Cuentas Inc 10-K for FY2023
Cuentas Inc. (CUEN)
About this 10-K
Cuentas Inc filed this 10-K on April 15, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.35M
- down 21.6% from $2.99M a year earlier
- Net loss
- $2.2M
- compared with a net loss of $14.53M a year earlier
- Diluted EPS
- -$0.82
- compared with -$11.81 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the fiscal year ended
For the transition period from _______________ to _______________
Commission File Number:
(Exact name of Registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Warrants
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes ☐ No
As of June 30, 2023, the last day of the registrant’s
most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates was $
The
number of shares of Common Stock, $0.001 par value, outstanding on March 29, 2024 was
TABLE OF CONTENTS
i
SPECIAL NOTE
As used in this Annual Report on Form 10-K (the “Annual Report”), unless the context otherwise requires, the terms “the Company,” “Cuentas,” “we,” “us,” and “our” refer to Cuentas Inc., a Florida corporation.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report includes forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995 or by the U.S. Securities and Exchange Commission in its rules, regulations and releases, regarding, among other things, all statements other than statements of historical facts contained in this report, including statements regarding our future financial position, business strategy, and plans and objectives of management for future operations. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. In addition, our past results of operations do not necessarily indicate our future results.
These statements include, among other things, statements regarding:
| ● | our ability to implement our business plan; |
| ● | our ability to attract key personnel; |
| ● | our ability to operate profitably; |
| ● | our ability to efficiently and effectively finance our operations; |
| ● | our ability to raise additional financing for working capital; |
| ● | our ability to efficiently manage our operations; |
| ● | that our accounting policies and methods may require management to make estimates about matters that are inherently uncertain; |
| ● | changes in the legal, regulatory and legislative environments in the markets in which we operate; and |
| ● | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations. |
Except as otherwise required by applicable laws and regulations, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this report, whether as a result of new information, future events, or changed circumstances after the date of this report. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. No forward-looking statement is a guarantee of future performance. You should read this Annual Report and the documents that we reference in this Annual Report and have filed with the Securities and Exchange Commission (the SEC) thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
The Company maintains a website at www.cuentas.com. The Company makes available, free of charge, through the Investor Information section of the website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Any of the foregoing information is available in print to any stockholder who requests it by contacting our Investor Relations Department. Alternatively, you may also access our reports at the SEC’s website at www.sec.gov.
ii
PART I
ITEM 1. BUSINESS
Our Business
Our business is mainly focused on using proprietary technologies to integrate FinTech (Financial Technology), e-finance and e-commerce services into solutions that deliver mobile financial services, prepaid debit and digital content services to the unbanked, under-banked and underserved populations nationally in the USA. The Cuentas technology platform integrates Cuentas Mobile, the Company’s Telecommunications solution, with its core financial services offerings to help entire communities enter the modern financial marketplace. Our General Purpose Reloadable (GPR) “Debit Card” is designed to allow customers to purchase prepaid products and services, including third party digital content, gift cards, remittances, mobile phone topups and other digital services. An agreement with Interactive Communications International, Inc. (“InComm”) a leading processor of general purpose reloadable (“GPR”) debit cards, enables us to market and distribute a line of prepaid digital content and gift cards targeted towards the Latin American market. Cuentas is able to purchase InComm’s prepaid digital content and gift cards at a discount and resell these same products in real time through its mobile app and through the Cuentas SDI network of over 31,000 bodegas. Cuentas is able to offer these digital products to the public through its mobile app and the Cuentas SDI distribution network, many at discounted prices, while making a small profit margin which varies from product to product. The prepaid digital content and gift cards include Amazon Cash, XBox, PlayStation, Nintendo, Karma Koin, Transit System Loads & Reloads (LA TAP, NY Transit, Grand Rapids, CT GO), Burger King, Cabela’s, Bass Pro Shops, AT&T, Verizon, Mango Mobile, Black Wireless and other prepaid wireless carriers in the United States.
Since the first quarter of 2023, we have made two equity investments in real estate projects in Florida under the name Cuentas Casa. Cuentas Casa partners with leading edge developers and construction technology companies to create sustainable, inclusive and affordable residential communities specifically designed to provide high quality housing alternatives at extremely competitive pricing. Our goal is to source land zoned and ready for development of multi-family buildings in strategic areas where rental prices are increasing dramatically, placing financial stress and pressure on working class families. Our real estate investments are intended to broaden our reach into the unbanked, underbanked and underserved communities by using a patented, low cost, sustainable technology that should allow us to provide reasonably priced rental apartments to working class residents who have been priced out of rental communities due to severe rent hikes in Florida and other areas in the United States. We believe that providing affordable apartments to the Hispanic Latino and other immigrant communities in Florida will enable us to introduce them our fintech solutions and generate revenue. Due to liquidity issues impeding the operation and development of its core mobile fintech and carrier services, on April 3, 2024, the limited liability company in which Cuentas has a 63.9% equity interest (“Brooksville Development Partners, LLC” or “BDP”), entered into an agreement to sell the vacant land located in Brooksville, Florida (the “Brooksville Property”) for a purchase price of $7.2 million. The Brooksville Property was originally purchased by BDP on April 28, 2023 for $5.05 million, $2 million of which was contributed by Cuentas. Cuentas will use its pro rata portion of the net proceeds of the sale, estimated between $1.625 million and $1.9 million, as working capital and for other opportunities that may become available.
1
Our wholly-owned subsidiary, Meimoun and Mammon, LLC (“M&M”), provides wholesale and retail telecommunications services. Tel 3, a division of M&M, is a retail long distance calling platform which provides prepaid calling services to consumers directly and operates in a complimentary space as M&M. We also own 50% of CUENTASMAX LLC, which installs WiFi6 shared network (“WSN”) systems in locations in the New York metropolitan tristate area using access points and small cells to provide users with access to the WSN.
Efforts to Upgrade our Technology Platforms and Increase Sales of our Fintech Products and Services Through Cuentas-SDI and Introduction of New Fintech Solutions
In April 2023, CIMA Telecom, which provided maintenance and support services for our fintech mobile app technology platform, shut down access to the platform as we were transitioning to a new, improved platform. The Cuentas prepaid Mastercard platform has continued to be active and the associated prepaid fintech platform behind it has continued to function properly. Cuentas is working to integrate the fintech mobile app software with an industry-proven platform and expects to make an announcement in 2024-Q2 related to this development.
During the first quarter of 2023, we reduced product availability to Cuentas-SDI to allow Cuentas-SDI to catch up on its payments and during the second quarter of 2023 we curtailed all services to Cuentas-SDI and marketing initiatives with Cuentas-SDI due to its inability to reduce its debt significantly. These disruptions to our fintech solutions and technology business were a major reason for the decline in revenue between the Q1-Q2 periods in 2022 and 2023.
In May 2023, The OLB Group (NASDAQ: OLB) (“OLB”) terminated a Software Licensing and Transaction Sharing Agreement with the Company for the purpose of upgrading the Cuentas Mobile App and digital distribution system. In June 2023, OLB acquired 80.01% of Cuentas-SDI. In July 2023, the Company and Cuentas-SDI settled certain payment issues and have re-opened the digital distribution network and systems through Cuentas-SDI’s convenience store distribution network of over 31,000 locations, including many across the New York, New Jersey and Connecticut tri-state area.
A major factor that provides technical strength and reliability to Cuentas’ project is the fintech ecosystem that it had developed. The foundation of Cuentas’ ecosystem is the software developed for the fintech platform with mobile app, mobile wallet and associated integrations that Cuentas had developed, designed & implemented over the past 3 years. We believe that the upgraded, retooled & reengineered platform will prove to be a robust, reliable transactional, marketing, financial and predictive, Tier-1 transactional platform. Cuentas’ ecosystem currently integrates its prepaid platform via dedicated APIs with Sutton Bank (the issuing bank), IDology (AML & KYC) and InComm (Processor, Load Network & 3rd Party Digital Products). During the fourth quarter of 2022, the Company performed its annual impairment test for the impairment of those intangible assets. Based on the Company’s qualitative analysis, which considered the electronic products and General Purpose Reloadable Cards reporting unit results and additional business and industry specific considerations including the impact of the settlement agreement with CIMA Telecom, the Company performed a further revisions of the fair value of the acquired platforms. As a result of the factors discussed the Company recorded an impairment charge of $3.6 million whereas no amount was assigned to the acquired platforms on December 31, 2022.
Cuentas has agreed with Sutton Bank to wind down its relationship during 2024 and transition to a different US bank for issuance of its Prepaid Financial products. Cuentas is in the final stages of negotiation to determine the best banking partner for its future in the prepaid fintech marketplace.
Cuentas Prepaid Mastercard account holders may deposit funds to their account via (a) no-cost Direct Deposit, or (b) for a small charge, using InComm’s VanillaLoad network in over 200,000 locations at major retailers like Walmart, CVS, Walgreens, Dollar General, and more.
Once account holders have available funds, they can use their Cuentas Prepaid Mastercard® wherever prepaid Mastercards are accepted worldwide and at most ATMs in the U.S., and many international ATMs.
2
Cuentas e-commerce Distribution and Mobile Payments
The Cuentas e-commerce Distribution and Mobile Payments ecosystem will allow consumers to purchase Cuentas’s line of digital products and services through a nationwide network of retailers that specifically serve Cuentas’ target market. Cuentas’ distribution network includes certain neighborhood markets known as “Bodegas” and convenience stores as well as other retail establishments. This brings previously unavailable digital products and services to those neighborhoods affected by the e-commerce digital divide.
The Latino Market
The name “Cuentas” is a Spanish word that has multiple meanings and was chosen for strategic reasons, to develop a close relationship with the Spanish speaking population. It means “Accounts” as in “bank accounts” 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 2020 U.S. Census showed the Hispanic Latino population at over 62 million and at 18.7% of the total U.S. population. The FDIC defines the “unbanked” “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 Company believes that the Hispanic and Latino demographic generally have had more identification, credit, and former bank account issues than any other U.S. minority group leading to more difficulty in obtaining a traditional bank account.
Cuentas Mobile App and Wallet
The Cuentas Mobile App and Wallet are positioned to service the Hispanic, Latino and immigrant demographics with comprehensive financial products. Additionally, we are able to accept various forms of U.S. and some foreign government issued identification to confirm qualification for opening an account with the Cuentas App. The Cuentas App is able to accept SSN or ITIN with U.S. identification, Matricula Consular or other qualified government issued forms of identification.
The Cuentas Prepaid Mastercard® - General-Purpose Reloadable (GPR) Card
The Cuentas Prepaid GPR Card allows each account holder to have a personalized Cuentas Mastercard® and will allow them to have an associated Cuentas Account with the Mobile App, Digital Wallet, Digital Store and Long Distance Telecom services included. It will act as a comprehensive banking solution which enables access to the U.S. financial system for those who are unbanked or underbanked, while also enabling greater functionality than a traditional bank account. The cardholders’ deposited funds are currently protected in an FDIC-insured bank account at Sutton Bank and should be protected likewise with the new issuing bank.
The Cuentas Business Model
The Cuentas business model contemplates multiple revenue sources, many of which are synergistic market segments and provide unified financial and social functionality to forgotten segments of society.
The Cuentas Mobile Wallet has several potential revenue streams. The Company expects to receive monthly maintenance fees, reload fees, ATM fees and commissions for products sold as well as interchange and network fees from Mastercard and the Pulse Network (see the "Cuentas Ecosystem”). Cuentas’ strategy is to provide excellent value to consumers while charging reasonable fees and commissions to produce profitability. Cuentas provides account recharge capabilities to account holders via the nationwide VanillaLoad network owned by InComm as it is available in many big box retailer chains such as Walmart, Walgreens, CVS, Dollar Store and others.
3
The Cuentas Digital Store 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). Additionally, International remittances provided by the industry-leader Western Union “by Cuentas” and International Bill Pay are anticipated to be available in Q3 2024. Both services should be major revenue driving factors for Cuentas as they provide reliable, low-cost solutions to our target audience.
Cuentas will offer rewards for free long distance calling to its account holders (“Cuentas Rewards”) who are given credits upon activation to be able to make real international calls to land lines or mobile phone worldwide, not like internet calling which can be unreliable and poor quality. We can expand the Rewards program to include other products and/or services in the future. 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 accountholders, 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.”
Cuentas is strategically positioned in the prepaid marketplace with a focus on the Hispanic, Latino and immigrant demographics.
Cuentas does not charge Activation Fees to our account holders as we have identified this as an important issue to our target demographic. Cuentas sends a personalized Prepaid Mastercard® directly to each approved applicant in the US, and we only charge a fixed monthly fee, fifteen days after activation and every thirty days thereafter. In recognition of the limited financial resources of our target demographic, we strive to keep fees and costs reasonably low so potential customers will be able to justify and appreciate the benefits provided by the Cuentas Mobile App, Wallet and Prepaid Mastercard®.
The Cuentas Technology platform
Cuentas is engaged in negotiations with and expects to enter into a Management & Software Licensing Agreement with a major, field-proven fintech company with the goal of mutually integrating capabilities, features and expertise to enable both systems to take advantage of a symbiotic relationship so both organizations may grow. The integration of upgrades to Cuentas’ system will include advanced intelligence and predictive trending to improve security, identify successful marketing campaigns and provide data for future project development.
The current Cuentas ecosystem and platforms function seamlessly as before, and upgrades will be introduced after careful evaluation, review and multi-level testing.
4
Strategic Partners
Sutton Bank (“Sutton”)
Cuentas has a 5 year Prepaid Card Program Management Agreement with Sutton Bank as the issuer of the Cuentas Prepaid Mastercard® - Debit/GPR card which is effective through October 2026, but the parties have agreed to wind-down the Cuentas operation during 2024 as Cuentas transitions to a different US issuing bank. Sutton insures account holders’ funds through the FDIC and provides direct deposit capabilities, early pay functionality and account balance functionality for the Cuentas Prepaid Mastercard®. Cuentas pays Sutton monthly fees for their assistance with compliance and regulatory concerns. Sutton coordinates Know Your Client (“KYC”), Office of Foreign Asset Control (“OFAC”), Politically Exposed Persons (“PEP”) and Anti-Money Laundering (“AML”) compliance with Cuentas and IDology. Each applicant must have either a Social Security number or an ITIN. During the registration process, IDology compares each applicant’s personal information with known KYC, OFAC and PEP databases, and if required, can request certain forms of identification to confirm their identity. These forms of identification may include but are not limited to: Passport, Driver’s License, Matricula Consular and U.S. residency documentation. Only applicants that reach a certain score that is coordinated between Sutton and IDology, are approved to receive a Cuentas Prepaid Mastercard® associated with their Cuentas Mobile App and Wallet account.
Interactive Communications International, Inc. (“InComm”)
Cuentas has multiple agreements with InComm including: (a) Processing services, (b) Resale of 3rd party Digital gift cards, (c) Resale of InComm Digital Solutions, and (d) Reload Commission Agreement. The agreements are effective through July 2024 and then renew automatically for 1 year periods. InComm is an instrumental partner of Cuentas as it provides the operational core of Cuentas’ transaction processing platform, the cash reload component and access to many third party products and services.
On July 23, 2019, the Company entered into a 5 year Prepaid Services Agreement with InComm (the “InComm PSA”) to power and expand the Company’s Mobile App, Mobile Wallet and GPR card. InComm is a supplier of 3rd party gift and digital content cards and Cuentas currently resells a variety of these products through its Mobile App’s Digital Store and Cuentas-SDI distribution network, with possible expansion in the future.
Under the InComm PSA, InComm is the prepaid card processor and through its VanillaLoad network, allows the Company’s cardholders for a small fee, to reload their Cuentas Mobile Wallet through a nationwide network of retailers including Walmart, 7-Eleven, Walgreens, CVS Pharmacy, Rite Aid, Dollar General and many more. In addition, the Company plans to extend the cash reload component of the Wallet through a select number of “bodegas” in the Cuentas-SDI network to increase its market penetration and profitability.
Under the InComm PSA, InComm provides processing services, telephone support, data storage services, account servicing, reporting, output and hot carding services to the Company. Cuentas pays InComm monthly fees for its support as well as anti-fraud and compliance services. Processing services consist mainly of authorization and transaction processing services. InComm also processes authorizations for transactions made with or on prepaid products, along with any payments or adjustments made to prepaid products. InComm also processes the Company’s data and post entries in accordance with the specifications. Data storage services 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 also provides Web/API services for prepaid Cuentas GPR applications and transactions.
5
Cuentas SDI, LLC
Cuentas SDI, LLC ( “Cuentas-SDI”) was incorporated in the State of Florida on January 4, 2022 and was a wholly owned subsidiary of SDI Black 011, Inc. (“SDI Black”). Cuentas-SDI is engaged in the business of electronic distribution and sales of virtual products via its Black 011 portal located at Yonkers, NY. Its electronic products range from prepaid wireless SIM activation, International mobile recharge services and international long distance phone services. During 2020, Cuentas-SDI also started sales of general merchandise to its retail reseller customers. Cuentas-SDI owns the assets of 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.
On May 27, 2022, the Company entered into a Membership Interest Purchase Agreement with SDI Black, the holders of all the membership interests of SDI Black and Cuentas-SDI, for the acquisition of 19.99% of the membership interests of Cuentas-SDI in exchange for $750,000. Cuentas also had the right to close on the potential acquisition of the remaining 80.01% of the membership interests of Cuentas SDI within 60 days in exchange for a purchase price of an additional $2,459,000 which the Company did not exercise. As a result of an evaluation of the acquired interest during the second quarter of 2023, the Company recorded an impairment charge of $0.5 million.
The Company is working with a Vendor-Client relationship with Cuentas-SDI.
Cuentas Mobile
Cuentas Mobile is our Mobile Virtual Network Operator (“MVNO”) trade name, which provided Cuentas Mobile branded mobile phones along with attractively priced prepaid voice, text, and data mobile phone services to a limited customer base. Cuentas, through M&M is negotiating to sell mobile services as an MVNO through an operator on the largest 5G nationwide network from one of the top 3 mobile carriers. Cuentas Mobile will continue to operate a virtual telecommunications network providing mobile voice, text, and data services with essentially the same quality as other MVNOs such as Cricket, Boost, Simple, Ultra, Mint, and Lyca Mobile which have been successful at creating brands, without owning the towers, hardware or network. Cuentas is currently reactivating distribution 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.
We believe that our potential customers will migrate away from legacy telephone and banking systems to enhanced mobility solutions. The Company’s technological advantage and the synergies created by its combination of a reloadable debit card and a holder of 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. Tel3 has been a prepaid long distance provider for many years and provides direct and indirect access to Latino and immigrant communities across the US as it provides them with quality international communications services.
6
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 subsidiary M&M is subject to regulation by the FCC and other government agencies and task forces. M&M holds International and Domestic Section 214 licenses issued by the FCC, which may be suspended or revoked by the FCC if M&M does not strictly comply with all applicable regulations and the terms and conditions under which the International and Domestic Section 214 licenses were issued. M&M is also subject to certain foreign jurisdiction communications laws and regulations as it provides limited access to its prepaid calling platform internationally. We believe that we, including our subsidiaries, are currently operating in compliance with all applicable laws and regulations, but there is no certainty that laws and regulations affecting our business will not change. Any such change of laws and regulations applicable to our business might adversely affect our ability to execute our business plan and achieve profitable operating results.
At the federal level, Congress and federal regulatory agencies have enacted and implemented new laws and regulations that affect the prepaid industry, such the CARD Act and FinCEN’s Prepaid Access Rule. Moreover, there are currently proposals before Congress that could further substantially change the way banks, including prepaid card issuing banks and other financial services companies, are regulated and are permitted to offer their products to consumers. Non-bank financial services companies, including money transmitters and prepaid access providers, are now regulated at the federal level by the Consumer Financial Protection Bureau (the “CFPB”), which began operations in July 2011, bringing additional uncertainty to the regulatory system and its impact on our business. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business. Sutton bank performs routine AML, KYC, OFAC in consultation with Cuentas and IDology and other compliance review and searches throughout Cuentas’ registration and operational processes. Abuse of our prepaid products for purposes of financing sanctioned countries, terrorist funding, bribery or corruption could cause reputational or other harm that could have a material adverse effect on our business, results of operations and financial condition. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. Failure by us to comply with federal banking regulation may subject us to fines and penalties and our relationships with our issuing banks may be harmed.
Most states regulate the business of sellers of traveler’s checks, money orders, drafts and other monetary instruments, which we refer to collectively as money transmitters. While many states expressly exempt banks and their agents from regulation as money transmitters, others purport to regulate the money transmittal businesses of bank agents or do not extend exemptions to non-branch bank agents. In those states where we are required to be licensed, we are subject to direct supervision and regulation by the relevant state banking departments or similar agencies charged with enforcement of the money transmitter statutes and must comply with various restrictions and requirements, such as those related to the maintenance of certain levels of net worth, surety bonding, selection and oversight of our authorized delegates, permissible investments in an amount equal to our outstanding payment obligations with respect to some of the products subject to licensure, recordkeeping and reporting, and disclosures to consumers. We are also subject to periodic examinations by the relevant licensing authorities, which may include reviews of our compliance practices, policies and procedures, financial position and related records, various agreements that we have with our issuing banks, retail distribution partners and other third parties, privacy and data security policies and procedures, and other matters related to our business. As a regulated entity, Cuentas may incur significant costs associated with regulatory compliance. We anticipate that compliance costs and requirements will increase in the future for our regulated subsidiaries and that additional subsidiaries will need to become subject to these or new regulations. If we fail to maintain our existing money transmitter licenses or permits, or fail to obtain new licenses or permits in a timely manner, our business, results of operations and financial condition could be materially and adversely affected.
7
Marketing
The Cuentas Mobile App, Mobile Wallet and Prepaid Mastercard® will be predominantly marketed via digital and traditional media channels. Cuentas expects to use a combination of internal resources as well as third parties for our marketing efforts.
The digital marketing placements will include social media, SEO (Search Engine Optimization), internet, geo fencing, online streaming providers, influencers, and other digital providers. Traditional marketing efforts include media such as radio, TV, print, billboards, bus wraps, bus benches, TV, radio, etc.
Media spend is distributed amongst these marketing vehicles and adjusted as acquisition data is received. Our initial program is designed to test creative, geo targeting and formats. Once feedback is analyzed, spending will be optimized to enhance efficiency and cost of acquisition. Vertical market integration and partnerships will also be developed to augment growth and stability.
Marketing strategies for customer acquisition have focused on key markets, targeted audiences, lifestyle fit, brand awareness, key metrics and go-to-market plans, especially where Hispanic & Latino groups are concentrated, such as Southern California, Texas, New York, Florida, Arizona and New Mexico. The marketing relationship with the indoor professional MASL (Major Arena Soccer League) soccer league for the 2022-2023 season introduced the Cuentas brand and services to sports fans throughout the 14 team cities, with additional reach through streaming of the pro soccer games through the Twitch streaming network. The demographics of soccer fans is directly in line with Cuentas’ target audience.
Entry into a Joint-Venture Agreement with WaveMAX Corporation (“WaveMax”)
On July 21, 2021, the Company and WaveMAX entered into a Definitive Joint-Venture Agreement (the “Agreement”). Pursuant to the Agreement, the Company and WaveMax formed CuentasMax LLC on Dec 8, 2021, a joint venture (“CUENTASMAX”) which would install WiFi6 shared network (“WSN”) systems in up to 1,000 retail locations in the New York metropolitan tristate area using access points and small cells to provide users with access to the WSN (the “JV Project”). The WSN will allow CUENTASMAX to generate location-based advertising configured by advertisers using WaveMAX’s advertising dashboard technology directly to users over the WSN, could permit users to pay a service fee for ad-free access to the WSN. The ownership and management of CUENTASMAX shall be as follows: 50% to the Company, 25% to WaveMAX and 25% to Consultoria y Asesoria de Redes, S.A. de C.V. (“Execon”). Execon currently manages approximately 20,000 WiFi endpoints with WaveMax in Mexico. Each of the Company and WaveMAX agreed to fund $120,000 (for a total of $240,000) initially upon execution of the Agreement. In addition, each of the Company and WaveMAX has agreed to fund an additional $127,500 over the succeeding five months, in each case, subject to approval of each party’s board of directors. The expenses of the JV Project shall include acquiring the Access Points hardware, the installation and configuration of the Access Points hardware for use with the broadband internet service at each Retail Location, entering into the necessary agreements with the Retail Locations, instore marketing and promotion of the WSN program, and expenses relating to commercialization of the digital advertising program. The Board of Directors of CUENTASMAX shall initially be comprised of four persons, two designated by the Company, one designated by WaveMAX, and one designated by Execon. The officers of CUENTASMAX shall be the persons from time to time designated by mutual agreement of the Company and WaveMAX, with the initial officers to be determined. It is hoped that up to 1,000 high traffic, prime location convenience stores and “bodegas” (small community markets) will be signed up in conjunction with the Company’s distribution network that sells prepaid debit card, e-store, e-wallet and digital services. A fee of 2% (two percent) of the net revenue of CUENTASMAX will be paid by CUENTASMAX on a monthly basis as a commission to Innovateur Management SAPI de CV. WaveMAX grants CUENTASMAX exclusive rights to use and deploy the WaveMAX Technology, including any and all patents owned or to be owned by WaveMAX and any and all related enhancements or applications of the WaveMAX Technology and any and all prior and subsequent improvements and/or new technology developed by WaveMAX solely in the Company’s BODEGAS network throughout the United States. The parties have agreed to expand CUENTASMAX to other areas of the U.S. once the current deployment is in progress or has been completed. As of date, CuentasMax has installed 30 WiFi6 Access Points in New York City, Los Angeles, and Puerto Rico at different small businesses including Bodegas, restaurants, beauty salons and gas stations. CuentasMax also has pilot project agreements with the Bodega Association and Business Group in NYC, Benelisha Group in LA, and Top Gasoline Inc in Puerto Rico. As of December 31, 2023, the Company funded $20,000 in CUENTASMAX and recorded equity losses in the amount of $38,000.
Competition
Cuentas has strategically established its fee structure to be attractive to the unbanked, underbanked and undeserved population with no activation fee, no-cost direct deposit, no-cost Cuentas card to Cuentas card transfers, low cost for reloads, reasonable ATM fees and No dormancy fee.
This pricing strategy places Cuentas in an attractive, reasonably priced category which, coupled with the products and services it offers, enhances its competitiveness.
8
Most of our competitors are larger and have greater financial, technical, marketing, and other resources than we do. Some of our competitors have seasoned management teams with more experience and expertise in our industry than we do. Some competitors may enjoy significant competitive advantages that result from, among other things, having substantially more available capital, having a lower cost of capital, having greater economies of scale, and having enhanced operating efficiencies compared to ours.
Cuentas is much smaller than its competitors in its e-commerce card operations, and faces competition in the prepaid financial services industry from competitors such as American Express, First Data, Total Systems Services, Green Dot, NetSpend, Money Network, Momentum, Blackhawk, Prepaid MasterCard, MasterCard RePower, PayPal, Apple Pay, Amex Serve, H&R Block Emerald, J.P. Morgan Chase. Cuentas also faces intense competition from existing players in the prepaid card industry.
Cuentas Mobile will face prepaid competitors including, without limitation, AT&T, Sprint, Viber, WhatsApp, Skype, MetroPCS, TracFone, Telcel, StraightTalk, Simple Mobile, Virgin Mobile, Boost, Net 10, IDT, and Boost. Cuentas Mobile plans to implement e-SIMS which will reduce the need for physical mobile phone SIMs that need to be shipped to consumers who want Cuentas Mobile service. There can be no assurance that the introduction of e-SIMS will be successful and generate significant revenue.
M&M faces competition from many strong and well-financed competitors, engaged in the retail termination of domestic and international long distance as well a mobile voice, text, and data services, including, IDT, NobelCom, Access Wireless, Boost Mobile, H2O mobile and Mint Mobile.
Investments in Real Estate Developments in Florida
Lakewood Village
On March 7, 2023 the Company acquired a six percent (6%) equity interest in Lakewood Village from Core Development Holdings Corporation (“Core”), pursuant to a Membership Interest Purchase Agreement (“MIPA”), in exchange for 295,282 shares of Common Stock, representing approximately19.99% of the then outstanding shares of Common Stock. Core holds approximately 29.3% of 4280 Lakewood Road Manager, LLC (“Lakewood Manager”), which in turn owns 86.45% of the membership interests in 4280 Lakewood Road, LLC (“4280 Project”), an affordable multi-family real estate project located in Lake Worth, Florida. As a result of the transaction, the Company acquired $700,000 of equity in the Lakewood Manager. Lakewood Manager, an affiliate of RENCo USA, Inc. (“Renco”), is constructing the 4280 Lakewood Project with RENCO Structural Building System, a proprietary composite structural system distributed by Renco. Lakewood Village is the first sustainable rental housing project developed in the US using a patented MCFR Mineral Composite Fiber Reinforced Construction Technology that has been approved for hurricane-prone areas as such in Florida. The Lakewood Village project is an affordable multi-family real estate development located in Lake Worth, Palm Beach County, Florida, consisting of 96 apartments that have two and three bedrooms. An independent appraisal valued the project, once completed, at approximately $25 million, equating the Company’s equity position at approximately $1.5 million.
Supply Agreement with Renco USA
In March 2023, the Company entered a 10 year supply agreement with Renco to provide Renco’s patented building materials for new, sustainable rental housing projects. Renco’s patented MCFR (Mineral Composite Fiber Reinforced) Construction System provides cost efficiency, reduced build time, and sustainable benefits. Renco’s system is hurricane proof up to Category 5, which is a major benefit for developing housing projects in the South Florida market and other hurricane prone areas where we are planning to develop projects. Renco’s system is also earthquake resistant. Renco has the exclusive rights in the USA to the patented building process. The Renco Wall, Floor and Roofing System is a unique MCFR Building System that creates interlocking, fiber reinforced, composite building blocks and other construction related products that can be connected in an almost limitless variety of designs. Renco’s system can be used to create homes, apartment buildings, hotels, office buildings, warehouses, infrastructure products and more.
Operating Agreement with Brooksville Development Partners, LLC
On April 13, 2023, Cuentas entered into an Operating Agreement for Brooksville Development Partners, LLC (“BDP”), a limited liability company formed for the purpose of acquiring land for the development of a residential apartment community consisting of approximately 360 apartments in Brooksville, Florida. Cuentas has a 63.9% equity interest in BDP and two others own the remaining 36.1% equity interest in BDP. All real and personal property owned by BDP will be owned by BDP as an entity. One of the other members is the manager of the project.
9
On April 28, 2023, BDP acquired a 21.8 acre site for development of the Brooksville project for a purchase price of $5.05 million. The Company deposited as an initial capital contribution $2,000,000 into a title insurance escrow account which was released from escrow by the Title Agent to fund the balance of the purchase price of the vacant land, together with a $3.05 million bank loan from Republic Bank of Chicago, which was amended and restated on January 27, 2024 for $3.055 million. BDP and ALF Trust u/a/d 09/28/2023 executed a $500,000 Loan Extension Agreement to ensure the promissory note necessary to fund the interest reserve and fees relating to the Loan Extension Agreement and the working capital needs of BDP. Cuentas contributed an additional $64,000 for further development of the Brooksville project on June 29, 2023 and has paid almost $65,000 for engineering expenses. BDP owns the vacant land (the “Brookville Property”), free and clear of any liens, claims and encumbrances with the sole exception being the Republic Bank loan.
On April 3, 2024 (the “Effective Date”), BDP entered into a purchase and sale agreement (the “Brooksville Sale Agreement”) with a purchaser for the Brooksville Property. The purchase price for the sale of the Brooksville Property is $7.2 million. The purchaser has deposited $75,000 with an escrow agent (the “Initial Escrow Deposit”), which is non-refundable after the end of a 60-day inspection period commencing on the Effective Date (the “Inspection Period”) during which the purchaser may terminate the agreement due to title defects or other issues identified in a title report or survey of the premises or the existence of monetary liens not remedied or removed by BDP at the request of purchaser. The closing is to occur within fifteen days following the end of the Inspection Period, or an additional 30 days thereafter if purchaser requests an extension and deposits an additional $25,000 with the escrow agent (the “Extension Deposit,” together with the Initial Escrow Deposit, the “Escrow Deposit”). The Escrow Deposit will be credited against the purchase price at closing. The closing is subject to certain conditions customary to closing for the sale of real property. There is no assurance that the Brooksville Property will be sold on the terms set forth in the Brooksville Sale Agreement, if at all.
Corporate Information
We were incorporated in the state of Florida on September 21, 2005. Our principal executive offices are located at 235 Lincoln Rd., Suite 210, Miami Beach, Florida 33139, and our telephone number is (800) 611-3622. Our corporate website address is www.cuentas.com. The information contained on or accessible through our website is not a part of this report, and the inclusion of our website address in this report is an inactive textual reference only.
2023 Equity Financings
On February 8, 2023, the Company sold an aggregate of (i) 163,344 shares of the Company’s common stock (“Common Stock”) and (ii) pre-funded warrants to purchase up to 128,031 shares of Common Stock (the “Pre-Funded Warrants” and such shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, the “Pre-Funded Warrant Shares”) to Armistice Capital Master Fund Ltd., an institutional investor, in a registered direct offering (the “Registered Offering”), pursuant to a Securities Purchase Agreement dated February 6, 2023 (the “Purchase Agreement”). In a concurrent private placement, the Company sold to Armistice Capital Master Fund Ltd. warrants (the “Purchase Warrants”) to purchase 291,375 shares of Common Stock (the shares of Common Stock issuable upon exercise of the Purchase Warrants, the “Purchase Warrant Shares”). The combined purchase price per Share and Purchase Warrant was $17.16 and the combined purchase price per Pre-Funded Warrant and Purchase Warrant was $17.16.
The Pre-Funded Warrants were sold, in lieu of shares of Common Stock, to any Investor whose purchase of shares of Common Stock in the Registered Offering would otherwise result in such Investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at such Investor’s option upon issuance, 9.99%) of the Company’s outstanding Common Stock immediately following the consummation of the Registered Offering. Each Pre-Funded Warrant represents the right to purchase one share of Common Stock at an exercise price of $0.0013 per share. Armistice Capital Master Fund Ltd. exercised 67,800 Pre-Funded Warrants on February 8, 2023 and the remaining 60,231 Pre-Funded Warrants on March 13, 2023.
The Purchase Warrants, which had an exercise price of $17.36 per share, were exercisable commencing on August 8, 2023 and expire on August 8, 2028. On August 24, 2023, the exercise price of the Purchase Warrants was reduced to $3.30 pursuant to the Inducement Letter, described below.
10
H.C. Wainwright & Co., LLC (“Wainwright”) acted as exclusive placement agent for the offering pursuant to an engagement agreement between the Company and Wainwright dated as of December 13, 2022. As compensation for such placement agent services, the Company has agreed to pay Wainwright an aggregate cash fee equal to 7.0% of the gross proceeds received by the Company from the offering, plus a management fee equal to 1.0% of the gross proceeds received by the Company from the offerings, a non-accountable expense of $65,000 and $15,950 for clearing expenses. The Company also issued to designees of Wainwright warrants to purchase 20,396 shares of Common Stock (the “February PA Warrants” and the shares of Common Stock issuable upon exercise of the February PA Warrants, the “February PA Warrant Shares”). The February PA Warrants which have an exercise price of $23.17 per share, became exercisable on August 8, 2023 and will expire on February 6, 2028.
The net proceeds to the Company from the registered direct offering and concurrent private placement, after deducting the Placement Agent’s fees and expenses and the Company’s offering expenses was approximately $4.3 million.
Inducement Letter for the Exercise of the Existing Warrants in Consideration for the Issuance of the Inducement Warrant
On August 21, 2023, the Company offered to reduce the exercise price of warrants to purchase 616,303 shares of Common Stock held by Armistice Capital Master Fund Ltd. (the “Existing Warrants”), including warrants to purchase 324,928 shares of Common Stock that initially had an exercise price of $7.67 per share, issued on August 8, 2022, and warrants to purchase 291,375 shares of Common Stock that initially had an exercise price of $17.16 per share, issued on February 8, 2023, to $3.30 per share as an inducement to the exercise of the Existing Warrants, provided Armistice Capital Master Fund Ltd. agreed to exercise for cash the Existing Warrants in consideration for the Company’s agreement to issue a new warrant (the “Inducement Warrant”) to purchase 1,232,606 shares of Common Stock (the “Warrant Exercise and Inducement Transaction”). On August 24, 2023, Armistice Capital Master Fund Ltd. exercised the Existing Warrants and in consideration for such exercise the Company issued the Inducement Warrant to Armistice Capital Master Fund Ltd. The Inducement Warrant has an exercise price of $3.30 per share, subject to certain anti-dilution adjustments, and is exercisable until June 20, 2029.
Wainwright acted as the exclusive placement agent in connection with the Warrant Exercise and Inducement Transaction. The Company paid Wainwright a cash fee of $142,366 (7.0% of the gross proceeds received from the exercise of the Existing Warrants) as well as a management fee of $20,338 (1.0% of the gross proceeds from the exercise of the Existing Warrants). In addition, the Company paid Wainwright $65,000 for non-accountable expenses and $15,950 as a closing fee. The Company also issued to designees of Wainwright warrants (the “August 2023 PA Warrants”) to purchase up to 43,141 shares of Common Stock which have the same terms as the Inducement Warrant, except for an exercise price equal to $4.455 per share.
Reverse Stock Split
On March 24, 2023, the Company completed a 1-for 13 reverse stock split of its common stock. As a result of the reverse stock split, the following changes have occurred (i) every thirteen 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 1-for-13 basis, and the exercise price of each such outstanding stock option and common warrant has been proportionately increased on a 1-for-13 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 1-for-13 reverse stock split. The reverse split was effected to cure a failure to comply with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2) for continued listing.
Nasdaq Delisting
At the opening of business on December 20, 2023, trading in the Common Stock and publicly-traded warrants was suspended and subsequently the Common Stock and publicly-traded warrants were delisted from Nasdaq for the Company’s failure to comply with Nasdaq Marketplace Rule 5550(b)(1) which requires the Company to maintain shareholders’ equity of not less than $2,500,000 for continued listing on The Nasdaq Capital Market.
11
The Company’s Common Stock and publicly-traded warrants began trading on the Pink Current Information tier of the over-the-counter market operated by OTC Markets Group effective with the open of business on December 20, 2023, under its trading symbol: CUEN and CUENW, respectively.
Employees
As of March 31, 2024, our management team consisted of the Chief Executive Officer, President, and Chief Financial Officer. We have an additional three full-time employees: our Compliance Officer, IT Director, and Executive Assistant. For more information relating to the employment agreements, please see the section below entitled Item 11. “Executive Compensation.”
ITEM 1A. RISK FACTORS
Investing in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider the risks described below together with all of the other information in this report, including our financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any of the described risks occur, our business, financial condition or results of operations could be materially harmed. In such case, the value of our securities could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also adversely affect us. There also may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results.
Risks Related to Our Financial Position and Need for Additional Capital
We will require additional funding to progress our business. Such financing may only be available on disadvantageous terms, or may not be available at all. Any new equity financing could have a substantial dilutive effect on our existing stockholders.
At December 31, 2023, we had cash and cash equivalents of approximately $205,000, a working capital deficit of approximately $3,000,000 and an accumulated deficit of approximately $55,000,000. Our cash position may decline in the future, and we may not be successful in maintaining an adequate level of cash resources. Accordingly, we will be required to seek additional debt or equity financing in order to support our growing operations. We may not be able to obtain additional financing on satisfactory terms, or at all, and any new equity financing could have a substantial dilutive effect on our existing stockholders. If we cannot obtain additional financing, we will not be able to achieve the sales growth that we need to cover our costs, and our results of operations would be negatively affected.
12
As a result of our current lack of financial liquidity, there is substantial doubt regarding our ability to continue as a “going concern,” within one year from the issuance date of our financial statements.
As a result of our current lack of financial liquidity, our auditors’ report for our 2023 consolidated financial statements contains a statement concerning substantial doubt regarding our ability to continue as a going concern. Our lack of sufficient liquidity could make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing that we may obtain and our public stock price generally.
Our continuation as a going concern is dependent upon, among other things, achieving positive cash flow from operations and, if necessary, augmenting such cash flow using external resources to satisfy our cash needs. However, we may be unable to achieve these goals and therefore may be unable to continue as a going concern.
Our ability to continue as a going concern is dependent upon raising capital from financing transactions and revenue from operations. Management anticipates their business will require substantial additional investments that have not yet been secured. Management is continuing in the process of fund raising in the private equity and capital markets as we will need to finance future activities.
No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, if needed, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
This going concern opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities and future reports on our financial statements may also include an explanatory paragraph with respect to our ability to continue as a going concern.
Risks Related to Our Company
While we have entered into a binding letter of intent with SDI Black, we have not entered into negotiations for a purchase and sale agreement therewith and we cannot assure you that the transactions contemplated by our letter of intent will be consummated or, that if such transactions are consummated, they will be accretive to stockholder value.
We entered into the LOI with SDI Black pursuant to which we agreed to explore an acquisition of the Purchased Assets from SDI Black. However, the LOI did not include many of the material terms to any potential transaction with SDI Black and there is no guarantee that we will agree to terms or definitive documentation with SDI Black in order to effect the proposed transaction. Further, even if we are able to agree to terms with SDI Black for a transaction, there is no guarantee that the terms will be favorable to our stockholders, that the transaction will be completed in the time frame or in the manner currently anticipated, or that we will recognize the anticipated benefits of the transaction.
13
We may engage in future acquisitions or strategic transactions, including the transaction with SDI Black, which may require us to seek additional financing or financial commitments, increase our expenses and/or present significant distractions to our management.
As described herein, we have recently entered into a LOI to acquire the Purchased Assets from SDI Black which enables us to conduct due diligence and negotiate the terms of a definitive purchase and sale agreement. In the event we engage in an acquisition or strategic transaction, we may need to acquire additional financing (particularly, if the acquired entity is not cash flow positive or does not have significant cash on hand). Obtaining financing through the issuance or sale of additional equity and/or debt securities, if possible, may not be at favorable terms and may result in additional dilution to our current stockholders. Additionally, any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, an acquisition or strategic transaction may entail numerous operational and financial risks, including the risks outlined above and additionally:
| ● | exposure to unknown liabilities; |
| ● | disruption of our business and diversion of our management’s time and attention in order to develop acquired products or technologies; |
| ● | higher than expected acquisition and integration costs; |
| ● | write-downs of assets or goodwill or impairment charges; |
| ● | increased amortization expenses; |
| ● | difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; |
| ● | impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and |
| ● | inability to retain key employees of any acquired businesses. |
Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.
We have a limited operating history and therefore we cannot ensure, either in the near- or long-term, that we will be able to generate cash flow or profit.
We have a limited operating history upon which you may evaluate our business and an investment in our Common Stock may entail significantly more risk than the shares of common stock of a company with a substantial operating history. Our ability to successfully develop our products, and to realize consistent, meaningful revenues and profit has not been established and cannot be assured. For us to achieve success, our products must receive broader market acceptance by consumers. Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation. If our products are not widely accepted by the market, our business may fail.
Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors.
14
Our business operations are subject to numerous risks, uncertainties, expenses and difficulties associated with early stage enterprises. You should consider an investment in our company in light of these risks, uncertainties, expenses and difficulties. Such risks include: the absence of a lengthy operating history; insufficient capital to fully realize our operating plan; our ability to anticipate and adapt to a developing market; a competitive environment characterized by well-capitalized competitors; our ability to identify, attract and retain qualified personnel; our reliance on key management personnel.
Because we are subject to these risks, evaluating our business may be difficult. We may be unable to successfully overcome these risks, which could harm our business and prospects. Our business strategy may be unsuccessful and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully address these risks, there may be an adverse effect on our business, results of operations, financial condition and cash flows.
We have incurred substantial losses from operations to date and we may never achieve profitability from operations or generate sufficient cash flows to make or sustain distributions to our shareholders.
We have incurred substantial losses from operations to date and may never achieve profitability from operations. Even if we do achieve profitability, we cannot assure you that we will be able to sustain or increase profitability on a quarterly or annual basis in the future. There can be no assurance that future operations will be profitable or that we will be able to make or sustain distributions to our shareholders from cash from operations. Revenues and profits, if any, will depend upon various factors, including whether we will be able to successfully implement our business plan and operating strategy. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us. In addition, an inability to achieve profitability could have a detrimental effect on the market value of our Common Stock.
We are an early entrant in an emerging industry, and the long-term viability of our business strategy is unproven.
As an early entrant in this emerging Fintech industry, we are subject to the risk that our business model and business plan may not prove to be a viable long-term business strategy. If it turns out that our strategy is not a viable long-term business strategy, we may not be able to generate meaningful cash flows, which would materially and adversely affect the viability of our business and stock price.
We may not be able to secure sufficient capital to effectively execute our business plan.
We may not be able to attract and obtain sufficient capital from the equity and debt markets, or any other capital markets, to execute our business plan and grow our business. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital expenditures necessary to execute our business plan, and in that event our ability to generate revenue may be significantly impaired.
15
We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting.
Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. As discussed in Item 9A – “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and in our quarterly report for the period ended September 30, 2023 we have evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2023 or September 30, 2023. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses we identified are:
| ● | Lack of appropriate segregation of duties; |
| ● | Lack of information technology (“IT”) controls over revenue; |
| ● | Lack of adequate review of internal controls to ascertain effectiveness; and |
| ● | Lack of control procedures that include multiple levels of supervision and review. |
The Company is committed to remediating its material weaknesses as promptly as possible. Implementation of the Company’s remediation plans has commenced and is being overseen by the board. However, there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise in the future. Even effective internal control can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements, which in turn could have a material adverse effect on our financial condition and the trading price of our Common Stock and we could fail to meet our financial reporting obligations. We have identified weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.
If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our Common Stock.
We are involved in various litigation matters that are expensive and time consuming, and, if resolved adversely, could harm our business, financial condition, or results of operations.
Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal, or we may decide to settle lawsuits on similarly unfavorable terms. Any such negative outcome could result in payments of substantial monetary damages or fines, or changes to our products or business practices, and accordingly our business, financial condition, or results of operations could be materially and adversely affected. See Item 3. “Legal Proceedings” for a description of certain litigation involving the Company.
Although the results of lawsuits and claims cannot be predicted with certainty, we do not believe that the final outcome of those matters that we currently face will have a material adverse effect on our business, financial condition, or results of operations. However, defending these claims is costly and can impose a significant burden on management and employees, and we may receive unfavorable preliminary or interim rulings in the course of litigation, which could adversely affect the market price of our securities. There can be no assurances that a favorable final outcome will be obtained in all cases.
Operating our business on a larger scale could result in substantial increases in our expenses.
As our business grows in size and complexity, we can provide no assurance that we can successfully enter new markets or grow our business without incurring significant additional expenses, that our management platform will ultimately prove to be scalable, and/or that we will be able to achieve economies of scale or we will be able to operate our business on a larger scale than the scale on which we have historically operated.
16
We have relied upon vendors and other third parties to develop, manage and operate our fintech solutions. To the extent our vendors and other third parties encounter financial and operational difficulties, our business, results of operations and financial conditions may be materially and adversely affected.
During the early stages of our financial solutions and technology business, due to our limited financial resources, we have relied upon vendors and other third parties to develop, manage and operate those businesses, To the extent our vendors and other third parties encounter financial and operational difficulties, our business, results of operations and financial conditions may be materially and adversely affected.
In April 2023, CIMA, which provided maintenance and support services for our technology platform, shut down access to the platform as we were transitioning to a new, improved platform, and during the first quarter of 2023, we reduced product availability to Cuentas-SDI to allow Cuentas-SDI to catch up on its payments and during the second quarter of 2023 we curtailed all services to Cuentas-SDI and marketing initiatives with Cuentas-SDI due to its inability to reduce its debt significantly. These disruption to our fintech solutions and technology business were a major reason for the decline in revenue between the Q1-Q2 periods in 2022 and 2023.
The success of our equity investments in real estate projects in Florida will depend upon the ability of the real estate developers, contractors, property managers and operators to develop, construct, manage and operate those projects and other factors beyond our control.
We own equity interests in certain real estate development projects in Florida. The success of those projects will depends upon ability of the real estate developers, contractors, property managers and operators to develop, construct, manage and operate those projects and certain factors beyond our control, including occupancy and rental rates, economic conditions in the areas where the properties are located as well as changes in population, employment and household earnings and expenses, the condition of the financial and real estate markets and the economy, in general, the ability of developers to identify attractive acquisition opportunities consistent with our investment strategy and to obtain financing, inflation, interest rates levels and volatility, title litigation, litigation with guests, legal compliance, real estate taxes, HOA fees and insurance; and our ability to obtain financing to invest in projects on terms acceptable to us.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business we use sophisticated call processing engines and other sophisticated telecommunications technology platforms, and we acquire and store sensitive data, including intellectual property, our proprietary business information and personally identifiable information of our prospective and current tenants, our employees and third-party service providers on our networks and website. The secure processing and maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in revenue losses, legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, which could adversely affect our results of operations and competitive position.
17
We are dependent on our executive officers and dedicated personnel, and the departure of any of our key personnel could materially and adversely affect us.
We rely on a small number of persons to carry out our business and investment strategies. An Executive Search Committee has been established to evaluate and propose qualified executive candidates for approval by the Board of Directors. Any member of our senior management may cease to provide services to us at any time. The loss of the services of any of our key management personnel, or our inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results. As we expand, we will continue to need to attract and retain qualified additional senior management but may not be able to do so on acceptable terms or at all. Cuentas does not yet have but intends to have key man life insurance policies in place.
We are subject to regulation which may adversely affect our ability to execute our business plan.
We operate in an ever-evolving and complex legal and regulatory environment. We, the products and services that we offer and market, and those for which we provide processing services, are subject to a variety of federal, state and foreign laws and regulations, including, but not limited to: federal communications laws and regulations; foreign jurisdiction communications laws and regulations; federal anti-money laundering laws and regulations, including the USA PATRIOT Act (the “Patriot Act”), the Bank Secrecy Act (the “BSA”), anti-terrorist financing laws and anti-bribery and corrupt practice laws and regulations in the U.S., and similar international laws and regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in Canada; state unclaimed property laws and money transmitter or similar licensing requirements; federal and state consumer protection laws, including the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the “CARD Act”), and the Durbin Amendment to Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and regulations relating to privacy and data security; and foreign jurisdiction payment services industry regulations. We believe that we are currently operating in compliance with all applicable laws and regulations, but there is no certainty that laws and regulations affecting our business will not change. Any such change of laws and regulations applicable to our business might adversely affect our ability to execute our business plan and achieve profitable operating results.
We are subject to Anti-Money Laundering Regulation.
We are subject to a comprehensive federal anti-money laundering regulatory regime that is constantly evolving. The anti-money laundering regulations to which we are subject include the BSA, as amended by the Patriot Act, which criminalizes the financing of terrorism and enhances existing BSA regimes through: (a) expanding AML program requirements to certain delineated financial institutions; (b) strengthening customer identification procedures; (c) prohibiting financial institutions from engaging in business with foreign shell banks; (d) requiring financial institutions to have due diligence procedures and, where appropriate, enhanced due diligence procedures for foreign correspondent and private banking accounts; and (e) improving information sharing between financial institutions and the U.S. government. Pursuant to the BSA, we have instituted a Customer Identification Program, (CIP). The CIP is incorporated into our BSA/anti-money laundering compliance program. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business” for additional information. Cuentas is or may become subject to reporting and recordkeeping requirements related to anti-money laundering compliance obligations arising under the Patriot Act and its implementing regulations. In addition, provisions of the BSA enacted by the Prepaid Access Rule issued by the Financial Crimes Enforcement Network (“FinCEN”), impose certain obligations, such as registration and collection of consumer information, on “providers” of certain prepaid access programs, including the prepaid products issued by Cuentas and our issuing banks for which we serve as program manager. In order to qualify for certain exclusions under the Prepaid Access Rule, some of our content providers were required to modify operational elements of their products, such as limiting the amount that can be loaded onto a card in any one day. In addition, pursuant to the Prepaid Access Rule, Cuentas and some of our retail distribution partners have adopted policies and procedures to prevent the sale of more than $10,000 in prepaid access (including closed loop and open loop products that fall under the monetary thresholds outlined above) to any one person during any one day.
18
We are subject to Consumer Protection Regulation.
We are subject to various federal, state and foreign consumer protection laws, including those related to unfair and deceptive trade practices as well as privacy and data security. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. A data security breach could expose us to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.
We are subject to Federal Regulation.
At the federal level, Congress and federal regulatory agencies have enacted and implemented new laws and regulations that affect the prepaid industry, such the CARD Act and FinCEN’s Prepaid Access Rule. Moreover, there are currently proposals before Congress that could further substantially change the way banks, including prepaid card issuing banks and other financial services companies, are regulated and are permitted to offer their products to consumers [Matthew – any update]. Non-bank financial services companies, including money transmitters and prepaid access providers, are now regulated at the federal level by the Consumer Financial Protection Bureau (the “CFPB”), which began operations in July 2011, bringing additional uncertainty to the regulatory system and its impact on our business. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business. Abuse of our prepaid products for purposes of financing sanctioned countries, terrorist funding, bribery or corruption could cause reputational or other harm that could have a material adverse effect on our business, results of operations and financial condition. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. Failure by us to comply with federal banking regulation may subject us to fines and penalties and our relationships with our issuing banks may be harmed.
We are subject to Money Transmitter Licenses or Permits.
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.
We are subject to Privacy Regulation.
In the ordinary course of our business, we collect and store or may collect and store personally identifiable information about customers, holders of our cards, subscribers, and users. This information may include names, addresses, email addresses, social security numbers, driver’s license numbers and account numbers. We also maintain or may maintain a database of cardholder data for our proprietary cards relating to specific transactions, including account numbers, in order to process transactions and prevent fraud. These activities subject us to certain privacy and information security laws, regulations and rules in the United States, including, for example, the privacy provisions of the Gramm-Leach-Bliley Act and its implementing regulations, various other federal and state privacy and information security statutes and regulations, and the Payment Card Industry Data Security Standard. These federal and state laws, as well as our agreements with our issuing banks, contain restrictions relating to the collection, processing, storage, disposal, use and disclosure of personal information, and require that we have in place policies regarding information privacy and security. We have in effect a privacy policy relating to personal information provided to us in connection with requests for information or services, and we continue to work with our issuing banks and other third parties to update policies and programs and adapt our business practices in order to comply with applicable privacy laws and regulations. Certain state laws also require us to notify affected individuals of certain kinds of security breaches of computer databases that contain their personal information. These laws may also require us to notify state law enforcement, regulators or consumer reporting agencies in the event of a data breach. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. A data security breach could expose us to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.
19
We are subject to Card Association and Network Organization Rules.
In addition to the federal, state, local, and foreign jurisdiction laws and regulations discussed above, we, Cuentas and our issuing banks, are also subject to card association and debit network rules and standards. The operating rules govern a variety of areas, including how consumers and merchants may use their cards and data security. Each card association and network organization audits us from time to time to ensure our compliance with these standards. Noncompliance with these rules or standards due to our acts or omissions or the acts or omissions of businesses that work with us could result in fines and penalties or the termination of the card association registrations held by us or any of our issuing banks. Changes in card association rules or standards set by Visa or Vanilla Reload, or changes in card association and debit network fees or products or interchange rates, could materially and adversely affect our business, financial condition and results of operations.
Our success depends, in part, upon our ability to hire and retain highly skilled managerial, and operational personnel, and the past performance of our senior management may not be indicative of future results.
The implementation of our business plan may require that we employ additional qualified personnel. Competition for highly skilled managerial, telecommunications, financial and operational personnel is intense, and we cannot assure our stockholders that we will be successful in attracting and retaining such skilled personnel. If we are unable to hire and retain qualified personnel as required, our growth and operating results could be adversely affected.
The Company and its subsidiaries have well-financed, well-managed competitors and may not be able to adequately compete in its market.
Most of our competitors are larger and have greater financial, technical, marketing, and other resources than we do. Some of our competitors have seasoned management teams with more experience and expertise in our industry than we do. Some competitors may enjoy significant competitive advantages that result from, among other things, having substantially more available capital, having a lower cost of capital, having greater economies of scale, and having enhanced operating efficiencies compared to ours.
Cuentas is much smaller than its competitors in its credit card operations and faces competition in the prepaid financial services industry from competitors such as American Express, First Data, Total Systems Services, Green Dot, NetSpend, Money Network, Momentum, Blackhawk, Prepaid MasterCard, MasterCard RePower, PayPal, Apple Pay, Amex Serve, H&R Block Emerald and J.P. Morgan Chase. Cuentas also faces intense competition from existing players in the prepaid card industry.
Cuentas Mobile faces prepaid competitors includingAT&T, Sprint, Viber, WhatsApp, Skype, MetroPCS, TracFone, Telcel, StraightTalk, Simple Mobile, Virgin Mobile, Boost, Net 10, IDT and Boost.
M&M faces competition from many strong and well-financed competitors, engaged in the retail termination of domestic and international long distance as well a mobile voice, text, and data services, including IDT, NobelCom, Access Wireless, Boost Mobile, H2O mobile and Mint Mobile.
Cuentas Mobile will be dependent on the performance of third-party network operators.
MVNO operators, including Cuentas Mobile, earn revenues by purchasing network capacity from other network operators and reselling it to end users. Cuentas Mobile commenced selling mobile services at [_] as an MVNO that operates on the largest 5G nationwide network from one of the top 3 mobile carriers and is dependent on the performance of its underlying provider and its network.
To compete effectively, Cuentas needs to improve its offerings continuously.
Cuentas plans to begin operations shortly and expects to be substantially smaller than its competitors. As a result, to compete effectively, Cuentas needs to improve its offerings rapidly and continuously.
20
Cuentas may be unable to attract and retain users.
Cuentas has an operating history in the e-commerce card business of almost three years. If Cuentas cannot increase the number of cardholders using its Cuentas Mastercard and retain its existing cardholders, this will significantly adversely affect Cuentas’ operating results, revenues, financial condition, and ability to remain in business.
Cuentas may be adversely affected by fraudulent activity.
Criminals, including, without limitation, cyber-organized criminal syndicates, and others, use increasingly sophisticated methods to engage in illegal activities involving prepaid cards, reload products, and customer information. Cuentas relies on third parties for certain transaction processing services, which subjects Cuentas and its customers to risks related to the vulnerabilities of these third parties, as well as Cuentas’ own vulnerabilities to criminals engaged in fraudulent activities. Fraudulent activity could result in the imposition of regulatory sanctions, including significant monetary fines, which could adversely affect Cuentas’ business, operating results, and financial condition.
Increased attention to environmental, social, and governance (“ESG”) matters and conservation measures may adversely impact our business or that of our manufacturers.
Public companies are facing increasing scrutiny related to ESG practices and disclosures from certain investors, capital providers, shareholder advocacy groups, other market participants, and other stakeholder groups. For example, certain institutional and individual investors have requested various ESG-related information and disclosures as they increasingly incorporate ESG criteria in making investment and voting decisions. With this increased focus, public reporting regarding ESG practices is becoming more broadly expected. Such increased scrutiny may result in increased costs, enhanced compliance or disclosure obligations, or other adverse impacts on our business, financial condition or results of operations. If our ESG practices and reporting do not meet investor or other stakeholder expectations, which continue to evolve, we may be subject to investor or regulator engagement regarding such matters.
In addition, new sustainability rules and regulations have been adopted and may continue to be introduced in various states and other jurisdictions. For example, in June 2022, the SEC published a proposed climate disclosure rule, subject to which we would be required to disclose certain climate-related information such as governance of climate-related risks and relevant risk management processes that could affect us, a climate related financial statements matrix and more. While the proposed rule has yet to be finalized and we cannot predict the ultimate scope and impact this will have on our business, if finalized, it would likely result in additional legal, accounting and financial compliance and increased general and administrative expenses. Moreover, this could result in increased management time and attention to ensure we are compliant with the regulations and expectations. Our failure to comply with any applicable rules or regulations could lead to penalties and adversely impact our reputation, access to capital and employee retention. Such ESG matters may also impact third parties on which we rely, which may augment or cause additional impacts on our business, financial condition, or results of operations.
Risks Related to an Investment in Our Securities
The market price of our Common Stock and Warrants may be highly volatile, and you could lose all or part of your investment.
The trading price of our Common Stock and Warrants is likely to be volatile. This volatility may prevent you from being able to sell your securities at or above the price you paid for your securities. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include:
| ● | whether we achieve our anticipated corporate objectives; |
| ● | actual or anticipated fluctuations in our quarterly or annual operating results; |
| ● | changes in financial or operational estimates or projections; |
21
| ● | changes in the economic performance or market valuations of companies similar to ours; and |
| ● | general economic or political conditions in the United States or elsewhere. |
In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Common Stock, regardless of our actual operating performance.
Our shares are subject to the penny stock rules, which make it more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. As long as the price of our Common Stock is less than $5.00, our Common Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore shareholders may have difficulty selling their shares.
We do not expect to pay dividends for the foreseeable future.
We do not expect to pay dividends on our Common Stock for the foreseeable future. Accordingly, any potential investor who anticipates the need for current dividends should not purchase our securities.
22
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
Our Board and management recognize the critical importance of maintaining the trust and confidence of our customers, clients, business partners and employees.
In general, we seek to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.
Our cybersecurity risk management efforts include:
| ● | risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment; |
| ● | a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; and |
| ● | a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents. |
Cybersecurity Governance
Our board of directors considers cybersecurity risk as part of its risk oversight function. The board of directors oversees management’s implementation of our cybersecurity risk management program.
Our management team, including our CEO, is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment.
To date, we have not experienced any cybersecurity incidents that materially affected our business strategy, results of operations or financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We currently lease office space at 235 Lincoln Rd., Miami Beach, FL 33139 as our principal offices. We believe these facilities are in good condition and are sufficient for our current use but may need to expand our leased space as our business efforts increase.
23
ITEM 3. 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 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 the Company. The arbitration demand originated from another demand for arbitration that Secure IP received from VoIP Capital International (“VoIP”) in March 2019, demanding $1,053 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 11th Circuit for Miami-Dade County, Florida. On June 5, 2020, Secure IP Telecom, Inc. (“Secure IP”) filed a complaint against Limecom, Heritage Ventures Limited (“Heritage”), an unrelated third party and owner of Limecom, and the Company, case no. 20-11972-CA-01. Secure IP alleges that the Company received certain transfers from Limecom during the period that the Company wholly owned Limecom that may be an avoidable under Florida Statute § 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 both complaints. To the extent the Company has exposure for any transfers from Limecom, Heritage has indemnified the Company for any such 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. As of December 31, 2023, the company accrued $300,000 due to this matter.
On October 4, 2022, Crosshair Media Placement, LLC, a Kentucky based marketing company, filed and served a complaint on Cuentas for breach of contract alleging breach of contract damages of $629,807.74, which case remains pending in the United States District Court for the Western District of Kentucky, case no. 3:22-CV-512-CHB. On May 9, 2023, the Company and the plaintiff attended a court settlement conference before the federal magistrate judge presiding over the matter. The parties reached a settlement that the Company will make the following installments in the amount of $630,000 to fully resolve the matter: $50,000 on or about June 1, $20,000 on or about July 1, and nine equal $15,000 monthly payments due the first of each month, then a final payment of $425,000 due May 1, 2024. As of December 31, 2023 the Company has paid $70,000 to the plaintiff under the above referenced settlement agreement.
On February 8, 2023, a former employee of the Company, filed a complaint for breach of employment agreement alleging the Company failed to pay her certain compensation she alleges she was entitled to upon her resignation.. The Company and the employee are discussing a settlement agreement and estimates that the maximum amount the Company will be required to pay will not exceed $30,000.
ITEM 4. MINE SAFETY DISCLOSUES.
Not applicable.
24
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES
Market Information
From February 2, 2021 to December 19, 2023, our common stock was traded on the Nasdaq Capital Market with the symbol CUEN and a class of our warrants was traded on the Nasdaq Capital Market with the symbol CUENW. Since December 20, 2023, our common stock and our class of publicly-traded warrants have been traded on the Pink Current Information tier of OTC Markets with the symbols CUEN and CUEN.W, respectively. As our shares are relatively thinly traded, the price for our securities may be highly volatile and may bear no relationship to our actual financial condition or results of operations. Factors we discuss in this report, including the many risks associated with an investment in our securities, may have a significant impact on the market price of our common stock. We cannot assure you that there will be a market for our common stock and our publicly-traded warrants in the future. We effected a 1-for-13 reverse stock split of our common stock on March 24, 2023. All share and per share information in this report gives effect to the reverse split.
Holders of Common Stock and Warrants
As of March 31, 2024, our shares of common stock were held by approximately 130 record holders and our publicly-traded warrants were held by approximately three record holders.
Dividends
We have never paid any cash dividends on our shares of common stock and we do not intend to declare and pay cash dividends on our shares of common stock in the foreseeable future.. We intend to reinvest any earnings for the development and expansion of our business. The payment of cash dividends on our shares of common stock is subject to the discretion of our Board of Directors, based upon the Board’s assessment of:
| ● | our financial condition; |
| ● | earnings; |
| ● | need for funds; |
| ● | capital requirements; |
| ● | prior claims of preferred stock to the extent issued and outstanding; |
| ● | covenants in any loan or other credit facilities we may enter into in the future; and |
| ● | other factors, including any applicable laws. |
25
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information as of December 31, 2023 relating to all our equity compensation plans:
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted- average exercise price of outstanding options, warrants and rights | Number of
securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 84,999 | 36.97 | 678,847 | |||||||||
| Equity compensation plans not approved by security holders | - | - | ||||||||||
| Total** | 84,999 | 36.97 | 678,847 | |||||||||
Stock Option Plans
The Company has two stock option plans, which are intended to provide incentives in the form of equity grants which will attract, retain and motivate highly competent persons as officers, employees and non-employee director, of, and consultants to, the Company and its subsidiaries and affiliates and to assist in further aligning the interests of the Company’s officers, employees and consultants to those of its other stockholders. The plans are administered by the Compensation Committee of the Board.
On June 17, 2021 the Board of the Company adopted the Cuentas Inc. 2021 Share Incentive Plan (the “2021 Plan”), which was approved by the Company’s shareholders at the Annual Meeting of Shareholders on December 15, 2021. The maximum number of shares authorized for issuance under the 2021 Plan is 242,308 shares (after giving effect to the reverse stock split effected in March 2023). See Note 7 to the Company’s financial statements for information concerning stock options granted pursuant to the 2021 Plan
On November 17, 2023 the Board of the Company adopted the Cuentas Inc. 2023 Share Incentive Plan (the “2023 Plan”). which was approved by the shareholders at the Annual Shareholders Meeting held on December 20, 2023. The maximum number of shares of stock authorized for issuance under the 2023 Plan is 1,000,000 shares, subject to annual increases on January 1 of each year beginning in 2025 and ending with a final increase on January 1, 2033 in an amount equal to 5% of the total number of shares of common stock outstanding on such date; provided, however, that the Committee may provide that there will be no January 1 increase in the number of shares which may be issued pursuant to the 2023 Plan for any such year or that the increase for any such year will be a smaller number of shares. On February 23, 2024, the Committee granted options to purchase a total of 520,000 shares, including options to purchase a total of 434,540 shares to non-employee directors and officers, exercisable at an exercise price of $0.32 per share.
26
Penny Stock Regulations
The SEC has regulations which generally define so-called “penny stocks” to be equity securities that have a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule required by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
Recent Sales of Unregistered Equity Securities
During the fourth quarter of 2023, we did not have any sales of equity securities in transactions that were not registered under the Securities Act of 1933, as amended, that have not been previously reported in a report filed pursuant to the Exchange Act.
27
ITEM 6. [RESERVED]
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in Item 1A Business -- Risk Factors” and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect.
OVERVIEW AND OUTLOOK
The Company mainly invests in financial technology and engages in use of certain licensed technology to provide innovative telecommunications, mobility, and remittance solutions to unserved, unbanked, and emerging markets. The Company uses proprietary technology and certain licensed technology to provide innovative telecommunications and telecommunications mobility and remittance solutions in emerging markets. The Company also offers wholesale telecommunications minutes and prepaid telecommunications minutes to consumers through the Tel3 division of its wholly-owned subsidiary, Meimoun and Mammon, LLC. The Company also owns 50% of CUENTASMAX LLC which is a joint venture and installs WiFi6 shared network (“WSN”) systems in locations in the New York metropolitan tristate area using access points and small cells to provide users with access to the WSN. We believe in providing simple, affordable, secure and reliable financial services and digital payments to help our customers achieve their financial goals. We strive to increase our relevance for consumers, and family to access and move their money anywhere in the world, anytime, on any platform and through any device (e.g., mobile, tablets, personal computers or wearables). We provide safer and simpler ways for businesses of all sizes to accept payments from merchant websites, mobile devices and applications, and at offline retail locations through a wide range of payment solutions. We also facilitate person to person payments through the Cuentas GPR Card.
Since the first quarter of 2023, the Company has made two equity investments in real estate projects in Florida. Cuentas partners with leading edge developers and construction technology companies to create sustainable, inclusive and affordable residential communities specifically designed to provide high quality housing alternatives at extremely competitive pricing. The Company’s goal is to source land zoned and ready for development of multi-family buildings in strategic areas where rental prices are increasing dramatically, placing financial stress and pressure on working class families. The Company’s real estate investments are intended to broaden its reach into the unbanked, underbanked and underserved communities by using a patented, low cost, sustainable technology that should allow it to provide reasonably priced rental apartments to working class residents who have been priced out of rental communities due to severe rent price hikes in Florida and other areas in the US. The Company believes that providing affordable apartments to the Hispanic Latino and other immigrant communities in Florida will enable it to introduce them its fintech solutions and generate revenue.
On March 7, 2023, the Company acquired a six percent (6%) equity interest in Lakewood Village from Core Development Holdings Corporation (“Core”), pursuant to a Membership Interest Purchase Agreement (“MIPA”), in exchange for 295,282 shares of Common Stock, representing approximately19.99% of the then outstanding shares of Common Stock. Core holds approximately 29.3% of 4280 Lakewood Road Manager, LLC (“Lakewood Manager”), which in turn owns 86.45% of the membership interests in 4280 Lakewood Road, LLC (“4280 Project”), an affordable multi-family real estate project located in Lake Worth, Florida. Lakewood Manager, an affiliate of RENCo USA, Inc. (“Renco”), is constructing the 4280 Lakewood Project with RENCO Structural Building System, a proprietary composite structural system distributed by Renco. Lakewood Village is the first sustainable rental housing project developed in the US using a patented MCFR Mineral Composite Fiber Reinforced Construction Technology that has been approved for hurricane-prone areas as such in Florida. The Lakewood Village project is an affordable multi-family real estate development located in Lake Worth, Palm Beach County, Florida, consisting of 96 apartments that have two and three bedrooms.
28
In March 2023, the Company signed a 10 year supply agreement with Renco to provide Renco’s patented building materials for new, sustainable rental housing projects. Renco is an innovative green construction technology company that has a patented MCFR (Mineral Composite Fiber Reinforced) Construction System which provides cost efficiency, reduced build time, and sustainable benefits. Renco’s system is hurricane proof up to Category 5, which is a major benefit for developing housing projects in the South Florida market and other hurricane prone areas where we are planning to develop projects. Renco’s system is also earthquake resistant. Renco has the exclusive rights in the USA to the patented building process. The Renco Wall, Floor and Roofing System is a unique MCFR Building System that creates interlocking, fiber reinforced, composite building blocks and other construction related products that can be connected in an almost limitless variety of designs. Renco’s system can be used to create homes, apartment buildings, hotels, office buildings, warehouses, infrastructure products.
On April 13, 2023, Cuentas entered into an Operating Agreement in Brooksville Development Partners, LLC (“BDP”), a limited liability company formed for the purpose of acquiring land for the development of a residential apartment community consisting of approximately 360 apartments in Brooksville, Florida. Cuentas has a 63.9% equity interest in BDP and two others own the remaining 36.1% equity interest in BDP. All real and personal property owned by BDP will be owned by BDP as an entity. One of the other members is the manager of the project.
On April 28, 2023, BDP acquired a 21.8 acre site (“Brooksville Property”) for development of the Brooksville project for a purchase price of $5.05 million. Cuentas had deposited as an initial capital contribution $2 million into a title insurance escrow account which was released from escrow by the Title Agent to fund the balance of the purchase price of the Brooksville Property, together with a $3.05 million bank loan from Republic Bank of Chicago, which was amended and restated on January 27, 2024 for $3.055 million. BDP and ALF Trust u/a/d 09/28/2023 executed a $500,000 Loan Extension Agreement to ensure the promissory note necessary to fund the interest reserve and fees relating to the Loan Extension Agreement and the working capital needs of BDP. Brooksville owns the Brooksville Property, free and clear of any liens, claims and encumbrances with the sole exception being the Republic Bank loan. Cuentas contributed an additional $64,000 for further development of the Brooksville project on June 29, 2023 and has paid almost $65,000 for engineering expenses.
In April 2023, CIMA, which provided maintenance and support services for our technology platform, shut down access to the platform as we were transitioning to a new, improved platform. During the first quarter of 2023, we reduced product availability to Cuentas-SDI to allow Cuentas-SDI to catch up on its payments and during the second quarter of 2023 we curtailed all services to Cuentas-SDI and marketing initiatives with Cuentas-SDI due to its inability to reduce its debt significantly. These disruptions to our fintech solutions and technology business were a major reason for the decline in revenue between the Q1-Q2 periods in 2022 and 2023. In May 2023, The OLB Group (NASDAQ: OLB) (“OLB”) terminated a Software Licensing and Transaction Sharing Agreement with the Company for the purpose of upgrading the Cuentas Mobile App and digital distribution system. In June 2023, OLB acquired 80.01% of Cuentas-SDI. In July 2023, the Company and Cuentas-SDI settled certain payment issues and renewed discussions and cooperation to re-open the digital distribution network and systems through Cuentas-SDI’s convenience store distribution network of over 31,000 locations, including many across the New York, New Jersey and Connecticut Tri State area. On July 14, 2023, the Company entered into an agreement with OLB and Cuentas-SDI (the “OLB Agreement”) in which OLB agreed to cause Cuentas-SDI to enter into an agreement with the Company pursuant to which Cuentas-SDI would agree to pay the Company $228,752 to satisfy outstanding invoices and, subject to the Company’s receipt of the first $100,373, for the Company to restore the services it had previously provided Cuentas-SDI on a purchase or services order basis (the “Payment Agreement”). On July 14, 2023 the Company and Cuentas-SDI entered into the Payment Agreement pursuant to which Cuentas-SDI agreed to pay amounts due under the outstanding invoices in the amount of $228,752. To date, Cuentas-SDI has paid the Company $142,666. The balance, which was payable in four monthly installments of $21,333 commencing September 1, 2023, has not been paid.
29
RESULTS OF OPERATIONS
Comparison of year ended December 31, 2023 to year ended December 31, 2022
Revenue
The Company generates revenues through the sale and distribution of Digital products, General Purpose Reloadable Cards, wholesale telecommunication services and other related telecom services. Revenues during the year ended December 31, 2023, totaled $2,346,000 compared to $2,994,000 for the year ended December 31, 2022. The decrease in our sales of digital products and General-Purpose Reloadable Cards is mainly due to decreasing our sales with Cuentas SDI including online and other marketing initiatives, including but not limited to distribution agreements partially offset by increase in wholesale telecommunication services in the amount of $2,177,000 from our Bilateral Wholesale Carrier Agreement with Next Communications INC., a company controlled by Arik Maimon our Chairman of the Board and our CEO.
Revenue by product for 2023 and 2022 are as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| (Dollars in thousands) | ||||||||
| Retail telecommunications | $ | 78 | $ | 839 | ||||
| Wholesale telecommunication services | 2,177 | - | ||||||
| Digital products and General-Purpose ‘Reloadable Cards | 91 | 2,155 | ||||||
| Total revenue | $ | 2,346 | $ | 2,994 | ||||
Costs of Revenue and Gross profit
Cost of revenues during the year ended December 31, 2023 totaled $2,733,000 compared to $2,508,000 for the year ended December 31, 2022.
Cost of revenue consists of the purchase of wholesale minutes for resale, related telecom platform costs and purchase of digital products in the amount of $2,170,000 during the year ended December 31, 2023 and $232,000 during the year ended December 31, 2022.
Cost of revenue also consists of costs related to the sale of the Company’s digital products and GPR Cards in the amount of $219,000 during the year ended December 31, 2023 and $2,276,000 during the year ended December 31, 2022. The costs related to the sale of the Company’s digital products and GPR Cards were composed mainly from the cost of the Digital products in the amount of $209,000 during the year ended December 31, 2023 as opposed to $2,087,000 during the year ended December 31, 2022.
Gross profit (loss) by product for 2023 and 2022 are as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| (Dollars in thousands) | ||||||||
| Telecommunications | $ | (265 | ) | $ | 607 | |||
| Wholesale telecommunication services | 6 | - | ||||||
| Digital products and General Purpose Reloadable Cards | (128 | ) | (121 | ) | ||||
| Total Gross profit | $ | (387 | ) | $ | 486 | |||
30
Gross profit margin for the year ended December 31, 2023 was negative for both the telecommunications segment and the digital product and general purpose reloadable cards segment but slightly positive for wholesale which by its nature has a tiny markup. The gross loss for the sale of digital product and general-purpose reloadable cards stemmed from ceasing all activities with Cuentas SDI LLC. In addition, in April 2023, CIMA, which provided maintenance and support services for our technology platform, shut down access to the platform as we were transitioning to a new, improved platform. During the first quarter of 2023, we reduced product availability to Cuentas-SDI to allow Cuentas-SDI to catch up on its payments and during the second quarter of 2023 we curtailed all services to Cuentas-SDI and marketing initiatives with Cuentas-SDI due to its inability to reduce its debt significantly. These disruptions to our fintech solutions and technology business were a major reason for the decline in revenue year ended December 31, 2023 as compare to the year ended December 31, 2022. In May 2023, The OLB Group terminated a Software Licensing and Transaction Sharing Agreement with the Company for the purpose of upgrading the Cuentas Mobile App and digital distribution system. In June 2023, OLB acquired 80.01% of Cuentas-SDI. In July 2023, the Company and Cuentas-SDI settled certain payment issues and renewed discussions and cooperation to re-open the digital distribution network and systems through Cuentas-SDI’s convenience store distribution network of over 31,000 locations, including many across the New York, New Jersey and Connecticut tri state area.
Gross profit margin for the year ended December 31, 2022 was 16% consisting of 72% gross profit margin for the telecommunications segment and offset by a gross loss margin of 6% for the digital product and general purpose reloadable cards segment. The gross loss for the sale of digital product and general-purpose reloadable cards in 2022 stemmed from the lower margins of our digital products since these sales derived from the sale of digital products bears minimal gross margins.
Operating Expenses
Operating expenses consist of selling, general and administrative Expenses, impairments and amortization of Intangible assets as discussed below and totaled $5,722,000 during the year ended December 31, 2023, compared to $14,841,000 during the year ended December 31, 2022, representing a net decrease of $9,119,000.
Selling, General and Administrative Expenses
The table below summarizes our general and administrative expenses incurred during the periods presented:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| ($ in thousands) | ||||||||
| Selling, General and Administrative Expenses: | ||||||||
| Officers’ compensation | $ | 981 | $ | 1,397 | ||||
| Performance bonuses | - | 300 | ||||||
| Directors fees | 150 | 233 | ||||||
| Share-based compensation | 622 | 1,697 | ||||||
| Directors’ and officers’ insurance | - | 490 | ||||||
| Professional services | 968 | 661 | ||||||
| maintenance and support services in accordance with the software maintenance agreement with CIMA | 120 | 700 | ||||||
| Legal fees | 663 | 635 | ||||||
| Payments in accordance with the processing service agreement with Incomm | 350 | 860 | ||||||
| Credit losses | - | 157 | ||||||
| Selling and Marketing | 388 | 1,437 | ||||||
| Settlements | 300 | - | ||||||
| Other | 1,469 | 864 | ||||||
| Total | $ | 6,011 | $ | 9,431 | ||||
Selling, general and administrative expenses totaled $6,011,000 during the year ended December 31, 2023, a net decrease of $3,420,000, or 36% compared to $9,431,000 during the year ended December 31, 2022. The decrease in our Selling, general and administrative expenses during the year ended December 31, 2023 compare to the year ended December 31, 2022, is primarily attributable to the decrease in the amount of $416,000 in officers compensation attributable to the departure of Jeffery Johnson in 2022 and the reduction in the number of the officers of the Company in 2023, decrease in the amount of $1,075,000 in Share-based compensation and shares issued for services expenses attributable to the decrease in the amount of our vested option in 2023 as opposed to 2022 partially mitigated by an increase in the number of shares that were issued for services and settlement, decrease in the amount of $580,000 in maintenance and support services that were provided by CIMA, decrease in the agreed payments in accordance with the processing service agreement with Incomm in the amount of $510,000 decrease in Directors’ and officers’ insurance in the amount of $490,000 since the Company cancelled its policy during the fourth quarter of 2022 and a decrease in selling and marketing expenses of $1,049,000 since the Company reduced significantly its selling and marketing campaigns in 2023 due to its ineffectiveness and lack of resources, partially offset by increase of approximately $300,000 in our settlements expenses.
31
Amortization and impairment of Intangible assets
Amortization of Intangible assets totaled $11,000 during the year ended December 31, 2023 and $1,810,000 during the year ended December 31, 2022. The amortization expense of $1,810,000 during the year ended December 31, 2022, mainly stemmed from the one-time licensing fee in the amount of $9,000,000 that was paid in shares to Cima, on December 31, 2019. During the fourth quarter of 2022, the Company recorded an impairment charge for the remaining unamortized cost of $3,600,000.
Other Income ( Expenses )
Other income (expenses) totaled an income of $4,741,000 during the year ended December 31, 2023. Other income (expenses) are mainly comprised of Gain from Change in fair value of derivative warrants liability issued as part of our February 2023 and August 2023 security offering as detailed in note 8 of the December 31, 2023 financial statements, partially offset by impairment loss of $441,000 which resulted from a decrease in cost of an investment in Cuentas SDI LLC.
During the year ended December 31, 2022, the Company recognized other expenses of $124,000 mainly due a write off a loan in the amount of $100,000 that was provided to Cuentas SDI LLC and was not repaid.
Net Loss
We incurred a net loss of $2,196,000 for the year ended December 31, 2023, as compared to a net loss of $14,531,000 for the year ended December 31, 2022, for the reasons described above.
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 December 31, 2023, the Company had total current assets of $1,760,000, including $205,000 of cash, accounts receivables of $1,307,000, related parties in the amount of $172,000 and other current assets of $76,000. As of December 31, 2023, the Company had total current liabilities of $ 4,689,000 creating a negative working capital of $2,929,000.
As of December 31, 2022, the Company had total current assets of $689,000, including $466,000 of cash, accounts receivables of $209,000, and other current assets of $14,000. As of December 31, 2022, the Company had total current liabilities of $ 2,134,000 creating a negative working capital of $1,445,000.
Cash Flows – Operating Activities
The Company’s operating activities for the year ended December 31, 2023, resulted in net cash used of $4,193,000. Net cash used in operating activities consisted of a net loss of $2,196,000 and change in fair value of derivative warrants liability of $6,852,000, partially offset by non-cash expenses consisting of Issuance expenses and a day-one loss on derivative warrants liability of $3,127,000, share-based compensation of $622,000, and amortization of intangible assets of $11,000. Changes in operating assets and liabilities provided cash of $529,000, resulting mainly from a decrease in other accounts payables of $1,548,000 and increase in accounts payables offset by an increase of in related parties accounts receivables of $1,102,000 and an increase in other current assets of $87,000.
The Company’s operating activities for the year ended December 31, 2022, resulted in net cash used of $8,137,000. Net cash used in operating activities consisted of a net loss of $14,531,000 partially offset by non-cash expenses consisting of share-based compensation of $1,697,000, impairment of intangible assets of $3,600,000 and amortization of intangible assets of $1,810,000. Changes in operating assets and liabilities used cash of $777,000, resulting mainly from an increase of in accounts receivables of $431,000, decrease in other accounts payables of $712,000 and decrease of deferred revenue of $570,000 which was offset by an increase in accounts payables of $421,000 and increase in accrual for bonuses in the amount of $300,000.
Cash Flows – Investing Activities
The Company’s investment activities for the year ended December 31, 2023 resulted in net cash used of $2,098,000 due to the Company’s investment in Brooksville Development Partners, LLC. in the amount of $2,065,000, investment in the amount of $20,000 in Cuentas Max LLC and investment in the amount of $303,000 in the roof.com domain which was later sold for $301,000.
The Company’s investment activities for the year ended December 31, 2022, resulted in net cash used of $664,000 and net cash used of $87,000 for the same period in 2021. The increase was mainly due to the investment in Cuentas SDI LLC.
32
Cash Flows – Financing Activities
The Company’s financing activities for the year ended December 31, 2023, resulted in net cash received of $6,030,000 mainly consisting of $6,034,000 received from the sale of our common stock.
The Company’s financing activities for the year ended December 31, 2022, resulted in net cash in the amount of $2,660,000 mainly from the sale of our common stock.
The decrease in 2023 in our working capital was mainly attributable to the increase in Accounts Payables and Trade Payables in the amount of $ 1,815,000 and decrease in our Cash and Cash equivalents in the amount of $ 261,000, partially offset by increase in Accounts Receivables of $1,102,000.
To date, we have principally financed our operations through the sale of our Common Stock. Nevertheless, management anticipates that our current cash and cash equivalents position and generating revenue from the sales of our digital products and General-Purpose Reloadable Cards will provide us limited financial resources for the near future to continue implementing our business strategy of further developing our digital products and General Purpose Reloadable Card, enhance our digital products offering and increase our sales and marketing. Management has taken important steps to reduce the financial burn rate and has curtailed some ineffective marketing programs, concentrating on those programs that have been proven to produce good results. Reduction of some top-level personnel has brought savings to the company as current executives took over the vacant positions at no additional cost to the Company but offset by the bonuses. Management plans to secure additional financing sources, including but not limited to the sale of our Common Stock in future financings. There can be no assurance, however, that the Company will be successful in raising additional capital or that the Company will have net income from operations to fund its business plan for the near future or long term. As of December 31, 2023, the Company had approximately $205,000 in cash and cash equivalents, approximately $2,929,000 in negative working capital and an accumulated deficit of approximately $54,946,000. These conditions raise substantial doubt about the Company’s ability to continue as a going concern as of December 31, 2023.
On April 3, 2024, BDP, in which Cuentas has a 63.9% equity interest, entered into an agreement to sell the Brooksville Property for a purchase price of $7.2 million. The sale, which is expected to close before the end of Q2 2024, is subject to certain conditions customary for similar real estate transactions. The purchaser has the right to terminate the agreement during an inspection period prior to June 3, 2024 due to title defects or other issues identified in a title report or survey of the premises or the existence of monetary liens not remedied or removed by BDP at the request of purchaser. There can be no assurance that the sale will be completed on the terms set forth in the agreement, if at all. Cuentas will use its pro rata portion of the net proceeds of the sale, estimated between $1.625 million and $1.9 million, as working capital and for other opportunities that may become available.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements and does not anticipate entering into any such arrangements in the foreseeable future.
Impact of Inflation
The Company does not expect inflation to be a significant factor in operation of the business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable as we are currently considered a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-31 of this Form 10-K.
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
(b) Engagement of New Independent Registered Public Accounting Firm.
On February 16, 2023, the Audit Committee of the Board of Directors) of the Company approved the appointment of Yarel and Partner to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022.
During the Company’s fiscal years ended December 31, 2021 and 2022 and the subsequent interim period through February 15, 2023, neither the Company nor anyone on its behalf has consulted with Yarel regarding (i) the application of accounting principles to a specific transaction, either completed or proposed or (ii) the type of audit opinion that might be rendered on the Company’s financial statements and, neither a written report nor oral advice was provided to the Company that Yarel concluded was an important factor considered by the Company in reaching a decision as to accounting, auditing or financial reporting issues, or (iii) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions), or (iv) any “reportable event” (as described in Item 304(a)(1)(v) of Regulation S-K).
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management of Cuentas Inc. is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
At December 31, 2023, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based on their evaluation of our disclosure controls and procedures, they concluded that at December 31, 2023, such disclosure controls and procedures were not effective. This was due to our limited resources and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses].”
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. These internal controls over financial reporting are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.
Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Our management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our internal control over financial reporting as of December 31, 2023. This evaluation was based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 Framework). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective as of December 31, 2023.
34
Based upon such assessment, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2023 our internal controls over financial reporting were not effective due to the following material weaknesses identified:
| ● | Lack of appropriate segregation of duties, |
| ● | Lack of information technology (“IT”) controls over revenue, and |
| ● | Lack of adequate review of internal controls to ascertain effectiveness, and |
| ● | Lack of control procedures that include multiple levels of supervision and review. |
The Company’s management, including the Chief Executive Officer and Principal Financial Officer, do not expect that its disclosure controls or internal controls will prevent all errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
Implemented or Planned Remedial Actions in response to the Material Weaknesses
The deficiencies identified above are in large part due to our limited resources and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.”
We plan, if our available cash will increase, to seek to recruit individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. The rules of the SEC do not require an attestation of the Management’s report by our registered public accounting firm in this annual report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our fiscal quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
35
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The names of our director and executive officers and their ages, positions, and biographies are set forth below. Our executive officers are appointed by, and serve at the discretion of, our board of directors.
Directors and Executive Officers
Set forth below is information regarding our current directors and executive officers. Each director holds his office until he resigns or is removed and his successor is elected and qualified
| Name | Age | Position | ||
| Arik Maimon | 48 | Chairman of the Board of Directors and CEO | ||
| Michael De Prado | 54 | Vice Chairman of the Board of Directors and President | ||
| Shlomo Zakai | 53 | CFO | ||
| Adiv Baruch | 61 | Director | ||
| Haim Yeffet | 73 | Director | ||
| Lexi Terrero | 51 | Director |
Directors and Executive Officers
Arik Maimon, our Chairman, is a founder, the Chief Executive Officer and Chairman of the Board. Mr. Maimon served as the Company’s CEO from 2016 to February 2021 and as Interim CEO from February 2021 to August 2023. In addition to co-founding the Company, Mr. Maimon founded the Company’s subsidiaries Cuentas Mobile, and M&M. Prior to founding the Company and its subsidiaries, Mr. Maimon founded and ran successful telecommunications companies operating primarily in the United States and Mexico. In 1998, Mr. Maimon founded and ran a privately-held wholesaler of long-distance telecommunications services which, later, under Mr. Maimon’s management, grew from a start up to a profitable enterprise with more than $100 million in annual revenues. Mr. Maimon serves on the Company’s Board of Directors due to the perspective and experience he brings as our co-founder, Chairman and Chief Executive Officer.
Michael A. De Prado is a founder, the President and Vice Chairman of the Board. Mr. De Prado also served as its President from 2016 to February 2021, and as Interim President from February 2021 to August 2023. Prior to founding the Company, Mr. De Prado spent 20 years in executive positions at various levels of responsibility in the banking, technology, and telecommunications industries. As President of Sales at telecommunications company Radiant/Ntera, Mr. De Prado grew Radiant/Ntera’s sales to more than $200 million in annual revenues. At theglobe.com, Mr. De Prado served as President, reporting directing to Michael S. Egan. Mr. De Prado serves on the Company’s Board of Directors due to the perspective and experience he brings as our co-founder and President.
Shlomo Zakai has serves as our Chief Financial Officer since October 2023. Mr. Zakai brings extensive and proven experience in similar positions with companies operating in international markets and related industries. Zakai has served as chief financial officer of UAS Drone Corp. (OTC: USDR) since May 2020, as the Chief Financial Officer of Save Foods, Inc. (SAFO:OTC) (August 2017 to December 2021), Sonovia Ltd. (NNTTF:OTC) (October 2014 to August 2020) and of Todos Medical Ltd. (TOMDF:OTC) (February 2017 till January 2018). Prior to that, Mr. Zakai worked as an accountant for nine years at Kost, Forer, Gabbay & Kasierer, an independent registered public accounting firm and a member firm of Ernst & Young Global, where he last served as a Senior Manager and worked with technology companies publicly traded on the Nasdaq Stock Market and on the Tel Aviv Stock Exchange. Mr. Zakai holds a B.A. in accounting from the College of Management in Rishon Le’Zion, Israel.
Adiv Baruch is a global leader anchors in the Israeli high-tech industry as well as the Chairman of Israeli Export and International cooperation Institute and several private and public companies. Mr. Baruch has over 28 years of experience in equity investment and operation management under distress. Mr. Baruch also serves as chairman of Jerusalem Technology Investments Ltd. He also currently serves as Chairman of Maayan Ventures, a platform for investments in innovative technology companies. Mr. Baruch has served as a director of the Bank of Jerusalem, and he served as CEO of BOS Better Online Solutions, which, under this leadership, grew into a highly successful company traded on Nasdaq under the symbol BOSC. Throughout his career, he has championed development and support of new talent in the high tech and entrepreneurial arenas. He is a Technion graduate and the Chairman of the Institute of Innovation and Technology of Israel. Mr. Baruch is qualified to serve as a director of the Company because of the perspective and experience he brings to our Board.
36
Lexi Terrero is a marketing and financial executive with over 15 years of experience in digital media, investor relations and private equity. Ms. Terrero is qualified to serve as a director of the Company because of her deep industry knowledge of marketing and business development, sales development, raising capital, finance, and operational management. She received a BS in Finance and an MBA in Interdisciplinary Business from St. John’s University in New York City.
Haim Yeffet has owned and managed 10 restaurants and served as the CEO of a public company. He is involved in his condo board at the Alexander in Miami Beach, and has served as the Vice President and as Secretary for the association for the last three years. Mr. Yeffet is qualified to serve as a director of the Company because of his business experience, including his experience as CEO of a public company.
Family Relationships
There are no family relationships, or other arrangements or understandings between or among any of the directors, director nominees, executive officers or other person pursuant to which such person was selected to serve as a director or officer.
Indemnification of Directors and Officers
Our Articles of Incorporation and Bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by Florida law.
Limitation of Liability of Directors
Pursuant to the Florida Statutes, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of shareholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board following the next annual meeting of shareholders and until their successors have been elected and qualified.
Involvement in Certain Legal Proceedings
No Executive Officer or Director of the Corporation has been the subject of any Order, Judgment, or Decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him/her from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.
No Executive Officer or Director of the Corporation has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending.
No Executive Officer or Director of the Corporation is the subject of any pending legal proceedings.
Corporate Governance
Board of Directors
We currently have five directors serving on our Board of Directors. A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business.
Board Committees and Director Independence
Director Independence
Of our current directors, we have determined that Messrs. Baruch and Yeffet, as well as Ms. Terrero, are “independent” as defined by applicable rules and regulations. The Company is in the process to interviewing additional potential Independent Directors to fill additional board positions with goals of Gender, Age and Racial diversity as well as Cyber protection experience as indicated by the SEC to be important goals.
37
The following table sets forth certain information concerning the annual compensation of our independent directors during the last two fiscal years. Non-employee directors receive $50,000 per annum and the chairman of the Audit Committee and Compensation Committee receives an additional $16,000 per annum. The following table sets forth certain information concerning the annual compensation of our independent directors during the last two fiscal years.
| Name and Principal Position | Year | (c) Fee | Bonus | Option Awards | share compensation | Nonqualified deferred compensation earnings | All Other Compensation | (Total Compensation | ||||||||||||||||||||||||
| Adiv Baruch | 2023 | $ | 67,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 67,000 | |||||||||||||||||
| 2022 | $ | 67,000 | $ | - | $ | 110,781 | $ | - | $ | - | $ | - | $ | 177,781 | ||||||||||||||||||
| Haim Yeffet | 2023 | $ | 45,192 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 45,192 | |||||||||||||||||
| 2022 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||
| Lexi Terrero | 2023 | $ | 50,000 | $ | - | $ | 9,100 | $ | - | $ | - | $ | - | $ | 59,100 | |||||||||||||||||
| 2022 | $ | - | $ | - | $ | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
Ms. Terrero was appointed a director on December 30, 2022 and Mr. Yeffet was appointed a director on February 2, 2023
Board Committees
Our Board of Directors has established two standing committees—Audit and Compensation. Each committee operates under a charter that has been approved by our Board of Directors.
Audit Committee
Our Board of Directors has an Audit Committee composed of Mr. Baruch, Mr. Yeffet and Ms. Terrero, each of whom is an independent director as defined in accordance with section Rule 10A-3 of the Exchange Act and the rules of Nasdaq. Mr. Baruch serves as chairman of the Audit Committee. The Board of Directors has determined that Mr. Baruch possesses accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the Nasdaq Marketplace Rules and that he is an “audit committee financial expert” as defined by the rules and regulations of the SEC.
Our Audit Committee oversees our corporate accounting, financial reporting practices and the audits of financial statements. For this purpose, the Audit Committee has a charter (which will be reviewed annually) and performs several functions. The Audit Committee:
| ● | evaluates the independence and performance of, and assesses the qualifications of, our independent auditor and engages such independent auditor; |
| ● | approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services and approves in advance any non-audit service and fees therefor to be provided by the independent auditor; |
| ● | monitors the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law; |
| ● | reviews the financial statements to be included in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and reviews with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements; |
| ● | oversees all aspects of our systems of internal accounting and financial reporting control and corporate governance functions on behalf of the board; and |
| ● | provides oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the board, including compliance with requirements of Sarbanes-Oxley and makes recommendations to the Board of Directors regarding corporate governance issues and policy decisions. |
38
Compensation Committee
Our Board of Directors has a Compensation Committee composed of Messrs. Baruch and Yeffet, each of whom is independent in accordance with rules of Nasdaq. Mr. Baruch is the chairman of the Compensation Committee. Our Compensation Committee reviews or recommends the compensation arrangements for our management and employees and also assists the Board of Directors in reviewing and approving matters such as company benefit and insurance plans, including monitoring the performance thereof. The Compensation Committee has a charter, which will be reviewed annually.
Nomination of Directors
Our Board of Directors, by resolution of the full Board of Directors addressing the nominations process and such related matters as may be required under the federal securities laws, has charged the independent directors constituting a majority of our Board of Directors with the responsibility of reviewing our corporate governance policies and with proposing potential director nominees to the Board of Directors for consideration. The independent directors will consider director nominees recommended by security holders.
Code of Business Conduct and Ethics and Insider Trading Policy
Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and an Insider Trading Policy. We will provide a copy of our Code of Business Conduct and Ethics to any person without charge, upon written request to our Compliance Officer, at Cuentas Inc., 235 Lincoln Road, Suite 210, Miami Beach, Florida, 33139.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than 10% of our outstanding shares of Common Stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership in our Common Stock and other equity securities. To the Company’s knowledge, based solely on its review of Forms 3 and 4 filed electronically with the SEC during the registrant’s most recent fiscal year, the Company believes that during its fiscal year ended December 31, 2023, all filing requirements applicable to the Reporting Persons were timely met, except that Messrs. Yeffet and Zakai failed to file Form 3s.
Shareholder Communications
Although we do not have a formal policy regarding communications with the Board, shareholders may communicate with the Board by writing to us at 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139, Attention: Stockholder Communication. Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for the last two fiscal years certain information concerning the annual compensation of our Chief Executive Officer and our other executive officers whose compensation was in excess of $100,000 during the year ended December 31, 2023.
| (a) Name and Principal Position | (b) Year | (c) Salary | (d) Bonus | (f) Option Awards | (g) Non-equity incentive plan compensation | (h) Nonqualified deferred compensation earnings | (i) All Other Compensation | (j) Total Compensation | ||||||||||||||||||||||||
| Arik Maimon | 2023 | $ | 295,000 | $ | 100,000 | $ | 162,265 | $ | - | $ | - | $ | - | $ | 557,265 | |||||||||||||||||
| Executive Chairman and Chief Executive Officer | 2022 | $ | 295,000 | $ | 150,000 | $ | 257,895 | $ | - | $ | - | $ | - | $ | 702,895 | |||||||||||||||||
| Michael De Prado | 2023 | $ | 275,000 | $ | 100,000 | $ | 167,797 | $ | - | $ | - | $ | - | $ | 542,797 | |||||||||||||||||
| Executive Vice Chairman and President | 2022 | $ | 275,000 | $ | 150,000 | $ | 193,421 | $ | - | $ | - | $ | - | $ | 638,421 | |||||||||||||||||
| Ran Daniel | 2023 | $ | 224,583 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 373,943 | |||||||||||||||||
| Former CFO | 2022 | $ | 245,000 | $ | - | $ | 128,947 | $ | - | $ | - | $ | - | $ | 373,943 | |||||||||||||||||
Mr. Daniel’s employment with the Company terminated on November 27, 2023, the date of the expiration of his employment agreement.
39
Founder/Executive Chairman Compensation Agreement with Arik Maimon, and Founder/Executive Vice-Chairman Compensation Agreement with Michael De Prado
On August 26, 2021, the Company and Arik Maimon entered into a Founder/Executive Chairman Compensation Agreement (the “Chairman Compensation Agreement”). Additionally, on August 26, 2021, the Company and Michael De Prado entered into a Founder/Executive Vice-Chairman Compensation Agreement (the “Vice-Chairman Compensation Agreement” and collectively with the Chairman Compensation Agreement, the “Chairman Compensation Agreements”). The term of each of these Chairman Compensation Agreements became effective as of August 26, 2021 and replaces any prior arrangements or employment agreements between the Company and each of Mr. Maimon and Mr. De Prado (each such individual, an “Executive” and together, the “Executives”). Under the terms of the Chairman Compensation Agreements, the Executives agreed to be employed by the Company for an initial continuous twelve-month term beginning on the effective date of August 26, 2021, and ending on August 25, 2022. The initial term would be automatically extended for additional one (1) year periods on the same terms and conditions as set out in the Chairman Compensation Agreements; however, the Chairman Compensation Agreements, respectively, will not renew automatically if either the Company or the respective Executive provide a written notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term or any subsequently renewed one (1) year term. Pursuant to the terms of the Chairman Compensation Agreement, Mr. Maimon will receive an annual base salary of two hundred ninety-five thousand dollars ($295,000) per year, and pursuant to the terms of the Vice-Chairman Compensation Agreement, Mr. De Prado will receive an annual base salary of two hundred seventy-five thousand dollars ($275,000) per year, and each will be eligible for an annual incentive payment of up to one hundred percent (100%) of their respective base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s Board of Directors in consultation with each Executive, respectively. 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 the Executives’ entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the Board of Directors. Any such annual incentive shall be paid by the end of the second quarter following the calendar year to which each respective Executive’s performance relates. Pursuant to the terms of the Chairman Compensation Agreements, each Executive has the option to have any such earned annual incentive be paid in fully vested shares of the Company’s Common Stock, but must elect such option by the end of the first quarter following the relevant performance calendar year period. In the event of a change in control of the Company, as defined under the terms of the Chairman Compensation Agreements, that takes place (i) during the term of the Chairman Compensation Agreement or (ii) prior to the date which is twenty-four (24) months from the effective date of the Chairman Compensation Agreements, if the Executive’s employment otherwise terminates prior to such date (other than if the Executive’s employment was terminated for cause or the Executive resigned his employment without good reason, as such terms are defined under the Chairman Compensation Agreements), each respective Executive shall be entitled to a bonus payment equal to two and one-half percent (2.5%) of the cash consideration received by the shareholders of the Company in the change in control transaction. Under the Chairman Compensation Agreements, each Executive is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and non-disparagement, among others. The Chairman Compensation Agreements are each governed by the laws of the State of Florida. The Chairman Compensation Agreements may be terminated by the Company for cause or without cause, and by each respective Executive for good reason or without good reason, as such terms are defined under the Chairman Compensation Agreements. On August 19, 2022, the Company’s Board of Directors approved a motion to appoint Arik Maimon as Interim CEO (in addition to his current position as Chairman of the Board) and Michael De Prado as Interim President (in addition to his current position as Vice Chairman of the Board). Both Arik Maimon and Michael De Prado agreed to assume these positions with no additional compensation.
On August 21, 2023, the Company entered into an employment agreement with Arik Maimon pursuant to which Mr. Maimon agreed to serve as Executive Chairman and Chief Executive Officer of the Company (the “Maimon Employment Agreement”).
Additionally, on August 26, 2023, the Company entered into an employment agreement with Michael De Prado pursuant to which Mr. De Prado agreed to serve as Executive Vice Chairman and President of the Company (the “De Prado Employment Agreement”). the “Maimon Employment Agreement” and collectively with the De Prado Employment Agreement, the “2023 Compensation Agreements”). The term of each of these 2023 Compensation Agreements became effective as of August 21, 2023 and replaces any prior arrangements or employment agreements between the Company and each of Mr. Maimon and Mr. De Prado (each such individual, an “Executive” and together, the “Executives”). Under the terms of the 2023 Compensation Agreements, the Executives 2023 Compensation Agreements are for a term of five years, subject to the early termination provisions, commencing August 21, 2023 (the “Effective Date”). The 2023 Compensation Agreements are subject to early termination upon Executives’s death, or by the Company for Cause, adjudicated incompetency or adjudicated bankruptcy, the date upon which the Company give the Executives notice of termination on account of Disability, and by the Executives in the event of an Adverse Change in Executive’s Employment Circumstances.
40
Pursuant to the terms of the Maimon Employment Agreement, Mr. Maimon will receive an annual base salary of two hundred ninety-five thousand dollars ($295,000) per year, subject to increase by the Company’s by Board of Directors upon the recommendation of the Compensation Committee of the Company’s Board of Directors. Mr. Maimon is also entitled to receive as compensation for past services to and to ensure his future services to the Company, subject to shareholder approval, 131,866 shares of the Company’s common stock to increase his ownership interest in the Company to 10.0% calculated on a fully diluted basis, 50% of which shares are to be issued by the Company as soon as practicable after shareholder approval has been obtained, with the remaining 50% of the shares to be issued equally at the end of each of the three calendar years following the Effective Date. The Maimon Employment Agreement provides that if Mr. Maimon’s 10% fully diluted equity interest in the Company is reduced upon issuance by the Company of additional shares, options, or warrants of any kind or nature, the Company shall issue to Mr. Maimon additional shares in number sufficient to preserve and maintain his 10% fully diluted equity interest in the Company, with such shares to be issued under the same terms set forth above. Mr. Maimon is also entitled to a monthly automobile allowance. Mr. Maimon is eligible to participate in such benefit plans as are, or from time-to-time may be, provided by the Company for its senior executive officers.
Pursuant to the terms of the De Prado Employment Agreement Mr. De Prado will receive an annual base salary of two hundred eight-five thousand dollars ($285,000) per year, subject to increase by the Company’s by Board of Directors upon the recommendation of the Compensation Committee of the Company’s Board of Directors. Mr. De Prado is also entitled to receive as compensation for past services to and to ensure his future services to the Company, subject to shareholder approval, 117,214 shares of the Company’s common stock to increase his ownership interest in the Company to 7.0% calculated on a fully diluted basis, 50% of which shares are to be issued by the Company as soon as practicable after shareholder approval has been obtained, with the remaining 50% of the shares to be issued equally at the end of each of the three calendar years following the Effective Date. The De Prado Employment Agreement provides that if Mr. De Prado’s 7% fully diluted equity interest in the Company is reduced upon issuance by the Company of additional shares, options, or warrants of any kind or nature, the Company shall issue to Mr. De Prado additional shares in number sufficient to preserve and maintain his 7% fully diluted equity interest in the Company, with such shares to be issued under the same terms set forth above. Mr. De Prado is entitled to a monthly automobile allowance of $2,000. Mr. De Prado is also eligible to participate in such benefit plans as are, or from time-to-time may be, provided by the Company for its senior executive officers.
The Executives are eligible to receive a discretionary annual performance-based payment of up to 100% of his base salary, which performance-based payment shall be determined by the Compensation Committee of the Board of Directors based on the Company’s performance as compared to the goals established by the Compensation Committee and the Company’s management, including the Annual Budget (as defined in the Maimon Employment Agreement), in consultation with the Executives. At the discretion of the Compensation Committee, this review may be performed each fiscal quarter but not less than semi-annually, and the Performance-Based Bonus awarded, if any, may be paid accordingly. The Performance-Based Bonus shall be prorated for any partial fiscal year in which the Executive was employed by the Company. Executives shall not be entitled to receive any portion of the Annual Incentive Bonus for any year in which his employment is terminated for Cause. Pursuant to the terms of the 2023 Compensation Agreements, The Bonus shall be prorated, based on each fiscal quarter of employment, for any partial fiscal year.
Notwithstanding the limitation on the payment in cash of the Performance-Based Bonus, the Compensation Committee based upon certain criteria specified in the 2023 Compensation Agreements may at its discretion award the Executives stock or stock options as an additional Performance-Based Bonus in addition to the cash component but only an annual basis and only for fiscal years in which the Company’s financial results substantially exceed the Annual Budget.
Employment Agreement with Mr. Daniel, our former Chief Financial Officer
On November 28, 2018, the Company entered into an Employment Agreement with Mr. Daniel for an initial term of five years, which renewed automatically for successive one-year periods unless either party provided ninety days’ prior notice of termination.. Pursuant to the terms of the Employment Agreement, among other things:
| (1) | Mr. Daniel was entitled to receive a base salary of $162,500 per annum for the initial five year term. Furthermore, during the term of his Employment Mr. Daniel’s compensation would not be less than any other officer or employee of the Company or its subsidiary. |
| (2) | Mr. Daniel had the right, on the same basis as other senior executives of the Company, to participate in and to receive benefits under any of the Company’s employee benefit plans, as such plans may be modified from time to time. |
| (3) | Upon the up-listing of the Company’s shares of Common Stock to Nasdaq, Mr. Daniel was entitled to receive a $100,000 bonus. |
| (4) | Mr. Daniel agreed to a one-year non-competition agreement following the termination of his employment. |
In accordance with the terms of his Employment Agreement, the Company notified Ran Daniel, that the Employment Agreement would not be renewed. Mr. Daniel’s employment with the Company terminated on November 27, 2023, the end of the term of his Employment Agreement.
41
Engagement of Shlomo Zakai, our CFO
Shlomo Zakai has served as our Chief Financial Officer since October 2023. Mr. Zakai is entitled to $10,000 per month for his services. Mr. Zakai provides the Company with accounting, financial and general business services and advice on current standard practices and trends in his area of expertise.
Clawback Policy
Our Board of Directors adopted a clawback policy covering our executive officers. An executive officer is our chief executive officer, president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president in charge of a significant principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for us. As of the date of this annual report, our only executive officers are our Chairman of the Board and Chief Executive Officer, our Vice Chairman of the Board and President. and our Chief Financial Officer. The clawback policy relates to incentive-based compensation, which is any compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure. The clawback policy covers the recovery of incentive-based compensation from an executive officer only in the event that we are required to prepare an accounting restatement due to the material noncompliance of our financial reporting requirement under the United States securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Questions as to “materiality” will be made by the Compensation Committee in coordination with the Audit Committee.
The incentive-based compensation subject to recovery is the incentive-based compensation received during the three completed fiscal years immediately preceding the date that we are required to prepare an accounting restatement as described above, provided that the person served as an executive officer at any time during the performance period applicable to the incentive-based compensation in question provided that the clawback policy shall only apply if the incentive-based compensation is received while we have a class of securities listed on Nasdaq and on or after October 2, 2023. Each of Arik Maimon, our Chairman of the Board and Chief Executive Officer, and Michael De Prado, our Vice Chairman of the Board and President, have an employment agreement which provides for incentive-based compensation during the term of their employment agreements with the Company.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning the outstanding equity awards of each of the Named Executive Officers as of December 31, 2023:
| Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) (9) | Market Value of Shares or Units of Stock That Have Not Vested ($) (h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j) | |||||||||||||||||||||||||||
| Shlomo Zakai | - | - | - | - | - | - | - | - | $ | - | ||||||||||||||||||||||||||
| Arik Maimon | 15,385 | - | - | $ | 36.40 | 15,385 at November 2, 2031 | - | - | - | $ | - | |||||||||||||||||||||||||
| Michael De Prado | 11,538 | - | - | $ | 36.40 | 11,538 at November 2, 2031 | - | $ | - | |||||||||||||||||||||||||||
42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of March 29, 2024, certain information with respect to the beneficial ownership of shares of our common stock by: (i) each person known to us to be the beneficial owner of more than five percent (5%) of our outstanding shares of common stock, (ii) each director of our Company, (iii) each of our executive officers, and (iv) our directors and executive officers as a group. There were 2,730,058 shares of our common stock outstanding as of March 29, 2024.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security which such person has the right to acquire sole or shared voting or investment power within sixty (60) days through the conversion or exercise of any convertible security, warrant, option, or other right. More than one (1) person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within sixty (60) days, by the sum of the number of shares outstanding as of such date including the number of such shares which such person has the right to acquire. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.
Unless otherwise indicated, the address of each shareholder is c/o our Company at our principal office address, 235 Lincoln Rd., Suite 210, Miami Beach, FL 33139.
| Beneficial Owner | Number of Shares Beneficially Owned | Percent of Class | ||||||
| Arik Maimon (1) Chief Executive Officer and Chairman | 282,520 | (1) | 9.79 | % | ||||
| Michael De Prado (2) President and Vice Chairman | 183,498 | (2) | 6.43 | % | ||||
| Adiv Baruch (3) Director | 52,564 | (3) | 1.89 | % | ||||
| Lexi Terrero (4) Director | 47,692 | (4) | 1.72 | % | ||||
| Haim Yeffet (5) Director | 40,000 | (5) | 1.44 | % | ||||
| Shlomo Zakai (5) Chief Financial Officer | 40,000 | (5) | 1.44 | % | ||||
| All Directors and Officers as a Group (6) persons) | 646,274 | 20.29 | % | |||||
| 5% or More Shareholders | ||||||||
| Alize Irrevocable Trust | 195,420 | 7.16 | % | |||||
| Dinar Zuz LLC (6) | 207,924 | 7.62 | % | |||||
| Core Development Holdings Corporation (7) | 295,282 | 10.82 | % | |||||
| Armistice Capital Master Fund Ltd.(8) | 1,232,606 | (8) | 31.11 | %(8) | ||||
| (1) | Consists of (i) 127,072 shares, (ii) options to purchase 15,384 shares, exercisable until November 2, 2031 with an exercise price of $36.40 per share, and (iii) options to purchase 140,063 shares (of a total of 131,866 shares) exercisable within 60 days, exercisable until February 22, 2034 with an exercise price of $0.32 per share. |
| (2) | Consists of (i) 58,697 shares, (ii) options to purchase 11,538 shares, exercisable until November 2, 2031 with an exercise price of $36.40 per share, and (iii) options to purchase 113,263 shares (of a total of 117,214 shares), exercisable until February 22, 2034 with an exercise price of $0.32 per share. |
43
| (3) | Consists of (i) 4,872 shares, (ii) options to purchase 7,692 shares, exercisable until November 2, 2031 with an exercise price of $36.40 per share, and (iii) options to purchase 40,000 shares, exercisable until February 22, 2034 with an exercise price of $0.32 per share. |
| (4) | Consists of (i) options to purchase 7,692 shares, exercisable until November 2, 2031 with an exercise price of $36.40 per share, and (ii) options to purchase 40,000 shares, exercisable until February 22, 2034 with an exercise price of $0.32 per share. |
| (5) | Consists of options to purchase 40,000 shares, exercisable until February 22, 2034 with an exercise price of $0.32 per share. |
| (6) | Pursuant to a Schedule 13G filed by Dinar Zuz LLC (“Dinar”) with the SEC on March 5, 2020, Dinar is the beneficial owner of the shares reported therein, and Yochanon Bruk (also known as Jonathan Brook) is the sole manager of Dinar and exercises voting and investment power over the shares of Common Stock. As a result, Dinar and Yochanon Bruk may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act) of the shares reported therein. Dinar’s address is 1898 NW 74th Ave. Pembroke Pines, FL 33024. |
| (7) | Core Development Holdings Corporation’s address is 1001 NW 163rd Drive, Miami, Florida 33169. |
| (8) | Consists of 1,232,606 issuable upon exercise of the Inducement Warrant, all of which are directly held by Armistice Capital Master Fund Ltd. (the “Master Fund”), a Cayman Islands exempted company, and may be deemed to be indirectly beneficially owned by Armistice Capital, LLC (“Armistice”), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. Armistice and Steven Boyd disclaim beneficial ownership of the reported securities except to the extent of their respective pecuniary interest therein. The Inducement Warrant is subject to a 4.99% beneficial ownership limitation, which limitation prohibits the Master Fund from exercising any portion of the Inducement Warrant if, following such exercise, the Master Fund’s ownership of our shares of common stock would exceed the beneficial ownership limitation. The address of the Master Fund is c/o Armistice Capital, LLC, 510 Madison Avenue, Seventh Floor, New York, NY 10022. |
Changes in Control
There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except as set forth below, since January 1, 2023, there have been no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds $120,000, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest (other than compensation to our officers and directors in the ordinary course of business).
During the third and fourth quarters of 2023, we made wholesale telecommunication revenues of $2,176,000 pursuant to a Bilateral Wholesale Carrier Agreement with Next Communications Inc., a company controlled by Arik Maimon our Chairman of the Board and our CEO. We realized a gross profit of approximately $6,000 after payment of expenses related to this transaction. We believe that the terms of this transaction were as favorable to us as could have been obtained from an unaffiliated third party.
44
Related Person Transaction Approval Policy
While we have no written policy regarding approval of transactions between us and a related person, our Board, as matter of appropriate corporate governance, reviews and approves all such transactions, to the extent required by applicable rules and regulations. Generally, management would present to the Board for approval at the next regularly scheduled Board meeting any related person transactions proposed to be entered into by us. The Board may approve the transaction if it is deemed to be in the best interests of our shareholders and the Company.
All future transactions between us and our officers, directors or five percent shareholders, and respective affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of our independent directors who do not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Public Accounting Firm
Yarel + Partners, located in Tel Aviv, Israel, has served as the Company’s independent public accounting firm since 2023.
Audit and Accounting Fees
The following table sets forth the fees billed to our Company for professional services rendered by Yarel + Partners our independent registered public accounting firm, for fiscal years ended December 31, 2023 and 2022.
| Services | 2023 | 2022 | ||||||
| Audit fees | $ | 50,000 | $ | 55,000 | ||||
| Audit related fees | 45,000 | 30,000 | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total fees | $ | 95,000 | $ | 85,000 | ||||
Our audit committee reviewed or ratified the engagement of the Company’s principal accountant and the fees disclosed above.
Board of Directors’ Pre-Approval Policies
Our Board of Directors’ policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit related services, tax services, and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the board of directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.
Our Board of Directors reviewed our audited financial statements contained in our Annual Report on Form 10-K for the 2023 fiscal year. The Board of Directors also has been advised of the matters required to be discussed pursuant to PCAOB Rule 3526 (Communication with Audit Committees Concerning Independence), which includes, among other items, matters related to the conduct of the audit of our financial statements.
Our Board of Directors considered whether the provision of services other than audit services is compatible with maintaining auditor independence. Based on the review and discussions referred to above, the Board of Directors has determined that the audited financial statements be included in our Annual Report on Form 10-K for our 2023 fiscal year for filing with the SEC.
45
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Consolidated Financial Statements
46
CUENTAS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2023
CUENTAS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2023
TABLE OF CONTENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CUENTAS, INC.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cuentas, Inc. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of loss, comprehensive loss, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred net losses since its inception, and has not yet generated sufficient revenues to support its operations. As of December 31, 2023, there is an accumulated deficit of approximately $55 million and a negative working capital of approximately $3 million. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We determined that there are no critical audit matters.
/s/
Certified Public Accountants (Isr.)
April 15, 2024
We have served as the Company’s auditor since 2023
F-2
CUENTAS, INC.
CONSOLIDATED BALANCE SHEETS
(USD in thousands except share and per share data)
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts Receivables – related parties | ||||||||
| Accounts Receivables – others | ||||||||
| Related parties receivables | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Investment in unconsolidated entities | ||||||||
| Intangible assets | ||||||||
| Total Non-Current Assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Trade payable | $ | $ | ||||||
| Other accounts liabilities | ||||||||
| Warrants liability, net | - | |||||||
| Deferred revenue | ||||||||
| Notes and Loan payable | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Other long-term loans | ||||||||
| Total Non-Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Deficit | ||||||||
| Common stock, | ||||||||
| Additional paid-in capital | ||||||||
| Treasury Stock | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-3
CUENTAS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(USD in thousands except share and per share data)
| Year ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues from related parties | $ | $ | ||||||
| Other revenues | ||||||||
| Total revenues | ||||||||
| Cost of revenues | ( | ) | ( | ) | ||||
| Gross (loss) profit | ( | ) | ||||||
| Operating expenses | ||||||||
| Amortization of Intangible assets, net | ( | ) | ( | ) | ||||
| Impairment of Intangible Assets | ( | ) | ||||||
| Selling, General and administrative expenses | ( | ) | ( | ) | ||||
| Total Operating expenses | ( | ) | ( | ) | ||||
| Operating loss | ( | ) | ( | ) | ||||
| Other expenses | ||||||||
| Other expenses, net | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Gain from Change in fair value of derivative warrants liability, net | ||||||||
| Total other income (expenses) | ( | ) | ||||||
| Net loss before equity losses | ( | ) | ( | ) | ||||
| Equity losses in unconsolidated entities | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of the consolidated financial statements.
F-4
CUENTAS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(USD in thousands, except share and per share data)
| Number of Shares (**) |
Amount | Additional paid-in capital |
Treasury stock |
Accumulated deficit |
Total stockholders’ deficit |
|||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Issuance of Shares of Common Stock for cash, net of issuance expenses (***) |
||||||||||||||||||||||||
| Share based Compensation | - | |||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||
| Treasury Stock | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Net loss for the year ended December 31, 2022 | - | ( |
) | ( |
) | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2022 | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Issuance of Shares of Common Stock for cash, net of issuance expenses (****) |
||||||||||||||||||||||||
| Share based Compensation | ||||||||||||||||||||||||
| Issuance of Shares of Common Stock due to acquisition of an asset | ||||||||||||||||||||||||
| Treasury stock | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Reverse split | ||||||||||||||||||||||||
| Net loss for the year ended December 31, 2023 | - | ( |
) | ( |
) | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2023 | $ | |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||
| (*) |
| (**) |
| (***) |
| (****) |
The accompanying notes are an integral part of the consolidated financial statements.
F-5
CUENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(USD in thousands)
| Year ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments required to reconcile net loss | ||||||||
| to net cash used in operating activities: | ||||||||
| Stock based compensation and shares issued for services | ||||||||
| Equity losses in non-consolidated entity | ||||||||
| Interest | ( | ) | ||||||
| Loan to Cuentas SDI LLC that was not repaid | ||||||||
| Credit losses | ||||||||
| Change in fair value of derivative warrants liability | ( | ) | ( | ) | ||||
| Issuance expenses and a day-one loss on derivative warrants liability | ||||||||
| Impairment of investments in unconsolidated entities | ||||||||
| Depreciation expense | ||||||||
| Impairment of intangible assets | ||||||||
| Amortization of intangible assets | ||||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| (Increase) in accounts receivable – related parties | ( | ) | ( | ) | ||||
| Decrease in accounts receivable – other | ||||||||
| (Increase) decrease in other current assets | ( | ) | ||||||
| (Increase) in related parties, net | ( | ) | ||||||
| Increase in accounts payable | ||||||||
| Increase (decrease) in other accounts liabilities | ( | ) | ||||||
| Increase (decrease) in deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in unconsolidated entities | ( | ) | ( | ) | ||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Purchase of intangible asset | ( | ) | ||||||
| Proceeds from sale of intangible asset | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCE ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock and warrants, net of issuance expense | ||||||||
| Treasury stock | ( | ) | ( | ) | ||||
| Net cash provided by finance activities | ||||||||
| (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ( | ) | ||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-6
CUENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(USD in thousands)
| Non-cash investing and financing activities: | ||||||||
| Investment in unconsolidated entity against accounts receivables | $ | $ | ||||||
| Issuance of Shares of common stock for investment in unconsolidated entity | $ | $ | ||||||
| Warrants liability converted into shares of common stock | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ |
The accompanying notes are an integral part of the consolidated financial statements.
F-7
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Cuentas, Inc. (the “Company”)
together with its subsidiaries, is mainly focused on financial technology (“FINTECH”) services, delivering mobile financial
services, prepaid debit and digital content services to unbanked, underbanked and underserved communities. During 2023-Q1, the Company
initiated its first investment into the Real Estate market and, made its second, more significant investment in Real Estate in the second
quarter of 2023. The Company derived its revenue from wholesale telecommunication services, GPR “Debit” Card fees and the
sales of prepaid products and services including third party digital content, gift cards, remittances, mobile phone topups and other digital
services. 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 prepaid digital
content and gift cards targeted towards the Latin American market. Cuentas is able to purchase InComm’s prepaid digital content
and gift cards at a discount and resell these same products in real time through its mobile app and through the Cuentas SDI network of
over
The Company was incorporated under the
laws of the State of Florida on September 21, 2005. Its subsidiary, Meimoun and Mammon, LLC (
NASDAQ
On
August 18, 2023, the Company received a deficiency letter from Nasdaq Regulation stating that based upon its Quarterly Report on Form
10-Q for the period ended June 30, 2023 which reported shareholders’ equity of $
On
October 3 2023, the Company received a Staff Determination Letter from Nasdaq Regulation stating that due to the Company’s failure
by October 2, 2023, to submit a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1), the $
On December 18, 2023, the Company received written notice from the Panel notifying the Company that the panel has determined to delist the Company’s shares and warrants from Nasdaq and that trading of its common stock and warrants will be suspended as of the opening of business on December 20, 2023. Company securities began trading on the Pink Current Information tier of the over-the-counter market operated by OTC Markets Group effective with the open of business on December 20, 2023, under its trading symbol: CUEN.
REVERSE SPLIT
On
March 24, 2023, the Company completed a reverse stock split of its common stock.
F-8
CUENTAS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)
GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As of December 31, 2023, the Company had $
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
| A. | Use of Estimates |
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“‘US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. As applicable to the consolidated financial statements, the most significant estimates and assumptions relate to allowances for impairment of intangible assets, fair value of derivative warrants and fair value of stock-based compensation.
| B. | Principles of consolidation |
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
| C. | Functional currency |
The functional currency of the company and its subsidiaries is the U.S dollar.
| D. | Cash and cash equivalents |
The Company considers all short-term investments, which are highly liquid investments with original maturities of three months or less at the date of purchase, to be cash equivalents.
| E. | Property, plant and equipment, net |
| 1. | Property and equipment are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Maintenance and repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are capitalized. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations. |
F-9
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
| 2. |
| % | ||||
| Computers |
| F. | Variable Interest Entities |
The Company account for variable interest entities in accordance with ASC Topic 810, Consolidation (“ASC 810”). Under ASC 810, a variable interest entity (“VIE”) is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE. In accordance with ASC 810, the Company perform ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.
| G. | Impairment of Long-Lived Assets |
The
Company’s long-lived assets, such as property, plant and equipment and identifiable intangible assets, are reviewed for potential
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment
indicators which could trigger an impairment may include, among others, any significant changes in the manner of our use of the assets
or the strategy of our overall business, certain reorganization initiatives, significant negative industry, or economic trends or when
we conclude that it is more likely than not that an asset will be disposed of or sold. Long-lived assets are reviewed for impairment
in accordance with ASC No. 360, “Property, Plant and Equipment,” whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by such assets. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. This measurement includes significant estimates and assumptions inherent in the estimate of the fair value
of identifiable intangible assets. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as
the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value annually or when
triggering events are present. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets
can negatively impact on our ability to recover the carrying value and can result in an impairment charge. The Company did not record
impairment losses during the year ended December 31, 2023. The Company recorded impairment losses in the amount of $
| H. | Investments in equity securities |
The Company accounts for investments for which it does not have a controlling interest in accordance with ASC 323, Investments – Equity Method and Joint Ventures. The Company recognizes its pro-rata share of income and losses in the investment in “Loss from equity method investment” on the consolidated statement of operations and comprehensive loss, with a corresponding change to the investment in equity method investment in the consolidated balance sheet until such investment is reduced to zero.
The Company accounts for its investments
that represent less than
F-10
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
| I. | Deferred Revenue |
The Company records deferred revenue for any upfront payments received in advance of the Company’s performance obligations being satisfied. These contract liabilities consist principally of unearned new minutes fees. Changes in the deferred revenue balance are driven primarily by the number of new minutes fees recognized during the period, and the degree to which these reductions to the deferred revenue balance are offset by the deferral of new minutes fees associated with minutes sold during the period.
| J. | Revenue Recognition |
The Company follows paragraph 605-10-S99 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable and (iv) collectability is reasonably assured. The Company primarily generates revenues through the brokering of sales of minutes from one telecommunications carrier to another and to a lesser extent the sales of prepaid calling minutes to consumers through its Tel3 division. While the Company collects payment for such minutes in advance, revenue is recognized upon delivery to and consumption of minutes by the consumer. Bonus minutes granted by the company to its customers are forfeited after twelve consecutive months of non-use at which point the Company recognizes revenue from the forfeiture of prepaid minutes.
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC 606), when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expect to receive in exchange for those goods or services. To determine whether arrangements are within the scope of ASC 606, the Company perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation. The Company apply the five-step model to contracts when it is probable that the Company will collect the consideration the Company are entitled to in exchange for the goods or services the Company transfer to the customer. At contract inception, once the contract is determined to be within the scope of this guidance, the Company assessed the goods or services promised within each contract and identify, as a performance obligation, and assess whether each promised good or service is distinct. The Company then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
| K. | Business Segments |
The Company operates in three-business segments: (i) telecommunications (ii) wholesale telecommunication services (iii) digital products and general purpose reloadable cards.
| L. | Concentrations of credit risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents as well as certain other current assets that do not amount to a significant amount. Cash and cash equivalents, which are primarily held in Dollars, are deposited with major banks in the United States. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company does not have any significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
F-11
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
| M. | Commitments and Contingencies |
The Company records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
| N. | Income Taxes |
Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Use of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code Section 382 if a change of ownership occurs.
| O. | Net Loss Per Basic and Diluted Common Share |
Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity.
At
December 31, 2023, potentially dilutive securities consisted of
At
December 31, 2022, potentially dilutive securities consisted of
| P. | Stock-Based Compensation |
The Company applies ASC Topic 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors (including employee stock options under the Company’s stock plans) based on estimated fair values.
ASC Topic 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statement of operations.
The Company recognizes compensation expenses for the value of non-employee awards based on the straight-line method over the requisite service period of each award The Company accounts for forfeitures as they occur.
The Company estimates the fair value of stock options granted as equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, including the expected volatility, the expected life of the award, the risk-free interest rate and the expected dividend yield. Changes in the determination of each of the inputs can affect the fair value of the options granted and the results of operations of the Company.
F-12
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
| Q. | Fair Value Measurements |
Fair value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.
Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of non-performance, which includes, among other things, the Company’s credit risk.
Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.
Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: 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 comprehensive loss.
| R. | Allocation of proceeds and related issuance costs |
When multiple instruments are issued in a single transaction (package issuance), the total net proceeds from the transaction are allocated among the individual freestanding instruments identified. The allocation occurs after identifying all the freestanding instruments and the subsequent measurement basis for those instruments.
Financial instruments that are required to be subsequently measured at fair value (i.e. derivative warrants liability and derivative liability related to bifurcated embedded conversion feature) are measured at fair value and the remaining consideration is allocated to other financial instruments that are not required to be subsequently measured at fair value (i.e. certain convertible bridge loans, warrants eligible for equity classification) and common stock, based on the relative fair value basis for such instruments.
The allocation of issuance costs to freestanding instruments was based on an approach that is consistent with the allocation of the proceeds, as described above.
Issuance costs allocated to the derivative warrant liability or bifurcated embedded conversion feature were immediately expensed, as discussed above. Issuance costs allocated to warrants stock classified as equity component were recorded as a reduction of additional paid-in capital. Issuance costs allocated to convertible bridge loan (or to the host component of convertible bridge loan if bifurcation was applied) are recorded as a discount of the host component and accreted over the contractual term of loans up to face value of such loans using the effective interest method.
F-13
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
| S. | Derivative Warrants Liability |
The Company accounts for certain warrants to purchase Ordinary Shares in connection with certain transactions, held by investors, that include a fundamental transaction feature pursuant to which such warrants could be required to be settled in cash upon certain events, as current liability according to the provisions of ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity” (“ASC 815-40”). The Company accounted for these warrants as a financial liability measured upon initial recognition and on subsequent periods at fair value by using the Black-Scholes Option Pricing Model.
Certain warrants that were granted by the Company in connection with certain transactions (see also Note 8) entitle the investors to exercise the warrants for a variable number of shares and/or for a variable exercise price and thus the fixed-for-fixed criteria is not met. Accordingly, the warrants were classified as a non-current liability according to the provisions of ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity” (“ASC 815-40”). The Company accounted for these warrants as a financial derivative liability measured upon initial recognition and on subsequent periods at fair value by using the Black-Scholes Option Pricing Model.
The fair value of the aforesaid warrants derivative liability is estimated using the Black-Scholes Model which requires inputs such as the expected term of the warrants, share price volatility and risk-free interest rate. These assumptions are reviewed on a regular basis and changes in the estimated fair value of the outstanding warrants are recognized each reporting period as part of in the “Financing (income) expenses, net” line in operations in the accompanying consolidated statement of net loss, until such warrants are exercised or expired. When applicable, direct issuance expenses that were allocated to the above warrants were expensed as incurred.
| T. | Recently Adopted Accounting Standards |
From time to time, the Financial Accounting Standards Board (the “FASB”) or other standard-setting bodies issue accounting standards that are adopted by the Company as of the specified effective date.
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments, which replaces the “incurred loss” credit losses framework with a new accounting standard that requires management’s measurement of the allowance for credit losses to be based on a broader range of reasonable and supportable information for lifetime credit loss estimates. This guidance is effective for fiscal years beginning after December 15, 2022, and the adoption of this standard in 2023 did not have a material impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40); Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which addresses issues identified as a result of the complexities associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. This update addresses, among other things, the number of accounting models for convertible debt instruments and convertible preferred stock, targeted improvements to the disclosures for convertible instruments and earnings-per-share (“EPS”) guidance and amendments to the guidance for the derivatives scope exception for contracts in an entity’s own equity, as well as the related EPS guidance. This update applies to all entities that issue convertible instruments and/or contracts in an entity’s own equity. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The adoption of ASU 2020-06 on January 1, 2022 did not have a material impact on the Company’s consolidated financial statements and disclosures.
F-14
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40); Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the FASB Emerging Issues Task Force (“ASU 2021-04”), which aims to clarify and reduce diversity in issuer's accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. This update applies to all entities that issue freestanding written call options that are classified in equity. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on the Company’s consolidated financial statements and disclosures.
| U. | Recently Issued Accounting Standards Not Yet Effective |
Improvements to Reportable Segment disclosures (Topic 280):
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses and segment-related data. For public companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. The Company does not expect this ASU to have a material effect on its consolidated financial statements.
Improvements to Income Tax Disclosure (Topic 740):
In December 2023, the FASB issued ASU No. 2023-09, Income Tax (Topic 740) - Improvements to Income Tax Disclosures which requires companies to break out their income tax expense, income tax rate reconciliation and income tax payments made in more detail. For public companies, the requirements will become effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect this ASU to have a material effect on its consolidated financial statements.
F-15
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 3 – INVESTMENTS IN UNCONSOLIDATED ENTITIES
| Holding | As of December 31, | As of December 31, | ||||||||||
| % | 2023 | 2022 | ||||||||||
| Lakewood (a) | % | $ | $ | |||||||||
| Brooksville development (b) | % | |||||||||||
| Cuentas Max LLC (c) | % | |||||||||||
| Cuentas SDI (d) | % | |||||||||||
| $ | $ | |||||||||||
| (a) | On February 3, 2023, the Company entered into a Membership Interest Purchase Agreement (MIPA) with Core
Development Holdings Corporation (“Core”). Core holds approximately |
The company used the measurement alternative which provides an accounting framework for valuing an equity security investment in the absence of a readily determinable fair value. Accordingly, the investment was accounted for at a cost basis. The Company performed an impairment test in accordance with its internal procedures, no indicators triggered impairment.
| (b) | On April 13, 2023, the Company signed an Operating Agreement to be a majority member in Brooksville Development Partners, LLC (“Brooksville”) with 2 minority members for the purpose of acquiring land for the development of a residential apartment community consisting of approximately 360 apartments. All real and personal property owned by Brooksville shall be owned by Brooksville as an entity, and neither the Members nor the Manager will have any ownership interest in such property. One of the minority members will be the manager of the project. |
On
April 28, 2023, the Company and minority partners in Brooksville closed on the transaction to acquire a
See note 14, Subsequent Events, for additional information.
F-16
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 3 – INVESTMENTS IN UNCONSOLIDATED ENTITIES (continued)
| (c) |
| (d) | On May 27, 2022, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with SDI Black 011, LLC (“SDI Black”), the holders of all the membership interests of SDI Black and Cuentas SDI, LLC, a Florida limited liability (“Cuentas SDI”), for the acquisition of |
On
June 15, 2023, the OLB Group, Inc. entered into a Membership Interest Purchase Agreement dated as of June 15, 2023 with SDI Black 001,
LLC whereby it acquired
NOTE 4 – INTANGIBLE ASSETS
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Asset | Carrying Amount | Accumulated Amortization | Net
Book Value | Carrying Amount | Accumulated Amortization | Net
Book Value | ||||||||||||||||||
| CIMA perpetual software license | $ | $ | $ | $ | ||||||||||||||||||||
| Domain | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
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. Under the License Agreement Cima received a one-time licensing fee in the amount of $
F-17
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 4 – INTANGIBLE ASSETS (continued)
On March 5, 2021, the Company purchased the domain www.cuentas.com
in consideration of $
On
May 18, 2023, the Company purchased the domain www.roofs.com in consideration of $
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment.
| Asset | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| Total | ||||
Amortization expense was $
NOTE 5 – OTHER ACCOUNT LIABILITIES
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Accrued expenses and other liabilities | $ | $ | ||||||
| Accrued salaries and directors’ fee | ||||||||
| Accrued bonuses | ||||||||
| $ | $ | |||||||
NOTE 6 – WARRANTS LIABILITY, NET
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Outstanding at January 1 | $ | $ | ||||||
| Issued to investors | ||||||||
| Issued to placement agents | ||||||||
| Exercised | ( | ) | ||||||
| Changes in fair value | ( | ) | ||||||
| Outstanding at December 31 | $ | $ | ||||||
For additional information see Note 9 – Stockholders’ Equity.
F-18
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 7 – RELATED PARTY TRANSACTIONS
Employment agreements
On August 26, 2021, the Company and Arik Maimon entered into a Founder/Executive
Chairman Compensation Agreement. Additionally, on August 26, 2021, the Company and Michael De Prado entered into a Founder/Executive Vice-Chairman
Compensation Agreement (the “Compensation Agreements”). The term of each of these Compensation Agreements became effective
as of August 26, 2021 and replaced any prior arrangements or employment agreements between the Company and each of Mr. Maimon and Mr.
De Prado. Under the terms of the Compensation Agreements, the Executives agreed to be employed by the Company for an initial continuous
twelve-month term beginning on the effective date of August 26, 2021, and ending on August 25, 2022. The initial term would be automatically
extended for additional one (1) year periods on the same terms and conditions as set out in the Compensation Agreements; however, the
Compensation Agreements, respectively, will not renew automatically if either the Company or the respective Executive provide a written
notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term
or any subsequently renewed one (1) year term. Pursuant to the terms of his Compensation Agreement, Mr. Maimon will receive an annual
base salary of two hundred ninety-five thousand dollars ($
On August 21, 2023, the Company entered into an employment agreement with Arik Maimon pursuant to which Mr. Maimon agreed to serve as Executive Chairman and Chief Executive Officer of the Company (the “Maimon Employment Agreement”).
The Maimon Employment Agreement is for a term of
Pursuant
to the terms of the Maimon Employment Agreement, Mr. Maimon will receive an annual base salary of $
Mr.
Maimon is eligible to receive a discretionary annual performance-based payment of up to
F-19
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 7 – RELATED PARTY TRANSACTIONS (continued)
Notwithstanding the limitation on the payment in cash of the Performance-Based Bonus, the Compensation Committee based upon certain criteria specified in the Maimon Employment Agreement may at its discretion award Mr. Maimon stock or stock options as an additional Performance-Based Bonus in addition to the cash component but only an annual basis and only for fiscal years in which the Company’s financial results substantially exceed the Annual Budget.
Mr. Maimon is also entitled to receive as compensation for past services
and to ensure his future services to the Company, subject to shareholder approval,
Mr. Maimon is also entitled to a monthly automobile allowance. Mr. Maimon is eligible to participate in such benefit plans as are, or from time-to-time may be, provided by the Company for its senior executive officers.
The
Company will pay or reimburse Mr. Maimon for all reasonable business expenses incurred or paid by him in the performance of his duties
and responsibilities for the Company, provided that any expense in excess of $
Mr. Maimon is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and ownership of works (e.g., inventions and discoveries created or developed during the course of Mr. Maimon’s employment are owned by the Company).
During the year ended December 31, 2023, the Company paid Mr. Maimon
an annual performance bonus for the year 2022 of $
In addition, on August 21, 2023, the Company entered into an employment agreement with Michael De Prado pursuant to which Mr. De Prado agreed to serve as Executive Vice Chairman and President of the Company (the “De Prado Employment Agreement”). The De Prado Employment Agreement is for a term of five years, subject to the early termination provisions of the De Prado Employment Agreement, commencing August 21, 2023 (the “Effective Date”) and replaces any prior arrangements or employment agreements between the Company and Mr. De Prado.
The De
Prado Employment Agreement is subject to early termination upon Mr. De Prado’s death, or by the Company for Cause, Mr. De Prado’s
adjudicated incompetency or adjudicated bankruptcy, the date upon which the Company gives Mr. De Prado notice of termination on account
of Disability, and by Mr. De Prado in the event of an Adverse Change in Executive’s Employment Circumstances. Pursuant to the terms
of the De Prado Employment Agreement, Mr. De Prado will receive an annual base salary of $
Mr.
De Prado is eligible to receive a discretionary annual performance-based payment of up to
F-20
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 7 – RELATED PARTY TRANSACTIONS (continued)
Mr. De Prado is also entitled to receive as compensation for past services
to and to ensure his future services to the Company, subject to shareholder approval,
Mr.
De Prado is entitled to a monthly automobile allowance of $
The Company will pay or reimburse Mr. De Prado
for all reasonable business expenses incurred or paid by him in the performance of his duties and responsibilities for the Company, provided
that any expense in excess of $
Mr. De Prado is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and ownership of works (e.g., inventions and discoveries created or developed during the course of Mr. De Prado’s employment are owned by the Company).
During the year ended December 31, 2023, the Company paid Mr. De Prado
an annual performance bonus for the year 2022 of $
CIMA License Agreement:
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 $
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, $
During the year ended December 31, 2023 the Company
paid CIMA a total of $
F-21
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 7 – RELATED PARTY TRANSACTIONS (continued)
| A. |
Year ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| Sales: | ||||||||
| Sales to SDI Cuentas LLC | $ | $ | ||||||
| Sales to Next Communications INC (a company controlled by Arik Maimon, Company's Chairman of the Board and CEO) (a) | ||||||||
| Total sales to related parties | $ | $ | ||||||
| Consulting fees to Angelo De Prado (b) | $ | $ | ||||||
| Consulting fees to Sima Maimon Bakhar (c) | ||||||||
| Doubtful accounts – Cuentas SDI LLC | - | |||||||
| Cima Telecom Inc. (d) | ||||||||
| Total transactions with related parties | $ | $ | ||||||
| B. |
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Arik Maimon (Chairman of the Board and the CEO) | $ | $ | ||||||
| Michael De Prado (Vice Chairman of the Board and President) | ||||||||
| Current assets - Related parties | ||||||||
| Next Communications INC (a company controlled by Arik Maimon Company's Chairman of the Board and CEO) | ||||||||
| SDI Cuentas LLC. | ||||||||
| Current assets – Accounts receivables | ||||||||
| Total Due from related parties | $ | $ | ||||||
| (a) | ||
| (b) | ||
| (c) | ||
| (d) |
F-22
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 8 – STOCK OPTIONS
On
June 17, 2021 the Board of Directors of the Company approved the Cuentas Inc. 2021 Share Incentive Plan (the “2021 Plan”).
which was approved by the shareholders during the Annual Shareholders Meeting held on December 15, 2021. The maximum number of shares
of stock reserved and available for issuance under the 2021 Plan is
On November 17, 2023, the Board
of Directors of the Company approved the 2023 Share Incentive Plan (the
“2023 Plan”), which was approved by the shareholders during
the Annual Shareholders Meeting held on December 20, 2023. The maximum number of shares of stock reserved and available for issuance under
the 2023 Plan is
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ( | ) | ||||||
| Expired | ||||||||
| Outstanding at January 1, 2023 | ||||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding at December 31, 2023 | ||||||||
| Number of options exercisable at December 31, 2023 | ||||||||
On December 30, 2022, the Company issued
| Common stock price | ||||
| Dividend yield | % | |||
| Risk-free interest rate | % | |||
| Expected term (years) | ||||
| Expected volatility | % |
On August 19, 2022, the Board of Directors approved
the immediate acceleration of the vesting of
On May 17, 2022, the Company issued
| Common stock price | ||||
| Dividend yield | % | |||
| Risk-free interest rate | % | |||
| Expected term (years) | ||||
| Expected volatility | % |
F-23
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 8 – STOCK OPTIONS (continued)
On February 1, 2022, the Company issued
| Common stock price | ||||
| Dividend yield | % | |||
| Risk-free interest rate | % | |||
| Expected term (years) | ||||
| Expected volatility | % |
| Exercise price | Stock options outstanding | Weighted average remaining contractual life – years | Stock options exercisable | |||||||||
| As of December 31, 2023 | ||||||||||||
| Exercise price | Stock options outstanding | Weighted average remaining contractual life – years | Stock options vested | |||||||||
| As of December 31, 2022 | ||||||||||||
The aggregate intrinsic value of the
awards outstanding as of December 31, 2023 and 2022 is $
Expenses incurred in respect of stock
options for employees and directors, for the year ended December 31, 2023 and 2022 were $
As of December 31, 2023, there are
F-24
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 9 – STOCKHOLDERS’ EQUITY
On April 6, 2022, the Company issued
On August 4, 2022, the Company, entered into a
Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Purchaser”) pursuant
to which the Purchaser agreed to purchase, and the Company agreed to issue and sell to the Purchaser in a private placement, an aggregate
of
On March 7, 2023 the Company issued
On March 16, 2023, the
Company issued
On March 27, 2023, the
Company issued
SECURITIES OFFERING
On February 6, 2023, the Company entered into
a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”) for
the purpose of raising approximately $
F-25
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
As compensation for such placement agent services,
the Company agreed to pay Wainwright an aggregate cash fee equal to
The Purchase Warrants and the PA Warrant Shares were classified as financial liability because of the repurchase provisions in such warrants that permit the holders of such warrants, in the event of a fundamental transaction, to receive a cash consideration that is not the same as the consideration payable to the common stockholders (see also Note 2R). The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, expected stock price volatility, expected term of the warrants and other assumptions. Expected volatility was calculated based upon historical volatility of the Company. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on historical dividend payments, which have been zero to date. The expected term of the warrants is based on the time to expiration of the warrants from the measurement date.
| February 6, 2023 | December 31, 2023 | |||||||
| Share price (U.S. dollars) | $ | $ | ||||||
| Exercise price (U.S. dollars) | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | ||||||||
| Expected term (years) | ||||||||
| Fair value | $ | $ | ||||||
On August 21, 2023, the Company entered into a
common stock warrant exercise inducement offer letter (the “Inducement Letter”) with a certain holder (the “Holder”)
of existing warrants to purchase shares of the Company’s common stock at an exercise price of $
F-26
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
The Inducement Warrant and the PA Warrant Shares were classified as financial liability because of the repurchase provisions in such warrants that permit the holders of such warrants, in the event of a fundamental transaction, to receive a cash consideration that is not the same as the consideration payable to the common stockholders (see also Note 2R). The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, expected stock price volatility, expected term of the warrants and other assumptions. Expected volatility was calculated based upon historical volatility of the Company. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on historical dividend payments, which have been zero to date. The expected term of the warrants is based on the time to expiration of the warrants from the measurement date.
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities issued in August 2023:
| August 21, 2023 | December 31, 2023 | |||||||
| Share price (U.S. dollars) | $ | $ | ||||||
| Exercise price (U.S. dollars) | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | ||||||||
| Expected term (years) | ||||||||
| Fair value | $ | $ | ||||||
NOTE 10 – 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 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 the Company. The arbitration demand originated from another demand for arbitration that Secure IP
received from VoIP Capital International (“VoIP”) in March 2019, demanding $
F-27
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 10 – COMMITMENTS AND CONTINGENCIES (continued)
On October 4, 2022, Crosshair Media Placement,
LLC, a Kentucky based marketing company, filed and served a complaint on Cuentas for breach of contract alleging breach of contract damages
of $
On February 8, 2023, a former employee of the
Company, filed a complaint for breach of employment agreement alleging the Company failed to pay her certain compensation she alleges
she was entitled to upon her resignation.. The Company and the employee are discussing a settlement agreement and estimates that the maximum
amount the Company will be required to pay will not exceed $
The Company executed an annual lease agreement
for office space. The lease requires monthly rental payments of $
On July 14, 2023, the Company entered into an
agreement with OLB and Cuentas-SDI (the “OLB Agreement”) in which OLB agreed to cause Cuentas-SDI to enter into an agreement
with the Company pursuant to which Cuentas-SDI would agree to pay the Company $
NOTE 11 – SEGMENTS OF OPERATIONS
The Company reports 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 business primarily on a product basis. The accounting policies of the various segments are the same as those described in Note 2, “Summary of Significant Accounting Policies.” The Company evaluates the performance of its reportable operating segments based on net sales and gross profit.
| A. |
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Telecommunications | $ | $ | ||||||
| Wholesale telecommunication services | ||||||||
| Digital products and General Purpose Reloadable Cards | ||||||||
| $ | $ | |||||||
| B. |
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Telecommunications | $ | ( | ) | $ | ||||
| Wholesale telecommunication services (*) | ||||||||
| Digital products and General Purpose Reloadable Cards | ( | ) | ( | ) | ||||
| $ | ( | ) | $ | |||||
| (*) |
F-28
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 11 – SEGMENTS OF OPERATIONS (continued)
| C. |
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Telecommunications | $ | $ | ||||||
| Wholesale telecommunication services | ||||||||
| Digital products and General Purpose Reloadable Cards | ||||||||
| $ | $ | |||||||
For the year ended December 31, 2023
and December 31, 2022, the Company’s sales to Next Communications INC were approximately
NOTE 12 – INCOME TAX
Internal Revenue Code Section 382 (“IRC
382”) potentially limits the utilization of NOLs and tax credits when there is a greater than
We recognized income tax benefits of $
The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended December 31, 2023 or December 31, 2022 applicable under FASB ASC Topic 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company remain open.
F-29
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 12 – INCOME TAX (continued)
| A. |
| Year ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| US Dollars | ||||||||
| Pretax loss | $ | ( | ) | $ | ( | ) | ||
| Federal and State statutory rate | % | % | ||||||
| Income tax computed at the ordinary tax rate | ||||||||
| Stock-based compensation | ( | ) | ||||||
| Non-deductible expenses | - | |||||||
| Other permanent differences | ( | ) | ||||||
| Losses and timing differences in respect of which no deferred taxes were generated | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| B. |
| Year ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| Composition of deferred tax assets: | US Dollars | |||||||
| Non capital loss carry forwards | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| C. |
| US Dollars | ||||
| Valuation allowance, December 31, 2022 | $ | |||
| Increase | ||||
| Valuation allowance, December 31, 2023 | $ | |||
The net federal operating loss carry forward will begin expire in 2039. This carry forward may be limited upon the consummation of a business combination under IRC Section 382.
F-30
CUENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands)
NOTE 13 – LOSS PER SHARE
Basic loss per share is computed by
dividing net loss by the weighted average number of shares outstanding during the year.
| Year ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| Number of shares | ||||||||
| Weighted average number of shares of common stock outstanding attributable to shareholders | ||||||||
| Total number of shares of common stock related to outstanding options and warrants, excluded from the calculations of diluted loss per share | ||||||||
NOTE 14 – SUBSEQUENT EVENTS
On March 13, 2024, the Company through its
The property was originally purchased on April 28, 2023 for $
F-31
(b) Exhibits
47
| * | Form S-3 (Registration No. 333-275724). |
ITEM 16. FORM 10-K SUMMARY
Not applicable.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Cuentas, Inc. | ||
| Date: April 15, 2024 | ||
| By: | /s/ Arik Maimon | |
| Arik Maimon, | ||
| Chief Executive Officer and Chairman of the Board of Directors | ||
| (principal executive officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Arik Maimon | Chief Executive Office and | April 15, 2024 | ||
| Arik Maimon | Chairman of the Board of Directors |
|||
|
||||
| /s/ Shlomo Zakai | Chief Financial Officer |
April 15, 2024 | ||
| Shlomo Zakai | ||||
| /s/ Michael De Prado | Vice Chairman and Director | April 15, 2024 | ||
| Michael De Prado | ||||
| /s/ Adiv Baruch | Director | April 15, 2024 | ||
| Adiv Baruch | ||||
| /s/ Lexi Terrero | Director | April 15, 2024 | ||
| Lexi Terrero | ||||
| /s/ Haim Yeffet | Director | April 15, 2024 | ||
| Haim Yeffet |
49
Exhibit 4.9
DESCRIPTION OF THE
REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
The following is a summary of all material characteristics of the capital stock of Cuentas Inc., a Florida corporation (“Cuentas,” the “Company,” “we,” “us,” or “our”), as set forth in our Amended and Restated Articles of Incorporation, as amended (our “Articles of Incorporation”) and our Amended and Restated By-laws, (our “Bylaws”), and as registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The summary does not purport to be complete and is qualified in its entirety by reference to our Articles of Incorporation and our Bylaws, each of which are incorporated by reference as exhibits to the Annual Report on Form 10-K of which this Exhibit 4.2 is a part and to the provisions of the Florida Business Corporation Act (the “FBCA”). Refer to complete copies of our Articles of Incorporation and our Bylaws, and the applicable provisions of the FBCA for additional information.
General
The total number of shares of capital stock we are authorized to issue is 61,076,923 shares, of which (a) 11,076,923 are Common Stock and (b) 50,000,000 are preferred stock.
Common Stock
As of March, 29, 2024, there were outstanding 2,730,058 shares of Common Stock. Subject to preferential rights with respect to any outstanding preferred stock, all outstanding shares of Common Stock are of the same class and have equal rights and attributes. Under the terms of Articles of Incorporation, holders of our Common Stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders, including the election of directors, and do not have cumulative voting rights. The holders of outstanding shares of Common Stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as our board of directors from time to time may determine. Our Common Stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to shareholders are distributable ratably among the holders of our Common Stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. The rights, preferences and privileges of holders of Common Stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Our Articles of Incorporation empower our board of directors, without action by our shareholders, to issue up to 50,00,000 shares of preferred stock from time to time in one or more series. As of March 29, 2024, there were no shares of preferred stock designated, issued or outstanding. Our board may fix the rights, preferences, privileges, and restrictions of our authorized but undesignated preferred shares, including:
| ● | the title and stated value; | |
| ● | the number of shares in the series; | |
| ● | the liquidation preference per share; | |
| ● | the purchase price; | |
| ● | the dividend rate, period and payment date and method of calculation for dividends; | |
| ● | whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends will accumulate; | |
| ● | the provisions for a sinking fund, if any, and any purchase rights; |
| ● | whether the preferred stock will be convertible into our common stock, and, if applicable, the conversion price, or how it will be calculated, and the conversion period; | |
| ● | voting rights, if any, of the preferred stock; | |
| ● | the relative ranking and preferences of the preferred stock as to dividend rights and rights if we liquidate, dissolve or wind up our affairs; | |
| ● | any limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividend rights and rights if we liquidate, dissolve or wind up our affairs; and | |
| ● | any other specific terms, preferences, rights or limitations of, or restrictions on, the preferred stock. |
The Florida corporate statutes provide that the holders of preferred stock will have the right to vote separately as a class on any proposal involving fundamental changes in the rights of holders of that preferred stock. This right is in addition to any voting rights provided for in the applicable certificate of designation.
Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our Common Stock. Preferred stock could be issued quickly with terms designed to delay or prevent a change in control of our Company or make removal of management more difficult. Additionally, the issuance of preferred stock could have the effect of decreasing the market price of our Common Stock.
Florida Anti-Takeover Law and Provisions of our Amended and Restated Articles of Incorporation and Bylaws
Florida Anti-Takeover Law
As a Florida corporation, we are subject to certain anti-takeover provisions that apply to public corporations under Florida law. Pursuant to Section 607.0901 of the Florida Business Corporation Act, or the FBCA, a publicly held Florida corporation may not engage in a broad range of business combinations or other extraordinary corporate transactions with an interested shareholder without the approval of the holders of two-thirds of the voting shares of the corporation (excluding shares held by the interested shareholder), unless:
| ● | The transaction is approved by a majority of disinterested directors before the shareholder becomes an interested shareholder; |
| ● | The interested shareholder has owned at least 80% of the corporation’s outstanding voting shares for at least five years preceding the announcement date of any such business combination; |
| ● | The interested shareholder is the beneficial owner of at least 90% of the outstanding voting shares of the corporation, exclusive of shares acquired directly from the corporation in a transaction not approved by a majority of the disinterested directors; or |
| ● | The consideration paid to the holders of the corporation’s voting stock is at least equal to certain fair price criteria. |
An interested shareholder is defined as a person who, together with affiliates and associates, beneficially owns more than 10% of a corporation’s outstanding voting shares. We have not made an election in our Amended and Restated Articles to opt out of Section 607.0901.
In addition, we are subject to Section 607.0902 of the FBCA which prohibits the voting of shares in a publicly held Florida corporation that are acquired in a control share acquisition unless (i) the Board of Directors approved such acquisition prior to its consummation or (ii) after such acquisition, in lieu of prior approval by the Board of Directors, the holders of a majority of the corporation’s voting shares, exclusive of shares owned by officers of the corporation, employee directors or the acquiring party, approve the granting of voting rights as to the shares acquired in the control share acquisition. A control share acquisition is defined as an acquisition that immediately thereafter entitles the acquiring party to 20% or more of the total voting power in an election of directors.
2
Articles of Incorporation and Bylaws
Our Articles of Incorporation and Bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or tender offers or delaying or preventing a change of control of our company. These provisions are as follows:
| ● | they provide that special meetings of shareholders may be called by the Board, on the call of its Board or the person or persons authorized to do so by the Amended and Restated Bylaws, or at the request in writing by shareholders of record owning at least 25% of the issued and outstanding voting shares of Common Stock; and |
| ● | they do not include a provision for cumulative voting in the election of directors. Under cumulative voting, a minority shareholder holding a sufficient number of shares may be able to ensure the election of one or more directors. The absence of cumulative voting may have the effect of limiting the ability of minority shareholders to effect changes in the Board. |
Limitations of Liability for Officers and Directors
Pursuant to the Florida Statutes, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a director receives an improper personal benefit. This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a director if he acted in good faith and in a manner he believed to be in our best interests.
Indemnification of Directors and Officers
Our Articles of Incorporation and Bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by the FBCA. The FBCA provides that a corporation may indemnify a director or officer against liability if the director or officer acted in good faith, the director or officer acted in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and in the case of any criminal proceeding, the director or officer had no reasonable cause to believe his or her conduct was unlawful. A corporation may not indemnify a director or an officer except for expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof, where such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation.
The FBCA provides that a corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the individual was a party because he or she is or was a director or officer of the corporation against expenses incurred by the individual in connection with the proceeding.
A corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse expenses incurred in connection with the proceeding by a director or an officer if the director or officer delivers to the corporation a signed written undertaking of the director or officer to repay any funds advanced if such director or officer is not entitled to indemnification.
These indemnification provisions may be sufficiently broad to permit indemnification of our officers, directors and other corporate agents for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.
3
We have the power to purchase and maintain insurance on behalf of any person who is or was one of our directors or officers, or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other business against any liability asserted against the person or incurred by the person in any of these capacities, or arising out of the person’s fulfilling one of these capacities, and related expenses, whether or not we would have the power to indemnify the person against the claim under the provisions of the FBCA.
We are a party to indemnification agreements with each of our directors. We believe that these provisions will assist us in attracting or retaining qualified individuals to serve as our directors.
Disclosure of Commission Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Trading Market Listing
Our Common Stock is quoted and traded on the Pink tier of the OTC Markets Group under the symbol “CUEN”. Certain of our warrants are quoted and traded on the Pink tier of the OTC Markets Group under the symbol “CUENW.”
Transfer Agent and Registrar
The transfer agent and registrar for our Common stock and publicly-traded warrants is Olde Monmouth Stock Transfer Co., Inc. The transfer agent and registrar’s address is 200 Memorial Pkwy, Atlantic Highlands, NJ 07716.
4
Exhibit 10.21
CUENTAS INC.
2023 SHARE INCENTIVE PLAN
1. Purpose. The Cuentas Inc. 2023 Share Incentive Plan (the “Plan”) is intended to provide incentives which will attract, retain and motivate highly competent persons as officers, employees and non-employee directors (“Director Participants”), of, and consultants to, Cuestas Inc. (the “Company”), and its subsidiaries and affiliates, by providing them opportunities to acquire shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), or to receive monetary payments based on the value of such shares pursuant to the Benefits (as defined below) described herein. Additionally, the Plan is intended to assist in further aligning the interests of the Company’s officers, employees and consultants to those of its other stockholders.
2. Administration.
a. The Plan will be administered by a committee (the “Committee”) appointed by the Board of Directors of the Company from among its members (which may be the Compensation Committee) and shall be comprised, unless otherwise determined by the Board of Directors, solely of not less than two members who shall be “Non-Employee Directors” within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any Benefits granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Committee shall be binding and conclusive on all participants and their legal representatives. No member of the Committee and no employee of the Company shall be liable for any act or failure to act hereunder, except in circumstances involving bad faith, gross negligence or willful misconduct, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company, a subsidiary or an affiliate against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person’s bad faith, gross negligence or willful misconduct.
b. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee, or any person to whom it has delegated duties as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company, or the subsidiary or affiliate whose employees have benefited from the Plan, as determined by the Committee.
3. Participants. Participants will consist of such officers, employees and Director Participants of, and such consultants to, the Company and its subsidiaries and affiliates as the Committee in its sole discretion determines to be significantly responsible for the success and future growth and profitability of the Company and whom the Committee may designate from time to time to receive Benefits under the Plan. Designation of a participant in any year shall not require the Committee to designate such person to receive a Benefit in any other year or, once designated, to receive the same type or amount of Benefit as granted to the participant in any other year. The Committee shall consider such factors as it deems pertinent in selecting participants and in determining the type and amount of their respective Benefits.
4. Type of Benefits. Benefits under the Plan may be granted in any one or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock Awards, (d) Performance Awards and (e) Stock Units (each as described below, and collectively, the “Benefits”). Benefits shall be evidenced by agreements (which need not be identical) in such forms as the Committee may from time to time approve; provided, however, that in the event of any conflict between the provisions of the Plan and any such agreements, the provisions of the Plan shall prevail.
5. Common Stock Available Under the Plan. The maximum aggregate number of shares of Common Stock that may be subject to Benefits, including Incentive Stock Options, granted under this Plan shall be 1,000,000 shares, plus (ii) any shares of Common Stock added as a result of the following sentence (collectively, the “Share Pool”).
The Share Pool will automatically increase on January 1 of each year beginning in 2025 and ending with a final increase on January 1, 2033 in an amount equal to 5% of the total number of shares of Common Stock outstanding on such date; provided, however, that the Committee may provide that there will be no January 1 increase in the Share Pool for any such year or that the increase in the Share Pool for any such year will be a smaller number of shares of Common Stock than would otherwise occur pursuant to the preceding sentence. The aggregate number of shares of Common Stock available for grant under this Plan and the number of shares of Common Stock that may be subject to Benefits outstanding at the time of any event described in Section 13 shall be subject to adjustment as provided in Section 13. The shares of Common Stock which may be granted pursuant to the Plan may be shares that are authorized and unissued or treasury shares. Any shares of Common Stock subject to a Stock Option or Stock Appreciation Right which for any reason is cancelled or terminated without having been exercised, any shares subject to Stock Awards, Performance Awards or Stock Units which are forfeited, any shares subject to Performance Awards settled in cash, any shares delivered to the Company as part or full payment for the exercise of a Stock Option or Stock Appreciation Right or any shares delivered to the Company in satisfaction of any tax withholding arising in connection with any Benefit consisting of shares of Common Stock, as the case may be, shall again be available for Benefits under the Plan.
6. Stock Options. Stock Options will consist of awards from the Company that will enable the holder to purchase a number of shares of Common Stock, at set terms. Stock Options may be “incentive stock options”, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”, which awards shall be “Incentive Stock Options”), or Stock Options which do not constitute Incentive Stock Options (“Nonqualified Stock Options”); provided, however, that grants of Incentive Stock Options may only be made to employees of the Company, a subsidiary corporation or parent corporation and that Incentive Stock Option grants made prior to approval of the grant of Incentive Stock Options under the Plan by stockholders of the Company shall be subject to such approval and provided, further, that if stockholder approval of the grant of Incentive Stock Options under the Plan is not obtained within twelve months of adoption of the Plan by the Board of Directors, any Stock Option granted during the twelve month period after adoption of the Plan by the Board of Directors that is designated as an Incentive Stock Option shall be treated thereafter as Nonqualified Stock Option. The Committee will have the authority to grant to any participant, including officers, employees, Director Participants, and consultants, Nonqualified Stock Options, or, for those participants who are employees of the Company, a subsidiary corporation or parent corporation both types of Stock Options (in each case with or without Stock Appreciation Rights). Each Stock Option shall be subject to such terms and conditions consistent with the Plan as the Committee may impose from time to time, subject to the following limitations:
a. Exercise Price. Each Stock Option granted hereunder shall have such per-share exercise price as the Committee may determine at the date of grant provided that such per share exercise price shall be at least equal to the Fair Market Value; subject to subsection (d), below.
b. Payment of Exercise Price. The option exercise price may be paid by
i. cash;
ii. check;
iii. surrender of other shares of Common Stock which (A) shall be valued at its fair market value on the date of exercise, and (B) must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting such shares, in the sole discretion of the Committee, shall not result in any adverse accounting consequences to the Company;
iv. if approved by the Committee, as determined in its sole discretion, by a broker-assisted cashless exercise in accordance with procedures approved by the Committee, whereby payment of the exercise price or tax withholding obligations may be satisfied, in whole or in part, with shares of Common Stock subject to the Stock Option by delivery of an irrevocable direction to a securities broker (on a form prescribed by the Committee) to sell shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate exercise price and, if applicable, the amount necessary to satisfy the Company’s withholding obligations; or
2
v. by any other means approved by the Committee, as determined in its sole discretion, including, without limitation, by delivery of a notice of “net exercise” to the Company, pursuant to which the participant shall receive the number of shares underlying the Stock Option so exercised reduced by the number of shares equal to the aggregate exercise price of the Stock Option divided by the Fair Market Value on the date of exercise.
c. Exercise Period. Stock Options granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee; provided, however, that no Stock Option shall be exercisable later than ten years after the date it is granted. All Stock Options shall terminate at such earlier times and upon such conditions or circumstances as the Committee shall in its discretion set forth in such Stock Option agreement at the date of grant; provided, however, the Committee may, in its sole discretion, later waive any such condition.
d. Limitations on Incentive Stock Options. Incentive Stock Options may be granted only to participants who are employees of the Company or one of its subsidiaries (within the meaning of Section 424(f) of the Code) at the date of grant. The aggregate Fair Market Value (determined as of the time the Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under all option plans of the Company and of any parent corporation or subsidiary corporation (as defined in Sections 424(e) and (f) of the Code, respectively)) shall not exceed $100,000. For purposes of the preceding sentence, Incentive Stock Options will be taken into account in the order in which they are granted. The per-share exercise price of an Incentive Stock Option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant, and no Incentive Stock Option may be exercised later than ten years after the date it is granted; provided, however, Incentive Stock Options may not be granted to any participant who, at the time of grant, owns stock possessing (after the application of the attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company, unless the exercise price is fixed at not less than 110% of the Fair Market Value of the Common Stock on the date of grant and the exercise of such option is prohibited by its terms after the expiration of five years from the date of grant of such option. If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of within two (2) years following the grant date or one (1) year following the transfer of such shares to the participant upon exercise, the participant shall, promptly following such disposition, notify the Committee in writing of the date and terms of such disposition and provide such other information regarding the disposition as the Committee may reasonably require.
e. Post-Severance Exercises. Upon termination of employment of any employee, termination of service on the Board of Directors of a Director Participant or of the continuing services of any consultant with the Company and all subsidiary corporations and parent corporations of the Company, any Stock Option previously granted to the employee, Director Participant or consultant, unless otherwise specified by the Committee in the Stock Option agreement, shall, to the extent not theretofore exercised, terminate and become null and void; provided, however, that:
i. if the employee, Director Participant or consultant shall die while in the employ or service of such corporation at a time when such employee, Director Participant or consultant was entitled to exercise a Stock Option as herein provided, the legal representative of such employee, Director Participant or consultant, or such person who acquired such Stock Option by bequest or inheritance or by reason of the death of the employee, Director Participant or consultant, may, not later than one (1) year from the date of death, exercise such Stock Option, to the extent not theretofore exercised, in respect of any or all of such number of shares of Common Stock as specified by the Committee in such Stock Option agreement; and
3
ii. if the employment of any employee or the continuing services of any Director Participant or consultant to whom such Stock Option shall have been granted shall terminate by reason of the employee’s, Director Participant’s or consultant’s retirement (at such age or upon such conditions as shall be specified by the Committee), disability (as described in Section 22(e)(3) of the Code) or dismissal by the employer other than for cause (as defined below), and while such employee, Director Participant or consultant is entitled to exercise such Stock Option as herein provided, such employee, Director Participant or consultant shall have the right to exercise such Stock Option so granted in respect of any or all of such number of shares as specified by the Committee in such Stock Option agreement, at any time up to and including ninety (90) days after the date of such termination.
In no event, however, shall any person be entitled to exercise any Stock Option after the expiration of the period of exercisability of such Stock Option or right, as specified in such Stock Option agreement at the date of grant.
If an employee, Director Participant or consultant is discharged “for cause,” any Stock Option granted hereunder shall, unless otherwise specified by the Committee in the Stock Option agreement, forthwith terminate with respect to any unexercised portion thereof.
If a Stock Option granted hereunder shall be exercised by the legal representative of a deceased participant or by a person who acquired a Stock Option granted hereunder by bequest or inheritance or by reason of the death of any employee, Director Participant or consultant or former employee, former Director Participant or former consultant, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative or other person to exercise such Stock Option.
For the purposes of the Plan, the term “for cause” shall mean (a) with respect to an employee, Director Participant or consultant who is a party to a written service agreement with, or, alternatively, participates in a compensation or benefit plan of the Company or a subsidiary corporation or parent corporation of the Company, which agreement or plan contains a definition of “for cause” or “cause” (or words of like import) for purposes of termination of employment or services thereunder by the Company or such subsidiary corporation or parent corporation of the Company, “for cause” or “cause” as defined therein; or (b) in all other cases, as determined by the Committee or the Board of Directors, in its sole discretion, (i) the willful commission by an employee, Director Participant or consultant of an act that causes or may cause substantial damage to the Company or a subsidiary corporation or parent corporation of the Company; (ii) the commission by an employee, Director Participant or consultant of an act of fraud in the performance of such employee’s or consultant’s duties on behalf of the Company or a subsidiary corporation or parent corporation of the Company; (iii) conviction of the employee, Director Participant or consultant for commission of a felony in connection with the performance of duties on behalf of the Company or a subsidiary corporation or parent corporation of the Company; or (iv) the continuing failure of an employee, Director Participant or consultant to perform the duties of such employee, Director Participant or consultant to the Company or a subsidiary corporation or parent corporation of the Company after written notice thereof and a reasonable opportunity to be heard and cure such failure are given to the employee, Director Participant or consultant by the Committee.
For the purposes of the Plan, an employment relationship shall be deemed to exist between an individual and a corporation if, at the time of the determination, the individual was an “employee” of such corporation for purposes of Section 422(a) of the Code. If an individual is on leave of absence taken with the consent of the corporation by which such individual was employed, or is on active military service, and is determined to be an “employee” for purposes of the exercise of a Stock Option, such individual shall not be entitled to exercise such Stock Option during such period unless such individual shall have obtained the prior written consent of such corporation, which consent shall be signed by the chairman of the board of directors, the president, a senior vice-president or other duly authorized officer of such corporation.
A termination of employment or services shall not be deemed to occur by reason of (i) the transfer of an employee or consultant from employment or retention by the Company to employment or retention by a subsidiary corporation or a parent corporation of the Company or (ii) the transfer of an employee or consultant from employment or retention by a subsidiary corporation or a parent corporation of the Company to employment or retention by the Company or by another subsidiary corporation or parent corporation of the Company. Termination of a consultant’s services shall be considered to occur when the consultant ceases to perform services on a regular basis; provided, however, termination of a consultant’s services shall not be deemed to occur where the termination of services is due to such consultant becoming an employee of the Company or a subsidiary corporation or a parent corporation.
4
In the event an employee changes status to a consultant, all Stock Option grants shall continue for the remainder of the exercise period, provided, however, any Incentive Stock Options shall, three (3) months after termination of employment, be treated as a Nonqualified Stock Option for the remainder of the exercise period.
In the event of the complete liquidation or dissolution of a subsidiary corporation, or if such corporation ceases to be a subsidiary corporation, any unexercised Stock Options theretofore granted to any person employed by or rendering consulting services to such subsidiary corporation will be deemed cancelled unless such person is employed by or renders continuing services to the Company or by any parent corporation or another subsidiary corporation after the occurrence of such event. If a Stock Option is to be cancelled pursuant to the provisions of the previous sentence, notice of such cancellation will be given to each employee or consultant holding unexercised Stock Options, and such holder will have the right to exercise such Stock Options in full during the thirty (30) day period following notice of such cancellation.
f. Each Stock Option issued under this Section 6 shall be fully vested and exercisable, unless otherwise specified in the Stock Option agreement.
7. Stock Appreciation Rights.
a. The Committee may, in its discretion, grant Stock Appreciation Rights to the holders of any Stock Options granted hereunder. In addition, Stock Appreciation Rights may be granted independently of, and without relation to, Stock Options. A Stock Appreciation Right means a right to receive a payment in cash, Common Stock or a combination thereof, in an amount equal to the excess of (x) the Fair Market Value, or other specified valuation, of a specified number of shares of Common Stock on the date the right is exercised over (y) the Fair Market Value, or other specified valuation (which shall be no less than the Fair Market Value) of such shares of Common Stock on the date the right is granted, all as determined by the Committee; provided, however, that if a Stock Appreciation Right is granted in substitution for a Stock Option, the designated Fair Market Value in the award agreement may be the Fair Market Value on the date such Stock Option was granted. Each Stock Appreciation Right shall be fully vested unless otherwise specified in the award agreement. Each Stock Appreciation Right shall be subject to such terms and conditions as the Committee shall impose from time to time.
b. Stock Appreciation Rights granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee; provided, however, that no Stock Appreciation Rights shall be exercisable later than ten years after the date it is granted. All Stock Appreciation Rights shall terminate at such earlier times and upon such conditions or circumstances as the Committee shall in its discretion set forth in such award agreement at the date of grant.
c. The exercise of any Stock Appreciation Right after termination of employment of any employee, termination of service on the Board of Directors of a Director Participant or of the continuing services of any consultant with the Company and all subsidiary corporations and parent corporations of the Company, shall be subject to the same terms and conditions as set forth in Section 6(e) above.
8. Stock Awards. The Committee may, in its discretion, grant Stock Awards (which may include mandatory payment of bonus incentive compensation in stock) consisting of Common Stock issued or transferred to participants with or without other payments therefor. Stock Awards may be subject to such terms and conditions as the Committee determines appropriate, including, without limitation, restrictions on the sale or other disposition of such shares and the right of the Company to reacquire such shares for no consideration upon termination of the participant’s employment. Each Stock Award shall be fully vested unless otherwise specified in the award agreement. The Committee may require the participant to deliver a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such Stock Award. The Committee may also require that the stock certificates evidencing such shares be held in custody or bear restrictive legends until the restrictions thereon shall have lapsed. The Stock Award shall specify whether the participant shall have, with respect to the shares of Common Stock subject to a Stock Award, all of the rights of a holder of shares of Common Stock of the Company, including the right to receive dividends and to vote the shares. If the Stock Award includes the right to receive dividends or distributions: (a) any dividends or distributions paid in shares shall be subject to the same restrictions (and shall therefore be forfeitable to the same extent) as the Stock Award with respect to which they were paid, and (b) any dividends or distributions paid in cash shall be subject to the same restrictions as the related Stock Award, in which case they shall be accumulated (without interest) until vested and paid or forfeited when the related shares of Common Stock become no forfeitable or are forfeited, as the case may be. In no event shall any cash dividend or distribution be paid later than 2½ months after the tax year in which the dividend or distribution becomes no forfeitable.
5
9. Performance Awards.
a. Performance Awards may be granted to participants at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number, amount and timing of awards granted to each participant. Such Performance Awards may be in the form of shares of Common Stock or Stock Units. Performance Awards may be awarded as short-term or long-term incentives. Performance targets may be based upon, without limitation, Company-wide, divisional and/or individual performance.
b. The Committee shall have the authority at any time to make adjustments to performance targets for any outstanding Performance Awards which the Committee deems necessary or desirable unless at the time of establishment of such targets the Committee shall have precluded its authority to make such adjustments.
c. Payment of earned Performance Awards shall be made in accordance with terms and conditions prescribed or authorized by the Committee. The participant may elect to defer, or the Committee may require or permit the deferral of, the receipt of Performance Awards upon such terms as the Committee deems appropriate.
10. Stock Units.
a.The Committee may, in its discretion, grant Stock Units to participants hereunder. The Committee shall determine the criteria for the vesting of Stock Units. A Stock Unit granted by the Committee shall provide payment at such time as the award agreement shall specify. Shares of Common Stock issued pursuant to this Section 10 may be issued with or without other payments therefor as may be required by applicable law or such other consideration as may be determined by the Committee. The Committee shall determine whether a participant granted a Stock Unit shall be entitled to a Dividend Equivalent Right (as defined below), although any Dividend Equivalent Right shall be subject to the same restrictions as the related Stock Units, in which case they shall be accumulated (without interest) during the period of restriction and paid or forfeited when the related Stock Units are paid or forfeited, as the case may be.
b. Upon vesting of a Stock Unit, unless the participant has elected to defer payment under subsection (c) below, shares of Common Stock representing the Stock Units shall be distributed to the participant unless the Committee provides for the payment of the Stock Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the participant.
c. A participant may elect not to receive a distribution upon the vesting of such Stock Unit and for the Company to continue to maintain the Stock Unit on its books of account. Any such election shall be in conformity with Section 409A of the Code and in such event, the value of a Stock Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral.
d. A “Stock Unit” means a notional account representing one share of Common Stock. A “Dividend Equivalent Right” means the right to receive the amount of any dividend paid on the share of Common Stock underlying a Stock Unit, which shall be payable in cash or in the form of additional Stock Units.
11. Securities Laws. The Committee shall have the power to make each grant under the Plan subject to such conditions as it deems necessary or appropriate to comply with the then-existing requirements of the Securities Act of 1933, as amended, or the Exchange Act, including Rule 16b-3 (or any similar rule) of the Securities and Exchange Commission. Notwithstanding any provision in the Plan or a Stock Option agreement to the contrary, if the Committee determines, in its sole discretion, that issuance of shares pursuant to the exercise of a Stock Option should be delayed pending registration or qualification under federal or state securities laws or the receipt of a legal opinion that an appropriate exemption from the application of federal or state securities laws is available, the Committee may defer exercise of any Stock Option until such shares are appropriately registered or qualified or an appropriate legal opinion has been received, as applicable.
6
12. Foreign Laws. The Committee may grant Benefits to individual participants who are subject to the tax laws of nations other than the United States, which Benefits may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action which it deems advisable to obtain approval of such Benefits by the appropriate foreign governmental entity; provided, however, that no such Benefits may be granted pursuant to this Section 12 and no action may be taken which would result in a violation of the Exchange Act, the Code or any other applicable law.
13. Adjustment Provisions; Change in Control.
a. If there shall be any change in the Common Stock of the Company or the capitalization of the Company through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, split up, spin-off, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution to stockholders of the Company (other than normal cash dividends), in order to prevent dilution or enlargement of participants’ rights under the Plan, the Committee, in its sole discretion, shall adjust, in an equitable manner, as applicable, the number and kind of shares that may be issued under the Plan, the number and kind of shares subject to outstanding Benefits, the exercise price applicable to outstanding Benefits, and the Fair Market Value of the Common Stock and other value determinations applicable to outstanding Benefits. Appropriate adjustments may also be made by the Committee in the terms of any Benefits under the Plan to reflect such changes or distributions and to modify any other terms of outstanding Benefits on an equitable basis, including modifications of performance targets and changes in the length of performance periods. In addition, the Committee is authorized to make adjustments to the terms and conditions of, and the criteria included in, Benefits in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company, or in response to changes in applicable laws, regulations, or accounting principles. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Stock Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Stock Option granted hereunder other than an incentive stock option for purposes of Section 422 of the Code. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on participants under the Plan.
b. In the event of a Change in Control, each Benefit (vested or unvested) will be treated as the Committee determines, which determination may be made without the consent of any participant and need not treat all outstanding Benefits (or portion thereof) in an identical manner. Such determination, without the consent of any participant, may provide (without limitation) for one or more of the following in the event of a Change in Control:
i. continuation or assumption of such outstanding Benefits under the Plan by the Company (if it is the surviving company or corporation) or by the surviving company or corporation or its parent;
ii. substitution by the surviving company or corporation or its parent of equity, equity-based and/or cash awards with substantially the same terms for outstanding Benefits (excluding the consideration payable upon settlement of the Benefits);
iii. accelerated exercisability, vesting and/or lapse of restrictions under outstanding Benefits immediately prior to the occurrence of such event;
iv. upon written notice, provide that any outstanding Benefits must be exercised, to the extent then exercisable, during a reasonable period of time immediately prior to the scheduled consummation of the event or such other period as determined by the Committee (contingent upon the consummation of the event), and at the end of such period, such Benefits shall terminate to the extent not so exercised within the relevant period;
v. cancellation of all or any portion of outstanding Benefits for fair value (in the form of cash, shares, other property or any combination thereof) as determined in the sole discretion of the Committee and which value may be zero; provided, that in the case of Stock Options and Stock Appreciation Rights or similar awards, the fair value may equal the excess, if any, of the value of the consideration to be paid in the Change in Control transaction to holders of the same number of shares subject to such Benefits (or, if no such consideration is paid, Fair Market Value of the shares subject to such outstanding Benefits or portion thereof being cancelled) over the aggregate exercise price or grant price, as applicable, with respect to such Benefits or portion thereof being cancelled, or if no such excess, zero; provided, further, that if any payments or other consideration are deferred and/or contingent as a result of escrows, earn outs, holdbacks or any other contingencies, payments under this provision may be made on substantially the same terms and conditions applicable to, and only to the extent actually paid to, the holders of shares in connection with the Change in Control; and
7
vi. cancellation of all or any portion of outstanding unvested and/or unexercisable Benefits for no consideration.
c. For purposes of Section 13(b), a “Change in Control” of the Company shall be deemed to have occurred upon the earliest of the following events:
i. Change in Ownership: A change in ownership of the Company occurs on the date that any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company, excluding the acquisition of additional stock by a person or more than one person acting as a group who is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company.
ii. Change in Effective Control: A change in effective control of the Company occurs on the date that either:
A. Any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; or
B. A majority of the members of the Board of Directors of the Company is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the board of directors before the date of the appointment or election; provided, that this paragraph (B) will apply only to the Company if no other corporation is a majority stockholder.
iii. Change in Ownership of Substantial Assets: A change in the ownership of a substantial portion of the Company’s assets occurs on the date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of the assets of the Company immediately before such acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
It is the intent that this definition be construed consistent with the definition of “Change in Control” as defined in Section 409A of the Code and the applicable treasury regulations, as amended from time to time.
16. Nontransferability. Each Benefit granted under the Plan to a participant shall not be transferable other than by will or the laws of descent and distribution, and shall be exercisable, during the participant’s lifetime, only by the participant. In the event of the death of a participant, each Stock Option or Stock Appreciation Right theretofore granted to the participant shall be exercisable during such period after the participant’s death as the Committee shall in its discretion set forth in the award agreement at the date of grant and then only by the executor or administrator of the estate of the deceased participant or the person or persons to whom the deceased participant’s rights under the Stock Option or Stock Appreciation Right shall pass by will or the laws of descent and distribution. Notwithstanding the foregoing, at the discretion of the Committee, an award of a Benefit, other than an Incentive Stock Option, to any director, officer or employee of the Company with at least 15 years of service may permit the transferability of a Benefit by such participant solely to the participant’s spouse, siblings, parents, children and grandchildren or trusts for the benefit of such persons or partnerships, corporations, limited liability companies or other entities owned solely by such persons, including trusts for such persons, subject to any restriction included in the award of the Benefit.
8
17. Other Provisions. The award of any Benefit under the Plan may also be subject to such other provisions (whether or not applicable to the Benefit awarded to any other participant) as the Committee determines appropriate, including, without limitation, for the installment purchase of Common Stock under Stock Options, for the installment exercise of Stock Appreciation Rights, to assist the participant in financing the acquisition of Common Stock, for the forfeiture of, or restrictions on resale or other disposition of, Common Stock acquired under any form of Benefit, for the acceleration of exercisability or vesting of Benefits in the event of a change in control of the Company, for the payment of the value of Benefits to participants in the event of a change in control of the Company, or understandings or conditions as to the participant’s employment in addition to those specifically provided for under the Plan. In addition, the Committee shall have the right to accelerate, in whole or in part, from time to time, conditionally or unconditionally, rights to exercise any Stock Option granted hereunder.
18. Fair Market Value. For purposes of this Plan and any Benefits awarded hereunder, Fair Market Value shall be (a) the closing price of the Company’s Common Stock on the date of calculation (or on the last preceding trading date if Common Stock was not traded on such date) if the Company’s Common Stock is readily tradeable on a national securities exchange or other market system, (b) if the Company’s Common Stock is not readily tradeable, Fair Market Value shall mean the amount determined in good faith by the Committee as the fair market value of the Common Stock of the Company and (c) in connection with a Change in Control or an event specified in Section 13(a), the value of the consideration paid to stockholders in connection with such Change in Control or event or if no consideration is paid in respect thereof, the amount determined pursuant to clause (a) or (b), above.
19. Withholding. All payments or distributions of Benefits made pursuant to the Plan shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements. If the Company proposes or is required to distribute Common Stock pursuant to the Plan, it may require the recipient to remit to it or to the corporation that employs such recipient an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Common Stock. In lieu thereof, the Company or the employing corporation shall have the right to withhold the amount of such taxes from any other sums due or to become due from such corporation to the recipient as the Committee shall prescribe. The Committee may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit a participant to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Benefit consisting of shares of Common Stock by electing to have the Company withhold shares of Common Stock having a Fair Market Value equal to the amount of tax to be withheld, such tax calculated at rates required by statute or regulation.
20. Tenure. A participant’s right, if any, to continue to serve the Company or any of its subsidiaries or affiliates as an officer, employee, or otherwise, shall not be enlarged or otherwise affected by designation as a participant under the Plan.
21. Code Section 280G. Except as otherwise expressly provided in any agreement between a participant and the Company or an affiliate, if the receipt of any payment by a participant under the circumstances described above would result in the payment by the participant of any excise tax provided for in Section 280G and Section 4999 of the Code, then the amount of such payment shall be reduced to the extent required to prevent the imposition of such excise tax.
22. Code Section 409A.
a. General. The Company intends that the Plan and all Benefits be construed to avoid the imposition of additional taxes, interest and penalties pursuant to Section 409A of the Code, although in no event shall the Company or any of its affiliates be liable for any additional tax, interest or penalties that may be imposed on a participant under Section 409A of the Code or for any damages for failing to comply with Section 409A of the Code.
9
b. Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or award agreement, any payments of nonqualified deferred compensation (within the meaning of Section 409A) that are otherwise required to be made under the Plan to a “specified employee” (as defined under Section 409A) as a result of a separation from service (other than a payment that is not subject to Section 409A) shall be delayed for the first six months following such separation from service (or, if earlier, until the date of death of the specified employee) and shall instead be paid (in a manner set forth in the award agreement) on the day that immediately follows the end of such six-month period or as soon as administratively practicable thereafter. Any remaining payments of nonqualified deferred compensation shall be paid without delay and at the time or times such payments are otherwise scheduled to be made.
c. Separation from Service. A termination of service shall not be deemed to have occurred for purposes of any provision of the Plan or any award agreement providing for the payment of any amounts or benefits that are considered nonqualified deferred compensation under Section 409A upon or following a termination of service unless such termination is also a “separation from service” within the meaning of Section 409A and the payment thereof prior to a “separation from service” would violate Section 409A.
23. Unfunded Plan. Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.
24. No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan or any Benefit. The Committee shall determine whether cash, or Benefits, or other property shall be issued or paid in lieu of fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
25. Duration, Amendment and Termination. No Benefit shall be granted more than ten years after the Effective Date. The Committee may amend the Plan from time to time or suspend or terminate the Plan at any time. Nevertheless, if the Plan has been previously approved by the Company’s stockholders, the Committee may not, without obtaining approval within twelve months before or after such action by such vote of the Company’s stockholders as may be required, amend the Plan if such amendment would: (a) disqualify any Incentive Stock Options granted under the Plan; (b) increase the aggregate number of shares of Common Stock that may be delivered through Stock Options under the Plan; (c) increase either of the maximum amounts which can be paid to an individual participant under the Plan as set forth in Section 5 hereof; or (d) modify the requirements as to eligibility for participation in the Plan. The Committee may amend the terms of any Benefit theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any participant without the participant’s consent.
26. Governing Law. This Plan, Benefits granted hereunder and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of New York (regardless of the law that might otherwise govern under applicable New York principles of conflict of laws).
27. Effective Date.
a. The Plan shall be effective as of November 17, 2023, the date on which the Plan was adopted by the Board of Directors and the Company’s stockholders (the “Effective Date”).
b. This Plan shall terminate on November 17, 2033 (unless sooner terminated by the Committee).
10
Exhibit 10.25
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (“Agreement”) is made effective as of the Effective Date, by and between BROOKSVILLE DEVELOPMENT PARTNERS, LLC, a Florida limited liability company (“Seller”) and TERWILLIGER BROTHERS RESIDENTIAL LLC, a Florida limited liability company (“Buyer”).
RECITALS
| A. | Subject to the terms and conditions of this Agreement, Seller agrees to sell, convey and assign to Buyer, and Buyer agrees to purchase and accept from Seller, the following property (collectively, the “Property”): |
| i. | The land located in Hernando County, Florida, described in Exhibit “A” attached hereto and incorporated herein by reference, any improvements on the land and all and singular the rights, interests, benefits, privileges, easements, tenements, hereditaments, and appurtenances thereon or in any way appertaining thereto; |
| ii. | All of Seller’s right, title and interest in, to and under, if any: (a) any covenants, conditions or restrictions benefiting such land; and (b) any and all development rights, vested rights, entitlements, capacity enhancement agreements, benefits, privileges, exemptions, concurrency approvals (including, without limitation, utility capacities, storm water discharge, reserved water, wastewater and school capacity), prepaid permit fees, impact fees or impact fee credits, and any permits, approvals, licenses or authorizations benefitting or affecting the land; all as-is, and to the extent that the same may exist and are associated with use, ownership or development of the land; and |
| iii. | All of Seller’s right, title and interest in, to and under, if any: (a) all plans and specifications, construction drawings and studies and all other architectural and engineering drawings for the land, as well as any plans, specifications and architectural and engineering drawings for pending or proposed projects relating to the land; (b) the Property Documents; (c) warranties, guaranties, indemnities and claims against architects, contractors, manufacturers, suppliers and others; and (d) all utility deposits; all as-is, and to the extent that the same may exist and are associated with use, ownership or development of the land. |
NOW THEREFORE, in consideration of the sum of Ten and No/100 dollars ($10.00), the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties, it is agreed as follows:
1. Obligation to Sell and Purchase. Seller agrees to sell to Buyer and Buyer agrees to purchase from Seller the Property upon the terms and conditions contained herein.
2. Purchase Price. The purchase price for the Property shall be $7,200,000.00 payable as follows:
(a) Buyer shall pay by wire transfer to Chicago Title Insurance Company, 5215 Old Orchard Rd #400, Skokie, IL 60077, Attn.: Alisa Habibovic (“Escrow Agent”) in escrow within five (5) business days of the complete execution hereof the sum of
$75,000.00 as an earnest money deposit (“Initial Deposit”).
(b) The Initial Deposit and Extension Deposit are collectively referred to as the “Deposit”. At the Closing, Buyer shall receive a credit against the purchase price in the amount of the Deposit which has been paid.
(c) The Deposit shall be held in a non-interest bearing federally insured account at Escrow Agent. Upon expiration of the Inspection Period, the Deposit shall be at risk and non-refundable, except as otherwise provided herein. Escrow Agent shall hold and disburse the Deposit in accordance with this Agreement.
(d) Buyer shall pay to Seller at the Closing hereunder, subject to prorations and other adjustments set forth herein, the balance of the purchase price, by wire transfer to the account of Escrow Agent.
3. Title Insurance and Survey.
(a) Seller shall obtain and provide, within five (5) days of the Effective Date, a title insurance commitment issued by Escrow Agent (“Title Company”) agreeing to insure marketable title to the Property to be vested in Buyer upon the transfer of the Property to Buyer, in the amount of the full purchase price (the “Title Commitment”). Buyer may obtain a current or updated survey of the Property within the Inspection Period (the “Survey”). Within ten (10) days of the later of the Effective Date and receipt of the Title Commitment and complete, legible copies of all exception documents, Buyer shall notify Seller in writing as to any matters shown on the Title Commitment that are objectionable to Buyer. Seller shall have no obligation to cure or correct Buyer title objections except that, as of Closing, Seller shall be required and hereby agrees to cure all (i) title objections which Seller has expressly agreed to cure or correct, and (ii) monetary liens, such as, but not limited to, mortgage liens, tax and assessment liens, judgment liens, construction liens and code enforcement liens (collectively, “Monetary Liens”), but not any liens arising under or as a result of the activities of Buyer or Buyer’s agents, or the lien of ad valorem real property taxes and assessments for the year of Closing and subsequent years, which is not yet due and payable. If Seller fails to respond to Buyer in writing within ten (10) days of receipt of Buyer’s notice of title objections or Seller expressly refuses to cure or correct the same, Buyer shall have the right to terminate this Agreement and receive a refund of the Earnest Money by delivering written notice of termination to Seller within five (5) days of same. If Seller elects to cure Buyer’s title objections, but is unable to do so to Buyer’s reasonable satisfaction before Closing, Seller shall so notify Buyer in writing, and Buyer shall have the right to terminate this Agreement and receive a refund of the Deposit by delivering written notice of termination to Seller within five (5) days after receiving Seller’s notice. If Buyer so terminates this Agreement, then neither party shall have any obligations under this Agreement other than those provisions which expressly survive the termination of this Agreement. If Buyer does not so terminate this Agreement, then such uncured objections shall thereafter be deemed to be Permitted Encumbrances. The Closing shall be automatically extended, if necessary, to allow for the notice periods set forth above. In the event that the Survey reveals any matter that is objectionable to Buyer, then Buyer shall notify Seller in writing. All rights and obligations of the parties with respect to objections arising from the Survey shall be the same as objections to items appearing in the title commitment, as set forth above. All exceptions to title as shown on the Title Commitment, except for Monetary Liens, and title objections which Seller has expressly agreed to cure or correct, shall be deemed to be “Permitted Exceptions”.
2
(b) Prior to Closing, Seller will cause the Title Company to issue an updated Title Commitment (“Title Update”) and provide the same to Buyer. If the Title Update contains any conditions which did not appear in the Title Commitment, and such items have not been approved or waived in writing by Buyer in accordance with this Agreement, Buyer shall have the right to object to such new or different conditions in writing prior to Closing. All rights and obligations of the parties with respect to objections arising from the Title Update shall be the same as objections to items appearing in the Title Commitment, subject to the provisions of this section, together with the ability of Buyer to terminate this Agreement and receive a refund of the Deposit, by delivering written notice of termination to Seller and Escrow Agent prior to the Closing, in the event Seller elects, or is deemed to have elected, to not cure any title objections to the new conditions, or having elected to cure any title objections to the new conditions has not satisfied Buyer as to the cure or correction of Buyer’s title objections to the new conditions, other than Monetary Liens. If Buyer so terminates this Agreement, then neither party shall have any obligations under this Agreement other than those provisions which expressly survive the termination of this Agreement.
4. Inspection Period. Buyer shall have a period of sixty (60) days from the Effective Date, hereinafter referred to as the “Inspection Period,” to make any and all inspections of the Property which Buyer may desire to make or have made at Buyer’s sole expense, including, but not limited to, surveys, environmental assessments, topographical studies, soil tests, zoning and utilities verification. In the event that, for any reason or no reason, Buyer determines in Buyer’s sole discretion, the Property is unsatisfactory to Buyer, Buyer may terminate this Agreement by delivery of written notice (email shall be deemed acceptable delivery of such notice) to Seller prior to the expiration of the Inspection Period. Upon delivery of such written notice by Buyer, Buyer shall receive a refund of the Deposit; and all other obligations of the parties hereto shall cease and this Agreement shall be void except for any provisions which expressly survive termination of this Agreement. If such notice has not been delivered within the Inspection Period, then this Agreement shall continue in full force and effect, the Deposit shall be non-refundable, except as otherwise set forth herein, and Buyer shall continue to have the right to inspect the Property through the Closing. Buyer shall indemnify, defend, and hold Seller harmless with respect to damage, loss, liability, claims, and expenses (including reasonable attorneys’ fees and costs), including any construction liens, caused by the physical inspection activities of Buyer and Buyer’s agents, except for pre-existing conditions merely discovered by Buyer. Prior to any on-site inspection of the Property by Buyer or by any agent of Buyer, Buyer shall deliver to Seller a certificate of insurance evidencing Buyer’s or its agent’s liability insurance coverage naming Seller as an additional insured, with limits of liability of not less than $1,000,000 for each occurrence. This section shall survive the termination of this Agreement.
5. Property Documents. Within ten (10) days of the Effective Date, if not already provided to Buyer, Seller shall deliver to Buyer copies of due diligence materials related to the use, ownership or development of the Property and in the possession or reasonable control of Seller, if any, including, without limitation, all existing surveys and topographical maps; site development, soil, geotechnical, construction, engineering, land use and drainage plans and reports; site plans and plats; wetland delineations and submittals; traffic studies; environmental studies or reports; endangered species evaluation reports; governmental permits, licenses, entitlements and approvals; zoning approvals; development agreements and orders; plans, drawings, and specifications for improvements, as well as any warranties or guaranties; notices or other correspondence from any governmental or quasi-governmental authorities concerning the Property; all documents related to any leases, subleases, tenancies, licenses and other rights of occupancy or use for any portion of the Property; all documents and plans related to utility capacity, service or construction (collectively, the “Property Documents”).
3
6. Approvals of Third Parties. As soon as practicable after the Effective Date, Seller will use commercially reasonable efforts to secure all necessary consents, approvals and agreements of third parties, if any, that shall be required for Seller to perform its obligations and to consummate the transactions contemplated hereby (collectively, the “Required Consents”). Buyer shall reasonably cooperate with such efforts, including (without limitation) promptly providing all information concerning Buyer and its affiliates that may be required and shall otherwise use all commercially reasonable efforts to obtain the consent. In any case, the costs of obtaining any and all Required Consents, if any, will be paid by Seller.
7. Condition of Property. It is understood and agreed that, subject to Seller’s representations and warranties expressly set forth herein and in the closing documents, Buyer accepts the Property and the improvements located thereon “as-is” without any warranties either express or implied as to use, fitness for any particular purpose, zoning, habitability, merchantability, condition or any other matter affecting the Property and the improvements located thereon.
8. Closing. The closing of this transaction (the “Closing”) shall take place as a mail away closing through the offices of Escrow Agent fifteen (15) days after expiration of the Inspection Period (the “Closing Date”). Buyer may elect to extend the Closing for one month by paying the sum of $25,000.00 non-refundable to the purchase price (“Extension Deposit”) by wire transfer to the Escrow Agent no later than five (5) days prior to the then scheduled Closing. Exclusive possession of the Property, subject to the Permitted Exceptions, shall be given by Seller to Buyer at Closing. At the Closing, Buyer shall deliver the purchase price to Escrow Agent, subject to adjustment as described herein, and Seller and/or Buyer shall deliver to Escrow Agent the following documents, in such form and content as is reasonably satisfactory to the parties:
(a) Seller shall execute a special warranty deed (the “Deed”) conveying the Property to Buyer, subject only to the Permitted Exceptions.
(b) Seller shall execute an owner’s affidavit in form and substance acceptable to the Title Company to delete standard title exceptions for unrecorded matters including construction liens, parties in possession, taxes and assessments not shown as existing liens by the public records and mineral rights and reservations if any.
(c) Such evidence of each party’s authority as required by the Title Company.
(d) Seller shall execute a FIRPTA affidavit.
(e) Seller shall execute a bill of sale and assignment of all tangible and intangible personal property. If requested by Buyer, Seller shall also execute any and all assignment and conveyance documents as may be required by applicable governmental authorities to evidence the foregoing assignment. Following Closing, Seller agrees at no cost to Seller to reasonably cooperate with Buyer in facilitating the transfer of such governmental approvals on the books and records of the applicable governmental authorities.
(f) Seller and Buyer shall execute counterparts of a Title Company settlement statement.
4
(g) Seller shall execute a certification reaffirming that Seller’s representations and warranties set forth herein are true, correct and complete as of the Closing.
(h) All such other documents and instruments as reasonably requested by the other party or the Title Company to effectuate the transactions contemplated hereby.
Upon satisfaction or completion of all closing conditions and deliveries, the parties shall direct Escrow Agent to immediately record and deliver the closing documents to the appropriate parties and make disbursements according to the settlement statement.
9. Closing Costs and Prorations.
(a) Seller shall pay for and be responsible for all costs and expenses associated with: documentary stamp taxes on the Deed, releasing all Monetary Liens, curing any title or survey objections which Seller has agreed to or is required to cure, one half of escrow fees of Escrow Agent, the Owner’s Policy (excluding any endorsements), the Title Commitment, the municipal lien search, the Broker (defined below) and Seller’s attorney.
(b) Buyer shall pay for and be responsible for all costs and expenses associated with: recording fees on the Deed, one half of escrow fees of Escrow Agent, endorsements to the Owner’s Policy, lender’s policy of title insurance and endorsements, financing obtained by Buyer and corresponding mortgage doc stamp taxes and intangible doc stamp taxes, Buyer’s due diligence activities and Buyer’s attorney.
(c) All other closing costs, expenses, charges and fees shall be paid by the party incurring the same.
(d) Ad valorem real property taxes and assessments for the year of Closing shall be prorated between Buyer and Seller at Closing, effective as of the date of Closing utilizing the maximum discount then available. If the Closing shall occur before the tax amount is fixed for the then current year, the apportionment of taxes shall be upon the basis of the tax amount for the preceding year without discount and such apportionment shall be final and not subject to post-Closing reproration. Any assessments payable as to the Property under the documents constituting the Permitted Exceptions shall also be apportioned as of the date of Closing.
(e) All certified, confirmed, and ratified special assessment liens as of the Closing Date will be paid in full by Seller. If a certified, confirmed, and ratified special assessment is not payable at Closing, Buyer shall receive a credit from Seller in the amount of such assessment. If an improvement is substantially completed as of the Closing Date, but has not resulted in a lien before Closing, Buyer shall receive a credit from Seller in the amount of the last estimate of the assessment.
(f) If any utility services are presently being provided to or serving the Property, Seller will pay for such services through the day of Closing, but thereafter any such services in the name of Seller shall be terminated by Seller. Buyer is responsible for obtaining its own utility account for services to the Property and for all utility charges associated therewith following the Closing.
5
10. Conditions to Closing. The obligation of Buyer to purchase the Property pursuant to this Agreement is contingent upon the satisfaction of each of the following conditions as of the Closing Date:
(a) Seller’s representations and warranties set forth in this Agreement shall be true and correct in all material respects as of the Closing;
(b) Seller shall have materially performed, observed and complied with all covenants and agreements required to be performed by Seller at or prior to the Closing;
(c) The Required Consents, if any, shall have been obtained and shall be in full force and effect;
(d) There shall be no moratorium in place or threatened which would restrict or prevent Buyer from starting and continuing construction on its intended use of the Property; and
(e) The Title Company shall have irrevocably committed to issue (i) an owner’s policy of title insurance to Buyer in the full amount of the Purchase Price showing good and marketable title vested in Buyer subject only to the Permitted Exceptions (“Owner’s Policy”).
In the event of a failure of any of the foregoing conditions, Buyer may, at its option (i) waive such failure, in whole or in part, and continue to Closing without reduction to the Purchase Price, or (ii) terminate this Agreement, in which event Buyer shall receive a refund of the Deposit and neither party shall have any obligations under this Agreement other than those provisions which expressly survive the termination of this Agreement.
11. Seller’s Warranties and Representations. In order to induce Buyer to enter into this Agreement and to purchase the Property, Seller makes the warranties and representations to the best of its knowledge and belief below, which shall be true and correct as of the Effective Date and the Closing Date, and shall specifically survive Closing for nine (9) months and shall not be merged into the Deed:
(a) Seller has fee simple title to the Property and the power to convey same to Buyer, free and clear of all liens, defects, encumbrances, conditions, exceptions, restrictions or other matters whatsoever, affecting title to the Property, except for matters that would be reflected on a current survey and those matters set forth in the Title Commitment. Other than Buyer under this Agreement, no other person has any right or option to purchase all or any part of the Property.
(b) There is no litigation or other legal or administrative proceeding pending, including, without limitation, code enforcement, environmental or condemnation, or, to Seller’s knowledge, threatened against or relating to Seller or any of the Property.
(c) No special assessments have been levied or imposed against the Property and to Seller’s knowledge, none are pending, threatened, anticipated or contemplated, and no site or area improvements have been constructed or installed by any public authority, the cost of which may be assessed in whole or in part against any part of the Property.
(d) Seller has not filed, voluntarily or involuntarily, for bankruptcy relief under the United States Bankruptcy Code, nor has any petition for bankruptcy or receivership been filed against Seller.
6
(e) To Seller’s knowledge, there are no Hazardous Materials on, about or under the Property and the Property has not been used to generate, manufacture, refine, transport, treat, store, handle or dispose of Hazardous Materials; Seller has not received and is not aware of any summons, citation, directive, letter or other communication from any government entity concerning any intentional or unintentional action or omission which resulted in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Material on the Property; and the Property is not currently subject to any lien related to any environmental matter. For purposes of this representation “Hazardous Materials” and “Environmental Laws” shall have the following meanings:
“Hazardous Materials” shall mean and include any and all substances, materials, wastes, pollutants, oils or governmentally regulated substances or contaminants defined or designated as hazardous, toxic, radioactive, dangerous or any other similar term in or under any of the Environmental Laws, including, without limitation, asbestos and asbestos-containing materials, petroleum products (such as crude oil or any fraction thereof, gasoline, aviation fuel, jet fuel, diesel fuel, lubricating oils and solvents), urea formaldehyde, flammable explosives, PCBs, radioactive materials or waste, and any other substance that, because of its quantity, concentration or physical, chemical or infectious characteristics may cause or threaten a present or potential hazard to human health or the environment when improperly generated, used, stored, handled, treated, discharged, distributed, disposed or released.
“Environmental Laws” shall mean all federal, state and local statutes, ordinances, regulations, rules, policies, codes and guidelines now or hereafter in effect, as the same may be amended from time to time, which relate to the protection of human health, safety or the environment, including, but not limited to, the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 136, et seq.; the Safe Drinking Water Act, 44 U.S.C. § 300(f), et seq.; the Oil Pollution Control Act of 1990, 33 U.S.C. § 2701, et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601, et seq.; the Superfund Amendments and Reauthorization Act of 1986, Pub. Law No. 99-499, 100 Stat. 1613; the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq.; the Clean Air Act, 42 U.S.C. § 7401, et seq.; the Clean Water Act, 33 U.S.C., § 1251, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 5101, et seq.; and the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901, et seq., all as amended from time to time.
(f) There are no attachments, executions, assignments for the benefit of creditors generally, or voluntary or involuntary proceedings under the Bankruptcy Code, 11 U.S.C. § 101, et seq., or under any other debtor relief laws contemplated by or pending or threatened against Seller, or any part of the Property.
(g) Other than Seller, there are no parties in possession of any portion of the Property.
(h) Intentionally Omitted.
(i) To Seller’s knowledge, (i) none of the Property has been excavated; (ii) no landfill has been located on or in the vicinity of the Property; (iii) no debris, materials or items (including, without limitation, organic materials, strippings, rocks, stumps, concrete or tanks) have been buried upon the Property; (iv) the Property has not contained a bury or borrow pit, and no fill has been taken from or deposited on the Property; (v) no wetlands or other protected areas on the Property have been filled or altered; and (vi) no cemeteries, grave sites or burial grounds have been located on or in the vicinity of the Property.
(j) No part of the Property is within a special taxing district, community development district, or similar authority or entity, nor to Seller’s knowledge has any application been made or submitted for the creation thereof or annexation thereby.
7
(k) Seller has no knowledge that Seller or the Property is not in compliance with any applicable laws, ordinances, regulations, statutes, rules, orders, decrees, judgments and restrictive covenants or easements relating to the Property.
(l) Execution and delivery of this Agreement, consummation of the transactions described herein, and compliance with the terms of this Agreement will not conflict with, or constitute a default under, any agreement to which Seller is a party or by which Seller or the Property is bound, or violate any regulation, law, order, judgment, or decree applicable to Seller or the Property. Seller, and the person executing this Agreement on behalf of Seller, has full right, power and authority to execute this Agreement on behalf of Seller and perform Seller’s obligations hereunder and to perform its obligations under all documents required to be executed and delivered by Seller pursuant to this Agreement. This Agreement constitutes the valid and legally binding obligation of Seller, enforceable against Seller in accordance with its terms.
(m) To Seller’s knowledge, the Property Documents are true, accurate and complete in all material respects. Seller has provided or will provide to Buyer copies of all material Property Documents, which are in Seller’s possession or control, and Seller has not withheld any such material Property Documents.
(n) There are no contracts, instruments or agreements of any kind relating to the Property that would be binding on Buyer or the Property after Closing other than this Agreement and the Permitted Exceptions.
(o) Intentionally Omitted.
(p) Seller is not acting, directly or indirectly, for or on behalf of any person, group, entity, or nation named by any Executive Order or the United States Treasury Department as a terrorist, Specially Designated National and Blocked Person, or other banned or blocked person, entity, nation, or transaction pursuant to any law, order, rule, or regulation that is enforced or administered by the Office of Foreign Assets Control; and Seller is not engaged in this transaction, directly or indirectly on behalf of, or instigating or facilitating this transaction directly or indirectly on behalf of, any such person, group, entity, or nation.
(q) Seller is not a “foreign person” as that term is defined in Internal Revenue Code, nor is the sale of the Property subject to any withholding requirements imposed by the Internal Revenue Code, including, without limitation, Section 1445 thereof.
12. Failure of Seller Representation or Warranty Prior to Closing. If Seller becomes aware of any fact or circumstance that would materially change or render materially incorrect, in whole or in part, any representation or warranty made by Seller under this Agreement, during that time period beginning with the Effective Date and ending on the Closing, Seller shall give prompt written notice of such change, fact or circumstance to Buyer, in which event Buyer shall have the right to elect to terminate this Agreement and obtain a refund of the Deposit or elect to close despite any such change.
13. Maintenance of the Property Pending Closing. Prior to the Closing, Seller agrees that:
(a) Maintenance. Seller shall maintain the Property in good condition and repair, substantially in accordance with Seller’s current practices, it being the intention of the parties hereto that the general condition of the Property shall not be changed between the Effective Date and the Closing Date.
8
(b) Zoning. Seller shall not (without, in each instance, obtaining the prior written consent of Buyer) initiate or consent to, approve or otherwise take any action with respect to zoning, land use, governmental permits, licenses, entitlements and approvals, development agreements and orders, or any other governmental rules or regulations presently applicable to all or any part of the Property.
(c) Representations and Warranties of Seller. Seller shall use commercially reasonable efforts not to take any action or omit to take any action, which action or omission would reasonably be expected to result in any of the representations and warranties of Seller failing in any material respect to be true and correct as of the Closing.
(d) Non-Marketing. During the pendency of this Agreement and so long as there is no uncured Buyer default, Buyer has the exclusive right to purchase the Property and no portion of the Property will be marketed, sold, leased or offered for sale or lease, and Seller shall neither solicit, entertain nor accept any offers for the sale or lease of any portion of the Property or engage in any discussions with any third-party for the sale or lease of any portion of the Property.
14. Notices. Any notice, demand or other communication required or permitted to be given to any party hereunder shall be deemed to have been delivered the day of delivery if personally delivered or the first business day after deposit if sent by national overnight courier service (e.g., Federal Express), as addressed to the respective party at the address indicated below, or to such other address as may hereafter by indicated by written notice delivered in accordance with the terms hereof to the other parties:
Seller:
Brooksville Development Partners, LLC
Two Northfield PlazaSuite 320
Northfield, IL 60093
Attn: Alex Zdanov
Email: alex@interforumholdings.com
alina@interforumholdings.com
With a copy to:
Ruchim & Hudson, P.C.
3000 Dundee Road
Suite 415
Northbrook, IL 60062
Attn: Mitchell Ruchim
Email: mruchim@ruchimhudsonlaw.com
Buyer:
Terwilliger Brothers Residential LLC
900 Pinellas Bayway, Unit 213
Tierra Verde, FL 33715
Attn.: Bruce K. Terwilliger
Phone: 301-346-8104
Email: bruce@terwilligerres.com
With a copy to:
Trenam Law
101 E. Kennedy Blvd, Suite 2700
Tampa, FL 33602
Attn.: Mathew Poling
Phone: 813-227-7439
Email: mpoling@trenam.com
Escrow Agent:
Chicago Title Insurance Company
5215 Old Orchard Rd #400
Skokie, IL 60077
Attn.: Alisa Habibovic
Phone: 847-324-1816
Email: alisa.habibovic@ctt.com
Notices given by or to the attorney for a party shall be effective as if given by or to said party. Email notice shall be deemed sufficient notice when received.
9
15. Right of Assignment. Buyer shall have the one time right to assign its rights under this Agreement to any entity owned or controlled by Buyer or any of its principals, or under common ownership and control with Buyer, provided all rights to the Deposit are transferred by Buyer to the assignee and the assignee assumes in writing all obligations of Buyer under this Agreement. No other assignment is permitted without the prior written consent of Seller. Said assignment notice shall be done at least ten (10) days prior to closing.
16. Default.
(a) In the event of a default under this Agreement by Buyer and Buyer fails to cure such default within five (5) days after written notice of such default by Seller (provided that, in the case of a default in Buyer’s obligation to consummate Closing at the time and on the date required hereunder, no such cure period shall be available to Buyer), Seller shall have the right to terminate this Agreement and retain the Deposit as and for liquidated damages and not as penalty, in full satisfaction of claims against Buyer hereunder, which shall be Seller’s sole and exclusive remedy for such default. Seller and Buyer agree that Seller’s damages resulting from Buyer’s default are difficult, if not impossible, to determine and that the Deposit is a fair estimate of those damages which has been agreed to in an effort to cause the amount of such damages to be certain.
(b) In the event of default under of this Agreement by Seller and Seller fails to cure such default within five (5) days after written notice of such default by Buyer (provided that, in the case of a default in Seller’s obligation to consummate Closing at the time and on the date required hereunder, no such cure period shall be available to Seller), Buyer shall have the right at its option, and as its sole remedies, to declare this Agreement terminated and receive an immediate return of the Deposit, or to pursue specific performance; provided, however, if Buyer does not pursue specific performance for any reason, Buyer shall also be entitled to recover Buyer’s actual damages and expenses (but not special, speculative, consequential or punitive damages) provided that the maximum recoverable amount of actual damages and expenses shall not exceed $75,000.00.
17. Brokers. Seller and Buyer expressly acknowledge that Commercial Partners Realty, Inc. (the “Broker”) has acted as Buyer’s broker and the sole broker with respect to the sale of the Property pursuant to this Agreement. Seller shall pay Broker a brokerage commission of 4.25% of the total purchase price at Closing. Seller agrees to hold Buyer harmless and indemnify Buyer from and against any and all claims, losses, damages, costs, liabilities, or expenses (including without limitation reasonable attorneys’ fees and costs) suffered or incurred by Buyer as a result of any claims by any party claiming a brokerage commission, finder’s fee or similar compensation, arising out of Seller’s actions in connection with the sale of the Property pursuant to this Agreement. Buyer agrees to hold Seller harmless and indemnify Seller from and against any and all claims, losses, damages, costs, liabilities, or expenses (including without limitation reasonable attorneys’ fees and costs) suffered or incurred by Seller as a result of any claims by any party claiming a brokerage commission, finder’s fee or similar compensation, arising out of Buyer’s actions in connection with the sale of the Property pursuant to this Agreement, except for Broker in the amount of the brokerage commission set forth above. This section shall survive the Closing or earlier termination of this Agreement.
18. Escrow Agent. In the event the Escrow Agent is in doubt as to its duties and liabilities under the provisions of this Agreement, the Escrow Agent may, in its sole discretion, continue to hold the monies or instruments which are the subject of the escrow until the parties mutually agree in writing to disbursement thereof, or until a judgment of a court of competent jurisdiction shall determine the rights of the parties thereto, or it may deposit all the monies and/or instruments then held pursuant to this Agreement with the Clerk of the Circuit Court of the county where the Property is located, and upon notifying all parties concerning such action, all liability on the part of the Escrow Agent shall fully cease and terminate, except to the extent of accounting for any monies or instruments theretofore delivered out of escrow. In the event of any suit between the Buyer and Seller wherein the Escrow Agent is made a party by virtue of acting as Escrow Agent hereunder, or in the event of any suit wherein the Escrow Agent interpleads the subject matter of this escrow, the Escrow Agent shall be entitled to recover reasonable attorneys’ fees and costs incurred, said fees and costs to be charged and assessed as court costs in favor of the prevailing party. With respect to interpleader actions, reasonable attorneys’ fees and costs due to the Escrow Agent shall be paid from the interplead funds. In the event of any litigation arising out of this Agreement or concerning the Property to be sold and purchased pursuant to the terms hereof, the Escrow Agent shall not be disqualified from representing the Buyer by reason of the fact that the Escrow Agent shall have held or is then holding the Deposit, or any portion thereof, in escrow pursuant to the terms of this Agreement. Buyer and Seller, jointly and severally, agree to indemnify, defend and hold harmless Escrow Agent from and against any and all costs, losses, claims, damages, liabilities and expenses, including reasonable attorneys’ fees which may be incurred by Escrow Agent in connection with its duties as Escrow Agent hereunder, which are not attributable to the willful default or gross negligence of Escrow Agent. This section shall survive the Closing or earlier termination of this Agreement.
10
19. Risk of Condemnation or Casualty Pending Closing. All risk of loss to the Property shall remain upon Seller until the conclusion of the Closing. If, prior to Closing, either (i) condemnation or eminent domain proceedings shall be commenced, or if Seller shall receive notice of any pending or threatened condemnation or eminent domain proceedings; or (ii) the Property or any part of the Property shall be damaged by fire or other casualty; then, in either such event, Seller shall give Buyer immediate written notice thereof. After any such notice is received by Buyer, Buyer shall have the option to: (a) accept the Property and proceed to Closing subject to the proceedings or casualty (as applicable), whereupon any condemnation awards or insurance proceeds shall be paid to Buyer, and Seller shall assign to Buyer all of Seller’s right, title, and interest in and to any such condemnation awards or insurance proceeds; or (b) terminate this Agreement by written notice to Seller within ten (10) days after receipt of Seller’s notice of such casualty event or condemnation or eminent domain proceedings (with the Closing Date automatically extended, if necessary, to allow for such notice period), whereupon the parties shall have no rights, duties, or obligations hereunder, except those specifically stated herein to survive termination of this Agreement, and whereupon the Deposit shall be refunded to Buyer. If Buyer fails to notify Seller within such ten (10) day period of Buyer’s election, then Buyer shall be deemed to have elected option (b) above.
20. Miscellaneous.
(a) This Agreement shall not become effective and binding until executed by all parties hereto and shall be dated for purposes hereof as of the date of execution by the last party (the “Effective Date”). This Agreement may be executed in any number of counterparts for the convenience of the parties, all of which, when taken together and after execution by all parties hereto, shall constitute one and the same Agreement. The parties hereto may execute this Agreement electronically (including DocuSign) and an electronic or emailed copy of this Agreement and any signatures thereon shall be construed for all purposes as originals.
(b) The failure of a party to enforce any provisions of this Agreement shall not be construed as a waiver or limitation of that party’s right to subsequently enforce and compel strict compliance with every provision of this Agreement. No waiver by a party shall be effective unless the same is made in a written instrument signed by that party, and no waiver shall cause an amendment of this Agreement.
(c) This Agreement is for the benefit only of the parties hereto and shall inure to the benefit of and bind the heirs, personal representatives, successors and permitted assigns of the parties hereto.
(d) Each of the parties hereto agrees to use commercially reasonable efforts to take or cause to be taken all actions reasonably necessary to consummate the transactions and obligations contemplated by this Agreement.
(e) In the event of a dispute arising under this Agreement, whether or not a lawsuit or other proceeding is filed, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and costs. This section shall survive the Closing or earlier termination of this Agreement.
(f) Wherever used herein the singular number shall include the plural, the plural the singular and the use of any gender shall include all genders. If either party consists of more than one person, the obligations of such persons shall be joint and several.
(g) This Agreement contains the entire agreement between the parties hereto pertaining to the subject matter hereof, and supersedes all prior agreements, understandings, negotiations, and discussions, whether written or oral, of the parties hereto pertaining to the subject matter hereof.
(h) This Agreement may not be modified or amended, unless done so in writing and signed by all of the parties hereto.
(i) This Agreement shall be construed under the laws of the State of Florida. Each party irrevocably submits to the personal jurisdiction of the state or federal courts in the county where the Property is located, irrevocably waives any objection to the venue of such courts, and the same shall be the sole and exclusive venue with respect to any litigation arising hereunder.
11
(j) The parties hereto acknowledge that they have thoroughly read this Agreement, including any exhibits or attachments hereto, and have sought and received such competent advice and counsel as was necessary for them to form a full and complete understanding of all rights and obligations herein. The parties expressly agree that there shall be no presumption created as a result of either party having prepared in whole or in part any provision of this Agreement.
(k) If any term, covenant, condition or provision of this Agreement shall be held to any extent to be invalid or unenforceable under applicable law, the remaining terms shall not be affected thereby, but shall remain in full force and effect. The parties agree that in the event two different interpretations may be given to any provision hereunder, one of which will render the provision unenforceable, and one of which will render the provision enforceable, the interpretation rendering the provision enforceable shall be adopted.
(l) The calculation of the number of days that have passed during any time period referenced herein shall be based on calendar days, unless otherwise specified, and any such period shall commence on the day immediately following the action or event giving rise to the commencement of the period and shall expire at 5:00 p.m. Eastern time, on the last day of the time period. Furthermore, any time period provided for herein which shall end on Saturday, Sunday or a legal holiday in the State of Florida shall extend to 5:00 p.m. Eastern time, of the next full business day. Time is of the essence with respect to this Agreement.
(m) Nothing contained in this Agreement shall constitute or be construed to be or create a partnership, joint venture or any other relationship between Seller and Buyer other than the relationship of buyer and seller of property as set forth in this Agreement.
(n) If either party wishes to enter into a like-kind exchange (either simultaneously with Closing or deferred) under Section 1031 of the Internal Revenue Code (“Exchange”), the other party shall reasonably cooperate to effectuate the Exchange, including by consenting to the assignment of the exchanging party’s rights under this Agreement to its qualified intermediary; provided, however, (a) the cooperating party shall incur no liability, expense or obligation, contingent or otherwise, or be required to make any commitment or execute any documents (other than as set forth herein) related to the Exchange which would expand such cooperating party’s obligations or limit its rights beyond this Agreement, (b) the Closing shall not be contingent upon, nor extended or delayed by such Exchange, (c) this Agreement shall not be modified or affected by such Exchange, and (d) such Exchange shall not modify or affect the exchanging party’s liability under this Agreement. Notwithstanding any such Exchange, Seller and Buyer shall be and remain responsible for all obligations of Seller and Buyer respectively under this Agreement.
(o) The recitals to this Agreement are true and correct, and are incorporated herein by reference.
(p) EACH OF SELLER AND BUYER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT OR ITS HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS OR ASSIGNS MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BOTH PARTIES’ ACCEPTANCE OF THIS AGREEMENT AND SHALL SURVIVE THE CLOSING OR EARLIER TERMINATION OF THIS AGREEMENT.
(q) Intentionally Omitted.
(r) Buyer represents and warrants to Seller, Escrow Agent and Title Company that it is not prohibited from purchasing the Property by the provisions of Sections 692.201- 692.205, Florida Statutes.
[remainder of page intentionally blank]
12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.
| SELLER: | ||
| BROOKSVILLE DEVELOPMENT PARTNERS, LLC, | ||
| a Florida limited liability company | ||
| By: | Brooksville Development DE LLC, a Delaware limited liability company, |
|
| Its: | Manager | |
| By: | SAF Trust under Agreement dated July 5, 2022 | |
| Its: | Manager | |
| By: | ||
| Alex Zdanov, Co-Trustee | ||
| Date: | ||
| BUYER: | ||
| TERWILLIGER BROTHERS RESIDENTIAL LLC, | ||
| a Florida limited liability company | ||
| By: | /s/ Bruce K. Terwilliger , Jr. | 4/4/2024 |
| Bruce K. Terwilliger, Jr., Manager | ||
| Date: | ||
| Escrow Agent | ||
| Chicago Title Insurance Company | ||
| By: | ||
| Alisa Habibovic | ||
13
14
Exhibit 10.28
Brooksville Development Partners, LLC
OPERATING AGREEMENT
THIS OPERATING AGREEMENT (this “Agreement”), dated as of April 11, 2023, is entered into by Brooksville Development DE, LLC (the “Class A Member”), a Delaware limited liability company and Cuentas Inc, a Florida corporation, as well as Brooksville FL Partners, LLC, a Florida limited liability company (the “Class B Members,” together with the Class A Member, collectively the “Members”).
ARTICLE I - NAME AND PLACE OF BUSINESS
The name of the company is Brooksville Development Partners, LLC (“Company”), a Florida limited liability company. Its principal place of business is at 19046 Bruce B Downs Blvd., #403, Tampa, FL 33647 or such other place or places as the Manager may hereafter determine, but that may not be outside the United States of America.
ARTICLE II - DEFINITIONS AND RULES OF CONSTRUCTION
2.1 Definitions. The following capitalized terms have the following meanings:
Act means the Florida Limited Liability Company Act, as amended from time to time.
Actual Capital shall mean, with respect to a Member, the sum of Capital Contributions made by such Member, including Initial Capital Contribution and Additional Capital Contribution.
Additional Capital Contribution shall have the meaning assigned to such term in Section 4.2.
Affiliate shall mean any Person that, directly or indirectly through one or more intermediaries, is controlled by, or is under common control with, Company’s parent.
Agreement shall have the meaning assigned to such term in the preamble.
Bankruptcy shall mean, with respect to a Member, the occurrence of any of the following: (a) the filing of an application by such Member for, or a consent to, the appointment of a trustee of such Member’s assets; (b) the filing by such Member of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing such Member’s inability to pay its debts as they come due; (c) the making by such Member of a general assignment for the benefit of such Member’s creditors; (d) the filing by such Member of an answer admitting the material allegations of, or such Member’s consenting to, or defaulting in answering a bankruptcy petition filed against such Member in any bankruptcy proceeding; or (e) the expiration of sixty (60) days following the entry of an order, judgment or decree by any court of competent jurisdiction adjudicating such Member a bankrupt or appointing a trustee of such Member’s assets.
Business shall have the meaning assigned to such term in Section 3.1.
Capital Contribution shall mean, with respect to a Member, the aggregate of such Member’s capital contributions made to the Company pursuant to Article IV.
Certificate means the Certificate of Formation filed with the Florida Secretary of State.
Cause means (i) acts or omissions by the Manager that constitute willful disregard of, or bad faith or gross negligence with respect to, performance of the Manager’s duties under this Agreement or applicable law, or (ii) that the Manager has engaged in or has been charged with, or has been convicted of, fraud or other acts constituting a crime under any law applicable to the Manager.
Class A Member shall have the meaning assigned to such term in the preamble.
Class B Members shall have the meaning assigned to such term in the preamble.
Company shall have the meaning assigned to such term in Article I.
Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or general partnership or limited liability company interests, by contract or otherwise, and Controlling and Controlled shall have meanings correlative thereto.
Default Member Loan shall have the meaning assigned to such term in Section 4.2.
Default Loan Interest Return shall have the meaning assigned to such term in Section 4.2.
Defaulting Member shall have the meaning assigned to such term in Section 4.2.
Development shall have the meaning assigned to such term in Section 4.2.
Initial Capital Contribution shall have the meaning assigned to such term in Section 4.1.
Interest means the ownership interest of a Member in the Company. The Interest of each Member shall be expressed as a percentage interest as set forth on Schedule A (the “Percentage Interest”).
2
Manager means, initially, the Class A Member, or such other Person as may be designated or become the Manager pursuant to the terms of this Agreement.
Members shall have the meaning assigned to such term in the preamble.
Person shall mean any individual, corporation, partnership, joint venture, limited liability company, limited liability partnership, association, joint-stock company, trust, unincorporated organization, or other organization, whether or not a legal entity, and any governmental authority.
Property shall have the meaning assigned to such term in Section 3.1.
Project Brand shall mean Arden powered by CuentasCasa and the Project Brand by the Company to market and advertise the Project.
Shortfall Contribution shall have the meaning assigned to such term in Section 4.2.
Vacant Land Contract shall mean that certain Purchase and Sale Agreement dated 11/10/2021 and between Arden of Brooksville LLC, a Florida limited liability company and/or its successors, assigns or nominees, as Buyer, and DBI Realty LLC, a New York limited liability company and Brooksville Partners Florida LLC, a Florida limited liability company , as Seller, and addendums for the sale and purchase of the real property having the legal description as set forth on Schedule B (the “Vacant Land”). Arden of Brooksville FL LLC will assign all of its right, title and interest in and to the Vacant Land Contract to the Company pursuant to that certain Assignment and Assumption of Purchase and Sale Agreement between Arden of Brooksville LLC and the Company dated April 11, 2023.
2.2 Rules of Construction. Unless the context otherwise clearly requires:
(a) Words denoting the singular only shall include the plural and vice versa.
(b) Words denoting one gender shall include all genders;
(c) References to sections and schedules or appendices are to sections of and schedules or appendices to this Agreement and a reference to a subsection is, unless otherwise indicated, a reference to a subsection of the section in which the reference appears;
(d) Headings to sections are for convenience only and are to be ignored in construing this Agreement;
(e) References to a “person” are to be construed so as to include any individual, firm, company, government, state or agency of a state, local or municipal authority, or any joint venture, trust, corporation, limited liability company, association or partnership (whether or not having separate legal personality) and vice versa, and shall include references to its successors, permitted transferees and assigns;
3
(f) References to a “company” or a “corporation” are to be construed so as to include any company, corporation or other body corporate, wherever and however incorporated or established or any limited liability company or business or statutory business trust;
(g) References to any statute, code or statutory provision are to be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted, and include references to all bylaws, instruments, orders and regulations for the time being made thereunder or deriving validity therefrom unless the context otherwise requires;
(h) Except to the extent that the context otherwise requires, any reference in this Agreement to any agreement, deed or instrument is a reference to such agreement, deed or instrument as amended, supplemented, restated or otherwise modified from time to time and includes a reference to any document which amends, supplements, restates, modifies or is entered into, made or given pursuant to or in accordance with any of the terms of such agreement, deed or instrument;
(i) The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; and
(j) The words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof.
ARTICLE III - BUSINESS, PURPOSE AND TERM OF THE COMPANY
3.1 Purpose. The purpose of the Company shall be to (a) acquire approval for Multifamily property site located at See Schedule B for the development and sale of a residential apartment community consisting of approximately 364 units that are fully entitled and permitted for construction (the “Property”); and (b) such other activities as are related to or incidental to the foregoing (collectively the “Business”). The Company, acting by and through the Manager, shall have all powers necessary or advisable in connection with the foregoing, including, but not limited to, the power to (i) enter into agreements and execute documents and instruments, including leases, mortgages, evidences of indebtedness, construction, development, management, and other contracts; (ii) borrow money, and open and maintain bank accounts authorizing withdrawals on the signature of such one or more persons as the Manager may designate; (iii) sell or assign any or all assets of the Company; and (iv) execute such other documents and take such other actions as may be necessary or desirable from time to time to carry out any purpose authorized pursuant to this Section.
3.2 Term. The term of the Company commenced on March 22, 2023 and shall continue until dissolved and terminated pursuant to Article IX.
4
3.3 Filings under the Act.
(a) The Certificate of Incorporation of the Company has been filed in the office of the Secretary of State of Florida in accordance with the provisions of the Florida limited liability act.
(b) The Manager shall cause amendments to the Certificate to be filed whenever required by the Act. Such amendments may be executed by the Manager or by any person designated by the Manager.
3.4 Other Qualifications. The Company shall file or record such documents and take such other actions under the laws of any jurisdiction as are necessary or desirable to permit the Company, subject to Section 3.1, to do business in any such jurisdiction determined by the Company and to promote the limitation of liability of the Members in any such jurisdiction.
3.5 Title to Property. All real and personal property owned by the Company shall be owned by the Company as an entity, and the Members nor Manager shall not have any ownership interest in such property. Except as otherwise provided in this Agreement, the Company shall hold all of its real and personal property in the name of the Company and not in the name of the Members.
3.6 Conduct of Business. The Company’s
business shall be conducted as follows:
(a) The Company will maintain records and books and accounts separate from those of the Members and its Affiliates.
(b) The Company shall maintain bank accounts separate from those of the Members or any of its Affiliates.
(c) The Company shall always be described as a separate limited liability company, and never as the alter ego of any Member or any of its Affiliates.
(d) The Company shall act solely in its own name and through its own authorized officers and agents. The Company shall not be appointed agent of any Member or any of its Affiliates.
(e) Except as otherwise provided in any written agreement entered into by or for the benefit of the Company, the Company shall be solely responsible for the payment of all expenses, indebtedness and other obligations incurred by it; and
(f) The Company shall at all times hold itself out to the public under its own name as a legal entity separate and distinct from any Member and any of its Affiliates.
5
ARTICLE IV - CAPITAL CONTRIBUTION
4.1 Initial Capital Contribution. Contemporaneously with the execution of this Agreement, each Member has made an initial Capital Contribution (each, an “Initial Capital Contribution”) as set forth on Schedule A. The amount of $2,000,000.00 (Two Million Dollars) of the Class B Member’s (Cuentas, Inc.) Initial Capital Contribution shall be paid into title insurance escrow account upon execution of this Agreement and held in trust by the title agent “Title Agent” and shall be released from escrow by the Title Agent to fund the balance of the purchase price at the closing of the purchase fee simple title in the Vacant Land by the Company from Seller , free and clear of any liens, claims and encumbrances with the sole exception being the Republic Bank loan to fund the remaining purchase price. If the closing of the Vacant Land purchase does not occur within sixty (60) days of the execution of this Agreement, Title Agent shall immediately return the entire Two Million Dollars to Class B Member, Cuentas, Inc...
4.2 Additional Capital Contribution.
In addition to the Initial Capital Contributions of the Members, within one-hundred and twenty (120) days after the closing on the purchase of the Vacant Land, Manager shall submit to the Members the construction budget for the Development of the Project “Development”), and and the related documents, including without limitation, the design documents, all necessary permits and approvals by the relevant governmental entities necessary for the Development, general contractor construction contract, the term sheet of the proposed construction loan, setting forth the timing and comprehensive budget for the commencement and completion of the Development of the Project, and the detailed as completed estimated fair market value of the Project assuming either holding the Project for rental value or sale of the Project. The Members shall either agree in writing to fund the additional Capital Contributions to the Company (the “Additional Capital Contribution”) or elect to not go forward with the Development of the Project and sell the Vacant Land and distribute the proceeds under Article 5 of this Agreement.
If the Members elect to proceed with the Development of the Project, the Additional Capital Contribution shall be funded between Class B Members according to their agreed contributions which when funded shall be added to the respective contributing Members Capital Account Balance by the Members.
(a) If any Member (hereinafter a “Defaulting Member”) shall fail to contribute all or any portion of its Additional Capital Contribution called for pursuant to Section 4.2(a) within thirty (30) days of the call therefor or date otherwise due, then the non-Defaulting Member shall be entitled, but not required, at its option:
(i) To loan to the Company the amount of the Additional Capital Contribution which the Defaulting Member failed to contribute; or
(ii) To make a Capital Contribution to the Company in the amount of the Additional Capital Contribution which the Defaulting Member failed to contribute, (collectively, a “Shortfall Contribution”).
6
(b) If the non-Defaulting Member elects to make a loan pursuant to Section 4.2(b)(i) above, the sum of the funding made by the non-Defaulting Member on behalf of the Defaulting Member is hereinafter referred to as a “Default Member Loan,” and such Default Member Loan to the Company shall bear interest at a rate equal to eighteen percent (18%) per annum (the “Default Loan Interest Return”). Interest shall accrue on Default Member Loan from the date the funds are actually received by the Company from the non-Defaulting Member until the date that the Default Member Loan isrepaid in full. If there is more than one Default Member Loan then the Default Member Loan made most recently in time shall have priority over older Default Member Loans.
(c) If the non-Defaulting Member elects to make a Shortfall Contribution, then upon receipt by the Company of the Shortfall Contribution, the Percentage Interest of the non-Defaulting Member shall automatically, and without further act on the part of any party, be increased (and the Percentage Interest of the Defaulting Member shall automatically, and without further act on the part of any party, be correspondingly decreased), to equal the percentage equal to a fraction, the numerator of which is the sum of: (i) the amount of such Shortfall Contribution and the respective Capital Account Balance shall be adjusted accordingly to reflect the Shortfall Contribution and the denominator of which is the sum of the Total Capital Contributions of the Members, including the Shortfall Contribution.
(d)
ARTICLE V - DISTRIBUTIONS
5.1 Distribution of Cash. Except as otherwise provided in Section 5.2, cash of the Company which is not required, in the judgment of the Manager, to meet obligations of the Company nor reasonably necessary for future operations shall be distributed to the Members in the following order of priority in such amounts and at such times as determined by the Manager:
(a) First, to pay the Members who have made Default Member Loans until such Members have received aggregate distributions under this Section 5.1(a) in amounts: (i) first, equal to all accrued but unpaid interest with respect to such Default Member Loans in the priority provided in Section 4.2(c); and then (ii) second, equal to the unpaid principal r of such Default Member Loans (and with respect to Default Member Loans made at different times, in the priority provided in Section 4.2(c));
(b) Second, pro rata and pari passu, to the Members, according to their respective Capital Account Balance until such time as their respective Capital Account Balance has been reduced to zero;
(c) Thereafter, pro rata and pari passu to the Members in proportion to their respective Percentage Interests.
7
5.2 Distributions upon Sale of Property. Upon the completion of the Development, all the parcels of the Property, will be offered for sale. Upon the closing of such sale, the net proceeds shall be used in the following order of priority:
(a) First, to pay the Members who have made Default Member Loans until such Members have received aggregate distributions under Sections 5.1(a) and 5.2(a) in amounts: (i) first, equal to all accrued but unpaid interest with respect to such Default Member Loans in the priority provided in Section 4.2(c); and then (ii) second, equal to the outstanding principal amount of such Default Member Loans (and with respect to Default Member Loans made at different times, in the priority provided in Section 4.2(c));
(b) Second, to repay any loan financing the acquisition and/or Development of the Property [this should be (a) otherwise lender will require amendment of this Agreement and this should be item (a) under 5.1 as well];
(c) Third, pro rata and pari passu, to distributed to the Members, in accordance with their outstanding Capital Account Balance until such time as their respective Capital Account Balance have been reduced to zero;
(d) Thereafter, pro rata and pari passu to the Members in proportion to their respective Percentage Interests.
5.3 Limitations on Distributions.
(a) Notwithstanding anything herein to the contrary:
(i) no distribution pursuant to this Agreement shall be made if such distribution would result in a violation of the Act; and
(ii) no distribution shall be made that would result in a violation or breach of the Company’s obligations under any agreement to which it is a party restricting distributions by the Company.
(b) In the event that a distribution is not made as a result of the application of paragraph (a) of this Section 5.3, all amounts so retained by the Company shall continue to be subject to the claims of all creditors of the Company.
ARTICLE VI - POWERS, RIGHTS, DUTIES AND RESPONSIBILITIES
OF THE MANAGER
6.1 Authority. Subject to the limitations provided in this Agreement, including but not limited to Section 6.2, the Manager shall have exclusive and complete authority and discretion to manage the operations and affairs of the Company and to make all decisions regarding the business of the Company. Any action taken by the Manager on behalf of the Company shall constitute the act of and serve to bind the Company. In dealing with the Manager acting on behalf of the Company, no Person shall be required to inquire into the authority of the Manager to bind the Company. Persons dealing with the Company are entitled to rely conclusively on the power and authority of the Manager as set forth in this Agreement.
8
6.2 Actions Requiring Approval of Members. Without the written approval of the Members holding at least seventy-five percent (75%) of the Percentage Membership Interest, the Company shall not, and shall not enter into any agreement or commitment to:
(a) Acquire any real or personal property or interest therein on behalf of the Company other than the Vacant Land and the Property and the personal property in the ordinary course of business as necessary for the Development of the Project
(b) Borrow money, issue evidences of indebtedness, or grant any mortgages or other encumbrances on or security interests in the assets of the Company, including without limitation, any financing or refinancing of the Property or any portion thereof, or modify, extend, renew, change, or prepay in whole or in part any borrowing, financing, or refinancing, or make any commitments to borrow funds or give any consideration to obtain a commitment for the loan of funds;
(c) Enter into or amend, modify, or terminate any agreement pertaining to the sale, conveyance, exchange, or other transfer of any assets of the Company, or sell, convey, exchange, or otherwise transfer any assets of the Company, including, without limitation, all or any portion of the Property or any interest therein, other than nonmaterial transfers of personal, tangible, or intangible property in the ordinary course of business;
(d) Engage the Accountant or any other accountant or legal counsel for the Company or change or terminate any accountant or legal counsel;
(e) Effect a merger, conversion, consolidation, or other reorganization of the Company or modify or amend the Certificate or this Agreement, or other governance documents;
(f) Establish a subsidiary or enter into any joint venture or similar business arrangement;
(g) Guaranty the payment of any money or debt of another Person, or performance of any other obligation of another Person;
(h) Agree to any material change to accounting and related matters material to the Company or any material changes to accounting practices or policies;
(i) Make any material change to the nature of the Business conducted by the Company or enter into any business other than the Business;
(j) Permit the transfer of any Member’s Interest in the Company, issue additional Interests or admit additional members to the Company;
9
(k) Make any loan, advance, capital contribution or any other investments in any Person in excess of $10,000.00;
(l) Settle any lawsuit, action, dispute or other proceeding or otherwise assume any liability with a value in excess of $10,000.00 or agree to the provision of any equitable relief by the Company; or
(m) Initiate or consummate an initial public offering or make a public offering and sale of the Membership Interests or any other securities.
6.3 Removal of Manager. The Class B Member may remove the Class A Member as the Manager of the Company only for Cause, by delivering written notice to the Class A Member. Upon the Class A Member’s removal, the Class B Member shall either assume the role of the Manager or appoint another Person (who may be an Affiliate of the Class B Member) to manage the operations of the Company, which may be removed by the Class A Member only for Cause, by delivering written notice to the Class B Member. The removal of a Member as the Manager shall not affect its rights as a Member and shall not constitute a withdrawal of such Member.
6.4 Resignation of Manager. The Class A Member may voluntarily resign as the Manager. Upon such resignation, the Class B Member shall either assume the role of the Manager or appoint another Person (who may be an Affiliate of the Class B Member) to manage the operations of the Company. The resignation of the Manager shall not affect its rights as a Member and shall not constitute a withdrawal of a Member.
6.5 Election of Officers; Delegation of Authority. The Manager may designate one or more officers with such titles as may be designated by the Manager to act in the name of the Company with such authority as may be delegated to such officer(s) by the Manager. Any such officer shall act pursuant to such delegated authority until such officer is removed by the Manager. Any action taken by an officer designated by the Manager shall constitute the act of and serve to bind the Company. In dealing with the officers acting on behalf of the Company, no Person shall be required to inquire into the authority of the officers to bind the Company. Persons dealing with the Company are entitled to rely conclusively on the power and authority of any officer set forth in this Agreement and any instrument designating such officer and the authority delegated to him or her.
6.6 Performance of Duties and Compliance with Requirements. The Manager shall ensure the Company’s performance of and compliance with the provisions set forth in Article III.
6.7 Expenses. The Company shall pay for all expenses incurred in connection with the operation of the Company’s business.
10
ARTICLE VII - ACCOUNTING AND FISCAL MATTERS
7.1 Maintenance of and Access to Records. The Manager shall keep, or shall cause to be kept, full, accurate, complete and proper books and records of all of the operations of the Company.
7.2 Fiscal Year. The Company’s fiscal year for financial and income tax purposes shall begin on January 1 and end on December 31; provided that the first fiscal year of the Company shall begin on the date of this Agreement and the last fiscal year of the Company shall end on the date on which the Company is terminated.
ARTICLE VIII - TAX MATTERS
8.1 Tax Characterization of the Company. For United States federal and (to the extent permitted by law) state and local income tax purposes, the Company shall be disregarded as an entity separate from the Members.
8.2 Withholding. The Company shall comply with tax withholding requirements under United States federal, state and local law and shall remit amounts withheld to and file required forms with the applicable authorities. The Company shall treat any amount withheld or paid over to a tax authority with respect to distributions or allocations to the Members as having been distributed or allocated to the Member.
8.3 Tax Reporting. The Manager shall cause to be prepared and timely shall file all tax returns and reports required to be filed by the Company.
ARTICLE IX - DISSOLUTION
9.1 Dissolution of the Company.
(a) The Company shall be dissolved, wound up and terminated as provided herein upon the occurrence of any of the following events:
(i) The determination of the Members to dissolve the Company;
(ii) The bankruptcy of a Member, unless within thirty (30) days after the occurrence of such Bankruptcy, the other Member agrees in writing to continue the business of the Company;
(iii) At the election of a non-defaulting Member, in its sole discretion, if the other Member breaches any material covenant, duty or obligation under this Agreement (including a Member’s obligation to make Additional Capital Contributions pursuant to Section 4.2), which breach remains uncured for thirty (30) days after written notice of such breach was received by the defaulting Member;
(iv) The sale, exchange, involuntary conversion, or other disposition or transfer of all or substantially all the assets of the Company; or
11
(iv) The entry of a decree of judicial dissolution under § 18-802 of the Act.
(b) In the event of the dissolution of the Company for any reason, the Manager or its successors or assigns (the “Liquidator”) shall commence to wind up the affairs of the Company and to liquidate the Company assets. The Liquidator shall have full right and unlimited discretion to determine the time, manner and terms of any sale or sales of the Company assets pursuant to such liquidation, giving due regard to the activity and condition of the relevant market and general financial and economic conditions.
(c) The Liquidator shall have all of the rights and powers with respect to the assets and liabilities of the Company in connection with the liquidation and termination of the Company that it would have with respect to the assets and liabilities of the Company during the term of the Company.
(d) Notwithstanding the foregoing, a Liquidator which is not a Member shall not be deemed a member in this the Company and shall not have any of the economic interests in the Company of a member.
9.2 Distribution in Liquidation. In the event of the dissolution of the Company for any reason, the Company’s assets, subject to prior application in accordance with the terms of any security agreement to which the Company is a party, shall be applied in the following order of priority:
(a) first, to pay any outstanding costs and expenses of the winding up, liquidation and termination of the Company;
(b) second, to any creditors of the Company (including Members who are creditors, to the extent otherwise permitted by law), in the order of priority provided by law, including fees and reimbursements payable to the Manager or its Affiliates;
(c) third, to establish reserves reasonably adequate to meet any and all contingent or unforeseen liabilities or obligations of the Company; provided that at the expiration of such period of time as the Manager may deem advisable, the balance of such reserves remaining after the payment of such contingencies or liabilities shall be distributed as hereinafter provided; and
(d) fourth, to the Members in the same manner as distributions under Section 5.1.
9.3 Termination. The Company shall terminate when all property owned by the Company shall have been disposed of and the assets shall have been distributed as provided in Section 9.2. The Liquidator shall then execute and cause to be filed a Certificate of Cancellation of the Company.
12
ARTICLE X - INDEMNIFICATION
10.1 Indemnification and Advancement of Expenses.
(a) The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company), by reason of the fact that he, she or it is or was the Manager, officer, employee, representative or agent of the Company, or is or was serving at the request of the Company as a director, officer, manager, employee, representative or agent of another corporation, limited liability company, general partnership, limited partnership, joint venture, trust, business trust or other enterprise or entity, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him, her or it in connection with such action, suit or proceeding if he, she or it acted in good faith and in a manner he, she or it reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his, her or its conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which he, she or it reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his, her or its conduct was lawful.
(b) The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he, she or it is or was the Manager, officer, employee, representative or agent of the Company, or is or was serving at the request of the Company as a director, officer, manager, employee, representative or agent of another corporation, limited liability company, general partnership, limited partnership, joint venture, trust, business trust or other enterprise or entity, against expenses (including attorneys’ fees) actually and reasonably incurred by him, her or it in connection with the defense or settlement of such action or suit if he, she or it acted in good faith and in a manner he, she or it reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that a court in the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
(c) To the extent that the Manager, officer, employee, representative or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 10.1(a) and Section 10.1(b), or in defense of any claim, issue or matter therein, he, she or it shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him, her or it in connection therewith.
13
(d) Any indemnification under Section 10.1(a) and Section 10.1(b) (unless ordered by a court of competent jurisdiction) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Manager, officer, employee, representative or agent is proper in the circumstances because he, she or it has met the applicable standard of conduct set forth in Section 10.1(a) and Section 10.1(b). Such determination shall be made by the Manager.
(e) The Company shall indemnify and hold the Members (and, where applicable, their respective officers, partners, members, directors and shareholders) harmless from and against all expenses, liability and loss (including, without limitation, attorney’s fees and disbursements, judgments, fines, ERISA or other similar or dissimilar excise taxes or penalties and amounts paid or to be paid in settlement) incurred as a result of or on connection with (i) any threatened, pending or completed action, suit or proceeding that asserts that such Member is liable for any debt, obligation or liability of the Company or is directly or indirectly required to make payments in respect thereof or in connection therewith, and (ii) any act or omission by such Member for or on behalf of the Company. Such right shall include the right to be paid expenses, including, without limitation, attorney’s fees and disbursements, incurred in defending or participating in any such threatened, pending or completed action, suit or proceeding in advance of its final disposition.
(f) Expenses (including attorneys’ fees) incurred by a Manager in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Manager, respectively, to repay such amount if it shall ultimately be determined that he, she or it is not entitled to be indemnified by the Company pursuant to this Section 10.1. Such expenses (including attorneys’ fees) incurred by other officers, employees, representatives and agents shall be paid upon such terms and conditions, if any, as the Manager deems appropriate.
(g) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.1 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office.
(h) For purposes of this Section 10.1, any reference to the “Company” shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, managers, members, employees, representatives or agents, so that any person who is or was a director, officer, manager, member, employee, representative or agent of such constituent entity, or is or was serving at the request of such constituent entity as a director, officer, manager, employee, representative or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 10.1 with respect to the resulting or surviving entity as he or she would have with respect to such constituent entity if its separate existence had continued.
14
(i) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.1 shall continue as to a person who has ceased to be a Manager, Member, officer, employee, representative or agent and shall inure to the benefit of the heirs, executors and administrators of such person, provided that the claim for indemnification or the advancement of expenses relates to such person’s actions taken in connection with his or her duties as a Manager, Member, officer, employee, representative or agent of the Company.
(j) Notwithstanding anything in this Article X to the contrary, the Company will not have the obligation of indemnifying any person with respect to proceedings, claims or actions initiated or brought voluntarily by such person and not by way of defense.
10.2 Limit on Liability of Members. The indemnification set forth in this Article X shall in no event cause a Member (in its capacity as the Member) to incur any personal liability beyond its Capital Contributions, nor shall it result in any liability of a Member to a third person.
ARTICLE XI – GENERAL PROVISIONS
11.1 Nature of Interest of Members. None of the membership interests in the Company shall be a security governed by Article 8 of the Uniform Commercial Code.
11.2 Applicable Law. Notwithstanding the place where this Agreement may be executed, this Agreement, the rights and obligations of the Members, and any claims and disputes relating thereto, shall be subject to and governed by the Act and the other laws of the State of Florida.
11.3 Successors in Interest. Each and all of the covenants, agreements, terms, and provisions of this Agreement shall be binding upon and inure to the benefit of each Member and its heirs, executors, administrators, personal representatives, successors and permitted assigns.
11.4 Severability. If any term, provision, covenant or condition of this Agreement, or the application thereof to any person or entity or any circumstance, is held to be unenforceable, invalid or illegal (in whole or in part) for any reason (in any relevant jurisdiction), the remaining terms, provisions, covenants and conditions of this Agreement, modified by the deletion of the unenforceable, invalid or illegal portion (in any relevant jurisdiction), will continue in full force and effect, and such unenforceability, invalidity, or illegality will not otherwise affect the enforceability, validity or legality of the remaining terms, provisions, covenants and conditions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the Members as to the subject matter hereof.
11.5 The Members agree to waive trial by jury and elect to have any disputes decided by Arbitration.
15
IN WITNESS WHEREOF, the Members have executed and delivered this Operating Agreement the day and year first above written.
CLASS A MEMBER
Brooksville Development DE, LLC, a Delaware limited liability company
By: SAF Trust u/a/d July 5, 2022
| By: | /s/ Boris Tabak | ||
| Name: | Boris Tabak | ||
| Title: | Co-Trustee | ||
CLASS B MEMBERS
Cuentas, Inc., a Florida corporation
| By: | /s/ Arik Maimon | ||
| Name: | Arik Maimon | ||
| Title: | President | ||
Brooksville FL Partners, LLC, a Florida limited liability company
BY: SAF Trust u/a/d July 5, 2022
| By: | /s/ Boris Tabak | |
| Name: | Boris Tabak | |
| Title: | Co-Trustee |
16
SCHEDULE A
INTERESTS OF THE MEMBERS IN
Brooksville Development Partners, LLC
Class A Member – Brooksville Development DE, LLC
Capital Contribution: Unique Services – No dollars_______________
Percentage Membership Interest: 29%
Class B Members
Cuentas, Inc., a Florida corporation
Initial Capital Contribution: Two Million Dollars ($2,000,000.00), subject to Section 4.1 of this Agreement
Percentage Membership Interest: 63.9% Equity Contribution: 90%
Brooksville FL Partners, LLC, a Florida limited liability company
Percentage Membership Interest: 7.1% Equity Contribution: 10%
NOTE: Brooksville FL Partners, LLC have invested $1,559,984.26 as of 4/6/23.
17
Legal Description
Exhibit B
A parcel of land lying in and being a part of section 28, township 22 south, range 19 east, Hernando county, Florida, and being more particularly described as follows: commence at the NW corner of the sw 1/4 of said section 28; thence run south 00°24’13” east along the west boundary of said sw 1/4 a distance of 61.82 feet to the nw corner of lands described in or book 1922, page 1778, public records of Hernando county, Florida; thence run south 72°31’51” east along the northerly boundary of said lands a distance of 459.37 feet to the point of beginning; thence run north 17°36’50” east along the easterly boundary, and the extension thereof, of land described in or book 1059, page 1669 of said public records, a distance of 765.00 feet to the southerly right of way line of state road 50 (Cortez boulevard); thence run along said right of way the following three (3) courses and distances: (1) south 72°31’51” east 675.21 feet; (2) north 00°25’38” west, 24.17 feet; (3) south 72°31’51” east, 473.70 feet to the westerly boundary of land described in or book 961, page 601 and or book 1038, page 1280, of said public records; thence run along said boundary the following seven (7) courses and distances: (1) south 17°28’09” west, 388.00 feet; (2) south 72°31’51” east, 25.00 feet; (3) south 17°28’09” west, 17.50 feet to the point of curvature of a curve concave northwesterly, having a radius of 125.00 feet, a delta of 86°49’54”, a chord bearing of south 60°53’06” west, and a chord of 171.82 feet; thence run along the arc of said curve (4) 189.44 feet; (5) south 14°18’03” west, 36.00 feet; (6) south 72°31’51” east, 362.65 feet; (7) south 02°07’13” east, 231.92 feet to the south boundary of the east 1/2 of the nw 1/4 of the ne 1/4 of the sw 1/4 of said section 28; thence run south 89°19’20” west along said south boundary a distance of 10.44 feet to the northerly boundary of land described in said or book 1922, page 1778; thence run north 72°31’51” west along said northerly boundary a distance of 1482.80 feet to the point of beginning.
Said parcel 32 contains 950,527.51± sf or 21.82± acres more or less.
18
Addendum
to the Operating agreement dated March 30, 2023.
| 1. | In the event of the Members elect to sell the Vacant Land and not move forward with the Development of the Project in accordance with Section 4.1 of this Agreement, the distribution of the net sale proceeds shall be applied in the following order of priority: |
| (a) | First, to any creditors of the Company (including Members who are creditors, to the extent otherwise permitted by law), in the order of priority provided by law, including fees and reimbursements payable to the Manager or its Affiliates. |
| (b) | Second, to establish reserves reasonably adequate to meet any and all contingent or unforeseen liabilities or obligations of the Company; provided that at the expiration of such period of time as the Manager may deem advisable, the balance of such reserves remaining after the payment of such contingencies or liabilities shall be distributed as hereinafter provided; and |
| (c) | Third, to the Members in accordance with their respective Capital Account Balances. |
| (d) | Fourth, to Class A and Class B members on a 50/50 pro rata basis. |
| 2. | In the event of Class B member or its affiliates inability to contribute necessary funds to satisfy the equity requirement to obtain lender’s financing, the membership interest would be applied in the following manner: |
Class A - 35%
Class B - 65%
CLASS A MEMBER
Brooksville Development DE, LLC, a Delaware limited liability company
BY: SAF TRUST u/a/d July 5, 2022
| By: | /s/ Boris Tabak | ||
| Name: | Boris Tabak | ||
| Title: | Co-Trustee | ||
CLASS B MEMBERS
Cuentas, Inc., a Florida corporation
| By: | /s/ Arik Maimon | ||
| Name: | Arik Maimon | ||
| Title: | President | ||
Brooksville FL Partners, LLC, a Florida limited liability company
By: SAF Trust u/ad July 5, 2022
| By: | /s/ Boris Tabak | ||
| Name: | Boris Tabak | ||
| Title: | Co-Trustee | ||
19
Exhibit 14.1
CODE OF BUSINESS CONDUCT AND ETHICS
OF
CUENTAS INC.
| 1 | Introduction |
The Board of Directors (the “Board”) of Cuentas Inc., a Florida corporation (the “Company”) has adopted this Code of Business Conduct and Ethics (this “Code”), as amended from time to time by the Board and which is applicable to all of the Company’s directors, officers and employees. To the extent this Code requires a higher standard than required by commercial practice or applicable laws, rules or regulations, the Company adheres to these higher standards.
This Code applies to all of our directors, officers and employees. We refer to all Company executive and subordinate officers and employees covered by this Code as “Company employees” or simply “employees,” unless the context otherwise requires. In this Code, we refer to our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, as our “principal financial officers.”
This Code is intended to supplement, and not replace, the various guidelines and documents that the Company has prepared on specific laws, rules, regulations and policies that all officers, directors and employees of the Company should be aware of, such as the Company’s Employee Handbook and Insider Trading Policy.
It is the Company’s policy that all Company directors, officers and employees:
| ● | promote honest and ethical conduct, including fair dealing and the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| ● | promote the full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (the “SEC”), as well as in other public communications made by or on behalf of the Company; |
| ● | promote compliance with applicable governmental laws, rules and regulations; |
| ● | protect the Company’s legitimate business interests, including corporate opportunities, assets and confidential information; |
| ● | deter wrongdoing; and |
| ● | require prompt internal reporting of breaches of, and accountability for adherence to, this Code. |
This Code may be amended and modified by the Board. In this Code, references to the “Company” means Cuentas Inc. and, in appropriate context, the Company’s subsidiaries, if any.
| 2 | Honest, Ethical and Fair Conduct |
Each person owes a duty to the Company to act with integrity. Integrity requires, among other things, being honest, fair and candid. Deceit, dishonesty and subordination of principle are inconsistent with integrity. Service to the Company should never be subordinated to personal gain or advantage.
Each person must:
| ● | act with integrity, including being honest and candid while still maintaining the confidentiality of the Company’s information where required or when in the Company’s interests; |
| ● | observe all applicable governmental laws, rules and regulations; |
| ● | comply with the requirements of applicable accounting and auditing standards, as well as Company policies, in order to maintain a high standard of accuracy and completeness in the Company’s financial records and other business-related information and data; |
| ● | adhere to a high standard of business ethics and not seek competitive advantage through unlawful or unethical business practices; |
| ● | deal fairly with the Company’s customers, suppliers, competitors and employees; |
| ● | refrain from taking advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice; |
| ● | protect the assets of the Company and ensure their proper use; |
| ● | until such time as such person ceases to be an officer or director of the Company, to first present to the Company for its consideration, prior to presentation to any other entity, any business opportunity suitable for the Company, subject to any pre-existing fiduciary or contractual obligations such officer may have or as otherwise set forth in the prospectus related to the Company’s initial public offering; and |
| ● | avoid conflicts of interest, wherever possible, except as may be allowed under guidelines or resolutions approved by the Board (or the appropriate committee of the Board) or as disclosed in the Company’s public filings with the SEC. |
A conflict of interest can arise whenever an officer, director or employee, takes action or has an interest that prevents that person from performing their Company duties and responsibilities honestly, objectively and effectively. Anything that would be a conflict for a person subject to this Code also will be a conflict for that person’s family members. For purposes of this Code, “family members” includes your spouse or life-partner, siblings, parents, aunts, uncles, nieces, nephews, cousins, in-laws and children whether such relationships are by blood or adoption. Examples of conflict of interest situations include, but are not limited to, the following:
| ● | any significant ownership interest in any supplier or customer; |
| ● | any consulting or employment relationship with any supplier, customer or competitor of the Company; |
| ● | serving on a board of directors or trustees or on a committee of any entity (whether profit or not-for-profit) whose interests reasonably would be expected to conflict with those of the Company; |
| ● | the receipt of any money, non-nominal gifts or excessive entertainment from any entity with which the Company has current or prospective business dealings; |
| ● | selling anything to the Company or buying anything from the Company, except on the same terms and conditions as comparable officers or directors are permitted to so purchase or sell; |
| ● | any other financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) involving the Company; and |
| ● | any other circumstance, event, relationship or situation in which the personal interest of a person subject to this Code interferes — or even appears to interfere — with the interests of the Company as a whole. |
| 3 | Corporate Opportunities |
As an officer, director or employee of the Company, you have an obligation to advance the Company’s interests when the opportunity to do so arises. If you discover or are presented with a corporate opportunity through the use of corporate property or information or because of your position with the Company, you should first present the corporate opportunity to the Company before pursuing the opportunity in your individual capacity. No officer, director or employee may use corporate property, information or his or her position with the Company for personal gain or compete with the Company while employed by or associated with the Company.
2
You should disclose to your supervisor the terms and conditions of each business opportunity covered by this Code that you wish to pursue. Your supervisor will contact the Company’s Compliance Officer and the appropriate management personnel to determine whether the Company wishes to pursue the business opportunity. If the Company waives its right to pursue the business opportunity, you may pursue the business opportunity on the same terms and conditions as originally proposed and consistent with the other ethical guidelines set forth in this Code.
| 4 | Confidential Information |
Officers, directors and employees have access to a variety of confidential information regarding the Company. Confidential information includes all non-public information that might be of use to competitors, or, if disclosed, harmful to the Company or its counterparties, collaborators, customers or suppliers. Officers, directors and employees have a duty to safeguard all confidential information of the Company or third parties with which the Company conducts business, except when disclosure is authorized or legally mandated. Unauthorized disclosure of any confidential information is prohibited. Additionally, officers, directors and employees should take appropriate precautions to ensure that confidential or sensitive business information, whether it is proprietary to the Company or another company, is not communicated within the Company except to employees and directors who have a need to know such information to perform their responsibilities for the Company. An officer’s, director’s and employee’s obligation to protect confidential information continues after he or she leaves the Company. Unauthorized disclosure of confidential information could cause competitive harm to the Company or its counterparties, collaborators, customers or suppliers and could result in legal liability to you and the Company. Any questions or concerns regarding whether disclosure of Company information is legally mandated should be promptly referred to the Company’s Chief Executive Officer.
| 5 | Competition and Fair Dealing |
Officers, directors and employees should not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice. Officers, directors and employees should maintain and protect any intellectual property licensed from licensors with the same care as they employ with regard to Company-developed intellectual property.
| 6 | Disclosure |
The Company strives to ensure that the contents of and the disclosures in the reports and documents that the Company files with the SEC and other public communications shall be full, fair, accurate, timely and understandable in accordance with applicable disclosure standards, including standards of materiality, where appropriate. Each person must:
| ● | not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company’s independent registered public accountants, governmental regulators, self-regulating organizations and other governmental officials, as appropriate; and |
| ● | in relation to his or her area of responsibility, properly review and critically analyze proposed disclosure for accuracy and completeness. |
3
In addition to the foregoing, the Chief Executive Officer and Chief Financial Officer of the Company and each subsidiary of the Company (or persons performing similar functions), and each other person that typically is involved in the financial reporting of the Company must familiarize himself or herself with the disclosure requirements applicable to the Company as well as the business and financial operations of the Company.
Each person must promptly bring to the attention of the Chairman of the Board any information he or she may have concerning (a) significant deficiencies in the design or operation of internal and/or disclosure controls that could adversely affect the Company’s ability to record, process, summarize and report financial data or (b) any fraud that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.
| 7 | Compliance |
It is the Company’s obligation and policy to comply with all applicable governmental laws, rules and regulations. All directors, officers and employees of the Company are expected to understand, respect and comply with all of the laws, regulations, policies and procedures that apply to them in their positions with the Company. Employees are responsible for talking to their supervisors to determine which laws, regulations and Company policies apply to their position and what training is necessary to understand and comply with them.
Directors, officers and employees are directed to specific policies and procedures available to persons they supervise.
| 8 | Protection and Use of Company Assets |
Employees should protect the Company’s assets and ensure their efficient use for legitimate business purposes only and not for any personal benefit or the personal benefit of anyone else. Theft, carelessness and waste have a direct impact on the Company’s financial performance. The use of Company funds or assets, whether or not for personal gain, for any unlawful or improper purpose is prohibited. Employees should be aware that Company property includes all data and communications transmitted or received to or by, or contained in, the Company’s electronic or telephonic systems. Company property also includes all written communications. Employees and other users of this property should have no expectation of privacy with respect to these communications and data. Employees may not copy, retrieve, modify or forward copyrighted materials, except with permission or as a single copy to reference only. Transmission of customer information should be encrypted as applicable. To the extent permitted by law, the Company has the ability, and reserves the right, to monitor all electronic and telephonic communication. These communications may also be subject to disclosure to law enforcement or government officials.
| 9 | Reporting and Accountability |
The Board is responsible for applying this Code to specific situations in which questions are presented to it and has the authority to interpret this Code in any particular situation. The Company requires that officers, directors and employees disclose any situation that reasonably would be expected to give rise to a conflict of interest. If you suspect that you have a situation that could give rise to a conflict of interest, you must report it in writing to the Chairman of the Board. Any person who becomes aware of any existing or potential breach of this Code is required to notify the Chairman of the Board promptly. Failure to do so is, in and of itself, a breach of this Code.
4
Specifically, each person must:
| ● | Notify the Chairman of the Board promptly of any existing or potential violation of this Code; and |
| ● | Not retaliate against any other person for reports of potential violations that are made in good faith. |
The Company will follow the following procedures in investigating and enforcing this Code and in reporting on the Code:
| ● | The Board will take all appropriate action to investigate any breaches reported to it. |
| ● | Upon determination by the Board that a breach has occurred, the Board (by majority decision) will take or authorize such disciplinary or preventive action as it deems appropriate, after consultation with the Company’s General Counsel (or outside counsel), up to and including dismissal or, in the event of criminal or other serious violations of law, notification of the SEC or other appropriate law enforcement authorities. |
No person following the above procedure shall, as a result of following such procedure, be subject by the Company or any officer or employee thereof to discharge, demotion suspension, threat, harassment or, in any manner, discrimination against such person in terms and conditions of employment.
It is Company policy that any officer, director or employee who violates this Code will be subject to appropriate discipline, which may include termination of employment or, in the case of a director, a request that such director resign from the Board of Directors. This determination will be based upon the facts and circumstances of each particular situation. If you are accused of violating this Code, you will be given an opportunity to present your version of the events at issue prior to any determination of appropriate discipline, if any. Officers, directors and employees who violate the law or this Code may expose themselves to substantial civil damages, criminal fines and prison terms. The Company may also face substantial fines and penalties and may incur damage to its reputation and standing in the community. Your conduct as a representative of the Company, if it does not comply with the law or with this Code, can result in serious consequences for both you and the Company.
| 10 | Policy Against Retaliation |
The Company prohibits retaliation against an officer, director or employee who, in good faith, seeks help or reports known or suspected violations. If an officer, director or employee believes that they have been retaliated against, he or she should speak with the Compliance Officer. Any reprisal or retaliation against an employee because the employee, in good faith, sought help or filed a report will be subject to disciplinary action, including potential termination of employment.
| 11 | Waivers and Amendments |
Any waiver (defined below) or an implicit waiver (defined below) from a provision of this Code for the principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions or any amendment (as defined below) to this Code is required to be disclosed in a current report on Form 8-K filed with the SEC. In lieu of filing a current report on Form 8-K to report any such waivers or amendments, the Company may provide such information on its website and if it keeps such information on the website for at least 12 months and discloses the website address as well as any intention to provide such disclosures in this manner in its most recently filed Annual Report on Form 10-K.
5
A “waiver” means the approval by the Company’s Board of a material departure from a provision of the Code. An “implicit waiver” means the Company’s failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an executive officer of the Company. An “amendment” means any amendment to this Code other than minor technical, administrative or other non-substantive amendments hereto.
| 12 | Insider Information and Securities Trading |
The Company’s directors, officers or employees who have access to material, non-public information are not permitted to use that information for share trading purposes or for any purpose unrelated to the Company’s business. It is also against the law to trade or to “tip” others who might make an investment decision based on inside company information. For example, using non-public information to buy or sell the Company shares, options in the Company shares or the shares of any Company supplier, customer or competitor is prohibited. The consequences of insider trading violations can be severe. These rules also apply to the use of material, nonpublic information about other companies (including, for example, our customers, competitors and potential business partners). In addition to directors, officers or employees, these rules apply to such person’s spouse, children, parents and siblings, as well as any other family members living in such person’s home. All of the Company’s directors, officers and employees must familiarize themselves with the Company’s Insider Trading Policy.
| 13 | Financial Statements and Other Records |
All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions and must both conform to applicable legal requirements and to the Company’s system of internal controls. Unrecorded or “off the books” funds or assets should not be maintained unless permitted by applicable law or regulation. All Company records must be complete, accurate and reliable in all material respects.
Records should always be retained or destroyed according to the Company’s record retention policies. In accordance with those policies, in the event of litigation or governmental investigation, please consult the board of directors or the Company’s counsel.
| 14 | Improper Influence on Conduct of Audits |
No director or officer, or any other person acting under the direction thereof, shall directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any public or certified public accountant engaged in the performance of an audit or review of the financial statements of the Company or take any action that such person knows or should know that if successful could result in rendering the Company’s financial statements materially misleading. Any person who believes such improper influence is being exerted should report such action to such person’s supervisor, or if that is impractical under the circumstances, to any of our directors.
Types of conduct that could constitute improper influence include, but are not limited to, directly or indirectly:
| ● | Offering or paying bribes or other financial incentives, including future employment or contracts for non-audit services; |
| ● | Providing an auditor with an inaccurate or misleading legal analysis; |
| ● | Threatening to cancel or canceling existing non-audit or audit engagements if the auditor objects to the Company’s accounting; |
6
| ● | Seeking to have a partner removed from the audit engagement because the partner objects to the Company’s accounting; |
| ● | Blackmailing; and |
| ● | Making physical threats. |
| 15 | Anti-Corruption Laws |
The Company complies with the anti-corruption laws of the countries in which it does business, including the U.S. Foreign Corrupt Practices Act (FCPA). Directors, officers and employees will not directly or indirectly give anything of value to government officials, including employees of state-owned enterprises or foreign political candidates. These requirements apply both to Company employees and agents, such as third party sales representatives, no matter where they are doing business. If you are authorized to engage agents, you are responsible for ensuring they are reputable and for obtaining a written agreement to uphold the Company’s standards in this area.
| 16 | Violations |
All directors, officers and employees have a duty to report any known or suspected violation of this Code, including violations of the laws, rules, regulations or policies that apply to the Company. Violation of this Code is grounds for disciplinary action up to and including termination of employment. Such action is in addition to any civil or criminal liability which might be imposed by any court or regulatory agency.
| 17 | Gifts and Entertainment |
The giving and receiving of gifts can be a common business practice. Appropriate business gifts and entertainment are welcome courtesies designed to build relationships and understanding among business partners. Gifts and entertainment, however, should not compromise, or appear to compromise, your ability to make objective and fair business decisions. In addition, it is important to note that the giving and receiving of gifts are subject to a variety of laws, rules and regulations applicable to the Company’s operations. These include, without limitation, laws covering the marketing of products, bribery and kickbacks. You are expected to understand and comply with all laws, rules and regulations that apply to activities you engage in when acting on the Company’s behalf.
It is your responsibility to use good judgment in this area. As a general rule, you may give or receive gifts or entertainment to or from collaborators, customers or suppliers only if the gift or entertainment is infrequent, modest, intended to further legitimate business goals, in compliance with applicable law, and provided the gift or entertainment would not be viewed as an inducement to or reward for any particular business decision. All gifts and entertainment expenses should be properly accounted for on expense reports.
If you conduct business in other countries, you must be particularly careful that gifts and entertainment are not construed as bribes, kickbacks or other improper payments.
You should make every effort to refuse or return a gift that is beyond these permissible guidelines. If it would be inappropriate to refuse a gift or you are unable to return a gift, you should promptly report the gift to your supervisor. Your supervisor will bring the gift to the attention of the Compliance Officer, who may require you to donate the gift to an appropriate community organization. If you have any questions about whether it is permissible to accept a gift or something else of value, contact your supervisor or a principal financial officer for additional guidance.
7
Note: Gifts and entertainment may not be offered or exchanged under any circumstances to or with any employees of the United States or any foreign government or state, city, provincial or local governments. If you have any questions about this policy, contact your supervisor or the Company’s Compliance Officer for additional guidance.
| 18 | Other Policies and Procedures |
Any other policy or procedure set out by the Company in writing or made generally known to employees, officers or directors of the Company prior to the date hereof or hereafter are separate requirements and remain in full force and effect.
| 19 | Inquiries |
This Code is not intended to be a comprehensive rulebook and cannot address every situation that you may face. If you feel uncomfortable about a situation or have any doubts about whether it is consistent with the Company’s ethical standards, seek help. All inquiries and questions in relation to this Code or its applicability to particular people or situations should be addressed to the Company’s Secretary, or such other compliance officer as shall be designated from time to time by the Company.
| 20 | Conclusion |
This Code contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. If you have any questions about these guidelines, please contact your supervisor or the Company’s Compliance Officer. The Company expects all of its employees and directors to adhere to these standards.
This Code, as applied to the Company’s principal financial officers, shall be our “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder.
This Code and the matters contained herein are neither a contract of employment nor a guarantee of continuing Company policy. The Company reserves the right to amend, supplement or discontinue this Code and the matters addressed herein, without prior notice, at any time.
8
PROVISIONS FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS
The Chief Executive Officer and all senior financial officers, including the Chief Financial Officer and principal accounting officer, are bound by the provisions set forth therein relating to ethical conduct, conflicts of interest, and compliance with law. In addition to the Code, the Chief Executive Officer and senior financial officers are subject to the following specific policies:
1. Act with honesty and integrity, avoiding actual or apparent conflicts between personal, private interests and the interests of the Company, including receiving improper personal benefits as a result of his or her position.
2. Disclose to the Board (and the Chief Executive Officer in the case of a senior financial officer) any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest.
3. Perform responsibilities with a view to causing periodic reports and documents filed with or submitted to the SEC and all other public communications made by the Company to contain information that is accurate, complete, fair, objective, relevant, timely and understandable, including full review of all annual and quarterly reports.
4. Comply with laws, rules and regulations of federal, state and local governments applicable to the Company and with the rules and regulations of private and public regulatory agencies having jurisdiction over the Company.
5. Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting or omitting material facts or allowing independent judgment to be compromised or subordinated.
6. Respect the confidentiality of information acquired in the course of performance of his or her responsibilities except when authorized or otherwise legally obligated to disclose any such information; not use confidential information acquired in the course of performing his or her responsibilities for personal advantage.
7. Share knowledge and maintain skills important and relevant to the needs of the Company, its stockholders and other constituencies and the general public.
8. Proactively promote ethical behavior among subordinates and peers in his or her work environment and community.
9. Use and control all corporate assets and resources employed by or entrusted to him or her in a responsible manner.
10. Not use corporate information, corporate assets, corporate opportunities or his or her position with the Company for personal gain; not compete directly or indirectly with the Company.
11. Comply in all respects with the Company’s Code.
12. Advance the Company’s legitimate interests when the opportunity arises.
The Board will investigate any reported violations and will oversee an appropriate response, including corrective action and preventative measures. Any officer who violates this Code will face appropriate, case specific disciplinary action, which may include demotion or discharge.
Any request for a waiver of any provision of this Code must be in writing and addressed to the Chairman of the Board. Any waiver of this Code will be disclosed promptly on Form 8-K or any other means approved by the SEC.
It is the policy of the Company that each officer covered by this Code shall acknowledge and certify to the foregoing annually and file a copy of such certification with the Chairman of the Board of Directors.
9
ACKNOWLEDGEMENT
I have read and understand the foregoing Code. I hereby certify that I am in compliance with the foregoing Code, and I will comply with the Code in the future. I understand that any violation of the Code will subject me to appropriate disciplinary action, which may include demotion or discharge.
| Dated: | ||
| Name: | ||
| Signature: | ||
| Title: |
10
Exhibit 19.1
Insider Trading Compliance Manual
CUENTAS INC.
Adopted March 16, 2022
In order to take an active role in the prevention of insider trading violations by its officers, directors, employees, consultants, attorneys, advisors and other related individuals, the Board of Directors (the “Board”) of Cuentas Inc., a Florida corporation (the “Company”), has adopted the policies and procedures described in this Insider Trading Compliance Manual.
I. Adoption of Insider Trading Policy.
Effective as of the date first written above, the Board has adopted the Insider Trading Policy attached hereto as Exhibit A (as the same may be amended from time to time by the Board, the “Policy”), which prohibits trading based on material, nonpublic information regarding the Company or any company whose securities are listed for trading or quotation in the United States (“Material Non-Public Information”).
This Policy covers all officers and directors of the Company and its subsidiaries, all other employees of the Company and its subsidiaries, and consultants or contractors to the Company or its subsidiaries who have or may have access to Material Non-Public Information and members of the immediate family or household of any such person. This Policy (and/or a summary thereof) is to be delivered to all employees, consultants and related individuals who are within the categories of covered persons upon the commencement of their relationships with the Company.
II. Designation of Certain Persons.
A. Section 16 Individuals. All directors and executive officers of the Company will be subject to the reporting and liability provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder (“Section 16 Individuals”).
B. Other Persons Subject to Policy. In addition, certain employees, consultants, and advisors of the Company as described in Section I above have, or are likely to have, from time to time access to Material Non-Public Information and together with the Section 16 Individuals, are subject to the Policy, including the pre-clearance requirement described in Section IV. A. below.
III. Appointment of Compliance and Chief Ethics Officer.
By the adoption of this Policy, the Board has appointed the Company’s Compliance Officer as the Insider Trading Compliance Officer (the “Compliance Officer”).
CUEN INSIDER TRADING POLICY (2022)
1
IV. Duties of Compliance Officer.
The Compliance Officer has been designated by the Board to handle any and all matters relating to the Company’s Insider Trading Compliance Program. Certain of those duties may be delegated to outside counsel with special expertise in securities issues and relevant law. The duties of the Compliance Officer shall include the following:
A. Pre-clearing all transactions involving the Company’s securities by the Section 16 Individuals and those individuals having regular access to Material Non-Public Information in order to determine compliance with the Policy, insider trading laws, Section 16 of the Exchange Act and Rule 144 promulgated under the Securities Act of 1933, as amended (“Rule 144”). Attached hereto as Exhibit B is a Pre-Clearance Checklist to assist the Compliance Officer’s performance of this duty.
B. Assisting in the preparation and filing of Section 16 reports (Forms 3, 4 and 5) for all Section 16 Individuals, bearing in mind, however, that the preparation of such reports is undertaken by the Company as a courtesy only and that the Section 16 Individuals alone (and not the Company, its employees or advisors) shall be solely responsible for the content of such reports and for any violations of Section 16 under the Exchange Act and related rules and regulations.
C. Serving as the designated recipient at the Company of copies of reports filed with the Securities and Exchange Commission (“SEC”) by Section 16 Individuals under Section 16 of the Exchange Act.
D. Performing periodic reviews of available materials, which may include Forms 3, 4 and 5, Form 144, officers and director’s questionnaires, and reports received from the Company’s stock administrator and transfer agent, to determine trading activity by officers, directors and others who have, or may have, access to Material Non-Public Information.
E. Circulating the Policy (and/or a summary thereof) to all covered employees, including Section 16 Individuals, on an annual basis, and providing the Policy and other appropriate materials to new officers, directors and others who have, or may have, access to Material Non-Public Information.
F. Assisting the Board in implementation of the Policy and all related Company policies.
G. Coordinating with Company internal or external legal counsel regarding all securities compliance matters.
H. Retaining copies of all appropriate securities reports, and maintaining records of his or her activities as Compliance Officer.
[Acknowledgement Appears on the Next Page]
CUEN INSIDER TRADING POLICY (2022)
2
ACKNOWLEDGMENT
I hereby acknowledge that I have received a copy of Cuentas Inc.’s Insider Trading Compliance Manual (the “Insider Trading Manual”). Further, I certify that I have reviewed the Insider Trading Manual, understand the policies and procedures contained therein and agree to be bound by and adhere to these policies and procedures.
| Dated: | |||
| Signature | |||
| Name: |
CUEN INSIDER TRADING POLICY (2022)
3
Exhibit A
Cuentas Inc.
Insider Trading Policy
and Guidelines with Respect to Certain Transactions in Company Securities
APPLICABILITY OF POLICY
This Policy applies to all transactions in the Company’s securities, including common stock, options and warrants to purchase common stock and any other securities the Company may issue from time to time, such as preferred stock, warrants and convertible notes, as well as to derivative securities relating to the Company’s stock, whether or not issued by the Company, such as exchange-traded options. It applies to all officers and directors of the Company, all other employees of the Company and its subsidiaries, and consultants or contractors to the Company or its subsidiaries who have or may have access to Material Nonpublic Information (as defined below) regarding the Company and members of the immediate family or household of any such person. This group of people is sometimes referred to in this Policy as “Insiders.” This Policy also applies to any person who receives Material Nonpublic Information from any Insider.
Any person who possesses Material Nonpublic Information regarding the Company is an Insider for so long as such information is not publicly known.
DEFINITION OF MATERIAL NONPUBLIC INFORMATION
It is not possible to define all categories of material information. However, information should be regarded as material if there is a reasonable likelihood that it would be considered important to an investor in making an investment decision regarding the purchase or sale of the Company’s securities. Nonpublic information is information that has not been previously disclosed to the general public and is otherwise not available to the general public.
While it may be difficult to determine whether particular information is material, there are various categories of information that are particularly sensitive and, as a general rule, should always be considered material. In addition, material information may be positive or negative. Examples of such information may include:
| ● | Financial results |
| ● | Information regarding regulatory review of Company products |
| ● | Intellectual property and other proprietary/scientific information |
| ● | Projections of future earnings or losses |
| ● | Major contract awards, cancellations or write-offs |
| ● | Joint ventures/commercial partnerships with third parties |
| ● | Research milestones and related payments or royalties |
| ● | News of a pending or proposed merger or acquisition |
| ● | News of the disposition of material assets |
| ● | Impending bankruptcy or financial liquidity problems |
| ● | Gain or loss of a substantial customer or supplier |
CUEN INSIDER TRADING POLICY (2022)
A-1
| ● | New product announcements of a significant nature |
| ● | Significant pricing changes |
| ● | Stock splits |
| ● | New equity or debt offerings |
| ● | Significant litigation exposure due to actual or threatened litigation |
| ● | Changes in senior management or the Board of Directors of the Company |
| ● | Capital investment plans |
| ● | Changes in dividend policy |
CERTAIN EXCEPTIONS
For purposes of this Policy, the Company considers that the exercise of stock options for cash under the Company’s equity incentive or similar plan (but not the sale of any such shares) to be exempt from this Policy, since the other party to the transaction is the Company itself and the price does not vary with the market but is fixed by the terms of the option agreement or the plan.
STATEMENT OF POLICY
General Policy
It is the policy of the Company to prohibit the unauthorized disclosure of any nonpublic information acquired in the workplace and the misuse of Material Nonpublic Information in securities trading related to the Company or any other company.
Specific Policies
1. Trading on Material Nonpublic Information. With certain exceptions, no Insider shall engage in any transaction involving a purchase or sale of the Company’s or any other company’s securities, including any offer to purchase or offer to sell, during any period commencing with the date that he or she possesses Material Nonpublic Information concerning the Company, and ending at the close of business on the second Trading Day following the date of public disclosure of that information, or at such time as such nonpublic information is no longer material. However, see Section 2 under “Permitted Trading Period” below for a full discussion of trading pursuant to a pre-established plan or by delegation.
As used herein, the term “Trading Day” shall mean a day on which national stock exchanges are open for trading.
2. Tipping. No Insider shall disclose (“tip”) Material Nonpublic Information to any other person (including family members) where such information may be used by such person to his or her profit by trading in the securities of companies to which such information relates, nor shall such Insider or related person make recommendations or express opinions on the basis of Material Nonpublic Information as to trading in the Company’s securities.
CUEN INSIDER TRADING POLICY (2022)
A-2
Regulation FD (Fair Disclosure) is an issuer disclosure rule implemented by the SEC that addresses selective disclosure of Material Nonpublic Information. The regulation provides that when the Company, or person acting on its behalf, discloses material nonpublic information to certain enumerated persons (in general, securities market professionals and holders of the Company’s securities who may well trade on the basis of the information), it must make public disclosure of that information. The timing of the required public disclosure depends on whether the selective disclosure was intentional or unintentional; for an intentional selective disclosure, the Company must make public disclosures simultaneously; for a non-intentional disclosure the Company must make public disclosure promptly. Under the regulation, the required public disclosure may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public.
It is the policy of the Company that all public communications of the Company (including, without limitation, communications with the press, other public statements, statements made via the Internet or social media outlets, or communications with any regulatory authority) be handled through the Company’s Executive Chairman, Executive Vice-Chairman, President and/or Chief Executive Officer (the “Authorized Executive”), an authorized designee of the CEO or the Company’s public or investor relations firm. Please refer all press, analyst or similar requests for information to the Authorized Executive and do not respond to any inquiries without prior authorization from the Authorized Executive. If the CEO is unavailable, the Company’s Executive Chairman, Executive Vice-Chairman, Chief Financial Officer (or the authorized designee of such officer) will fill this role.
3. Confidentiality of Nonpublic Information. Nonpublic information relating to the Company is the property of the Company and the unauthorized disclosure of such information (including, without limitation, via email or by posting on Internet message boards, blogs or social media) is strictly forbidden.
4. Duty to Report Inappropriate and Irregular Conduct. All employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within the company, consistent with generally accepted accounting principles and both federal and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or irregularities, whether by witnessing the incident or being told of it, must report it to their immediate supervisor and to any member of the Company’s Audit Committee. In certain instances, employees are allowed to participate in federal or state proceedings. For a more complete understanding of this issue, employees should consult their employee manual and or seek the advice of counsel. Our general corporate and securities counsel is Ellenoff Grossman & Schole LLP, attention: Sarah Williams at (212) 370-1300, email: swilliams@egsllp.com.
CUEN INSIDER TRADING POLICY (2022)
A-3
POTENTIAL CRIMINAL AND CIVIL LIABILITY
AND/OR DISCIPLINARY ACTION
1. Liability for Insider Trading. Insiders may be subject to penalties of up to $5,000,000 and up to ten (10) years in jail for engaging in transactions in the Company’s securities at a time when they possess Material Nonpublic Information regarding the Company. In addition, the SEC has the authority to seek a civil monetary penalty of up to three times the amount of profit gained or loss avoided by illegal insider trading. “Profit gained” or “loss avoided” generally means the difference between the purchase or sale price of the Company’s stock and its value as measured by the trading price of the stock a reasonable period after public dissemination of the nonpublic information.
2. Liability for Tipping. Insiders may also be liable for improper transactions by any person (commonly referred to as a “tippee”) to whom they have disclosed Material Nonpublic Information regarding the Company or to whom they have made recommendations or expressed opinions on the basis of such information as to trading in the Company’s securities. The SEC has imposed large penalties even when the disclosing person did not profit from the trading. The SEC, the stock exchanges and the National Association of Securities Dealers, Inc. use sophisticated electronic surveillance techniques to monitor and uncover insider trading.
3. Possible Disciplinary Actions. Individuals subject to the Policy who violate this Policy shall also be subject to disciplinary action by the Company, which may include suspension, forfeiture of perquisites, ineligibility for future participation in the Company’s equity incentive plans and/or termination of employment.
PERMITTED TRADING PERIOD
1. Black-Out Period and Trading Window.
To ensure compliance with this Policy and applicable federal and state securities laws, the Company requires that all officers, directors, members of the immediate family or household of any such person and others who are subject to this Policy refrain from conducting any transactions involving the purchase or sale of the Company’s securities, other than during the period in any fiscal quarter commencing at the close of business on the second Trading Day following the date of public disclosure of the financial results for the prior fiscal quarter or year and ending on the fifteenth day of the third month of the fiscal quarter (the “Trading Window”). If such public disclosure occurs on a Trading Day before the markets close, then such date of disclosure shall be considered the first Trading Day following such public disclosure.
It is the Company’s policy that the period when the Trading Window is “closed” is a particularly sensitive periods of time for transactions in the Company’s securities from the perspective of compliance with applicable securities laws. This is because Insiders will, as any quarter progresses, are increasingly likely to possess Material Nonpublic Information about the expected financial results for the quarter. The purpose of the Trading Window is to avoid any unlawful or improper transactions or the appearance of any such transactions.
CUEN INSIDER TRADING POLICY (2022)
A-4
It should be noted that even during the Trading Window any person possessing Material Nonpublic Information concerning the Company shall not engage in any transactions in the Company’s (or any other companies, as applicable) securities until such information has been known publicly for at least two Trading Days. The Company has adopted the policy of delaying trading for “at least two Trading Days” because the securities laws require that the public be informed effectively of previously undisclosed material information before Insiders trade in the Company’s stock. Public disclosure may occur through a widely disseminated press release or through filings, such as Forms 10-Q and 8-K, with the SEC. Furthermore, in order for the public to be effectively informed, the public must be given time to evaluate the information disclosed by the Company. Although the amount of time necessary for the public to evaluate the information may vary depending on the complexity of the information, generally two Trading Days is a sufficient period of time.
From time to time, the Company may also require that Insiders suspend trading because of developments known to the Company and not yet disclosed to the public. In such event, such persons may not engage in any transaction involving the purchase or sale of the Company’s securities during such period and may not disclose to others the fact of such suspension of trading.
Although the Company may from time to time require during a Trading Window that Insiders and others suspend trading because of developments known to the Company and not yet disclosed to the public, each person is individually responsible at all times for compliance with the prohibitions against insider trading. Trading in the Company’s securities during the Trading Window should not be considered a “safe harbor,” and all directors, officers and other persons should use good judgment at all times.
Notwithstanding these general rules, Insiders may trade outside of the Trading Window provided that such trades are made pursuant to a pre-established plan or by delegation; these alternatives are discussed in the next section.
2. Trading According to a Pre-established Plan (10b5-1) or by Delegation.
The SEC has adopted Rule 10b5-1 under which insider trading liability can be avoided if Insiders follow very specific procedures. In general, such procedures involve trading according to pre-established instructions, plans or programs (a “10b5-1 Plan”).
10b5-1 Plans must:
(a) Be documented by a contract, written plan, or formal instruction which provides that the trade take place in the future. For example, an Insider can contract to sell his or her shares on a specific date, or simply delegate such decisions to an investment manager, 401(k) plan administrator or similar third party. This documentation must be provided to the Company’s Insider Trading Compliance Officer;
(b) Include in its documentation the specific amount, price and timing of the trade, or the formula for determining the amount, price and timing. For example, the Insider can buy or sell shares in a specific amount and on a specific date each month, or according to a pre-established percentage (of the Insider’s salary, for example) each time that the share price falls or rises to pre-established levels. In the case where trading decisions have been delegated, the specific amount, price and timing need not be provided;
CUEN INSIDER TRADING POLICY (2022)
A-5
(c) Be implemented at a time when the Insider does not possess material non-public information. As a practical matter, this means that the Insider may set up 10b5-1 Plans, or delegate trading discretion, only during a “Trading Window” (discussed in Section 1, above); and,
(d) Remain beyond the scope of the Insider’s influence after implementation. In general, the Insider must allow the 10b5-1 Plan to be executed without changes to the accompanying instructions, and the Insider cannot later execute a hedge transaction that modifies the effect of the 10b5-1 Plan. Insiders should be aware that the termination or modification of a 10b5-1 Plan after trades have been undertaken under such plan could negate the 10b5-1 affirmative defense afforded by such program for all such prior trades. As such, termination or modification of a 10b-5 Plan should under be undertaken in consultation with your legal counsel. If the Insider has delegated decision-making authority to a third party, the Insider cannot subsequently influence the third party in any way and such third party must not possess material non-public information at the time of any of the trades.
Prior to implementing a pre-established plan for trading, all officers and directors must receive the approval for such plan from the Company’s Insider Trading Compliance Officer, providing that such person does not possess inside information.
3. Pre-Clearance of Trades.
Even during a Trading Window, all Insiders, must comply with the Company’s “pre-clearance” process prior to trading in the Company’s securities, implementing a pre-established plan for trading, or delegating decision-making authority over the Insider’s trades. To do so, each Insider must contact the Company’s Insider Trading Compliance Officer prior to initiating any of these actions. The Company may also find it necessary, from time to time, to require compliance with the pre-clearance process from others who may be in possession of Material Nonpublic Information.
4. Individual Responsibility.
Every person subject to this Policy has the individual responsibility to comply with this Policy against insider trading, regardless of whether the Company has established a Trading Window applicable to that Insider or any other Insiders of the Company. Each individual, and not necessarily the Company, is responsible for his or her own actions and will be individually responsible for the consequences of their actions. Therefore, appropriate judgment, diligence and caution should be exercised in connection with any trade in the Company’s securities. An Insider may, from time to time, have to forego a proposed transaction in the Company’s securities even if he or she planned to make the transaction before learning of the Material Nonpublic Information and even though the Insider believes he or she may suffer an economic loss or forego anticipated profit by waiting.
5. Exceptions to the Policy.
Any exceptions to this Policy may only be made by advance written approval of each of: (i) the Company’s Chairman of the Board and Chief Executive Officer, and (ii) the Insider Trading Compliance Officer. Any such exceptions shall be immediately reported to the remaining members of the Board.
CUEN INSIDER TRADING POLICY (2022)
A-6
APPLICABILITY OF POLICY TO INSIDE INFORMATION
REGARDING OTHER COMPANIES
This Policy and the guidelines described herein also apply to Material Nonpublic Information relating to other companies, including the Company’s customers, vendors or suppliers (“business partners”), when that information is obtained in the course of employment with, or other services performed on behalf of the Company. Civil and criminal penalties, as well as termination of employment, may result from trading on Material Nonpublic Information regarding the Company’s business partners. All Insiders should treat Material Nonpublic Information about the Company’s business partners with the same care as is required with respect to information relating directly to the Company.
PROHIBITION AGAINST BUYING AND SELLING
COMPANY COMMON STOCK WITHIN A SIX-MONTH PERIOD
Directors, Officers and 10% Shareholders
Purchases and sales (or sales and purchases) of Company common stock occurring within any six-month period in which a mathematical profit is realized result in illegal “short-swing profits.” The prohibition against short-swing profits is found in Section 16 of the Exchange Act. Section 16 was drafted as a rather arbitrary prohibition against profitable “insider trading” in a company’s securities within any six-month period regardless of the presence or absence of material nonpublic information that may affect the market price of those securities. Each executive officer, director and 10% shareholder of the Company is subject to the prohibition against short-swing profits under Section 16. Such persons are required to file Forms 3, 4 and 5 reports reporting his or her initial ownership of the Company’s common stock and any subsequent changes in such ownership. The Sarbanes-Oxley Act of 2002 requires executive officers and directors who must report transactions on Form 4 to do so by the end of the second business day following the transaction date. Profit realized, for the purposes of Section 16, is calculated generally to provide maximum recovery by the Company. The measure of damages is the profit computed from any purchase and sale or any sale and purchase within the short-swing (i.e., six-month) period, without regard to any setoffs for losses, any first-in or first-out rules, or the identity of the shares of common stock. This approach sometimes has been called the “lowest price in, highest price out” rule.
In order to avoid trading activity that could inadvertently trigger a short-swing profit, it is the Company’s policy that no executive officer, director and 10% shareholder of the Company who has a 10b5-1 Plan in place may engage in voluntary purchases or sales of Company securities outside of and while such 10b5-1 Plan remains in place.
INQUIRIES
Please direct your questions as to any of the matters discussed in this Policy to the Company’s Insider Trading Compliance Officer.
CUEN INSIDER TRADING POLICY (2022)
A-7
Exhibit B
CUENTAS INC.
Insider Trading Compliance Program - Pre-Clearance Checklist
| Individual Proposing to Trade: | ||
| Number of Shares covered by Proposed Trade: | ||
| Date: |
| ☐ | Trading Window. Confirm that the trade will be made during the Company’s “trading window.” |
| ☐ | Section 16 Compliance. Confirm, if the individual is subject to Section 16, that the proposed trade will not give rise to any potential liability under Section 16 as a result of matched past (or intended future) transactions. Also, ensure that a Form 4 has been or will be completed and will be timely filed. |
| ☐ | Prohibited Trades. Confirm, if the individual is subject to Section 16, that the proposed transaction is not a “short sale,” put, call or other prohibited or strongly discouraged transaction. |
| ☐ | Rule 144 Compliance (as applicable). Confirm that: |
| ☐ | Current public information requirement has been met; |
| ☐ | Shares are not restricted or, if restricted, the one year holding period has been met; |
| ☐ | Volume limitations are not exceeded (confirm that the individual is not part of an aggregated group); |
| ☐ | The manner of sale requirements have been met; and |
| ☐ | The Notice of Form 144 Sale has been completed and filed. |
| ☐ | Rule 10b-5 Concerns. Confirm that (i) the individual has been reminded that trading is prohibited when in possession of any material information regarding the Company that has not been adequately disclosed to the public, and (ii) the Insider Trading Compliance Officer has discussed with the individual any information known to the individual or the Insider Trading Compliance Officer which might be considered material, so that the individual has made an informed judgment as to the presence of inside information. |
| Signature of Insider Trading Compliance Officer |
CUEN INSIDER TRADING POLICY (2022)
Exhibit 21.1
CUENTAS INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
All of the operating subsidiaries of Cuentas Inc., a Florida corporation, listed below are included in the Consolidated Financial Statements:
| State in Which Incorporated |
Country in Which Incorporated | |||
| Meimoun and Mammon, LLC | Florida | USA | ||
Exhibit 23.1
 |
 |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We hereby consent to the incorporation by reference in the Registration Statement of Cuentas, Inc. on Form S-8 (File No. 333-269080) and Form S-3 (File No. 333-267268 and File No. 333-275724) of our report dated April 15, 2024, with respect to our audit of the financial statements of Cuentas Inc. as of December 31, 2023 and 2022 and for years then ended, which report is included in this Annual Report on Form 10-K of Cuentas, Inc. for the year ended December 31, 2023.
/s/ Yarel + Partners
Tel- Aviv, Israel
April 15, 2024
Exhibit 31.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Arik Maimon, certify that:
| 1. | I have reviewed this Form 10-K of Cuentas Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 15, 2024 | |
| /s/ Arik Maimon | |
| Arik Maimon | |
| Chief Executive Officer and Chairman of the Board |
Exhibit 31.2
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Shlomo Zakai, certify that:
| 1. | I have reviewed this Form 10-K of Cuentas Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 15, 2024 | |
| /s/ Shlomo Zakai | |
Shlomo Zakai Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual Report on Form 10-K of Cuentas Inc. (the “Company”) for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Arik Maimon, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: April 15, 2024 | ||
| By: | /s/ Arik Maimon | |
| Arik Maimon | ||
| Chief Executive Officer
and Charmain of the Board |
||
This certification accompanies each Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual Report on Form 10-K of Cuentas Inc. (the “Company”) for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Shlomo Zakai, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: April 15, 2024 | ||
| By: | /s/ Shlomo Zakai | |
| Shlomo Zakai | ||
| Chief Financial Officer | ||
This certification accompanies each Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 97.1
CUENTAS INC.
EXECUTIVE COMPENSATION CLAWBACK POLICY
Adopted as of November 17, 2023
The Board of Directors (the “Board”) of Cuentas Inc. (the “Company”) has adopted the following executive compensation clawback policy (this “Policy”). This Policy shall supplement any other clawback or compensation recovery policy or policies adopted by the Company or included in any agreement between the Company, or any subsidiary of the Company, and a person covered by this Policy. If any such other policy or agreement provides that a greater amount of compensation shall be subject to clawback, such other policy or agreement shall apply to the amount in excess of the amount subject to clawback under this Policy.
This Policy shall be interpreted to comply with Securities and Exchange Commission (“SEC”) Rule 10D-1 and Listing Rule 5608 (the “Listing Rule”) of The Nasdaq Stock Market, LLC (“Nasdaq”), as may be amended or supplemented and interpreted from time to time by Nasdaq. To the extent this Policy is any manner deemed inconsistent with the Listing Rule, this Policy shall be treated as having been amended to be compliant with the Listing Rule.
1. Definitions. Unless the context otherwise the following definitions apply for purposes of this Policy:
(a) Executive Officer. An executive officer is the Company’s chief executive officer and/or president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Executive officers of the Company’s parent(s) or subsidiaries are deemed executive officers of the Company if they perform such policy making functions for the Company. Policy-making function is not intended to include policy-making functions that are not significant. Identification of an executive officer for purposes of the Listing Rule would include at a minimum executive officers identified in the Listing Rule.
(b) Financial Reporting Measures. Financial reporting measures are measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Stock price and total shareholder return are also financial reporting measures. A financial reporting measure need not be presented within the financial statements or included in a filing with the SEC and may be such financial measures as may be determined by the Board or the Compensation Committee thereof (the “Compensation Committee”).
(c) Incentive-Based Compensation. Incentive-based compensation is any compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure.
(d) Received. Incentive-based compensation is deemed “received” in the Company’s fiscal period during which the financial reporting measure specified in the incentive-based compensation award is attained, even if the payment or grant of the incentive-based compensation occurs after the end of that period.
2. Application of this Policy. This recovery of Incentive-Based Compensation from an Executive Officer as provided for in this Policy shall apply only in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of Company with any financial reporting requirement under the United States securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.1
3. Recovery Period.
(a) The Incentive-Based Compensation subject to recovery is the Incentive-Based Compensation Received during the three (3) completed fiscal years immediately preceding the date that the Company is required to prepare an accounting restatement as described in Section 2 above, provided that the person served as an Executive Officer at any time during the performance period applicable to the Incentive-Based Compensation in question. The date that the Company is required to prepare an accounting restatement shall be determined pursuant to the Listing Rule.
(b) Notwithstanding the foregoing, this Policy shall only apply if the Incentive-Based Compensation is Received (i) while the Company has a class of securities listed on Nasdaq and (ii) on or after October 2, 2023.
(c) The provisions of the Listing Rule shall apply with respect to Incentive-Based Compensation received during a transition period arising due to a change in the Company’s fiscal year.
4. Erroneously Awarded Compensation. The amount of Incentive-Based Compensation subject to recovery from the applicable Executive Officers under this Policy (“Erroneously Awarded Compensation”) shall be equal to the amount of Incentive-Based Compensation Received that exceeds the amount of Incentive Based-Compensation that otherwise would have been Received had it been determined based on the restated amounts and shall be computed without regard to any taxes paid. For Incentive-Based Compensation based on stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in an accounting restatement: (a) the amount shall be based on a reasonable estimate by the Company’s Chief Financial Officer (or principal accounting officer, if the office of Chief Financial Officer is not then filled) of the effect of the accounting restatement on the stock price or total shareholder return upon which the Incentive-Based Compensation was received, which estimate shall be subject to the review and approval of the Compensation Committee; and (b) the Company must maintain reasonable documentation of the determination of that reasonable estimate and provide such documentation to Nasdaq if requested. Notwithstanding the foregoing, if the proposed Incentive-Based Compensation recovery would affect compensation paid to the Company’s Chief Financial Officer, the determination shall be made by the Compensation Committee.
5. Timing of Recovery. The Company shall recover any Erroneously Awarded Compensation reasonably promptly except to the extent that the conditions of paragraphs (a), (b), or (c) below apply. The Compensation Committee shall determine the repayment schedule for each amount of Erroneously Awarded Compensation in a manner that complies with this “reasonably promptly” requirement. Such determination shall be consistent with any applicable legal guidance by the SEC, Nasdaq, judicial opinion, or otherwise. The determination of “reasonably promptly” may vary from case to case and the Compensation Committee is authorized to adopt additional rules or policies to further describe what repayment schedules satisfy this requirement.
| 1 | NOTE: questions as to “materiality” will be made by the Audit Committee as part of the restatement process. Companies should review the charters for Audit and Compensation committees and consider updates authorizing them to oversee and make applicable determinations under the company’s Clawback policy. |
2
(a) Erroneously Awarded Compensation need not be recovered if the direct expense paid to a third party to assist in enforcing (or making determinations in connection with the enforcement of) this Policy would exceed the amount to be recovered and the Compensation Committee has made a determination that recovery would be impracticable. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense of enforcement, the Company shall (i) make a reasonable attempt to recover such Erroneously Awarded Compensation, (ii) document such reasonable attempt or attempts to recover, and (iii) provide appropriate documentation to the Compensation Committee or Nasdaq, if requested.
(b) Erroneously Awarded Compensation need not be recovered if recovery would violate home country law where that law was adopted prior to November 28, 2022. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on a violation of home country law, the Company shall obtain an opinion of home country counsel, in form an substance that would be reasonably acceptable to Nasdaq, that recovery would result in such a violation and shall provide such opinion to Nasdaq, if requested.
(c) Erroneously Awarded Compensation need not be recovered if recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and the regulations thereunder (as such provision may be amended, modified or supplemented).
6. Compensation Committee Decisions. Decisions of the Compensation Committee with respect to this Policy shall be final, conclusive and binding on all Executive Officers subject to this Policy.
7. No Indemnification. Notwithstanding anything to the contrary in any other policy of the Company or any agreement between the Company and an Executive Officer, no Executive Officer shall be indemnified by the Company against the loss arising from the recovery of any Erroneously Awarded Compensation.
8. Agreement to Policy by Executive Officers2. The Company shall take reasonable steps to inform Executive Officers of this Policy and obtain their express agreement to this Policy, which steps may constitute the inclusion of this Policy as an attachment to any award that is accepted by an Executive Officer. This Policy shall be deemed to apply to each employment or grant agreement between the Company or any of its subsidiaries and any Executive Officer subject to this Policy.
# # #
| 2 | Companies should be advised to have the executive officers acknowledge this in writing (similar to the Insider trading Policy acknowledgement). Also consider if amendments should be made to employment agreements, grant award forms, etc. |
3