SOURCE: Net Element, Inc.

Net Element, Inc.

August 16, 2016 08:45 ET

Net Element Reports Second Quarter 2016 Results

Quarterly Revenues Increased by 98% Over Same Period in 2015

MIAMI, FL--(Marketwired - Aug 16, 2016) - Net Element, Inc. (NASDAQ: NETE) ("Net Element" or the "Company"), a provider of global mobile payment technology solutions and value-added transactional services, today reported financial results for the second quarter ended June 30, 2016 and provided an update on recent strategic and operational initiatives.

For second quarter ended June 30, 2016, net revenues increased 98% to $13,692,848 as compared to $6,906,916 in the prior year. The $6,785,932 increase in net revenues is primarily due to growth in the Company's three segments:

  • North America Transaction Solution segment: Continued organic growth of SMB merchants in this segment with emphasis on value-added offerings. Revenues for this segment were $10.4 million, a 66% increase over the prior year.
  • Mobile Solutions segment: As a result of a continued organic growth in the branded content origination. Revenues for this segment were $1.8 million, a 435% increase over the prior year.
  • Online Solutions: Revenues for this segment were $1.5 million, a 396% increase over the prior year (PayOnline acquired May 20, 2015).

Recent Highlights:

  • Announced intent to acquire a majority interest in PayStar and Nexcharge: proprietary integrated payment and remittance platforms that upon deal closure, will strengthen Net Element's global offering
  • PayOnline recognized a leading payment gateway: independent analytical agency Tagline ranked PayOnline as a leading payment gateway
  • Digital Provider enabled mobile payments at Vnukovo Airport: proprietary, mobile transaction processing engine integrated into airports infrastructure to power essential components of mobility ecosystem
  • Announced reverse stock split as an important step in attracting a broader spectrum of investors and regaining compliance with NASDAQ
  • PayOnline recognized for its payment acceptance services in 2016: independent analytical agency Markswebb Rank & Report ranked PayOnline as Top 5 for its efficiency in service
  • Regained compliance with NASDAQ listing requirements
  • Appointed Howard Ash, an international business development professional to its board of directors
  • PayOnline introduced a new payment interface: new multi-channel payment interface is based on the user experience of more than 10 million online shoppers

"We are pleased with our continued growth. Our results are a reflection of our ability to implement our business objectives," commented Oleg Firer, CEO of Net Element. "We are excited about our strategic initiatives for the remainder of the year."

Conference Call:
The Company will host a conference call to discuss Second Quarter 2016 financial results and business highlights on August 16, 2016 at 4:30 PM ET. The conference call can be accessed live over the phone by dialing +1 (877) 303-9858, or for international callers +1 (408) 337-0139, and referencing password 64494628. It is recommended that participants dial in approximately 10 minutes prior to the start of the 4:30PM Eastern call.

The call will also be webcast live from http://edge.media-server.com/m/p/ouv4rbqf. Following completion of the call, a recorded replay of the webcast will be available on the www.netelement.com/en/ir website.

Results of Operations for the Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015

Our combined businesses processed 41.6 million transactions for the three months ended June 30, 2016 as compared to 33.6 million transactions processed for the three months ended June 30, 2015. North America Transaction Solutions provided the majority of the increase going from 12.4 million transactions processed in the three months ended June 30, 2015 to 21.1 million transactions processed for the three months ended June 30, 2016. This was offset by a decrease of 0.9 million transactions processed from our Mobile Solutions segment.

We processed $474 million in payments for the three months ended June 30, 2016 as compared to $264 million on a constant dollar basis for the three months ended June 30, 2015. North America Transaction Solutions was responsible for $132 million of the $210 million increase and Online Solutions contributed an addition $74 million in payments processed.

We reported an adjusted net loss attributable to stockholders of $1,168,998, or $0.10 per share, for the three months ended June 30, 2016 as compared to an adjusted net loss attributable to stockholders of $3,184,950 or $0.64 per share, for the three months ended June 30, 2015. The adjusted net loss decrease of $2,015,952 was primarily due to reduced interest expense of $845,615, higher gross margin dollars ($765,958) from more volume and a $584,083 decrease in general and administrative expenses. These items are discussed further below.

Net revenues consist primarily of payment processing fees. Net revenues were $13,692,848 for the three months ended June 30, 2016 as compared to $6,906,916 for the three months ended June 30, 2015. Included in mobile solutions revenue for the three months ended June 30, 2016 is $1,575,140 of branded content revenue. The remaining $204,568 is part of service fees revenue. The increase in net revenues is primarily a result of organic net increases in merchants. In addition, we consolidated online payment revenues for PayOnline effective May 20, 2015 and began reporting mobile commerce revenues for branded content in the fourth quarter of 2015. The following table sets forth our sources of revenues, cost of revenues and gross margins for the three months ended June 30, 2016 and 2015.

Gross Margin Analysis

                     
Source of Revenue   Three Months Ended June 30, 2016   % of Revenue   Three Months Ended June 30, 2015   % of Revenue   Increase / (Decrease)
North America Transaction Solutions   $ 10,403,932   76 %   $ 6,271,735   91 %   $ 4,132,197  
Mobile Solutions     1,779,708   13 %     331,038   5 %     1,448,670  
Online Solutions     1,509,208   11 %     304,143   4 %     1,205,065  
  Total   $ 13,692,848   100 %   $ 6,906,916   100 %   $ 6,785,932  
                                 
Cost of Revenue                                
North America Transaction Solutions   $ 8,967,784   86 %   $ 5,453,063   83 %   $ 3,514,721  
Mobile Solutions     1,566,618   88 %     14,756   4 %     1,551,862  
Online Solutions     950,391   63 %     -   0 %     950,391  
  Total   $ 11,484,793   84 %   $ 5,467,819   79 %   $ 6,016,974  
                                 
Gross Margin                                
North America Transaction Services   $ 1,436,148   14 %   $ 818,672   13 %   $ 617,476  
Mobile Solutions     213,090   12 %     316,282   96 %     (103,192 )
Online Solutions     558,817   37 %     304,143   100 %     254,674  
  Total   $ 2,208,055   16 %   $ 1,439,097   21 %   $ 768,958  
                                   
                                   

Since PayOnline was acquired May 20, 2015, revenues were reported net for the short quarter in 2015. Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, content provider fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the three months ended June 30, 2016 were $11,484,793 as compared to $5,467,819 for the three months ended June 30, 2015.

The year over year increase in cost of revenues of $6,016,974 is primarily a result of an increase in U.S. transaction volume. The $1,551,862 increase in mobile solution costs now include mobile operator fees and content provider fees when we provide branded content. There was no branded content in the three months ended June 30, 2015. In addition, we had $950,391 resulting from PayOnline operations (acquired May 20, 2015 / partial quarter). The mobile solutions cost of revenue for the three months ended June 30, 2016 includes $1,480,859 of branded content costs. The remaining $85,759 is included in the cost of service fees. Gross Margin for the three months ended June 30, 2016 was $2,208,055, or 16% of net revenue, as compared to $1,439,097, or 21% of net revenue, for the three months ended June 30, 2015. Included in the mobile solutions gross margin for the three months ended June 30, 2016 is $94,281 (5.2% of total mobile revenues) for branded content.

Total adjusted operating expenses were $2,969,164 for the three months ended June 30, 2016, as compared to total adjusted operating expenses of $3,341,482 for the three months ended June 30, 2015. Total adjusted operating expenses for the three months ended June 30, 2016 consisted of general and administrative expenses of $1,999,391, provision for bad debts of $125,238 and depreciation and amortization of $844,535. For the three months ended June 30, 2015, total adjusted operating expenses consisted of general and administrative expenses of $2,583,474, provision for bad debts of $131,511 and depreciation and amortization of $626,497. The components of our general and administrative expenses are discussed below.

General and administrative expenses were $1,999,391 for the three months ended June 30, 2016 as compared to $2,583,474 for the three months ended June 30, 2015. General and administrative expenses for the three months ended June 30, 2016 and 2015 consisted of operating expenses not otherwise delineated in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:

The following table sets forth our sources of revenues, cost of revenues and gross margins for the three months ended June 30, 2016 and 2015.

                             
Three months
ended June 30, 2016
                           
Category   North America Transaction Solutions   Mobile Solutions     Online Solutions     Corporate Expenses & Eliminations     Total  
Salaries, benefits, taxes and contractor payments   $ 328,261   $ 88,801     $ 142,663     $ 530,452     $ 1,090,177  
Professional fees     119,268     1,243       217,513       339,299       677,323  
Rent     -     465       36,282       98,316       135,063  
Business development     12,186     -       40,118       4,056       56,360  
Travel expense     49,784     3,220       7,048       29,016       89,068  
Filing fees     -     -       -       42,896       42,896  
Transaction (gains) losses     -     (322,719 )     (23,658 )     12,543       (333,834 )
Other expenses     131,108     1,806       26,551       82,873       242,338  
  Total   $ 640,607   $ (227,184 )   $ 446,517     $ 1,139,451     $ 1,999,391  
                                       
Three months ended
June 30, 2015
                                     
Category     North America Transaction Solutions     Mobile Solutions       Online Solutions       Corporate Expenses & Eliminations       Total  
Salaries, benefits, taxes and contractor payments   $ 177,721   $ 114,537     $ 59,258     $ 569,030     $ 920,546  
Professional fees     99,095     33,533       122,998       937,459       1,184,085  
Rent     -     15,865       2,193       112,523       130,581  
Business development     4,576     428       8,471       5,684       19,159  
Travel expense     17,264     3,547       -       25,815       46,626  
Filing fees     -     -       -       34,356       34,356  
Transaction (gains) losses     -     744       -       (42,049 )     (41,305 )
Other expenses     259,781     100,290       8,618       (79,263 )     289,426  
  Total   $ 549,437   $ 268,944     $ 201,538     $ 1,563,555     $ 2,583,474  
                                       
                                       

Salaries, benefits, taxes and contractor payments were $1,090,177 for the three months ended June 30, 2016 as compared to $920,546 for the three months ended June 30, 2015, representing an increase of $169,631 as follows:

               
Segment   Salaries and benefits for the three months ended June 30, 2016   Salaries and benefits for the three months ended June 30, 2015   Increase / (Decrease)  
North America Transaction Solutions   $ 328,261   $ 177,721   $ 150,540  
Mobile Solutions     88,801     114,537     (25,736 )
Online Solutions     142,663     59,258     83,405  
  Total   $ 1,090,177   $ 920,546   $ 169,631  
                       

The primary reason for the increase was a $150,540 increase in salaries from North America Transaction Solutions due to higher headcount and additional sales incentives. Additionally, we have an increase of $83,405 from the acquisition of PayOnline (acquired May 20, 2015) offset by a $38,578 decrease to corporate salaries from reduced headcount and a $25,736 decrease to our mobile solutions division from changes in personnel and salaries.

Professional fees were $677,323 for the three months ended June 30, 2016 as compared to $1,184,085 for the three months ended June 30, 2015, representing a decrease of $506,762 as follows:

                             
Three months
ended June 30, 2016
                           
Professional Fees North America Transaction Solutions     Mobile Solutions     Online Solutions     Corporate Expenses & Eliminations     Total  
General Legal $ 5,226     $ 12     $ 2,507     $ 43,949     $ 51,694  
SEC Compliance Legal Fees   -       -       -       43,750       43,750  
Accounting and Auditing   -       -       -       103,055       103,055  
Tax Compliance and Planning   -       -       -       11,000       11,000  
Consulting   84,042       1,231       215,006       167,545       467,824  
  Total $ 89,268     $ 1,243     $ 217,513     $ 369,299     $ 677,323  
                                       
Three months ended
June 30, 2015
                                     
                                       
Professional Fees   North America Transaction Solutions       Mobile Solutions       Online Solutions       Corporate Expenses & Eliminations       Total  
General Legal $ 15,165     $ -     $ 3,834     $ 179,185     $ 190,184  
SEC Compliance Legal Fees   -       -       -       13,749       13,749  
Accounting and Auditing   -       -       -       157,482       157,482  
Tax Compliance and Planning   -       -       -       6,350       6,350  
Consulting   74,930       33,533       119,164       588,693       816,320  
  Total $ 90,095     $ 33,533     $ 122,998     $ 937,459     $ 1,184,085  
                                       
Variance                                      
Professional Fees   North America Transaction Solutions       Mobile Solutions       Online Solutions       Corporate Expenses & Eliminations       Total  
General Legal $ (9,939 )   $ 12     $ (1,327 )   $ (127,236 )   $ (138,490 )
SEC Compliance Legal Fees   -       -       -       30,001       30,001  
Accounting and Auditing   -       -       -       (54,427 )     (54,427 )
Tax Compliance and Planning   -       -       -       4,650       4,650  
Consulting   9,112       (32,302 )     95,842       (421,148 )     (348,496 )
  Total $ (827 )   $ (32,290 )   $ 94,515     $ (568,160 )   $ (506,762 )
                                       
                                       

General legal expenses decreased $138,490 for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 primarily due to decreased litigation activity at the corporate level and at our mobile solutions segment. This was offset by an increase in SEC compliance legal fees of $30,001 overall primarily due to an increased need for filings. Consulting fees decreased $348,496 primarily due to less consulting needs in corporate and our North American transaction solutions and mobile solutions offset by an increase in our Online Solutions due to PayOnline being acquired May 20, 2015.

Other general and administrative expenses were $242,338 (primarily consisting of performance bonuses of $86,874, communications of $55,062, office expenses of $66,756) for the three months ended June 30, 2016 as compared to $289,426 (primarily consisting of performance bonuses of $86,874, communications of $35,717, office expenses of $55,360 and taxes of $104,488) for the three months ended June 30, 2015, representing an increase of $47,088.

We recorded bad debt expense of $125,238 for the three months ended June 30, 2016 as compared to $131,511 for the three months ended June 30, 2015. For the three months ended June 30, 2016, we recorded a loss which was primarily comprised of $145,548 in ACH rejects offset by a $20,350 recovery from our Russian operations. For the six months ended June 30, 2015, we recorded a loss provision which was primarily comprised of $138,893 in ACH rejects offset by a $7,382 recovery from our Russian operations.

Depreciation and amortization expense consists primarily of the amortization of merchant portfolios plus depreciation expense on fixed assets, client acquisition costs, capitalized software expenses, trademarks, domain names and employee non-compete agreements. Depreciation and amortization expense was $844,535 for the three months ended June 30, 2016 as compared to $626,497 for the three months ended June 30, 2015. The $218,038 increase in depreciation and amortization expense was primarily due to PayOnline ($262,089 for IP Software, $24,999 for domain names, $37,417 for PCI Certification and $93,048 for portfolios and client lists), offset by $272,660 decrease in amortization in our North American Transaction Solutions segment.

Interest expense was $438,976 for the three months ended June 30, 2016 as compared to $1,284,591 for three months ended June 30, 2015, representing a decrease of $845,615 as follows:

               
Funding Source   Three months ended June 30, 2016   Three months ended June 30, 2016   Increase / (Decrease)  
Convertible Notes Payable   $ -   $ 1,146,715   $ (1,146,715 )
MBF Note     28,450     -     28,450  
RBL Note     110,342     137,173     (26,831 )
Crede CG III, LTD     297,435     -     297,435  
Other     2,749     703     2,046  
  Total   $ 438,976   $ 1,284,591   $ (845,615 )
                     

The net loss attributable to non-controlling interests amounted to $38,792 for three months ended June 30, 2016 as compared to $10,527 for the three months ended June 30, 2015.

During the three months ended June 30, 2016, no dividends were paid. We paid dividends to our preferred shareholders in the amount of $525,197 during the three months ended June 30, 2015.

Results of Operations for the Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015

Our combined businesses processed 84.7 million transactions for the six months ended June 30, 2016 as compared to 64.2 million transactions processed for the six months ended June 30, 2015. The increase of 20.5 million transactions processed was primarily due to a 17.1 increase from North America Transaction
Solutions.

We processed $893 million in payments for the six months ended June 30, 2016 as compared to $506 million in payments, on a constant dollar basis, for the six months ended June 30, 2015.

We reported an adjusted net loss attributable to stockholders of $2,655,733 or $0.23 per share, for the six months ended June 30, 2016 as compared to an adjusted net loss attributable to stockholders of $4,822,787 or $1.01 per share, for the six months ended June 30, 2015. This resulted in an adjusted net loss decrease of $2,167,054. The primary reason for the decrease in the loss over last year's comparable period is the $1,718,640 gross margin increase and a reduction in general and administrative expenses of $531,954. These items are discussed further below.

Net revenues consist primarily of payment processing fees. Net revenues were $24,953,907 for the six months ended June 30, 2016 as compared to $12,447,123 for the six months ended June 30, 2015. Included in mobile solutions revenue for the six months ended June 30, 2016 is $3,472,379 of branded content revenue. The remaining $300,832 is part of service fees revenue.

The increase in net revenues is primarily a result of organic net increases in merchants. In addition, we consolidated online payments revenue for PayOnline and began reporting mobile commerce revenues for branded content in the fourth quarter of 2015.

The following table sets forth our sources of revenues, cost of revenues and gross margins for the six months ended June 30, 2016 and 2015.

Gross Margin Analysis

                     
Source of Revenue   Six Months Ended June 30, 2016   % of Revenue   Six Months Ended June 30, 2015   % of Revenue   Increase / (Decrease)
North America Transaction Solutions   $ 18,256,581   73 %   $ 11,448,916   92 %   $ 6,807,665  
Mobile Solutions     3,773,211   15 %     694,064   6 %     3,079,147  
Online Solutions     2,924,115   12 %     304,143   2 %     2,619,972  
  Total   $ 24,953,907   100 %   $ 12,447,123   100 %   $ 12,506,784  
                                 
Cost of Revenues                                
North America Transaction Solutions   $ 15,620,817   86 %   $ 10,053,495   88 %   $ 5,567,322  
Mobile Solutions     3,381,206   90 %     28,395   4 %     3,352,811  
Online Solutions     1,868,011   64 %     -   0 %     1,868,011  
  Total   $ 20,870,034   84 %   $ 10,081,890   81 %   $ 10,788,144  
                                 
Gross Margin                                
North America Transaction Solutions   $ 2,635,764   14 %   $ 1,395,421   12 %   $ 1,240,343  
Mobile Solutions     392,005   10 %     665,669   96 %     (273,664 )
Online Solutions     1,056,104   36 %     304,143   100 %     751,961  
  Total   $ 4,083,873   16 %   $ 2,365,233   19 %   $ 1,718,640  
                                 

Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, content provider fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the six months ended June 30, 2016 were $20,870,034 as compared to $10,081,890 for the six months ended June 30, 2015.

The year over year increase in cost of revenues of $10,788,144 is primarily a result of an increase in U.S. transaction volume, which resulted in a $5,567,322 increase North American transaction cost. Additionally, there was a $3,352,811 increase in mobile costs which now include mobile operator fees and content provider fees when we provide branded content. We also had $1,868,011 in new costs resulting from PayOnline operations (acquired May 20, 2015). Included in mobile solutions cost of revenue for the six months ended June 30, 2016 is $3,267,947 of the cost of branded content. The remaining $113,259 is included in the cost of service fees.

Gross Margin for the six months ended June 30, 2016 was $4,083,873 or 16% of net revenue, as compared to $2,365,233 or 19% of net revenue, for the three months ended June 30, 2015. North American gross margin increased 2%, and there were increased margins from our Russian online transaction processing offset by lower margins from our branded content provided by Mobile Solutions. Included in the mobile solutions gross margin for the three months ended June 30, 2016 is $204,432 (7.0% of total mobile revenues) for branded content.

Total adjusted operating expenses were $6,197,256 for the six months ended June 30, 2016, as compared to total adjusted operating expenses of $5,825,686 for the six months ended June 30, 2015. Total adjusted operating expenses for the six months ended June 30, 2016 consisted of general and administrative expenses of $4,087,624, provision for bad debts of $376,979 and depreciation and amortization of $1,732,653. For the six months ended June 30, 2015, total adjusted operating expenses consisted of general and administrative expenses of $4,619,578, provision of bad debts of $140,841 and depreciation and amortization of $1,065,267. The components of our general and administrative expenses are discussed below.

General and administrative expenses were $4,087,624 for the six months ended June 30, 2016 as compared to $4,619,578 for the six months ended June 30, 2015. General and administrative expenses for the six months ended June 30, 2016 and 2015 consisted of operating expenses not otherwise delineated in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:

                           
Six months
ended June 30, 2016
                         
Category   North America Transaction Solutions   Mobile Solutions     Online Solutions   Corporate Expenses & Eliminations     Total  
Salaries, benefits, taxes and contractor payments   $ 634,833   $ 196,726     $ 255,436   $ 1,095,256     $ 2,182,251  
Professional fees     282,507     2,350       201,255     615,598       1,201,710  
Rent     -     11,551       68,374     191,382       271,307  
Business development     20,956     -       64,791     4,648       90,395  
Travel expense     91,095     7,095       9,986     37,902       146,078  
Filing fees     -     -       -     59,395       59,395  
Transaction (gains) losses     -     (378,252 )     39,105     20,279       (318,868 )
Other expenses     267,742     4,353       42,029     141,232       455,356  
  Total   $ 1,297,133   $ (156,177 )   $ 780,976   $ 2,165,692     $ 4,087,624  
                                     
Six months ended
June 30, 2015
                                   
Category     North America Transaction Solutions     Mobile Solutions       Online Solutions     Corporate Expenses & Eliminations       Total  
Salaries, benefits, taxes and contractor payments   $ 362,826   $ 213,628     $ 59,258   $ 1,082,635     $ 1,718,347  
Professional fees     270,453     119,045       122,998     1,448,071       1,960,567  
Rent     -     29,472       2,193     209,421       241,086  
Business development     25,986     428       8,471     10,305       45,190  
Travel expense     76,840     9,514       -     46,957       133,311  
Filing fees     -     -       -     66,014       66,014  
Transaction (gains) losses     -     1,474       -     (90,507 )     (89,033 )
Other expenses     483,801     15,794       8,618     35,883       544,096  
  Total   $ 1,219,906   $ 389,355     $ 201,538   $ 2,808,779     $ 4,619,578  
                                     

Salaries, benefits, taxes and contractor payments were $2,182,251 for the six months ended June 30, 2016 as compared to $1,718,347 for the six months ended June 30, 2015, representing an increase of $463,904 as follows:

Segment   Salaries and benefits for the six months ended June 30, 2016   Salaries and benefits for the six months ended June 30, 2015   Increase / (Decrease)  
North America Transaction Solutions   $ 634,833   $ 362,826   $ 272,007  
Mobile Solutions     196,726     213,628     (16,902 )
Online Solutions     255,436     59,258     196,178  
Corporate Expenses & Eliminations     1,095,256     1,082,635     12,621  
  Total   $ 2,182,251   $ 1,718,347   $ 463,904  

The primary reason for the increase was $272,007 in salaries from North America Transaction Solutions and $196,178 from the acquisition of PayOnline (acquired May 20, 2015) offset by a $16,902 decrease to our mobile solutions division salaries and benefits.

Professional fees were $1,201,710 for the six months ended June 30, 2016 as compared to $1,960,567 for the six months ended June 30, 2015, representing a decrease of $758,857 as follows:

Six months
ended June 30, 2016
                           
Professional Fees North America Transaction Solutions     Mobile Solutions     Online Solutions     Corporate Expenses & Eliminations     Total  
General Legal $ 33,397     $ 212     $ 3,020     $ 68,860     $ 150,489  
SEC Compliance Legal Fees   -       -       -       87,500       87,500  
Accounting and Auditing   -       -       578       224,399       224,977  
Tax Compliance and Planning   -       -       -       11,000       11,000  
Consulting   189,109       2,138       297,658       283,839       772,744  
  Total $ 222,506     $ 2,350     $ 301,256     $ 675,598     $ 1,201,710  
                                       
Six months ended
June 30, 2015
                                     
Professional Fees   North America Transaction Solutions       Mobile Solutions       Online Solutions       Corporate Expenses & Eliminations       Total  
General Legal $ 52,400     $ 35     $ 3,834     $ 268,274     $ 324,543  
SEC Compliance Legal Fees   -       -       -       89,285       89,285  
Accounting and Auditing   -       -       -       307,832       307,832  
Tax Compliance and Planning   -       -       -       16,275       16,275  
Consulting   170,749       119,010       119,164       813,709       1,222,632  
  Total $ 223,149     $ 119,045     $ 122,998     $ 1,495,375     $ 1,960,567  
                                       
Variance                                      
Professional Fees   North America Transaction Solutions       Mobile Solutions       Online Solutions       Corporate Expenses & Eliminations       Total  
General Legal $ (19,003 )   $ 177     $ (814 )   $ (199,414 )   $ (219,054 )
SEC Compliance Legal Fees   -       -       -       (1,785 )     (1,785 )
Accounting and Auditing   -       -       578       (83,433 )     (82,855 )
Tax Compliance and Planning   -       -       -       (5,275 )     (5,275 )
Consulting   18,360       (116,872 )     178,494       (529,870 )     (449,888 )
  Total $ (643 )   $ (116,695 )   $ 178,258     $ (819,777 )   $ (758,857 )
                                       
                                       

General legal expenses decreased $219,054 during for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily due to decreased litigation activity at the corporate level and at our mobile solutions segment. Consulting fees decreased $449,888 primarily due to less consulting
needs in corporate and mobile solutions offset by an increase in our Online Solutions due to PayOnline being acquired May 20, 2015.

Other general and administrative expenses were $455,356 (primarily consisting of performance bonuses of $173,748, communications of $113,020 and office expenses of $129,230) for the six months ended June 30, 2016 as compared to $544,096 (primarily consisting of performance bonuses of $173,748,
communications of $84,347, office expenses of $121,765, taxes of $104,575 and insurance for $51,371) for the six months ended June 30, 2015, representing a decrease of $88,740.

We recorded bad debt expense of $376,979 for the six months ended June 30, 2016 as compared to $140,841 for the six months ended June 30, 2015. For the six months ended June 30, 2016, we recorded a loss which was primarily comprised of $409,276 in ACH rejects offset by a $32,397 recovery from our Russian operations. For the six months ended June 30, 2015, we recorded a loss provision which was primarily comprised of $235,635 in ACH rejects offset by a $94,769 recovery from our Russian operations.

Depreciation and amortization expense consists primarily of the amortization of merchant portfolios plus depreciation expense on fixed assets, client acquisition costs, capitalized software expenses, trademarks, domain names and employee non-compete agreements. Depreciation and amortization expense was
$1,732,653 for the six months ended June 30, 2016 as compared to $1,065,267 for the six months ended June 30, 2015. The $667,388 increase in depreciation and amortization expense was primarily due to PayOnline ($703,479 for IP Software, $49,998 for domain names, $74,834 for PCI Certification and $186,096 for portfolios and client lists), offset by an $166,717 decrease in portfolio amortization in our North American Transaction Solutions segment.

Interest expense was $589,414 for the six months ended June 30, 2016 as compared to $1,402,183 for three months ended June 30, 2015, representing a decrease of $812,769 as follows:

Funding Source   Six months ended June 30, 2016   Six months ended June 30, 2016   Increase / (Decrease)  
Convertible Notes Payable   $ -   $ 1,146,715   $ (1,146,715 )
MBF Note     28,450     -     28,450  
RBL Note     258,126     228,427     29,699  
Crede CG III, LTD     297,435     -     297,435  
Other     5,403     27,041     (21,638 )
  Total   $ 589,414   $ 1,402,183   $ (812,769 )

The net loss attributable to non-controlling interests amounted to $76,668 for six months ended June 30, 2016 as compared to $19,274 for the six months ended June 30, 2015.

During the six months ended June 30, 2016 no dividends were paid. We paid dividends to our preferred shareholders in the amount of $525,197 during the six months ended June 30, 2015.

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

To supplement its consolidated financial statements presented in accordance with United States generally accepted accounting principles ("GAAP"), the Company provides additional measures of its operating results by disclosing its adjusted net loss. Adjusted net loss is calculated as net loss excluding non-cash
share based compensation and other one-time, non-recurring items not present in this year or last year results. Net Element discloses this amount on an aggregate and per share basis. These measures meet the definition of non-GAAP financial measures. The Company believes that application of these non-GAAP
financial measures is appropriate to enhance the understanding of its historical performance through use of a metric that seeks to normalize period-to-period earnings.

This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Pursuant to Regulation G, a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the three and six months ended June 30, 2016 and 2015 is presented in the following Non-GAAP Financial Measures Table.

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

                     
    GAAP     Non-Cash Share-based Compensation   Derivative Activity, Debt Extinguishment and Restructure   Adjustment Non-GAAP  
Three Months Ended June 30, 2016                    
  Net (loss) income attributable to Net Element, Inc. stockholders   $ (5,346,448 )   $ 2,014,589   $ 2,162,861   $ (1,168,998 )
  Basic and diluted earnings per share   $ (0.46 )   $ 0.17   $ 0.19   $ (0.10 )
  Basic and diluted shares used in computing earrings per share     11,635,434                   11,635,434  
                               
                     
    GAAP     Non-Cash Share-based Compensation   Derivative Activity, Debt Extinguishment and Restructure   Adjustment Non-GAAP  
Three Months Ended June 30, 2015                    
  Net (loss) income attributable to Net Element, Inc. stockholders   $ (1,764,285 )   $ 601,371   $ 2,162,861   $ (1,168,998 )
  Basic and diluted earnings per share   $ (0.35 )   $ 0.12   $ 0.19   $ (0.10 )
  Basic and diluted shares used in computing earrings per share     4,970,714                   4,970,714  
                               
                     
    GAAP     Non-Cash Share-based Compensation   Derivative Activity, Debt Extinguishment and Restructure   Adjustment Non-GAAP  
Six Months Ended June 30, 2016                    
  Net (loss) income attributable to Net Element, Inc. stockholders   $ (7,194,167 )   $ 2,375,573   $ 2,162,861   $ (2,655,733 )
  Basic and diluted earnings per share   $ (0.63 )   $ 0.21   $ 0.19   $ (0.23 )
  Basic and diluted shares used in computing earrings per share     11,464,434                   11,464,434  
                             
                       
    GAAP     Non-Cash Share-based Compensation   Derivative Activity, Debt Extinguishment and Restructure     Adjustment Non-GAAP  
Six Months Ended June 30, 2015                      
  Net (loss) income attributable to Net Element, Inc. stockholders   $ (4,003,493 )   $ 1,202,742   $ (2,022,036 )   $ (4,822,787 )
  Basic and diluted earnings per share   $ (0.84 )   $ 0.25   $ (0.42 )   $ (1.01 )
  Basic and diluted shares used in computing earrings per share     4,789,264                     4,789,264  
                               

Additional information regarding Net Element's results for its second quarter ended June 30, 2016 may be found in Net Element's quarterly report on Form 10-Q, which was filed with the Security and Exchange Commission (SEC) on August 16, 2016 and may be obtained from the SEC's Internet website at http://www.sec.gov.

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

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

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