Cuentas(CUEN) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements For the first quarter of 2023, Cuentas, Inc. reported a significant decrease in revenue to $64,000 from $394,000 year-over-year, resulting in a net loss of $1.7 million, but its financial position strengthened due to a successful financing round, increasing total assets to $5.2 million from $1.5 million and turning stockholders' equity positive from a deficit of $0.7 million to $2.9 million Condensed Consolidated Balance Sheets As of March 31, 2023, total assets grew substantially to $5.19 million from $1.50 million at year-end 2022, primarily fueled by a rise in cash and cash equivalents to $3.33 million, while total liabilities remained relatively stable at $2.31 million, leading to a significant turnaround in stockholders' equity from a deficit of $724 thousand to a positive balance of $2.88 million Condensed Consolidated Balance Sheets | Financial Metric | March 31, 2023 (Unaudited) | December 31, 2022 (Audited) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,328 thousand | $466 thousand | | Total current assets | $3,689 thousand | $689 thousand | | Total assets | $5,189 thousand | $1,499 thousand | | Liabilities & Equity | | | | Total current liabilities | $2,221 thousand | $2,134 thousand | | Total liabilities | $2,310 thousand | $2,223 thousand | | Total stockholders' equity | $2,879 thousand | ($724) thousand | Condensed Consolidated Statements of Operations In the first quarter of 2023, revenue plummeted to $64 thousand from $394 thousand in the same period of 2022, resulting in a gross loss of $59 thousand, but operating expenses were significantly reduced to $1.63 million from $3.74 million, leading to a net loss of $1.70 million, or ($1.00) per share, an improvement compared to the net loss of $3.62 million, or ($3.15) per share, in Q1 2022 Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenue | $64 thousand | $394 thousand | | Gross Profit (Loss) | ($59) thousand | $134 thousand | | Operating Expenses | $1,627 thousand | $3,742 thousand | | Operating Loss | ($1,686) thousand | ($3,608) thousand | | Net Loss | ($1,695) thousand | ($3,624) thousand | | Net loss per basic and diluted share | ($1.00) | ($3.15) | Statements of Changes in Shareholders' Equity Shareholders' equity underwent a significant positive change during the first quarter of 2023, increasing from a deficit of $724 thousand at the end of 2022 to a positive balance of $2.88 million, primarily driven by the issuance of common stock, which added $4.32 million to additional paid-in capital, and another $700 thousand from shares issued for an asset acquisition, partially offset by the net loss of $1.70 million for the period - The company's total stockholders' equity increased from a deficit of $(724) thousand at the end of 2022 to a positive $2,879 thousand as of March 31, 2023[14] - The primary drivers for the equity increase were the issuance of common stock for net proceeds of $4,319 thousand and shares issued for an asset acquisition valued at $700 thousand[14] Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2023, net cash used in operating activities was $1.45 million, with no cash flow from investing activities, but a significant inflow of $4.32 million was generated from financing activities, primarily from the net proceeds of a common stock issuance, resulting in a net increase in cash of $2.86 million, bringing the quarter-end cash balance to $3.33 million Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Cash Used by Operating Activities | ($1,453) thousand | ($2,225) thousand | | Net Cash used for Investing Activities | $0 | ($47) thousand | | Net Cash Provided by Financing Activities | $4,315 thousand | $0 | | Net Increase (Decrease) in Cash | $2,862 thousand | ($2,272) thousand | | Cash at End of Period | $3,328 thousand | $4,335 thousand | Notes to Condensed Consolidated Financial Statements The notes reveal a strategic expansion from fintech services into the real estate market, with key corporate actions including a 1-for-13 reverse stock split to regain Nasdaq compliance and a securities offering that raised approximately $4.3 million in net proceeds, alongside new investments in real estate projects, while a 'going concern' warning indicates dependence on raising additional capital and generating revenue - The company is expanding its focus from fintech services to include investments in the real estate market, aiming to provide affordable rental apartments[19] - On March 24, 2023, the company executed a 1-for-13 reverse stock split to regain compliance with Nasdaq's minimum bid price requirement[25] - In February 2023, the company raised approximately $4.3 million in net proceeds through a registered direct offering and concurrent private placement[27] - The financial statements were prepared under the assumption of a 'going concern', but the company's history of losses and accumulated deficit of $54.4 million raise substantial doubt about its ability to continue without additional financing[26] Revenue by Product Segment | Product Segment | Revenue Q1 2023 | Revenue Q1 2022 | | :--- | :--- | :--- | | Telecommunications | $49 thousand | $175 thousand | | Digital products and GPR Cards | $15 thousand | $219 thousand | | Total revenue | $64 thousand | $394 thousand | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the sharp decline in Q1 2023 revenue to a reduction in activities within its telecommunications segment and with its partner, Cuentas SDI, but the net loss narrowed to $1.7 million from $3.6 million year-over-year due to a significant decrease in operating expenses, particularly in selling, marketing, and amortization, while highlighting a strategic pivot towards real estate investments and markedly improved liquidity following a February 2023 financing that raised $4.3 million, resulting in a positive working capital of $1.47 million - The company has initiated investments into the real estate market to broaden its reach to underserved communities by providing reasonably priced rental apartments[61][67] - In April 2023, the company acquired a 21.8-acre site via its majority-owned entity, Brooksville Development Partners, LLC, for the development of a 360-apartment community[65][66] Results of Operations Revenue for Q1 2023 was $64 thousand, a significant decrease from $394 thousand in Q1 2022, due to reduced sales in both telecommunications and digital products/GPR cards segments, resulting in a gross loss of $59 thousand, but total operating expenses were slashed to $1.69 million from $3.74 million, driven by lower selling and marketing costs and a sharp drop in amortization expense, leading to a reduced net loss of $1.7 million compared to $3.6 million in the prior-year quarter Revenue by Source | Revenue Source | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Telecommunications | $49,000 | $175,000 | | Digital products and GPR Cards | $15,000 | $219,000 | | Total Revenue | $64,000 | $394,000 | - The decrease in revenue is attributed to reducing cooperation with Cuentas SDI and scaling back activities in the telecommunications segment[72] - Selling, general and administrative expenses decreased to $1.69 million in Q1 2023 from $3.29 million in Q1 2022, mainly due to significant reductions in selling and marketing expenses, share-based compensation, and the cancellation of the D&O insurance policy[79] - Amortization of intangible assets dropped to $2 thousand from $453 thousand YoY because the related software license asset was fully impaired in the fourth quarter of 2022[80] Liquidity and Capital Resources The company's liquidity position improved dramatically in Q1 2023, with working capital shifting from a deficit of $1.45 million at the end of 2022 to a surplus of $1.47 million as of March 31, 2023, primarily due to a financing activity that provided $4.32 million in net cash, boosting the cash balance to $3.33 million, while net cash used in operations was $1.45 million, and management plans to seek additional financing to support its business strategy, including new real estate projects Working Capital Analysis | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $3,689,000 | $689,000 | | Total current liabilities | $2,221,000 | $2,134,000 | | Working Capital | $1,468,000 | ($1,445,000) | - The increase in working capital was mainly attributable to an increase in cash of $2,862,000 resulting from the sale of shares[84] - Net cash used in operating activities was $1,453,000 for the quarter[86] - Net cash provided by financing activities was $4,315,000, consisting of proceeds from the sale of common stock[89] PART II – OTHER INFORMATION Legal Proceedings The company discloses several ongoing legal matters, including a demand for arbitration from Secure IP Telecom related to a former subsidiary, for which $300,000 has been accrued, a breach of contract complaint from Crosshair Media Placement, claiming damages of approximately $630,000, which was settled with a one-year payment plan, and a complaint for breach of an employment agreement, for which $35,000 has been accrued - The company has accrued $300,000 related to a legal proceeding with Secure IP Telecom concerning alleged avoidable transfers from its former subsidiary, Limecom[100] - A breach of contract case with Crosshair Media Placement for approximately $630,000 was settled, with the amount to be paid over a one-year period[101] - The company accrued $35,000 for a breach of contract complaint related to an employment agreement[102] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2023, the company engaged in several equity transactions, issuing 295,282 common shares, valued at $700,000, to acquire a 6% equity interest in Lakewood Manager as part of its real estate strategy, and also raised approximately $5 million in gross proceeds through a securities offering that included common stock, pre-funded warrants, and purchase warrants, with other issuances including 15,385 shares for a settlement agreement and 27,759 shares for a service agreement - On February 3, 2023, the company issued 295,282 common shares valued at $700,000 to acquire a 6% equity stake in the Lakewood Manager real estate project[105] - On February 6, 2023, the company raised approximately $5 million in gross proceeds from an institutional investor through the sale of shares, pre-funded warrants, and purchase warrants[106] - In March 2023, the company issued 15,385 shares for a settlement agreement (valued at ~$120,000) and 27,759 shares for a service agreement (valued at ~$136,000)[107]