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 NINETHREE MONTH PERIOD ENDED: MARCH 31, 20202021

☐ 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

CUENTAS, INC.

(Exact name of Registrant as specified in its charter)

19 W. FLAGLER ST, SUITE 902,235 Lincoln RD., MIAMI BEACH, FL 3313033139

(Address of principal executive offices)

800-611-3622

(Registrant’s telephone number)

Securities registered under Section 12(b) of the Act:

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.

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 May 14, 2020,5, 2021, the issuer had 6,141,28513,829,601 shares of its common stock issued and outstanding.

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CUENTAS, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 20202021

TABLE OF CONTENTS

CUENTAS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

CUENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)(Unaudited)

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

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)

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 – GENERALORGANIZATION AND DESCRIPTION OF BUSINESS

Cuentas, Inc. (the “Company”) together with its subsidiaries, is focused on financial technology (“FINTECH”) services, delivering mobile banking, online banking, prepaid debit and digital content services to unbanked, underbanked and underserved communities. The Company derives its revenue from the sales of prepaid and wholesale calling minutes. The Company’s exclusivity with CIMA’s proprietary software platform enables Cuentas to offer comprehensive financial services and additional robust functionality that is absent from other General-Purpose Reloadable Cards (“GRP”). Additionally, The Company has an agreement with Interactive Communications International, Inc. (“InComm”) a leading processor of GPRgeneral purpose reloadable (“GPR”) debit cards, to market and distribute a line of GPR cards targeted towards the Latin American market.

The Company was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries. Its subsidiaries are Meimoun and Mammon, LLC (100% owned) (“M&M”), Next Cala, Inc. (94% owned -was dissolved on July 3, 2020) (“Cala”), NxtGn, Inc. (65% owned-was dissolved on August 24, 2020) (“NxtGn”) and Cuentas Fintech Card stores products purchased in the Virtual Market Place where Tier-1 retailers, gaming currencies, amazon cash, and wireless telecom prepaid minutes “top ups”Mobile LLC (formerly Next Mobile 360, LLC. - 100% owned). Additionally, well-known brand name restaurantsNext Cala, Inc. had a 60% interest in NextGlocal Inc. (“NextGlocal”), a subsidiary formed in May 2016 and which was dissolved on September 27, 2019. Tel3, a business segment of Meimoun and Mammon, LLC provides prepaid calling cards to consumers directly and operates in a complimentary space as Meimoun and Mammon, LLC. On October 23, 2017, the marketplace automatically discount purchases at POS whenCompany acquired 100% of the customer paysoutstanding shares in Limecom, Inc., (“Limecom” and such acquisition, the bill“Limecom Acquisition”) from Heritage Ventures Limited (“Heritage”). On January 30, 2019, the Company exercised a right to rescind the Limecom Acquisition, principally in an effort to reduce the Company’s continuing debt obligations associated with the Cuentas Card.Limecom Acquisition.

On December 6, 2017, the Company completed its formation of SDI NEXT DISTRUBUTION LLC (“SDI Next”) in which the Company owns a 51% membership interest, previously announced August 24, 2017 in a letter of intent with Fisk Holdings, LLC (“Fisk Holdings”). Per the Operating Agreement of SDI Next, the Company and Fisk Holdings will serve as the Managing Members of SDI Next and the Company will contribute a total of $500,000, to be paid per an agreed-upon schedule over a twelve-month period. Fisk Holdings will contribute 30,000 active point of sale locations for distribution of retail telecommunications and prepaid financial products and services to include, but not be limited to: prepaid GPR cards, prepaid gift cards, prepaid money transfer, prepaid utility payments, and other prepaid products. The completed formation of an established distribution business for third-party gift cards, digital content, mobile top up, financial services and digital content, which presently includes more than 31,600 U.S. active Point of Sale locations, including store locations, convenience stores, bodegas, store fronts, etc. The parties agreed that additional product lines may be added with unanimous decision by the Managing Members of SDI Next. During 2018, it was agreed between the parties to distribute the Company’s recently announced CUENTAS GPR card and mobile banking solution aimed to the unbanked, underbanked and financially underserved consumers, making them available to customers at the more than 31,600 retail locations SDI Next presently serves. SDI Next was dissolved on August 22, 2020.

On December 31, 2019, the Company entered into a series of integrated transactions to license the Platforms from CIMA, through CIMA’s wholly owned subsidiaries Knetik, and Auris (the “Transaction Closing”) pursuant to that certain Platform License Agreement, dated December 31, 2019 by and among (i) the Company, (ii) CIMA, (iii) Knetik and (iv) Auris (the “License Agreement”) and the various other agreements listed below. Under the License Agreement Cima Group received a 1-timeone-time licensing fee in the amount of $9,000 in the form of a convertible note that may be converted, at the option of Cima, into up to 25% of the total shares of Common Stock of the Company, par value $0.001 per share (the “Common Stock”) on a fully diluted basis as of December 31, 2019. On December 31, 2019, CIMA exercised its option to convert the Convertible Promissory Note into 1,757,478702,992 shares of Common Stock of the Company. Upon the conversion of the Series B Preferred shares into common stock, CIMA received an additional five million shares pursuant to their anti-dilution warrant agreement.

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

On March 5, 2021, the Company purchased the domain www.cuentas.com in consideration of $47,000. The Company will amortize the intangible assets on a straight-line basis over their expected useful life of 60 months. Identifiable intangible assets were recorded as follows: 

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

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

Amortization expense was $450$452 and $0$450 for the periods ended March 31, 20202021 and 2019,2020, respectively. Amortization expense for each period is included in operating expenses.

Pursuant to the License Agreement, the Company shall pay CIMA annual fees for the maintenance and support services in accordance with the following schedule: (i) for the first (1st) calendar year from the Effective Date, $300 to bewere paid on June 30,in 2020; (ii) for the second (2nd) calendar year from the Effective Date, $500 to be paid on December 31, 2020; (iii) for the third (3rd) calendar year from the Effective Date, $700 to be paid on December 31, 2021; (iv) for the fourth (4th) calendar year from the Effective Date, $1,000 to be paid on December 31, 2022; (v) for the fifth (5th) calendar year from the Effective Date, $640 to be paid on December 31, 2022; and (vi) for each calendar year thereafter, $640 to be paid on the anniversary date.

CUENTAS, INC.REVERSE SPLIT

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollar thousands, exceptOn February 2, 2021, the Company completed a reverse stock split of its common stock. As a result of the reverse stock split, the following changes have occurred (i) every two and a half shares of common stock have been combined into one share of common stock; (ii) the number of shares of common stock underlying each common stock option or common stock warrant have been proportionately decreased on a 2.5-for-1 basis, and the exercise price of each such outstanding stock option and common warrant has been proportionately increased on a 2.5-for-1 basis. Accordingly, all option numbers, share numbers, warrant numbers, share prices, warrant prices, exercise prices and losses per share data)have been adjusted within these consolidated financial statements, on a retroactive basis, to reflect this 2.5-for-1 reverse stock split.

On February 2, 2021 the Company’s common stock and warrants began trading on The Nasdaq Capital Market under the symbols “CUEN” and “CUENW,” respectively.

COVID-19

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. A significant outbreak of COVID-19 and other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, as well as our business and operations. The extent to which COVID-19 impacts our business and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our business and results of operations may be materially adversely affected.

GOING CONCERN

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of March 31, 2020, the Company had approximately $21(Amounts in cashU.S. dollar thousands, except share and cash equivalents, approximately $2,890 in negative working capital and an accumulated deficit of approximately $21,553. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Company’s ability to continue as a going concern is dependent upon raising capital from financing transactions and revenue from operations. Management anticipates their business will require substantial additional investments that have not yet been secured. Management is continuing in the process of fund raising in the private equity and capital markets as the Company will need to finance future activities. These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.per share data)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Unaudited Interim Financial Statements

The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the for three-months ended March 31, 2020.2021. However, these results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2020.2021. The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.

Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (“SEC”). The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, filed with the SEC on March 30, 202025, 2021 (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, 2019.2020.

Principles of Consolidation

The consolidated financial statements are prepared in accordance with US GAAP. The consolidated financial statements of the Company include the Company and its wholly-owned and majority-owned subsidiaries. All inter-company balances and transactions have been eliminated.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, certain revenues and expenses, and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. Estimates are used when accounting for going concern and stock-based compensation.

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, 2020:2021:

Revenue allocated to remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized”). Contracted not recognized revenue was $550$676 as of March 31, 2020,2021, of which the Company expects to recognize 100% of the revenue over the 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, accounts payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements.

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

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.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy are as follows:

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.

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

RecentRecently Issued Accounting Standards announced

In August 2018, the FASBNew pronouncements 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 thatbut not effective as of March 31, 2021 are required to make disclosures about recurring or nonrecurring fair value measurements and should improve the cost, benefit, and effectiveness of the disclosures. ASU 2018-13 categorized the changes into those disclosures that were removed, those that were modified, and those that were added. The primary disclosures that were removed related to transfers between Level 1 and Level 2 investments, along with the policy for timing of transfers between levels. In addition, disclosing the valuation processes for Level 3 fair value measurements was removed. The amendments are effective for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company notes that this guidance will impact its disclosures beginning January 1, 2020.

In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will originally become effective for the Company beginning January 1, 2020, with early adoption permitted, on a modified retrospective approach. As a smaller reporting company, the effective date for the Company has been delayed until fiscal years beginning after December 15, 2022, in accordance with ASU 2019-10, although early adoption is still permitted. This standard is not expected to have a material impact toon the Company’s consolidated financial statements after evaluation.statements.

In December 2019,Other accounting standards that have been issued or proposed by the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though earlyor other standards-setting bodies that do not require adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. This standard isuntil a future date are not expected to have a material impact to the Company’s consolidatedon our financial statements after evaluation.upon adoption.

NOTE 3 – STOCK OPTIONS

The following table summarizes all stock option activity for the nine months ended March 31, 2020:2021:

The following table discloses information regarding outstanding and exercisable options at March 31, 2020:2021:

On March 30, 2020, the Company issued 198,000 options to its Chief Executive Officer and President of the Company. The options carry an exercise price of $5.74 per share. All the options were vested immediately. The Options are exercisable until March 30, 2022. The Company has estimated the fair value of such options at a value of $456 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4 – STOCKHOLDERS’ EQUITY

Common Stock

The following summarizes the Common Stock activity for the three months ended March 31, 2020:2021:

On January 3, 2020 Dinar Zuz provided an additional amount of $300 to the Company which was be provided in a form of the Optima Convertible Note pursuant to a securities purchase agreement between the Company and Optima, dated July 30, 2019. Additionally, on January 3, 2020,February 2, 2021, the Company issued 100,00020,000 shares of its Common Stock to Dinar Zuz LLC, asits Chief Financial Officer, 40,000 shares of its Common Stock to a result of a conversionmember of the Dinar Convertible Note inBoard of Directors of the amountCompany and 3,334 shares of $300.its Common Stock to a former employee. The fair market value of the shares was $245.

On January 9,February 2, 2021 the Company’s common stock and warrants began trading on The Nasdaq Capital Market under the symbols “CUEN” and “CUENW,” respectively. On February 4, 2020 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of February 1, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Representative” or “Maxim”), as representative of the sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company granted Maxim a 45-day option to purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in connection with the Offering. The Common Stock and the Warrants were offered and sold to the public pursuant to the Company’s registration statements on Form S-1 (File Nos. 333-249690 and 333-252642), filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), on October 28, 2020, as amended, and which became effective on February 1, 2021. The Company received gross proceeds of approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated Offering expenses. Pursuant to the Underwriting Agreement, the Company also agreed to issue to Maxim warrants (the “Underwriter’s Warrants”) to purchase up to a total of 223,256 shares of Common Stock (8% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $5.375 per share of Common Stock and have a term of five years. The Underwriter’s Warrants are subject to a lock-up for 180 days from the commencement of sales in the Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and will be non-exercisable for six months after February 1, 2021. The total expenses of the offering are estimated to be approximately $1.4 million, which included Maxim’s expenses relating to the offering.

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

On March 17, 2021, the Company issued 40,00010,000 shares of its Common Stock pursuant to a service Agreement between the Company and a service provider, dated June 3,May 16, 2019. The fair market value of the shares at the issuance date was $240.$38. 

On January 14, 2020, the Company issued 66,334 shares of its Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was $459.

On January 14, 2020, the Company issued 58,334 shares of Common Stock to employees. All shares were issued pursuant to the Company’s Share and Options Incentive Enhancement Plan (2016). The Company has estimated the fair value of such shares at $332.

On February 10, 2019, the Company issued 10,000 shares of its Common Stock pursuant to a securities purchase agreement between the Company and a private investor, dated October 25, 2018.

On March 3, 2020, Dinar Zuz provided an additional amount of $450 to the Company which was be provided in a form of the Dinar Zuz Convertible Note pursuant to a securities purchase agreement between the Company and Dinar Zuz, dated July 30, 2019. The Company issued 1,157,478 shares of its Common Stock to Dinar Zuz LLC, as a result of a conversion of the Dinar Convertible Note in the amount of $700.

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5 – RELATED PARTY TRANSACTIONS

Related party balances at March 31, 20202021 and December 31, 20192020 consisted of the following:

Due from related parties

Related party payables, net of discounts

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSEmployment Agreements

(Amounts

On February 24, 2021, the employment agreement dated July 24, 2020 for Arik Maimon expired in U.S. dollar thousands, except shareaccordance with its terms and per share data)as previously disclosed by the Company. As a result of the expiration of the employment agreement, Mr. Maimon was no longer employed as the Chief Executive Officer of the Company, but he continued to act as Chairman of the Board of Directors of the Company. On February 25, 2021, the Board appointed Mr. Maimon to act as interim Chief Executive Officer, which position will terminate upon the earlier of August 25, 2021 or the date on which his successor is duly elected and appointed by the Board of the Company.

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

On March 5, 2021 and pursuant to the Side Letter Agreement, the Board of Directors of the Company approved a special bonus in the amount of $500 to each of Mr. Maimon and Mr. De Prado due to the successful up-listing of the Company’s shares on the Nasdaq Capital Markets. Half of the bonus ($250) was paid in cash and half will be paid in Common shares of the Company.

NOTE 6 – CUSTOMER CONCENTRATION 

The Company did not have any one customer account for more than 10% of its revenues during the three months ended March 31, 2021 and 2020, respectively.

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollar thousands, except share and 2019, respectively.per share data)

NOTE 7 – COMMITMENTS AND CONTINGENCIES

On February 12, 2018,From time to time, the Company was served with a complaint from Viber Media, Inc. (“Viber”) for reimbursementmay become involved in various lawsuits and legal proceedings which arise in the ordinary course of attorney’s fees and costs totaling $528 arising from a past litigation with Viber. The Company is vigorously defending their rights in this case as we believe this demand is premature asbusiness. However, litigation is ongoing. The Company has no accrual relatedsubject to this complaint as of March 31, 2020 given the premature nature of the motion.

On July 6, 2017, the Company received noticeinherent uncertainties, and an existing legal claim against Accent InterMedia (“AIM”) had been amendedadverse result in these or other matters may arise from time to include claims against the Company. The claims brought against the Company include failure to comply with certain judgments for collection of funds by the plaintiff while having a controlling interest in AIM via its ownership of Transaction Processing Products (“TPP”). On April 17, 2019, the Company entered into a settlement agreement (the “SVS Settlement Agreement”) with Comdata, Inc. d/b/a Stored Value Solutions (“SVS”) whereby the Company will pay a total of $37 over 7 months, starting July 1, 2019. Only in the eventtime that the Company defaults by failing to make timely payments, SVS may file in Kentucky for the judgment of $70. On February 13, 2020, the Company completed the payments in accordance with the SVS Settlement Agreement and the case was dismissed.harm our business.

On December 20, 2017, a Complaintcomplaint was filed by J. P. Carey Enterprises, Inc., (“JP Carey”) alleging a claim for $473$473,000 related to the Franjose Yglesias-Bertheau, filed lawsuit against PLKD listed above.a former Vice President of PLKD. Even though the Company made the agreed payment of $10$10,000 on January 2, 2017, and issued 12,0026,001 shares of Common Stock as conversion of the $70$70,000 note as agreed in theits settlement agreement, the PlaintiffJP Carey alleges damages whichthat the Company claims are without merit because theyJP Carey received full compensation as agreed. The Company is in the process of defending itself against these claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On January 29, 2019, the Company was served with aanother complaint by J.P.JP Carey Enterprises, Inc., (“JP Carey”) which was filed in Fulton County, Georgia claiming similar issues as to the previous complaint, with the new claimed damages totaling $1,108.$1,108,037.85. JP Carey and the Company filed motions for a summary judgment. On June 23, 2020, the case was transferred to the Business Court at the request of the Superior Court Judge previously assigned to the case. Judge Ellerbe from the Business Court has been assigned as the new judge. On October 1, 2020, the court granted the Company’s motion for summary judgment and denied JP Carey’s motion for summary judgment. On October 30, 2020, JP Carey filed a notice of appeal to the trial court’s October 1 and 7, 2020 orders granting summary judgment in favor of Cuentas. The Companybriefing in the appeal was completed during the first quarter of 2021. Oral argument held on April 13, 2021 but no decision has hired anbeen rendered yet. On November 16, 2020, Cuentas filed a motion seeking payment from JP Carey of $140,970.82 in attorney fees and feels these claims are frivolouscosts accrued as of November 13, 2020. JP Carey’s response brief was due on December 21, 2020 and is defending the situation vigorously.thereafter Cuentas may reply. The trial court has not yet set a date to hear this motion.

On September 28,October 23, 2018, the Company was notifiedserved by Telco Cuba Inc. for an amount in excess of $15,000 but the total amount was not specified. The Company was served on December 7, 2018, with a complaint alleging damages including unspecified damages for product, advertising and other damages in addition to $50,000 paid to the Defendants. The Company retained an attorney and has taken steps to defend itself vigorously in this case. Depositions are in process of being scheduled.

On October 25, 2018, the Company was served with a complaint by former company Chief Financial Officer, Michael Naparstek, claiming breach of contract for 833,333 shares (pre-2018 reverse stock split), $25,554 of compensation and $8,823 of expenses. This case was withdrawn in Palm Beach County and on January 11, 2019, a similar complaint was filed against it by a former supplier.in Miami-Dade County. During the recent mediation, the Parties reached an understanding of full settlement amount of $2,500. The Company has not yet received formal servicedeposited the settlement amount to an escrow account of its counsel until a stipulation of settlement will be executed by both parties.

On November 7, 2018, the Company and its now former subsidiary, Limecom, were served with a complaint and is awaiting such service at which time it can fully assessby IDT Domestic Telecom, Inc. for telecommunications services provided to Limecom during 2018 in the complaint.amount of $50,000. The Company has not accrued any lossesno accrual expenses as of MarchDecember 31, 20202019, related to the complaint given the early nature of the process.

On November 7, 2018, Limecom was a subsidiary of the Company during this period but since the Limecom Acquisition was served with a complaint by IDT Domestic Telecom, Inc. vsrescinded on January 30, 2019, and Limecom agreed to indemnify and hold harmless the Company from this and its subsidiary Limecom, Inc.other debts. The Company retained an attorney and is defending itself vigorously in this case. A court ordered mandatory arbitration session took place and the arbitration findings were issued on June 19, 2020, and a request for telecommunications services providedtrial de novo was filed on July 16, 2020, in order to have the matter docketed on the calendar. The court came to the Subsidiary during 2018 indetermination that while not indicative of success at trial, the amountcourt denied Plaintiff’s motion for summary judgment. As of $50. The Company has no accrual as of March 31, 2020 related to the complaint given the early nature of the process. The Company intends to filethis time, a motion to dismiss the Company as a defendant since the Company has no contractual relationship with the plaintiff.

trial date was set for July 6, 2021.

On May 1, 2019, the Company received a Noticenotice of Demanddemand for Arbitration (the “Demand”)arbitration from Secure IP Telecom, Inc. (“Secure IP), who allegedly had a Reciprocal Carrier Services Agreement (RCS)(“RCS”) exclusively with Limecom and not with Cuentas. The Demandarbitration demand originated from a Demandanother demand for Arbitrationarbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,053$1,052,838.09 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On June 5, 2020, SecureIP filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company. The complaint primarily concerns alleged indebtedness owed SecureIP by Limecom. SecureIP also alleges that Cuentas received certain transfers of funds which it alleges may be an avoidable transfer under Florida Statute §725.105 up to $1,052,838.09. Cuentas is contemplating filing a motion to dismiss the complaint and disputes that it received the alleged $1,052,838.09 from Limecom. Moreover, to the extent Cuentas has exposure for any transfers from Limecom, both Limecom and Heritage have indemnified Cuentas for any such liability. The Company will vigorously defend its position to be removed as a named party in this action due to the fact that Cuentas rescinded the Limecom acquisitionAcquisition on January 30, 2019.

On January 24, 2020, the Company received a Corrected Notice of Hearing regarding Qualtel SA de CV, a Mexican Company vs Next Communications, Inc. for a “Plaintiff’s Motion for Order to Show Cause and/or for Contempt as to Non-Party, Cuentas, Inc.” The Company retained a counsel and will vigorously defend its position.

The Company executed a lease for office space effective November 1, 2019. The lease requires monthly rental payments of $6.

NOTE 8 – SUBSEQUENTSUBSEQUESNT EVENTS

On April 2, 2020, the Company issued 70,000 shares of its Common Stock pursuant to a securities purchase agreement between the Company and a private investor, dated October 25, 2018.

On April 6, 2020,1, 2021 the Company entered into 180 days Loan Agreement with Dinar Zuz LLCexecuted a lease for office space effective April 1, 2019. The lease requires monthly rental payments of $7.

On April 20, 2021 the Company paid off its loan and accrued interest in the amount of $260 to borrow $250 atArie Gresonie. The Company paid an annualamount equal to $125 plus $ 5, which represents the amount of interest rateaccrued on such $125 since the date on which the loan was made under the Note through April 16, 2021. In addition, The Company issued 30,233 shares of nine percent (9.0%) (the second “Dinar Zuz Note”).Common Stock of the Company.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

The following discussion and analysis provide 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.

Company Overview

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

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

Properties.The Company’s headquarters are located in Miami, Florida.

Our Business

The Cuentas Fintech Card is a general-purpose reloadable card (“GPR”)GPR integrated into a proprietary robust ecosystem that providesprotects customers with aby depositing their funds in an FDIC insured bank account at the physical point of presence where the Cuentas Fintech Card is purchased.Issuing Bank. The comprehensive financial services include:

The Ecosystemecosystem includes a mobile wallet for digital currencies,currency, stored value card balances, prepaid telecom minutes, loyalty reward points, and any purchases made in the Cuentas Virtual Marketplace. The Cuentas Fin TechFintech Card is integrated with the Los Angeles Metro, UtahConnecticut Transit Authority and Grand Rapids Transit system to store mass transit currency and pay for transit access via the Cuentas Digital Wallet

The Cuentas Fintech Card stores products purchased in the Cuentas Virtual Market Place where Tier-1 retailers, gamingvirtual in-game currencies, amazon cash,Amazon Cash, and wirelesscellular telecom prepaid minutes “top ups”. Additionally, well-known brand name restaurants sell discounted prepaid gift cards in the marketplace automatically discount purchases at POS when the customer pays the bill with the Cuentas Card.Virtual Marketplace.

The Latino Market

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

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

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

Products

The Cuentas General-Purpose Reloadable Card (“GPR”)

The Cuentas general-purpose reloadable (“GPR”)Mastercard acts as a comprehensive banking solution marketed toward the over 20 million+million unbanked U.S. Latino community (The unbankedcommunity. The “unbanked” is described by the Federal Deposit Insurance Corporation (FDIC)FDIC as those adults without an account at a bank or other financial institution and are considered to be outside the mainstream for one reason or another. The Federal Reserve estimated that there were approximately 55 million unbanked or underbanked adult Americans in 2018, which account for 22 percent of U.S. households). The Cuentas GPRMastercard is uniquely enabling access to the U.S. financial system to those without the necessary paperwork to bank at a traditional financial institution while enabling greater functionality than a traditional bank account. This proprietary GPR card allows consumers that reside in the USU.S. to acquire a Cuentas GPR prepaid debit cardMastercard using their USSSN or ITIN together with their U.S. or Foreign Passport, Driver’s License, Matricula Consular or certain US ResidencyU.S. residency documentation. The GPR Card providesCuentas Mastercard’s funds are protected in an FDIC insuredFDIC-insured bank account withat the Issuing Bank. Functionality includes ATM withdrawals, direct deposit, cash reload, fee free Cuentas App to Cuentas App fund transfers and mobile banking capabilities, among other key features such as purchasing discounted gift cards and adding Mass Transit Credits“mass transit credits” to digital accounts (available in California, Connecticut, Michigan and shortly, New York City)other cities in the future). Upcoming Cuentas App upgrades willshould also include international remittance and other services. Subsequent stages will see the integration of the Cuentas Store where consumers will beConsumers are able to use funds in their account to purchase 3rdthird party digital and gift cards (many at discounted prices), US & InternationalU.S. and international mobile phone top-ups, mass transportation and tolling access (select(available in select markets - CT, NYC,Connecticut, Grand Rapids-MI, LA,Rapids, MI, Los Angeles, CA, etc.) as well as digital Contentcontent for Gaming/Dining/Shoppingvirtual gaming, dining, shopping and Cashcash reloads.

The Cuentas appApp is available for download now on the Apple App Store and on the Google Play Store for Android,Android. The Cuentas App allows consumers to easily activate their Cuentas prepaid Mastercard, review their account balance and conduct certain financial transactions. Cuentas is introducing fee free fund transfers to friends, family and vendors that have their own Cuentas App, which will be a very useful feature to compete with other popular Appsapps that chargescharge fees for immediate fund transfers and availability on the same day.

The Cuentas Business Model

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

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

The Cuentas Digital Wallet produces recurring profitsrevenue and is an integral part of the Cuentas offering. It will produce revenue each time that consumers purchase third party gift cards, digital access, mass transit tickets and mobile phone topups (US & International)top-ups (U.S. and more -international) with most at discounted prices. The actual discount is shown to the consumer and is immediately applied to their purchase, so smart shoppers will be able to get everyday products and services at discounted prices.

TheIn 2021 the Cuentas Digital Wallet is projected to add several new, profitable, mass market services including bill pay and international remittances.

Cuentas Rewardsalso offers rewards for free long distance calling to its cardholders (“Cuentas Rewards”) who earn value with certain transactions. Our target demographic uses both internet and prepaid calling services to communicate with family members around the USU.S. and in their country. This added benefit is designed, at a very low cost, to provide extra benefits to our cardholders, which should help to maintain and solidify valuable relationships with them.

Prepaid Debit Card Market Overview

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

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

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

The Cuentas Technology platform

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

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

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

The user management application uses rich metadata CRM and single-Sign-On (SSO) to track user behavior and personalize the user experience. The unique rules engine is capable of all aspects of gamification: badging, questing, leveling, points consumption, leader boards, loyalty and reward points and personalization with tracking and messaging to support behavior management. Business intelligence is used for reporting and communication of product management via Rate Deck Management, Pinless ANI Recognition, IV and Call Flows and Access Number Management. The platform has redundant reporting for enhanced billing and fraud control and itegratesintegrates customer service with Business Intelligence and platform integrityintegrity. 

The graphic below illustrates Cuentas’ strategic agreements with Sutton Bank and InComm, Sutton Bank is the Issuer of the Cuentas GPR card while the InComm “Processor” relationship provides access to many third party products and services.

Strategic Partners

Sutton Bank (“Sutton”)

Sutton is our issuing bank for the Cuentas Fintech Card. Sutton provides online banking direct deposit, bank accounts, telephone support and debit functionality for our GPR cards. Sutton is responsible for know your client (KYC) compliance and enables customers to open bank accounts electronically with non-conventional documentation that may not be accepted at traditional banks. They accept over 13 forms of identification, which, when used together with either Social Security or ITIN, can be used for confirmation of identity: Passport, Driver’s License, Matricula Consular, US Residency documentation, among others.

Interactive Communications International, Inc. (“InComm”)

On July 23, 2019, the Company entered into a five (5) year Processing Services Agreement (“PSA”) with Incomm, a leading payments technology company, to power and expand the Company’s GPR card network. Incomm distributes Gift and GPR Cards to over 210,000 U.S. retailers and has long standing partnerships with over 1,000 of the most recognized brands that are eligible for Cuentas’ Discount Purchase Platform. Through its 94% owned subsidiary, Next Cala Inc., Cuentas previously branded a GPR card program with Incomm and was paid approximately $300,000 to develop the Mio GPR card for the telecom sector.

Under the PSA, InComm, through its VanillaDirect network, will act as prepaid card processor and expand the Company’s GPR Card network. VanillaDirect is currently available at major retailers such as: Walmart, Seven Eleven, Walgreens, CVS Pharmacy, Rite Aid and many more. In addition, the Company will implement the VanillaDirect cash reload services into its 31,600 U.S. locations under SDI NEXT.

Under the PSA, Incomm will provide processing services, Data Storage Services, Account Servicing, Reporting, Output and Hot Carding services to the Company. Processing Services will consist mainly of Authorization and Transaction Processing Services whereas InComm will process authorizations for transactions made with or on a Prepaid Product, and any payments or adjustments made to a Prepaid Product. InComm will also process Company’s Data and post entries in accordance with the Specifications. Data Storage Services will consist mainly of storage of the Company’s Data in a format that is accessible online by Company through APIs designated by InComm, subject to additional API and data sharing terms and conditions. Incomm will also provide Web/API services for Prepaid Cuentas GPR applications and transactions.

In consideration for Incomm’s services the company will pay an initial Program Setup & Implementation Fees in the amount of $500,000, which of $300,000 will be paid at the earlier of the Launch Date or three (3) months after contract execution, then $50,000 each at the beginning of the second, third, fourth and fifth anniversary of the agreement. In addition, the Company will pay a minimum monthly fee of $30,000 starting on the fourth month of the first year following the launch of the Cuentas GPR card, $50,000 during the second year following the launch of the Cuentas GPR card and $75,000 thereafter. The Company will as also pay 0.25% of all funds added to the Cuentas GPR cards, excluding Vanilla Direct Reload Network and an API Services fee of $0.005 per transaction. The Company may pay other fees as agreed between the Company and Incomm.

SDI NEXT Distribution LLC (“SDI NEXT”)

On December 6, 2017, the Company completed its formation of SDI NEXT Distribution LLC (“SDI NEXT”) in which it owns a 51% membership interest, previously announced August 24, 2017 as a Letter of Intent with Fisk Holdings, LLC. As Managing Member of the newly formed LLC, the Company will contribute a total of $500,000, to be paid per an agreed-upon schedule over a twelve-month period. Fisk Holdings, LLC will contribute 30,000 (thirty thousand) active Point of Sale locations for distribution of retail telecommunications and prepaid financial products and services to include, but not be limited to: prepaid General Purpose Reload (“GPR”) cards, prepaid gift cards, prepaid money transfer, prepaid utility payments, and other prepaid products. The completed formation of an established distribution business for third-party gift cards, digital content, mobile top up, financial services and digital content, which presently includes more than 31,600 U.S. active Point of Sale locations, including store locations, convenience stores, bodegas, store fronts, etc. The parties agreed that additional product lines may be added with unanimous decision by the Managing Members of the LLC. During 2018, it was agreed between the parties to distribute the Company’s recently announced CUENTAS GPR card and mobile banking solution aimed to the unbanked, underbanked and financially underserved consumers, making them available to customers at the more than 31,600 retail locations SDI NEXT presently serves. It was also agreed between the parties to renegotiate the terms of the Company’s investment in and SDI NEXT Distribution LLC once the development of the GPR card and the retail stores system are completed and the GPR card is ready for distribution in the retail locations of SDI. SDI NEXT. 

Strategic Partners

The graphic below illustrates Cuentas’ strategic agreements with Sutton Bank and InComm, Sutton Bank is the issuer of the Cuentas Mastercard while the InComm “Processor” relationship provides access to many third party products and services.

Sutton Bank (“Sutton”)

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

Interactive Communications International, Inc. (“InComm”)

On July 23, 2019, the Company entered into a Prepaid Services Agreement with InComm (the “InComm PSA”) to power and expand the Company’s GPR card network. InComm distributes gift and GPR cards through many major U.S. retailers and has long standing partnerships with over 1,000 of the most recognized brands that are eligible for Cuentas’ Discount Purchase Platform.

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

Under the InComm PSA, InComm will provide processing services, telephone support, data storage services, account servicing, reporting, output and hot carding services to the Company. Processing services will consist mainly of authorization and transaction processing services whereby InComm will process authorizations for transactions made with or on a prepaid product, along with any payments or adjustments made to a prepaid product. InComm will also process the Company’s data and post entries in accordance with the specifications. Data storage services will consist mainly of storage of the Company’s data in a format that is accessible online by the Company through APIs designated by InComm, subject to additional API and data sharing terms and conditions. InComm will also provide Web/API services for prepaid Cuentas GPR applications and transactions.

In consideration for InComm’s services the Company agreed to pay an initial program setup and implementation fees in the amount of $500,000, of which, $300,000 was paid in 2020. Cuentas will then pay $50,000 each year at the beginning of the second, third, fourth and fifth anniversary of the agreement. In addition, the Company agreed to pay a minimum monthly fee of $30,000 starting October 2020, $50,000 during the second year following the launch of the Cuentas Mastercard and $75,000 thereafter. The Company also agreed to pay 0.25% of all funds added to the Cuentas Mastercards, excluding VanillaDirect Reload Network and an API Services fee of $0.005 per transaction. The Company may pay other fees as agreed between the Company and InComm.

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

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

The Cuentas Competitive GPR Advantages

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

The Cuentas ECO System

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 Western Union 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.(“Western Union”)

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

Agreements and Arrangements with CIMA

License Agreement with CIMA

On December 31, 2019, the Company entered into a Platform Exclusive License Agreement with CIMA Telecom, Inc. (“CIMA”) and two subsidiaries of CIMA (the “CIMA License Agreement”). Pursuant to the CIMA License Agreement, the Company has an exclusive, non-transferable, non-sublicensable, royalty-free license to access and use the CIMA Licensed Technology in the form provided to the Company via the Hosting Services (as defined in the CIMA License Agreement) and solely within the Fintech space for the Company’s business purposes. Under the CIMA License Agreement, CIMA received a one-time licensing fee in the amount of $9,000,000 in the form of a convertible note that may be converted, at the option of CIMA, into up to 25% of the total shares of Common Stock of the Company on a fully diluted basis as of December 31, 2019. The transactions with CIMA closed on December 31, 2019 (the “CIMA Transaction Closing”). Pursuant to the CIMA License Agreement, the Company was incorporated undershall pay CIMA annual fees for the lawsmaintenance and support services in accordance with the following schedule: (i) for the first calendar year from the CIMA Transaction Closing, $300,000 to be paid on June 30, 2020; (ii) for the second calendar year from the CIMA Transaction Closing, $500,000 to be paid on December 31, 2020; (iii) for the third calendar year from the CIMA Transaction Closing, $700,000 to be paid on December 31, 2021; (iv) for the fourth) calendar year from the CIMA Transaction Closing, $1,000,000 to be paid on December 31, 2022; (v) for the fifth calendar year from the CIMA Transaction Closing, $640,000 to be paid on December 31, 2022; and (vi) for each calendar year thereafter, $640,000 to be paid on the anniversary date.

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

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

Warrants

Contemporaneously with the CIMA Transaction Closing, the Company made and sold a warrant to each of (a) CIMA (the “CIMA Warrant”) and (b) Dinar (the “Dinar Warrant”), each in accordance with the Purchase Agreement. Pursuant to the CIMA Warrant and Dinar Warrant, upon exercise, each of CIMA and Dinar shall be entitled to purchase from the Company, in the aggregate, an amount of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock equal to 25% of total outstanding shares of the Company on a fully-diluted basis (taking into account any warrants, options, debt convertible into shares or other rights underlying shares of the Company) as of the conversion date; provided, however, that each of the CIMA Warrant and Dinar Warrant shall increase to include 25% of any additional shares (or warrants, options, debt convertible into shares or other rights underlying shares of the Company) of the Company only to the extent such shares are issued in breach of the Voting Agreement (as defined below). Pursuant to their terms, the CIMA Warrant and Dinar Warrant were exercisable, in whole and not in part during the term commencing on December 31, 2019 and ending on the earlier of (a) thirty days following the date on which the Company amends and restates its Articles of Incorporation, which is amendment and restatement is filed with and accepted by the Secretary of State of the State of Florida onor (b) upon a Change of Control, as defined in such warrants. At that point, the Warrants are automatically exercised. On September 21, 2005 to act as an 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. During the year ended December 31, 2016,17, 2020, the Company acquired a business segment, Tel3, from an existing corporation. Tel3 was merged into Meimounissued 2,000,000 of its Common Stock to each of Dinar and Mammon, LLC effective January 1, 2017.

Formation of SDI NEXT Distribution LLC (“SDI NEXT”)

 On December 6, 2017,CIMA, under the Company completed its formation of SDI NEXT Distribution in which it owns a 51% membership interest, previously announced August 24, 2017 as a Letter of Intent with Fisk Holdings, LLC. As Managing Memberautomatic exercise of the newly formed LLC, the Company will contribute a total of $500,000, to be paid per an agreed-upon schedule over a twelve-month period. Fisk Holdings, LLC will contribute 30,000 (thirty thousand) active Point of Sale locations for distribution of retail telecommunications and prepaid financial products and services to include, but not be limited to: prepaid General Purpose Reload (“GPR”) cards, prepaid gift cards, prepaid money transfer, prepaid utility payments, and other prepaid products. The completed formation of an established distribution business for third-party gift cards, digital content, mobile top up, financial services and digital content, which presently includes more than 31,600 U.S. active Point of Sale locations, including store locations, convenience stores, bodegas, store fronts, etc. The parties agreed that additional product lines may be added with unanimous decision by the Managing Members of the LLC. During 2018, it was agreed between the parties to distribute the Company’s recently announced CUENTAS GPR card and mobile banking solution aimed to the unbanked, underbanked and financially underserved consumers, making them available to customers at the more than 31,600 retail locations SDI presently serves.warrants.

Voting Agreement

Contemporaneously with the CIMA Transaction Closing, on December 31, 2019, the Company, CIMA, Dinar, Arik Maimon and Michael De Prado entered into a Voting Agreement (the “Voting Agreement”). Pursuant to the Voting Agreement, each of CIMA, Dinar and Mr. De Prado shall have the right to designate one director to the Board, and Mr. Maimon will have the right to designate two directors to the Board as promptly as practicable after the CIMA Transaction Closing. At each meeting of the Company’s shareholders at which the election of directors is to be considered, each of CIMA, Dinar, Mr. Maimon and Mr. De Prado shall have the right to designate one nominee for election at such meeting. Additionally, the Company has granted CIMA board observer rights whereby CIMA shall have the right to invite one representative to attend all meetings of the Board in a non-voting observer capacity. The size of the Board and appointee rights are subject to change in the event that the Company’s shares of Common Stock become listed on Nasdaq. Furthermore, pursuant to the Voting Agreement, each of Mr. Maimon and Mr. De Prado appointed each of CIMA and Dinar as their proxy and attorney-in-fact, with full with full power of substitution and resubstitution, to vote or act by written consent with respect to the shares of Voting Stock (as defined in the Voting Agreement) representing each individual’s pro rata percentage of the CIMA Proxy Stock and Dinar Proxy Stock (each as defined in the Voting Agreement), as may be recalculated from time to time subject to the terms and conditions of the Voting Agreement until the CIMA Warrant and Dinar Warrant are exercised, respectively. CIMA’s rights under the Voting Agreement automatically terminate upon the earliest to occur of: (a) the termination of the CIMA License Agreement; (b) the payment in full of all outstanding principal, accrued and unpaid interest, and all other amounts required to be paid by the Company to CIMA under the Debenture in cash and not as a result of the conversion of the debenture in the principal amount of $9,000,000 that is convertible into Common Stock of the Company; or (c) after the conversion of the Debenture into Common Stock of the Company, the date on which CIMA ceases to own 5% or more of the issued and outstanding Common Stock of the Company. Dinar’s rights under the Voting Agreement automatically terminate when Dinar ceases to own 5% or more of the issued and outstanding Common Stock of the Company.

Pledge Agreement

The Company also entered into an Asset Pledge Agreement with CIMA (the “Pledge Agreement”) pursuant to which the Company unconditionally and irrevocably pledged all of its rights, title and interest in and to the Licensed Technology and any rights and assets granted pursuant to the CIMA License Agreement to CIMA as a guarantee for the full and punctual fulfillment of its obligations under certain provisions of the Voting Agreement, which terms expire upon the exercise of the CIMA Warrant and Dinar Warrant, respectively, and the issuance of the securities under the CIMA Convertible Promissory Note and the CIMA Warrant. This occurred on September 21, 2020 and the Pledge Agreement expired.

Side Letter Agreement

Contemporaneously with the CIMA Transaction Closing, the Company, Mr. Maimon, Mr. De Prado, Dinar and CIMA entered into a side letter agreement (the “CIMA Side Letter”), dated December 31, 2019. Pursuant to the CIMA Side Letter, for as long as the CIMA License Agreement is in effect, the convertible promissory note (the “CIMA Convertible Note”) is outstanding and unpaid, or CIMA is a shareholder of the Company and owns at least 5% of the Company’s Common Stock, in addition to any other vote or approval required under the Company’s Articles of Incorporation, Bylaws, or any other agreement, each as amended from time to time, the Company has agreed not to take certain actions without certain approval thresholds of the directors appointed by CIMA, Dinar, Mr. Maimon and Mr. De Prado. These negative covenants restrict, among other things, the Company’s ability to incur additional debt, alter certain employment agreements currently in place, enter into any consolidation, combination, recapitalization or reorganization transactions, and issue additional capital stock. Additionally, pursuant to the CIMA Side Letter, upon conversion of the CIMA Convertible Note by CIMA, Cuentas shall have the primary right of first refusal, and each of Dinar, Mr. De Prado and Mr. Maimon have a secondary right of first refusal, to purchase any shares of Common Stock that CIMA intends to sell to the bona fide third party purchaser on the same terms and conditions as CIMA would have sold such shares of the Common Stock to any third party purchaser. Further, CIMA has a co-sale right to participate in a sale of shares of the Common Stock, in the event that Mr. De Prado, Mr. Maimon or any other director or officer of the Company holding greater than 1% of the Common Stock (on a fully diluted basis) proposes to sell any of his, her or its shares of Common Stock. In addition, CIMA and/or Dinar have been granted certain information rights, subject to their continued ownership of the CIMA Convertible Note or of 5% or more shares of the Company’s issued and outstanding Common Stock. Furthermore, pursuant to the CIMA Side Letter, upon a successful up-listing of the Company’s shares on Nasdaq, and once the market capitalization of the Company is greater than $50 million for a period of 10 consecutive trading days, each of Mr. Maimon and Mr. De Prado will have a right to earn a special bonus in the amount of $500,000 each.

Cuentas Mobile

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

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

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

Meimoun & Mammon LLC

Meimoun & Mammon LLC (“M&M”) is a retail provider of domestic and international long-distance voice, text, and data telephony services to consumers in the United States and throughout the world. M&M holds International and Domestic Section 214 authority issued by the FCC. M&M operates the retail Tel3 business as a separate division.

M&M uses both private and public Internet services to function as the backbone of the M&M Network.

Regulatory Compliance

We operate in an ever-evolving and complex legal and regulatory environment. We, the products and services that we offer and market, and those for which we provide processing services, are subject to a variety of federal, state and foreign laws and regulations, including, but not limited to: federal communications laws and regulations; foreign jurisdiction communications laws and regulations; federal anti-money laundering laws and regulations, including the Patriot Act, the BSA, anti-terrorist financing laws and anti-bribery and corrupt practice laws and regulations in the U.S., and similar international laws and regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in Canada; state unclaimed property laws and money transmitter or similar licensing requirements; federal and state consumer protection laws, including the CARD Act, and the Dodd-Frank Act, and regulations relating to privacy and data security; and foreign jurisdiction payment services industry regulations.

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

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

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

Recent Developments

COVID-19

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. A significant outbreak of COVID-19 and other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, as well as our business and operations. The extent to which COVID-19 impacts our business and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our business and results of operations may be materially adversely affected. 

Amendment to Bylaws

On December 30, 2020, in connection with the Company’s IPO, the Company amended its Bylaws to, among other items:

Reverse Split

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

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

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

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

Entry into and Repayment of a Short-Term Loan with Labrys Funds LP

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

Results of operations for the three months ended March 31, 20202021 and 20192020

Revenue

Revenues during the three months ended March 31, 2021 totaled $225,000 compared to $134,000 for the three months ended March 31, 2020. The Company generates revenuesgenerated most of its revenue through the sale and distribution of prepaid telecom minutes, digital products and other related telecom services.

Revenues The Company have generated sales from its Fintech products and services in the amount of $18,000 during the three months ended March 31, 2020 totaled $134,000 compared to $302,000 for the three months ended March 31, 2019.first quarter of 2021.

Costs of Revenue

Costs of revenue consists of the purchase of wholesale minutes for resale and related telecom platform costs. Cost of revenues during the three months ended March 31, 20202021 totaled $ 177,000247,000 compared to $237,000$177,000 for the three months ended March 31, 2019.2020. Cost of revenue consists mainly of the purchase of wholesale minutes for resale, related telecom platform costs and purchase of digital products. Cost of revenue also consisted from cost related to the sale of the Company’s GPR Card in the amount of $92,000 due to additional developments and testing that the Company conducted on its GPR product.

Gross Loss

Gross loss is the net loss existing after the cost of sales. Gross loss decreased to a loss of $22,000 for the quarter ended March 31, 2021, as compared to a loss of $47,000 for the same period in the prior year. The decrease in gross profit for the quarter ended March 31, 2021, as compared to the same period in the prior year, was primarily a result of higher profits in our telecom business.

Stock-based Compensation and shares issued for services

Stock-based compensation and shares issued for services expenses decreased to $276,000 from $1,125,000 as a result of fewer issuance of shares issued for employees and for service providers.

Other Selling, General and Administrative Expenses

Other selling, general and administrative expenses totaled $862,000 during the three months ended March 31, 2021 compared to $1,414,000 during the three months ended March 31, 2020 representing a net decrease of $552,000. The decrease in the operating expenses is mainly due to a one-time fee implantation fee in the amount of $300,000 that was paid to Incomm during the three months ended March 31, 2020

Amortization of Intangible assets

Amortization of Intangible assets totaled $452,000 for the quarter ended March 31, 2021 and $450,000 for the quarter ended March 31, 2020, respectively. The increase is due to the amortization of the domain cuemtas.com which was purchased by the Company during the quarter ended March 31, 2021 in consideration of approximately $47,000.

Operating Expenses

Operating expenses totaled $1,590,000 during the three months ended March 31, 2021 compared to $2,539,000 during the three months ended March 31, 2020 compared to $490,000 during the three months ended March 31, 2019 representing a net increasedecrease of $2,049,000.945,000. The increasedecrease in the operating expenses is mainly due to the increasedecrease in the amortization expense of intangible assets, salary cost of our officers, Stock based compensation and shares issued for services expenses.services.

Other Income 

The Company recognized other expense of $63,000 during the three months ended March 31, 2021 compared to an income of $422,000 during the three months ended March 31, 2020 compared to an income $105,000 during the three months ended March 31, 2019.2020. The net change from the prior period is mainly due to the change in our stock-based liabilities.liabilities and interest expenses that we occurred. Gain from Change in Fair Value of stock-based liabilities for the three-month period ended March 31, 20202021 was $359,000$56,000 as compared to a lossgain of $54,000$359,000 for the three-month period ended March 31, 2019.2020. The gain (loss) is attributable to the decrease in 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 net loss of $1,675,000 for the three-month period ended March 31, 2021, as compared to a net loss of $2,163,000 for the three-month period ended March 31, 2020, as compared to a net loss of $320,000 for the three-month period ended March 31, 2019.2020.

We may incur future operating losses. To regain and sustain profitability, we must, among other things, incrementally grow and maintain our customer base, sell our GPR products to existing and new customers, implement successful marketing strategies, maintain and upgrade our technology and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and motivate personnel, and respond to unforeseen industry developments among other factors.

We believe that our success will depend in large part on our ability to (a) grow sales, (b) manage our operating expenses, (c) add customers to our client base, (d) meet evolving customer requirements and (e) adapt to technological changes in an emerging market. We continue to invest in our sales force and technology platforms to drive revenue growth.

Inflation and Seasonality

In management’s opinion, our results of operations have not been materially affected by inflation or seasonality, and management does not expect that inflation risk or seasonality would cause material impact on our operations in the future.

Liquidity and Capital Resources

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

As of March 31, 2020, we2021, the Company had $6,482,000 of cash, total current assets of $6,727,000 and cash equivalentstotal current liabilities of $21,000 as compared to $16,000 as$3,249,000 creating a working capital of $3,478,000. As of December 31, 2019. As2020, the Company had $227,000 of March 31, 2020, we hadcash, total current assets of $296,000 and total current liabilities of $6,480,000 creating a working capital deficit of $2,890,000 thousand, as compared to a deficit of $3,752,000 as of December 31, 2019.$6,184,000. The decreaseincrease in our working capital deficit was mainly attributable to the decrease in Accounts Payables in the amount of $599,0001,952,000, decrease in our stocked based liabilitiesother Accounts Payables in the amount of 1,376,000 and $250,000increase in our Convertible notes payable.Cash and Cash equivalents in the amount of $6,255,000.

On February 4, 2021 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of February 1, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Representative” or “Maxim”), as representative of the sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company granted the Underwriter a 45-day option to purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in connection with the Offering. The Company received gross proceeds of approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated Offering expenses. Pursuant to the Underwriting Agreement, the Company also issued to the Underwriter warrants (the “Underwriter’s Warrants”) to purchase up to a total of 223,256 shares of Common Stock (8% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $5.375 per share of Common Stock and have a term of five years. The total expenses of the offering were approximately $1.4 million, which included Maxim’s expenses relating to the offering.

On February 12 2021 the Company prepaid its loan to Labrys and Labrys returned the Second Commitment shares to the Company. The prepayment amount was approximately $635,000.

On March 5, 2021 the Company prepaid its loan to Dinar Zuz. The prepayment amount was approximately $378,000.

On April 20, 2021 the Company paid off its convertible promissory note and accrued interest in the amount of $260,000 to the private investor. The Company paid an amount equal to $125,000 plus $ 5,000, which represents the amount of interest accrued on such $125,000 since the date on which the loan was made under the Note through April 16, 2021. In addition, The Company issued 30,233 shares of Common Stock of the Company. The Company issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

Cash Flows

Net cash used in operating activities was $738,000$3,356,000 for the three-month period ended March 31, 2020,2021, as compared to cash used in operating activities of $465,000$738,000 for the three-month period ended March 31, 2019.2020. The Company’s primary uses of cash have been for professional support and working capital purposes.

Net cash used in investing activities was $47,000 for the three-month period ended March 31, 2021. Net cash used in investing activities was $0 for the three-month period ended March 31, 2020 and 2019, respectively.2020. 

Net cash provided by financing activities was approximately $743,000$9,658,000 for the three-month period ended March 31, 2020, as compared to net cash provided by financing activities was approximately $490,000$743,000 for the three-month period ended March 31, 2019. We have principally financed our operations in 2019 through the sale of our common stock and the issuance of debt.2020.

Due to our operational losses, we have principally financed our operations through the sale of our Common Stock and the issuance of convertible debt.

Despite the Capital raise that weWe have conducted the above conditions raise substantial doubt aboutprincipally financed our ability to continue as a going concern. Although we anticipate that cash resources will be available to the Company through its current operations it believes existing cash will not be sufficient to fund planned operations and projects investments through the next 12 months. Therefore, we are still strivingsale of our Common Stock to increaseprivate investors, issuance of convertible loans debt and loans from our sales, attain profitability and raise additional funds for future operations. Any meaningful equity or debt financing will likely result in significant dilution to our existing stockholders. There is no assurance that additional funds will be available on terms acceptable to us, or at all.    shareholders.

Since inception, we have financed our cash flow requirements through 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 ourthe Cuentas braded general-purpose reloadable cards,Mastercard, continually develop and upgrade our website, respond to competitive developments, lower our financing costs and specifically our accounts receivable factoring costs, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Off-Balance Sheet Arrangements

As at March 31, 2020,2021, we had no off-balance sheet arrangements of any nature.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. Note 3 to our consolidated audited financial statements filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20192020 describes the significant accounting policies and methods used in the preparation of our financial statements. We consider our critical accounting policies to be those related to share-based payments because they are both important to the portrayal of our financial condition and require management to make judgments and estimates about uncertain matters.

RecentRecently Issued Accounting Standards announced

In August 2018, the FASBNew pronouncements 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 thatbut not effective as of March 31, 2021 are required to make disclosures about recurring or nonrecurring fair value measurements and should improve the cost, benefit, and effectiveness of the disclosures. ASU 2018-13 categorized the changes into those disclosures that were removed, those that were modified, and those that were added. The primary disclosures that were removed related to transfers between Level 1 and Level 2 investments, along with the policy for timing of transfers between levels. In addition, disclosing the valuation processes for Level 3 fair value measurements was removed. The amendments are effective for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company notes that this guidance will impact its disclosures beginning January 1, 2020.

In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will originally become effective for the Company beginning January 1, 2020, with early adoption permitted, on a modified retrospective approach. As a smaller reporting company, the effective date for the Company has been delayed until fiscal years beginning after December 15, 2022, in accordance with ASU 2019-10, although early adoption is still permitted. This standard is not expected to have a material impact toon the Company’s consolidated financial statements after evaluation.statements.

In December 2019,Other accounting standards that have been issued or proposed by the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though earlyor other standards-setting bodies that do not require adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. This standard isuntil a future date are not expected to have a material impact to the Company’s consolidatedon our financial statements after evaluation.upon adoption.

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Recently adopted accounting pronouncements

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2019 are applied consistently in these financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures 

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, and as discussed in greater detail below, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, disclosure controls and procedures are not effective: 

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:

Implemented or Planned Remedial Actions in response to the Material Weaknesses

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

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

Management 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 recorded, 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, 2020.2021.

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 ended March 31, 2019.2021. 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, 20202021 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

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

On July 6, 2017, the Company received notice an existing legal claim against Accent InterMedia (“AIM”) had been amended to include claims against the Company. The claims brought against the Company include failure to comply with certain judgments for collection of funds by the plaintiff while having a controlling interest in AIM via its ownership of Transaction Processing Products (“TPP”). On April 17, 2019, the Company entered into a settlement agreement (the “SVS Settlement Agreement”) with Comdata, Inc. d/b/a Stored Value Solutions (“SVS”) whereby the Company will pay a total of $37,500 over 7 months, starting July 1, 2019. Cuentas made its final payment to Comdata in Feb 2020 and received an Agreed Judgment of Dismissal from the court dated Feb 13, 2020.

On December 20, 2017, a complaint was filed by J. P. Carey Enterprises, Inc. (“J.PJP Carey” or “Plaintiff”) alleging a claim for $473,000 related to the Franjose Yglesias-Bertheau, a former Vice President of PLKD who filed a lawsuit against PLKD listed above.PLKD. Even though the Company made the agreed payment of $10,000 on January 2, 2017, and issued 12,0026,001 shares of Common Stock as conversion of the $70,000 note as agreed in theits settlement agreement, the PlaintiffJP Carey alleges damages whichthat the Company claims are without merit because the PlaintiffJP Carey received full compensation as agreed. The Company is in the process of defending itself against these claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On January 29, 2019, the Company was served with aanother complaint by J.P.JP 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 attorneyJP Carey and feels these claims are frivolous and is defending the situation vigorously.

On February 12, 2018, the Company filed motions for a summary judgment. On October 1, 2020, the Superior Court of Fulton County, State of Georgia granted the Company’s motion for summary judgment and denied JP Carey’s motion for summary judgment. On October 30, 2020, JP Carey filed a notice of appeal to the trial court’s October 1 and 7, 2020 orders granting summary judgment in favor of Cuentas. The briefing in the appeal was served withcompleted during the first quarter of 2021. Oral argument held on April 13, 2021 but no decision has been rendered yet. On November 16, 2020, Cuentas filed a complaintmotion seeking payment from Viber for reimbursementJP Carey of attorney’s$140,970.82 in attorney fees and costs totaling $528,000 arising.accrued as of November 13, 2020. JP Carey’s responded brief was filed on or about December 21, 2020 and thereafter Cuentas filed its reply. The Company is vigorously defending their rights intrial court has not yet set a date to hear this case as we believe this demand is premature as litigation is ongoing.motion.

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.December 7, 2018, with a complaint alleging damages including unspecified damages for product, advertising and other damages in addition to $50,000 paid to Defendants. Cuentas has hired an attorney and has taken steps to defend itself vigorously in this case. Depositions are in process of being scheduled.

On October 25, 2018, the Company was served with a complaint by former company CFO,Chief Financial Officer, Michael Naparstek, claiming breach of contract for 1,666,666833,333 shares (pre-split)(pre-2018 reverse stock split), $25,554 of compensation and $8,823 of expenses. This case was withdrawn in Palm Beach County and on January 11, 2019, a similar complaint was filed in Miami-Dade county.County. During the recent mediation, the Company and Mr. Naparstek reached an understanding of full settlement amount of $2,500. The Company has hireddeposited the settlement amount to an attorney and has taken steps to defend itself vigorously in this case.escrow account of its counsel until a stipulation of settlement will be executed by both parties.

On November 7, 2018, the Company and its now former subsidiary, Limecom, were served with a complaint by IDT Domestic Telecom, Inc. for telecommunications services provided to Limecom during 2018 in the amount of $50,000. The Company has no accrual expenses as of December 31, 2019, related to the complaint given the early nature of the process. Limecom was a subsidiary of the Company during this period but since the Stock Purchase Agreement with Limecom Acquisition was rescinded on January 30, 2019, and Limecom agreed to indemnify and hold harmless Cuentas/NGHCuentas from this and other debts,debts. Cuentas hired an attorney and is defending itself vigorously in this case. A court ordered mandatory arbitration session took place and the arbitration findings were issued on June 19, 2020, and a request for trial de novo was filed on July 16, 2020, in order to have the matter docketed on the calendar. The motion for summary judgment filed by Cuentas Inc. with the New Jersey Superior Court initially set for October 16, 2020 was heard on October 30, 2020 after being rescheduled by the court. Oral arguments were held over the phone via conference call. The court came to the determination that while not indicative of success at trial, the court denied Plaintiff’s motion for summary judgment. Presently, there is a current trial date set for July 6, 2021.

On May 1, 2019, the Company received a Noticenotice of Demanddemand for Arbitration (the “Demand”)arbitration from Secure IP Telecom, Inc. (“Secure IP)IP”), who allegedly had a Reciprocal Carrier Services Agreement (RCS)(“RCS”) exclusively with Limecom and not with Cuentas. The Demandarbitration demand originated from a Demandanother demand for Arbitrationarbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,052,838.09 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On June 5, 2020, SecureIP filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company. The complaint primarily concerns alleged indebtedness owed SecureIP by Limecom. SecureIP also alleges that Cuentas received certain transfers of funds which it alleges may be an avoidable transfer under Florida Statute §725.105 up to $1,052,838.09. Cuentas is contemplating filing a motion to dismiss the complaint and disputes that it received the alleged $1,052,838.09 from Limecom. Moreover, to the extent Cuentas has exposure for any transfers from Limecom, both Limecom and Heritage have indemnified Cuentas for any such liability. The Company will vigorously defend its position to be removed as a named party in this action due to the fact that Cuentas rescinded the Limecom acquisitionAcquisition on January 30, 2019.

On January 24, 2020,April 1, 2021 the Company receivedexecuted a Corrected Noticelease for office space effective April 1, 2019. The lease requires monthly rental payments of Hearing regarding Qualtel SA de CV, a Mexican Company vs Next Communications, Inc. for a “Plaintiff’s Motion for Order to Show Cause and/or for Contempt as to Non-Party, Cuentas, Inc.” The Company retained a counsel and will vigorously defend its position.

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ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 3, 2020 Dinar Zuz provided an additional amount of $300,000 to the Company which was be provided in a form of the Dinar Zuz Convertible Note pursuant to a securities purchase agreement between the Company and Dinar Zuz, dated July 30, 2019. Additionally, on January 3, 2020,February 2, 2021, the Company issued 100,00020,000 shares of its Common Stock to Dinar Zuz LLC, asits Chief Financial Officer, 40,000 shares of its Common Stock to a result of a conversionmember of the Dinar Convertible Note inBoard of Directors of the amountCompany and 2,933 shares of $300,000.its Common Stock to a former employee. The fair market value of the shares was $459,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On January 9, 2020,March 17, 2021, the Company issued 40,00010,000 shares of its Common Stock pursuant to a service Agreement between the Company and a service provider, dated June 3,May 16, 2019. The fair market value of the shares at the issuance date was $240,000.$38,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On January 14, 2020,April 20, 2021 the Company paid off its loan and accrued interest in the amount of $260,000 to private investor. The Company paid an amount equal to $125,000 plus $ 5,000, which represents the amount of interest accrued on such $125,000 since the date on which the loan was made under the Note through April 16, 2021. In addition, The Company issued 124,66830,233 shares of its Common Stock pursuant to a settlement of stock-based liabilities. The fair market value of the shares was $890,323.Company. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On February 10, 2020, the Company issued 10,000 shares of its Common Stock pursuant to a securities purchase agreement between the Company and a private investor, dated October 25, 2018. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On March 3, 2020 Dinar Zuz provided an additional amount of $450,000 to the Company which was be provided in a form of the Dinar Zuz Convertible Note pursuant to a securities purchase agreement between the Company and Dinar Zuz, dated July 30, 2019. Additionally, on March 3, 2020 the Company issued 1,157,478 shares of its Common Stock to Dinar Zuz LLC, as a result of a conversion of the Dinar Convertible Note in the amount of $700,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On April 2, 2020, the Company issued 70,000 shares of its Common Stock pursuant to a securities purchase agreement between the Company and a private investor, dated October 25, 2018. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

Each of the transactions described in this Item II give effect to the Reverse Stock Split (as defined below) and were exempt from the registration requirements of the Securities Act of 1933, as amended (“Securities Act”), in reliance upon Section 4(a)(2) of the Securities Act, Regulation D promulgated under the Securities Act and, in the case of sales to investors who are non-US persons, Regulation S promulgated under the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR DEBT

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

On April 6, 2020, the Company entered into 180 days Loan Agreement with Dinar Zuz LLC to borrow $250,000 at an annual interest rate of nine percent (9.0%) (the second “Dinar Zuz Note”).None

ITEM 6. EXHIBITS

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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