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Net Element Reports 2015 Annual Financial Results and Provides Business Update

Annual Revenue Increased 89.5% to $40.2 Million for 2015 Versus $21.2 Million for 2014


/EINPresswire.com/ -- MIAMI, FL -- (Marketwired) -- 03/31/16 -- Net Element, Inc. (NASDAQ: NETE) ("Net Element" or the "Company"), a provider of global mobile payment technology solutions and value-added transactional services, today reported financial results for the fiscal year ended December 31, 2015 and provided an update on recent strategic and operational initiatives.

For full-year 2015, net revenue increased 89.5% to $40,235,362 million as compared to $21,236,704 in the prior year. The $18,998,658 increase in net revenues is primarily due to growth in the Company's three segments:

  • North America Transaction Solution segment: Continued organic growth of SMB merchants in this segment with emphasis on value-added offerings. Revenues for this segment were $27.4 million, a 41% increase over the prior year.
  • Mobile Solutions segment: As a result of a new business model, which was introduced in the third quarter of 2015, the Company began generating revenues from branded content. Revenues for this segment were $9 million, a 385% increase over the prior year.
  • Online Solutions: The Company completed its acquisition of PayOnline and began consolidating our Online Solutions segment in May. As a result of this acquisition we recorded $3.8 million of revenue during 2015, which represent a partial year of results.

2015 Business Highlights:

  • Acquired PayOnline, leading online payment platform in emerging markets
  • Digital Provider exceeded 3 million recurring mobile subscribers
  • PayOnline successfully deployed MasterCard's MasterPass digital wallet to over 800 online merchants
  • Expanded into Kyrgyzstan and signed leading e-commerce company in the region
  • Expanded to Kazakhstan by creating partnerships with leading mobile operators
  • Launched payment processing in Kazakhstan through partnership with KAZKOM bank
  • Launched joint venture to focus on Gulf Cooperation Council (GCC) states and India

2015 Product Launches:

  • Launched Restoactive, a comprehensive mobile restaurant solution. Integrated with some of the biggest POS and restaurant management platforms such as MICROS, POSitouch, Aloha and Symphony. By integrating into the leading POS and restaurant management platforms Restoactive is now available to over 500,000 restaurants in the United States.
  • PayOnline launched "Pay-Travel" to automate payments for travel industry including integration with Global Distribution Systems (GDS), which includes Amadeus and Sabre and available for online and mobile application payments acceptance
  • PayOnline launched new mobile payment solution for iOS to existing Microsoft and Android processing capabilities. The new software developer kit (SDK) enables integration of PayOnline transaction processing into Apple's iPad and iPhone applications
  • Aptito added EMV and mobile payments acceptance including Android Pay, Apple Pay and Samsung Pay to its POS offering. Merchants Using Aptito POS Systems are provided secure EMV-compliant and mobile payment acceptance hardware
  • Expanded our service offerings to over 100 payment methods internationally

"We are very pleased with our strong finish to the year with positive momentum across all channels. Our results are a reflection of our ability to deliver growth," commented Oleg Firer, CEO of Net Element. "Our growth for 2015, included completing our strategic acquisition of PayOnline, expanding organic growth throughout the year, and leveraging our strengths in omni-channel transaction processing to win new business."

Conference Call:
The Company will host a conference call to discuss 2015 financial results and business highlights on March 31, 2016 at 4:30 PM Eastern time. Those interested in participating in the call are invited to dial +1 (877) 303-9858, or for international callers +1 (408) 337-0139 approximately 10 minutes prior to the start of the call. The conference call will also be webcast live at http://edge.media-server.com/m/p/kw2rnhus.

Following completion of the call, a recorded replay of the webcast will be available on the investors section of the Company's website at www.netelement.com.

Full-year 2015 Financial Review
We reported an adjusted net loss of $9,833,106, or $0.15 loss per share for the twelve months ended December 31, 2015 as compared to an adjusted net loss of $6,928,371, or $0.19 loss per share, for the twelve months ended December 31, 2014. This resulted in a net loss increase of $2,904,735 which is discussed further below.

Net revenues were $40,235,362 for the twelve months ended December 31, 2015 as compared to $21,236,704 for the twelve months ended December 31, 2014. The $18,998,658 increase in net revenues is primarily due to three factors:

1. Organic growth of SMB merchants in our North America Transaction Solutions segment (+$8 million).
2. We acquired and began consolidating revenues from our Online Solutions segment from PayOnline, acquired in May of 2015 for an additional $3.8 million in revenues during 2015.
3. We began generating revenues for branded content in our Mobile Solutions segment beginning the quarter ending September 30, 2015 and recognizing gross revenues for the sale of our own branded content (+$7.2 million).

Gross Margin for the twelve months ended December 31, 2015 was $6,258,147, or 16% of net revenue, as compared to $5,310,780, or 25% of net revenue, for the twelve months ended December 31, 2014. The primary reason for the decrease in the margin percentage was a change in revenue composition mix and associated costs as well as full restructure of the Mobile Solutions business in July 2014 as compared to the new business model of Mobile Solutions business for 2015. Our 2015 business mix had more branded content revenues which yield lower margins, and lower margins on revenues from North America Transaction Solutions despite higher sales volume for 2015 versus 2014. Higher margin legacy merchant portfolios have run off and are replaced with new portfolios with lower margins in North America.

Adjusted general and administrative expenses increased by $2,224,567 to $9,310,477 for the twelve months ended December 31, 2015 as compared to $7,085,910 for the twelve months ended December 31, 2014. This was primarily due to a $1,403,268 increase in professional fees and $606,245 increase in salaries and benefits.

                                  Twelve          Twelve
                               Months Ended    Months Ended
                               December 31,    December 31,     Increase /
          Category                 2015            2014         (Decrease)
---------------------------- --------------- --------------- ---------------
Salaries, benefits, taxes
 and contractor payments           3,816,241       3,209,996         606,245
Professional fees                  3,563,885       2,160,617       1,403,268
Rent                                 475,808         459,798          16,010
Business development                 109,515          68,735          40,780
Travel expense                       322,156         303,293          18,863
Filing fees                          100,001         101,836         (1,835)
Transaction (gains) losses          (77,094)        (44,127)        (32,967)
Other expense                        999,965         825,762         174,203
                             --------------- --------------- ---------------
  Total                           $9,310,477      $7,085,910      $2,224,567
                             =============== =============== ===============

Salaries, benefits, taxes and contractor payments increased $606,245 primarily resulting from $332,961 from the acquisition of PayOnline in May 2015. The balance of the increase was due to increased management headcount.

Professional fees increased $1,403,268 primarily resulting from the May 2015 acquisition of PayOnline ($789,197) and increased legal and accounting fees from increased public filings in 2015 versus 2014.

Other expenses increased to $999,965 in 2015 from $825,762 in 2014. The $174,203 increase was primarily comprised of a $46,332 increase due to the acquisition of PayOnline and $507,660 due to an increase in expenses our Mobile Solutions segment, $44,553 increase in North American Transaction Solutions segment primarily due to an increase in communications and office expenses offset by a $424,342 decrease in other Corporate expenses. Other expenses that decreased in Corporate for the year ended December 31, 2015 include general office expenses and expenses related to communications.

We recorded a provision for bad debts of $649,571 for the twelve months ended December 31, 2015 as compared to a recovery of ($1,153,147) for the twelve months ended December 31, 2014. The recovery in 2014 was due to the reversal of $1.6 million loss provisions that were not required during the reorganization of the Mobile Solutions segment offset by $0.5 million of ACH rejects.

Depreciation and amortization expense consists primarily of the amortization of merchant portfolios plus depreciation expense on fixed assets, client acquisition costs, capitalized software expenses and employee non-compete agreements. Depreciation and amortization expense was $2,513,162 for the twelve months ended December 31, 2015 as compared to $2,358,136 for the twelve months ended December 31, 2014. The $155,026 increase in depreciation and amortization expense was primarily due to purchased merchant portfolios reaching full amortization during 2014 resulting in decrease in amortization offset by an increase the amortization of intangible assets acquired in the purchase of PayOnline.

Interest expense was $3,575,698 for the twelve months ended December 31, 2015 as compared to $3,705,694 for the twelve months ended December 31, 2014, representing a decrease of $129,996. The reduction is due to reduced amount of credit facility balance outstanding in 2015 versus 2014. The majority of 2015 interest was due to the amortization of the derivatives attributed to beneficial conversion features from debt and warrants.

Gains and losses on derivatives, debt extinguishment and debt restructure were as follows:

Item                                      2015           2014       Variance
------------------------------- -------------- -------------- --------------
Settlement of beneficial
 conversion derivative
Gain / (Loss)                    ($26,932,496)     $5,569,158  ($32,501,654)
Debt Extinguishment / Debt
 Restructuring
Gain / (Loss)                       27,743,980    (4,588,219)     32,332,199
                                -------------- -------------- --------------
Total                                 $811,484       $980,939     ($169,455)
                                -------------- -------------- --------------

We reported a net gain on derivatives, debt extinguishment and debt restructure of $811,484 and $980,939 for 2015 and 2014 respectively. The gain in 2014 was $169,455 higher than the gain for 2015 as the deal terms and market conditions were different each year.

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 year ended December 31, 2015 and 2014 is presented in the following Non-GAAP Financial Measures Table.

                                                   Derivative
                                                 Activity, Debt
                                                 Extinguishment
                                     Share-based       and        Adjusted
                          GAAP      Compensation   Restructure    Non-GAAP
                     -------------- ------------ -------------- ------------
Twelve Months Ended
 December 31, 2015
  Net loss            $(13,327,926)   $4,306,304     $(811,484) $(9,833,106)
  Basic and diluted
   earnings per share       $(0.21)        $0.07        $(0.01)      $(0.15)
  Basic and diluted
   shares used in
   computing earnings
   per share             63,911,199                               63,911,199

Twelve Months Ended
 December 31, 2014
  Net loss            $(10,214,766)   $4,267,334     $(980,939) $(6,928,371)
  Basic and diluted
   earnings per share       $(0.27)        $0.11        $(0.03)      $(0.19)
  Basic and diluted
   shares used in
   computing earnings
   per share             37,255,052                               37,255,052

Additional information regarding Net Element's results 2015 may be found in Net Element's annual report on Form 10-K, which was filed with the Security and Exchange Commission (SEC) on March 30, 2016 and may be obtained from the SEC's Internet website at http://www.sec.gov.

About Net Element
Net Element, Inc. (NASDAQ: NETE) operates a payments-as-a-service transactional and value-added services platform for small to medium enterprise ("SME") in the US and selected emerging markets. In the US it aims to grow transactional revenue by innovating SME productivity services such as its cloud based, restaurant point-of-sale solution Aptito. Internationally, Net Element's strategy is to leverage its omni-channel platform to deliver flexible offerings to emerging markets with diverse banking, regulatory and demographic conditions such as UAE, Kazakhstan, Kyrgyzstan and Azerbaijan where initiatives have been recently launched. 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.
CONSOLIDATED BALANCE SHEETS

                                             December 31,     December 31,
                                                 2015             2014
                                           ---------------  ---------------
ASSETS
Current assets:
  Cash                                     $     1,025,747  $       503,343
  Accounts receivable, net                       5,198,993        3,417,173
  Prepaid expenses and other assets              1,106,016          962,698
                                           ---------------  ---------------
    Total current assets, net                    7,330,756        4,883,214
Fixed assets, net                                  162,123           70,918
Intangible assets, net                           5,423,880        2,492,050
Goodwill                                         9,643,752        6,671,750
Other long term assets                             353,050          204,737
                                           ---------------  ---------------
    Total assets                                22,913,561       14,322,669
                                           ===============  ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                               5,858,837        2,698,257
  Deferred revenue                                 743,910          472,482
  Accrued expenses                               2,975,066        2,351,885
  Notes payable (current portion)                  518,437           98,493
  Due to related parties                           329,881                -
                                           ---------------  ---------------
    Total current liabilities                   10,426,131        5,621,117
  Notes payable (net of current portion)         3,446,563        3,216,507
                                           ---------------  ---------------
    Total liabilities                           13,872,694        8,837,624
                                           ---------------  ---------------

  Series A Convertible Preferred stock
    ($.0001 par value, 1,000,000 shares
     authorized, no shares issued and
     outstanding, at December 31, 2015)                  -                -

STOCKHOLDERS' EQUITY
  Common stock ($.0001 par value,
   300,000,000 shares authorized and
   112,619,596 and 45,881,523 shares issued
   and outstanding at December 31, 2015 and
   December 31, 2014, respectively)                 11,262            4,589
  Paid in capital                              154,351,558      136,689,629
  Stock subscription receivable                                  (1,111,130)
  Accumulated other comprehensive loss          (1,565,822)      (1,251,461)
  Accumulated deficit                         (143,955,048)    (129,116,344)
  Noncontrolling interest                          198,917          269,762
                                           ---------------  ---------------
    Total stockholders' equity                   9,040,867        5,485,045
                                           ---------------  ---------------
      Total liabilities and stockholders'
       equity                              $    22,913,561  $    14,322,669
                                           ===============  ===============



NET ELEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


                                           Twelve months ended December 31,
                                          ---------------------------------
                                                2015             2014
                                          ---------------- ----------------

Net revenues
    Service fees                          $     31,204,871 $     21,236,704
    Branded content                              9,030,491                -
                                          ---------------- ----------------
Total Revenues                                  40,235,362 $     21,236,704

Costs and expenses:
    Cost of service Fees                        25,858,098       15,925,924
    Cost of branded content                      8,119,117                -
  General and administrative (includes
   $4,306,304 and $4,267,334 of share
   based
  compensation for the twelve months ended
   December 31, 2015 and 2014
   respectively)                                13,616,781       11,353,244
  Provision for (recovery of) bad debt             649,571       (1,153,147)
  Depreciation and amortization                  2,513,162        2,358,136
                                          ---------------- ----------------
      Total costs and operating expenses        50,756,729       28,484,157
                                          ---------------- ----------------
Loss from operations                           (10,521,367)      (7,247,453)
  Interest expense, net                         (3,575,698)      (3,705,694)
  (Loss) gain on change in fair value and
   settlement of beneficial conversion
   derivative                                  (26,932,496)       5,569,158
  Gain (loss) on debt extinguishment            27,743,980       (6,184,219)
  Gain on debt restructure                               -        1,596,000
  Gain (loss) from asset disposal                   40,369          (87,151)
  Other expense                                    (82,714)        (155,407)
                                          ---------------- ----------------
  Net loss before income taxes                 (13,327,926)     (10,214,766)
  Income taxes                                           -                -
                                          ---------------- ----------------
Net loss                                       (13,327,926)     (10,214,766)
Net loss attributable to the
 noncontrolling interest                            74,314           29,250
                                          ---------------- ----------------
Net loss attributable to Net Element, Inc.
 stockholders                                  (13,253,612)     (10,185,516)
                                          ---------------- ----------------

Dividends for the benefit of preferred
 stockholders                                   (1,585,092)               -
                                          ---------------- ----------------

Net loss attributable to common
 stockholders                                  (14,838,704)     (10,185,516)
                                          ---------------- ----------------

Foreign currency translation                      (314,361)      (1,080,911)
                                          ---------------- ----------------
Comprehensive loss attributable to common
 stockholders                             $    (15,153,065)$    (11,266,427)
                                          ================ ================

Loss per share - basic and diluted        $          (0.23)$          (0.27)

Weighted average number of common shares
 outstanding - basic and diluted                63,911,199       37,255,052
                                          ---------------- ----------------



NET ELEMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY


                          Preferred Stock              Common Stock
                      Shares       Amount          Shares        Amount
                      ------  ---------------  -------------- ------------
Balance December 31,
 2013                      -  $             -      32,273,298      $ 3,229

Share based
 compensation              -                -       1,755,749          176
Shares issued and
 issuable for
 acquisitions              -                -          57,288            6
Shares issued to
 acquire non-
 controlling interest      -                -         323,085           32
Shares issued in
 connection with debt
 conversion                -                -       5,569,158          556
Shares issued in
 connection with debt
 restructuring             -                -         100,000           10
Shares issued in
 connection with note
 conversion                -                -       5,802,945          580
Extinguishment of T1T
 obligation                -                -               -            -
NASDAQ share
 registration fees         -                -               -            -
    Net loss               -                -               -            -
    Comprehensive loss
     - foreign
     currency
     translation           -                -               -            -
                      ------  ---------------  -------------- ------------
  Balance December 31,
   2014                    -  $             -      45,881,523      $ 4,589

Share based
 compensation              -                -       4,015,315          406
Preferred shares
 issued                5,500        5,287,082               -            -
Preferred shares
 converted to common
 shares               (5,500)      (5,287,082)     33,760,446        3,371
Preferred share
 dividends paid            -                -       6,128,908          613
Shares issued in
 connection with debt
 restructuring             -                -       4,208,049          421
Shares issued in
 exchange for
 warrants, net of
 discount                                           2,500,000          250
Shares issued and
 issuable for
 acquisitions              -                -       4,768,212          477
Repurchase of non-
 controlling interest      -                -               -            -
Shares issued for
 insider financing         -                -      11,357,143        1,135
Write-off of stock
 subscription
 receivable                -                -               -
    Net loss               -                -               -            -
    Comprehensive loss
     - foreign
     currency
     translation           -                -               -            -
                      ------  ---------------  -------------- ------------
  Balance December 31,
   2015                    -                -     112,619,596      $11,262
                      ======  ===============  ============== ============





                           Paid in            Stock         Comprehensive
                           Capital        Subscription         Income
                      ----------------  ----------------  ----------------
Balance December 31,
 2013                 $    103,486,144  $        329,406  $       (170,550)

Share based
 compensation                3,677,937                 -                 -
Shares issued and
 issuable for
 acquisitions                  329,400          (329,406)                -
Shares issued to
 acquire non-
 controlling interest          617,060                 -                 -
Shares issued in
 connection with debt
 conversion                 10,636,537        (1,111,130)                -
Shares issued in
 connection with debt
 restructuring                 203,990                 -                 -
Shares issued in
 connection with note
 conversion                 16,711,901                 -                 -
Extinguishment of T1T
 obligation                  1,086,968                 -                 -
NASDAQ share
 registration fees             (60,308)                -                 -
    Net loss                         -                 -                 -
    Comprehensive loss
     - foreign
     currency
     translation                     -                 -        (1,080,911)
                      ----------------  ----------------  ----------------
  Balance December 31,
   2014               $    136,689,629  $     (1,111,130) $     (1,251,461)

Share based
 compensation                4,305,898                 -                 -
Preferred shares
 issued                              -                 -                 -
Preferred shares
 converted to common
 shares                      9,032,713                 -                 -
Preferred share
 dividends paid              1,584,479
Shares issued in
 connection with debt
 restructuring               1,346,227                 -                 -
Shares issued in
 exchange for
 warrants, net of
 discount                  (2,680,111)
Shares issued and
 issuable for
 acquisitions                3,599,523                 -                 -
Repurchase of non-
 controlling interest           (3,489)                -                 -
Shares issued for
 insider financing           1,587,819                 -                 -
Write-off of stock
 subscription
 receivable                 (1,111,130)        1,111,130                 -
    Net loss                         -                 -                 -
    Comprehensive loss
     - foreign
     currency
     translation                     -                 -          (314,361)
                      ----------------  ----------------  ----------------
  Balance December 31,
   2015               $    154,351,558  $              -  $     (1,565,822)
                      ================  ================  ================





                                                               Equity
                       Non-controlling     Accumulated      (Deficiency)
                          interest           Deficit          in Assets
                      ----------------  ----------------  ----------------
Balance December 31,
 2013                 $       (125,043) $   (118,930,828) $    (15,407,642)

Share based
 compensation                        -                 -         3,678,113
Shares issued and
 issuable for
 acquisitions                        -                 -                 -
Shares issued to
 acquire non-
 controlling interest          424,055                 -         1,041,147
Shares issued in
 connection with debt
 conversion                          -                 -         9,525,963
Shares issued in
 connection with debt
 restructuring                       -                 -           204,000
Shares issued in
 connection with note
 conversion                          -                 -        16,712,481
Extinguishment of T1T
 obligation                          -                 -         1,086,968
NASDAQ share
 registration fees                   -                 -           (60,308)
    Net loss                   (29,250)      (10,185,516)      (10,214,766)
    Comprehensive loss
     - foreign
     currency
     translation                     -                 -        (1,080,911)
                      ----------------  ----------------  ----------------
  Balance December 31,
   2014               $        269,762  $   (129,116,344) $      5,485,045

Share based
 compensation                        -                 -         4,306,304
Preferred shares
 issued                              -                 -                 -
Preferred shares
 converted to common
 shares                              -                 -         9,036,084
Preferred share
 dividends paid                                                  1,585,092
Shares issued in
 connection with debt
 restructuring                       -                 -         1,346,648
Shares issued in
 exchange for
 warrants, net of
 discount                                                       (2,679,861)
Shares issued and
 issuable for
 acquisitions                        -                 -         3,600,000
Repurchase of non-
 controlling interest            3,469                 -               (20)
Shares issued for
 insider financing                   -                 -         1,588,954
Write-off of stock
 subscription
 receivable                          -                 -                 -
    Net loss                   (74,314)      (14,838,704)      (14,913,018)
    Comprehensive loss
     - foreign
     currency
     translation                     -                 -          (314,361)
                      ----------------  ----------------  ----------------
  Balance December 31,
   2015               $        198,917  $   (143,955,048)        9,040,867
                      ================  ================  ================



NET ELEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
                                           Twelve Months Ended December 31,
                                           --------------------------------
                                                 2015             2014
                                           ---------------  ---------------
Cash flows from operating activities
Net loss                                   $   (13,253,612) $   (10,185,516)
Adjustments to reconcile net loss to net
 cash (used in) provided by operating
 activities
    Non controlling interest                       (74,309)         394,286
    Share based compensation                     4,306,304        4,267,334

    Loss (gain) on change in fair value
     and settlement of beneficial
     conversion derivative                      26,932,495       (5,569,158)
    (Gain) loss on debt extinguishment         (27,743,980)       6,184,219
    Depreciation and amortization                2,513,162        2,358,136
    Amortization of debt discount                3,027,354        1,644,626
    (Recovery of ) provision for loan
     losses                                              -       (1,649,858)
    (Gain) loss on disposal of fixed
     assets                                        (40,369)          16,137
    Gain on MBF debt restructure                         -       (1,596,000)
  Changes in assets and liabilities, net
   of acquisitions and the effect of
   consolidation of equity affiliates
    Accounts receivable, net                    (1,502,205)       6,974,701
    Advances to aggregators                         10,022          934,816
    Deferred revenue                               271,428          233,084
    Prepaid expenses and other assets              291,631         (445,555)
    Accounts payable                             3,160,577         (338,618)
    Accrued expenses                               410,730         (968,609)
                                           ---------------  ---------------
    Net cash (used in) provided by
     operating activities                       (1,690,772)       2,254,025
                                           ---------------  ---------------

  Cash flows from investing activities
    Purchase of portfolio and client
     acquisition costs                            (878,085)      (1,039,752)
    Sale of portfolio                              300,000                -
    Note receivable                                      -           (2,650)
    Acquisition of PayOnline assets, net
     of cash received                           (3,195,452)               -
    Purchase of fixed and other assets            (579,209)        (750,936)
                                           ---------------  ---------------
    Net cash used in investing activities       (4,352,746)      (1,793,338)
                                           ---------------  ---------------

  Cash flows from financing activities
    Repayment to Financial Institutions                  -       10,088,870
    Proceeds from preferred stock                5,500,000                -
    Proceeds from indebtedness                     650,000      (10,433,367)
    Related party advances                         331,273          418,099
                                           ---------------  ---------------
    Net cash provided by financing
     activities                                  6,481,273           73,602
                                           ---------------  ---------------

    Effect of exchange rate changes on
     cash                                           84,649         (157,265)
                                           ---------------  ---------------
    Net increase in cash                           522,404          377,024

    Cash at beginning of period                    503,343          126,319
                                           ---------------  ---------------
    Cash at end of period                  $     1,025,747  $       503,343
                                           ===============  ===============

  Supplemental disclosure of cash flow
   information
    Cash paid during the period for:
      Interest                             $       548,344  $     1,109,731
                                           ===============  ===============
      Taxes                                $        74,563  $        38,993
                                           ===============  ===============

    Issuance of Stock upon conversion of
     indebtedness                          $     1,436,648  $    25,233,473
                                           ===============  ===============
    Issuance of Common Stock upon
     redemption of Preferred Stock         $     9,036,084  $             -
                                           ===============  ===============
    Issuance of Common Stock in exchange
     for Warrants                          $     2,679,861  $             -
                                           ===============  ===============
    Issuance of Common Stock for
     acquisition                           $     9,036,084  $             -
                                           ===============  ===============

Contact:
Net Element, Inc.
media@netelement.com
+1 (786) 923-0502


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