MIAMI, FL--(NewMediaWire - Aug 14, 2017) - Net
Element, Inc. (NASDAQ: NETE) ("Net Element" or
the "Company"), a global financial technology and value-added
solutions group that supports electronic payments acceptance in an
omni-channel environment spanning across point-of-sale (POS),
e-commerce and mobile devices, today reported financial results for
the second quarter ended June 30, 2017 and provided an update on
recent strategic and operational initiatives.
For the second quarter ended June 30, 2017, net revenues
increased 18% to $16.1 million as compared to $13.7 million in the
prior year. The increase in net revenues is primarily due to growth
in the Company's North America Transaction Solutions and Online
Solutions Segments:
- North America Transaction Solutions
Segment: Continued organic growth of SMB merchants in
this segment with emphasis on value-added offerings. Revenues for
this segment were $13.9 million, a 31% increase over the prior
year.
Online Solutions Segment: Revenues for this
segment were $2 million, a 33% increase over the prior year.
Mobile Solutions Segment: As a result of a
change in business model previously reported, revenues for this
segment were $0.5 million vs $1.8 million, a 71% decrease over the
prior year. We expect to maintain a smaller staff at Digital
Provider and we have canceled our existing office lease and will
consolidate Digital Provider's physical operations into PayOnline.
We also are looking to develop a new business plan for Digital
Provider that includes, but is not limited to, a model that
requires less working capital than the current pre-pay model and
provides for diversified, scalable business.
Reduction of Corporate Overhead: The
redundancies of our corporate staff at Net Element Russia were
eliminated with responsibilities being absorbed by existing
PayOnline staff. In addition, Net Element Russia's Moscow corporate
office and apartment leases were cancelled with the consolidation
into PayOnline.
Recent Highlights:
- Centralized international operations;
Launched PayOnline platform, which supports electronic commerce in
the United States;
Launched support for iDeal, the leading payment system in The
Netherlands;
Expanded payment module to include InSales, a popular omni-channel
commerce and CMS platform;
Partnered with Payvision in Europe, expands to access to global
currencies;
Launched payment acceptance for international mobile network
operator;
Launched "Online Cashier" fiscal cloud-based point of sale solution
for Russian merchants;
Launched Apple Pay Support in Russia;
Launched "Instant Credit" for online merchants
"We are pleased with our continued growth. Our results are a
reflection of our ability to deliver growth," commented Oleg Firer,
CEO of Net Element. "We are excited about our strategic initiatives
for the remainder of the year as we continue to streamline
international operations and reduce operating expenses while
managing the strong U.S. growth and expansion."
Conference Call:
The Company will host a conference call to discuss Second Quarter
2017 financial results and business highlights on August 15, 2017
at 8:30 a.m. ET. The conference call can be accessed live over the
phone by dialing +1 (877) 303-9858, or for international callers +1
(408) 337-0139, and referencing conference code 67569957. It is
recommended that participants dial in approximately 10 minutes
prior to the start of the 8:30 a.m. Eastern call.
The call will also be webcast live
from http://edge.media-server.com/m/p/kaa6hdp3. Following
completion of the call, a recorded replay of the webcast will be
available on the www.netelement.com/en/ir website.
Results of Operations for the Three Months Ended
June 30, 2017 Compared to the Three Months Ended June 30,
2016
We reported a net loss attributable to stockholders of
$1,640,340 or $0.09 per share, for the three months ended June 30,
2017 as compared to a net loss attributable to stockholders of
$5,346,448, or $0.46 per share, for the three months ended June 30,
2016. This resulted in a decrease in net loss attributable to
stockholders of $3,706,108 primarily due to an increase in
revenues, decreases in loss from stock value guarantee, non-cash
compensation and interest, partially offset by increased general
and administrative expenses.
Eliminating the effects of non-cash compensation and a 2016
stock value guarantee, we reported an adjusted non-GAAP, Net loss
attributable to Net Element, Inc. stockholders of $1,511,803 or
$0.08 per share for the three months ended June 30, 2017 as
compared to an adjusted non-GAAP, Net loss attributable to Net
Element, Inc. stockholders of $1,168,998 or $0.10 per share for the
three months ended June 30, 2016.
Net revenues consist primarily of payment processing fees. Net
revenues were $16,141,041 for the three months ended June 30, 2017
as compared to $13,692,848 for the three months ended June 30,
2016. The increase in net revenue is primarily due to organic
growth of merchants in our North American Transaction Solutions
segment which resulted in an increase to North American Transaction
Solutions segment revenue of $3,208,850 (or 31% increase) for the
three months ended June 30, 2017 versus the three months ended June
30, 2016. Increases in our North American Transaction Solutions
segment revenue were primarily due to continued growth of merchants
with emphasis on value-added offerings. Our Online Solutions
segment revenue increased $500,653 (or 33%), from $1,509,208 for
the three months ended June 30, 2016 to $2,009,861 for the three
months ended June 30, 2017 as we continue to board additional
merchants. These improvements were tempered by a $1,261,310 (or
71%) decrease in our Mobile Solutions segment, as we continue to
experience increased competition, decreased margins, and liquidity
constraints arising from capital needed to prepay for content
delivered through our platform.
The following table sets forth our sources of revenues, cost of
revenues and gross margins for the three months ended June 30, 2017
and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source of Revenues |
|
Three
Months Ended
June 30, 2017 |
|
Mix |
|
|
Three
Months Ended
June 30, 2016 |
|
Mix |
|
|
Increase /
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
13,612,782 |
|
84 |
% |
|
$ |
10,403,932 |
|
76 |
% |
|
$ |
3,208,850 |
|
Mobile
Solutions |
|
|
518,398 |
|
3 |
% |
|
|
1,779,708 |
|
13 |
% |
|
|
(1,261,310 |
) |
Online
Solutions |
|
|
2,009,861 |
|
13 |
% |
|
|
1,509,208 |
|
11 |
% |
|
|
500,653 |
|
|
Total |
|
$ |
16,141,041 |
|
100 |
% |
|
$ |
13,692,848 |
|
100 |
% |
|
$ |
2,448,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues |
|
Three
Months Ended
June 30, 2017 |
|
% of
revenues |
|
|
Three
Months Ended
June 30, 2016 |
|
% of
revenues |
|
|
Increase /
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
11,472,508 |
|
84 |
% |
|
$ |
8,967,784 |
|
86 |
% |
|
$ |
2,504,724 |
|
Mobile
Solutions |
|
|
502,742 |
|
97 |
% |
|
|
1,566,618 |
|
88 |
% |
|
|
(1,063,876 |
) |
Online
Solutions |
|
|
1,343,142 |
|
67 |
% |
|
|
950,391 |
|
63 |
% |
|
|
392,751 |
|
|
Total |
|
$ |
13,318,392 |
|
83 |
% |
|
$ |
11,484,793 |
|
84 |
% |
|
$ |
1,833,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
Three
Months Ended
June 30, 2017 |
|
% of
revenues |
|
|
Three
Months Ended
June 30, 2016 |
|
% of
revenues |
|
|
Increase /
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
2,140,274 |
|
16 |
% |
|
$ |
1,436,148 |
|
14 |
% |
|
$ |
704,126 |
|
Mobile
Solutions |
|
|
15,656 |
|
3 |
% |
|
|
213,090 |
|
12 |
% |
|
|
(197,434 |
) |
Online
Solutions |
|
|
666,719 |
|
33 |
% |
|
|
558,817 |
|
37 |
% |
|
|
107,902 |
|
|
Total |
|
$ |
2,822,649 |
|
17 |
% |
|
$ |
2,208,055 |
|
16 |
% |
|
$ |
614,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues represents direct costs of generating revenues,
including commissions, mobile operator fees, purchases of short
numbers, interchange expense and processing fees. Cost of revenues
for the three months ended June 30, 2017 were $13,318,392 as
compared to $11,484,793 for the three months ended June 30, 2016.
The $1,833,599 increase in cost of revenues was primarily due to a
$2,504,724 increase in our North American Transaction Solutions
segment due to an increase in sales volume. There was also a
$392,751 increase in cost of revenues resulting from our Online
Solutions segment operations also primarily due the costs
associated with boarding additional merchants. This was offset by a
$1,063,876 decrease in our Mobile Solutions segment cost of
revenues, which resulted from the decrease in revenues for our
Mobile Solutions segment for the three months ended June 30,
2017.
Gross Margin or the three months ended June 30, 2017 was
$2,822,649, or 17% of net revenue, as compared to $2,208,055, or
16% of net revenue, for the three months ended June 30, 2016. The
$614,594 increase in gross margin was primarily due to increased
volume of processing in North American Transaction Solutions offset
by a decrease of $197,434 in Mobile Solutions margin caused by a
decrease in business.
Total operating expenses were $4,166,596 for the three months
ended June 30, 2017, which consisted of general and administrative
expenses of $2,599,178, non-cash compensation expenses of $128,537,
provision for bad debts of $865,863, and depreciation and
amortization of $573,018. Total operating expenses were $4,983,753
for the three months ended June 30, 2016, which consisted of
general and administrative expenses of $1,999,391, non-cash
compensation expenses of $2,014,589, provision for bad debts of
$125,238, and depreciation and amortization of $844,535.
The components of our general and administrative expenses are
discussed below.
General and administrative expenses for the three months ended
June 30, 2017 and 2016 consisted of operating expenses not
otherwise delineated in our Condensed Consolidated Statements of
Operations and Comprehensive Loss and include salaries and
benefits, professional fees, rent, travel expense, filing fees,
transaction gains, office expenses, communication expense,
insurance expense, and other expenses required to run our business,
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
Salaries,
benefits, taxes and contractor payments |
|
$ |
464,134 |
|
|
$ |
126,516 |
|
|
$ |
234,950 |
|
|
$ |
547,219 |
|
|
$ |
1,372,819 |
|
Professional fees |
|
|
82,888 |
|
|
|
19,768 |
|
|
|
258,535 |
|
|
|
299,536 |
|
|
|
660,727 |
|
Rent |
|
|
- |
|
|
|
12,121 |
|
|
|
40,624 |
|
|
|
83,334 |
|
|
|
136,079 |
|
Business
development |
|
|
986 |
|
|
|
14 |
|
|
|
8,768 |
|
|
|
915 |
|
|
|
10,683 |
|
Travel
expense |
|
|
75,646 |
|
|
|
1,729 |
|
|
|
4,165 |
|
|
|
38,391 |
|
|
|
119,931 |
|
Filing
fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,508 |
|
|
|
8,508 |
|
Transaction (gains) losses |
|
|
742 |
|
|
|
32,228 |
|
|
|
(9,508 |
) |
|
|
1,303 |
|
|
|
24,765 |
|
Office
expenses |
|
|
45,956 |
|
|
|
3,313 |
|
|
|
24,214 |
|
|
|
16,058 |
|
|
|
89,541 |
|
Communications expenses |
|
|
9,864 |
|
|
|
1,497 |
|
|
|
29,484 |
|
|
|
19,743 |
|
|
|
60,588 |
|
Insurance
expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32,235 |
|
|
|
32,235 |
|
Other
expenses |
|
|
1,264 |
|
|
|
- |
|
|
|
1,125 |
|
|
|
80,913 |
|
|
|
83,302 |
|
|
Total |
|
$ |
681,480 |
|
|
$ |
197,186 |
|
|
$ |
592,357 |
|
|
$ |
1,128,155 |
|
|
$ |
2,599,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
Salaries,
benefits, taxes and contractor payments |
|
$ |
415,135 |
|
|
$ |
108,772 |
|
|
$ |
142,663 |
|
|
$ |
510,482 |
|
|
$ |
1,177,052 |
|
Professional fees |
|
|
89,268 |
|
|
|
1,243 |
|
|
|
217,513 |
|
|
|
369,299 |
|
|
|
677,323 |
|
Rent |
|
|
- |
|
|
|
832 |
|
|
|
36,282 |
|
|
|
97,949 |
|
|
|
135,063 |
|
Business
development |
|
|
12,186 |
|
|
|
- |
|
|
|
40,118 |
|
|
|
4,056 |
|
|
|
56,360 |
|
Travel
expense |
|
|
49,784 |
|
|
|
3,220 |
|
|
|
7,048 |
|
|
|
29,017 |
|
|
|
89,069 |
|
Filing
fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
42,896 |
|
|
|
42,896 |
|
Transaction (gains) losses |
|
|
- |
|
|
|
(328,350 |
) |
|
|
(23,658 |
) |
|
|
18,174 |
|
|
|
(333,834 |
) |
Office
expenses |
|
|
27,148 |
|
|
|
2,127 |
|
|
|
14,774 |
|
|
|
22,723 |
|
|
|
66,772 |
|
Communications expenses |
|
|
16,817 |
|
|
|
484 |
|
|
|
11,586 |
|
|
|
26,175 |
|
|
|
55,062 |
|
Insurance
expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,658 |
|
|
|
2,658 |
|
Other
expenses |
|
|
270 |
|
|
|
14 |
|
|
|
192 |
|
|
|
30,494 |
|
|
|
30,970 |
|
|
Total |
|
$ |
610,608 |
|
|
$ |
(211,658 |
) |
|
$ |
446,518 |
|
|
$ |
1,153,923 |
|
|
$ |
1,999,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
Salaries,
benefits, taxes and contractor payments |
|
$ |
48,999 |
|
|
$ |
17,744 |
|
|
$ |
92,287 |
|
|
$ |
36,737 |
|
|
$ |
195,767 |
|
Professional fees |
|
|
(6,380 |
) |
|
|
18,525 |
|
|
|
41,022 |
|
|
|
(69,763 |
) |
|
|
(16,596 |
) |
Rent |
|
|
- |
|
|
|
11,289 |
|
|
|
4,342 |
|
|
|
(14,615 |
) |
|
|
1,016 |
|
Business
development |
|
|
(11,200 |
) |
|
|
14 |
|
|
|
(31,350 |
) |
|
|
(3,141 |
) |
|
|
(45,677 |
) |
Travel
expense |
|
|
25,862 |
|
|
|
(1,491 |
) |
|
|
(2,883 |
) |
|
|
9,374 |
|
|
|
30,862 |
|
Filing
fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(34,388 |
) |
|
|
(34,388 |
) |
Transaction (gains) losses |
|
|
742 |
|
|
|
360,578 |
|
|
|
14,150 |
|
|
|
(16,871 |
) |
|
|
358,599 |
|
Office
expenses |
|
|
18,808 |
|
|
|
1,186 |
|
|
|
9,440 |
|
|
|
(6,665 |
) |
|
|
22,769 |
|
Communications expenses |
|
|
(6,953 |
) |
|
|
1,013 |
|
|
|
17,898 |
|
|
|
(6,432 |
) |
|
|
5,526 |
|
Insurance
expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
29,577 |
|
|
|
29,577 |
|
Other
expenses |
|
|
994 |
|
|
|
(14 |
) |
|
|
933 |
|
|
|
50,419 |
|
|
|
52,332 |
|
|
Total |
|
$ |
70,872 |
|
|
$ |
408,844 |
|
|
$ |
145,839 |
|
|
$ |
(25,768 |
) |
|
$ |
599,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits, taxes and contractor payments were
$1,372,819 for the three months ended June 30, 2017 as compared to
$1,177,052 for the three months ended June 30, 2016.
|
|
|
|
|
|
|
Segment |
|
Salaries and
benefits for the
three months
ended
June 30, 2017 |
|
Salaries and
benefits for the
three months
ended
June 30, 2016 |
|
Increase /
(Decrease) |
North America
Transaction Solutions |
|
$ |
464,134 |
|
$ |
415,135 |
|
$ |
48,999 |
Mobile Solutions |
|
|
126,516 |
|
|
108,772 |
|
|
17,744 |
Online Solutions |
|
|
234,950 |
|
|
142,663 |
|
|
92,287 |
Corporate Expenses
& Eliminations |
|
|
547,219 |
|
|
510,482 |
|
|
36,737 |
Total |
|
$ |
1,372,819 |
|
$ |
1,177,052 |
|
$ |
195,767 |
|
|
|
|
|
|
|
|
|
|
The increase in salaries of $195,767 was due to the North
American Transaction Solutions segment salaries increasing $48,999
due to an increase in headcount and sales incentives for key
employees. In addition, there were increases of $92,287 and
$17,744, respectively, in our Online Solutions and Mobile Solutions
segments, which were primarily due to salary increases.
Professional fees were $660,727 for the three months ended June
30, 2017 as compared to $677,323 for the three months ended June
30, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Fees |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
General Legal |
|
$ |
(20,000 |
) |
|
$ |
- |
|
|
$ |
3,245 |
|
$ |
24,702 |
|
|
$ |
7,947 |
|
SEC Compliance Legal
Fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
79,035 |
|
|
|
79,035 |
|
Accounting and
Auditing |
|
|
- |
|
|
|
- |
|
|
|
5,215 |
|
|
97,500 |
|
|
|
102,715 |
|
Tax Compliance and
Planning |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
500 |
|
|
|
500 |
|
Consulting |
|
|
102,888 |
|
|
|
19,768 |
|
|
|
250,075 |
|
|
97,799 |
|
|
|
470,530 |
|
Total |
|
$ |
82,888 |
|
|
$ |
19,768 |
|
|
$ |
258,535 |
|
$ |
299,536 |
|
|
$ |
660,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Fees |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
General Legal |
|
$ |
5,226 |
|
|
$ |
12 |
|
|
$ |
2,507 |
|
$ |
43,949 |
|
|
$ |
51,694 |
|
SEC Compliance Legal
Fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
43,750 |
|
|
|
43,750 |
|
Accounting and
Auditing |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
103,055 |
|
|
|
103,055 |
|
Tax Compliance and
Planning |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
11,000 |
|
|
|
11,000 |
|
Consulting |
|
|
84,042 |
|
|
|
1,231 |
|
|
|
215,006 |
|
|
167,545 |
|
|
|
467,824 |
|
Total |
|
$ |
89,268 |
|
|
$ |
1,243 |
|
|
$ |
217,513 |
|
$ |
369,299 |
|
|
$ |
677,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Fees |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
Corporate
Expenses &
Eliminations |
|
|
Increase /
(Decrease) |
|
General Legal |
|
$ |
(25,226 |
) |
|
$ |
(12 |
) |
|
$ |
738 |
|
$ |
(19,247 |
) |
|
$ |
(43,747 |
) |
SEC Compliance Legal
Fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
35,285 |
|
|
|
35,285 |
|
Accounting and
Auditing |
|
|
- |
|
|
|
- |
|
|
|
5,215 |
|
|
(5,555 |
) |
|
|
(340 |
) |
Tax Compliance and
Planning |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(10,500 |
) |
|
|
(10,500 |
) |
Consulting |
|
|
18,846 |
|
|
|
18,537 |
|
|
|
35,069 |
|
|
(69,746 |
) |
|
|
2,706 |
|
Total |
|
$ |
(6,380 |
) |
|
$ |
18,525 |
|
|
$ |
41,022 |
|
$ |
(69,763 |
) |
|
$ |
(16,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees decreased by $16,596 mainly due to a decrease
in general legal fees offset by an increase in SEC compliance
fees.
Non-cash compensation expense from share-based compensation was
$128,537 for the three months ended June 30, 2017, compared to
$2,014,589 for the three months ended June 30, 2016. The majority
of these expenses were for employee and consultant equity
incentives for both periods.
We recorded bad debt expense of $865,863 for the three months
ended June 30, 2017 as compared to $125,238 for the three months
ended June 30, 2016. For the three months ended June 30, 2017, we
recorded a loss which was primarily comprised of $671,580 in ACH
rejects and a $194,283 provision from our Russian operations. Of
the $671,580 of gross ACH rejects, $347,235 were passed through to
independent sales organizations via a reduction in commissions.
For the three months ended June 30, 2016, we recorded a loss
which was primarily comprised of $145,588 in ACH rejects offset by
a $20,350 recovery from our Russian operations. Of the $145,588 of
ACH rejects, $93,812 were passed through to independent sales
organizations via a reduction in commissions.
Depreciation and amortization expense consists primarily of the
amortization of merchant portfolios plus depreciation expense on
fixed assets, client acquisition costs, capitalized software
expenses, trademarks, domain names and employee non-compete
agreements. Depreciation and amortization expense was $573,018 for
the three months ended June 30, 2017 as compared to $844,535 for
the three months ended June 30, 2016. The decrease was due to the
full amortization of certain software and merchant portfolio assets
during 2016.
Interest expense was $322,052 for the three months ended June
30, 2017 as compared to $438,976 for three months ended June 30,
2016, representing a decrease of $116,924 as follows:
|
|
|
|
|
|
|
|
Funding Source |
|
Three months
ended
June 30, 2017 |
|
Three months
ended
June 30, 2016 |
|
Increase /
(Decrease) |
|
MBF Notes |
|
$ |
15,516 |
|
$ |
28,450 |
|
$ |
(12,934 |
) |
RBL Notes |
|
|
220,128 |
|
|
110,342 |
|
|
109,786 |
|
Priority Payments
Note |
|
|
24,747 |
|
|
- |
|
|
24,747 |
|
Crede CG III,
LTD |
|
|
- |
|
|
297,435 |
|
|
(297,435 |
) |
Other |
|
|
61,661 |
|
|
2,749 |
|
|
58,912 |
|
Total |
|
$ |
322,052 |
|
$ |
438,976 |
|
$ |
(116,924 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other interest expense for the three months ended June 30, 2017
consisted primarily of $37,245 from the financing for the PayOnline
Acquisition stock price guarantee and $10,443 resulting from the
promissory note entered into on March 1, 2017 with Star Capital
Management, LLC. (See Note 12. Related Party Transactions).
Additionally, Crede charges in 2016 for imputed interest did not
occur during 2017.
The net income attributable to non-controlling interests
amounted to $75,081 for three months ended June 30, 2017 as
compared to $38,792 for the three months ended June 30, 2016.
Results of Operations for the Six Months Ended June
30, 2017 Compared to the Six Months Ended June 30,
2016
We reported a net loss attributable to stockholders of
$4,127,837, or $0.24 per share, for the six months ended June 30,
2017 as compared to a net loss attributable to stockholders of
$7,194,167, or $0.63 per share, for the six months ended June 30,
2016. This resulted in a decrease in net loss attributable to
stockholders of $3,066,330 primarily due and increase in revenues
and a decrease in the loss from stock value guarantee and a
decrease in noncash compensation expense.
Eliminating the effects of non-cash compensation in both years
and a 2016 stock value guarantee, we reported an adjusted non-GAAP,
Net loss attributable to Net Element, Inc. stockholders of
$3,402,896 or $0.19 per share for the six months ended June 30,
2017 as compared to an adjusted non-GAAP, Net loss attributable to
Net Element, Inc. stockholders of $2,655,733 or $0.23 per share for
the three months ended June 30, 2016.
Net revenues consist primarily of payment processing fees. Net
revenues were $29,702,982 for the six months ended June 30, 2017 as
compared to $24,953,907 for the six months ended June 30, 2016. The
increase in net revenue is primarily due to organic growth of
merchants in our North American Transaction Solutions segment which
resulted in an increase to North American Transaction Solutions
segment revenue of $6,321,120 (or 35% increase) for the six months
ended June 30, 2017 versus the six months ended June 30, 2016. Our
Online Solutions segment revenue increased $825,775 (or 28%), from
$2,924,115 for the six months ended June 30, 2016 to $3,749,890 for
the six months ended June 30, 2017, primarily due to the boarding
of additional merchants. The increases in North American
Transaction Solutions and Online Solutions segments were offset by
a $2,397,820 (or 64%) decrease in our Mobile Solutions segment, as
we continue to experience increased competition, decreased margins,
and liquidity constraints arising from capital needed to prepay for
content delivered through our platform.
The following table sets forth our sources of revenues, cost of
revenues and gross margins for the six months ended June 30, 2017
and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source of Revenues |
|
Six Months
Ended
June 30, 2017 |
|
Mix |
|
|
Six Months
Ended
June 30, 2016 |
|
Mix |
|
|
Increase /
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
24,577,701 |
|
83 |
% |
|
$ |
18,256,581 |
|
73 |
% |
|
$ |
6,321,120 |
|
Mobile
Solutions |
|
|
1,375,391 |
|
5 |
% |
|
|
3,773,211 |
|
15 |
% |
|
|
(2,397,820 |
) |
Online
Solutions |
|
|
3,749,890 |
|
12 |
% |
|
|
2,924,115 |
|
12 |
% |
|
|
825,775 |
|
|
Total |
|
$ |
29,702,982 |
|
100 |
% |
|
$ |
24,953,907 |
|
100 |
% |
|
$ |
4,749,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues |
|
Six Months
Ended
June 30, 2017 |
|
% of
revenues |
|
|
Six Months
Ended
June 30, 2016 |
|
% of
revenues |
|
|
Increase /
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
20,933,958 |
|
85 |
% |
|
$ |
15,620,817 |
|
86 |
% |
|
$ |
5,313,141 |
|
Mobile
Solutions |
|
|
1,319,704 |
|
96 |
% |
|
|
3,381,206 |
|
90 |
% |
|
|
(2,061,502 |
) |
Online
Solutions |
|
|
2,524,722 |
|
67 |
% |
|
|
1,868,011 |
|
64 |
% |
|
|
656,711 |
|
|
Total |
|
$ |
24,778,384 |
|
83 |
% |
|
$ |
20,870,034 |
|
84 |
% |
|
$ |
3,908,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
Six Months
Ended
June 30, 2017 |
|
% of
revenues |
|
|
Six Months
Ended
June 30, 2016 |
|
% of
revenues |
|
|
Increase /
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
3,643,743 |
|
15 |
% |
|
$ |
2,635,764 |
|
14 |
% |
|
$ |
1,007,979 |
|
Mobile
Solutions |
|
|
55,687 |
|
4 |
% |
|
|
392,005 |
|
10 |
% |
|
|
(336,318 |
) |
Online
Solutions |
|
|
1,225,168 |
|
33 |
% |
|
|
1,056,104 |
|
36 |
% |
|
|
169,064 |
|
|
Total |
|
$ |
4,924,598 |
|
17 |
% |
|
$ |
4,083,873 |
|
16 |
% |
|
$ |
840,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues represents direct costs of generating revenues,
including commissions, mobile operator fees, purchases of short
numbers, interchange expense and processing fees. Cost of revenues
for the six months ended June 30, 2017 were $24,778,384 as compared
to $20,870,034 for the six months ended June 30, 2016. The increase
in cost of revenues was primarily due to a $5,313,141 increase in
our North American Transaction Solutions segment due to increased
sales volume. There was also a $656,711 increase in cost of
revenues resulting from our Online Solutions segment operations
also primarily due to the boarding of more merchants. This was
offset by a $2,061,502 decrease in our Mobile Solutions segment
cost of revenues, which resulted from the decrease in sales for our
Mobile Solutions segment for the six months ended June 30,
2017.
Gross Margin for the six months ended June 30, 2017 was
$4,924,598, or 17% of net revenue, as compared to $4,083,873, or
16% of net revenue, for the six months ended June 30, 2016. The
$840,725 increase in gross margin was primarily due to the
increased sales volume of processing and business mix in our North
American Transaction Solutions offset by a decrease of $336,318 in
our Mobile Solutions margin caused from a decrease in business.
Total operating expenses were $8,531,281 for the six months
ended June 30, 2017, which consisted of general and administrative
expenses of $5,430,338, non-cash compensation expenses of $724,941,
provision for bad debts of $1,145,621, and depreciation and
amortization of $1,230,381. Total operating expenses were
$8,572,829 for the six months ended June 30, 2016, which consisted
of general and administrative expenses of $4,087,624, non-cash
compensation expenses of $2,375,573, provision for bad debts of
$376,979, and depreciation and amortization of $1,732,653.
The components of our general and administrative expenses are
discussed below.
General and administrative expenses for the six months ended
June 30, 2017 and 2016 consisted of operating expenses not
otherwise delineated in our Consolidated Statements of Operations
and Comprehensive Loss and include salaries and benefits,
professional fees, rent, travel expense, filing fees, transaction
gains, office expenses, communication expense, insurance expense,
and other expenses required to run our business, as follows:
|
|
|
|
Six
Months Ended June 30, 2017 |
|
|
|
|
|
|
|
Category |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
Salaries,
benefits, taxes and contractor payments |
|
$ |
944,750 |
|
|
$ |
250,334 |
|
|
$ |
456,705 |
|
|
$ |
1,388,739 |
|
|
$ |
3,040,528 |
|
Professional fees |
|
|
250,964 |
|
|
|
44,839 |
|
|
|
483,877 |
|
|
|
554,737 |
|
|
|
1,334,417 |
|
Rent |
|
|
- |
|
|
|
27,288 |
|
|
|
80,092 |
|
|
|
181,763 |
|
|
|
289,143 |
|
Business
development |
|
|
2,809 |
|
|
|
977 |
|
|
|
17,788 |
|
|
|
2,496 |
|
|
|
24,070 |
|
Travel
expense |
|
|
112,148 |
|
|
|
6,826 |
|
|
|
5,336 |
|
|
|
90,918 |
|
|
|
215,228 |
|
Filing
fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,934 |
|
|
|
14,934 |
|
Transaction
(gains) losses |
|
|
742 |
|
|
|
(17,096 |
) |
|
|
(6,192 |
) |
|
|
3,034 |
|
|
|
(19,512 |
) |
Office
expenses |
|
|
98,602 |
|
|
|
6,025 |
|
|
|
41,511 |
|
|
|
91,501 |
|
|
|
237,639 |
|
Communications expenses |
|
|
23,388 |
|
|
|
2,197 |
|
|
|
59,571 |
|
|
|
40,162 |
|
|
|
125,318 |
|
Insurance
expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
76,341 |
|
|
|
76,341 |
|
Other
expenses |
|
|
3,213 |
|
|
|
- |
|
|
|
3,276 |
|
|
|
85,743 |
|
|
|
92,232 |
|
|
Total |
|
$ |
1,436,616 |
|
|
$ |
321,390 |
|
|
$ |
1,141,964 |
|
|
$ |
2,530,368 |
|
|
$ |
5,430,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
Salaries,
benefits, taxes and contractor payments |
|
$ |
808,581 |
|
|
$ |
235,937 |
|
|
$ |
255,436 |
|
|
$ |
1,056,044 |
|
|
$ |
2,355,998 |
|
Professional fees |
|
|
222,506 |
|
|
|
2,548 |
|
|
|
301,255 |
|
|
|
675,401 |
|
|
|
1,201,710 |
|
Rent |
|
|
- |
|
|
|
2,318 |
|
|
|
68,374 |
|
|
|
200,615 |
|
|
|
271,307 |
|
Business
development |
|
|
20,956 |
|
|
|
- |
|
|
|
64,791 |
|
|
|
4,648 |
|
|
|
90,395 |
|
Travel
expense |
|
|
91,095 |
|
|
|
7,095 |
|
|
|
9,986 |
|
|
|
37,902 |
|
|
|
146,078 |
|
Filing
fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
59,395 |
|
|
|
59,395 |
|
Transaction
(gains) losses |
|
|
- |
|
|
|
(383,813 |
) |
|
|
39,105 |
|
|
|
25,840 |
|
|
|
(318,868 |
) |
Office
expenses |
|
|
46,747 |
|
|
|
4,974 |
|
|
|
26,085 |
|
|
|
51,439 |
|
|
|
129,245 |
|
Communications expenses |
|
|
46,978 |
|
|
|
1,056 |
|
|
|
15,677 |
|
|
|
49,309 |
|
|
|
113,020 |
|
Insurance
expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,784 |
|
|
|
5,784 |
|
Other
expenses |
|
|
21,063 |
|
|
|
935 |
|
|
|
333 |
|
|
|
11,229 |
|
|
|
33,560 |
|
|
Total |
|
$ |
1,257,926 |
|
|
$ |
(128,950 |
) |
|
$ |
781,042 |
|
|
$ |
2,177,606 |
|
|
$ |
4,087,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
Salaries,
benefits, taxes and contractor payments |
|
$ |
136,169 |
|
|
$ |
14,397 |
|
|
$ |
201,269 |
|
|
$ |
332,695 |
|
|
$ |
684,530 |
|
Professional fees |
|
|
28,458 |
|
|
|
42,291 |
|
|
|
182,622 |
|
|
|
(120,664 |
) |
|
|
132,707 |
|
Rent |
|
|
- |
|
|
|
24,970 |
|
|
|
11,718 |
|
|
|
(18,852 |
) |
|
|
17,836 |
|
Business
development |
|
|
(18,147 |
) |
|
|
977 |
|
|
|
(47,003 |
) |
|
|
(2,152 |
) |
|
|
(66,325 |
) |
Travel
expense |
|
|
21,053 |
|
|
|
(269 |
) |
|
|
(4,650 |
) |
|
|
53,016 |
|
|
|
69,150 |
|
Filing
fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(44,461 |
) |
|
|
(44,461 |
) |
Transaction
(gains) losses |
|
|
742 |
|
|
|
366,717 |
|
|
|
(45,297 |
) |
|
|
(22,806 |
) |
|
|
299,356 |
|
Office
expenses |
|
|
51,855 |
|
|
|
1,051 |
|
|
|
15,426 |
|
|
|
40,062 |
|
|
|
108,394 |
|
Communications expenses |
|
|
(23,590 |
) |
|
|
1,141 |
|
|
|
43,894 |
|
|
|
(9,147 |
) |
|
|
12,298 |
|
Insurance
expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
70,557 |
|
|
|
70,557 |
|
Other
expenses |
|
|
(17,850 |
) |
|
|
(935 |
) |
|
|
2,943 |
|
|
|
74,514 |
|
|
|
58,672 |
|
|
Total |
|
$ |
178,690 |
|
|
$ |
450,340 |
|
|
$ |
360,922 |
|
|
$ |
352,762 |
|
|
$ |
1,342,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits, taxes and contractor payments were
$3,040,528 for the six months ended June 30, 2017 as compared to
$2,355,998 for the six months ended June 30, 2016.
|
|
|
|
|
|
|
Segment |
|
Salaries and
benefits for the
six months ended
June 30, 2017 |
|
Salaries and
benefits for the
six months ended
June 30, 2016 |
|
Increase /
(Decrease) |
North America
Transaction Solutions |
|
$ |
944,750 |
|
$ |
808,581 |
|
$ |
136,169 |
Mobile
Solutions |
|
|
250,334 |
|
|
235,937 |
|
|
14,397 |
Online
Solutions |
|
|
456,705 |
|
|
255,436 |
|
|
201,269 |
Corporate Expenses
& Eliminations |
|
|
1,388,739 |
|
|
1,056,044 |
|
|
332,695 |
Total |
|
$ |
3,040,528 |
|
$ |
2,355,998 |
|
$ |
684,530 |
|
|
|
|
|
|
|
|
|
|
The increase in salaries of $684,530 was due primarily to the
increase of corporate expenses for a $300,000 discretionary bonus
payable to our CEO and approved by the Board of directors. The
bonus is payable when cash flow of the business can support the
payment. Additionally, North American Transaction Solutions segment
salaries increased $136,169 due to an increase in headcount and
sales incentives for key employees. There was also an increase of
$201,269 and $14,397, respectively in our Online Solutions and
Mobile Solutions segments which were primarily due to increasing
administrative payroll on PayOnline and unfavorable changes in
foreign currency exchange rates.
Professional fees were $1,334,417 for the six months ended June
30, 2017 as compared to $1,201,710 for the six months ended June
30, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Fees |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
General Legal |
|
$ |
22,599 |
|
|
$ |
- |
|
|
$ |
3,958 |
|
$ |
58,228 |
|
|
$ |
84,785 |
|
SEC Compliance Legal
Fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
102,785 |
|
|
|
102,785 |
|
Accounting and
Auditing |
|
|
- |
|
|
|
- |
|
|
|
14,433 |
|
|
210,282 |
|
|
|
224,715 |
|
Tax Compliance and
Planning |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
15,400 |
|
|
|
15,400 |
|
Consulting |
|
|
228,365 |
|
|
|
44,839 |
|
|
|
465,486 |
|
|
168,042 |
|
|
|
906,732 |
|
Total |
|
$ |
250,964 |
|
|
$ |
44,839 |
|
|
$ |
483,877 |
|
$ |
554,737 |
|
|
$ |
1,334,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Fees |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
Corporate
Expenses &
Eliminations |
|
|
Total |
|
General Legal |
|
$ |
33,397 |
|
|
$ |
212 |
|
|
$ |
3,020 |
|
$ |
68,860 |
|
|
$ |
105,489 |
|
SEC Compliance Legal
Fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
87,500 |
|
|
|
87,500 |
|
Accounting and
Auditing |
|
|
- |
|
|
|
- |
|
|
|
578 |
|
|
224,399 |
|
|
|
224,977 |
|
Tax Compliance and
Planning |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
11,000 |
|
|
|
11,000 |
|
Consulting |
|
|
189,109 |
|
|
|
2,336 |
|
|
|
297,657 |
|
|
283,642 |
|
|
|
772,744 |
|
Total |
|
$ |
222,506 |
|
|
$ |
2,548 |
|
|
$ |
301,255 |
|
$ |
675,401 |
|
|
$ |
1,201,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Fees |
|
North America
Transaction
Solutions |
|
|
Mobile
Solutions |
|
|
Online
Solutions |
|
Corporate
Expenses &
Eliminations |
|
|
Increase /
(Decrease) |
|
General Legal |
|
$ |
(10,798 |
) |
|
$ |
(212 |
) |
|
$ |
938 |
|
$ |
(10,632 |
) |
|
$ |
(20,704 |
) |
SEC Compliance Legal
Fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
15,285 |
|
|
|
15,285 |
|
Accounting and
Auditing |
|
|
- |
|
|
|
- |
|
|
|
13,855 |
|
|
(14,117 |
) |
|
|
(262 |
) |
Tax Compliance and
Planning |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
4,400 |
|
|
|
4,400 |
|
Consulting |
|
|
39,256 |
|
|
|
42,503 |
|
|
|
167,829 |
|
|
(115,600 |
) |
|
|
133,988 |
|
Total |
|
$ |
28,458 |
|
|
$ |
42,291 |
|
|
$ |
182,622 |
|
$ |
(120,664 |
) |
|
$ |
132,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees increased by $132,707 mainly due to an
increase in Online Solutions segment's consulting fees of $167,828
offset by a decrease in general legal expenses.
Non-cash compensation expense from share-based compensation was
$724,941 for the six months ended June 30, 2017, compared to
$2,375,573 for the six months ended June 30, 2016. The majority of
these expenses were for employee and consultant incentives in both
periods.
We recorded bad debt expense of $1,145,621 for the six months
ended June 30, 2017 as compared to $376,979 for the six months
ended June 30, 2016. For the six months ended June 30, 2017, we
recorded a loss which was primarily comprised of $958,523 in ACH
rejects and a $196,551 provision from our Russian operations. Of
the $958,523 of ACH rejects, $511,881 were passed through to
independent sales organizations that board their merchants with us,
offset by $9,453 of rejects obtained through collection
procedures.
For the six months ended June 30, 2016, we recorded a loss which
was primarily comprised of $409,276 in ACH rejects offset by a
$32,397 recovery from our Russian operations. Of the $409,276 of
ACH rejects, $168,333 were passed through as a reduction to
commissions to independent sales organizations that board their
merchants with us.
Depreciation and amortization expense consists primarily of the
amortization of merchant portfolios plus depreciation expense on
fixed assets, client acquisition costs, capitalized software
expenses, trademarks, domain names and employee non-compete
agreements. Depreciation and amortization expense was $1,230,381
for the six months ended June 30, 2017 as compared to $1,732,653
for the six months ended June 30, 2016.
Interest expense was $591,740 for the six months ended June 30,
2017 as compared to $589,414 for six months ended June 30, 2016,
representing an increase of $2,325 as follows:
|
|
|
|
|
|
|
|
Funding Source |
|
Six months
ended
June 30, 2017 |
|
Six months
ended
June 30, 2016 |
|
Increase /
(Decrease) |
|
MBF Notes |
|
$ |
34,329 |
|
$ |
28,450 |
|
$ |
5,879 |
|
RBL Notes |
|
|
376,494 |
|
|
258,126 |
|
|
118,368 |
|
Priority Payments
Note |
|
|
24,747 |
|
|
- |
|
|
24,747 |
|
Crede CG III,
LTD |
|
|
- |
|
|
297,435 |
|
|
(297,435 |
) |
Other |
|
|
156,169 |
|
|
5,403 |
|
|
150,766 |
|
Total |
|
$ |
591,740 |
|
$ |
589,414 |
|
$ |
2,325 |
|
|
|
|
|
|
|
|
|
|
|
|
Other interest costs primarily consisted of $82,377 resulting
from the stock price guarantee related to the PayOnline acquisition
and $67,602 resulting from the promissory note entered into on
March 1, 2017 with Star Capital Management, LLC. See Note 12.
Related Party Transactions.
The net income attributable to non-controlling interests
amounted to $125,782 for six months ended June 30, 2017 as compared
to $76,668 for the six months ended June 30, 2016.
Reconciliation of Non-GAAP Financial Measures and
Regulation G Disclosure
To supplement its consolidated financial statements presented in
accordance with United States generally accepted accounting
principles ("GAAP"), the Company provides additional measures of
its operating results by disclosing its adjusted net loss. Adjusted
net loss is calculated as net loss excluding non-cash share based
compensation and other one-time, non-recurring items not present in
this year or last year results. Net Element discloses this amount
on an aggregate and per share basis. These measures meet the
definition of non-GAAP financial measures. The Company believes
that application of these non-GAAP financial measures is
appropriate to enhance the understanding of its historical
performance through use of a metric that seeks to normalize
period-to-period earnings.
This press release contains non-GAAP financial measures within
the meaning of Regulation G promulgated by the Securities and
Exchange Commission. Pursuant to Regulation G, a reconciliation of
these non-GAAP financial measures with the comparable financial
measures calculated in accordance with GAAP for the three and six
months ended June 30, 2017 and 2016 is presented in the following
Non-GAAP Financial Measures Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
|
|
Share-based
Compensation |
|
Loss from Stock
Value Guarantee |
|
Adjusted Non-GAAP |
|
Three Months Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to Net Element Inc stockholders |
|
$ |
(1,640,340 |
) |
|
$ |
128,537 |
|
$ |
- |
|
$ |
(1,511,803 |
) |
|
Basic and diluted
earnings per share |
|
$ |
(0.09 |
) |
|
$ |
0.01 |
|
$ |
- |
|
$ |
(0.08 |
) |
|
Basic and diluted
shares used in computing earnings per share |
|
|
17,715,382 |
|
|
|
|
|
|
|
|
|
17,715,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
|
|
Share-based
Compensation |
|
Loss from Stock
Value Guarantee |
|
Adjusted Non-GAAP |
|
Three Months Ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to Net Element Inc stockholders |
|
$ |
(5,346,448 |
) |
|
$ |
2,014,589 |
|
$ |
2,162,861 |
|
$ |
(1,168,998 |
) |
|
Basic and diluted
earnings per share |
|
$ |
(0.46 |
) |
|
$ |
0.17 |
|
$ |
0.19 |
|
$ |
(0.10 |
) |
|
Basic and diluted
shares used in computing earnings per share |
|
|
11,635,434 |
|
|
|
|
|
|
|
|
|
11,635,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
|
|
Share-based
Compensation |
|
Loss from Stock
Value Guarantee |
|
Adjusted Non-GAAP |
|
Six Months Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to Net Element Inc stockholders |
|
$ |
(4,127,837 |
) |
|
$ |
724,941 |
|
$ |
- |
|
$ |
(3,402,896 |
) |
|
Basic and diluted
earnings per share |
|
$ |
(0.24 |
) |
|
$ |
0.04 |
|
$ |
- |
|
$ |
(0.19 |
) |
|
Basic and diluted
shares used in computing earnings per share |
|
|
17,099,145 |
|
|
|
|
|
|
|
|
|
17,099,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
|
|
Share-based
Compensation |
|
Loss from Stock
Value Guarantee |
|
Adjusted Non-GAAP |
|
Six Months Ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to Net Element Inc stockholders |
|
$ |
(7,194,167 |
) |
|
$ |
2,375,573 |
|
$ |
2,162,861 |
|
$ |
(2,655,733 |
) |
|
Basic and diluted
earnings per share |
|
$ |
(0.63 |
) |
|
$ |
0.21 |
|
$ |
0.19 |
|
$ |
(0.23 |
) |
|
Basic and diluted
shares used in computing earnings per share |
|
|
11,464,434 |
|
|
|
|
|
|
|
|
|
11,464,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information regarding Net Element's results for its
second quarter ended June 2017 may be found in Net Element's
quarterly report on Form 10-Q, which was filed with the Security
and Exchange Commission (SEC) on August 11, 2017 and may be
obtained from the SEC's Internet website
at http://www.sec.gov.
About Net Element
Net Element, Inc. (NASDAQ: NETE) operates a
payments-as-a-service transactional and value-added services
platform for small to medium enterprise ("SME") in the U.S. and
selected emerging markets. In the U.S. it aims to grow
transactional revenue by innovating SME productivity services such
as its cloud based, restaurant and retail point-of-sale solution
Aptito. Internationally, Net Element's strategy is to leverage its
omni-channel platform to deliver flexible offerings to emerging
markets with diverse banking, regulatory and demographic conditions
such as UAE, Kazakhstan, Kyrgyzstan and Azerbaijan where
initiatives have been recently launched. Net Element was named in
2016 by South Florida Business Journal as one of the fastest
growing technology companies.
Further information is available at www.netelement.com.
Forward-Looking Statements
This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Any statements contained in this press release that are not
statements of historical fact may be deemed forward-looking
statements. Words such as "continue," "will," "may," "could,"
"should," "expect," "expected," "plans," "intend," "anticipate,"
"believe," "estimate," "predict," "potential," and similar
expressions are intended to identify such forward-looking
statements. All forward-looking statements involve significant
risks and uncertainties that could cause actual results to differ
materially from those expressed or implied in the forward-looking
statements, many of which are generally outside the control of Net
Element and are difficult to predict. Examples of such risks and
uncertainties include, but are not limited to: (i) Net Element's
ability (or inability) to obtain additional financing in sufficient
amounts or on acceptable terms when needed; (ii) Net Element's
ability to maintain existing, and secure additional, contracts with
users of its payment processing services; (iii) Net Element's
ability to successfully expand in existing markets and enter new
markets; (iv) Net Element's ability to successfully manage and
integrate any acquisitions of businesses, solutions or
technologies; (v) unanticipated operating costs, transaction costs
and actual or contingent liabilities; (vi) the ability to attract
and retain qualified employees and key personnel; (vii) adverse
effects of increased competition on Net Element's business; (viii)
changes in government licensing and regulation that may adversely
affect Net Element's business; (ix) the risk that changes in
consumer behavior could adversely affect Net Element's business;
(x) Net Element's ability to protect its intellectual property;
(xi) local, industry and general business and economic conditions;
(xii) adverse effects of potentially deteriorating U.S.-Russia
relations, including, without limitation, over a conflict related
to Ukraine, including a risk of further U.S. government sanctions
or other legal restrictions on U.S. businesses doing business in
Russia. Additional factors that could cause actual results to
differ materially from those expressed or implied in the
forward-looking statements can be found in the most recent annual
report on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K filed by Net Element with the Securities and
Exchange Commission. Net Element anticipates that subsequent events
and developments may cause its plans, intentions and expectations
to change. Net Element assumes no obligation, and it specifically
disclaims any intention or obligation, to update any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as expressly required by
law.
|
|
NET ELEMENT, INC. |
UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEETS |
|
|
|
June 30,
2017 |
|
December 31,
2016 |
ASSETS |
|
|
|
|
Current
assets: |
|
|
|
|
|
Cash |
|
$1,274,279 |
|
$621,635 |
|
Accounts
receivable, net |
|
6,007,143 |
|
7,126,429 |
|
Prepaid
expenses and other assets |
|
1,219,524 |
|
1,467,897 |
|
|
|
Total current assets,
net |
|
8,500,946 |
|
9,215,961 |
Fixed
assets, net |
|
103,239 |
|
117,295 |
Intangible assets, net |
|
3,308,229 |
|
3,589,850 |
Goodwill |
|
9,643,752 |
|
9,643,752 |
Other
long term assets |
|
417,574 |
|
603,209 |
|
|
|
Total assets |
|
21,973,740 |
|
23,170,067 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Accounts
payable |
|
7,516,761 |
|
7,510,113 |
|
Accrued
expenses |
|
4,437,601 |
|
5,518,823 |
|
Deferred
revenue |
|
439,074 |
|
1,355,972 |
|
Notes
payable (current portion) |
|
984,720 |
|
808,976 |
|
Due to
related parties |
|
366,636 |
|
299,004 |
|
|
|
Total current
liabilities |
|
13,744,792 |
|
15,492,888 |
|
Notes
payable (net of current portion) |
|
6,253,513 |
|
3,615,782 |
|
|
|
Total
liabilities |
|
19,998,305 |
|
19,108,670 |
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
Series A
convertible preferred stock ($.0001 par value, 1,000,000 shares
authorized, no shares issued and outstanding at June 30, 2017 and
December 31, 2016) |
|
- |
|
- |
|
Common
stock ($.0001 par value, 400,000,000 shares authorized and
17,968,317 and 15,353,494 shares issued and outstanding at June 30,
2017 and December 31, 2016) |
|
1,797 |
|
1,535 |
|
Paid in
capital |
|
166,220,080 |
|
163,918,685 |
|
Accumulated other comprehensive loss |
|
(2,620,615) |
|
(2,486,616) |
|
Accumulated deficit |
|
(161,570,423) |
|
(157,442,585) |
|
Noncontrolling interest |
|
(55,404) |
|
70,378 |
|
|
Total
stockholders' equity |
|
1,975,435 |
|
4,061,397 |
|
|
|
Total liabilities and
stockholders' equity |
|
$21,973,740 |
|
$23,170,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ELEMENT, INC. |
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS |
|
|
|
|
|
Three Months Ended
June 30 |
|
|
Six Months Ended
June 30 |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees |
|
$ |
15,456,310 |
|
|
$ |
12,117,708 |
|
|
$ |
28,362,086 |
|
|
$ |
21,481,528 |
|
|
Branded content |
|
|
684,731 |
|
|
|
1,575,140 |
|
|
|
1,340,896 |
|
|
|
3,472,379 |
|
Total
revenues |
|
|
16,141,041 |
|
|
|
13,692,848 |
|
|
|
29,702,982 |
|
|
|
24,953,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
fees |
|
|
12,653,556 |
|
|
|
10,003,934 |
|
|
|
23,475,543 |
|
|
|
17,602,087 |
|
|
Cost of branded
content |
|
|
664,836 |
|
|
|
1,480,859 |
|
|
|
1,302,841 |
|
|
|
3,267,947 |
|
|
General and
administrative |
|
|
2,599,178 |
|
|
|
1,999,391 |
|
|
|
5,430,338 |
|
|
|
4,087,624 |
|
|
Non-cash
compensation |
|
|
128,537 |
|
|
|
2,014,589 |
|
|
|
724,941 |
|
|
|
2,375,573 |
|
|
Bad debt expense |
|
|
865,863 |
|
|
|
125,238 |
|
|
|
1,145,621 |
|
|
|
376,979 |
|
|
Depreciation and
amortization |
|
|
573,018 |
|
|
|
844,535 |
|
|
|
1,230,381 |
|
|
|
1,732,653 |
|
Total
costs and operating expenses |
|
|
17,484,988 |
|
|
|
16,468,546 |
|
|
|
33,309,665 |
|
|
|
29,442,863 |
|
Loss from
operations |
|
|
(1,343,947 |
) |
|
|
(2,775,698 |
) |
|
|
(3,606,683 |
) |
|
|
(4,488,956 |
) |
|
Interest expense,
net |
|
|
(322,052 |
) |
|
|
(438,976 |
) |
|
|
(591,740 |
) |
|
|
(589,414 |
) |
|
Loss from stock value
guarantee |
|
|
- |
|
|
|
(2,162,861 |
) |
|
|
- |
|
|
|
(2,162,861 |
) |
|
Other income
(expense) |
|
|
(49,422 |
) |
|
|
(7,705 |
) |
|
|
(55,196 |
) |
|
|
(29,604 |
) |
Net
(loss) income before income taxes |
|
|
(1,715,421 |
) |
|
|
(5,385,240 |
) |
|
|
(4,253,619 |
) |
|
|
(7,270,835 |
) |
|
Income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
loss |
|
|
(1,715,421 |
) |
|
|
(5,385,240 |
) |
|
|
(4,253,619 |
) |
|
|
(7,270,835 |
) |
|
Net loss attributable
to the non controlling interest |
|
|
75,081 |
|
|
|
38,792 |
|
|
|
125,782 |
|
|
|
76,668 |
|
Net loss
attributable to Net Element, Inc. stockholders |
|
|
(1,640,340 |
) |
|
|
(5,346,448 |
) |
|
|
(4,127,837 |
) |
|
|
(7,194,167 |
) |
|
Foreign currency
translation loss |
|
|
(146,102 |
) |
|
|
(496,041 |
) |
|
|
(133,999 |
) |
|
|
(525,782 |
) |
Comprehensive loss attributable to common stockholders |
|
$ |
(1,786,442 |
) |
|
$ |
(5,842,489 |
) |
|
$ |
(4,261,836 |
) |
|
$ |
(7,719,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per
share - basic and diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and
diluted |
|
|
17,715,382 |
|
|
|
11,635,434 |
|
|
|
17,099,145 |
|
|
|
11,464,434 |
|
|
|
|
|
NET ELEMENT, INC. |
|
UNAUDITED CONSOLIDATED STATEMENT OF CASH
FLOWS |
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2017 |
|
|
2016 |
|
Cash flows
from operating activities |
|
|
|
|
|
|
|
|
Net loss
attributable to Net Element, Inc. stockholders |
|
$ |
(4,127,837 |
) |
|
$ |
(7,194,167 |
) |
Adjustments
to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
|
|
Non
controlling interest |
|
|
(125,782 |
) |
|
|
(76,668 |
) |
|
Share
based compensation |
|
|
596,404 |
|
|
|
2,375,573 |
|
|
Deferred
revenue |
|
|
(916,898 |
) |
|
|
(417,887 |
) |
|
Provision
for bad debts |
|
|
192,895 |
|
|
|
- |
|
|
Depreciation and amortization |
|
|
1,230,381 |
|
|
|
1,732,652 |
|
|
Non cash
interest |
|
|
94,248 |
|
|
|
297,434 |
|
Changes in
assets and liabilities |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
1,913,135 |
|
|
|
(331,566 |
) |
|
Prepaid
expenses and other assets |
|
|
284,661 |
|
|
|
270,932 |
|
|
Accounts
payable and accrued expenses |
|
|
(1,845,161 |
) |
|
|
1,876,961 |
|
|
Net cash
used in operating activities |
|
|
(2,703,954 |
) |
|
|
(1,466,736 |
) |
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities |
|
|
|
|
|
|
|
|
|
Client
acquisition costs |
|
|
(966,147 |
) |
|
|
(741,514 |
) |
|
Receipt
of excess reserves and (purchase) of fixed and other assets |
|
|
180,423 |
|
|
|
(214,046 |
) |
|
|
Net cash used in
investing activities |
|
|
(785,724 |
) |
|
|
(955,560 |
) |
|
|
|
|
|
|
|
|
|
Cash flows
from financing activities |
|
|
|
|
|
|
|
|
|
Proceeds
from common stock |
|
|
1,437,132 |
|
|
|
- |
|
|
Proceeds
from indebtedness |
|
|
3,298,792 |
|
|
|
1,215,000 |
|
|
Repayment
of indebtedness |
|
|
(624,918 |
) |
|
|
- |
|
|
Related
party advances |
|
|
- |
|
|
|
910,045 |
|
|
Net cash
provided by financing activities |
|
|
4,111,006 |
|
|
|
2,125,045 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash |
|
|
31,316 |
|
|
|
(94,905 |
) |
|
Net
increase (decrease) in cash |
|
|
652,644 |
|
|
|
(392,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash at
beginning of period |
|
|
621,635 |
|
|
|
1,025,747 |
|
|
Cash at
end of period |
|
$ |
1,274,279 |
|
|
$ |
633,591 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
Cash paid
during the period for: |
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
397,548 |
|
|
$ |
589,414 |
|
|
|
Taxes |
|
$ |
64,314 |
|
|
$ |
94,718 |
|
Non cash
activities: |
|
|
|
|
|
|
|
|
|
Share
issuance for settlement of unpaid compensation |
|
$ |
- |
|
|
$ |
1,042,509 |
|
|
Shares
issued for redemption of indebtedness |
|
$ |
258,107 |
|
|
$ |
971,871 |
|
|
Shares
issued in settlement of advances from board member |
|
$ |
- |
|
|
$ |
909,285 |
|