MIAMI, FL--(Marketwired - Aug 14, 2017) - Net Element, Inc. (
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. (
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 |
Contact Information:
Contact:
Net Element, Inc.
media@netelement.com
+1 (786) 923-0502