Net Element Reports First Quarter 2021 Financial Results and Updates Shareholders on Pending Merger with Mullen Automotive
05/17/2021 - 04:20 PM
MIAMI, May 17, 2021 (GLOBE NEWSWIRE) -- via InvestorWire -- Net Element, Inc. (NASDAQ: NETE) (“Net Element” or the “Company”) today reports its financial results for the quarter ended March 31, 2021, and updates shareholders on the pending merger with privately held Mullen Automotive, Inc. (“Mullen”), a Southern California-based electric vehicle (“EV”) company, in a stock-for-stock reverse merger in which, subject to the merger being consummated, Mullen’s stockholders will receive a majority of the outstanding stock in the post-merger Company.
“We are pleased to report that we filed a Form S-4 registration statement with the SEC on May 14, 2021, a milestone furtherance of the proposed merger with Mullen,” commented Oleg Firer, executive chairman of Net Element. “We want to thank our shareholders for their patience through this process, and we will continue working diligently to conclude the transaction as soon as regulatory and stockholder approvals are received.”
While the registration statement filed on Form S-4 with the SEC (the “Registration Statement”) has not yet become effective and the information contained therein is subject to change, the Registration Statement provides important information about Net Element’s proposed merger with Mullen and the related proposals to be considered by the Net Element stockholders. The Registration Statement, including the proxy statement contained therein, when declared effective by the SEC, will contain important information about the proposed business combination contemplated by the Amended and Restated Agreement and Plan of Merger by and among the Company, Mullen Automotive, Inc., Mullen Technologies, Inc. and Mullen Acquisition, Inc. (the “Merger Agreement”).
Completion of the merger is subject to approval by stockholders and other customary closing conditions, including the registration statement being declared effective by the SEC. Once the Registration Statement has been declared effective by the SEC, the final joint proxy statement contained in the Registration Statement will be mailed to shareholders of the Company prior to the shareholder vote on the merger and related proposals.
Additional details regarding the merger, including the complete Merger Agreement, may be found in the Registration Statement, which was filed with the Securities and Exchange Commission (SEC) on May 14, 2021, and may be obtained from the SEC website at https://www.sec.gov
Results of Operations for the Three Months Ended March 31, 2021, Compared to the Three Months Ended March 31, 2020
Net Element reported a net income attributable to common stockholders of approximately $0.3 million or $0.05 per share income for the three months ended March 31, 2021, as compared to a net loss of approximately $1.4 million or $0.33 per share loss for the three months ended March 31, 2020. The decrease in net loss attributable to stockholders of approximately $1.7 million was primarily due to an increase in net revenues and approximately $1 million in late fees owed by Mullen.
The following tables set forth the Company’s sources of revenues, cost of revenues and the respective gross margins for the three months ended March 31, 2021, and March 31, 2020.
Three Three Increase / Source of Revenues March 31, 2021 Mix March 31, 2020 Mix (Decrease) North American Transaction Solutions $ 22,891,309 96.2 % $ 15,159,081 95.7 % $ 7,732,228 International Transaction Solutions 894,037 3.8 % 683,486 4.3 % 210,551 Total $ 23,785,346 100.0 % $ 15,842,567 100.0 % $ 7,942,779 Three Months Ended % of Three Months Ended % of Increase / Cost of Revenues March 31, 2021 revenues March 31, 2020 revenues (Decrease) North American Transaction Solutions $ 20,123,147 87.9 % $ 12,824,669 84.6 % $ 7,298,478 International Transaction Solutions 663,298 74.2 % 476,136 69.7 % 187,162 Total $ 20,786,445 87.4 % $ 13,300,805 84.0 % $ 7,485,640 Three Months Ended % of Three Months Ended % of Increase / Gross Margin March 31, 2021 revenues March 31, 2020 revenues (Decrease) North American Transaction Solutions $ 2,768,162 12.1 % $ 2,334,412 15.4 % $ 433,750 International Transaction Solutions 230,739 25.8 % 207,350 30.3 % 23,389 Total $ 2,998,901 12.6 % $ 2,541,762 16.0 % $ 457,139
Net revenues consist primarily of service fees from transaction processing. Net revenues were approximately $23.8 million and $15.8 million for the three months ended March 31, 2021 and 2020, respectively. The Company’s revenues, which are largely tied to processing volumes, were materially impacted beginning in the final two weeks of March 2020. Since the last quarter ended December 31, 2020, the Company has seen a significant recovery in its end-to-end payment volumes as some merchants began resuming their normal operations.
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 March 31, 2021 were approximately $20.8 million as compared to approximately $13.3 million for the three months ended March 31, 2020. The increase in cost of revenues was primarily due to the increase in net revenues.
The gross margin for the three months ended March 31, 2021 was approximately $3.0 million , or 12.6% of net revenues, as compared to approximately $2.5 million , or 16.0% of net revenues, for the three months ended March 31, 2020. The primary reason for the decrease in the overall gross margin percentage was primarily the result of the competitive pressure in our industry and a large wholesale client converting their merchant processing relationship to our platform. Our wholesale platform generally provides for lower margins compared to our other products and services.
Operating Expenses Analysis:
Operating expenses were approximately $3.4 million for the three months ended March 31, 2021, as compared to $3.6 million for three months ended March 31, 2020. Operating expenses for the three months ended March 31, 2021, primarily consisted of selling, general and administrative expenses of approximately $1.9 million , bad debt expense of approximately $700,000, and depreciation and amortization expense of approximately $736,000. Operating expenses for the three months ended March 31, 2020, primarily consisted of selling, general and administrative expenses of approximately $2.3 million , bad debt expense of approximately $443,000, and depreciation and amortization expense of approximately $779,000. T he net decrease was primarily due to the reduction of compensation of certain employees, consultants, and executives of the Company as the payments business continued scaling down from an operations and marketing standpoint.
The components of the Company’s selling, general and administrative expenses are reflected in the tables below.
Selling, general and administrative expenses for the three months ended March 31, 2021, and March 31, 2020, consisted of operating expenses not otherwise delineated in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss, as follows:
Three months ended March 31, 2021 Category North American Transaction Solutions International Transaction Solutions Corporate Expenses & Eliminations Total Salaries, benefits, taxes and contractor payments $ 444,148 $ 144,831 $ 320,263 $ 909,242 Professional fees 151,460 32,020 174,344 357,824 Rent 88,755 15,919 4,880 109,554 Business development 47,379 6,776 2,903 57,058 Travel expense 2,260 36,524 79,092 117,876 Filing fees - - 30,427 30,427 Transaction gains - (5,143 ) - (5,143 ) Office expenses 50,474 5,469 28,037 83,980 Communications expenses 24,583 22,854 60,781 108,218 Insurance expense - - 42,000 42,000 Other expenses 203 5,357 95,254 100,814 Total $ 809,262 $ 264,607 $ 837,981 $ 1,911,850 Three months ended March 31, 2020 Category North American Transaction Solutions International Transaction Solutions Corporate Expenses & Eliminations Total Salaries, benefits, taxes and contractor payments $ 548,626 $ 113,142 $ 550,721 $ 1,212,489 Professional fees 106,242 48,891 259,198 414,331 Rent 4,573 16,833 52,414 73,820 Business development 79,201 17 2,102 81,320 Travel expense 4,708 25,123 55,632 85,463 Filing fees - - 21,813 21,813 Transaction losses - 157,011 - 157,011 Office expenses 77,756 6,968 28,197 112,921 Communications expenses 48,702 42,990 20,008 111,700 Insurance expense - - 38,685 38,685 Other expenses 135 - 10,223 10,358 Total $ 869,943 $ 410,975 $ 1,038,993 $ 2,319,911 Variance Category North American Transaction Solutions International Transaction Solutions Corporate Expenses & Eliminations Total Salaries, benefits, taxes and contractor payments $ (104,478 ) $ 31,689 $ (230,458 ) $ (303,247 ) Professional fees 45,218 (16,871 ) (84,854 ) (56,507 ) Rent 84,182 (914 ) (47,534 ) 35,734 Business development (31,822 ) 6,759 801 (24,262 ) Travel expense (2,448 ) 11,401 23,460 32,413 Filing fees - - 8,614 8,614 Transaction gains/losses - (162,154 ) - (162,154 ) Office expenses (27,282 ) (1,499 ) (160 ) (28,941 ) Communications expenses (24,119 ) (20,136 ) 40,773 (3,482 )
Insurance expense - - 3,315 3,315 Other expenses 68 5,357 85,031 90,456 Total $ (60,681 ) $ (146,368 ) $ (201,012 ) $ (408,061 )
Salaries, benefits, taxes and contractor payments decreased by approximately $0.3 million on a consolidated basis for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. This was primarily due to the reduction of compensation of certain employees, consultants and executives of the Company.
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 income (loss) attributable to Net Element stockholders excluding non-cash share-based compensation, and other non- operating, non-recurring items. 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 regarding 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 March 31, 2021, and March 31, 2020, is presented in the following tables.
GAAP Share-based Compensation Late Fee Income Adjusted Non- GAAP Three Months Ended March 31, 2021 Net income attributable to Net Element Inc stockholders $ 304,562 $ 11,258 $ (999,975 ) $ (684,155 ) Basic and diluted earnings per share $ 0.05 $ - $ (0.17 ) $ (0.12 ) Basic and diluted shares used in computing earnings per share 5,970,583 5,970,583 Three Months Ended March 31, 2020 Net loss attributable to Net Element Inc stockholders $ (1,366,216 ) $ 38,400 $ - $ (1,327,816 ) Basic and diluted earnings per share $ (0.33 ) $ 0.01 $ - $ (0.32 ) Basic and diluted shares used in computing earnings per share 4,117,643 4,117,643
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
Forward-Looking Statements
Contact: Net Element, Inc. Media@NetElement.com www.netelement.com
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