NETE Net Element Inc

via InvestorWire – Net Element, Inc. (NASDAQ: NETE) (“Net Element” or the “Company”), a global technology and value-added solutions group that supports electronic payments acceptance in a multichannel environment including point of sale (“POS”), e-commerce and mobile devices, today reports its financial results for the third quarter ended Sept. 30, 2020.

Third Quarter 2020 Financial Results

• Total transaction volume increased to $956.2 million, as compared to $953.7 million for the same comparable period in 2019.
• Net revenues decreased to $16.7 million, as compared to $16.8 million for the same comparable period in 2019.
• North American Transaction Solutions revenue increased to $16.07 million, as compared to $15.9 million for the same comparable period in 2019.
• International Transaction Solutions revenue decreased to $0.67 million, as compared to $0.90 million for the same comparable period in 2019.
• Operating expenses increased to $4.1 million, as compared to $3.6 million for the same comparable period.
• Gross margin decreased to $2.2 million, as compared to $2.7 million for the same comparable period in 2019.

“We continue working diligently in an effort to finalize the Mullen merger for the benefit of our shareholders,” commented Oleg Firer, Executive Chairman of Net Element.

Results of Operations for the Three Months Ended Sept. 30, 2020, Compared to the Three Months Ended Sept. 30, 2019

The Company reported a net loss attributable to common stockholders of approximately $2.3 million or $0.52 per share loss for the three months ended Sept. 30, 2020 as compared to a net loss of approximately $1.0 million or $0.24 per share loss for the three months ended Sept. 30, 2019. The increase in net loss attributable to stockholders of approximately $1.3 million was primarily due to an increase in non-cash compensation of approximately $1.1 million and an increase in bad debt expense of approximately $200,000.

The following tables set forth the Company’s sources of revenues, cost of revenues and the respective gross margins for the three months ended Sept. 30, 2020 and 2019.

QTD
		Three						Three
		Months Ended						Months Ended						Increase /
Source of Revenues		September 30, 2020			Mix			September 30, 2019			Mix			(Decrease)				% change
North American Transaction Solutions		$	16,072,518		96.0	%		$	15,923,805		94.7	%		$	148,713			0.93	%
International Transaction Solutions			661,856		4.0	%			895,881		5.3	%			(234,025	)		-26.12	%
Total		$	16,734,374		100.0	%		$	16,819,686		100.0	%		$	(85,312	)
		Three						Three
		Months Ended			% of			Months Ended			% of			Increase /
Cost of Revenues		September 30, 2020			revenues			September 30, 2019			revenues			(Decrease)
North American Transaction Solutions		$	14,083,449		87.6	%		$	13,414,334		84.2	%		$	669,115			4.99	%
International Transaction Solutions			476,741		72.0	%			664,907		74.2	%			(188,166	)		-28.30	%
Total		$	14,560,190		87.0	%		$	14,079,241		83.7	%		$	480,949
		Three						Three
		Months Ended			% of			Months Ended			% of			Increase /
Gross Margin		September 30, 2020			revenues			September 30, 2019			revenues			(Decrease)
North American Transaction Solutions		$	1,989,069		12.4	%		$	2,509,471		15.8	%		$	(520,402	)		-20.74	%
International Transaction Solutions			185,115		28.0	%			230,974		25.8	%			(45,859	)		-19.85	%
Total		$	2,174,184		13.0	%		$	2,740,445		16.3	%		$	(566,261	)
YTD
		Nine						Nine
		Months Ended						Months Ended						Increase /
Source of Revenues		September 30, 2020			Mix			September 30, 2019			Mix			(Decrease)				% change
North American Transaction Solutions		$	44,204,134		95.5	%		$	46,025,308		95.2	%		$	(1,821,174	)		-3.96	%
International Transaction Solutions			2,086,415		4.5	%			2,328,871		4.8	%			(242,456	)		-10.41	%
Total		$	46,290,549		100.0	%		$	48,354,179		100.0	%		$	(2,063,630	)
		Nine						Nine
		Months Ended			% of			Months Ended			% of			Increase /
Cost of Revenues		September 30, 2020			revenues			September 30, 2019			revenues			(Decrease)
North American Transaction Solutions		$	37,923,749		85.8	%		$	38,627,147		83.9	%		$	(703,398	)		-1.82	%
International Transaction Solutions			1,473,635		70.6	%			1,613,607		69.3	%			(139,972	)		-8.67	%
Total		$	39,397,384		85.1	%		$	40,240,754		83.2	%		$	(843,370	)
		Nine						Nine
		Months Ended			% of			Months Ended			% of			Increase /
Gross Margin		September 30, 2020			revenues			September 30, 2019			revenues			(Decrease)
North American Transaction Solutions		$	6,280,385		14.2	%		$	7,398,161		16.1	%		$	(1,117,776	)		-15.11	%
International Transaction Solutions			612,780		29.4	%			715,264		30.7	%			(102,484	)		-14.33	%
Total		$	6,893,165		14.9	%		$	8,113,425		16.8	%		$	(1,220,260	)

Net revenues consist primarily of service fees from transaction processing. Net revenues were approximately $16.8 million for the three months ended Sept. 30, 2020 and 2019. Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, interchange expense, processing, and non-processing fees. Cost of revenues for the three months ended Sept. 30, 2020 were approximately $14.6 million as compared to approximately $14.1 million for the three months ended Sept. 30, 2019.

The gross margin for the three months ended Sept. 30, 2020 was approximately $2.2 million, or 13.0% of net revenues, as compared to approximately $2.7 million, or 16.3% of net revenues, for the three months ended Sept. 30, 2019. The primary reason for the decrease in the overall gross margin percentage was primarily the result of the competitive pressure in our industry, relating to costs that can be passed through to our merchants.

Operating Expenses Analysis:

Operating expenses were approximately $4.1 million for the three months ended Sept. 30, 2020, as compared to $3.6 million for three months ended Sept. 30, 2019. Operating expenses for the three months ended Sept. 30, 2020, primarily consisted of selling, general and administrative expenses of approximately $1.6 million, non-cash compensation of approximately $1.1 million, bad debt expense of approximately $600,000, and depreciation and amortization expense of approximately $750,000. Operating expenses for the three months ended Sept. 30, 2019, primarily consisted of selling, general and administrative expenses of approximately $2.4 million, bad debt expense of approximately $400,000, and depreciation and amortization expenses of approximately $750,000. The increase in operating expenses was primarily related to the non-cash compensation with a corresponding decrease in selling, general, and administrative expenses due to the reduction of the labor force and the compensation of certain employees and executives of the Company, as compared to the previous corresponding quarter.

The components of the Company’s selling, general and administrative expenses are reflected in the tables below.

Selling, general and administrative expenses for the three months ended Sept. 30, 2020 and 2019 consisted of operating expenses not otherwise delineated in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss, as follows:

QTD																			YTD
Three months ended September 30, 2020																			Nine months ended September 30, 2020
Category		North American TransactionSolutions				International TransactionSolutions				Corporate Expenses & Eliminations				Total					Category		North American TransactionSolutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	563,948			$	95,254			$	84,688			$	743,890				Salaries, benefits, taxes and contractor payments		$	1,649,488			$	300,221			$	753,983			$	2,703,692
Professional fees			91,468				29,523				251,262				372,253				Professional fees			253,046				117,951				748,210				1,119,207
Rent			16,664				16,183				10,568				43,415				Rent			34,307				46,341				102,076				182,724
Business development			42,198				2,500				2,929				47,627				Business development			153,547				2,517				8,836				164,900
Travel expense			1,306				12,396				39,506				53,208				Travel expense			6,615				46,892				135,032				188,539
Filing fees			-				-				18,916				18,916				Filing fees			-				-				56,254				56,254
Transaction gains			-				12,641				-				12,641				Transaction gains			-				89,140				-				89,140
Office expenses			65,208				2,961				18,091				86,260				Office expenses			184,692				13,688				63,065				261,445
Communications expenses			33,387				32,210				25,707				91,304				Communications expenses			122,158				121,574				61,578				305,310
Insurance expense			-				-				46,772				46,772				Insurance expense			-				-				127,457				127,457
Other expenses			2,561				2,065				126,684				131,310				Other expenses			2,990				4,168				142,991				150,149
Total		$	816,740			$	205,733			$	625,123			$	1,647,596				Total		$	2,406,843			$	742,492			$	2,199,482			$	5,348,817
Three months ended September 30, 2019																			Nine months ended September 30, 2019
Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total					Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	304,391			$	124,921			$	729,426			$	1,158,738				Salaries, benefits, taxes and contractor payments		$	926,868			$	400,943			$	2,294,391			$	3,622,202
Professional fees			125,713				58,478				486,984				671,175				Professional fees			400,058				186,440				1,334,367				1,920,865
Rent			-				23,048				51,795				74,843				Rent			-				57,144				157,086				214,230
Business development			75,414				540				18,707				94,661				Business development			168,582				1,655				28,821				199,058
Travel expense			36,337				10,553				18,466				65,356				Travel expense			95,984				24,038				83,833				203,855
Filing fees			-				-				37,213				37,213				Filing fees			-				-				78,125				78,125
Transaction losses			-				7,169				-				7,169				Transaction losses			-				(36,923	)			-				(36,923	)
Office expenses			91,051				4,460				12,093				107,604				Office expenses			249,232				14,485				38,406				302,123
Communications expenses			39,530				61,428				17,710				118,668				Communications expenses			119,233				158,495				59,584				337,312
Insurance expense			-				-				42,418				42,418				Insurance expense			-				-				112,932				112,932
Other expenses			15,073				1,672				4,196				20,941				Other expenses			12,639				7,610				108,693				128,942
Total		$	687,509			$	292,269			$	1,419,008			$	2,398,786				Total		$	1,972,596			$	813,887			$	4,296,238			$	7,082,721
Variance																			Variance
Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total					Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	259,557			$	(29,667	)		$	(644,738	)		$	(414,848	)			Salaries, benefits, taxes and contractor payments		$	722,620			$	(100,722	)		$	(1,540,408	)		$	(918,510	)
Professional fees			(34,245	)			(28,955	)			(235,722	)			(298,922	)			Professional fees			(147,012	)			(68,489	)			(586,157	)			(801,658	)
Rent			16,664				(6,865	)			(41,227	)			(31,428	)			Rent			34,307				(10,803	)			(55,010	)			(31,506	)
Business development			(33,216	)			1,960				(15,778	)			(47,034	)			Business development			(15,035	)			862				(19,985	)			(34,158	)
Travel expense			(35,031	)			1,843				21,040				(12,148	)			Travel expense			(89,369	)			22,854				51,199				(15,316	)
Filing fees			-				-				(18,297	)			(18,297	)			Filing fees			-				-				(21,871	)			(21,871	)
Transaction gains			-				5,472				-				5,472				Transaction gains			-				126,063				-				126,063
Office expenses			(25,843	)			(1,499	)			5,998				(21,344	)			Office expenses			(64,540	)			(797	)			24,659				(40,678	)
Communications expenses			(6,143	)			(29,218	)			7,997				(27,364	)			Communications expenses			2,925				(36,921	)			1,994				(32,002	)
Insurance expense			-				-				4,354				4,354				Insurance expense			-				-				14,525				14,525
Other (income) expenses			(12,512	)			393				122,488				110,369				Other (income) expenses			(9,649	)			(3,442	)			34,298				21,207
Total		$	129,231			$	(86,536	)		$	(793,885	)		$	(751,190	)			Total		$	434,247			$	(71,395	)		$	(2,096,756	)		$	(1,733,904	)

Salaries, benefits, taxes and contractor payments decreased by approximately $0.4 million on a consolidated basis for the three months ended Sept. 30, 2020 as compared to the three months ended Sept. 30, 2019. This was primarily due to necessary reductions in staffing and the reduction of compensation of certain employees and executives of the Company, due to the effects of the COVID-19 pandemic on Net Element’s operations.

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 attributable to Net Element, Inc. stockholders. Adjusted net loss attributable to Net Element stockholders is calculated as net loss attributable to Net Element stockholders excluding non-cash share-based compensation. The Company 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 the Company’s investors regarding its historical performance through the use of a metric that seeks to normalize period-to-period earnings. A reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the quarter ended Sept. 30, 2020, and Sept. 30, 2019, is presented in the following tables.

	GAAP			Share-basedCompensation		Adjusted Non-GAAP
Three Months Ended September 30, 2020
Net loss attributable to Net Element Inc stockholders	$	(2,329,570	)	$	1,089,113	$	(1,240,457	)
Basic and diluted earnings per share	$	(0.52	)	$	0.24	$	(0.28	)
Basic and diluted shares used in computing earnings per share		4,498,510					4,498,510
Three Months Ended September 30, 2019
Net loss attributable to Net Element Inc stockholders	$	(1,010,627	)	$	15,008	$	(995,619	)
Basic and diluted earnings per share	$	(0.24	)	$	-	$	(0.24	)
Basic and diluted shares used in computing earnings per share		4,152,433					4,152,433
	GAAP			Share-basedCompensation		Adjusted Non-GAAP
Nine Months Ended September 30, 2020
Net loss attributable to Net Element Inc stockholders	$	(4,021,057	)	$	1,135,013	$	(2,886,044	)
Basic and diluted earnings per share	$	(0.94	)	$	0.27	$	(0.67	)
Basic and diluted shares used in computing earnings per share		4,264,624					4,264,624
Nine Months Ended September 30, 2019
Net loss attributable to Net Element Inc stockholders	$	(3,668,921	)	$	2,035,855	$	(1,633,066	)
Basic and diluted earnings per share	$	(0.91	)	$	0.50	$	(0.41	)
Basic and diluted shares used in computing earnings per share		4,033,521					4,033,521

Use of Non-GAAP Financial MeasuresNon-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP measures exclude significant expenses that are required by GAAP to be recorded in the Company's financial statements and are subject to inherent limitations.

About Net ElementNet 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. On Aug. 5, 2020, Net Element announced the execution of a definitive agreement (the “Merger Agreement”) to merge with privately-held Mullen Technologies, Inc. (“Mullen”), a Southern California-based electric vehicle company in a stock-for-stock reverse merger in which Mullen’s stockholders will receive a majority of the outstanding stock in the post-merger company (the “contemplated merger”). That contemplated merger is subject to customary closing conditions, regulatory approvals and shareholder approval for both companies.

Forward-Looking StatementsSecurities 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 what the ultimate impact of the COVID-19 pandemic will have on the Company and its operations, whether the proposed merger with Mullen will be consummated, including the receipt and timing of required approvals and satisfaction of other conditions to the closing of the proposed merger and the related transactions contemplated in the merger agreement, whether the Company will achieve growth or achieve its goals and when the Company will reach profitability. Additional 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; and (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. Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company’s plans and expectations as of any subsequent date.

Contact:Net Element, Inc.Tel. +1 (786) 923-0502Media@NetElement.comwww.netelement.com