SOURCE: Net Element, Inc.

Net Element, Inc.

May 15, 2017 17:00 ET

Net Element Reports First Quarter 2017 Results

Revenues grow 20% year over year, strategic integrations and value-added services yield expansion into new markets

MIAMI, FL--(Marketwired - May 15, 2017) - Net Element, Inc. (NASDAQ: NETE) ("Net Element" or the "Company"), a global financial technology and value-added solutions group that supports companies in accepting electronic payments in an omni-channel environment that spans across point-of-sale (POS), e-commerce and mobile devices, today reported financial results for the first quarter ended March 31, 2017 and provided an update on recent strategic and operational initiatives.

For three months ended March 31, 2017, net revenues increased 20% to $13,561,941 as compared to $11,261,059 in the prior year. The $2,300,882 increase in net revenues is primarily due to organic growth in our North America Transaction Solutions segment, which demonstrated net revenues increase of 40% as compared to the prior year:

  • North America Transaction Solutions segment: Continued organic growth of SMB merchants in this segment with emphasis on value-added offerings. Revenues for this segment continue to lead the growth for three months ended March 31, 2017 were $10,964,919, a 40% increase over the prior year.
  • Online Solutions segment: Continued organic growth in global online payment acceptance services with emphasis on value-added offerings. Revenues for this segment for three months ended March 31, 2017 were $1,740,029, a 23% increase over the prior year.
  • Mobile Solutions segment: Revenues for this segment were $856,993, a 57% decrease over the prior year. We continue to explore financing options for this business as well as expansion to markets that do not require us to advance capital to content providers prior to getting paid from mobile network operators.

Recent Highlights:

  • Unified Payments launched Multi Currency Processing (MCP) to allow online merchants to price their goods and services in over 90 local currencies and expand their global reach
  • Digital Provider expanded its Direct Carrier Billing (DCB) services to Poland and Turkey integrating its proprietary Trinity Platform with all major operators in the region such as T-Mobile and Orange, allowing access to 113.5 million mobile users in these markets
  • Unified Payments announced comprehensive Point-of-Sale (POS) program during its 2017 launch series at the annual Northeast Acquirers Association (NEAA) conference in Boston, Massachusetts
  • PayOnline launched Apple Pay support in Russia
  • Unified Payments launched payment acceptance for ReservHotel, a leading provider of travel distribution and booking solutions for hotels worldwide
  • Digital Provider announced partnership programs targeting content providers, mobile network operators and mobile application developers at GSMA Mobile World Congress 2017 in Barcelona, Spain
  • PayOnline launched Instant Credit, an innovative microcredit solution available to online consumers that can help increase conversion rates and merchants' revenues
  • PayOnline launched payment acceptance for Sutochno.ru, the leading C2C short-term accommodation booking service in Russia

"The first quarter of the year is one of the slowest quarters of the year for processing and we remain focused on continued growth and innovation to differentiate our product offerings and provide superior products and services to our expanding customer base," commented Oleg Firer, CEO of Net Element. "We are undertaking several strategic changes in the mobile solutions segment, which should yield results in the third-quarter of this year."

Conference Call:
The Company will host a conference call to discuss First Quarter 2017 financial results and business highlights on May 16, 2017 at 8:30 AM 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 24392966. It is recommended that participants dial in approximately 10 minutes prior to the start of the 8:30AM Eastern call.

The call will also be webcast live from http://edge.media-server.com/m/p/26rnmtr5. Following completion of the call, a recorded replay of the webcast will be available on the http://www.netelement.com/en/ir website.

Results of Operations for the Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016

We reported a net loss attributable to stockholders of $2,487,498, or $0.15 per share, for the three months ended March 31, 2017 as compared to a net loss attributable to stockholders of $1,847,719, or $0.16 per share, for the three months ended March 31, 2016. This resulted in an increase in net loss attributable to stockholders of $639,779 primarily as a result of higher general and administrative expenses and non-cash compensation expense offset by an improved gross margin.

Eliminating the effects of non-cash compensation, we reported an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $1,891,094 or $0.11 per share for the three months ended March 31, 2017 as compared to an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $1,486,735 or $0.13 per share for the three months ended March 31, 2016.

Net revenues consist primarily of payment processing fees. Net revenues were $13,561,941 for the three months ended March 31, 2017 as compared to $11,261,059 for the three months ended March 31, 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 $3,112,271, or 40% increase for the three months ended March 31, 2017 versus the three months ended March 31, 2016. Increases in our North American Transaction Solutions segment revenue were primarily due to a continued growth of SMB merchants with emphasis on value-added offerings. This was partially offset by a $1,136,511, or 57% decrease in our Mobile Solutions segment, as we continue to seek capital needed to prepay for content delivered through our platform as well as diversify to post-paid markets. Our Online Solutions segment revenue increased $325,122 (or 23%), from $1,414,907 for the three months ended March 31, 2016 to $1,740,029 for the three months ended March 31, 2017, primarily due to changes in foreign currency exchange rates.

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 March 31, 2017 were $11,459,992 as compared to $9,385,241 for the three months ended March 31, 2016. The $2,074,751 increase in cost of revenues was primarily due to a $2,808,416 increase in our North American Transaction Solutions segment due to increased volume. There was also a $263,960 increase in cost of revenues resulting from our Online Solutions segment operations also due to increased volume. This was offset by a $997,625 decrease in our Mobile Solutions segment cost of revenues, which resulted from the decrease in sales for our Mobile Solutions segment for the three months ended March 31, 2017 versus the three months ended March 31, 2016.

Gross Margin for the three months ended March 31, 2017 was $2,101,949, or 15% of net revenue, as compared to $1,875,818, or 17% of net revenue, for the three months ended March 31, 2016. The $226,131 increase in gross margin was due to the increased volume of processing in our North American Transaction Solutions offset by a decrease of $138,886 in our Mobile Solutions margin caused from a decrease in business.

The following table sets forth our sources of revenues, cost of revenues and gross margins for the three months ended March 31, 2017 and 2016:

                           
Gross Margin Analysis                          
 
 
Source of Revenues
 
 
 
Three
Months Ended
March 31, 2017
 
 
 
 
 
Mix
 
 
 
 
 
 
Three
Months Ended
March 31, 2016
 
 
 
 
 
Mix
 
 
 
 
 
 
 
Increase /
(Decrease)
 
 
 
                                 
North American Transaction Solutions   $ 10,964,919   81 %   $ 7,852,648   70 %   $ 3,112,271  
Mobile Solutions     856,993   6 %     1,993,504   18 %     (1,136,511 )
Online Solutions     1,740,029   13 %     1,414,907   12 %     325,122  
  Total   $ 13,561,941   100 %   $ 11,261,059   100 %   $ 2,300,882  
                                   
 
 
Cost of Revenues
 
 
 
Three
Months Ended
March 31, 2017
 
 
 
 
% of
revenues
 
 
 
 
 
 
Three
Months Ended
March 31, 2016
 
 
 
 
% of
revenues
 
 
 
 
 
 
 
 
 
 
Increase /
(Decrease)
 
 
 
                                 
North American Transaction Solutions   $ 9,461,449   86 %   $ 6,653,033   85 %   $ 2,808,416  
Mobile Solutions     816,963   95 %     1,814,588   91 %     (997,625 )
Online Solutions     1,181,580   68 %     917,620   65 %     263,960  
  Total   $ 11,459,992   85 %   $ 9,385,241   83 %   $ 2,074,751  
                                   
 
 
Gross Margin
 
 
 
Three
Months Ended
March 31, 2017
 
 
 
 
% of
revenues
 
 
 
 
 
 
Three
Months Ended
March 31, 2016
 
 
 
 
% of
revenues
 
 
 
 
 
 
 
 
 
 
Increase /
(Decrease)
 
 
 
                                 
North American Transaction Solutions   $ 1,503,470   14 %   $ 1,199,615   15 %   $ 303,855  
Mobile Solutions     40,030   5 %     178,916   9 %     (138,886 )
Online Solutions     558,449   32 %     497,287   35 %     61,162  
  Total   $ 2,101,949   15 %   $ 1,875,818   17 %   $ 226,131  
                                   

Total operating expenses were $4,364,687 for the three months ended March 31, 2017. Total operating expenses for the three months ended March 31, 2017 consisted of general and administrative expenses of $2,831,161, non-cash compensation expenses of $596,404, provision for bad debts of $279,759, and depreciation and amortization of $657,363. Total operating expenses were $3,589,156 for the three months ended March 31, 2016, which consisted of general and administrative expenses of $2,088,313, non-cash compensation expenses of $360,984, provision for bad debts of $251,741, and depreciation and amortization of $888,118. 

General and administrative expenses for the three months ended March 31, 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, travel expense, filing fees, transaction gains, office expenses, communication expense, insurance expense, and other expenses required to run our business, as follows:

                       
Three Months Ended March 31, 2017                      
                       
Category   North America
Transaction
Solutions
  Mobile
Solutions
  Online
Solutions
  Corporate
Expenses &
Eliminations
  Total  
Salaries, benefits, taxes and contractor payments   $ 480,617   $ 123,818   $ 221,755   $ 841,520   $ 1,667,710  
Professional fees     168,076     25,071     225,342     255,201     673,690  
Rent     -     15,169     39,468     98,428     153,065  
Business development     1,824     962     9,020     1,581     13,387  
Travel expense     32,804     5,096     1,171     56,225     95,296  
Filing fees     -     -     -     6,426     6,426  
Transaction (gains) losses     -     (49,324 )   3,316     1,731     (44,277 )
Office expenses     52,645     2,712     17,297     75,443     148,097  
Communications expenses     13,319     700     30,087     20,624     64,730  
Insurance expense     -     -     -     44,107     44,107  
Other expenses     1,949     -     2,152     4,829     8,930  
  Total   $ 751,234   $ 124,204   $ 549,608   $ 1,406,115   $ 2,831,161  
                                   
Three Months Ended March 31, 2016                      
                       
Category   North America
Transaction
Solutions
  Mobile
Solutions
  Online
Solutions
  Corporate
Expenses &
Eliminations
  Total  
Salaries, benefits, taxes and contractor payments   $ 393,446   $ 107,925   $ 112,773   $ 564,803   $ 1,178,947  
Professional fees     163,239     1,108     83,743     276,297     524,387  
Rent     -     11,086     32,092     93,066     136,244  
Business development     8,770     -     24,673     -     33,443  
Travel expense     41,312     3,875     2,938     8,884     57,009  
Filing fees     -     -     -     16,499     16,499  
Transaction (gains) losses     -     (55,533 )   62,763     7,736     14,966  
Office expense     19,599     2,054     11,311     29,510     62,474  
Communications expense     30,160     274     4,091     23,432     57,957  
Insurance expense     -     -     -     3,125     3,125  
Other expenses     -     289     75     2,898     3,262  
  Total   $ 656,526   $ 71,078   $ 334,459   $ 1,026,250   $ 2,088,313  
                                   
Variance                      
                       
Category   North America
Transaction
Solutions
  Mobile
Solutions
  Online
Solutions
  Corporate
Expenses &
Eliminations
  Total  
Salaries, benefits, taxes and contractor payments   $ 87,171   $ 15,893   $ 108,982   $ 276,717   $ 488,763  
Professional fees     4,837     23,963     141,599     (21,096 )   149,303  
Rent     -     4,083     7,376     5,362     16,821  
Business development     (6,946 )   962     (15,653 )   1,581     (20,056 )
Travel expense     (8,508 )   1,221     (1,767 )   47,341     38,287  
Filing fees     -     -     -     (10,073 )   (10,073 )
Transaction (gains) losses     -     6,209     (59,447 )   (6,005 )   (59,243 )
Office expense     33,046     658     5,986     45,933     85,623  
Communications expense     (16,841 )   426     25,996     (2,808 )   6,773  
Insurance expense     -     -     -     40,982     40,982  
Other expenses     1,949     (289 )   2,077     1,931     5,668  
  Total   $ 94,708   $ 53,126   $ 215,149   $ 379,865   $ 742,848  
                                   

Salaries, benefits, taxes and contractor payments were $1,367,710 for the three months ended March 31, 2017 as compared to $1,178,947 for the three months ended March 31, 2016.

             
Segment   Salaries and
benefits for the
three months
ended
March 31, 2017
  Salaries and
benefits for the
three months
ended
March 31, 2016
  Increase /
(Decrease)
North American Transaction Solutions   $ 480,617   $ 393,446   $ 87,171
Mobile Solutions     123,818     107,925     15,893
Online Solutions     221,755     112,773     108,982
Corporate Expenses & Eliminations     841,520     564,803     276,717
Total   $ 1,667,710   $ 1,178,947   $ 488,763
                   

The increase in salaries of $488,763 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 $87,171 due to an increase in headcount and sales incentives for key employees. We also saw an increase of $108,982 and $15,893, respectively, in our Online Solutions and Mobile Solutions segments which were primarily due to the Ruble exchange rate and to a lesser extent, salary increases.

Professional fees were $673,690 for the three months ended March 31, 2017 as compared to $524,387 for the three months ended March 31, 2016.

                           
Three Months Ended March 31, 2017                          
                           
Professional Fees   North American
Transaction
Solutions
  Mobile
Solutions
    Online
Solutions
  Corporate
Expenses &
Eliminations
    Total  
General Legal   $ 42,599   $ -     $ 713   $ 33,526     $ 76,838  
SEC Compliance Legal Fees     -     -       -     23,750       23,750  
Accounting and Auditing     -     -       9,219     112,782       122,001  
Tax Compliance and Planning     -     -       -     14,900       14,900  
Consulting     125,477     25,071       215,410     70,243       436,201  
Total   $ 168,076   $ 25,071     $ 225,342   $ 255,201     $ 673,690  
                                     
Three Months Ended March 31, 2016                                    
                                     
Professional Fees   North American
Transaction
Solutions
  Mobile
Solutions
    Online
Solutions
  Corporate
Expenses &
Eliminations
    Total  
General Legal   $ 28,171   $ 200     $ 513   $ 24,911     $ 53,795  
SEC Compliance Legal Fees     -     -       -     43,750       43,750  
Accounting and Auditing     -     -       578     121,344       121,922  
Tax Compliance and Planning     -     -       -     -       -  
Consulting     105,068     908       82,652     116,292       304,920  
Total   $ 133,239   $ 1,108     $ 83,743   $ 306,297     $ 524,387  
                                     
Variance                                    
                                     
Professional Fees   North American
Transaction
Solutions
  Mobile
Solutions
    Online
Solutions
  Corporate
Expenses &
Eliminations
    Increase /
(Decrease)
 
General Legal   $ 14,428   $ (200 )   $ 200   $ 8,615     $ 23,043  
SEC Compliance Legal Fees     -     -       -     (20,000 )     (20,000 )
Accounting and Auditing     -     -       8,641     (8,562 )     79  
Tax Compliance and Planning     -     -       -     14,900       14,900  
Consulting     20,409     24,163       132,758     (46,049 )     131,281  
Total   $ 34,837   $ 23,963     $ 141,599   $ (51,096 )   $ 149,303  
                                     

Professional fees increased by $149,303 mainly due to Online Solutions segments' consulting fees which increased by $132,758 mainly due to an increase in portfolio management consulting.

Non-cash compensation expense from share-based compensation was $596,404 for the three months ended March 31, 2017, compared to $360,984 for the three months ended March 31, 2016. The majority of these expenses were for employee and consultant incentives in both periods.

We recorded bad debt expense of $279,759 for the three months ended March 31, 2017 as compared to $251,741 for the three months ended March 31, 2016. For the three months ended March 31, 2017, we recorded a loss which was primarily comprised of $286,943 in ACH rejects offset by a $7,184 recovery from our Russian operations. For the three months ended March 31, 2016, we recorded a loss which was primarily comprised of $263,789 in ACH rejects offset by a $12,048 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 $657,363 for the three months ended March 31, 2017 as compared to $888,118 for the three months ended March 31, 2016.

Interest expense was $269,688 for the three months ended March 31, 2017 as compared to $150,438 for three months ended March 31, 2016, representing an increase of $119,250 as follows:

               
Funding Source   Three months ended
March 31, 2017
  Three months ended
March 31, 2016
  Increase /
(Decrease)
 
MBF Notes     18,813     -     18,813  
RBL Notes     143,058     147,784     (4,726 )
Other     107,817     2,654     105,163  
  Total   $ 269,688   $ 150,438   $ 119,250  
                       

The net loss attributable to non-controlling interests amounted to $50,701 for three months ended March 31, 2017 as compared to $37,876 for the three months ended March 31, 2016.

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 months ended March 31, 2017 and 2016 is presented in the following Non-GAAP Financial Measures Table.

               
  GAAP     Share-based
Compensation
  Adjusted
Non-GAAP
 
Three Months Ended March 31, 2017                    
  Net (loss) income attributable to Net Element Inc stockholders $ (2,487,498 )   $ 596,404   $ (1,891,094 )
  Basic and diluted earnings per share $ (0.15 )   $ 0.04   $ (0.11 )
  Basic and diluted shares used in computing earnings per share   16,476,061             16,476,061  
                     
  GAAP     Share-based
Compensation
  Adjusted
Non-GAAP
 
Three Months Ended March 31, 2016                    
  Net (loss) income attributable to Net Element Inc stockholders $ (1,847,719 )   $ 360,984   $ (1,486,735 )
  Basic and diluted earnings per share $ (0.16 )   $ 0.04   $ (0.13 )
  Basic and diluted shares used in computing earnings per share   11,293,434             11,293,434  
                       

Additional information regarding Net Element's results for its first quarter ended March 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 May 15, 2017 and may be obtained from the SEC's Internet website at http://www.sec.gov.

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

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Words such as "continue," "will," "may," "could," "should," "expect," "expected," "plans," "intend," "anticipate," "believe," "estimate," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, whether the Company will experience growth on a go forward basis, whether Net Element can secure any additional financing and if such additional financing will be adequate to meet the Company's objectives. 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 and the subsequently filed 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  
   
  March 31,
2017
    December 31,
2016
 
ASSETS              
Current assets:              
    Cash $ 813,081     $ 621,635  
    Accounts receivable, net   6,724,985       7,126,429  
  Prepaid expenses and other assets   1,686,126       1,467,897  
        Total current assets, net   9,224,192       9,215,961  
Fixed assets, net   113,908       117,295  
Intangible assets, net   3,466,408       3,589,850  
Goodwill   9,643,752       9,643,752  
Other long term assets   536,512       742,810  
      Total assets   22,984,772       23,309,668  
               
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
    Accounts payable   8,337,673       7,510,113  
    Accrued expenses   5,366,887       5,518,823  
    Deferred revenue   910,019       1,355,972  
    Notes payable (current portion)   719,564       808,976  
  Due to related parties   356,200       299,004  
        Total current liabilities   15,690,343       15,492,888  
  Notes payable (net of current portion)   3,844,115       3,755,383  
      Total liabilities   19,534,548       19,248,271  
               
STOCKHOLDERS' EQUITY              
  Series A Convertible Preferred stock ($.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding at March 31, 2017 and December 31, 2016)   -       -  
  Common stock ($.0001 par value, 400,000,000 shares authorized and 17,527,466 and 15,353,494 shares issued and outstanding at March 31, 2017 and December 31, 2016)   1,753       1,535  
    Paid in capital   165,833,480       163,918,685  
    Accumulated other comprehensive loss   (2,474,513 )     (2,486,616 )
    Accumulated deficit   (159,930,083 )     (157,442,585 )
  Noncontrolling interest   19,677       70,378  
      Total stockholders' equity   3,450,314       4,061,397  
        Total liabilities and stockholders' equity $ 22,984,772     $ 23,309,668  
                       
                       
                       
NET ELEMENT, INC.  
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS  
   
  Three months ended March 31,  
  2017     2016  
               
  Net revenues              
    Service fees $ 12,729,663     $ 9,363,820  
    Branded content   832,278       1,897,239  
  Total revenues   13,561,941       11,261,059  
               
  Costs and expenses:              
    Cost of service fees   10,650,748       7,598,184  
    Cost of branded content   809,244       1,787,057  
    General and administrative   2,831,161       2,088,313  
    Non-cash compensation   596,404       360,984  
    Bad debt expense   279,759       251,741  
    Depreciation and amortization   657,363       888,118  
Total costs and operating expenses   15,824,679       12,974,397  
  Loss from operations   (2,262,738 )     (1,713,338 )
    Interest expense, net   (269,688 )     (150,438 )
    Other expense, net   (5,773 )     (21,819 )
  Net loss before income taxes   (2,538,199 )     (1,885,595 )
    Income taxes   -       -  
  Net loss   (2,538,199 )     (1,885,595 )
    Net loss attributable to the noncontrolling interest   50,701       37,876  
  Net loss attributable to Net Element, Inc. stockholders   (2,487,498 )     (1,847,719 )
    Foreign currency translation   12,103       (29,741 )
Comprehensive loss attributable to Net Element, Inc. stockholders $ (2,475,395 )   $ (1,877,460 )
               
Loss per share - basic and diluted $ (0.15 )   $ (0.16 )
               
Weighted average number of common shares outstanding - basic and diluted   16,476,061       11,293,434  
               
               
               
NET ELEMENT, INC.  
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS  
   
  Three Months Ended March 31,  
  2017     2016  
  Cash flows from operating activities              
  Net loss attributable to Net Element, Inc. stockholders $ (2,487,498 )   $ (1,847,719 )
  Adjustments to reconcile net loss to net cash (used in) provided by operating activities              
      Non controlling interest   (50,701 )     (37,876 )
      Share based compensation   596,404       360,984  
      Deferred revenue   (445,953 )     (171,908 )
      Depreciation and amortization   657,363       888,118  
      Non cash interest   46,135       -  
  Changes in assets and liabilities              
      Accounts receivable   510,498       436,453  
      Prepaid expenses and other assets   (231,755 )     334,291  
    Accounts payable and accrued expenses   449,284       (909,344 )
    Net cash used in operating activities   (956,223 )     (947,001 )
               
  Cash flows from investing activities              
      Purchase of portfolio and client acquisition costs   (403,585 )     (396,819 )
    Purchase of fixed, intangible and other assets   355       -  
      Net cash used in investing activities   (403,230 )     (396,819 )
               
  Cash flows from financing activities              
    Proceeds from common stock   1,437,132          
    Proceeds from indebtedness   92,000       75,000  
    Repayment of indebtedness   (92,680 )     -  
  Related party advances   57,159       910,045  
  Net cash provided by financing activities   1,493,611       985,045  
               
  Effect of exchange rate changes on cash   57,288       57,537  
    Net increase (decrease) in cash   191,446       (301,238 )
               
  Cash at beginning of period   621,635       503,343  
  Cash at end of period $ 813,081     $ 202,105  
               
  Supplemental disclosure of cash flow information              
    Cash paid during the period for:              
      Interest $ 166,394     $ 150,438  
      Taxes $ 64,314     $ 86,770  
                     

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