ | 36,000 |
Due to related parties
September 30, 2017 | December 31, 2016 | |||||||
(b) Due to Next Communications, Inc. | $ | 3,119,851 | $ | 2,961,271 | ||||
(c) Due to Asiya Communications SAPI de C.V. | 5,998 | 95,120 | ||||||
(d) Michael DePrado | 99,604 | 99,604 | ||||||
Total Due from related parties | $ | 3,225,453 | $ | 3,155,995 |
309,497 | |
During the nine months ended September 30, 2017 and 2016, the Company recorded interest expense of $179,008 and $180,845 using an interest rate equal to that on the outstanding convertible notes payable as discussed inNote 6 – Convertible Notes Payable as imputed interest on the related party payable due to Next Communications. The interest was immediately forgiven by the related party and recorded to additional paid in capital.
Notes Payable, Related Party
During the year ended December 31, 2014, the Company entered into two notes with its President to purchase his interest in Next Cala, Inc. and separately his voting control in Next Cala. Inc. During the nine months ended September 30, 2017, the outstanding principal and accrued interest totaling $294,923 was converted to 8,900,000 shares of common stock.
Accounts Receivable, Related Party
The Company had outstanding accounts receivable of $199,894 from related parties as of September 30, 2017 of which $197,840 was due from Next Communications and $2,054 was due from Asiya Communications SAPI de C.V. The accounts receivable arose from the sale of wholesale telecommunications minutes to these entities.
Revenues (Related Party)
The Company generated revenues from related parties of $155,174 and $12,758 during the three months ended September 30, 2017 and 2016 and $232,605 and $12,818 during the nine months ended September 30, 2017 and 2016 as itemized below.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Next Communications, Inc. | $ | 155,174 | $ | - | $ | 226,840 | $ | - | ||||||||
Asiya Communications SAPI de C.V. | - | 81 | 1,972 | 81 | ||||||||||||
Next Cala 360 | - | 12,677 | 3,793 | 12,737 | ||||||||||||
Total | $ | 155,174 | $ | 12,758 | $ | 232,605 | $ | 12,818 |
On January 7, 2019, the Company issued 16,667 shares of its common stock pursuant 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.
On January 7, 2019, the Company received $50 under a private placement of equity and issued 16,667 shares of its common stock and warrants to purchase up to 16,667 shares of its common stock at an exercise price equal to $3.25 per share under a private placement of securities closed on December 13, 2018.
On January 29, 2019, the Company issued 125,243 shares of the Company to Heritage and its officers under the agreement to rescind the Company’s option to sell the stock in Limecom back to Heritage.
On February 12, 2019, the Company issued warrants to purchase up to 35,834 shares of its common stock at an exercise price equal to $3.25 per share under the October 25, 2018 private placement.
On February 28, 2018, the Company issued 309,497 shares of its common stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was $464.
On February 28, 2019, The Company signed a Binding Term Sheet with Optima Fixed Income LLC (“Optima”) for a total investment of $2,500 over one year and received the first deposit of $500 on the same date. Under the Binding Term Sheet, it was agreed that the initial invested amount of $500 will in consideration of 166,667 shares of Common Stock of the Company. These shares will be issued in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act. It was also agreed that Optima may purchase a Convertible Note in the amount of $2,000, which may be funded on a quarterly basis. The term of 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.
12
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIESCUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounts payable(Amounts in U.S. dollar thousands, except share and accrued liabilities consisted of the following as of September 30, 2017:per share data)
Trade payables | $ | 1,024,564 | ||
Accrued expenses | 138,836 | |||
Accrued interest, notes payable | 4,810 | |||
Accrued interest, convertible notes payable | 387,927 | |||
Accrued salaries and wages | 141,387 | |||
Total | $ | 1,697,524 |
During the year ended December 31, 2014, a former employee, Franjose Yglesias-Bertheau of Pleasant Kids (PLKD) filed lawsuit against PLKD claiming unpaid wages of $622,968 and was initially awarded that amount in a judgement. However, the judgement was later revised and the Company settled for $80,000 in March 2017 for which the Company paid $10,000 cash and entered into a convertible note payable for $70,000. The note was fully converted during the nine months ended September 30, 2017 leaving a payable balance of $0 outstanding as of September 30, 2017.
NOTE 95 – STOCKHOLDERS’ EQUITYRELATED PARTY TRANSACTIONS
Preferred Stock
At the time of incorporation, the Company was authorized to issue 60,000,000 shares of preferred stock with a par value of $0.001 of which 50,000,000 was designated Series A and 10,000,000 as Series B. With the completion of the recapitalization as discussed in Note 2, the outstanding Series A preferred shares were cancelled leaving a balance outstanding of Preferred Series A of -0-.
The Company has 10,000,000 shares of Preferred Stock designated as Series B. The Series B Preferred Stock is not convertible into Common Stock at any time and is not entitled to dividends of any kind or liquidation, dissolution rights of any kind. The holders of Series B Preferred Stock shall be entitled to 1,000 votes for each share of Series B Stock that is held when voting togetherhad extensive dealings with holders of the Common Stock.
The Company has 36,000,000 shares of Preferred Stock designated as Series D. The Class D Preferred Stock must be redeemed within six(6) months (or as soon thereafter as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia , Inc. (Next Communications, Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S. District Court for the Southern District of New York or any successor or other lawsuit relating to the subject matter thereofrelated parties including those in which the Corporation (or any successor-in-interest) is namedour Chief Executive Officer holds a significant ownership interest as a plaintiff (the “Lawsuit”). There were no Series D Preferred shares issued or outstandingwell as of September 30, 2017 or December 31, 2016.
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.
Duringan executive position during the nine months ended September 30, 2017,March 31, 2019 and year ended December 31, 2018. Due to our operational losses, the Company issued 18,059,865 shareshas relied to a large extent on funding received from Next Communications, Inc., an organization in which the Company’s Chief Executive Officer holds a controlling equity interest and an executive position. During the first calendar quarter of commons stock2017, Next Communications, Inc. filed for the conversion of $344,744 of principal of convertible notes payable and 967,045 shares for the conversion of $19,341 of accrued interest. The conversion of principal and accrued interest on convertible notes payable to common stock were done so at the contractual terms of each respective agreement. Additionally, the Company issued 8,449,654 common shares valued at $280,000 as repayment ofbankruptcy protection. As a non-convertible related party loan and 450,346 common shares valued at $14,932 as repayment of non-convertible related party accrued interest. The related party is an officer of the Company. The fair value of the shares issued as repayment ofresult, the related party payable was $338,200 usingis being handled by a court appointed trustee as an asset of Next Communications, Inc. and the close priceCompany may be compelled to repay the amounts due. On January 29, 2019, the United States Bankruptcy Court Southern District of $0.038 per share onFlorida 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 dateforgiveness of the transaction resulting in an excess fair valuebalance of shares issued upon conversion of $43,277 which was recorded as compensation expense. The Company also issued 12,809,091 shares of common stock valued at $720,200 for services were valued using the close pricepayable balance.
With the exception of the Company’s common stock onpurchase of a 9% interest in Next Cala, Inc. from a related party and the daterelated party payable to Orlando Taddeo for the acquisition of issuanceLimecom as quoted on the OTCBB.described below, amounts scheduled below as “due to related parties” and “due from related parties” have not had their terms, including amounts, collection or repayment terms or similar provisions memorialized in formalized written agreements.
Related party balances at March 31, 2019 and December 31, 2018 consisted of the following:
Due from related parties
March 31, 2019 | December 31, 2018 | |||||||
(a) Glocal Card Services | 36 | 36 | ||||||
Total Due from related parties | 36 | 36 |
Related party payables, net of discounts
March 31, 2019 | December 31, 2018 | |||||||
(b) Due to Next Communications, Inc. (current) | $ | 2,912 | $ | 2,972 | ||||
(c) Due to Asiya Communications SAPI de C.V. (current) | 26 | 26 | ||||||
(d) Michael De Prado (current) | - | 100 | ||||||
(e) Orlando Taddeo | - | 2,613 | ||||||
(f) Next Cala 360 (current) | 14 | 14 | ||||||
Total Due from related parties | $ | 2,952 | $ | 5,725 |
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 | ||||
balance. On March 5, 2019, Cuentas paid $50 to the trust account of the specific creditor. |
Michael De Prado is the Company’s President. On February 28, 2019, the Company issued |
(e) | Amount due to Orlando Taddeo from the acquisition of Limecom. |
(f) | Next Cala 360, is a Florida corporation established and |
As of September 30, 2017,During the three months period ended March 2019, the Company has 289,961,684 common shares outstanding, a totalrecorded interest expense of 72,980,270 common share equivalents as discussed inNote 2 – Summary of Significant Accounting Policies and Basis of Presentation.With 360,000,000 shares authorized, there are insufficient common shares in treasury$58, using an interest rate equal to meet all ofthat on the Company’s common share equivalents obligations. All of the common share equivalents, or 72,980,270, arise from outstanding convertible notes payable as discussedimputed interest on the related party payable due to Next Communications. During the year ended December 31, 2018, the Company recorded interest expense of $237 using an interest rate equal to that on the outstanding convertible notes as imputed interest on the related party payable due to Next Communications. The interest was immediately forgiven by the related party and recorded to additional paid in capital.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollar thousands, except share and per share data)
Note 2 – SummaryRevenues (Related Party)
The Company generated revenues from related parties of Significant Accounting Policies$0 and Basis of Presentation$2,248 during the three months ended March 31, 2019 andNote 4 – Notes Payable and Convertible Notes Payableand 2018 as such have been recognized as a debt obligation in conjunction with the underlying derivative liabilities as discussed inNote 5 – Derivative Liabilities. itemized below:
For the Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Next Communications, Inc. | - | 1,124 | ||||||
Asiya Communications SAPI de C.V. | - | 1,124 | ||||||
Total | - | 2,248 |
NOTE 106 – CUSTOMER CONCENTRATION
Sales to Next Communications, a related party as discussed inNote 7 – Related Party Transactions, generated $155,174 and $226,840 of revenue during the three and nine months ended September 30, 2017 which represented 25% and 13% of total revenues during those periods.
The Company did not have any one customer account for more than 10% of its revenues during the three or nine months ended September 30, 2016.
March 31, 2019. The Company generated allapproximately 57% of its revenues from the sale of telecommunications minutes, both at wholesale and retail, duringfor the three and nine months ended September 30, 2017.March 31, 2018 from four separate customers.
NOTE 117 – COMMITMENTS AND CONTINGENCIES
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
On April 7, 2016, the Company executed an agreement with a third partyservice provider to provide market awarenesscertain services for the Company. TheIn 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 $500,000,000$500 and an additional 1% when it reached $750,000,000.reaches $750. The Company recorded an expense associated with the non-variable portion of the agreement. However, the probability of this eventthe Company’s market capitalization reaching these thresholds is uncertain at present and the Company has not accrued a contingent lossfee as of September 30, 2017, or DecemberMarch 31, 2016 as a result.2019.
On October 14, 2014, one of our operating subsidiaries, NxtGn, Inc. and Next Communications, Inc., an entity controlled by our CEO, (collectivelyFebruary 12, 2018, the “Plaintiffs”) filed suit in the United States District Court for the Southern district of New York againstCompany was served with a complaint from Viber Media, Inc. Plaintiffs filed an Amended Complaint asserting four claims: misappropriation(“Viber”) for reimbursement of attorney’s fees and costs totaling $528 arising from a business idea, misappropriation of trade secrets, breach of contract, and unjust enrichment. Viber moved the Court to dismiss the Amended Complaint. On March 30, 2016, U.S. District Judge Richard Sullivan issued an opinion and order on Viber’s motion to Dismiss. Specifically, Judge Sullivan ordered that Viber’s motion to dismisspast litigation with Viber. The Company is granted on Plaintiffs’ misappropriation of a business idea claim, but deniedvigorously defending their rights in this case as to their misappropriation of trade secrets, breach of contract, and unjust enrichment claims.we believe this demand is premature as litigation is ongoing. The Company has appealed the court’s decisionno accrual related to dismiss. The Company has not accrued any gains or losses associated with this case as it would be a contingent gain and recorded when received.
On September 20, 2016, the Company received a notice 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 be dismissed as defendants and has not accrued a contingent losscomplaint as of September 30, 2017 as a result.March 31, 2019 given the premature nature of the motion.
On July 6, 2017, the Company received notice that an existing legal claim against Accent InterMedia (“AIM”) had been amended to include claims against the Company. The claims brought against the Company include failure to comply with certain judgments for collection of funds by the plaintiff while having a controlling interest in AIM via its ownership of Transaction Processing Products (“TPP”).
On December 20, 2017, a Complaint was filed by J. P. Carey Enterprises, Inc., alleging a claim for $473 related to the Franjose Yglesias-Bertheau filed lawsuit against PLKD listed above. Even though the Company made the agreed payment of $10 on January 2, 2017 and issued 12,002 shares as conversion of the $70 note as agreed in the settlement agreement, the Plaintiff alleges damages which the Company claims are without merit because they received full compensation as agreed. The Company believesis in the amended case is without merit and that, per its agreement to sell its interest in TPP, any claims broughtprocess of defending itself 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 be dismissed as defendants. As a result, no contingent loss as been accrued as of September 30, 2017.
In November 2017, the Company received a demand from legal counsel of Ridge Resources regarding the physical issuance of 8,900,000. The common shares are accounted for as issued during the nine months ended September 30, 2017 when the obligation to issue the shares arose however have yet to be physically issued. The Company intends to issue these shares when certain common share reserves associated with its convertible notes payable are released.claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On January 28, 2019, J. P. Carey Enterprises, Inc. filed a contingent loss associatedsimilar claim against the Company in Fulton County, Georgia. The Company is vigorously defending its position in this case.
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollar thousands, except share and per share data)
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 March 31, 2019, related to the complaint given the early nature of the process.
On October 23, 2018, the Company was served by Telco Cuba Inc. for an amount in excess of $15 but the total amount was not specified. The Company was served on Dec. 7, 2018 with a complaint alleging damages including unspecified damages for product, advertising and other expenses in addition to $50 paid to Defendants. The Company has taken steps to defend itself vigorously in this demandcase. Depositions are in process of being scheduled.
On October 25, 2018, the Company was served with a complaint by former company CFO, Michael Naparstek claiming breach of contract for 1,666,666 shares (pre-split), $25 of compensation and $9 of expenses. This case was withdrawn in Palm Beach County and on January 11, 2019, a similar complaint was filed in Miami-Dade county. The Company has taken steps to defend itself vigorously in this case.
On November 7, 2018, the Company was served with a complaint by a service provider claiming Breach of Contract for $29.
On November 7, 2018, the Company was served with a complaint by IDT Domestic Telecom, Inc. vs the Company and its former subsidiary Limecom, Inc. for telecommunications services provided to the Subsidiary during 2018 in the amount of $50. The Company has no accrual as it expectsof March 31, 2019, related to remedy the physical issuance beforecomplaint given the endearly nature of 2017.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 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 128 – SUBSEQUENT EVENTS
Common Stock Issuances
On various dates through November 10, 2017,or about April 11, 2019 has settled a complaint for a breach of contract in the amount of $29 in consideration of $5.
On April 17, 2019, the Company issuedsigned a Settlement Agreement with Comdata, Inc. d/b/a Stored Value Solutions (“SVS”) whereby Cuentas will pay a total of 7,913,851 shares of common stock for the conversion of $146,250 of outstanding principal and 1,047,123 shares of common stock for the conversion of $20,942 of outstanding interest on convertible notes payable. All conversions were performed at the contractual terms within each respective convertible note. The Company also issued 2,500,000 shares of common stock for cash proceeds of $64,000.
Redemption Agreements on Convertible Notes Payable
As discussed inNote 4 – Convertible Notes Payable, the Company entered into the following agreements with convertible noteholders:
On October 9, 2017, the Company agreed with Noteholder 4 to make monthly cash repayments of $11,000$38 over a period of eight months. If the Company repays 70% of the total outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December 31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018. Additionally, the Company agreed to use 30% of any gross proceeds raised in any financing to retire outstanding principal due.
On October 9, 2017, the Company agreed with Noteholder7 months, starting July 1, to make monthly cash repayments of $44,000 over a period of eight months. If the Company repays 70% of the total outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December 31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018. Additionally, the Company agreed to use 30% of any gross proceeds raised in any financing to retire outstanding principal due.
Acquisition of Limecom, Inc.
As discussed in an 8K filed with the Securities Exchange Commission on October 26, 2017, on October 24, 2017, the Company received 100% of all outstanding shares of Limecom, Inc., as per the acquisition agreement which was effective as of October 20, 2017. The Company, through its wholly-owned subsidiary, Next Group Acquisition Inc., purchased all of the issued 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 with Heritage provided for the payment of 51,804,809 shares of Next Group Holdings, Inc. restricted common stock and the sum of $2,000,000 for the shares of LimeCom. The cash component of the purchase price is payable within eight months from the closing date. 10,360,800 shares of NXGH stock will be held in escrow for a period of eight months2019. Only in the event that any unknown or undisclosed claims are made against LimeCom.the Company will default by failing to make timely payments, SVS may file in Kentucky for the judgment of $70.
On April 30, 2019, Cuentas received a Notice of Default (the “Notice”) from Genovese Joblove Battista contending that a $550 Payment was in default due to the non-payment ordered by the United States Bankruptcy Court Southern District of Florida Miami Division and the potential reinstatement of a $1,678 Final Judgment in favor of 100 NWT if not cured by May 11, 2019. On May 10, 2019, the Company paid $550 to the trust account of the specific creditor per the order and satisfied its obligation under the Approved Plan of the Reorganization for Next Communications, Inc., that was approved by the United States Bankruptcy Court Southern District of Florida Miami Division on January 29, 2019.
On May 1, 2019, the Company received a Notice of Demand for Arbitration from Secure IP Telecom, Inc. who supposedly had a Reciprocal Carrier Services Agreement (RCS) exclusively with Limecom, Inc. and not with Cuentas. The Demand originated from a Demand for Arbitration that Secure IP received from VoIP Capital International (VoIP) in March 2019 demanding $1,053 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. The Company is requiredwill vigorously defend its position to deliver the sharesbe removed as a named Party in this Notice of stockDemand due to the Purchaser andfact that Cuentas rescinded the Escrow Agent within ten days of the closing date. As of November 20, 2017,Limecom acquisition on January 30, 2019.
On May 10, 2019 the Company had not yet deliveredsigned an Amendment to the 51,804,809 sharesBinding Term Sheet with Optima whereas Optima will make an additional deposit of common stock$550 to Heritagethe Company and escrow agentwhereas that additional deposit will be provided to the Company in the form of a Convertible Note as required bydiscussed in the stock purchase agreement. The seller hasBinding Term Sheet. It was also agreed that Optima will provide an additional amount of $1,450 to extend the date for deliveryCompany which will be provided in a form of a Convertible Note at the following dates:
Date | Amount | |||
05/28/2019 | $ | 200 | ||
08/28/2019 | $ | 500 | ||
11/28/2019 | $ | 500 | ||
02/28/2020 | $ | 250 |
All the other terms and conditions of the shares to December 1, 2017.Binding Term Sheet, will remain in full force and effect.
The acquisition further provides that LimeCom must achieve $125,000,000 in revenues in fiscal year 2017 and $2,500,000 in EBITA. In the event that Limecom does not achieve these amounts, the Company will pay according to the formula written in the acquisition agreement. 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, will be appointed as a director of the Company.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
The following discussion and analysis providesprovide information which management of the Company believes to be relevant to an assessment and understanding of the Company’s results of operations and financial condition. This discussion should be read together with the Company’s financial statements and the notes to the financial statements, which are included in this report.
Forward-Looking Statements
This Report contains forward-looking statements that relate to future events or our future financial performance. Some discussions in this report may contain forward-looking statements that involve risk and uncertainty. A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this Report. Forward-looking statements are often identified by words like “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project” and similar words or expressions that, by their nature, refer to future events.
In some cases, you can also identify forward-looking statements by terminology such as “may,” “will,” “should,” “plans,” “predicts,” “potential,” or “continue,” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements in an effort to conform these statements to actual results.
Business HistoryCompany Overview
Next Group Holdings, Inc,Cuentas, Inc. (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 prepaid telecommunications minutes to consumers through its Tel3 division and also offers wholesale telecommunications minutes through its Limecom subsidiary.
The Company was incorporated under the laws of the State of Florida on September 21, 2005 to act as aan holding company for its subsidiaries, both current and future. Its subsidiaries are Meimoun and Mammon, LLC (100% owned), Next Cala, Inc (94% owned)., NxtGn, Inc. (65% owned) and Next Mobile 360, Inc. (100% owned), SDI Next Distribution LLC (51% owned). Additionally, Next Cala, Inc. has a 60% interest in NextGlocal, a subsidiary formed in May 2016.
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 operations2016, the Company acquired a business segment, Tel3, from an existing corporation. Tel3 was merged into Meimoun 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.Mammon, LLC effective January 1, 2017.
Next Cala, Inc,Formation of SDI NEXT Distribution LLC (“Cala”SDI NEXT”) was formed under the laws of Florida on July 10, 2009 to the purpose of offering prepaid and reloadable debit cards to the retail market. Cala serves consumers in the underbanked and unbanked populations through Incomm, a leading provider of payment remittance services worldwide.
On May 27, 2016, the Cala entered into a Joint Venture Agreement (the “Agreement”) with Glocal Payments Solutions, Inc (“Glocal”) to form a joint venture in which Cala would have a 60% interest and Glocal would have a 40% interest. The Joint Venture will seek to launch and activate up to 45,000 prepaid debit cards under the Cala brand by December 31, 2016 and 360,000 additional cards during the6, 2017, calendar year. Either party may terminate the agreement at December 31, 2016 if certain objectives are not met.
NxtGn, Inc. (“NxtGn”) was formed under the laws of Florida on August 24, 2011 to develop a unique High Definition telepresence product (AVYDA) which allows users to connect with celebrities, public figures, healthcare and education applications via a mobile phone, tablet or personal computer.
On July 22, 2016, the Company completed its acquisitionformation of Transaction Processing Products, Inc. (“TPP”)SDI NEXT Distribution in which hasit owns a 64%51% membership interest, in Accent InterMedia, LLC (“AIM”) and no other assets or liabilities. AIM operatespreviously announced August 24, 2017 as a leadingLetter 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 provider but was discontinued on March 31, 2017.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 presently serves.
Limecom
On August 10, 2016, M&M, a wholly owned subsidiaryOctober 23, 2017, the Company acquired 100% of the Company, closed the acquisition of Tel3 from a related party. Tel3 provides prepaid international long distance telephone services.
Overviewoutstanding interests in Limecom, Inc.
On January 12, 2016,29, 2019, the Company and effectiveHeritage 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 January 1, 2016, the Company issued 177,539,180to Heritage and its Stockholders will not be returned to the Company, and the remaining 34,537 shares of its restricted common stock and 10,000,000the 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 Series B preferredStockholders 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 100%salaries due to them. Those shares will be issued and held in escrow until the full satisfaction of the issuedterms 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 outstanding sharesLimecom agrees to pay the sum of Next Group Holdings, Inc. (NEXT). Based on$25,000 to AMEX and the completionbalance of the agreement NEXT became a wholly-owned subsidiarypayments under the Stipulation of the Company.Settlement with American Express as agreed upon by Limecom.
On December 31, 2015, weJanuary 30, 2019, Cuentas sent an executed document to Limecom rescinding the acquisition of Limecom, Inc. (“Limecom”) according to the Amendment signed our merger with Next Group Holdings, Inc. a Florida Corporation but the transaction was not completed until January 12, 2016, when the document was filed with the State of Florida. The accounting effective date of the transaction in January 1, 2016. The Company filed for a change of name is Next Group Holdings, Inc. and its symbol is NXGH.29, 2019.
As a result of this merger, we adopted Next Group’s corporate structure and began a transition into Cuentas fulfilled its business model. Through our subsidiaries, we engage in use of certain licensed technologyobligation to provide innovative telecommunications, mobility, and remittance solutionspay $25,000 to unserved, unbanked, and emerging markets.
Our subsidiaries are Next Mobile 360 LLC (100%), a limited liability company formed underAMEX pursuant to the laws of Florida (“Next Mobile”), Meimoun & Mammon, LLC (100%), a limited liability company formed under the laws of Florida (“M&M”), NxtGn, Inc. (65%), a corporation formed under the laws of Florida (“NxtGn”), and Next CALA, Inc. (94%), a corporation formed under the laws of Florida.
Item 2. Business Description
Item 2.01. Business Description
Next Group Holdings through its operating subsidiaries, engages in the business of using proprietary technology and certain licensed technology to provide innovative telecommunications and telecommunications mobility and remittance solutions in emerging markets.Amendment dated January 29, 2019.
Principal Products
Through its subsidiaries, the Company offers telecommunication services, prepaid and reloadable general purpose debit cards, commercial gift cards and high definition telepresence products.
OperationsNext Communications, Inc. Bankruptcy
The Company has historically received financing from Next Communications, Inc., an entity controlled by our CEO, and had a related party payable balance of approximately $2,912,000 and approximately $2,972,000 due to Next Communications, Inc. as of March 31, 2019 and December 31, 2018. During the first calendar quarter of 2017, Next Communications, Inc. filed for bankruptcy protection. As a result, the related party payable is engagedbeing 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 the Company would pay $600,000 to a specific creditor in consideration for the businessforgiveness of using proprietary technologythe balance of the payable to Next Communications, Inc. On March 10, 2019, the Company paid $50,000 to the trust account of the specific creditor per the order and certain licensed technologyon May 10, 2019, the Company paid $550,000 to provide innovative telecommunicationsthe same trust account of the specific creditor per the order and telecommunications mobility and remittance solutions in emerging markets.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.
TransitioningEntrance into Non-Binding Letter of OperationsIntent with Facio
Prior
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 and big data technologies to deliver digital banking services autonomously, without human intervention. This agreement, if consummated and implemented, will enable the Cuentas GPR Card users to purchase popular digital content, 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. However, the Company cautions its shareholders and others considering trading its securities that, due to the reverse recapitalization, we operated primarily as a manufacturing, marketingnature of the Letter neither the Company or Facio Ltd. are obligated to consummate and distribution company focused on juice based beverages. These operations were phased out followingimplement the reverse recapitalization.above transaction.
17
Results of operations for the three months ended September 30, 2017March 31, 2019 and 20162018
Revenue
Total revenueThe Company generates revenues through the sale and distribution of prepaid telecom minutes and other related telecom services.
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Revenue from sales | 302 | 17,750 | ||||||
Revenue, sales to related parties | - | 2,248 | ||||||
Total revenue | 302 | 19,998 |
Revenues during the three months ended March 31, 2019 totaled $302,000 compared to $19,998,000 for the three months ended September 30, 2017, were $625,188, comparedMarch 31, 2018. The decrease in the total Revenue is mainly due to revenuethe recession of $515,230the Limecom acquisition which was consolidated for the full three month periodmonths ended September 30, 2016. DuringMarch 31, 2018 and not consolidated in the three months ended September 30, 2017,March 31, 2019. The Company no longer owns Limecom as of January 2019.
Costs of Revenue
Costs of revenue consists of the purchase of wholesale minutes for resale and related telecom platform costs. Cost of revenues from non-related parties totaled $470,014 and revenues from related parties totaled $155,174 compared to $502,472 from non-related parties and $12,758 from related parties during the three months ended September 30, 2016.March 31, 2019 totaled $237,000 compared to $19,258,000 for the three months ended March 31, 2018. The increasedecrease in revenue wasthe total Cost of Revenue is mainly due to increased salesthe recession of wholesale minutes to Next Communications,the Limecom acquisition which was consolidated for the full three months ended March 31, 2018 and not consolidated in the three months ended March 31, 2019. Limecom contributed a related party, which totaled $155,174 and $0total of $18,959 of costs of revenues during the three months ended September 30, 2017 and 2016, respectively.March 31, 2018. The Company no longer owns Limecom as of January 2019.
Cost of Goods SoldOperating Expenses
The Company incurred total cost of goods sold of $503,231 forOperating expenses totaled $490,000 during the three months ended September 30, 2017,March 31, 2019 compared to $441,907 for$871,000 during the three months ended September 30, 2016 resultingMarch 31, 2018 representing a net decrease of $381,000. The decrease in gross marginsthe operating expenses is mainly due to the recession of $121,957 and $73,323. The increase in cost of goods soldthe Limecom acquisition which was the result of increased minutes purchased to be resold as discussed previously.
Operating Expenses
Operating expensesconsolidated for the full three months ended September 30, 2017 were $522,183 compared to $1,868,409 for the three months ended September 30, 2016. Operating expenses were decreasedMarch 31, 2018 and not consolidated in the three months ended September 30, 2017 due mainly to a decrease in stock based compensation included in officer compensation and professional fees.
Loss from OperationsMarch 31, 2019. The Company no longer owns Limecom as of January 2019.
Loss from operations was $400,226Other Income
The Company recognized other income of $105,000 during the three months ended September 30, 2017,March 31, 2019 compared to $1,795,086 for the three months ended September 30, 2016. The decrease in losses from operations is the result of decreased stock based compensation combined with improved gross margins as discussed previously.
Other Income (Expense)
Total otheran income (expense)$1,647,000 during the three months ended September 30, 2017 was aMarch 31, 2018. The net income of $2,086,834 comparedchange from the prior period is mainly due to $779,222 the same period in 2016. The increase in other income was the result of increased gains on the fair value measurements of derivative liabilities which totaled $1,687,253 during the current period compared to $1,191,239 during the same period in 2016 and $550,000 of available for sale securities received as a referral fee and recorded as other income.
Net Income (Loss)
The Company recognized net income before non-controlling interest for the three months ended September 30, 2017 of $1,686,608 compared to a loss of $1,015,864 for the three months ended September 30, 2016. The change in net income (loss) for the three months ended September 30, 2017 is due mainly to the decrease in stock based compensation in the current period, available for sale securities received as other income and increased gainsgain recognized on the fair value measurement of our derivative and stock-based liabilities.
Results Loss from Change in Fair Value of operationsstock-based liabilities for the nine months ended September 30, 2017 and 2016
Revenue
Total revenue for the nine months ended September 30, 2017, were $1,699,843, compared to revenue of $600,300 for the nine monththree-month period ended September 30, 2016. During the nine months ended September 30, 2017, revenues from non-related parties totaled $1,467,238 and revenues from related parties totaled $232,605 compared to $587,482 from non-related parties and $12,818 from related parties during the nine months ended September 30, 2016. The increase in revenueMarch 31, 2019 was due to the acquisition of Tel3 which was completed during July 2016. Due to the timing of the acquisition, results of Tel3 are included for a full nine months in the current period and three months in 2016.
Cost of Goods Sold
The Company incurred total cost of goods sold of $1,288,663 for the nine months ended September 30, 2017, compared to $591,261 for the nine months ended September 30, 2016 resulting in gross margins of $411,180 and $9,039. The increase in cost of goods sold was the result of our acquisition of Tel3 closing in July 2016 and the incremental costs associated with offering telecom minutes for consumers. Due to the timing of the acquisition, results of Tel3 are included for a full nine months in the current period and three months in 2016.
Operating Expenses
Operating expenses for the nine months ended September 30, 2017 were $2,248,593 compared to $5,003,422 for the nine months ended September 30, 2016. Operating expenses were decreased in the nine months ended September 30, 2017 due mainly to a decrease in stock based compensation included in officer compensation and professional fees.
Loss from Operations
Loss from operations was $1,837,413 during the nine months ended September 30, 2017, compared to $4,994,383 for the nine months ended September 30, 2016. The decrease in losses from operations is the result of decreased stock based compensation combined with improved gross margins$54,000 as discussed previously.
Other Income (Expense)
Total other income (expense) during the nine months ended September 30, 2017 was a net gain of $1,888,656 compared to a gain of $229,055$1,563,000 for the samethree-month period in 2016.ended March 31, 2018. The increase in other income was the result of a gain realized on the disposal of a business of $2,213,103 which occurred during the nine months ended September 30, 2017, partially offset by increased losses on the fair value measurements of derivative liabilities which totaled $161,746 during the current period compared to a gain of $1,583,425 during the same period in 2016 and available for sale securities received as a referral fee and recorded as other income totaling $550,000. We expect the gain realized from this disposal to be a one time event.
Net Income (Loss)
Net income before non-controlling interest for the nine months ended September 30, 2017 was $51,243 compared to a loss of $4,765,328 for the nine months ended September 30, 2016. The decrease in net loss for the nine months ended September 30, 2017(loss) is due mainlyattributable to the decrease in stock based compensation,the Fair Value of our stock-based liabilities mainly due to the decrease (increase) in the price of share of our common stock.
Net Income (Loss)
We incurred a referral feenet loss of $550,000 recognized$320,000 for the three-month period ended March 31, 2019, as compared to a net income of $1,524 for the three-month period ended March 31, 2018.
18
Inflation and Seasonality
In management’s opinion, our results of operations have not been materially affected by inflation or seasonality, and management does not expect that inflation risk or seasonality would cause material impact on our operations in 2017 that did not exist in 2016the future.
Liquidity and gain recognized onCapital Resources
Liquidity is the disposalability of a businesscompany to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the current period partially offsetmanagement of liquidity are funds generated by increased losses on the fair value measurementoperations, levels of derivative liabilities.accounts receivable and accounts payable and capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2017, the CompanyMarch 31, 2019, we had cash and cash equivalents of $57,432, net current assets$179,000 as compared to $154,000 as of $824,812 and current liabilitiesDecember 31, 2018. As of $7,975,896 creatingMarch 31, 2019, we had a working capital deficit of $7,151,084. $5,237,000 thousand, as compared to a deficit of $7,548,000 as of December 31, 2018. The decrease in our working capital deficit was mainly attributable to the decrease of $1,740,000 in our accounts payable, $2,120,000 in our other accounts payables and $1,967,000 in short term related parties payables, which was mitigated by a decrease of $3,667,000 in our trade account receivables.
Net cash used in operating activities was $384,716 and $967,736$465,000 for the nine monthsthree-month period ended September 30, 2017 and 2016, respectively. Current assets consistedMarch 31, 2019, as compared to cash from operating activities of $57,432 of cash; $159,252 of accounts receivable; $49,720 of related party accounts receivable; $8,408 of prepaid expenses and $550,000 of investments.
As of December 31, 2016, the Company had $256,302 of cash, total current assets of $564,938 and total current liabilities of $10,324,057 creating a working capital deficit of $9,759,119. Current assets as of December 31, 2016 consisted of $256,302 of cash, accounts receivable net of allowance of $9,661, finance deposits of $25,000, prepaid expenses of $48,091 and current assets from discontinued operations of $225,884.
Going Concern
The Company’s unaudited condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs. These conditions raise substantial doubt about the company’s ability to continue as a going concern.
Under the going concern assumption, an entity is ordinarily viewed as continuing in business$14,000 for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the Business paragraph and eventually attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with research and development associated with the launch of the company’s Cuentas branded NextCala general purpose reloadable card. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon internally generated funds and funds from the sale of shares of stock to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse affect upon it and its shareholders.
Operating Activities
The Company used $384,716 of cash in operations during the nine monthsthree-month period ended September 30, 2017 and $967,736 during the nine months ended September 30, 2016.March 31, 2018. The Company’s primary uses of cash have been for professional support marketing expenses and working capital. capital purposes.
Net cash used in operatinginvesting activities duringwas $0 for the nine monthsthree-month period ended September 30, 2017 consisted of net income of $62,761, non-cash losses and gains totaling $738,530 and changes in working capital of $291,053. All cash received has been expended inMarch 31, 2019, as compared to $14,000 for the furtherance of growing future operations. three-month period ended March 31, 2018.
Investing Activities
The Company generated cash from investing activities of $0 and $85,486 during the nine months ended September 30, 2017 and 2016. The $85,486 generated from investing activities during the nine months ended September 30, 2016 was the collection of a related party receivable of $41,913 and cash acquired in acquisitions net of cash paid totaling $43,573.
Financing Activities
The Company generated cash from financing activities of $185,846 during the nine months ended September 30, 2017 compared to $998,801 during the same period in 2016. Net cash provided by financing activities was approximately $490,000 for the three-month period ended March 31, 2019, as compared to net cash used for financing activities of approximately $55,000 for the three-month period ended March 31, 2018. We have principally financed our operations in 2019 through the sale of our common stock and the issuance of debt.
We have principally financed our operations through the sale of our common stock and the issuance of debt. Due to our operational losses, we 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, consisted of repayments ofNext Communications, Inc. filed for bankruptcy protection. As a bank overdraft of $7, proceeds from loans payable of $116,395 and proceeds fromresult, the related party loanspayable is being handled by a court appointed trustee as an asset of $69,458. NetNext Communications, Inc. and the Company may need to begin repaying the amounts due on a more fixed schedule. There was $2,912,000 and $2,972,000 due to Next Communications, Inc as of March 31, 2019 and December 31, 2018, 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 (100 NWT) in consideration from forgiveness of the balance of the payable balance was not paid in the first quarter of 2019. Our financial statements have been prepared assuming that the Company will continue as a going concern.
On or about March 5, 2019, Cuentas and Next Communication Inc. paid $100,000 to the trust account of Genovese Joblove Battista, counsel for 100 NWT. Unfortunately, Cuentas was financially unable to make the $550,000 payment and was planning on making payments according to a payment plan previously approved by the court, but by omission, was not included in the final motions.
On April 30, 2019, Cuentas received a Notice of Default (the “Notice”) from Genovese Joblove Battista, a creditor of Next Communication Inc., contending that a $550,000 Payment was in default due to the non-payment ordered by the United States Bankruptcy Court Southern District of Florida Miami Division and the potential reinstatement of approximately $1,678,000 Final Judgment in favor of 100 NWT if not cured by May 11, 2019. On May 10, 2019, the Company paid $550,000 to the trust account of the specific creditor per the order and satisfied its obligation under the Approved Plan of the Reorganization for Next Communications, Inc., that was approved by the United States Bankruptcy Court Southern District of Florida Miami Division on January 29, 2019.
Our liquidity needs are principally for the funding of our operations and the development and the launch of the Cuentas GPR Card. Based on the foregoing, On February 28, 2019, The Company signed a Binding Term Sheet with Optima Fixed Income LLC (“Optima”) for a total investment of $2,500,000 over one year and received the first deposit of $500,000 on the same date. Under the Binding Term Sheet, it was agreed that the initial invested amount of $500,000 will in consideration of 166,667 shares of Common Stock of the Company. It was also agreed that Optima may purchase a Convertible Note in the amount of $2,000,000, which may be funded on a quarterly basis. The term of 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. 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.
Despite the Capital raise that we have conducted and the above conditions and raise substantial doubt about our ability to continue as a going concern. Although we anticipate that cash provided by financing activities in 2016 consisted of proceeds from bank overdrafts of $1,704, proceeds from loans payable of $50,000, repayments of loans payable totaling $20,961, proceeds from convertible notes of $969,130, repayments of related party loans payable of $47,481, $1,184 ofresources will be available to the Company through its current operations, it believes existing cash assumedwill not be sufficient to fund planned operations and projects investments through the reverse capitalizationnext 12 months. Therefore, we are still striving to increase our sales, attain profitability and $45,225 of cash contributed in an acquisition from a related party.
The Company may not have sufficient resources to fully develop any new products or expand our market area unless it is able to raise additional financing. The Company can makefunds for future operations and any meaningful equity or debt financing will likely result in significant dilution to our existing stockholders. There is no assurances these requiredassurance that additional funds will be available on favorable terms ifacceptable to us, or at all. If additional capital is raised
Since inception, we have financed our cash flow requirements through the sale of equity or convertible debt securities, the issuance of common stock, related party advances and debt. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.
We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth.
To address these risks, we must, among other things, implement and successfully execute our business and marketing strategy surrounding our Cuentas braded general-purpose reloadable cards, 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 securities would result in dilution to our existing stockholders. Additionally, these conditions may increase costs to raise capital and/or result in further dilution. Therisks, and the failure to raise capital when needed, will adversely affectdo so can have a material adverse effect on our business prospects, financial condition and results of operations, and could force the Company to reduce or cease operations.
The Company believes that it will be able to meet the costs of growth and public reporting with funds generated from operations and additional amounts generated through debt and equity financing, Although management believes that the required financing to fund product development and increasing inventory levels can be secured at terms satisfactory to the Company, there is no guarantee these funds will be made available, and if funds are available, that the terms will be satisfactory to the Company.Off-Balance Sheet Arrangements
Impact of Inflation
The Company does not expect inflation to be a significant factor in operation of the business.
Off-Balance Sheet Arrangements
There areAs at March 31, 2019, we had no off-balance sheet arrangements between the Company andof 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.nature.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon The Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition. Some of the critical accounting estimates are detailed below.
Critical Accounting Estimates and New Accounting Pronouncements
Critical Accounting Estimates
The preparation of financial statements in accordanceconformity with accounting principles generally acceptedGAAP in the U.S.United States requires our management to make assumptions, estimates and assumptionsjudgments that affect the amounts reported amountsin the financial statements, including the notes thereto, and related disclosures inof commitments and contingencies, if any. Note 3 to our consolidated audited financial statements filed with the financial statements. Management considers an accounting estimate to be critical if:
The Company base estimates and judgmentsCompany’s Annual Report on experience, current knowledge, and beliefs of what could occur inForm 10-K for the future, observation of trends infiscal year ended December 31, 2018 describes the industry, information provided by customers and information available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company has identified the followingsignificant accounting policies and estimates as those that are believedmethods used in the preparation of our financial statements. We consider our critical accounting policies to be the most criticalthose related to share-based payments because they are both important to the portrayal of our financial condition and results of operationsrequire management to make judgments and that require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties: share-based compensation expense, income taxes, and derivative financial instruments.estimates about uncertain matters.
Share-Based Compensation Expense
We calculate share-based compensation expense for option awards and warrant issuances (“Share-based Awards”) based on the estimated grant/issue-date fair value using the Black-Scholes-Merton option pricing model (“Black-Scholes Model”), and recognize the expense on a straight-line basis over the vesting period, net of estimated forfeitures. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the vesting period of the Share-based Award in determining the fair value of Share-based Awards. Although we believe our assumptions used to calculate share-based compensation expense are reasonable, these assumptions can involve complex judgments about future events, which are open to interpretation and inherent uncertainty. In addition, significant changes to our assumptions could significantly impact the amount of expense recorded in a given period.
Recent Accounting PronouncementsStandards announced
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments apply to reporting entities that are required to make disclosures about recurring or nonrecurring fair value measurements and should improve the cost, benefit, and effectiveness of the disclosures. ASU 2018-13 categorized the changes into those disclosures that were removed, those that were modified, and those that were added. The primary disclosures that were removed related to transfers between Level 1 and Level 2 investments, along with the policy for timing of transfers between levels. In addition, disclosing the valuation processes for Level 3 fair value measurements was removed. The amendments are effective for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company notes that this guidance will impact its disclosures beginning January 1, 2020.
Recently adopted accounting pronouncements
The Company has implemented all newsignificant accounting pronouncements that arepolicies applied in effect. These pronouncements did not have any material impact on the annual financial statements unless otherwise disclosed, andof the Company does not believe that thereas of December 31, 2018 are any other new accounting pronouncements that have been issued that might have a material impact on itsapplied consistently in these financial position or results of operations.statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKRISK.
Not required.As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, and as discussed in greater detail below, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, disclosure controls and procedures are not effective:
● | to give reasonable assurance that the information required to be disclosed in reports that are file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and | |
● | to ensure that information required to be disclosed in the reports that are file or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our CEO and our Treasurer, to allow timely decisions regarding required disclosure. |
Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective due to the following material weakness identified:
Lack of appropriate oversight of third-party service providers,
Lack of appropriate segregation of duties,
Lack of information technology (“IT”) controls over revenue,
Lack of adequate review of internal controls to ascertain effectiveness,
Lack of communication to third party service providers regarding key events and agreements within the organization,
Lack of control procedures that include multiple levels of supervision and review, and
There is an overreliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material, nonstandard transactions.
There haveManagement is in the process of determining how best to change our current system and implement a more effective system to ensure that information required to be disclosed has been no changesrecorded, processed, summarized and reported accurately. Our management acknowledges the existence of this issue, and intends to develop procedures to address it to the extent possible given limitations in financial and human resources in and to remediate all the material weaknessesby the end of the fiscal quarter ending March 31, 2019.
Changes in Internal Controls over Financial Reporting
Our management, with the participation of our CEO and CFO, performed an evaluation to determine whether any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the three-month period covered by this report.ended March 31, 2019. Based on that evaluation, our CEO and our CFO concluded that no change occurred in the Company’s internal controls over financial reporting during the three-month period ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 14, 2014, one of our operating subsidiaries, NxtGn, Inc.From time to time, we may become involved in various lawsuits and Next Communications, Inc., an entity controlled by our CEO, (collectively the “Plaintiffs”) filed suitlegal proceedings which arise in the United States District Court for the Southern districtordinary course of New York against Viber Media, Inc. Plaintiffs filedbusiness. However, litigation is subject to inherent uncertainties, and an Amended Complaint asserting four claims: misappropriation of a business idea, misappropriation of trade secrets, breach of contract, and unjust enrichment. Viber moved the Courtadverse result in these or other matters may arise from time to dismiss the Amended Complaint. On March 30, 2016, U.S. District Judge Richard Sullivan issued an opinion and order on Viber’s motion to Dismiss. Specifically, Judge Sullivan orderedtime that Viber’s motion to dismiss is granted on Plaintiffs’ misappropriation of a business idea claim, but denied as to their misappropriation of trade secrets, breach of contract, and unjust enrichment claims.
On September 20, 2016, the Company received a notice it has been named as a defendant in a suit brought against Next Communications, an entity controlled bymay harm 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 be dismissed as defendants. business.
On July 6, 2017, the Company received notice an existing legal claim against Accent InterMedia (“AIM”) had been amended to include claims against the Company. The claims brought against the Company include failure to comply with certain judgments for collection of funds by the plaintiff while having a controlling interest in AIM via its ownership of Transaction Processing Products (“TPP”). On April 17, 2019, the Company entered into a Settlement Agreement with Comdata, Inc. d/b/a Stored Value Solutions (“SVS”) whereby the Company will pay a total of $37,500 over 7 months, starting July 1, 2019. Only in the event that the Company defaults by failing to make timely payments, SVS may file in Kentucky for the judgment of $69,847.23.
On December 20, 2017, a Complaint was filed by J. P. Carey Enterprises, Inc., alleging a claim for approximately $473,000 related to the Franjose Yglesias-Bertheau filed lawsuit against PLKD listed above. Even though the Company made the agreed payment of $10,000 on January 2, 2017 and issued 12,003 shares as conversion of the $70,000 note as agreed in the settlement agreement, the Plaintiff alleges damages which the Company claims are without merit because they received full compensation as agreed. The Company believesis in the amendedprocess of defending itself against these claims. The Company has not accrued 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, 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 a complaint from Viber for reimbursement of attorney’s fees and costs totaling $528,000 arising from the litigation listed above. The Company is vigorously defending their rights in this case as we believe this demand is without merit and that, per its agreementpremature as litigation is ongoing. The Company has not accrued an estimated loss related to sell its interest in TPP, any claims brought against AIMthis complaint as of March 31, 2019 or TPP would beDecember 31, 2018 given the responsibilitiespremature nature of the current interest holders. Duemotion.
On October 23, 2018, Cuentas 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 Dec. 7, 2018 with a complaint alleging damages including unspecified damages for product, advertising and other expenses in addition to the original suit$50,000 paid to Defendants. Cuentas has hired an attorney and has taken steps to defend itself vigorously in this case. Depositions are in process of being filed against AIM and amended to includescheduled.
On October 25, 2018, the Company after it disposedwas served with a complaint by former company CFO, Michael Naparstek claiming breach of its interestcontract for 1,666,666 shares (pre-split), $25,554 of compensation and $8,823 of expenses. This case was withdrawn in TPP, which hadPalm Beach County and on January 11, 2019, a controlling interestsimilar complaint was filed in AIM, we believe it likelyMiami-Dade county. Cuentas has hired an attorney and has taken steps to defend itself vigorously in this case.
On November 7, 2018, the Company was served with a complaint by a service provider claiming Breach of Contract for $29,000. On April 11, 2019 the Company has Settled this complaint in consideration of $5,000.
On November 7, 2018, the Company was served with a complaint by IDT Domestic Telecom, Inc. vs the Company and its subsidiariessubsidiary Limecom, Inc. for telecommunications services provided to the Subsidiary during 2018 in the amount of $50,000. The Company has no accrual as of March 31, 2019 related to the complaint given the early nature of the process. The Company intends to file a motion to dismiss the Company as a defendant since the Company has no contractual relationship with the plaintiff.
On January 29, 2019, the Company was served with a complaint by J. P. Carey Enterprises, Inc., (JP Carey) claiming similar issues as to the previous complaint, with the new claimed damages totaling $1,108,037.85. The Company has hired an attorney and feels these claims are frivolous and is defending the situation vigorously.
On May 1, 2019, the Company received a Notice of Demand for Arbitration from Secure IP Telecom, Inc. who supposedly had a Reciprocal Carrier Services Agreement (RCS) exclusively with Limecom, Inc. and not with Cuentas. The Demand originated from a Demand for Arbitration that Secure IP received from VoIP Capital International (VoIP) in March 2019 demanding $1,052,838.09 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. The Company will vigorously defend its position to be dismissedremoved as defendants.a named Party in this Notice of Demand due to the fact that Cuentas rescinded the Limecom acquisition on January 30, 2019.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended September 30, 2017,On January 7, 2019, the Company issued 18,059,86516,667 shares of commonsits common stock forpursuant to a common stock subscription. We issued such shares in reliance on the conversionexemptions from registration pursuant to Section 4(a)(2) of $344,744the Securities Act.
On January 7, 2019, the Company received $50,000 under a private placement of principaland issued 16,667 shares of convertible notes payableits common stock and 967,045warrants to purchase up to 16,667 shares forof its common stock at an exercise price equal to $3.25 per share. We issued such shares in reliance on the conversionexemptions from registration pursuant to Section 4(a)(2) of $19,341 of accrued interest. Additionally,the Securities Act.
On February 12, 2019, the Company issued 8,449,654warrants to purchase up to 35,834 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 valuedin 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 pursuant to a settlement of stock-based liabilities. The fair market value of the shares was $464,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.
On February 28, 2019, The Company signed a Binding Term Sheet with Optima Fixed Income LLC (“Optima”) for a total investment of $2,500,000 over one year and received the first deposit of $500,000 on the same date. Under the Binding Term Sheet, it was agreed that the initial invested amount of $500,000 will in consideration of 166,667 shares of Common Stock of the Company. These shares will be issued in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act. It was also agreed that Optima may purchase a Convertible Note in the amount of $2,000,000, which may be funded on a quarterly basis. The term of the Convertible Note shall be three years and it may be converted with a discount of 25% on the share price at $280,000 as repaymentdate 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.On May 10, 2019 the Company signed an Amendment to the Binding Term Sheet with Optima Where Optima will make an additional deposit of $550,000 to the Company and that additional deposit will be provided to the Company in the form of a non-convertible related party loanConvertible Note as discussed above. It was also agreed that Optima will provide an additional amount of $1.45M to the Company which will be provided in a form of a Convertible Note at the following dates:
Date | Amount | |||
05/28/2019 | $ | 200,000 | ||
08/28/2019 | $ | 500,000 | ||
11/28/2019 | $ | 500,000 | ||
02/28/2020 | $ | 250,000 |
All the other terms and 450,346 common shares valued at $14,932 as repayment of non-convertible related party accrued interest. The Company also issued 12,809,091 shares of common stock valued at $720,200 for services were valued using the close priceconditions of the Company’s common stock onBinding Term Sheet, will remain in full force and effect.
Each of the datetransactions described above give effect to the Reverse Stock Split (as defined below) and were exempt from the registration requirements of issuancethe Securities Act of 1933, as quoted onamended (“Securities Act”), in reliance upon Section 4(a)(2) of the OTCBB.Securities Act, Regulation D promulgated under the Securities Act and, in the case of sales to investors who are non-US persons, Regulation S promulgated under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR DEBT
None.
ITEM 4. Removed and ReservedMINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
The Company’s SEC Attorney, Simon Kogen, sole practitionerOn January 29, 2019, the United States Bankruptcy Court Southern District of New York, has been incapacitated and incommunicado withFlorida Miami Division approved a motion whereby the Debtor, Next Communications, Inc. (an affiliate controlled and/or owned by Arik Mimoun, the Company due‘s CEO) in Case No 16-26776-RAM would be able to settle a hospitalization, and as suchclaim by 100 NWT Fee Owner n/k/a 100 NWT Fee Owner LP (100 NWT) for $650,000. It also approved a motion whereby the Company hadwould be able to seek new SEC Council. The Company has retainedeliminate its debt of approximately $3 Million to Next Communications, Inc. by funding a payment of $600,000 to 100 NWT. On or about March 5, 2019, Cuentas and Next Communication Inc. paid $100,000 to the following two firms, respectively;trust account of Genovese Joblove Battista, counsel for 100 NWT.
Ellenoff Grossman & Schole LLP
Barry I. Grossman
Address: 150 E 42nd St FlOn April 30, 2019, The Company received a Notice of Default (the “Notice”) from Genovese Joblove Battista, a creditor of Next Communication Inc., contending that a $550,000 Payment was in default due to the non-payment ordered by the United States Bankruptcy Court Southern District of Florida Miami Division and the potential reinstatement of a $1,678 Final Judgment in favor of 100 NWT if not cured by May 11, New York, NY 100172019. On May 10, 2019, the Company paid $550,000 to the trust account of the specific creditor per the order and satisfied its obligation under the Approved Plan of the Reorganization for Next Communications, Inc., that was approved by the United States Bankruptcy Court Southern District of Florida Miami Division on January 29, 2019.
Phone: (212) 370-1300
Baratta, Baratta & Aidala LLP
Joseph P Barrata Sr.
Address: 546 5th Ave, 6th Floor, New York, NY 10036
Phone: (212) 750-9700
ITEM 6. EXHIBITS
(1) | Incorporated by reference from Pleasant Kid’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2013 filed on January 14, 2014. |
(2) | |
Incorporated by reference from Pleasant Kid’s Quarterly Report on Form 10-Q for the Fiscal Quarter Ended March 31, 2015 filed on May 20, 2015. | |
(3) | Incorporated by reference from Cuentas, Inc’s Current Report on Form 8-K filed with the SEC on August 8, 2018. |
(4) | Incorporated by reference from Next Group Holdings’ Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016 filed on August 19, 2016. |
(5) | Incorporated by reference from Next Group Holdings’ Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2016 filed on November 21, 2016. |
(6) | Incorporated by reference from Cuentas, Inc’s Current Report on Form 8-K filed with the SEC on November 15, 2018. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | ||
Date: | By: | /s/ Arik Maimon |
Chief Executive Officer | ||
By: | /s/ | |
Chief Financial Officer |
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