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 multi-channel
environment including point-of-sale (“POS”), e-commerce and mobile
devices, today reports its financial results for the second quarter
ended June 30, 2018, and provides an update on recent strategic and
operational initiatives.
Conference Call:
On August 15, 2018, at 8:30 a.m. EST the Company
will host a conference call to discuss 2018 second-quarter
financial results and business highlights. 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 5058929. It is recommended that participants dial
in approximately 10 minutes prior to the start of the call.
The call will also be webcast live from
https://edge.media-server.com/m6/p/i8w792tk. Following completion
of the call, a recorded replay of the webcast will be available on
the www.netelement.com/en/ir website.
Second Quarter and First Half 2018
Financial Performance:
For the three months ended June 30, 2018, net
revenues increased to $16.46 million, an increase of 2% compared to
$16.14 million in the second quarter ended June 30, 2017. The
increase is primarily due to organic growth in the North American
Transaction Solutions segment, which experienced growth of 6% over
the prior year. International Transaction Solutions segment
experienced a decline of 19% due to elimination of branded content
business, which accounted for $684,000 of net revenues in 2017.
Normalizing elimination of branded content business resulted in 11%
growth in the International Transaction Solutions segment and 6.5%
across all segments over the same period of the prior year.
For the six months ended June 30, 2018, net
revenues increased to $32.45 million, an increase of 9% compared to
$29.7 million in the prior year. The increase is primarily due to
organic growth in the North American Transactions Solutions
segment, which experienced growth of 15% over the prior year. The
Company’s International Transaction Solutions segment experienced a
decline of 21% due to elimination of branded content business,
which accounted for $1.34 million of net revenues in 2017.
Normalizing elimination of branded content business resulted in
growth of 7.3% in the International Transaction Solutions segment
and 14.4% across all segments over the same period of the prior
year.
United States accounted for 88% of total
revenues for the second quarter and 87% for six months ended June
30, 2018, while international revenues were 12% for the second
quarter and 14% for six months.
- Total dollars processed for the first half of 2018 increased
37% to $1.62 billion from $1.18 billion in transaction volume
during the same period in 2017. Led by robust growth from our
subsidiary Unified Payments, the North American Transaction
Solutions segment saw the largest increase of 40% to $1.4 billion
from $1 billion. International Transaction Solutions increased 20%
to $211 million from $176 million.
- Total transactions processed during the first half of 2018
increased 41% to 50.2 million compared to 35.7 million for the same
period in 2017. The increase in transactions processed came
primarily from North American Transaction Solutions segment, which
saw an increase of 41% to 28.1 million from 20 million.
International Transaction Solutions segment processed 21 million
versus 15 million, which represents an increase of 40%. Growth in
all segments was organic. The above results include the
reorganization of the mobile payments segment into the
International Transactions Solutions segment.
“We are on track to deliver another year of
growth and financial improvement,” commented Oleg Firer, CEO of Net
Element. “We continue to focus on long-term growth plans and are
confident that our strategic initiatives and continued investment
in commerce-enabled technologies are creating significant value for
our shareholders.”
Second Quarter 2018 Business
Highlights:
- Launched Netevia Smart Vendor Payment Solutions to enter the
$7.7 trillion global B2B payments market.
- Launched intelligent payment solutions for the $330 billion
meetings and events industry.
- Participated in Midwest Acquirers Association (MWAA) conference
in Chicago, featuring the latest in payments and value added
products and services.
Results of Operations for the Three
Months Ended June 30, 2018, compared to the Three Months Ended June
30, 2017
We reported a net loss attributable to common
stockholders of $903,731, or $0.23 per share, for the three months
ended June 30, 2018, as compared to a net loss of $1,640,340, or
$0.93 per share, for the three months ended June 30, 2017. This
resulted in a decrease in net loss attributable to stockholders of
$736,609 primarily due to an increase in revenues and other income,
as well as decreases in general and administrative and non-cash
compensation expenses, which were offset by increases in
depreciation and amortization expenses.
Adjusting for non-cash compensation, we have a
non-GAAP adjusted net loss attributable to common stockholders of
$881,231, or $0.22 loss per share, for the quarter ended June 30,
2018, as compared to a non-GAAP adjusted net loss attributable to
common stockholders of $1,511,803, or $0.84 loss per share, for the
quarter ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
Source of
Revenues |
|
Three Months Ended June 30, 2018 |
|
Mix |
|
Three Months Ended June 30, 2017 |
|
Mix |
|
Increase / (Decrease) |
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
14,419,129 |
|
|
|
87.6 |
% |
|
$ |
13,612,782 |
|
|
|
84.3 |
% |
|
$ |
806,347 |
|
International Transaction Solutions |
|
|
2,045,588 |
|
|
|
12.4 |
% |
|
|
2,528,259 |
|
|
|
15.7 |
% |
|
|
(482,671 |
) |
Total |
|
$ |
16,464,717 |
|
|
|
100.0 |
% |
|
$ |
16,141,041 |
|
|
|
100.0 |
% |
|
$ |
323,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues consist primarily of service fees
from transaction processing. Net revenues were $16,464,717 for the
three months ended June 30, 2018, as compared to $16,141,041 for
the three months ended June 30, 2017. The increase was driven by an
increase of $806,347 (or 6%) in net revenues from our North
American Transaction Solutions segment due to organic growth, which
was partially offset by a decrease of $482,671 (or -19%) in net
revenues from our International Transaction Solutions segment as we
reorganized our international business and consolidated our mobile
payments operations with PayOnline. For the three months ended June
30, 2018, there was no branded content revenue from our mobile
payment operations as compared to $684,731 of branded content
revenue in the three months ended June 30, 2017. We continue to
explore partnership opportunities that can monetize our
relationships and contracts with mobile operators but we have not
yet identified an acceptable joint-venture partner or other
arrangement.
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin |
|
Three Months Ended June 30, 2018 |
|
% of revenues |
|
Three Months Ended June 30, 2017 |
|
% of revenues |
|
Increase / (Decrease) |
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
2,192,070 |
|
|
|
15.2 |
% |
|
$ |
2,140,274 |
|
|
|
15.7 |
% |
|
$ |
51,796 |
|
International Transaction Solutions |
|
|
458,639 |
|
|
|
22.4 |
% |
|
|
682,375 |
|
|
|
27.0 |
% |
|
|
(223,736 |
) |
Total |
|
$ |
2,650,709 |
|
|
|
16.1 |
% |
|
$ |
2,822,649 |
|
|
|
17.5 |
% |
|
$ |
(171,940 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin for the three months ended June 30,
2018, was $2,650,709, or 16.1% of net revenue, as compared to
$2,822,649, or 17.5% of net revenue, for the three months ended
June 30, 2017. The primary reason the gross margin percentage
decreased was because of increases in North American Transaction
Solutions segment’s fixed costs as we began processing transactions
utilizing our self-designated BIN/ICA. We estimate that this margin
will normalize as we meet volume and transaction requirements on
this new structure. Gross margin was lower also due to a decrease
in our mobile payments business in our International Transaction
Solutions segment that have had typically higher margins than our
North American Transaction Solutions Segment.
General and administrative expenses for the
three months ended June 30, 2018, were $2,499,496 as compared to
$2,599,178 for the three months ended June 30, 2017. The reduction
of $99,682 in general and administrative expenses was primarily due
to decreases in salaries and benefits ($76,347), professional fees
($51,954) and rent ($66,033) offset by increases in offices
expenses ($32,961) and communications expenses ($39,549).
General and administrative variances increase /
(decrease) for the three months ended June 30, 2018, compared to
the three months ended June 30, 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North American Transaction Solutions |
|
|
International Transaction Solutions |
|
|
Corporate Expenses & Eliminations |
|
|
Total |
|
Salaries, benefits,
taxes and contractor payments |
|
$ |
(86,592 |
) |
|
$ |
(67,208 |
) |
|
$ |
77,453 |
|
|
$ |
(76,347 |
) |
Professional fees |
|
|
(7,590 |
) |
|
|
(183,881 |
) |
|
|
139,517 |
|
|
|
(51,954 |
) |
Rent |
|
|
— |
|
|
|
(46,470 |
) |
|
|
(19,563 |
) |
|
|
(66,033 |
) |
Business
development |
|
|
31,392 |
|
|
|
(7,991 |
) |
|
|
462 |
|
|
|
23,863 |
|
Travel expense |
|
|
(31,864 |
) |
|
|
(1,800 |
) |
|
|
2,919 |
|
|
|
(30,745 |
) |
Filing fees |
|
|
— |
|
|
|
— |
|
|
|
4,000 |
|
|
|
4,000 |
|
Transaction (gains)
losses |
|
|
(742 |
) |
|
|
14,222 |
|
|
|
(944 |
) |
|
|
12,536 |
|
Office expenses |
|
|
57,785 |
|
|
|
(20,477 |
) |
|
|
(4,347 |
) |
|
|
32,961 |
|
Communications
expenses |
|
|
24,063 |
|
|
|
9,939 |
|
|
|
5,547 |
|
|
|
39,549 |
|
Insurance expense |
|
|
— |
|
|
|
(2,640 |
) |
|
|
4,653 |
|
|
|
2,013 |
|
Other expenses |
|
|
(1,740 |
) |
|
|
3,335 |
|
|
|
8,880 |
|
|
|
10,475 |
|
Total |
|
$ |
(15,288 |
) |
|
$ |
(302,971 |
) |
|
$ |
218,577 |
|
|
$ |
(99,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits, taxes and contractor
payments were $1,296,472 for the three months ended June 30, 2018,
as compared to $1,372,819 for the three months ended June 30, 2017.
Salaries decreased by $76,347 due to a decrease of $67,208 in
International Transaction Solutions segment as mobile payment
operations are reduced while we continue to seek other
arrangements, and by $86,592 in North America because of a switch
from salaried commission to third-party commission payments for the
three months ended June 30, 2018. This was offset by an increase of
$77,453 in corporate payroll.
Professional fees decreased by $51,954 primarily
due to a decrease in consulting fees in the International
Transaction Solutions segment partially offset by an increase in
corporate general legal fees. Corporate general legal fees
increased due to increased litigation fees and legal fees due
increased activity in the Zell, and Aptito.com cases and legal fees
relating to certain financing transactions.
Rent expense was $70,045 for the three months
ended June 30, 2018, as compared to $136,078 for the three months
ended June 30, 2017. The decrease of $66,033 was primarily due to a
reduction of $46,470 in rent in our International Transaction
Solutions segment as we substantially reorganized this business and
reduced office space.
Results of Operations for the Six Months
Ended June 30, 2018, Compared to the Six Months Ended June 30,
2017
We reported a net loss attributable to
stockholders of $2,514,577, or $0.65 per share, for the six months
ended June 30, 2018, as compared to a net loss attributable to
stockholders of $4,127,837, or $2.41 per share, for the six months
ended June 30, 2017. This resulted in a decrease in net loss
attributable to stockholders of $1,613,260 primarily due to an
increase in revenues and other income, as well as decreases in
general and administrative expenses, and non-cash compensation
which were offset by increases in depreciation and
amortization.
Adjusting for non-cash compensation, we have a
non-GAAP adjusted net loss attributable to common stockholders of
$2,410,066, or $0.62 loss per share, for the six months ended June
30, 2018, as compared to a non-GAAP adjusted net loss attributable
to common stockholders of $3,402,896, or $1.99 loss per share, for
the six months ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source of
Revenues |
|
Six Months Ended June 30, 2018 |
|
|
Mix |
|
|
Six Months Ended June 30, 2017 |
|
|
Mix |
|
|
Increase / (Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
28,385,746 |
|
|
|
87.5 |
% |
|
$ |
24,577,701 |
|
|
|
82.7 |
% |
|
$ |
3,808,045 |
|
International Transaction Solutions |
|
|
4,061,365 |
|
|
|
12.5 |
% |
|
|
5,125,281 |
|
|
|
17.3 |
% |
|
|
(1,063,916 |
) |
Total |
|
$ |
32,447,111 |
|
|
|
100.0 |
% |
|
$ |
29,702,982 |
|
|
|
100.0 |
% |
|
$ |
2,744,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues consist primarily of payment
processing fees. Net revenues were $32,447,111 for the six months
ended June 30, 2018, as compared to $29,702,982 for the six months
ended June 30, 2017. 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 $3,808,045 for the six
months ended June 30, 2018, which was partially offset by a
decrease of $1,063,916 in net revenues from our International
Transaction Solutions segment as we reorganized our international
business and consolidated our mobile payments operations with
PayOnline. For the six months ended June 30, 2018, there was no
branded content revenue from our mobile payment operations as
compared to $1,340,896 of branded content revenue in the six months
ended June 30, 2017. We continue to explore partnership
opportunities that can monetize our relationships and contracts
with mobile operators but have not yet identified an acceptable
joint-venture partner or other arrangement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin |
|
Six Months Ended June 30, 2018 |
|
|
% ofrevenues |
|
|
Six Months Ended June 30, 2017 |
|
|
% ofrevenues |
|
|
Increase / (Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
American Transaction Solutions |
|
$ |
4,094,615 |
|
|
|
14.4 |
% |
|
$ |
3,643,743 |
|
|
|
14.8 |
% |
|
$ |
450,872 |
|
International Transaction Solutions |
|
|
920,154 |
|
|
|
22.7 |
% |
|
|
1,280,855 |
|
|
|
25.0 |
% |
|
|
(360,701 |
) |
Total |
|
$ |
5,014,769 |
|
|
|
15.5 |
% |
|
$ |
4,924,598 |
|
|
|
16.6 |
% |
|
$ |
90,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin for the six months ended June 30,
2018, was $5,014,769, or 15.5% of net revenue, as compared to
$4,924,598, or 16.6% of net revenue, for the six months ended June
30, 2017. The primary reason the gross margin percentage decreased
was because of increases in North American Transaction Solutions
segment’s fixed costs as we began processing transactions utilizing
our self-designated BIN/ICA. We estimate that this margin will
normalize as we meet volume and transaction requirements on this
new structure. Gross margin was lower also due to a decrease in our
mobile payments business in our International Transaction Solutions
segment that have had typically higher margins than our North
American Transaction Solutions Segment.
General and administrative expenses for the six
months ended June 30, 2018, were $4,945,977 as compared to
$5,430,338 for the three months ended June 30, 2017. The $484,361
reduction in general and administrative expenses was primarily due
to decreases in salaries and benefits ($415,134), professional fees
($158,537) and rent ($138,045) offset by increases in transaction
(gains) losses ($72,429) and other general and administrative
expenses ($95,262).
General and administrative variances increase /
(decrease) for the six months ended June 30, 2018, compared to the
six months ended June 30, 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North American Transaction Solutions |
|
|
International Transaction Solutions |
|
|
Corporate Expenses & Eliminations |
|
|
Total |
|
Salaries, benefits,
taxes and contractor payments |
|
$ |
(189,669 |
) |
|
$ |
(139,350 |
) |
|
$ |
(86,115 |
) |
|
$ |
(415,134 |
) |
Professional fees |
|
|
(41,829 |
) |
|
|
(340,544 |
) |
|
|
223,836 |
|
|
|
(158,537 |
) |
Rent |
|
|
— |
|
|
|
(102,508 |
) |
|
|
(35,537 |
) |
|
|
(138,045 |
) |
Business
development |
|
|
83,382 |
|
|
|
(17,263 |
) |
|
|
(583 |
) |
|
|
65,536 |
|
Travel expense |
|
|
(22,062 |
) |
|
|
(10,598 |
) |
|
|
(14,312 |
) |
|
|
(46,972 |
) |
Filing fees |
|
|
— |
|
|
|
— |
|
|
|
9,009 |
|
|
|
9,009 |
|
Transaction (gains)
losses |
|
|
(742 |
) |
|
|
74,813 |
|
|
|
(1,642 |
) |
|
|
72,429 |
|
Office expenses |
|
|
87,638 |
|
|
|
(31,673 |
) |
|
|
(65,926 |
) |
|
|
(9,961 |
) |
Communications
expenses |
|
|
25,071 |
|
|
|
17,591 |
|
|
|
11,921 |
|
|
|
54,583 |
|
Insurance expense |
|
|
— |
|
|
|
(5,177 |
) |
|
|
(7,354 |
) |
|
|
(12,531 |
) |
Other expenses |
|
|
(3,062 |
) |
|
|
5,038 |
|
|
|
93,286 |
|
|
|
95,262 |
|
Total |
|
$ |
(61,273 |
) |
|
$ |
(549,671 |
) |
|
$ |
126,583 |
|
|
$ |
(484,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits, taxes and contractor
payments were $2,625,395 for the six months ended June 30, 2018, as
compared to $3,040,529 for the six months ended June 30, 2017. The
decrease in salaries of $415,134 was primarily because of a
$300,000 reduction in discretionary bonus and increase in sales
incentives charged to the cost of sales through commissions, versus
salaries. International Transaction Solutions segment salaries
decreased by $139,350 primarily due to our mobile payment
operations being reduced while we continue to seek other
arrangements.
Professional fees were $1,175,880 for the six
months ended June 30, 2018, as compared to $1,334,417 for the six
months ended June 30, 2017. Professional fees decreased by $158,537
primarily due to a decrease in consulting fees in the International
Transaction Solutions segment partially offset by an increase in
corporate general legal fees. Corporate general legal fees
increased due to increased litigation fees and legal fees due to
increased activity in the Zell and Aptito.com cases and legal fees
relating to certain financing transactions.
Rent expense was $151,098 for the six months
ended June 30, 2018, as compared to $289,143 for the six months
ended June 30, 2017. The decrease of $138,045 was primarily due to
reduction of $102,508 in rent in our International Transaction
Solutions segment as we substantially reorganized this business and
reduced office space.
Transaction gains and losses represent changes
in exchange rates between our functional currency and the foreign
currency in which the transaction is denominated. During the six
months ended June 30, 2018, and 2017, respectively, we incurred
$52,917 and ($19,512) of foreign currency transaction losses
(gains).
Other general and administrative expenses
include taxes, utilities and business licenses. For the six months
ended June 30, 2018, these expenses were $187,494 as compared to
$92,232 for the six months ended June 30, 2017. The increase was
caused primarily by an increase of $83,155 driven by State of
Delaware franchise taxes in 2018 due to a higher assessment and a
credit taken in 2017.
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. 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 by the Company’s investors
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, 2018, and 2017 is
presented in the following Non-GAAP Financial Measures Table.
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
|
|
Share-based Compensation |
|
|
Adjusted Non-GAAP |
|
Three Months
Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to Net Element Inc. stockholders |
|
$ |
(903,731 |
) |
|
$ |
22,500 |
|
|
$ |
(881,231 |
) |
Basic and
diluted loss per share |
|
$ |
(0.23 |
) |
|
$ |
0.01 |
|
|
$ |
(0.22 |
) |
Basic and
diluted shares used in computing loss per share |
|
|
3,855,866 |
|
|
|
|
|
|
|
3,855,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
|
|
Share-based Compensation |
|
|
AdjustedNon-GAAP |
|
Three Months
Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to Net Element Inc. stockholders |
|
$ |
(1,640,340 |
) |
|
$ |
128,537 |
|
|
$ |
(1,511,803 |
) |
Basic and
diluted loss per share |
|
$ |
(0.93 |
) |
|
$ |
0.07 |
|
|
$ |
(0.84 |
) |
Basic and
diluted shares used in computing loss per share |
|
|
1,771,538 |
|
|
|
|
|
|
|
1,771,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
|
|
Share-based Compensation |
|
|
AdjustedNon-GAAP |
|
Six Months
Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to Net Element Inc. stockholders |
|
$ |
(2,514,577 |
) |
|
$ |
104,511 |
|
|
$ |
(2,410,066 |
) |
Basic and
diluted loss per share |
|
$ |
(0.65 |
) |
|
$ |
0.03 |
|
|
$ |
(0.62 |
) |
Basic and
diluted shares used in computing loss per share |
|
|
3,854,506 |
|
|
|
|
|
|
|
3,854,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
|
|
Share-based Compensation |
|
|
AdjustedNon-GAAP |
|
Six Months
Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to Net Element Inc. stockholders |
|
$ |
(4,127,837 |
) |
|
$ |
724,941 |
|
|
$ |
(3,402,896 |
) |
Basic and
diluted loss per share |
|
$ |
(2.41 |
) |
|
$ |
0.42 |
|
|
$ |
(1.99 |
) |
Basic and
diluted shares used in computing loss per share |
|
|
1,709,915 |
|
|
|
|
|
|
|
1,709,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information regarding Net Element’s
results for its three months ended June 30, 2018, may be found in
Net Element’s quarterly report on Form 10-Q, which was filed with
the Securities and Exchange Commission (SEC) on August 14, 2018,
and may be obtained from the SEC’s Internet website at
http://www.sec.gov.
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. In the U.S., the
Company aims to grow transactional revenue by innovating SME
productivity services using blockchain technology solutions and
Aptito, our cloud-based, restaurant and retail point-of-sale
solution. 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. Net Element was ranked as one of the fastest growing
companies in North America on Deloitte's 2017 Technology Fast
500™. In 2017 we were recognized by South Florida Business
Journal as one of 2016's fastest-growing technology companies.
Further information is available at www.NetElement.com.
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 whether the Company will be successful in achieving
further growth and financial improvement. 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.
NET ELEMENT, INC. UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
6,541,652 |
|
|
$ |
11,285,669 |
|
Accounts
receivable, net |
|
|
6,061,808 |
|
|
|
5,472,856 |
|
Prepaid
expenses and other assets |
|
|
1,273,303 |
|
|
|
2,282,614 |
|
Total
current assets, net |
|
|
13,876,763 |
|
|
|
19,041,139 |
|
Fixed assets, net |
|
|
43,233 |
|
|
|
58,268 |
|
Intangible assets,
net |
|
|
2,741,486 |
|
|
|
3,127,760 |
|
Goodwill |
|
|
9,643,752 |
|
|
|
9,643,752 |
|
Other long term
assets |
|
|
461,045 |
|
|
|
460,511 |
|
Total
assets |
|
|
26,766,279 |
|
|
|
32,331,430 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
5,044,603 |
|
|
|
6,785,459 |
|
Accrued
expenses |
|
|
2,666,447 |
|
|
|
3,212,438 |
|
Deferred
revenue |
|
|
1,770,910 |
|
|
|
1,712,591 |
|
Notes
payable (current portion) |
|
|
924,597 |
|
|
|
2,493,973 |
|
Due to
related parties |
|
|
496,920 |
|
|
|
461,992 |
|
Total
current liabilities |
|
|
10,903,477 |
|
|
|
14,666,453 |
|
Notes payable (net of
current portion) |
|
|
5,051,708 |
|
|
|
4,521,449 |
|
Total
liabilities |
|
|
15,955,185 |
|
|
|
19,187,902 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY |
|
|
|
|
|
|
|
|
Series A
Convertible Preferred stock ($.0001 par value, 1,000,000 shares
authorized, no shares issued and outstanding at June 30, 2018 and
December 31, 2017) |
|
|
— |
|
|
|
— |
|
Common
stock ($.0001 par value, 100,000,000 shares authorized and
3,853,813 and 3,853,100 shares issued and outstanding at June 30,
2018 and December 31, 2017 |
|
|
385 |
|
|
|
385 |
|
Paid in
capital |
|
|
183,223,732 |
|
|
|
183,119,222 |
|
Accumulated other comprehensive loss |
|
|
(2,461,261 |
) |
|
|
(2,530,238 |
) |
Accumulated deficit |
|
|
(169,870,648 |
) |
|
|
(167,356,070 |
) |
Stock
Subscriptions Receivable |
|
|
— |
|
|
|
(50,585 |
) |
Non-Controlling interest |
|
|
(81,114 |
) |
|
|
(39,186 |
) |
Total
stockholders’ equity |
|
|
10,811,094 |
|
|
|
13,143,528 |
|
Total
liabilities and stockholders’ equity |
|
$ |
26,766,279 |
|
|
$ |
32,331,430 |
|
|
|
|
|
|
|
|
|
|
NET ELEMENT, INC. UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
fees |
|
$ |
16,464,717 |
|
|
$ |
15,456,310 |
|
|
$ |
32,447,111 |
|
|
$ |
28,362,086 |
|
Branded
content |
|
|
— |
|
|
|
684,731 |
|
|
|
— |
|
|
|
1,340,896 |
|
Total Revenues |
|
|
16,464,717 |
|
|
|
16,141,041 |
|
|
|
32,447,111 |
|
|
|
29,702,982 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
service fees |
|
|
13,814,008 |
|
|
|
12,653,556 |
|
|
|
27,432,342 |
|
|
|
23,475,543 |
|
Cost of
branded content |
|
|
— |
|
|
|
664,836 |
|
|
|
— |
|
|
|
1,302,841 |
|
General and administrative |
|
|
2,499,496 |
|
|
|
2,599,178 |
|
|
|
4,945,977 |
|
|
|
5,430,338 |
|
Non-cash
compensation |
|
|
22,500 |
|
|
|
128,537 |
|
|
|
104,511 |
|
|
|
724,941 |
|
Bad debt
expense |
|
|
877,898 |
|
|
|
865,863 |
|
|
|
999,171 |
|
|
|
1,145,621 |
|
Depreciation and amortization |
|
|
662,525 |
|
|
|
573,018 |
|
|
|
1,366,063 |
|
|
|
1,230,381 |
|
Total costs and
operating expenses |
|
|
17,876,427 |
|
|
|
17,484,988 |
|
|
|
34,848,064 |
|
|
|
33,309,665 |
|
Loss from
operations |
|
|
(1,411,710 |
) |
|
|
(1,343,947 |
) |
|
|
(2,400,953 |
) |
|
|
(3,606,683 |
) |
Interest
expense, net |
|
|
(235,738 |
) |
|
|
(322,052 |
) |
|
|
(478,976 |
) |
|
|
(591,740 |
) |
Other
income (expense) |
|
|
674,236 |
|
|
|
(49,422 |
) |
|
|
323,423 |
|
|
|
(55,196 |
) |
Net (loss) income
before income taxes |
|
|
(973,212 |
) |
|
|
(1,715,421 |
) |
|
|
(2,556,506 |
) |
|
|
(4,253,619 |
) |
Income
taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
(973,212 |
) |
|
|
(1,715,421 |
) |
|
|
(2,556,506 |
) |
|
|
(4,253,619 |
) |
Net loss
attributable to the non-controlling interest |
|
|
69,481 |
|
|
|
75,081 |
|
|
|
41,929 |
|
|
|
125,782 |
|
Net loss attributable
to Net Element, Inc. stockholders |
|
|
(903,731 |
) |
|
|
(1,640,340 |
) |
|
|
(2,514,577 |
) |
|
|
(4,127,837 |
) |
Foreign
currency translation |
|
|
29,662 |
|
|
|
(146,102 |
) |
|
|
68,977 |
|
|
|
(133,999 |
) |
Comprehensive loss
attributable to common stockholders |
|
$ |
(874,069 |
) |
|
$ |
(1,786,442 |
) |
|
$ |
(2,445,600 |
) |
|
$ |
(4,261,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic
and diluted |
|
$ |
(0.23 |
) |
|
$ |
(0.93 |
) |
|
$ |
(0.65 |
) |
|
$ |
(2.41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number
of common shares outstanding - basic and diluted |
|
|
3,855,866 |
|
|
|
1,771,538 |
|
|
|
3,854,506 |
|
|
|
1,709,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ELEMENT, INC.CONSOLIDATED STATEMENT
OF CASH FLOWS
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
2018 |
|
|
2017 |
|
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
Net loss attributable
to Net Element, Inc. stockholders |
|
$ |
(2,514,577 |
) |
|
$ |
(4,127,837 |
) |
Adjustments to
reconcile net loss to net cash used in by operating activities |
|
|
|
|
|
|
|
|
Non-Controlling interest |
|
|
(41,929 |
) |
|
|
(125,782 |
) |
Share
based compensation |
|
|
104,511 |
|
|
|
596,404 |
|
Deferred
revenue |
|
|
58,319 |
|
|
|
(916,898 |
) |
Provision
for bad debts |
|
|
— |
|
|
|
192,895 |
|
Depreciation and amortization |
|
|
1,366,063 |
|
|
|
1,230,381 |
|
Non cash
interest |
|
|
35,196 |
|
|
|
94,248 |
|
Changes in assets and
liabilities |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
571,405 |
|
|
|
1,913,135 |
|
Prepaid
expenses and other assets |
|
|
(356,585 |
) |
|
|
284,661 |
|
Accounts
payable and accrued expenses |
|
|
(2,111,768 |
) |
|
|
(1,845,161 |
) |
Net cash
used in operating activities |
|
|
(2,889,365 |
) |
|
|
(2,703,954 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of portfolio and client acquisition costs |
|
|
(878,446 |
) |
|
|
(966,147 |
) |
Purchase
of fixed assets and changes in other assets |
|
|
9,898 |
|
|
|
180,423 |
|
Net cash
used in investing activities |
|
|
(868,548 |
) |
|
|
(785,724 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
|
|
|
|
Proceeds
from Common stock |
|
|
— |
|
|
|
1,437,132 |
|
Proceeds
from indebtedness |
|
|
— |
|
|
|
3,298,792 |
|
Repayment
of indebtedness |
|
|
(1,038,665 |
) |
|
|
(624,918 |
) |
Related
party advances |
|
|
34,927 |
|
|
|
— |
|
Net cash
(used in) provided by financing activities |
|
|
(1,003,738 |
) |
|
|
4,111,006 |
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash |
|
|
17,633 |
|
|
|
31,316 |
|
Net
(decrease) increase in cash |
|
|
(4,744,018 |
) |
|
|
652,644 |
|
|
|
|
|
|
|
|
|
|
Cash at
beginning of period |
|
|
11,285,669 |
|
|
|
621,635 |
|
Cash at
end of period |
|
$ |
6,541,651 |
|
|
$ |
1,274,279 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information |
|
|
|
|
|
|
|
|
Cash paid
during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
444,232 |
|
|
$ |
397,548 |
|
Taxes |
|
$ |
4,140 |
|
|
$ |
61,314 |
|
|
|
|
|
|
|
|
|
|
Contact:Net Element, Inc.+1
(786) 923-0502www.netelement.com Media@NetElement.com
Corporate Communications
Contact:NetworkNewsWire (NNW) New York, New York +1 (212)
418-1217 www.NetworkNewsWire.com Editor@NetworkNewsWire.com
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