UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported) August 13, 2020

 

Net Element, Inc.

 

(Exact Name of Registrant as Specified in Charter)

 

 

Delaware

 

001-34887

 

90-1025599

(State or Other Jurisdiction
of Incorporation)

 

(Commission File
Number)

 

(IRS Employer
Identification No.)

     
 

 3363 NE 163rd Street, Suite 705, North Miami Beach, F33160

 
 

           (Address of Principal Executive Offices)  (Zip Code)

 
     
 

(305) 507-8808

 
 

(Registrants telephone number, including area code)

 
     
 

Not Applicable

 
 

(Former Name or Former Address, if Changed Since Last Report)

 
     
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

NETE

The Nasdaq Stock Market, LLC (Nasdaq Capital Market)

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

 

Item 2.02 Results of Operations and Financial Condition.

 

On August 13, 2020, Net Element, Inc. issued a press release announcing its financial results for its fiscal quarter ended June 30, 2020. A copy of the press release is furnished as Exhibit 99.1 to this report.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

99.1  Press Release dated August 13, 2020

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: August 13, 2020

 

 

NET ELEMENT, INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Jeffrey Ginsberg

 

 

Name:

Jeffrey Ginsberg

 

 

Title:

Chief Financial Officer

 

 

 

 

EXHIBIT INDEX

 

Exhibit No.

Description

 

99.1 Press Release dated August 13, 2020.

 

 

Exhibit 99.1

  

Net Element Reports Second Quarter 2020 Financial Results

 

 

MIAMI, Aug. 13, 2020 - Net Element, Inc. (NASDAQ: NETE) (“Net Element” or the “Company”), a global technology and value-added solutions group that supports electronic payments acceptance in a multichannel environment including point-of-sale (“POS”), e-commerce and mobile devices, today reports its financial results for the second quarter ended June 30, 2020.

 

Second Quarter 2020 Financial Results

 

 

Total transaction volume decreased to $717.9 million, as compared to $950.2 million for the same comparable period
 

Net revenue decreased to $13.7 million, as compared to $16.5 million for the same comparable period in 2019 

  North American Transactions Solutions revenue decreased to $13.0 million, as compared to $15.7 million for the same comparable period
  International Transaction Solutions revenue decreased slightly to $0.74 million, as compared to $0.75 million in 2019  
 

Operating expenses decreased to $2.2 million, as compared to $5.2 million for the same comparable period  
 

Gross margin decreased to $2.2 million, as compared to  $2.6 million for the same comparable period    

 

"The COVID-19 pandemic continued to negatively impact our financial results during the second quarter of this year.  Our ability to adapt quickly by implementing safety protocols to protect our employees has been successful so far, and we are happy to report we have had zero cases of COVID-19 among our employees.  We also implemented cost-cutting initiatives while boosting support for our merchants through e-commerce solutions, contactless payment alternatives and online food ordering for restaurants," commented Oleg Firer, CEO of Net Element. "We continue working diligently to increase shareholder value as we continue to work towards the proposed merger with Mullen Technologies Inc. .”

 

Results of Operations for the Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

 

We reported a net loss attributable to common stockholders of approximately $300,000 or $0.08 per share loss for the three months ended June 30, 2020 as compared to a net loss of approximately $1.5 million or $0.37 per share loss for the three months ended June 30, 2019. The decrease in net loss attributable to stockholders of approximately $1.2 million was primarily due to the reorganization of the labor force, including layoffs, which reduced our selling, general and administrative expenses.

 

The following table sets forth our sources of revenues, cost of revenues and the respective gross margins for the three months ended June 30, 2020 and 2019.

 

   

Three

           

Three

                 
   

Months Ended

           

Months Ended

           

Increase /

 

Source of Revenues

 

June 30, 2020

   

Mix

   

June 30, 2019

   

Mix

   

(Decrease)

 

North American Transaction Solutions

  $ 12,977,536       94.6 %   $ 15,737,998       95.5 %   $ (2,760,462 )

International Transaction Solutions

    741,073       5.4 %     749,313       4.5 %     (8,240 )

Total

  $ 13,718,609       100.0 %   $ 16,487,311       100.0 %   $ (2,768,702 )
   

Six

           

Six

                 
   

Months Ended

   

% of

   

Months Ended

   

% of

   

Increase /

 

Cost of Revenues

 

June 30, 2020

   

revenues

   

June 30, 2019

   

revenues

   

(Decrease)

 

North American Transaction Solutions

  $ 23,840,300       84.7 %   $ 25,212,812       83.8 %   $ (1,372,512 )

International Transaction Solutions

    996,895       70.0 %     948,700       66.2 %     48,195  

Total

  $ 24,837,195       84.0 %   $ 26,161,512       83.0 %   $ (1,324,317 )
   

Three

           

Three

                 
   

Months Ended

   

% of

   

Months Ended

   

% of

   

Increase /

 

Gross Margin

 

June 30, 2020

   

revenues

   

June 30, 2019

   

revenues

   

(Decrease)

 

North American Transaction Solutions

  $ 1,961,508       15.1 %   $ 2,293,924       14.6 %   $ (332,416 )

International Transaction Solutions

    220,314       29.7 %     292,022       39.0 %     (71,708 )

Total

  $ 2,181,822       15.9 %   $ 2,585,946       15.7 %   $ (404,124 )

 

 

Net revenues consist primarily of service fees from transaction processing. Net revenues were approximately $13.7 million for the three months ended June 30, 2020 as compared to $16.5 million for the three months ended June 30, 2019. The decrease in net revenues in our North American Transaction Solutions segment was primarily driven by the adverse impact of the COVID-19 pandemic on our end-to-end payment volumes and gateway transactions.

 

Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, interchange expense, processing, and non-processing fees. Cost of revenues for the three months ended June 30, 2020 were approximately $11.5 million as compared to approximately $13.9 million for the three months ended June 30, 2019. This decrease is in line with the decrease in revenues for the three months ending June, 30, 2020.

 

The gross margin for the three months ended June 30, 2020 was approximately $2.2 million, or 15.9%, as compared to approximately $2.6 million, or 15.7%, for the three months ended June 30, 2019. The gross margin percentage was in line with the results from the previous comparable period.

 

 

Operating Expenses Analysis:

 

Operating expenses were approximately $2.2 million for the three months ended June 30, 2020, as compared to $5.2 million for three months ended June 30, 2019. Operating expenses for the three months ended June 30, 2020 primarily consisted of selling, general and administrative expenses of approximately $1.4 million,and depreciation and amortization of approximately $0.8 million. Operating expenses for the three months ended June 30, 2019, primarily consisted of selling, general and administrative expenses of approximately $2.3 million, non-cash compensation of $2.0 million, and depreciation and amortization expense of approximately $0.7 million.

 

The components of our selling, general and administrative expenses are reflected in the table below.

 

 

 

 

Selling, general and administrative expenses for the three months ended June 30, 2020 and 2019 consisted of operating expenses not otherwise delineated in our Condensed Consolidated Statements of Operations and Comprehensive Loss, as follows:

 

 

Three months ended June 30, 2020

                               
                                 

Category

 

North American Transaction Solutions

   

International Transaction Solutions

   

Corporate Expenses & Eliminations

   

Total

 

Salaries, benefits, taxes and contractor payments

  $ 536,915     $ 91,825     $ 118,574     $ 747,314  

Professional fees

    55,336       39,537       241,288       336,161  

Rent

    13,070       13,325       39,093       65,488  

Business development

    32,228       -       3,805       36,033  

Travel expense

    638       9,373       39,894       49,905  

Filing fees

    -       -       15,525       15,525  

Transaction gains

    -       (80,512 )     -       (80,512 )

Office expenses

    41,976       3,759       16,879       62,614  

Communications expenses

    40,083       46,374       15,863       102,320  

Insurance expense

    -       -       42,000       42,000  

Other expenses

    292       2,104       6,085       8,481  

Total

  $ 720,538     $ 125,785     $ 539,006     $ 1,385,329  

 

Three months ended June 30, 2019

                               
                                 

Category

 

North American Transaction Solutions

   

International Transaction Solutions

   

Corporate Expenses & Eliminations

   

Total

 

Salaries, benefits, taxes and contractor payments

  $ 318,487     $ 95,231     $ 799,417     $ 1,213,135  

Professional fees

    133,316       72,497       345,723       551,536  

Rent

    -       15,277       51,277       66,554  

Business development

    56,184       489       4,944       61,617  

Travel expense

    35,511       5,084       33,299       73,894  

Filing fees

    1,078       -       17,704       18,782  

Transaction losses

    -       (12,974 )     -       (12,974 )

Office expenses

    83,122       4,147       12,990       100,259  

Communications expenses

    41,746       65,717       18,447       125,910  

Insurance expense

    -       -       36,267       36,267  

Other (income) expenses

    286       2,745       61,059       64,090  

Total

  $ 669,730     $ 248,213     $ 1,381,127     $ 2,299,070  

 

Variance

                               
                                 

Category

 

North American Transaction Solutions

   

International Transaction Solutions

   

Corporate Expenses & Eliminations

   

Total

 

Salaries, benefits, taxes and contractor payments

  $ 218,428     $ (3,406 )   $ (680,843 )   $ (465,821 )

Professional fees

    (77,980 )     (32,960 )     (104,435 )     (215,375 )

Rent

    13,070       (1,952 )     (12,184 )     (1,066 )

Business development

    (23,956 )     (489 )     (1,139 )     (25,584 )

Travel expense

    (34,873 )     4,289       6,595       (23,989 )

Filing fees

    (1,078 )     -       (2,179 )     (3,257 )

Transaction gains

    -       (67,538 )     -       (67,538 )

Office expenses

    (41,146 )     (388 )     3,889       (37,645 )

Communications expenses

    (1,663 )     (19,343 )     (2,584 )     (23,590 )

Insurance expense

    -       -       5,733       5,733  

Other (income) expenses

    6       (641 )     (54,974 )     (55,609 )

Total

  $ 50,808     $ (122,428 )   $ (842,121 )   $ (913,741 )

 

Salaries, benefits, taxes, contractor payments, and professional fees decreased by approximately $0.7 million on a consolidated basis for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. This was due to the staffing reductions necessary due to the effects of the COVID-19 pandemic on our operations.

 

 

 

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

 

To supplement its consolidated financial statements presented in accordance with United States generally accepted accounting principles (“GAAP”), the Company provides additional measures of its operating results by disclosing its adjusted net loss attributable to Net Element, Inc. stockholders. Adjusted net loss attributable to Net Element stockholders is calculated as net loss attributable to Net Element stockholders excluding non-cash share-based compensation. The Company 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 the Company’s investors of its historical performance through the use of a metric that seeks to normalize period-to-period earnings.  A reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the quarter ended June 30, 2020, and June  30, 2019 is presented in the following tables.

 

   

GAAP

   

Share-based Compensation

   

Adjusted Non-GAAP

 

Three Months Ended June 30, 2020

                       

Net loss attributable to Net Element Inc stockholders

  $ (324,690 )   $ 7,500     $ (317,190 )

Basic and diluted earnings per share

  $ (0.08 )   $ -     $ (0.08 )

Basic and diluted shares used in computing earnings per share

    4,175,148               4,175,148  

Three Months Ended June 30, 2019

                       

Net loss attributable to Net Element Inc stockholders

  $ (1,537,447 )   $ 2,005,840     $ 468,393  

Basic and diluted earnings per share

  $ (0.37 )   $ 0.48     $ 0.11  
Basic and diluted shares used in computing earnings per share     4,199,076               4,199,076  

 

   

GAAP

   

Share-based Compensation

   

Adjusted Non-GAAP

 

Six Months Ended June 30, 2020

                       

Net loss attributable to Net Element Inc stockholders

  $ (1,691,488 )   $ 45,900     $ (1,645,588 )

Basic and diluted earnings per share

  $ (0.41 )   $ 0.01     $ (0.40 )

Basic and diluted shares used in computing earnings per share

    4,146,396               4,146,396  

Six Months Ended June 30, 2019

                       

Net loss attributable to Net Element Inc stockholders

  $ (2,658,292 )   $ 2,020,847     $ (637,445 )

Basic and diluted earnings per share

  $ (0.68 )   $ 0.52     $ (0.16 )

Basic and diluted shares used in computing earnings per share

    3,908,872               3,908,872  

 

Use of Non-GAAP Financial Measures

 

Non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP measures exclude significant expenses that are required by GAAP to be recorded in the Company's financial statements and are subject to inherent limitations.

 

About Net Element

 

Net Element, Inc. (NASDAQ: NETE) operates a payments-as-a-service transactional and value-added services platform for small to medium enterprises ("SMEs") in the

U.S. and selected emerging markets. In the U.S., it aims to grow transactional revenue by innovating SME productivity services using blockchain technology solutions and Aptito, the Company’s cloud-based restaurant and retail point-of-sale solution. Internationally, Net Element's strategy is to leverage its omnichannel platform to deliver flexible offerings to emerging markets with diverse banking, regulatory and demographic conditions. Net Element was ranked as one of the fastest-growing companies in North America on Deloitte's 2017 Technology Fast 500™. In 2017, the Company was recognized by South Florida Business Journal as one of 2016's fastest-growing technology companies. Further information is available at www.NetElement.com.

 

Forward-Looking 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 whether the proposed merger with Mullen Technologies Inc. will materialize and if so, whether that will result in increased shareholder value, whether the Company will be successful in executing cost savings and other alternative strategies and whether these measures will  benefit the Companys; what the ultimate impact of the COVID-19 pandemic will have on the Company and its  operations, whether the Company will achieve further growth or achieve its goals and when the Company will reach profitability. Additional examples of such risks and uncertainties include, but are not limited to (i) Net Element's ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed; (ii) Net Element's ability to maintain existing, and secure additional, contracts with users of its payment processing services; (iii) Net Element's ability to successfully expand in existing markets and enter new markets; (iv) Net Element's ability to successfully manage and integrate any acquisitions of businesses, solutions or technologies; (v) unanticipated operating costs, transaction costs and actual or contingent liabilities; (vi) the ability to attract and retain qualified employees and key personnel; (vii) adverse effects of increased competition on Net Element's business; (viii) changes in government licensing and regulation that may adversely affect Net Element's business; (ix) the risk that changes in consumer behavior could adversely affect Net Element's business; (x) Net Element's ability to protect its intellectual property; (xi) local, industry and general business and economic conditions; and (xii) adverse effects of potentially deteriorating U.S.-Russia relations, including, without limitation, over a conflict related to Ukraine, including a risk of further U.S. government sanctions or other legal restrictions on U.S. businesses doing business in Russia. Additional factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements can be found in the most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed by Net Element with the Securities and Exchange Commission. Net Element anticipates that subsequent events and developments may cause its plans, intentions and expectations to change. Net Element assumes no obligation, and it specifically disclaims any intention or obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.  Forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date. 

 

Contact:

Net Element, Inc.

Tel. +1 (786) 923-0502

Media@NetElement.com

www.netelement.com