NETE
$6.41
Net Element
($.29)
(4.33%)
Earnings Details
3rd Quarter September 2017
Tuesday, November 14, 2017 4:32:59 PM
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Summary

Net Element (NETE) Recent Earnings

Net Element (NETE) reported a 3rd Quarter September 2017 loss of $0.90 per share on revenue of $14.9 million. The consensus estimate was a loss of $0.56 per share. Revenue grew 6.4% on a year-over-year basis.

Net Element Inc is a financial technology-driven group specializing in mobile payments and value-added transactional services in emerging countries and in the United States.

Results
Reported Earnings
($0.90)
Earnings Whisper
-
Consensus Estimate
($0.56)
Reported Revenue
$14.9 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Net Element Reports Third Quarter 2017 Results

North America Transaction Solutions leads in revenue growth; Loss per share narrows significantly vs same period last year

MIAMI, FL--(Marketwired - Nov 14, 2017) - Net Element, Inc. (NETE) ("Net Element" or the "Company"), a global financial technology and value-added solutions group that supports electronic payments acceptance in an omni-channel environment spanning across point-of-sale (POS), e-commerce and mobile devices, today reported financial results for the third quarter ended September 30, 2017 and provided an update on recent strategic and operational initiatives.

Third Quarter 2017 Results:

Revenues increased to $14.9 million, an increase of 6.4% compared to $14.0 million in the prior year. The increase is primarily due to organic revenue growth in the North America Transaction Solutions segment, which experienced 17.3% growth over the prior year;

US accounted for 88% of Revenue, while international revenues were 12%.

Recent Highlights:

Net Element ranked as one of the fastest growing companies in North America on Deloitte’s 2017 Technology Fast 500™

Unified Payments launched web-based, integrated same-day ACH payment processing

PayOnline launched payment acceptance for Azimuth Airlines

Unified Payments supported Florida SMB merchants affected by Hurricane Irma with the free mobile POS card readers

Unified Payments launched Zero-Fee processing program for SMB merchants in the U.S., giving merchants the flexibility to pass through credit card processing costs to their customers

PayOnline launched payment acceptance module for Telegram, Viber, Facebook and VK instant messengers

PayOnline launched support for electronic commerce in the U.S. as a fully integrated offering that allows merchants to expand their business without limiting the way customers can pay

PayOnline added support for iDEAL, the most popular payment system in Netherlands

PayOnline expanded payments module to include inSales Platform

"Third quarter was an important period for the Company as we streamlined international operations to build a more profitable and less capital intensive Mobile and Online Solutions business. Additionally, we regained compliance with the Nasdaq continued listing requirements," commented Oleg Firer, CEO of Net Element. "In the United States we continue to grow organically with the focus on value-added solutions."

Conference Call:

The Company will host a conference call to discuss Third Quarter 2017 financial results and business highlights on November 15, 2017 at 8:30 a.m. ET. The conference call can be accessed live over the phone by dialing +1 (877) 303-9858, or for international callers +1 (408) 337-0139, and referencing conference code 4797319. It is recommended that participants dial in approximately 10 minutes prior to the start of the 8:30 a.m. Eastern call.

The call will also be webcast live from https://edge.media-server.com/m6/p/mn6s3mja. 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 September 30, 2017 Compared to the Three Months Ended September 30, 2016

We reported a net loss attributable to our stockholders of $1,702,536, or $0.90 per share, for the three months ended September 30, 2017 as compared to a net loss attributable to our stockholders of $3,469,540, or $2.47 per share, for the three months ended September 30, 2016. This resulted in a decrease in net loss attributable to stockholders of $1,767,004 primarily due to an increase in revenues, decreases in non-cash compensation and interest expenses, partially offset by an increase in other expenses.  Net loss attributable to stockholders for the three months ended September 30, 2016 was also negatively affected by an expense for loss from stock value guarantee related to the PayOnline acquisition.

Eliminating the effects of non-cash compensation and a 2016 stock value guarantee, we reported an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $1,591,259 or $0.84 per share for the three months ended September 30, 2017 as compared to an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $2,736,839 or $1.95 per share for the three months ended September 30, 2016.

Net revenues consist primarily of payment processing fees. Net revenues were $14,901,131 for the three months ended September 30, 2017 as compared to $14,009,652 for the three months ended September 30, 2016. The increase in net revenue is primarily due to an increase to North American Transaction Solutions segment revenue of $1,936,917 (or 17% increase) for the three months ended September 30, 2017 versus the three months ended September 30, 2016. Increases in our North American Transaction Solutions segment revenue were primarily due to continued organic growth of merchants with emphasis on value-added offerings partially offset by some loss of processing revenues resulting from storms primarily affecting merchants processing in Florida and Texas. Our Online Solutions segment revenue increased $180,803 (or 11%), from $1,597,124 for the three months ended September 30, 2016 to $1,777,927 for the three months ended September 30, 2017. Net revenue for the three months ended September 30, 2017 was also negatively affected by a $1,226,241 (or 100%) decrease in revenue in our Mobile Solutions segment, as we experience increased competition, decreased margins and reorganizing assignments of the Mobile Solutions segment to employees at PayOnline and TOT Group Russia. 

The following table sets forth our sources of revenues, cost of revenues and gross margins for the three months ended September 30, 2017 and 2016:

 
Gross Margin Analysis
 
 
  Three
        Three
         
 
 
  Months Ended
        Months Ended
         
 
 
  September 30,
        September 30,
        Increase /
 
Source of Revenues
  2017
  Mix
    2016
  Mix
    (Decrease)
 
 
   
         
         
 
  North American Transaction Solutions
  $
13,123,204   88
%
  $
11,186,287   80
%
  $
1,936,917
 
  Mobile Solutions
    -
  0
%
    1,226,241
  9
%
    (1,226,241 )
  Online Solutions
    1,777,927
  12
%
    1,597,124
  11
%
    180,803
 
   
Total
  $
14,901,131   100
%
  $
14,009,652   100
%
  $
891,479
 
 
   
   
   
   
   
 
 
  Three
   
  Three
   
   
 
 
  Months Ended
   
  Months Ended
   
   
 
 
  September 30,
  % of 
  September 30,
  % of 
  Increase /
 
Cost of Revenues
  2017
  revenues 
  2016
  revenues 
  (Decrease)
 
 
   
   
 
   
   
 
   
 
  North American Transaction Solutions
  $
11,279,098   86
%
  $
9,585,952
  86
%
  $
1,693,146
 
  Mobile Solutions
    -
  0
%
    1,045,836
  85
%
    (1,045,836 )
  Online Solutions
    1,477,529
  83
%
    1,063,380
  67
%
    414,149
 
   
Total
  $
12,756,627   86
%
  $
11,695,168   83
%
  $
1,061,459
 
 
   
   
   
   
   
 
 
  Three
   
  Three
   
   
 
 
  Months Ended
   
  Months Ended
   
   
 
 
  September 30,
  % of 
  September 30,
  % of 
  Increase /
 
Gross Margin
  2017
  revenues 
  2016
  revenues 
  (Decrease)
 
 
   
   
 
   
   
 
   
 
  North American Transaction Solutions
  $
1,844,106   14
%
  $
1,600,335   14
%
  $
243,771
 
  Mobile Solutions
    -
  0
%
    180,405
  15
%
    (180,405 )
  Online Solutions
    300,398
  17
%
    533,744
  33
%
    (233,346 )
   
Total
  $
2,144,504   14
%
  $
2,314,484   17
%
  $
(169,980 )
   
     
   
 
     
   
 
     
 

Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the three months ended September 30, 2017 were $12,756,627 as compared to $11,695,168 for the three months ended September 30, 2016. The $1,061,459 increase in cost of revenues was primarily due to a $1,693,145 increase in our North American Transaction Solutions segment due to the corresponding increase in sales volume. There also was a $414,149 increase in cost of revenues resulting from our Online Solutions segment operations primarily due the costs associated with onboarding additional merchants. This was partially offset by a $1,045,836 decrease in our Mobile Solutions segment cost of revenues, which resulted from the corresponding decrease in revenues for our Mobile Solutions segment for the three months ended September 30, 2017.

Gross margin or the three months ended September 30, 2017 was $2,144,504, or 14% of net revenue, as compared to $2,314,484, or 17% of net revenue, for the three months ended September 30, 2016. The $169,980 decrease in gross margin was primarily due to a decrease of $180,405 in Mobile Solutions margin caused by a decrease in business and a $233,346 decrease in Online Solutions offset by $243,771 increase in gross margin in North American Transaction Solutions caused by continued growth of merchants with emphasis on value-added offerings. 

Total operating expenses were $3,418,716 for the three months ended September 30, 2017, which consisted of general and administrative expenses of $2,357,729, non-cash compensation expenses of $111,277, provision for bad debts of $319,690, and depreciation and amortization of $630,020. Total operating expenses were $4,083,494 for the three months ended September 30, 2016, which consisted of general and administrative expenses of $2,284,737, non-cash compensation expenses of $732,701, provision for bad debts of $301,170, and depreciation and amortization of $764,886. 

The components of our general and administrative expenses are discussed below.

General and administrative expenses for the three months ended September 30, 2017 and 2016 consisted of operating expenses not otherwise delineated in our Condensed Consolidated Statements of Operations and Comprehensive Loss and include salaries and benefits, professional fees, rent, business development, travel expense, filing fees, transaction gains or losses, office expenses, communication expenses, insurance expenses, and other expenses required to run our business, as follows:

 
Three Months Ended September 30, 2017             
Category
  North
  Mobile
  Online
  Corporate
  Total
 
America
Solutions 
Solutions
Expenses &
Transaction
Eliminations 
Solutions
Salaries, benefits, taxes and contractor payments   $
459,412   $
44,733
    $
213,351   $
539,002
    $
1,256,498  
Professional fees
    100,772     (46
)
    233,836     326,876
      661,438
 
Rent
    -
    5,803
      39,037
    58,410
      103,250
 
Business development
    6,572
    (6
)
    8,902
    222
      15,690
 
Travel expense
    21,753
    2,897
      1,142
    20,634
      46,426
 
Filing fees
    -
    -
      -
    12,056
      12,056
 
Transaction (gains) losses
    -
    (13,327 )
    54
    (3
)
    (13,276
)
Office expenses
    67,140
    566
      21,319
    13,005
      102,030
 
Communications expenses
    5,507
    1,173
      29,416
    20,211
      56,307
 
Insurance expense
    -
    -
      -
    34,853
      34,853
 
Other expenses
    349
    87
      1,619
    80,402
      82,457
 
 
Total
  $
661,505   $
41,880
    $
548,676   $
1,105,668     $
2,357,729  
 
 
     
     
       
     
       
 
Three Months Ended September 30, 2016
 
Category
  North
  Mobile
  Online
  Corporate
  Total
 
America
Solutions 
Solutions 
Expenses &
Transaction
Eliminations 
Solutions
Salaries, benefits, taxes and contractor payments   $
414,659   $
107,310     $
167,802     $
442,497
    $
1,132,268  
Professional fees
    89,985
    36,874
      161,394       384,227
      672,480
 
Rent
    -
    942
      35,682
      116,703
      153,327
 
Business development
    10,827
    4,869
      27,752
      1,395
      44,843
 
Travel expense
    61,700
    2,563
      5,978
      50,466
      120,707
 
Filing fees
    -
    -
      -
      17,789
      17,789
 
Transaction (gains) losses
    -
    (11,068 )
    (655
)
    (141,639
)
    (153,362
)
Office expenses
    29,600
    8,805
      21,534
      33,532
      93,471
 
Communications expenses
    17,392
    583
      27,065
      20,447
      65,486
 
Insurance expense
    -
    -
      -
      123,992
      123,992
 
Other expenses
    9,755
    6
      1,350
      2,624
      13,736
 
 
Total
  $
633,918   $
150,884     $
447,902     $
1,052,034     $
2,284,737  
 
 
     
     
       
       
       
 
Variance
   
     
     
     
     
 
Category
  North
  Mobile
  Online
  Corporate
  Total
 
America
Solutions 
Solutions 
Expenses &
Transaction
Eliminations 
Solutions 
Salaries, benefits, taxes and contractor payments   $
44,753
    $
(62,577
)
  $
45,549
    $
96,505
    $
124,230  
Professional fees
    10,787
      (36,920
)
    72,442
      (57,351 )
    (11,042 )
Rent
    -
      4,861
      3,355
      (58,293 )
    (50,077 )
Business development
    (4,255
)
    (4,875
)
    (18,850 )
    (1,173
)
    (29,153 )
Travel expense
    (39,947 )
    334
      (4,836
)
    (29,832 )
    (74,281 )
Filing fees
    -
      -
      -
      (5,733
)
    (5,733
)
Transaction (gains) losses
    -
      (2,259
)
    709
      141,636       140,086  
Office expenses
    37,540
      (8,239
)
    (215
)
    (20,527 )
    8,559
 
Communications expenses
    (11,885 )
    590
      2,351
      (236
)
    (9,179
)
Insurance expense
    -
      -
      -
      (89,139 )
    (89,139 )
Other expenses
    (9,406
)
    81
      269
      77,778
      68,721
 
 
Total
  $
27,587
    $
(109,004 )
  $
100,774     $
53,634
    $
72,992
 
 
 
     
       
       
       
       
 

Salaries, benefits, taxes and contractor payments were $1,256,498 for the three months ended September 30, 2017 as compared to $1,132,268 for the three months ended September 30, 2016.

 
   
   
   
 
Segment
  Salaries and
  Salaries and
  Increase /
 
benefits for the three months ended
benefits for the three months ended September 30, 2016
(Decrease)
September 30, 2017
North America Transaction Solutions   $
459,412
  $
414,659
  $
44,753
 
Mobile Solutions
   
44,733
   
107,310
    (62,577 )
Online Solutions
   
213,351
   
167,802
    45,549
 
Corporate Expenses & Eliminations
   
539,002
   
442,497
    96,505
 
 
 
Total
  $
1,256,498
  $
1,132,268
  $
124,230  
 
 
 
   
 
   
 
     
 

The increase in salaries of $124,230 was due to the North American Transaction Solutions segment and corporate salaries increasing $44,743 and $96,505, respectively, due to an increase in headcount and sales incentives for key employees as the business grows. In addition, an increase in our Online Solutions segment of $45,549 was primarily due to the Ruble exchange rate. These increases were offset by a decrease of $62,577 in our Mobile Solutions segment due to the elimination of headcount as we assigned the current workloads to existing employees of PayOnline and TOT Group Russia.

Professional fees were $661,438 for the three months ended September 30, 2017 as compared to $672,480 for the three months ended September 30, 2016.

 
Three Months Ended September 30, 2017      
Professional Fees
  North
  Mobile
  Online
  Corporate
  Total
America
Solutions 
Solutions
Expenses &
Transaction
Eliminations
Solutions
General Legal
  $
819
  $
-
    $
185
  $
4,305
  $
5,309
SEC Compliance Legal Fees
    -
    -
      -
    88,564
    88,564
Accounting and Auditing
    -
    -
      1,000
    97,500
    98,500
Tax Compliance and Planning
    -
    -
      -
    -
    -
Consulting
    99,953
    (46
)
    232,651     136,507     469,065
 
 
Total
  $
100,772   $
(46
)
  $
233,836   $
326,876   $
661,438
 
 
 
     
             
     
     
Three Months Ended September 30, 2016          
Professional Fees
  North
  Mobile
  Online
  Corporate
  Total
America
Solutions
Solutions
Expenses &
Transaction
Eliminations
Solutions
General Legal
  $
5,818
  $
56
  $
847
  $
99,179
  $
105,900
SEC Compliance Legal Fees
    -
    -
    -
    43,750
    43,750
Accounting and Auditing
    -
    -
    -
    101,732     101,732
Tax Compliance and Planning
    -
    -
    -
    33,200
    33,200
Consulting
    84,167     36,818     160,547     106,366     387,898
 
 
Total
  $
89,985   $
36,874   $
161,394   $
384,227   $
672,480
Variance
   
     
     
     
     
 
Professional Fees
  North
  Mobile
  Online
  Corporate
  Increase /
 
America
Solutions 
Solutions 
Expenses &
(Decrease)
Transaction
Eliminations 
Solutions 
General Legal
  $
(4,999 )
  $
(56
)
  $
(662
)
  $
(94,874 )
  $
(100,591 )
SEC Compliance Legal Fees
    -
      -
      -
      44,814
      44,814
 
Accounting and Auditing
    -
      -
      1,000
      (4,232
)
    (3,232
)
Tax Compliance and Planning
    -
      -
      -
      (33,200 )
    (33,200
)
Consulting
    15,786       (36,864 )
    72,104       30,141
      81,167
 
 
 
Total
  $
10,787     $
(36,920 )
  $
72,442     $
(57,351 )
  $
(11,042
)
 
 
 
             
               
       
 

Professional fees decreased by $11,042 mainly due to a decrease in general legal fees because of decreases in litigation and tax compliance fees partially offset by an increases in SEC compliance and consulting fees due to increased public market transactions.

Non-cash compensation expense from share-based compensation was $111,277 for the three months ended September 30, 2017, compared to $732,701 for the three months ended September 30, 2016. The majority of these expenses were for employee and consultant equity incentives for both periods.

We recorded bad debt expense of $319,690 for the three months ended September 30, 2017 as compared to $301,170 for the three months ended September 30, 2016. For the three months ended September 30, 2017, we recorded a loss which was primarily comprised of $227,281 in ACH rejects and a $92,409 provision from our Russian operations. Of the $678,143 of gross ACH rejects, $111,174 were passed through to independent sales organizations via a reduction in commissions. For the three months ended September 30, 2016, we recorded a loss which was primarily comprised of $301,132 in net ACH rejects. Of the $301,132 of net ACH rejects, $117,794 were passed through to independent sales organizations via a reduction in commissions.

Depreciation and amortization expense consists primarily of the amortization of merchant portfolios plus depreciation expense on fixed assets, client acquisition costs, capitalized software expenses, trademarks, domain names and employee non-compete agreements. Depreciation and amortization expense was $630,020 for the three months ended September 30, 2017 as compared to $764,886 for the three months ended September 30, 2016. The decrease was due to the full amortization of certain software and merchant portfolio assets during 2016.

Interest expense was $302,813 for the three months ended September 30, 2017 as compared to $608,716 for three months ended September 30, 2016, representing a decrease of $305,904 due to lower balances as follows:

 
   
   
   
 
Funding Source
  Three months
  Three months
  Increase /
 
ended
ended
(Decrease)
September 30,
September 30,
2017
2016
MBF Notes
  $
15,277
  $
11,356
  $
3,921
 
RBL Notes
    195,736     510,655     (314,919 )
Priority Payments Note
    65,630
    -
    65,630
 
Other
    26,170
    86,705
    (60,537
)
 
 
Total
  $
302,813   $
608,716   $
(305,904 )
 
 
 
     
     
     
 

Other interest expense for the three months ended September 30, 2017 consisted of $10,407 resulting from the promissory note entered into on March 1, 2017 with Star Equities, LLC (See Note 12. Related Party Transactions) and $17,762 related to the PayOnline acquisition. During the three months ended September 30, 2016, other interest expense primarily consisted of $76,289 related to the PayOnline acquisition. The primary reason for the decrease was due to less Crede stock exchange paydowns on RBL debt during the three months ended September 30, 2017, which resulted in increased RBL interest expense during 2016.

Other expenses for the three months ended September 30, 2017 consists primarily of a $94,267 of expenses attributed to our Mobile Solutions division.

The net income attributable to non-controlling interests amounted to $32,607 for three months ended September 30, 2017 as compared to the net loss of $33,683 for the three months ended September 30, 2016. The $66,290 decrease was caused by an adjustment to commission expense for prior quarters recorded during the three months ended September 30, 2017.

Results of Operations for the Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016

We reported a net loss attributable to stockholders of $5,830,373, or $3.29 per share, for the nine months ended September 30, 2017 as compared to a net loss attributable to stockholders of $10,663,708, or $8.65 per share, for the nine months ended September 30, 2016. This resulted in a decrease in net loss attributable to stockholders of $4,833,335 primarily due to an increase in revenues and a decrease in the loss from stock value guarantee, a decrease in noncash compensation expense, and a decrease in other income offset by an increase in general and administrative expenses.

Eliminating the effects of non-cash compensation in both years and a 2016 stock value guarantee, we reported an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $4,994,154 or $2.82 per share for the nine months ended September 30, 2017 as compared to an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $5,392,573 or $4.73 per share for the nine months ended September 30, 2016.

Net revenues consist primarily of payment processing fees. Net revenues were $44,604,113 for the nine months ended September 30, 2017 as compared to $38,963,559 for the nine months ended September 30, 2016. The increase in net revenue is primarily due to organic growth of merchants in our North American Transaction Solutions segment which resulted in an increase to North American Transaction Solutions segment revenue of $8,258,268 (or 28% increase) for the nine months ended September 30, 2017 versus the nine months ended September 30, 2016. Increases in our North American Transaction Solutions segment revenue were primarily due to continued growth of merchants with emphasis on value-added offerings. Our Online Solutions segment revenue increased $1,006,578 (or 22%), from $4,521,239 for the nine months ended September 30, 2016 to $5,527,817 for the nine months ended September 30, 2017, primarily due to the onboarding of additional merchants. The increases in North American Transaction Solutions and Online Solutions segments were offset by a $3,624,292 (or 72%) decrease in our Mobile Solutions segment, as we have eliminated staff and assigned current responsibilities to team members at PayOnline and TOT Group Russia.

The following table sets forth our sources of revenues, cost of revenues and gross margins for the nine months ended September 30, 2017 and 2016:

 
Gross Margin Analysis
 
 
  Nine
        Nine
         
 
 
  Months Ended
        Months Ended
         
 
 
  September 30,
        September 30,
        Increase /
 
Source of Revenues
  2017
  Mix
    2016
  Mix
    (Decrease)
 
 
   
         
         
 
  North American Transaction Solutions
  $
37,701,136   85
%
  $
29,442,868   76
%
  $
8,258,268
 
  Mobile Solutions
    1,375,160
  3
%
    4,999,452
  13
%
    (3,624,292 )
  Online Solutions
    5,527,817
  12
%
    4,521,239
  12
%
    1,006,578
 
   
Total
  $
44,604,113   100
%
  $
38,963,559   100
%
  $
5,640,554
 
 
   
   
   
   
   
 
 
  Nine
   
  Nine
   
   
 
 
  Months Ended
   
  Months Ended
   
   
 
 
  September 30,
  % of 
  September 30,
  % of 
  Increase /
 
Cost of Revenues
  2017
  revenues 
  2016
  revenues 
  (Decrease)
 
 
   
   
 
   
   
 
   
 
  North American Transaction Solutions
  $
32,213,056   85
%
  $
25,206,769   86
%
  $
7,006,287
 
  Mobile Solutions
    1,319,704
  96
%
    4,427,043
  89
%
    (3,107,339 )
  Online Solutions
    4,002,251
  72
%
    2,931,390
  65
%
    1,070,861
 
   
Total
  $
37,535,011   84
%
  $
32,565,202   84
%
  $
4,969,809
 
 
   
   
   
   
   
 
 
  Nine
   
  Nine
   
   
 
 
  Months Ended
   
  Months Ended
   
   
 
 
  September 30,
  % of 
  September 30,
  % of 
  Increase /
 
Gross Margin
  2017
  revenues 
  2016
  revenues 
  (Decrease)
 
 
   
   
 
   
   
 
   
 
  North American Transaction Solutions
  $
5,488,080   15
%
  $
4,236,099   14
%
  $
1,251,981  
  Mobile Solutions
    55,456
  4
%
    572,409
  11
%
    (516,953
)
  Online Solutions
    1,525,566   28
%
    1,589,849   35
%
    (64,283
)
   
Total
  $
7,069,102   16
%
  $
6,398,357   16
%
  $
670,745
 
   
 
     
   
 
     
   
 
     
 

Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the nine months ended September 30, 2017 were $37,535,011 as compared to $32,565,202 for the nine months ended September 30, 2016. The increase in cost of revenues was primarily due to a $7,006,287 increase in our North American Transaction Solutions segment due to the corresponding increase in sales volume. There was also a $1,070,861 increase in cost of revenues resulting from our Online Solutions segment operations also primarily due to with boarding additional merchants. This was offset by a $3,107,339 decrease in our Mobile Solutions segment cost of revenues, which resulted from the corresponding decrease in sales for our Mobile Solutions segment for the nine months ended September 30, 2017.

Gross margin for the nine months ended September 30, 2017 was $7,069,102, or 16% of net revenue, as compared to $6,398,357, or 16% of net revenue, for the nine months ended September 30, 2016. The $670,745 increase in gross margin was primarily due to the increased sales volume of processing and business mix in our North American Transaction Solutions offset by a decrease of $516,953 in our Mobile Solutions margin caused from a decrease in business. 

Total operating expenses were $11,949,998 for the nine months ended September 30, 2017, which consisted of general and administrative expenses of $7,788,068, non-cash compensation expenses of $836,218, provision for bad debts of $1,465,311, and depreciation and amortization of $1,860,401. Total operating expenses were $12,656,323 for the nine months ended September 30, 2016, which consisted of general and administrative expenses of $6,372,361, non-cash compensation expenses of $3,108,274, provision for bad debts of $678,150, and depreciation and amortization of $2,497,538. 

The components of our general and administrative expenses are discussed below.

General and administrative expenses for the nine months ended September 30, 2017 and 2016 consisted of operating expenses not otherwise delineated in our Consolidated Statements of Operations and Comprehensive Loss and include salaries and benefits, professional fees, rent, business development, travel expense, filing fees, transaction gains, office expenses, communication expense, insurance expense, and other expenses required to run our business, as follows:

 
 
Nine Months Ended September 30, 2017  
 
Category
  North 
  Mobile 
    Online 
    Corporate 
  Total
 
America 
Solutions
Solutions
Expenses & 
Transaction
Eliminations
Solutions
Salaries, benefits, taxes and contractor payments   $
1,404,162   $
295,068     $
670,056
    $
1,927,741   $
4,297,027  
Professional fees
    351,736
    44,793
      717,713
     
881,613
    1,995,855  
Rent
    -
    33,092
      119,129
     
240,172
    392,393
 
Business development
    9,381
    971
      26,689
     
2,718
    39,759
 
Travel expense
    133,901
    9,723
      6,479
     
111,551
    261,654
 
Filing fees
    -
    -
      -
     
26,990
    26,990
 
Transaction (gains) losses
    742
    (30,423 )
    (6,138
)
   
3,031
    (32,788
)
Office expenses
    165,742
    6,591
      62,830
     
104,506
    339,669
 
Communications expenses
    28,894
    3,368
      88,987
     
60,373
    181,622
 
Insurance expense
    -
    -
      -
     
111,194
    111,194
 
Other expenses
    3,563
    87
      4,895
     
166,148
    174,693
 
 
Total
  $
2,098,121   $
363,270     $
1,690,640     $
3,636,037   $
7,788,068  
 
Nine Months Ended September 30, 2016             
Category
  North 
  Mobile 
    Online 
  Corporate 
    Total
 
America 
Solutions
Solutions
Expenses & 
Transaction
Eliminations
Solutions
Salaries, benefits, taxes and contractor payments   $
1,223,240   $
343,247
    $
423,238
  $
1,498,541     $
3,488,266  
Professional fees
    372,492
    39,422
      462,650
   
999,627
      1,874,191  
Rent
    -
    3,260
      104,056
   
317,317
      424,633
 
Business development
    31,784
    4,869
      92,544
   
6,043
      135,240
 
Travel expense
    152,795
    9,657
      15,964
   
88,368
      266,784
 
Filing fees
    -
    -
      -
   
77,185
      77,185
 
Transaction (gains) losses
    -
    (394,880 )
    38,449
   
(115,797
)
    (472,228
)
Office expenses
    76,347
    13,779
      47,619
   
84,971
      222,716
 
Communications expenses
    64,369
    1,639
      42,742
   
69,756
      178,506
 
Insurance expense
    -
    87
      -
   
129,776
      129,863
 
Other expenses
    269
    152
      1,615
   
45,169
      47,205
 
 
Total
  $
1,921,296   $
21,232
    $
1,228,877   $
3,200,956     $
6,372,361  
 
   
     
     
     
     
 
Variance
   
     
     
     
     
 
Category
  North 
  Mobile 
  Online 
  Corporate 
  Total
 
America 
Solutions 
Solutions 
Expenses & 
Transaction
Eliminations 
Solutions 
Salaries, benefits, taxes and contractor payments   $
180,922     $
(48,179 )
  $
246,818     $
429,200
    $
808,761
 
Professional fees
    (20,756 )
    5,371
      255,063       (118,014 )
    121,664
 
Rent
    -
      29,832
      15,073
      (77,145
)
    (32,240
)
Business development
    (22,403 )
    (3,898
)
    (65,855 )
    (3,325
)
    (95,481
)
Travel expense
    (18,894 )
    66
      (9,485
)
    23,183
      (5,130
)
Filing fees
    -
      -
      -
      (50,195
)
    (50,195
)
Transaction (gains) losses
    742
      364,457       (44,587 )
    118,828
      439,440
 
Office expenses
    89,395
      (7,188
)
    15,211
      19,535
      116,953
 
Communications expenses
    (35,475 )
    1,729
      46,245
      (9,383
)
    3,116
 
Insurance expense
    -
      (87
)
    -
      (18,582
)
    (18,669
)
Other expenses
    3,294
      (65
)
    3,280
      120,979
      127,488
 
 
Total
  $
176,825     $
342,038     $
461,763     $
435,081
    $
1,415,707  

Salaries, benefits, taxes and contractor payments were $4,297,027 for the nine months ended September 30, 2017 as compared to $3,488,266 for the nine months ended September 30, 2016.

 
   
   
   
 
Segment
  Salaries and
  Salaries and
  Increase /
 
benefits for the
benefits for the
(Decrease)
nine months
nine months
ended
ended
September
September
30, 2017
30, 2016
North America Transaction Solutions   $
1,404,162   $
1,223,240   $
180,922  
Mobile Solutions
   
295,068
   
343,247
    (48,179 )
Online Solutions
   
670,056
   
423,238
    246,818  
Corporate Expenses & Eliminations
   
1,927,741    
1,498,541     429,200  
 
 
Total
  $
4,297,027   $
3,488,266   $
808,761  
 
 
 
   
 
   
 
     
 

The increase in salaries of $808,761 was due primarily to the increase of corporate expenses for a $300,000 discretionary bonus payable to our CEO and approved by the Board of directors. The bonus is payable when cash flow of the business can support the payment. Additionally, North American Transaction Solutions segment salaries increased $180,922 due to an increase in headcount and sales incentives for key employees. There was also an increase of $246,818 in our Online Solutions segment which were primarily due to increasing payroll and consulting on PayOnline and the Ruble exchange rate. This was offset by a decrease in Mobile Solutions segment of $48,179 due to reducing headcount in response to the continued decrease in sales and reorganizing the business and responsibilities.

Professional fees were $1,995,855 for the nine months ended September 30, 2017 as compared to $1,874,191 for the nine months ended September 30, 2016.

 
Nine Months Ended September 30, 2017          
Professional Fees
  North 
  Mobile 
  Online 
  Corporate    Total
America
Solutions
Solutions
Expenses &
Transaction
Eliminations
Solutions
General Legal
  $
23,418
  $
-
  $
4,142
  $
62,533
  $
90,093
SEC Compliance Legal Fees
    -
    -
    -
   
191,349     191,349
Accounting and Auditing
    -
    -
    15,433
   
307,782     323,215
Tax Compliance and Planning
    -
    -
    -
   
15,400
    15,400
Consulting
    328,318     44,793     698,138    
304,549     1,375,798
 
 
Total
  $
351,736   $
44,793   $
717,713   $
881,613   $
1,995,855
 
Nine Months Ended September 30, 2016
Professional Fees
  North 
  Mobile 
  Online 
  Corporate 
  Total
America
Solutions
Solutions
Expenses &
Transaction
Eliminations
Solutions
General Legal
  $
39,215
  $
268
  $
3,867
  $
168,039
  $
211,389
SEC Compliance Legal Fees
    -
    -
     
   
131,250
    131,250
Accounting and Auditing
    -
    -
    578
   
326,132
    326,710
Tax Compliance and Planning
    -
    -
    -
   
44,200
    44,200
Consulting
    273,277     39,154     458,205    
390,006
    1,160,642
 
 
Total
  $
312,492   $
39,422   $
462,650   $
1,059,627   $
1,874,191
 
   
     
     
   
     
 
Variance
   
     
     
   
     
 
Professional Fees
  North 
  Mobile 
  Online 
  Corporate 
  Increase /
 
America
Solutions 
Solutions
Expenses &
(Decrease)
Transaction
Eliminations 
Solutions 
General Legal
  $
(15,797 )
  $
(268
)
  $
275
  $
(105,506 )
  $
(121,296 )
SEC Compliance Legal Fees
    -
      -
      -
    60,099
      60,099
 
Accounting and Auditing
    -
      -
      14,855
    (18,350
)
    (3,495
)
Tax Compliance and Planning
    -
      -
      -
    (28,800
)
    (28,800
)
Consulting
    55,041
      5,639
      239,933     (85,457
)
    215,156
 
 
 
Total
  $
39,244
    $
5,371
    $
255,063   $
(178,014 )
  $
121,664
 
 
 
 
     
               
     
       
 

Professional fees increased by $121,664 primarily due to an increase in Online Solutions segment’s consulting fees of $239,933 and $60,099 in corporate’s SEC compliance fees primarily offset by a decrease in general legal corporate expenses of $105,506 and a $85,457 decrease in corporate consulting expenses.

Non-cash compensation expense from share-based compensation was $836,218 for the nine months ended September 30, 2017, compared to $3,108,274 for the nine months ended September 30, 2016. The majority of these expenses were for employee and consultant incentives in both periods.

We recorded bad debt expense of $1,465,311 for the nine months ended September 30, 2017 as compared to $678,150 for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, we recorded a loss which was primarily comprised of $1,185,804 in net ACH rejects and a $279,508 provision from our Russian operations. Of the $1,185,804 of net ACH rejects, $781,923 were passed through to independent sales organizations that board their merchants with us. For the nine months ended September 30, 2016, we recorded a loss which was primarily comprised of $710,508 in net ACH rejects offset by a $32,358 recovery from our Russian operations. Of the $678,150 of net ACH rejects, $286,128 were passed through as a reduction to commissions to independent sales organizations that board their merchants with us.

Depreciation and amortization expense consists primarily of the amortization of merchant portfolios plus depreciation expense on fixed assets, client acquisition costs, capitalized software expenses, trademarks, domain names and employee non-compete agreements. Depreciation and amortization expense was $1,860,401 for the nine months ended September 30, 2017 as compared to $2,497,538 for the nine months ended September 30, 2016.

Interest expense was $894,553 for the nine months ended September 30, 2017 as compared to $1,186,207 for nine months ended September 30, 2016, representing a decrease of $291,655 as follows:

 
   
   
   
 
Funding Source
  Nine months ended
  Nine months ended
  Increase /
 
September 30, 2017
September 30, 2016
(Decrease)
MBF Notes
  $
49,606
  $
39,806
  $
9,800
 
RBL Notes
   
572,231
   
1,066,227     (493,996 )
Priority Payments Note
   
90,378
   
-
    90,378
 
Other
   
182,338
   
80,174
    102,164
 
 
 
Total
  $
894,552
  $
1,186,207   $
(291,655 )
 
 
 
   
 
   
 
     
 

Other interest expense primarily consisted of $84,199 resulting from the promissory note entered into on March 1, 2017 with Star Equities, LLC (see Note 12. Related Party Transactions) and $98,139 related to the PayOnline acquisition. During the nine months ended September 30, 2016, other interest consisted primarily of $76,289 related to the PayOnline acquisition. The primary reason for the decrease was due to less Crede stock paydowns on RBL debt during nine months ended 2017, which resulted in increased RBL interest expense during 2016.

Other expenses for the nine months ended September 30, 2017, consisted of $98,721 attributed to our Mobile Solutions Division, by $48,481 in from our North American Transaction Solutions segment and $9,128 of expenses from corporate, offset by $5,359 in other income from our Online Solutions segment.

The net income attributable to non-controlling interests amounted to $93,175 for nine months ended September 30, 2017 as compared to $110,350 for the nine months ended September 30, 2016. The decrease was caused by an adjustment to commission expense for prior quarters recorded during the three months ended September 30, 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. Adjusted net loss is calculated as net loss excluding non-cash share based compensation and other non-operating, non-recurring items. 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 nine months ended September 30, 2017 and 2016 is presented in the following Non-GAAP Financial Measures Table.

 
   
     
   
   
 
 
  GAAP
    Share-based
  Loss
  Adjusted
 
Compensation
from Stock
Non-GAAP
Value
Guarantee
Three Months Ended September 30, 2017
   
     
   
   
 
 
Net (loss) income attributable to Net Element Inc. stockholders   $
(1,702,536 )
  $
111,277   $
-
  $
(1,591,259 )
 
Basic and diluted earnings per share
  $
(0.90
)
  $
0.06
  $
-
  $
(0.84
)
 
Basic and diluted shares used in computing earnings per share
    1,891,023
       
          1,891,023
 
 
   
     
   
   
 
 
  GAAP
    Share-based
  Loss
  Adjusted
 
Compensation
from Stock
Non-GAAP
Value
Guarantee
Three Months Ended September 30, 2016
   
     
   
   
 
 
Net (loss) income attributable to Net Element Inc. stockholders   $
(3,469,540 )
  $
732,701   $
-
  $
(2,736,839 )
 
Basic and diluted earnings per share
  $
(2.47
)
  $
0.52
  $
-
  $
(1.95
)
 
Basic and diluted shares used in computing earnings per share
    1,403,020
       
          1,403,020
 
 
   
     
   
   
 
 
  GAAP
    Share-based
  Loss
  Adjusted
 
Compensation
from Stock
Non-GAAP
Value
Guarantee
Nine Months Ended September 30, 2017
   
     
   
   
 
 
Net (loss) income attributable to Net Element Inc. stockholders   $
(5,830,372 )
  $
836,218   $
-
  $
(4,994,154 )
 
Basic and diluted earnings per share
  $
(3.29
)
  $
0.47
  $
-
  $
(2.82
)
 
Basic and diluted shares used in computing earnings per share
    1,770,947
       
          1,770,947
 
 
   
     
   
   
 
 
  GAAP
    Non-Cash
  Loss
  Adjusted
 
Share-based Compensation
from Stock
Non-GAAP
Value
Guarantee
Nine Months Ended September 30, 2016
   
     
   
   
 
 
Net (loss) income attributable to Net Element Inc. common stockholders   $
(10,663,708 )
  $
3,108,274
  $
2,162,861   $
(5,392,573 )
 
Basic and diluted earnings per share
  $
(8.65
)
  $
2.52
  $
1.75
  $
(4.37
)
 
Basic and diluted shares used in computing earnings per share
    1,232,593
     
 
     
    1,232,593
 
 
 
     
     
 
     
     
 

Additional information regarding Net Element’s results for its third quarter ended September 30, 2017 may be found in Net Element’s quarterly report on Form 10-Q, which was filed with the Security and Exchange Commission (SEC) on November 14, 2017 and may be obtained from the SEC’s Internet website at http://www.sec.gov.

About Net Element Net Element, Inc. (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. it aims to grow transactional revenue by innovating SME productivity services such as its cloud based, restaurant and retail 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. Net Element was ranked as one of the fastest growing companies in North America on Deloitte’s 2017 Technology Fast 500™ and South Florida Business Journal’s 2016 fastest growing technology companies. Further information is available at www.netelement.com.

Forward-Looking Statements This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Words such as "continue," "will," "may," "could," "should," "expect," "expected," "plans," "intend," "anticipate," "believe," "estimate," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, many of which are generally outside the control of Net Element and are difficult to predict. Examples of such risks and uncertainties include, but are not limited to: (i) Net Element’s ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed; (ii) Net Element’s ability to maintain existing, and secure additional, contracts with users of its payment processing services; (iii) Net Element’s ability to successfully expand in existing markets and enter new markets; (iv) Net Element’s ability to successfully manage and integrate any acquisitions of businesses, solutions or technologies; (v) unanticipated operating costs, transaction costs and actual or contingent liabilities; (vi) the ability to attract and retain qualified employees and key personnel; (vii) adverse effects of increased competition on Net Element’s business; (viii) changes in government licensing and regulation that may adversely affect Net Element’s business; (ix) the risk that changes in consumer behavior could adversely affect Net Element’s business; (x) Net Element’s ability to protect its intellectual property; (xi) local, industry and general business and economic conditions; (xii) adverse effects of potentially deteriorating U.S.-Russia relations, including, without limitation, over a conflict related to Ukraine, including a risk of further U.S. government sanctions or other legal restrictions on U.S. businesses doing business in Russia. Additional factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements can be found in the most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed by Net Element with the Securities and Exchange Commission. Net Element anticipates that subsequent events and developments may cause its plans, intentions and expectations to change. Net Element assumes no obligation, and it specifically disclaims any intention or obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.

 
NET ELEMENT, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
  September 30,
    December 31,
 
2017
2016
ASSETS
   
     
 
Current assets:
   
     
 
 
Cash
  $
922,102
    $
621,635
 
 
Accounts receivable, net
    4,446,358
      7,126,429
 
 
Prepaid expenses and other assets
    1,658,200
      1,467,897
 
 
 
Total current assets, net
    7,026,660
      9,215,961
 
Fixed assets, net
    64,381
      117,295
 
Intangible assets, net
    3,242,889
      3,589,850
 
Goodwill
    9,643,752
      9,643,752
 
Other long term assets
    456,948
      603,209
 
 
 
Total assets
    20,434,630
      23,170,067
 
 
     
       
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
     
       
 
Current liabilities:
     
       
 
 
Accounts payable
    6,067,319
      7,510,113
 
 
Accrued expenses
    3,419,879
      5,518,823
 
 
Deferred revenue
    1,196,743
      1,355,972
 
 
Notes payable (current portion)
    503,041
      808,976
 
 
Due to related parties
    376,593
      299,004
 
 
 
Total current liabilities
    11,563,575
      15,492,888
 
 
Notes payable (net of current portion)
    6,887,382
      3,615,782
 
 
 
Total liabilities
    18,450,957
      19,108,670
 
 
     
       
 
STOCKHOLDERS’ EQUITY
     
       
 
 
Series A Convertible Preferred stock ($.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2017 and December 31, 2016)
    -
      -
 
 
Common stock ($.0001 par value, 100,000,000 shares authorized and 2,141,208 and 1,535,349 shares issued and outstanding at September 30, 2017 and December 31, 2016
    2,142
      1,535
 
 
Paid in capital
    167,805,711
      163,918,685
 
 
Accumulated other comprehensive loss
    (2,528,424
)
    (2,486,616
)
 
Accumulated deficit
    (163,272,959 )
    (157,442,585 )
 
Noncontrolling interest
    (22,797
)
    70,378
 
 
 
Total stockholders’ equity
    1,983,673
      4,061,397
 
 
 
 
Total liabilities and stockholders’ equity
  $
20,434,630
    $
23,170,067
 
 
 
 
 
     
       
 
NET ELEMENT, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 
 
  Three Months Ended September 30
    Nine Months Ended September 30
 
 
  2017
    2016
    2017
    2016
 
 
   
     
     
     
 
Net revenues
   
     
     
     
 
 
Service fees
  $
14,901,131     $
12,874,386     $
43,263,217     $
34,355,912
 
 
Branded content
    -
      1,135,266
      1,340,896
      4,607,647
 
Total Revenues
    14,901,131       14,009,652       44,604,113       38,963,559
 
 
     
       
       
       
 
Costs and expenses:
     
       
       
       
 
 
Cost of service fees
    12,756,627       10,683,897       36,232,170       28,285,984
 
 
Cost of branded content
    -
      1,011,271
      1,302,841
      4,279,218
 
 
General and administrative
    2,357,729
      2,284,737
      7,788,068
      6,372,361
 
 
Non-cash compensation
    111,277
      732,701
      836,218
      3,108,274
 
 
Bad debt expense
    319,690
      301,170
      1,465,311
      678,150
 
 
Depreciation and amortization
    630,020
      764,886
      1,860,401
      2,497,538
 
Total costs and operating expenses
    16,175,343       15,778,662       49,485,009       45,221,525
 
Loss from operations
    (1,274,212 )
    (1,769,010 )
    (4,880,896 )
    (6,257,966
)
 
Interest expense, net
    (302,813
)
    (608,716
)
    (894,553
)
    (1,186,207
)
 
Loss from stock value guarantee
    -
      (1,559,281 )
    -
      (3,722,142
)
 
Other income (expense)
    (92,904
)
    433,784
      (148,099
)
    392,257
 
Net loss before income taxes
    (1,669,929 )
    (3,503,223 )
    (5,923,548 )
    (10,774,058 )
 
Income taxes
    -
      -
      -
      -
 
Net loss
    (1,669,929 )
    (3,503,223 )
    (5,923,548 )
    (10,774,058 )
 
Net (income) loss attributable to the noncontrolling interest     (32,607
)
    33,683
      93,175
      110,350
 
Net loss attributable to Net Element, Inc. stockholders
    (1,702,536 )
    (3,469,540 )
    (5,830,373 )
    (10,663,708 )
 
Foreign currency translation gain (loss)
    92,191
      (96,786
)
    (41,809
)
    (622,568
)
Comprehensive loss attributable to common stockholders
  $
(1,610,345 )
  $
(3,566,326 )
  $
(5,872,182 )
  $
(11,286,276 )
 
     
       
       
       
 
Loss per share - basic and diluted
  $
(0.90
)
  $
(2.47
)
  $
(3.29
)
  $
(8.65
)
 
     
       
       
       
 
Weighted average number of common shares outstanding - basic and diluted
    1,891,023
      1,403,020
      1,770,947
      1,232,593
 
 
NET ELEMENT, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
 
 
  Nine Months Ended September 30,
 
 
  2017
    2016
 
Cash flows from operating activities
   
     
 
Net loss
  $
(5,923,548 )
  $
(10,663,708 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
     
       
 
 
 
Non controlling interest
    (93,175
)
    (110,350
)
 
 
Share based compensation
    836,218
      3,108,274
 
 
 
Deferred revenue
    (159,228
)
    135,003
 
 
 
Depreciation and amortization
    1,860,401
      2,497,538
 
 
 
Non cash interest
    98,774
      741,857
 
Changes in assets and liabilities
     
       
 
 
 
Accounts receivable
    3,514,440
      (610,384
)
 
 
Prepaid expenses and other assets
    (352,551
)
    (331,498
)
 
 
Accounts payable and accrued expenses     (2,390,495 )
    4,165,778
 
 
 
Net cash used in operating activities     (2,609,164 )
    (1,067,490
)
 
     
       
 
Cash flows from investing activities
     
       
 
 
     
       
 
 
Client acquisition costs
    (1,380,661 )
    (1,346,718
)
 
Receipt of excess reserves and ( purchase) of fixed and other assets
    77,430
      -
 
 
 
Net cash used in investing activities     (1,303,231 )
    (1,346,718
)
 
     
       
 
 
Proceeds from common stock
    1,150,098
      -
 
 
Proceeds from indebtedness
    3,239,033
      2,668,500
 
 
Repayment of indebtedness
    (273,360
)
    (110,434
)
 
Related party advances
    77,587
      117,779
 
 
Net cash provided by financing activities
    4,193,358
      2,675,845
 
 
     
       
 
 
Effect of exchange rate changes on cash
    19,504
      97,902
 
 
Net (decrease) increase in cash
    300,467
      359,539
 
 
     
       
 
 
Cash at beginning of period
    621,635
      1,025,747
 
 
Cash at end of period
  $
922,102
    $
1,385,286
 
 
     
       
 
Supplemental disclosure of cash flow information
     
       
 
 
Cash paid during the period for:
     
       
 
 
 
Interest
  $
795,779
    $
461,673
 
 
 
Taxes
  $
86,942
    $
94,718
 
 
Share issuance for settlement of unpaid compensation
  $
-
    $
1,042,509
 
 
Shares issued for redemption of indebtedness
  $
363,986
    $
2,328,351
 
 
Shares issued in settlement of advances from board member
  $
-
    $
909,285
 
 
 
     
       
 

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