UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

FOR THE THREE MONTH PERIOD ENDED: MARCH 31, 20212022

☐ 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: 333-148987001-39973

CUENTAS, INC.

(Exact name of Registrant as specified in its charter)

235 Lincoln RD.Rd., MIAMI BEACH,Suite 210, Miami Beach, FL 33139

(Address of principal executive offices)

800-611-3622

(Registrant’s telephone number)

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

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 ☒

StateIndicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of May 5, 2021,16, 2022, the issuer had 13,829,60114,965,690 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, 20212022

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)

(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.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

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

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

CUENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(U.S. dollars in thousands)

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

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Cuentas, Inc. (the “Company”) together with its subsidiaries, is focused on financial technology (“FINTECH”) services, delivering mobile banking, online banking, prepaid debit and digital content services to unbanked, underbanked and underserved communities. The Company derives its revenue from the sales of prepaid and wholesale calling minutes. Additionally, The Company has an agreement with Interactive Communications International, Inc. (“InComm”) a leading processor of general purpose reloadable (“GPR”) debit cards, to market and distribute a line of GPR cards targeted towards the Latin American market.

The Company was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries. Its subsidiaries aresubsidiary is Meimoun and Mammon, LLC (100% owned) (“M&M”), Next Cala, Inc. (94% owned -was dissolved on July 3, 2020) (“Cala”), NxtGn, Inc. (65% owned-was dissolved on August 24, 2020) (“NxtGn”) and Cuentas Mobile LLC (formerly Next Mobile 360, LLC. - 100% owned). Additionally, Next Cala, Inc. had a 60% interest in NextGlocal Inc. (“NextGlocal”), a subsidiary formed in May 2016 and which was dissolved on September 27, 2019. Tel3, a business segment of Meimoun and Mammon, LLC provides prepaid calling cards to consumers directly and operates in a complimentary space as Meimoun and Mammon, LLC. On October 23, 2017,The Company also owns 50% of CUENTASMAX LLC which installs WiFi6 shared network (“WSN”) systems in locations in the Company acquired 100% of the outstanding shares in Limecom, Inc., (“Limecom”New York metropolitan tristate area using access points and such acquisition, the “Limecom Acquisition”) from Heritage Ventures Limited (“Heritage”). On January 30, 2019, the Company exercised a rightsmall cells to rescind the Limecom Acquisition, principally in an effort to reduce the Company’s continuing debt obligations associatedprovide users with the 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 aimedaccess 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.WSN.

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 received a one-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 702,992 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 $452 and $450 for the periods ended March 31, 2021 and 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 were paid in 2020; (ii) for the second (2nd) calendar year from the Effective Date, $500 to be paid on December 31, 2020; (iii) for the third (3rd) calendar year from the Effective Date, $700 to be paid on December 31, 2021; (iv) for the fourth (4th) calendar year from the Effective Date, $1,000 to be paid on December 31, 2022; (v) for the fifth (5th) calendar year from the Effective Date, $640 to be paid on December 31, 2022; and (vi) for each calendar year thereafter, $640 to be paid on the anniversary date.

REVERSE SPLIT

On 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 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 extentCOVID- 19 effectively reduced the Company’s capability to which COVID-19 impactsacquire accounts holders as a significant portion of our businesstarget demographic lost their ability to earn wages and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerningsubsequently could not load funds to the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.Company’s product. 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.affected

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Unaudited Interim Financial Statements

The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the for three-months ended March 31, 2021.2022. However, these results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2021.2022. 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, 2020,2021, filed with the SEC on March 25, 2021April 1, 2022 (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, 2020.2021.

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-ownedwholly 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 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, 2021:2022:

Revenue allocated to remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized”). Contracted not recognized revenue was $676$595 as of March 31, 2021,2022, 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)

Recently Issued Accounting Standards 

New pronouncements issued but not effective as of March 31, 20212022 are not expected to have a material impact on the Company’s consolidated financial statements.

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

NOTE 3 – STOCK OPTIONS

The following table summarizes all stock option activity for the ninethree months ended March 31, 2021:2022:

The following table discloses information regarding outstanding and exercisable options at March 31, 2022:

On February1, 2022, the Company issued 200,000 options to its Chief Operating Officer of the Company. The options carry an exercise price of $2.80 per share. Fifty Thousand (50,000) of the options vested on February1, 2022. The option shall vest on the first, second and third anniversary of grant date, so long as its Chief Operating Officer is employed by the Company on that date. The Options are exercisable until January 31, 2032. The Company has estimated the fair value of such options at a value of $213 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:

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

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, 2021:

On February 2, 2021, the Company issued 20,000 shares of its Common Stock to its Chief Financial Officer, 40,000 shares of its Common Stock to a member of the Board of Directors of the Company and 3,334 shares of its Common Stock to a former employee. The fair market value of the shares was $245.

On February 2, 2021 the Company’s common stock and warrants began trading on The Nasdaq Capital Market under the symbols “CUEN” and “CUENW,” respectively. On February 4, 2020 the Company sold an aggregate of 2,790,697 units at a price to the public of $4.30 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant exercisable for five years to purchase one share of Common Stock at an exercise price of $4.30 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of February 1, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Representative” or “Maxim”), as representative of the sole underwriter. In addition, pursuant to the Underwriting Agreement, the Company granted Maxim a 45-day option to purchase up to 418,604 additional shares of Common Stock, and/or 418,604 additional Warrants, to cover over-allotments in connection with the Offering. The Common Stock and the Warrants were offered and sold to the public pursuant to the Company’s registration statements on Form S-1 (File Nos. 333-249690 and 333-252642), filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), on October 28, 2020, as amended, and which became effective on February 1, 2021. The Company received gross proceeds of approximately $12.0 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated Offering expenses. 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 10,000 shares of its Common Stock pursuant to a service Agreement between the Company and a service provider, dated May 16, 2019. The fair market value of the shares at the issuance date was $38. 

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, 20212022 and December 31, 20202021 consisted of the following:

Related party payables, net of discounts

Employment AgreementsRelated party transactions

On February 24, 2021, the employment agreement dated July 24, 2020 for Arik Maimon expired in accordance with its terms and as previously disclosed by the Company. As a 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 per share data)

NOTE 76 – COMMITMENTS AND CONTINGENCIES

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

On December 20, 2017, a complaint was filed by J. P. Carey Enterprises, Inc. (“JP Carey”) alleging a claim for $473,000$473 related to Franjose Yglesias-Bertheau, a former Vice President of PLKD. Even though the Company made the agreed payment of $10,000 on$10on January 2, 2017 and issued 6,001 shares of Common Stock as conversion of the $70,000 note as agreed in its settlement agreement, JP Carey alleges damages that the Company claims are without merit because JP Carey received full compensation as agreed. The Company is in the process of defending itself against these claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On January 29, 2019, the Company was served with another complaint by JP Carey claiming similar issues as to the previous complaint, with the new claimed damages totaling $1,108,037.85.$1,108. 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 Company. The briefing in the appeal was completed during the first quarter of 2021. Oral argument held on April 13, 2021 but no decision has been rendered yet. On November 16, 2020, Cuentasthe Company filed a motion seeking payment from JP Carey of $140,970.82$141 in attorney fees and costs accrued as of November 13, 2020. JP Carey’s responserespondent brief was duefiled on or about December 21, 2020 and thereafter Cuentas maythe Company filed its reply. JP Carey's petition to the Georgia Supreme Court for a writ of certiorari remains pending and is fully briefed as of January 14, 2022. The Georgia Supreme Court is not required to accept the case and whether it accepts or not is entirely within its discretion. If the Georgia Supreme Court grants certiorari, additional briefing will be due in 2022 and a briefing schedule will be set. In the trial court has not yet set a dateproceedings, the case remains stayed pending the final outcome after all appeals are exhausted. After the appeal decision is final and no longer subject to hear this motion.further appeal, the trial court will consider the Company's motion seeking payment from JP Carey of the Company’s attorneys' fees and costs and JP Carey's claim for default interest, attorney fees, and costs.

CUENTAS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

On October 23, 2018, the Company was served by Telco Cuba Inc. for an amount in excess of $15,000$15 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$50 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. Please refer to Note 8.

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 in Miami-Dade County. During the recent mediation, the Parties reached an understanding of full settlement amount of $2,500. The Company has deposited the settlement amount to an escrow account of its counsel until a stipulation of settlement will be executed by both parties.

On November 7, 2018, the Company and its now former subsidiary, Limecom, 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 Limecom Acquisition was rescinded on January 30, 2019, and Limecom agreed to indemnify and hold harmless the Company from this and other debts. The Company retained an attorney and is defending itself vigorously in this case. A court ordered mandatory arbitration session took place and the arbitration findings were issued on June 19, 2020, and a request for trial de novo was filed on July 16, 2020, in order to have the matter docketed on the calendar. The court came to the determination that while not indicative of success at trial, the court denied Plaintiff’s motion for summary judgment. As of this time, a trial date was set for July 6, 2021.

On May 1, 2019, the Company received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP), who allegedly had a Reciprocal Carrier Services Agreement (“RCS”) exclusively with Limecom and not with Cuentas.the Company. The arbitration demand originated from another demand for arbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,052,838.09$1,053 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On or about October 5, 2020, the trial court appointed a receiver over Limecom, Inc. (“Limecom”) in the matter of Spectrum Intelligence Communications Agency, LLC. v. Limecom, Inc., case no. 2018-027150-CA-01 pending in the 11^th Circuit for Miami-Dade County, Florida. On June 5, 2020, SecureIPSecure IP Telecom, Inc. (“Secure IP”) filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”Heritage”), an unrelated third party and owner of Limecom, and the Company. The complaint primarily concerns alleged indebtedness owed SecureIP by Limecom. SecureIP alsoCompany, case no. 20-11972-CA-01. Secure IP alleges that Cuentasthe Company received certain transfers of funds which it allegesfrom Limecom during the period that the Company wholly owned Limecom that may be an avoidable transfer under Florida Statute §725.105 up§ 725.105. On July 13, 2021, the two cases were consolidated, and are now pending before the same trial court under the former case number. The Company has answered and denied any liability with respect to $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, toboth complaints. To the extent Cuentasthe Company has exposure for any transfers from Limecom, both Limecom and Heritage havehas indemnified Cuentasthe Company for any such liability. liability and the Company has a pending cross-claim against Heritage for purposes of enforcing the indemnification obligation. A review of the books and records of the Company reflect aggregate transfers from Limecom to the Company or its affiliates of less than $600,000. The Company’s books and records reflect that the Company fully reimbursed Limecom through direct payment of expenses of Limecom and through issuance of shares by the Company to employees or other vendors on behalf of Limecom for settlement and release of claims the employees or vendors may have asserted against Limecom. The books and records of the Company therefore do not reflect an identifiable avoidable transfer, but this analysis may change as the discovery process continues. At this time, based upon an analysis of the Company’s books and records, the loss contingency is not capable of reasonable estimation under the above circumstances, and the likelihood of an adverse judgment is not probable at this time. An adverse judgment in this matter is reasonably possible and based upon an analysis of litigation costs and likelihood of a settlement, the undersigned recommends a litigation reserve of $200 to $300 thousand. As of March 31, 2022 the company accrued $300 thousand due to this matter.

On April 1, 2021 the Company executed a lease for office space effective April 1, 2021. The lease requires monthly rental payments of $7.

NOTE 7 – SEGMENTS OF OPERATIONS

The Company will vigorously defendreports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable operating segments. The Company manages its position to be removedbusiness primarily on a product basis. The accounting policies of the various segments are the same as a named partythose described in this action due toNote 2, “Summary of Significant Accounting Policies.” The Company evaluates the fact that Cuentas rescindedperformance of its reportable operating segments based on net sales and gross profit.

Revenue by product for the Limecom Acquisition on January 30, 2019.three months ended March 31, 2022, and the three months ended March 31, 2021 are as follows:

Gross profit (loss) by product for the three months ended March 31, 2022, and the three months ended March 31, 2021 are as follows: 

Long lived assets by product for March 31, 2022 and December 31, 2021 are as follows:

NOTE 8 – SUBSEQUESNTSUBSEQUENT EVENTS

On or about April 27, 2022, the Company settled the Telco Cuba Inc. matter in consideration of a settlement amount of $32,000.

On April 1, 202127, 2022, the Company executed the Second Amendment to Binding Letter of Intent (the “SA-LOI”) with the owners . The Second Amendment to Binding Letter of Intent provides that a leasedefinitive Asset Purchase Agreement (APA), subject to Cuentas Board of Director approval, will be signed by May 8, 2022 detailing the assets which will be acquired by Cuentas. It also provides that if the Board of Directors of Cuentas does not approve the APA, then “…the parties shall be released from any and all obligations thereunder including the termination penalty…”. The closing date for office space effective April 1, 2019. The lease requires monthly rental paymentsthe APA shall under no circumstances be after May 20, 2022. Within 5 days after execution of $7.this LOI, Cuentas will deposit $1 Million into an escrow account while a definitive purchase and sale agreement (the “Agreement”) is drafted and negotiated. On or before five (5) business days before the Closing Date, Cuentas shall pay into the escrow trust account of it’s Escrow Agent, the remaining Purchase Price of ONE MILLION NINE HUNDRED SEVENTY-SIX THOUSAND DOLLARS ($1,976,000, the “Remaining Purchase Price”). At the Closing, Owners shall transfer one hundred percent (100%) of the Purchased Assets free and clear of any liens, claims, and encumbrances to Cuentas. On or before eight (8) business days following the execution of this Second Amendment by the parties, Owners shall pay into the escrow trust account of the Seller’s Escrow Agent, $1 Million to be held in trust under the terms and conditions of the Escrow Agreement as defined in the SA-LOI. On or before five (5) business days following the execution of the Second Amendment by the parties, the Escrow Agents shall obtain from the SBA a payoff estoppel letter setting forth the outstanding loan balance, including principal, interest and applicable charges due under the applicable SBA loan documents with a per diem interest amount that will allow the parties to calculate the payoff amount necessary to satisfy in full the indebtedness owed by Seller to the SBA (the “SBA Indebtedness”) and obtain a release of the recorded liens and security interest and UCC-1s, and wiring instructions setting forth the financial account that SBA where it wants the payoff funds transferred to at the Closing (“SBA Wiring Instructions”). On the Closing Date, the parties shall provide a written notice signed by all of the parties, , directing the Escrow Agents to wire to the SBA $2,976,000 plus the $1,000,000 from the Owners, for a total of $3,976,000., to satisfy in full the SBA Indebtedness and obtain the release of any and all liens, claims, and encumbrances of the SBA against the Purchased Assets.

On April 20, 202129, 2022, the Company paid off its loansent the standard form bulk sale notice to all creditors listed by owners setting forth the proposed sale and accrued interest inproviding an address for creditors to make an inquiry or claim against the Seller or the assets of the Seller. It shall be the responsibility of the Seller and Owners to resolve any and all claims filed within the 20-day notice period (“Bulk Sale Notice”) either through a writing signed by the claimant releasing the Seller and the assets from any further claims, or through escrow of sufficient funds to cover the amount of $260the claim as alleged by the creditor. The parties shall review all claims, and the resolution or escrow by Seller to Arie Gresonie. The Company paidsatisfy all claims filed, no later than May 18, 2022, and if Buyer, at its sole discretion, is satisfied that each asserted claim has been resolved by a writing signed by the creditor, or an acceptable escrow amount equalis deposited by Seller in its attorney’s trust account to $125 plus $ 5, which representscover all unreleased alleged claims, the amount of interest accrued 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 Common Stockparties shall proceed to closing of the Company.asset purchase transaction on or before the Closing Date. If any creditors provide timely notice of a claim against Seller or the Purchased Assets, then as a condition precedent to closing the Seller and Owners shall reduce the Purchase Price or escrow additional funds with the Escrow Agent sufficient to fully satisfy all such asserted claims as determined by the Buyer at its reasonable discretion. If the aggregate funds on deposit with the Escrow Agent aggregating $3,976,000.00 are insufficient to satisfy in full the SBA Loan Obligation as set forth in the estoppels letter to be provided by the SBA/lender, then Owners shall deposit any additional funds as determined by the Escrow Agent as necessary to satisfy in full the outstanding SBA Loan Indebtedness then the Owners shall fund the additional deposit by five (5) business days before the Closing. Cuentas will deposit $1 Million into an escrow account while a definitive purchase and sale agreement.  If after execution of the APA, Seller and Owners fail to satisfy the conditions to closing, the Buyer at its sole discretion may terminate this APA with written notice to the Seller and the Owners and the Escrow Agents. Upon receipt of the written notice of termination as set forth immediately above, Seller’s Escrow Agent shall deposit from the Seller’s Escrow Funds the $250,000 liquidation damages in the registry of a court of competent jurisdiction in Westchester County, New York and commence an interpleader action naming the parties and affording them notice to appear to determine their respective rights in the $250,000 liquidation damages and promptly return the remaining Seller’s Escrow Funds, less the $250,000 liquidating damages, to the Seller and Buyer’s Escrow Agent may promptly return the Buyer’s Escrowed Funds to Buyer. If after execution of the APA, the Buyer fails to fund the Remaining Purchase Price, the Owners may terminate the APA with written notice to the Buyer and the Escrow Agents. Upon receipt of the written notice of termination as set forth immediately above, Buyer’s Escrow Agent shall deposit from the Buyer’s Escrow Funds the $250,000 liquidation damages in the registry of a court of competent jurisdiction in Miami-Dade County, Florida and commence an interpleader action naming the parties and affording them notice to appear to determine their respective rights in the $250,000 liquidation damages and promptly return the remaining Buyer’s Escrow Funds to the Buyer and Owners’ Escrow Agent may promptly return the Owners’ Escrowed Funds to Owners.

The parties stipulate that the $250,000 liquidating damages is an approximate estimate of the costs and expenses incurred by each party in pursuing this transaction and is intended solely as an estimate of reimbursable costs and expenses and is not intended to be a penalty. Venue for any dispute over whether a party properly terminated the APA shall be on the county where the $250,000 liquidation damages are on deposit in the court registry. In any such interpleader, the parties agree to that their respective Escrow Agent is authorized to accept service of the interpleader complaint and summons and they waive any right to a jury trial on any and all issues.

Seller and Owners and their officers and directors and all of its shareholders including Owners, separately and severally, agree that, for a period of two (2) years after closing, they will not, directly or indirectly, own, manage, operate, join in, control, or participate in the ownership, management, operation, or control of, or be connected with in any manner, any entity engaged in the business of Fintech and Telcom anywhere in the world.

On May 4, 2022 the Company deposited $1 Million into an escrow account as noted above. As of date, the Company did not sign the definitive Asset Purchase Agreement (APA), which is subject to Cuentas Board of Director approval.

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

TheYou should read the following discussion and analysis provide information which management of the Company believes to be relevant to an assessmentour financial condition and understanding of the Company’s results of operations and financial condition. This discussion should be read together with the Company’sour financial statements and the related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021. Some of the information contained in this discussion and analysis, particularly with respect to our plans and strategy for our business and related financing, includes forward-looking statements within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including statements regarding expectations, beliefs, intentions or strategies for the future. When used in this report, the terms “anticipate,” “believe,” “estimate,” “expect,” “can,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and words or phrases of similar import, as they relate to our company or our management, are intended to identify forward-looking statements. We intend that all forward-looking statements be subject to the financial statements, which are included in this report.

Forward-Looking Statements

This Report containssafe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements that relateare only predictions and reflect our views as of the date they are made with respect to future events and financial performance, and we undertake no obligation to update or our future financial performance. Some discussions in this reportrevise, nor do we have a policy of updating or revising, any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as may contain forward-lookingbe required under applicable law. Forward-looking statements that involve riskare subject to many risks and uncertainty. A number of important factorsuncertainties that 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, levelsas a result of activity, or achievements. You should not place undue certaintyseveral factors including those set forth under “Risk Factors” in our Annual Report on theseForm 10-K for the year ended December 31, 2021, and in this Quarterly Report on Form 10-Q for the quarter ended March, 2022.

The Company notes that in addition to the description of historical facts contained herein, this report contains certain forward-looking statements which apply onlythat involve risks and uncertainties as ofdetailed herein and from time to time in the date of this Report. These forward-lookingCompany’s other filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and are subject to certain risksa number of factors and uncertainties, thatwhich 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 ofthose, described in the forward-looking statementsstatements. These factors include, among others: (a) the Company’s fluctuations in an effortsales and operating results; (b) regulatory, competitive and contractual risks; (c) development risks; (d) the ability to conform these statements to actual results.

Company Overview

The Company is a corporation incorporated 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 (“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 Fintech Card is a GPR integrated into a proprietary robust ecosystem that protects customers by depositing their funds in an FDIC insured bank account at the Issuing Bank. The comprehensive financial services include:

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

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

The Latino Market

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

The U.S. Latino population numbers 43.8 million U.S. immigrants, according to the 2017 FDIC Survey. It excludes immigrants, illegal aliens and undocumented individuals. The FDIC defines the “unbankable” as those adults without an account at a 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 group.

The Fintech Card is 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, is able to use various forms of U.S. and some foreign government issued identification to confirm qualification.

The Cuentas General-Purpose Reloadable Card

The Cuentas Mastercard acts as a comprehensive banking solution marketed toward the over 20 million unbanked U.S. Latino community. The “unbanked” is described by the FDIC as those adults without an account at a bank or other financial institution and are considered to be outside the mainstream for one reason or another. The Cuentas Mastercard is 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 U.S. to acquire a Cuentas Mastercard using their SSN or ITIN together with their U.S. or Foreign Passport, Driver’s License, Matricula Consular or certain U.S. residency documentation. The Cuentas Mastercard’s funds are protected in an FDIC-insured bank account at the Issuing Bank. Functionality includes ATM withdrawals, direct deposit, cash reload, fee free Cuentas App to Cuentas App fund transfers and mobile banking capabilities, among other key features such as purchasing discounted gift cards and adding “mass transit credits” to digital accounts (available in California, Connecticut, Michigan and other cities in the future). Upcoming Cuentas App upgrades should also include international remittance and other services. Consumers are able to use funds in their account to purchase third party digital and gift cards (many at discounted prices), U.S. and international mobile phone top-ups, mass transportation and tolling access (available in select markets - Connecticut, Grand Rapids, MI, Los Angeles, CA, etc.) as well as digital content for virtual gaming, dining, shopping and cash reloads.

The Cuentas App is available for download now on the Apple App Store and on the Google Play Store for Android. The Cuentas App allows consumers to easily activate their Cuentas Mastercard, review their account balance and conduct certain financial transactions. Cuentas 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 apps that charge 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 Mastercard has several revenue centers. The Company receives a one-time activation charge for each activated Cuentas Mastercard and a monthly recurring charge. These charges were designed to be very reasonable to both consumers and the Company. In addition to these charges, Cuentas will receive a commission each time funds are loaded and reloaded to the Cuentas Mastercard.

The Cuentas Digital Wallet produces recurring revenue and is an integral part of the Cuentas offering. It will produce revenue each time that consumers purchase third party gift cards, digital access, mass transit tickets and mobile phone top-ups (U.S. and 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.

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

Cuentas also 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 U.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, “[i]n the United States, prepaid cards remain the preferred choice for the unbanked market segment....” It also states that “[t]he move towards a cashless society is substantial, further driving the prepaid card market.”

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

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

The Cuentas Technology platform

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

The platform also contains a sound and proven gamification engine, capable of driving user behaviors in a manner that entices and rewards using incentivization based on proven behavioral science patterns. At the heart of this gamification engine lies a proven and robust rules engine that can easily integrate and modify process flows and orchestrations between disparate platforms, allowing for a quick and easy integration of complex, orchestrated integrations between internal process automation and invocations of external systems. The platform will provide Android and iOS software for users to execute a wide variety of transactionsinitiatives, including but not limited to account balances, account transfersthe ability to achieve sales growth across the business segments through a combination of enhanced sales force, new products, and in-app purchases. User messaging are also integratedcustomer service; and are achieved via SMS, email, in-app messaging,(e) pending litigation.

Overview and voice.Outlook

OVERVIEW AND OUTLOOK

The user management application uses rich metadata CRM and single sign-on (“SSO”)Company was incorporated in September 2005 to track user behavior and personalize the user experience. It is fully integrated with our Strategic Partners, scalable and manages the digital ecosystem entitlements. The platform can process both physical and virtual goods, digital assets, real time currency value exchange, virtual currency support with current exchange rates and support nontraditional assets, in addition to credit card, POS, debits, and digital wallet management.

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

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, 2017act as a Letterholding company for its subsidiaries in the technology, telecom and banking industries.

The Company invests in financial technology and engages in use of Intent with Fisk Holdings, LLC. As Managing Member of the newly formed LLC, thecertain licensed technology to provide innovative telecommunications, mobility, and remittance solutions to unserved, unbanked, and emerging markets. The Company will contribute a total of $500,000,uses proprietary technology and certain licensed technology to be paid per an agreed-upon schedule over a twelve-month period. Fisk Holdings, LLC will contribute 30,000 active Point of Sale locations for distribution of retailprovide innovative telecommunications and telecommunications mobility and remittance solutions in emerging markets. The Company also offers wholesale telecommunications minutes and prepaid financial productstelecommunications minutes to consumers through its Tel3 division.

The Company’s subsidiary, Meimoun and servicesMammon, LLC (100% owned) (“M&M”), through. Tel3, a business segment of Meimoun and Mammon, LLC provides prepaid calling cards to include, but not be limited to: prepaid General Purpose Reload (“GPR”) cards, prepaid gift cards, prepaid money transfer, prepaid utilityconsumers directly. 

OUTLOOK

Business Environment

We are a technology payment platform company that enables digital and mobile payments on behalf of under-bank and other prepaid products. The completed formation of an established distribution business for third-party gift cards, digital content, mobile top up,unbanked individuals. We believe in providing simple, affordable, secure and reliable 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 partiespayments to distribute the Company’s recently announced CUENTAS GPR card and mobile banking solution aimed to the unbanked, underbanked and financially underserved consumers, making them available to customers at the more than 31,600 retail locations SDI NEXT presently serves. It was also agreed between the parties to renegotiate the terms of the Company’s investment in SDI NEXT once the development of the GPR card and the retail stores system are completed and the GPR card is ready for distribution in the retail locations of SDI NEXT. 

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 ishelp 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 reloadachieve 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 digital products and services illustrated in the graphic below.financial goals. We intend to workstrive 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

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

The Cuentas ECO System

The Western Union Company (“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 licensefamily to access and use the CIMA Licensed Technologymove their money anywhere in the form providedworld, anytime, on any platform and through any device (e.g., mobile, tablets, personal computers or wearables). We provide safer and simpler ways for businesses of all sizes to the Company via the Hosting Services (as definedaccept payments from merchant websites, mobile devices and applications, and at offline retail locations through a wide range of payment solutions. We also facilitate person to person payments through Cuentas GPR Card.

We operate globally and in 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 ofrapidly evolving regulatory environment characterized by a convertible note that may be converted, at the option of CIMA, into up to 25%heightened regulatory focus on all aspects of the total shares of Common Stock of the Companypayments industry. That focus continues to become even more heightened as regulators on a fully dilutedglobal basis focus on such important issues as of December 31, 2019. The transactions with CIMA closed on December 31, 2019 (the “CIMA Transaction Closing”). Pursuant to the CIMA License Agreement, the Company shall pay CIMA annual fees for the maintenancecountering terrorist financing, anti-money laundering, privacy 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 Stockconsumer protection. Some 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 or (b) upon a Change of Control, as defined in such warrants. At that point, the Warrants are automatically exercised. On September 17, 2020, the Company issued 2,000,000 of its Common Stock to each of Dinar and CIMA, under the automatic exercise of the 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&Mwhich we 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 regulationswere enacted recently 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 abilityus, including those enacted prior to execute our business planthe advent of digital and achieve profitable operating results.

Atmobile payments, are continuing to evolve through legislative and regulatory action and judicial interpretation. Non-compliance with laws and regulations, increased penalties and enforcement actions related to non-compliance, changes in laws and regulations or their interpretation, and the federal level, Congress and federal regulatory agencies have enacted and implementedenactment of 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 permittedapplicable 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 thatus could have a material adverse effectimpact on our business, results of operations and financial condition. FailureTherefore, we monitor these areas closely to complyensure compliant solutions for our customers who depend on us.

Industry Trends

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

RESULTS OF OPERATIONS

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 strainComparison 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, 2021 and 2020

Revenue

Revenues during2022 to the three months ended March 31, 2021 totaled $225,000 compared to $134,000 for the three months ended March 31, 2020.

Revenue

The Company generated most of its revenuegenerates revenues through the sale and distribution of prepaid telecom minutes, digital products and other related telecom services. The Company havealso generated sales from its Fintech products and services commencing in the amountthird quarter of $18,0002020. Revenues during the first quarterthree months ended March 31, 2022 totaled $394,000 compared to $225,000 for the three months ended March 31, 2021. The increase in the sales of 2021.General Purpose Reloadable Cards is mainly due to online marketing campaigns and other marketing initiatives.

Revenue by product for the three months ended March 31, 2022, and the three months ended March 31, 2021 are as follows: 

Costs of Revenue

Costs of revenue consists of the purchase of wholesale minutes for resale and related telecom platform costs. Gross profit

Cost of revenues during the three months ended March 31, 20212022 totaled $ 247,000$260,000 compared to $177,000$247,000 for the three months ended March 31, 2020. 2021.

Cost of revenue consists mainly of the purchase of wholesale minutes for resale, related telecom platform costs and purchase of digital products. products in the amount of $57,000 during the three months ended March 31, 2022 and $140,000 during the three months ended March 31, 2021.

Cost of revenue also consisted from costconsists of costs 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$203,000 during the three months ended March 31, 2021 compared to $1,414,0002022 and $107,000 during the three months ended March 31, 2020 representing a net decrease2021.

Gross profit (loss) by product lines for three months ended March 31, 2022 and 2021 are as follows: 

Operating Expenses

Operating expenses consist of $552,000. The decrease in the operating expenses is mainly due to a one-time fee implantation fee in the amountselling, general and administrative Expenses and amortization of $300,000 that was paid to IncommIntangible assets as discussed below and totaled $3,742,000 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 due2022, compared 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 $2,539,000representing a net increase of $ 2,152,000.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $ 3,289,000 during the three months ended March 31, 20202022 compared to $1,138,000 during the three months ended March 31, 2021, representing a net decreaseincrease of 945,000.$2,151,000. Included in in the Selling, general and administrative expenses, Stock-based compensation and shares issued for services expenses amounted to $ 537,000 during the three months ended March 31, 2022 and $276,000 during the three months ended March 31, 2021. This increase was mainly due to issuance of 1,550,000 stock options to directors and officers of the Company in the 2021 and 200,000 stock options to officer of the Company in the 2022. Such options can be exercised until, November 2, 2031. The decreaseincrease in the other operating expenses is mainly due to decreasean increase in Stock basedthe agreed maintenance and support services in accordance with the software maintenance agreement with CIMA in the amount of $50,000 to $175,000 during the three months ended March 31, 2022, and increase in our compensation and shares issued for services.director fees in the approximate amount of $303,000 to $407,000 during the three months ended March 31, 2021.

Amortization of Intangible assets

Amortization of Intangible assets totaled $453,000 during the three months ended March 31, 2022 and 2021. The amortization expense mainly stems from the one-time licensing fee in the amount of $9,000,000 that was paid in shares to Cima, on December 31, 2019. The acquired intangible assets that consisted of a perpetual software license had an estimated fair value of $9,000,000. The Company amortizes the intangible assets on a straight-line basis over their expected useful life of 60 months which is approximately $453.000 per quarter. 

Other Income 

The Company recognized other expense of $1,000 during the three months ended March 31, 2022 compared to other expense of $63,000 during the three months ended March 31, 2021 compared to an income $422,000 during2021.

Net Income (Loss)

We incurred a net loss of $3,624,000 for the three monthsthree-month period ended March 31, 2020. The2022, as compared to a net change from the prior period is mainly due to the change in our stock-based liabilities and interest expenses that we occurred. Gain from Change in Fair Valueloss of stock-based liabilities1,675,000 for the three-month period ended March 31, 2021 was $56,000 as compared to a gain of $359,000 for the three-month period ended March 31, 2020. The gain (loss) is attributable to the decrease in the Fair Value of our stock-based liabilities mainly due to the decrease (increase)increase in the price of share of our common stock.selling and general administrative expenses as described above.

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.

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, 2022, the Company had total current assets of $4,619,000, including $4,290,000 of cash, accounts receivables of $92,000, and other current assets of $192,000 and total current liabilities of 3,224,000,000 creating a working capital of $ 1,395,000.

As of December 31, 2021, the Company had $6,482,000 of cash, total current assets of $6,727,000$6,780,000, including $6,607,000 of cash, accounts receivables of $11,000, and other current assets of $162,000 and total current liabilities of $3,249,000$ 2,719,000 creating a working capital of $3,478,000. As of December 31, 2020, the Company had $227,000 of cash, total current assets of $296,000 and total current liabilities of $6,480,000 creating a working capital deficit of $6,184,000. $4,061,000.

The increasedecrease in our working capital deficit was mainly attributable to the decrease in Accounts Payables in the amount of 1,952,000, decrease in our other Accounts Payables in the amount of 1,376,000 and increase in our 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 $3,356,000 for the three-month period ended March 31, 2021, as compared to cash used in operating activities of $738,000 for the three-month period ended March 31, 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. 

Net cash provided by financing activities was approximately $9,658,000 for the three-month period ended March 31, 2020, as compared to net cash provided by financing activities was approximately $743,000 for the three-month period ended March 31, 2020.

Due$2,272,000 due to our operational losses,losses.

To date, we have principally financed our operations through the sale of our Common StockStock. Nevertheless, management anticipates that our current cash and cash equivalents position and generating revenue from the issuancesales of convertible debt.

We have principally financed our operations throughGeneral-Purpose Reloadable Cards will provide us limited financial resources for the near future to continue implementing our business strategy of further developing our General Purpose Reloadable Card, enhance our digital products offering and increase our sales and marketing. Therefore. Management plans to secure additional financing sources, including but not limited to the sale of our Common Stock in future financings. This is expected to private investors, issuance of convertible loans debtbe used to further support our operations as described above and loans from our shareholders.

Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in lightcomplete the acquisition of the risks, expensesSDI’s assets, including the Black011.com domain and difficulties frequently encountered by companies in their early stageits network 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 the Cuentas 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.approximately 31,600 bodegas. There can be no assurance, however, that wethe company will be successful in addressing such risks,raising additional capital or that the company will have net income from operations to fund the business plan of the company for the near future or long term.

In the event that the Company does not obtain financing, the Company will not consummate the purchase of the SDI assets and may be required to curtail its business plan until financing is available.

Cash Flows – Operating Activities

The Company’s operating activities for the failure to do so canthree months ended March 31, 2022, resulted in net cash used of $2,225,000. Net cash used in operating activities consisted of a net loss of $3,233,000, partially offset by non-cash expenses consisting of share-based compensation of $537,000 and amortization of intangible assets of $453,000. Changes in operating assets and liabilities generated cash of $6,000, resulting mainly from an increase in accounts receivable of $81,000, decrease in accrued expenses and other current liabilities of $137,000, decrease of $88,000 in deferred revenue which was mitigated by an increase in accounts payables of $245,000.

The Company’s operating activities for the three months ended March 31, 2021, resulted in net cash used of $3,356,000. Net cash used in operating activities consisted of a net loss of $1,675,000, partially mainly offset by non-cash expenses consisting of share-based compensation of $276,000 and amortization of intangible assets of $452,000. Changes in operating assets and liabilities utilized cash of $2,441,000, resulting mainly from an increase in accounts receivable of $40,000, decrease in accrued expenses and other current liabilities of $1,376,000, and a decrease in accounts payables of $952,000.

Cash Flows – Investing Activities

The Company’s investment activities for the three months ended March 31, 2022resulted in net cash used of $47,000 and net cash used of $47,000 for the same period in 2021.

Cash Flows – Financing Activities

The Company had no financing activities for the three months ended March 31, 2022. The Company’s financing activities for the three months ended March 31, 2021, resulted in net cash received of $9,658,000, consisting of $10,614,000 received from the sale of our common stock, partially offset by repayments of loans of $605,000 and repayments of $355,000 of loans from a related party. 

Inflation and Seasonality

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

Off-Balance Sheet Arrangements

As atof March 31, 2021,2022, 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, 20202021, 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.

Recently Issued Accounting Standards 

New pronouncements issued but not effective as of March 31, 20212022, are not expected to have a material impact on the Company’s consolidated financial statements.

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

.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures 

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

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

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 weaknesses by the end of the fiscal quarter ending March 31, 2021.

Changes in Internal ControlsControl over Financial Reporting

Our management, with the participation of our CEO and CFO, performed an evaluation to determine whether any change in our internal controlscontrol over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the three-month period ended March 31, 2021.2022. Based on that evaluation, our CEO and our CFO concluded that no change occurred in the Company’s internal controlscontrol over financial reporting during the three-month period ended March 31, 20212022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal controlscontrol 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 December 20, 2017, a complaint was filed by J. P. Carey Enterprises, Inc. (“JP Carey”) alleging a claim for $473,000 related to Franjose Yglesias-Bertheau, a former Vice President of PLKD. Even though the Company made the agreed payment of $10,000 on January 2, 2017, and issued 6,001 shares of Common Stock as conversion of the $70,000 note as agreed in its settlement agreement, JP Carey alleges damages that the Company claims are without merit because JP Carey received full compensation as agreed. The Company is in the process of defending itself against these claims. The Company has not accrued losses related to this claim due to the early stages of litigation. On January 29, 2019, the Company was served with another complaint by JP Carey claiming similar issues as to the previous complaint, with the new claimed damages totaling $1,108,037.85. JP Carey and the Company filed motions for a 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 Company. The briefing in the appeal was completed during the first quarter of 2021. Oral argument held on April 13, 2021 but no decision has been rendered yet. On November 16, 2020, Cuentasthe Company filed a motion seeking payment from JP Carey of $140,970.82 in attorney fees and costs accrued as of November 13, 2020. JP Carey’s responded brief was filed on or about December 21, 2020 and thereafter Cuentasthe Company filed its reply. JP Carey's petition to the Georgia Supreme Court for a writ of certiorari remains pending and is fully briefed as of January 14, 2022. The Georgia Supreme Court is not required to accept the case and whether it accepts or not is entirely within its discretion. If the Georgia Supreme Court grants certiorari, additional briefing will be due in 2022 and a briefing schedule will be set. n the trial court has not yet set a dateproceedings, the case remains stayed pending the final outcome after all appeals are exhausted. After the appeal decision is final and no longer subject to hear this motion.further appeal, the trial court will consider Cuentas' motion seeking payment from JP Carey of Cuentas' attorneys' fees and costs and JP Carey's claim for default interest, attorney fees, and costs.

On October 23, 2018, Cuentasthe Company was served by Telco Cuba Inc. for an amount in excess of $15,000 but the total amount was not specified. The Company was served on December 7, 2018, with a complaint alleging damages including unspecified damages for product, advertising and other damages in addition to $50,000 paid to Defendants. CuentasThe Company 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,or about April 27, 2022, the Company was served withsettled the Telco Cuba Inc. matter in consideration of a complaint by former company Chief Financial Officer, Michael Naparstek, claiming breach of contract for 833,333 shares (pre-2018 reverse stock split), $25,554 of compensation and $8,823 of expenses. This case was withdrawn in Palm Beach County and on January 11, 2019, a similar complaint was filed in Miami-Dade County. During the recent mediation, the Company and Mr. Naparstek reached an understanding of full settlement amount of $2,500. The Company has deposited the settlement amount to an escrow account of its counsel until a stipulation of settlement will be executed by both parties.$32,000.

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 Limecom Acquisition was rescinded on January 30, 2019, and Limecom agreed to indemnify and hold harmless Cuentas from this and other debts. Cuentas hired an attorney and is defending itself vigorously in this case. A court ordered mandatory arbitration session took place and the arbitration findings were issued on June 19, 2020, and a request for trial de novo was filed on July 16, 2020, in order to have the matter docketed on the calendar. The motion for summary judgment filed by Cuentas Inc. with the New Jersey Superior Court initially set for October 16, 2020 was heard on October 30, 2020 after being rescheduled by the court. Oral arguments were held over the phone via conference call. The court came to the determination that while not indicative of success at trial, the court denied Plaintiff’s motion for summary judgment. Presently, there is a current trial date set for July 6, 2021.

On May 1, 2019, the Company received a notice of demand for arbitration from Secure IP Telecom, Inc. (“Secure IP”), who allegedly had a Reciprocal Carrier Services Agreement (“RCS”) exclusively with Limecom and not with Cuentas.the Company. The arbitration demand originated from another demand for arbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,052,838.09 in damages allegedly caused by unpaid receivables that Limecom assigned to VoIP based on the RCS. On June 5, 2020, SecureIPSecure IP 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 SecureIPSecure IP by Limecom. SecureIPSecure IP also alleges that Cuentasthe Company received certain transfers of funds which it alleges may be an avoidable transfer under Florida Statute §725.105 up to $1,052,838.09. CuentasThe Company 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 Cuentasthe Company has exposure for any transfers from Limecom, both Limecom and Heritage have indemnified Cuentasthe Company for any such liability. The Company willcontinues to vigorously defend its position to be removed as a named party in this action due to the fact that Cuentasthe Company rescinded the Limecom Acquisition on January 30, 2019. Cuentas has provided requested discovery and expects depositions to be scheduled shortly. As of March 31, 2022 the company accrued $300,000 due to this matter.

On April 1, 2021 the Company executed a lease for office space effective April 1, 2019. The lease requires monthly rental payments of $7.

ITEM 1A. RISK FACTORS

Not applicable.

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

On February 2, 2021, the Company issued 20,000 shares of its Common Stock to its Chief Financial Officer, 40,000 shares of its Common Stock to a member of the Board of Directors of the Company and 2,933 shares of its Common Stock to a former employee. The fair market value of the shares was $459,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.None

On March 17, 2021, the Company issued 10,000 shares of its Common Stock pursuant to a service Agreement between the Company and a service provider, dated May 16, 2019. The fair market value of the shares at the issuance date was $38,000. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

On 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 30,233 shares of Common Stock of the Company. We issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR DEBT

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

NoneOn January 5, 2022, we signed a Binding Letter of Intent (the “Original LOI”) with Mango Tel LLC (“Mango Tel”), SDI Black, and Sohel Kapadia and Saheda Kapadia (collectively the “Owners”), for the potential acquisition of 100% of the assets of Mango Tel LLC and SDI Black 011 for a purchase price of $3.2 million. On February 9, 2022, we signed an amended Binding Letter of Intent amending the Original LOI (collectively, the “LOI”) to reflect that we would only purchase SDI Black (and not purchase Mango Tel which determination was made following our initial due diligence review of Mango Tel) for a purchase price of $2.95 million. The LOI provides that we will deposit $2 million into an escrow account while a definitive purchase and sale agreement is drafted and negotiated. To date, we have not made this deposit into escrow and we do not currently expect to make this deposit (if at all) until the company obtains additional financing. Pursuant to the agreement, we will acquire substantially all of the assets of SDI Black, which also include Black Wireless MVNO, Black 011 Long distance platform and operations and the SDI Black distribution platform and network of over 31,000 bodegas and convenience stores (the “Purchased Assets”). We expect to form a company (“Newco”) into which all of the Purchased Assets shall be transferred following the. As part of the LOI, SDI Black and the Owners have agreed to apply the purchase price paid by us to amounts due to repay U.S. Small Business Administration (“SBA”) loans taken by SDI Black and the sellers shall pay an additional $1,000,000 towards repayment of additional SBA loans. We have also agreed to offer employment agreements to certain Fisk/SDI key employees.

On April 27, 2022, we signed the Second Amendment to Binding Letter of Intent (the “SA-LOI”) with the owners . The Second Amendment to Binding Letter of Intent provides that a definitive Asset Purchase Agreement (APA), subject to Cuentas Board of Director approval, will be signed by May 8, 2022 detailing the assets which will be acquired by Cuentas. It also provides that if the Board of Directors of Cuentas does not approve the APA, then “…the parties shall be released from any and all obligations thereunder including the termination penalty…”. The closing date for the APA shall under no circumstances be after May 20, 2022. Within 5 days after execution of this LOI, Cuentas will deposit $1 Million into an escrow account while a definitive purchase and sale agreement (the “Agreement”) is drafted and negotiated. On or before five (5) business days before the Closing Date, Cuentas shall pay into the escrow trust account of it’s Escrow Agent, the remaining Purchase Price of ONE MILLION NINE HUNDRED SEVENTY-SIX THOUSAND DOLLARS ($1,976,000, the “Remaining Purchase Price”). . At the Closing, Owners shall transfer one hundred percent (100%) of the Purchased Assets free and clear of any liens, claims, and encumbrances to Cuentas. On or before eight (8) business days following the execution of this Second Amendment by the parties, Owners shall pay into the escrow trust account of the Seller’s Escrow Agent, $1 Million to be held in trust under the terms and conditions of the Escrow Agreement as defined in the SA-LOI. On or before five (5) business days following the execution of the Second Amendment by the parties, the Escrow Agents shall obtain from the SBA a payoff estoppel letter setting forth the outstanding loan balance, including principal, interest and applicable charges due under the applicable SBA loan documents with a per diem interest amount that will allow the parties to calculate the payoff amount necessary to satisfy in full the indebtedness owed by Seller to the SBA (the “SBA Indebtedness”) and obtain a release of the recorded liens and security interest and UCC-1s, and wiring instructions setting forth the financial account that SBA where it wants the payoff funds transferred to at the Closing (“SBA Wiring Instructions”). On the Closing Date, the parties shall provide a written notice signed by all of the parties, directing the Escrow Agents to wire to the SBA $2,976,000 plus the $1,000,000 from the Owners, for a total of $3,976,000., to satisfy in full the SBA Indebtedness and obtain the release of any and all liens, claims, and encumbrances of the SBA against the Purchased Assets.

On April 29, 2022, we sent the standard form bulk sale notice to all creditors listed by owners setting forth the proposed sale and providing an address for creditors to make an inquiry or claim against the Seller or the assets of the Seller. It shall be the responsibility of the Seller and Owners to resolve any and all claims filed within the 20-day notice period (“Bulk Sale Notice”) either through a writing signed by the claimant releasing the Seller and the assets from any further claims, or through escrow of sufficient funds to cover the amount of the claim as alleged by the creditor. The parties shall review all claims, and the resolution or escrow by Seller to satisfy all claims filed, no later than May 18, 2022, and if Buyer, at its sole discretion, is satisfied that each asserted claim has been resolved by a writing signed by the creditor, or an acceptable escrow amount is deposited by Seller in its attorney’s trust account to cover all unreleased alleged claims, the parties shall proceed to closing of the asset purchase transaction on or before the Closing Date. If any creditors provide timely notice of a claim against Seller or the Purchased Assets, then as a condition precedent to closing the Seller and Owners shall reduce the Purchase Price or escrow additional funds with the Escrow Agent sufficient to fully satisfy all such asserted claims as determined by the Buyer at its reasonable discretion. If the aggregate funds on deposit with the Escrow Agent aggregating $3,976,000.00 are insufficient to satisfy in full the SBA Loan Obligation as set forth in the estoppels letter to be provided by the SBA/lender, then Owners shall deposit any additional funds as determined by the Escrow Agent as necessary to satisfy in full the outstanding SBA Loan Indebtedness then the Owners shall fund the additional deposit by five (5) business days before the Closing.

If after execution of the APA, Seller and Owners fail to satisfy the conditions to closing, the Buyer at its sole discretion may terminate this APA with written notice to the Seller and the Owners and the Escrow Agents. Upon receipt of the written notice of termination as set forth immediately above, Seller’s Escrow Agent shall deposit from the Seller’s Escrow Funds the $250,000 liquidation damages in the registry of a court of competent jurisdiction in Westchester County, New York and commence an interpleader action naming the parties and affording them notice to appear to determine their respective rights in the $250,000 liquidation damages and promptly return the remaining Seller’s Escrow Funds, less the $250,000 liquidating damages, to the Seller and Buyer’s Escrow Agent may promptly return the Buyer’s Escrowed Funds to Buyer. If after execution of the APA, the Buyer fails to fund the Remaining Purchase Price, the Owners may terminate the APA with written notice to the Buyer and the Escrow Agents. Upon receipt of the written notice of termination as set forth immediately above, Buyer’s Escrow Agent shall deposit from the Buyer’s Escrow Funds the $250,000 liquidation damages in the registry of a court of competent jurisdiction in Miami-Dade County, Florida and commence an interpleader action naming the parties and affording them notice to appear to determine their respective rights in the $250,000 liquidation damages and promptly return the remaining Buyer’s Escrow Funds to the Buyer and Owners’ Escrow Agent may promptly return the Owners’ Escrowed Funds to Owners.

The parties stipulate that the $250,000 liquidating damages is an approximate estimate of the costs and expenses incurred by each party in pursuing this transaction and is intended solely as an estimate of reimbursable costs and expenses and is not intended to be a penalty. Venue for any dispute over whether a party properly terminated the APA shall be on the county where the $250,000 liquidation damages are on deposit in the court registry. In any such interpleader, the parties agree to that their respective Escrow Agent is authorized to accept service of the interpleader complaint and summons and they waive any right to a jury trial on any and all issues.

Seller and Owners and their officers and directors and all of its shareholders including Owners, separately and severally, agree that, for a period of two (2) years after closing, they will not, directly or indirectly, own, manage, operate, join in, control, or participate in the ownership, management, operation, or control of, or be connected with in any manner, any entity engaged in the business of Fintec and Telcom anywhere in the world.

On February 2, 2022 the Company and Anthony H. Meadows entered into an employment agreement (the “Meadows Employment Agreement”), pursuant to which Mr. Meadows agreed to serve as the Company’s new Chief Operating Officer. The Employment Agreement commenced and became effective as of February 2, 2022, and shall continue at will for no specific term. Pursuant to the terms of the Employment Agreement, Mr. Meadows will receive an annual base salary of two hundred forty thousand dollars ($240,000) per year, and will be eligible for an annual incentive payment of up to one hundred percent (100%) of his base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s CEO. This annual incentive shall have a twelve (12) month performance period and will be based on a January 1 through December 31 calendar year, with Mr. Meadows’s entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the CEO. Pursuant to the terms of the Employment Agreement, if earned, Mr. Meadows shall be paid in full during the first quarter following the relevant performance calendar year period. Pursuant to the terms of the Meadows Employment Agreement, the Company shall issue to Mr. Meadows an option to purchase up to an aggregate of two hundred thousand (200,000) shares of Common Stock; in accordance with the following terms: i. Exercise Price: the closing price of the Company’s common stock as of the last Board of Directors meeting on November 3rd, 2021 ($2.80) and approved at the Annual Shareholder Meeting on December 15th, 2021. ii. Vesting: the option to purchase up to Fifty Thousand (50,000) shares of common stock shall vest on the date this Agreement is fully executed. The option to purchase an additional Fifty (50,000) shares of common stock shall vest on the first, second and third anniversary of grant date, so long as Employee is employed by the Company on that date. iii. Tax Treatment: this stock option inducement shall be treated as an incentive stock option up to IRS limits and any remaining portion shall be treated as a non-qualified option. Under the Employment Agreement, Mr. Meadows is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and non-disparagement, among others. The Employment Agreement is governed by the laws of the State of Florida. The Employment Agreement may be terminated by the Company for cause or without cause, and by Mr. Meadows for good reason or without good reason, as such terms are defined under the Employment Agreement.

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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