Net Element Reports Second Quarter 2016 Results
Quarterly Revenues Increased by 98% Over Same Period in 2015
/EINPresswire.com/ -- MIAMI, FL -- (Marketwired) -- 08/16/16 -- 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 second quarter ended June 30, 2016 and provided an update on recent strategic and operational initiatives.
For second quarter ended June 30, 2016, net revenues increased 98% to $13,692,848 as compared to $6,906,916 in the prior year. The $6,785,932 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 $10.4 million, a 66% increase over the prior year.
- Mobile Solutions segment: As a result of a continued organic growth in the branded content origination. Revenues for this segment were $1.8 million, a 435% increase over the prior year.
- Online Solutions: Revenues for this segment were $1.5 million, a 396% increase over the prior year (PayOnline acquired May 20, 2015).
Recent Highlights:
- Announced intent to acquire a majority interest in PayStar and Nexcharge: proprietary integrated payment and remittance platforms that upon deal closure, will strengthen Net Element's global offering
- PayOnline recognized a leading payment gateway: independent analytical agency Tagline ranked PayOnline as a leading payment gateway
- Digital Provider enabled mobile payments at Vnukovo Airport: proprietary, mobile transaction processing engine integrated into airports infrastructure to power essential components of mobility ecosystem
- Announced reverse stock split as an important step in attracting a broader spectrum of investors and regaining compliance with NASDAQ
- PayOnline recognized for its payment acceptance services in 2016: independent analytical agency Markswebb Rank & Report ranked PayOnline as Top 5 for its efficiency in service
- Regained compliance with NASDAQ listing requirements
- Appointed Howard Ash, an international business development professional to its board of directors
- PayOnline introduced a new payment interface: new multi-channel payment interface is based on the user experience of more than 10 million online shoppers
"We are pleased with our continued growth. Our results are a reflection of our ability to implement our business objectives," commented Oleg Firer, CEO of Net Element. "We are excited about our strategic initiatives for the remainder of the year."
Conference Call:
The Company will host a conference call to discuss Second Quarter 2016 financial results and business highlights on August 16, 2016 at 4:30 PM 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 password 64494628. It is recommended that participants dial in approximately 10 minutes prior to the start of the 4:30PM Eastern call.
The call will also be webcast live from http://edge.media-server.com/m/p/ouv4rbqf. 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, 2016 Compared to the Three Months Ended June 30, 2015
Our combined businesses processed 41.6 million transactions for the three months ended June 30, 2016 as compared to 33.6 million transactions processed for the three months ended June 30, 2015. North America Transaction Solutions provided the majority of the increase going from 12.4 million transactions processed in the three months ended June 30, 2015 to 21.1 million transactions processed for the three months ended June 30, 2016. This was offset by a decrease of 0.9 million transactions processed from our Mobile Solutions segment.
We processed $474 million in payments for the three months ended June 30, 2016 as compared to $264 million on a constant dollar basis for the three months ended June 30, 2015. North America Transaction Solutions was responsible for $132 million of the $210 million increase and Online Solutions contributed an addition $74 million in payments processed.
We reported an adjusted net loss attributable to stockholders of $1,168,998, or $0.10 per share, for the three months ended June 30, 2016 as compared to an adjusted net loss attributable to stockholders of $3,184,950 or $0.64 per share, for the three months ended June 30, 2015. The adjusted net loss decrease of $2,015,952 was primarily due to reduced interest expense of $845,615, higher gross margin dollars ($765,958) from more volume and a $584,083 decrease in general and administrative expenses. These items are discussed further below.
Net revenues consist primarily of payment processing fees. Net revenues were $13,692,848 for the three months ended June 30, 2016 as compared to $6,906,916 for the three months ended June 30, 2015. Included in mobile solutions revenue for the three months ended June 30, 2016 is $1,575,140 of branded content revenue. The remaining $204,568 is part of service fees revenue. The increase in net revenues is primarily a result of organic net increases in merchants. In addition, we consolidated online payment revenues for PayOnline effective May 20, 2015 and began reporting mobile commerce revenues for branded content in the fourth quarter of 2015. The following table sets forth our sources of revenues, cost of revenues and gross margins for the three months ended June 30, 2016 and 2015.
Gross Margin Analysis
Three
Three Months Months
Ended June % of Ended June % of Increase /
Source of Revenue 30, 2016 Revenue 30, 2015 Revenue (Decrease)
-------------------- -------------------------------------------------------
North America
Transaction
Solutions $ 10,403,932 76% $ 6,271,735 91% $ 4,132,197
Mobile Solutions 1,779,708 13% 331,038 5% 1,448,670
Online Solutions 1,509,208 11% 304,143 4% 1,205,065
-------------------------------------------------------
Total $ 13,692,848 100% $ 6,906,916 100% $ 6,785,932
=======================================================
Cost of Revenue
--------------------
North America
Transaction
Solutions $ 8,967,784 86% $ 5,453,063 83% $ 3,514,721
Mobile Solutions 1,566,618 88% 14,756 4% 1,551,862
Online Solutions 950,391 63% - 0% 950,391
-------------------------------------------------------
Total $ 11,484,793 84% $ 5,467,819 79% $ 6,016,974
=======================================================
Gross Margin
--------------------
North America
Transaction
Services $ 1,436,148 14% $ 818,672 13% $ 617,476
Mobile Solutions 213,090 12% 316,282 96% (103,192)
Online Solutions 558,817 37% 304,143 100% 254,674
-------------------------------------------------------
Total $ 2,208,055 16% $ 1,439,097 21% $ 768,958
=======================================================
Since PayOnline was acquired May 20, 2015, revenues were reported net for the short quarter in 2015. Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, content provider fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the three months ended June 30, 2016 were $11,484,793 as compared to $5,467,819 for the three months ended June 30, 2015.
The year over year increase in cost of revenues of $6,016,974 is primarily a result of an increase in U.S. transaction volume. The $1,551,862 increase in mobile solution costs now include mobile operator fees and content provider fees when we provide branded content. There was no branded content in the three months ended June 30, 2015. In addition, we had $950,391 resulting from PayOnline operations (acquired May 20, 2015 / partial quarter). The mobile solutions cost of revenue for the three months ended June 30, 2016 includes $1,480,859 of branded content costs. The remaining $85,759 is included in the cost of service fees. Gross Margin for the three months ended June 30, 2016 was $2,208,055, or 16% of net revenue, as compared to $1,439,097, or 21% of net revenue, for the three months ended June 30, 2015. Included in the mobile solutions gross margin for the three months ended June 30, 2016 is $94,281 (5.2% of total mobile revenues) for branded content.
Total adjusted operating expenses were $2,969,164 for the three months ended June 30, 2016, as compared to total adjusted operating expenses of $3,341,482 for the three months ended June 30, 2015. Total adjusted operating expenses for the three months ended June 30, 2016 consisted of general and administrative expenses of $1,999,391, provision for bad debts of $125,238 and depreciation and amortization of $844,535. For the three months ended June 30, 2015, total adjusted operating expenses consisted of general and administrative expenses of $2,583,474, provision for bad debts of $131,511 and depreciation and amortization of $626,497. The components of our general and administrative expenses are discussed below.
General and administrative expenses were $1,999,391 for the three months ended June 30, 2016 as compared to $2,583,474 for the three months ended June 30, 2015. General and administrative expenses for the three months ended June 30, 2016 and 2015 consisted of operating expenses not otherwise delineated in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:
The following table sets forth our sources of revenues, cost of revenues and gross margins for the three months ended June 30, 2016 and 2015.
Three months
ended June
30, 2016
------------
North
America Corporate
Transaction Mobile Online Expenses &
Category Solutions Solutions Solutions Eliminations Total
------------ ------------ ---------- ---------- ------------- ----------
Salaries,
benefits,
taxes and
contractor
payments $ 328,261 $ 88,801 $ 142,663 $ 530,452 $1,090,177
Professional
fees 119,268 1,243 217,513 339,299 677,323
Rent - 465 36,282 98,316 135,063
Business
development 12,186 - 40,118 4,056 56,360
Travel
expense 49,784 3,220 7,048 29,016 89,068
Filing fees - - - 42,896 42,896
Transaction
(gains)
losses - (322,719) (23,658) 12,543 (333,834)
Other
expenses 131,108 1,806 26,551 82,873 242,338
------------ ---------- ---------- ------------- ----------
Total $ 640,607 $ (227,184) $ 446,517 $ 1,139,451 $1,999,391
============ ========== ========== ============= ==========
Three months
ended
June 30,
2015
------------
North
America Corporate
Transaction Mobile Online Expenses &
Category Solutions Solutions Solutions Eliminations Total
------------ ------------ ---------- ---------- ------------- ----------
Salaries,
benefits,
taxes and
contractor
payments $ 177,721 $ 114,537 $ 59,258 $ 569,030 $ 920,546
Professional
fees 99,095 33,533 122,998 937,459 1,184,085
Rent - 15,865 2,193 112,523 130,581
Business
development 4,576 428 8,471 5,684 19,159
Travel
expense 17,264 3,547 - 25,815 46,626
Filing fees - - - 34,356 34,356
Transaction
(gains)
losses - 744 - (42,049) (41,305)
Other
expenses 259,781 100,290 8,618 (79,263) 289,426
------------ ---------- ---------- ------------- ----------
Total $ 549,437 $ 268,944 $ 201,538 $ 1,563,555 $2,583,474
============ ========== ========== ============= ==========
Salaries, benefits, taxes and contractor payments were $1,090,177 for the three months ended June 30, 2016 as compared to $920,546 for the three months ended June 30, 2015, representing an increase of $169,631 as follows:
Salaries and Salaries and
benefits for the benefits for the
three months three months
ended June 30, ended June 30, Increase /
Segment 2016 2015 (Decrease)
----------------------------- ---------------- ---------------- -----------
North America Transaction
Solutions $ 328,261 $ 177,721 $ 150,540
Mobile Solutions 88,801 114,537 (25,736)
Online Solutions 142,663 59,258 83,405
---------------- ---------------- -----------
Total $ 1,090,177 $ 920,546 $ 169,631
---------------- ---------------- -----------
The primary reason for the increase was a $150,540 increase in salaries from North America Transaction Solutions due to higher headcount and additional sales incentives. Additionally, we have an increase of $83,405 from the acquisition of PayOnline (acquired May 20, 2015) offset by a $38,578 decrease to corporate salaries from reduced headcount and a $25,736 decrease to our mobile solutions division from changes in personnel and salaries.
Professional fees were $677,323 for the three months ended June 30, 2016 as compared to $1,184,085 for the three months ended June 30, 2015, representing a decrease of $506,762 as follows:
Three months
ended June
30, 2016
------------
North
America Corporate
Professional Transaction Mobile Online Expenses &
Fees Solutions Solutions Solutions Eliminations Total
------------------------ ---------- ---------- ------------- ----------
General
Legal $ 5,226 $ 12 $ 2,507 $ 43,949 $ 51,694
SEC
Compliance - - - 43,750 43,750
Legal Fees
Accounting
and - - - 103,055 103,055
Auditing
Tax
Compliance
and - - - 11,000 11,000
Planning
Consulting 84,042 1,231 215,006 167,545 467,824
------------ ---------- ---------- ------------- ----------
Total $ 89,268 $ 1,243 $ 217,513 $ 369,299 $ 677,323
============ ========== ========== ============= ==========
Three months
ended
June 30,
2015
------------
North
America Corporate
Professional Transaction Mobile Online Expenses &
Fees Solutions Solutions Solutions Eliminations Total
------------------------ ---------- ---------- ------------- ----------
General
Legal $ 15,165 $ - $ 3,834 $ 179,185 $ 190,184
SEC
Compliance - - - 13,749 13,749
Legal Fees
Accounting
and - - - 157,482 157,482
Auditing
Tax
Compliance
and - - - 6,350 6,350
Planning
Consulting 74,930 33,533 119,164 588,693 816,320
------------ ---------- ---------- ------------- ----------
Total $ 90,095 $ 33,533 $ 122,998 $ 937,459 $1,184,085
============ ========== ========== ============= ==========
Variance
------------
North
America Corporate
Professional Transaction Mobile Online Expenses &
Fees Solutions Solutions Solutions Eliminations Total
------------------------ ---------- ---------- ------------- ----------
General
Legal $ (9,939) $ 12 $ (1,327) $ (127,236) $ (138,490)
SEC
Compliance - - - 30,001 30,001
Legal Fees
Accounting
and - - - (54,427) (54,427)
Auditing
Tax
Compliance
and - - - 4,650 4,650
Planning
Consulting 9,112 (32,302) 95,842 (421,148) (348,496)
------------ ---------- ---------- ------------- ----------
Total $ (827) $ (32,290) $ 94,515 $ (568,160) $ (506,762)
============ ========== ========== ============= ==========
General legal expenses decreased $138,490 for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 primarily due to decreased litigation activity at the corporate level and at our mobile solutions segment. This was offset by an increase in SEC compliance legal fees of $30,001 overall primarily due to an increased need for filings. Consulting fees decreased $348,496 primarily due to less consulting needs in corporate and our North American transaction solutions and mobile solutions offset by an increase in our Online Solutions due to PayOnline being acquired May 20, 2015.
Other general and administrative expenses were $242,338 (primarily consisting of performance bonuses of $86,874, communications of $55,062, office expenses of $66,756) for the three months ended June 30, 2016 as compared to $289,426 (primarily consisting of performance bonuses of $86,874, communications of $35,717, office expenses of $55,360 and taxes of $104,488) for the three months ended June 30, 2015, representing an increase of $47,088.
We recorded bad debt expense of $125,238 for the three months ended June 30, 2016 as compared to $131,511 for the three months ended June 30, 2015. For the three months ended June 30, 2016, we recorded a loss which was primarily comprised of $145,548 in ACH rejects offset by a $20,350 recovery from our Russian operations. For the six months ended June 30, 2015, we recorded a loss provision which was primarily comprised of $138,893 in ACH rejects offset by a $7,382 recovery from our Russian operations.
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 $844,535 for the three months ended June 30, 2016 as compared to $626,497 for the three months ended June 30, 2015. The $218,038 increase in depreciation and amortization expense was primarily due to PayOnline ($262,089 for IP Software, $24,999 for domain names, $37,417 for PCI Certification and $93,048 for portfolios and client lists), offset by $272,660 decrease in amortization in our North American Transaction Solutions segment.
Interest expense was $438,976 for the three months ended June 30, 2016 as compared to $1,284,591 for three months ended June 30, 2015, representing a decrease of $845,615 as follows:
Three months Three months
ended June 30, ended June 30, Increase /
Funding Source 2016 2016 (Decrease)
----------------------------- --------------- --------------- -------------
Convertible Notes Payable $ - $ 1,146,715 $ (1,146,715)
MBF Note 28,450 - 28,450
RBL Note 110,342 137,173 (26,831)
Crede CG III, LTD 297,435 - 297,435
Other 2,749 703 2,046
--------------- --------------- -------------
Total $ 438,976 $ 1,284,591 $ (845,615)
--------------- --------------- -------------
The net loss attributable to non-controlling interests amounted to $38,792 for three months ended June 30, 2016 as compared to $10,527 for the three months ended June 30, 2015.
During the three months ended June 30, 2016, no dividends were paid. We paid dividends to our preferred shareholders in the amount of $525,197 during the three months ended June 30, 2015.
Results of Operations for the Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015
Our combined businesses processed 84.7 million transactions for the six months ended June 30, 2016 as compared to 64.2 million transactions processed for the six months ended June 30, 2015. The increase of 20.5 million transactions processed was primarily due to a 17.1 increase from North America Transaction
Solutions.
We processed $893 million in payments for the six months ended June 30, 2016 as compared to $506 million in payments, on a constant dollar basis, for the six months ended June 30, 2015.
We reported an adjusted net loss attributable to stockholders of $2,655,733 or $0.23 per share, for the six months ended June 30, 2016 as compared to an adjusted net loss attributable to stockholders of $4,822,787 or $1.01 per share, for the six months ended June 30, 2015. This resulted in an adjusted net loss decrease of $2,167,054. The primary reason for the decrease in the loss over last year's comparable period is the $1,718,640 gross margin increase and a reduction in general and administrative expenses of $531,954. These items are discussed further below.
Net revenues consist primarily of payment processing fees. Net revenues were $24,953,907 for the six months ended June 30, 2016 as compared to $12,447,123 for the six months ended June 30, 2015. Included in mobile solutions revenue for the six months ended June 30, 2016 is $3,472,379 of branded content revenue. The remaining $300,832 is part of service fees revenue.
The increase in net revenues is primarily a result of organic net increases in merchants. In addition, we consolidated online payments revenue for PayOnline and began reporting mobile commerce revenues for branded content in the fourth quarter of 2015.
The following table sets forth our sources of revenues, cost of revenues and gross margins for the six months ended June 30, 2016 and 2015.
Gross Margin Analysis
Six Months Six Months
Source of Ended June % of Ended June % of Increase /
Revenue 30, 2016 Revenue 30, 2015 Revenue (Decrease)
---------------- -----------------------------------------------------------
North America
Transaction
Solutions $18,256,581 73% $11,448,916 92% $ 6,807,665
Mobile Solutions 3,773,211 15% 694,064 6% 3,079,147
Online Solutions 2,924,115 12% 304,143 2% 2,619,972
-----------------------------------------------------------
Total $24,953,907 100% $12,447,123 100% $12,506,784
===========================================================
Cost of Revenues
----------------
North America
Transaction
Solutions $15,620,817 86% $10,053,495 88% $ 5,567,322
Mobile Solutions 3,381,206 90% 28,395 4% 3,352,811
Online Solutions 1,868,011 64% - 0% 1,868,011
-----------------------------------------------------------
Total $20,870,034 84% $10,081,890 81% $10,788,144
===========================================================
Gross Margin
----------------
North America
Transaction
Solutions $ 2,635,764 14% $ 1,395,421 12% $ 1,240,343
Mobile Solutions 392,005 10% 665,669 96% (273,664)
Online Solutions 1,056,104 36% 304,143 100% 751,961
-----------------------------------------------------------
Total $ 4,083,873 16% $ 2,365,233 19% $ 1,718,640
===========================================================
Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, content provider fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the six months ended June 30, 2016 were $20,870,034 as compared to $10,081,890 for the six months ended June 30, 2015.
The year over year increase in cost of revenues of $10,788,144 is primarily a result of an increase in U.S. transaction volume, which resulted in a $5,567,322 increase North American transaction cost. Additionally, there was a $3,352,811 increase in mobile costs which now include mobile operator fees and content provider fees when we provide branded content. We also had $1,868,011 in new costs resulting from PayOnline operations (acquired May 20, 2015). Included in mobile solutions cost of revenue for the six months ended June 30, 2016 is $3,267,947 of the cost of branded content. The remaining $113,259 is included in the cost of service fees.
Gross Margin for the six months ended June 30, 2016 was $4,083,873 or 16% of net revenue, as compared to $2,365,233 or 19% of net revenue, for the three months ended June 30, 2015. North American gross margin increased 2%, and there were increased margins from our Russian online transaction processing offset by lower margins from our branded content provided by Mobile Solutions. Included in the mobile solutions gross margin for the three months ended June 30, 2016 is $204,432 (7.0% of total mobile revenues) for branded content.
Total adjusted operating expenses were $6,197,256 for the six months ended June 30, 2016, as compared to total adjusted operating expenses of $5,825,686 for the six months ended June 30, 2015. Total adjusted operating expenses for the six months ended June 30, 2016 consisted of general and administrative expenses of $4,087,624, provision for bad debts of $376,979 and depreciation and amortization of $1,732,653. For the six months ended June 30, 2015, total adjusted operating expenses consisted of general and administrative expenses of $4,619,578, provision of bad debts of $140,841 and depreciation and amortization of $1,065,267. The components of our general and administrative expenses are discussed below.
General and administrative expenses were $4,087,624 for the six months ended June 30, 2016 as compared to $4,619,578 for the six months ended June 30, 2015. General and administrative expenses for the six months ended June 30, 2016 and 2015 consisted of operating expenses not otherwise delineated in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:
Six months
ended June
30, 2016
-------------
North
America Corporate
Transaction Mobile Online Expenses &
Category Solutions Solutions Solutions Eliminations Total
------------- ------------ ---------- ---------- ------------- ----------
Salaries,
benefits,
taxes and
contractor
payments $ 634,833 $ 196,726 $ 255,436 $ 1,095,256 $2,182,251
Professional
fees 282,507 2,350 201,255 615,598 1,201,710
Rent - 11,551 68,374 191,382 271,307
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) - (378,252) 39,105 20,279 (318,868)
losses
Other
expenses 267,742 4,353 42,029 141,232 455,356
------------ ---------- ---------- ------------- ----------
Total $ 1,297,133 $ (156,177) $ 780,976 $ 2,165,692 $4,087,624
============ ========== ========== ============= ==========
Six months
ended
June 30, 2015
-------------
North
America Corporate
Transaction Mobile Online Expenses &
Category Solutions Solutions Solutions Eliminations Total
------------- ------------ ---------- ---------- ------------- ----------
Salaries,
benefits,
taxes and
contractor
payments $ 362,826 $ 213,628 $ 59,258 $ 1,082,635 $1,718,347
Professional
fees 270,453 119,045 122,998 1,448,071 1,960,567
Rent - 29,472 2,193 209,421 241,086
Business
development 25,986 428 8,471 10,305 45,190
Travel
expense 76,840 9,514 - 46,957 133,311
Filing fees - - - 66,014 66,014
Transaction
(gains) - 1,474 - (90,507) (89,033)
losses
Other
expenses 483,801 15,794 8,618 35,883 544,096
------------ ---------- ---------- ------------- ----------
Total $ 1,219,906 $ 389,355 $ 201,538 $ 2,808,779 $4,619,578
============ ========== ========== ============= ==========
Salaries, benefits, taxes and contractor payments were $2,182,251 for the six months ended June 30, 2016 as compared to $1,718,347 for the six months ended June 30, 2015, representing an increase of $463,904 as follows:
Salaries and Salaries and
benefits for benefits for
the six the six
months ended months ended Increase /
Segment June 30, 2016 June 30, 2015 (Decrease)
North America Transaction
Solutions $ 634,833 $ 362,826 $ 272,007
Mobile Solutions 196,726 213,628 (16,902)
Online Solutions 255,436 59,258 196,178
Corporate Expenses & Eliminations 1,095,256 1,082,635 12,621
------------- ------------- ------------
Total $ 2,182,251 $ 1,718,347 $ 463,904
------------- ------------- ------------
The primary reason for the increase was $272,007 in salaries from North America Transaction Solutions and $196,178 from the acquisition of PayOnline (acquired May 20, 2015) offset by a $16,902 decrease to our mobile solutions division salaries and benefits.
Professional fees were $1,201,710 for the six months ended June 30, 2016 as compared to $1,960,567 for the six months ended June 30, 2015, representing a decrease of $758,857 as follows:
Six months
ended June
30, 2016
------------
North
America Corporate
Professional Transaction Mobile Online Expenses &
Fees Solutions Solutions Solutions Eliminations Total
------------------------ ---------- ---------- ------------- ----------
General
Legal $ 33,397 $ 212 $ 3,020 $ 68,860 $ 150,489
SEC
Compliance - - - 87,500 87,500
Legal Fees
Accounting
and - - 578 224,399 224,977
Auditing
Tax
Compliance
and - - - 11,000 11,000
Planning
Consulting 189,109 2,138 297,658 283,839 772,744
------------ ---------- ---------- ------------- ----------
Total $ 222,506 $ 2,350 $ 301,256 $ 675,598 $1,201,710
============ ========== ========== ============= ==========
Six months
ended
June 30,
2015
------------
North
America Corporate
Professional Transaction Mobile Online Expenses &
Fees Solutions Solutions Solutions Eliminations Total
------------------------ ---------- ---------- ------------- ----------
General
Legal $ 52,400 $ 35 $ 3,834 $ 268,274 $ 324,543
SEC
Compliance - - - 89,285 89,285
Legal Fees
Accounting
and - - - 307,832 307,832
Auditing
Tax
Compliance
and - - - 16,275 16,275
Planning
Consulting 170,749 119,010 119,164 813,709 1,222,632
------------ ---------- ---------- ------------- ----------
Total $ 223,149 $ 119,045 $ 122,998 $ 1,495,375 $1,960,567
============ ========== ========== ============= ==========
Variance
------------
North
America Corporate
Professional Transaction Mobile Online Expenses &
Fees Solutions Solutions Solutions Eliminations Total
------------------------ ---------- ---------- ------------- ----------
General
Legal $ (19,003) $ 177 $ (814) $ (199,414) $ (219,054)
SEC
Compliance - - - (1,785) (1,785)
Legal Fees
Accounting
and - - 578 (83,433) (82,855)
Auditing
Tax
Compliance
and - - - (5,275) (5,275)
Planning
Consulting 18,360 (116,872) 178,494 (529,870) (449,888)
------------ ---------- ---------- ------------- ----------
Total $ (643) $ (116,695) $ 178,258 $ (819,777) $ (758,857)
============ ========== ========== ============= ==========
General legal expenses decreased $219,054 during for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily due to decreased litigation activity at the corporate level and at our mobile solutions segment. Consulting fees decreased $449,888 primarily due to less consulting
needs in corporate and mobile solutions offset by an increase in our Online Solutions due to PayOnline being acquired May 20, 2015.
Other general and administrative expenses were $455,356 (primarily consisting of performance bonuses of $173,748, communications of $113,020 and office expenses of $129,230) for the six months ended June 30, 2016 as compared to $544,096 (primarily consisting of performance bonuses of $173,748,
communications of $84,347, office expenses of $121,765, taxes of $104,575 and insurance for $51,371) for the six months ended June 30, 2015, representing a decrease of $88,740.
We recorded bad debt expense of $376,979 for the six months ended June 30, 2016 as compared to $140,841 for the six months ended June 30, 2015. 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. For the six months ended June 30, 2015, we recorded a loss provision which was primarily comprised of $235,635 in ACH rejects offset by a $94,769 recovery from our Russian operations.
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
$1,732,653 for the six months ended June 30, 2016 as compared to $1,065,267 for the six months ended June 30, 2015. The $667,388 increase in depreciation and amortization expense was primarily due to PayOnline ($703,479 for IP Software, $49,998 for domain names, $74,834 for PCI Certification and $186,096 for portfolios and client lists), offset by an $166,717 decrease in portfolio amortization in our North American Transaction Solutions segment.
Interest expense was $589,414 for the six months ended June 30, 2016 as compared to $1,402,183 for three months ended June 30, 2015, representing a decrease of $812,769 as follows:
Six months Six months
ended June ended June Increase /
Funding Source 30, 2016 30, 2016 (Decrease)
------------------------------------- ----------- ----------- -----------
Convertible Notes Payable $ - $ 1,146,715 $(1,146,715)
MBF Note 28,450 - 28,450
RBL Note 258,126 228,427 29,699
Crede CG III, LTD 297,435 - 297,435
Other 5,403 27,041 (21,638)
----------- ----------- -----------
Total $ 589,414 $ 1,402,183 $ (812,769)
----------- ----------- -----------
The net loss attributable to non-controlling interests amounted to $76,668 for six months ended June 30, 2016 as compared to $19,274 for the six months ended June 30, 2015.
During the six months ended June 30, 2016 no dividends were paid. We paid dividends to our preferred shareholders in the amount of $525,197 during the six months ended June 30, 2015.
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, 2016 and 2015 is presented in the following Non-GAAP Financial Measures Table.
Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure
Derivative
Activity, Debt
Non-Cash Extinguishment
Share-based and Adjustment
GAAP Compensation Restructure 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 earrings
per share 11,635,434 11,635,434
Derivative
Activity, Debt
Non-Cash Extinguishment
Share-based and Adjustment
GAAP Compensation Restructure Non-GAAP
----------------------------------------------------
Three Months Ended
June 30, 2015
Net (loss) income
attributable to Net
Element, Inc.
stockholders $(1,764,285) $ 601,371 $ 2,162,861 $(1,168,998)
Basic and diluted
earnings per share $ (0.35) $ 0.12 $ 0.19 $ (0.10)
Basic and diluted
shares used in
computing earrings
per share 4,970,714 4,970,714
Derivative
Activity, Debt
Non-Cash Extinguishment
Share-based and Adjustment
GAAP Compensation Restructure 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 earrings
per share 11,464,434 11,464,434
Derivative
Activity, Debt
Non-Cash Extinguishment
Share-based and Adjustment
GAAP Compensation Restructure Non-GAAP
-----------------------------------------------------
Six Months Ended June
30, 2015
Net (loss) income
attributable to Net
Element, Inc.
stockholders $(4,003,493) $ 1,202,742 $ (2,022,036) $(4,822,787)
Basic and diluted
earnings per share $ (0.84) $ 0.25 $ (0.42) $ (1.01)
Basic and diluted
shares used in
computing earrings
per share 4,789,264 4,789,264
Additional information regarding Net Element's results for its second quarter ended June 30, 2016 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 16, 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
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.
Contact:
Net Element, Inc.
media@netelement.com
+1 (786) 923-0502
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