NET ELEMENT The following discussion should be read and evaluated in conjunction with the condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q (this "Report") and the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 (the "Annual Report") and in Part II, Item 1A of this Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
As used in this Report, unless the context otherwise indicates, the references
to "we", "us," "our" or the "Company" refers to
This Report and other written or oral statements made from time to time by us
may contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. You can sometimes identify forward
looking-statements by our use of the words "believes," "anticipates," "expects,"
"intends," "plans," "forecast," "guidance" and similar expressions. Some of the
statements we use in this report contain forward-looking statements concerning
our business operations, economic performance and financial condition, including
in particular: our business strategy and means to implement the strategy?
measures of future results of operations, such as revenue, expenses, operating
margins, and earnings per share? other operating metrics such as shares
outstanding and capital expenditures? our success and timing in developing and
introducing new products or services and expanding our business, including with
respect to joint ventures? the successful integration of future
acquisitions; our future responses to and the anticipated impact of novel
coronavirus COVID-19 ("COVID-19"); and the potential Merger between the Company
and Mullen and the related transactions, including the planned Divestiture.
Although we believe that the plans and expectations reflected in or suggested by
our forward-looking statements are reasonable, those statements are based on a
number of assumptions and estimates that are inherently subject to significant
risks and uncertainties, many of which are beyond our control, cannot be
foreseen and reflect future business decisions that are subject to change.
Accordingly, we cannot guarantee you that our plans and expectations will be
achieved. Our actual results, including actual revenues, revenue growth rates
and margins, other results of operations and shareholder values, could differ
materially from those anticipated in our forward-looking statements as a result
of known and unknown factors, many of which are beyond our ability to predict or
control. These factors include, but are not limited to, those set forth in Part
II, Item 1A - Risk Factors of this Report and in our Annual Report, those set
forth elsewhere in this report and those set forth in our press releases,
reports and other filings made with the SEC , including under "Cautionary Note
Regarding Forward-looking Statements" in the Company's Current Report on Form
8-K filed on August 5, 2020 , as amended. In particular, these statements also
depend on the duration, severity, and evolution of the COVID-19 pandemic and
related risks, and its effect on our business, financial condition, results of
operations and cash flows. These cautionary statements qualify all of our
forward-looking statements, and you are cautioned not to place undue reliance on
these forward-looking statements.
Our 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. While we may elect to update or revise forward-looking
statements at some time in the future, we specifically disclaim any obligation
to publicly release the results of any revisions to our forward-looking
statements.
Company Overview
Net Element is a global technology and value-added solutions group that supports
electronic payments acceptance in a multi-channel environment including
point-of- sale (POS), ecommerce and mobile devices. The Company operates two
business segments as a provider of North American Transaction Solutions and
International Transaction Solutions.
We offer a broad range of payment acceptance and transaction processing services
that enable merchants of all sizes to accept and process over 100 different
payment options in more than 120 currencies, including credit, debit, prepaid
and alternative payments. We also provide merchants with value-added services
and technologies including integrated payment technologies, POS solutions, fraud
management, information solutions and analytical tools.
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We are differentiated by our technology-centered value-added service offerings
built around our payments ecosystem and our diversified business model, which
enables us to provide our varied customer base with a broad range of
transaction-processing services from a single source across numerous channels
and geographic markets. We believe these capabilities provide several
competitive advantages that will enable us to continue to penetrate our existing
customer base with complementary new services, win new customers, develop new
sales channels and enter new markets. We believe these competitive advantages
include:
? Our ability to provide competitive products through use of proprietary
technologies?
? Our ability to provide in one package a range of services that traditionally
had to be sourced from different vendors?
? Our ability to provide a single agnostic on-boarding and merchant management
platform to our indirect non-bank sales force ("
? Our ability to provide management and optimization tools to our
amongst multiple networks and platforms?
? Our ability to serve customers with disparate operations in several
geographies with technology solutions that enable them to manage their
business as one enterprise? and
? Our ability to capture and analyze data across the transaction processing
value chain and use that data to provide value-added services that are
differentiated from those offered by pure-play vendors that serve only one
portion of the transaction processing value chain (such as only merchant
acquiring or POS).
We have operations and offices located within the United States ("U.S.")
(domestic) and outside of the U.S. (international) where sales, customer service
and/or administrative personnel are based. Through U.S. based subsidiaries, we
generate revenues from transactional services, valued-added payment services and
technologies that we provide to SMBs. Through wholly owned subsidiaries, we
focus on transactional services, mobile payment transactions, online payment
transactions, value-added payment services and technologies in selected
international markets.
Our business is characterized by transaction related fees, multi-year contracts,
and a diverse client base, which allows us to grow alongside our clients. Our
multi-year contracts allow us to achieve a high level of recurring revenues with
the same clients. While the contracts typically do not specify fixed revenues to
be realized thereunder, they do provide a framework for revenues to be generated
based on volume of services provided during such contracts' term.
Products and Services Information
Our broad suite of services spans the entire transaction processing value chain of commerce enabling services and technologies and includes a range of front-end customer-facing solutions, as well as back-end support services and account reconciliation. We deliver our value-added solutions from a suite of proprietary technology products, software, cloud-based applications, processing services, fraud management offerings, and customer support programs that we configure to meet our client's individual needs. Many of our payment solutions are technology-enabled in that they incorporate or are incorporated into innovative, technology-driven solutions, including enterprise software solutions, designed to enable merchants to better manage their businesses. Integrated and Vertical Markets. Our integrated and vertical market solutions provide advanced payments technology that is deeply integrated into business enterprise software solutions either owned by us or by our partners. We grow our business when new merchants implement our enterprise software solutions and when new or existing merchants enable payments services through enterprise software solutions sold by us or by our partners. Our primary technology-enabled solutions include integrated and vertical markets, ecommerce and multi-channel solutions, each as described below:
? Unified Payments - doing business as Unified Payments, we provide businesses
of all sizes and types throughout
fully- integrated payment acceptance solutions, value-added POS and business
process management services?
? PayOnline - through our subsidiary, PayOnline Systems ("PayOnline"), we
provide a wide range of value-added online solutions in the selectedinternational markets utilizing our fully-integrated, agnostic electronic
commerce platform that simplifies complex enterprise online transaction
processing challenges from payment acceptance and processing through risk
prevention and payment security via point-to-point encryption and tokenization
solutions?
? Pay-Travel - integrated payment processing solutions to the travel industry,
which includes integrations with various Global Distribution Systems ("GDS")
such as Amadeus®, Galileo®, Sabre®, additional geo filters and passenger name
record (PNR) through Pay-Travel service offered by PayOnline?
? Aptito POS Platform - an integrated POS platform developed on Apple's® iOS and
Android® mobile operating systems for the hospitality, retail, service and on
the go industries. Our goal with Aptito is to create an easy to use POS and
business management solution, which incorporates everything a small business
needs to help streamline every-day management, operations and payment
acceptance?
? Restoactive - utilizing Aptito POS Platform architecture, we have developed
and launched Restoactive, which seamlessly plugs into a current restaurant
environment through integrations with some of the biggest POS and restaurant
management platforms available on the market today?
? Unified m-POS - mobile POS application makes accepting payments on the go easy
and secure. Mobile application is EMV-compliant, accepts traditional and
contactless transactions such as Apple Pay®. Unified m-POS application is
available for download in
? Zero Pay - zero-fee payment acceptance program for SMB merchants in the United
States. Zero Pay program saves merchants costs involved in accepting credit
and debit cards using mobile POS?
? Netevia - our internally developed future-ready multi-channel payments and
merchant management platform. Connecting and simplifying payments across sales
channels through a single integration point, Netevia delivers end-to-end
payment processing through easy-to-use APIs. The Netevia platform is the core
of the company's technology stack.
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Table of Contents Recent Developments The outbreak and continuing spread of the COVID-19 pandemic has negatively affected businesses across the globe, in particular the service industry, which includes restaurants, a significant part of our business, as well as disrupted global supply chains and workforce participation, and created significant volatility and disruption of financial markets. Further, this has resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, "shelter-in-place," "stay-at-home" or similar orders, business limitations or total shutdowns. For example, many of our restaurant merchants that we service located within mainlandUnited States , as well as hospitality and retail sector merchants, have been temporarily closed, have shortened operating hours and/or have otherwise been adversely affected by the impact continuing spread of COVID-19. These merchants have experienced significant sales declines or no sales at all due to closure of their business. Additionally, the COVID-19 outbreak has negatively impacted our employee productivity, including affecting the availability of employees reporting for work. SinceMarch 2020 , we have taken initiatives to help minimize the risks to our business and protect our shareholders. Our management team's experience during the 2008 financial crisis is proving to be very valuable in dealing with the current crisis. Our entire staff is fully committed and working diligently to support our merchants through these difficult times. Most of our merchants have contactless payment acceptance capabilities through their POS solutions, as well as, e-commerce and mobile contactless payment acceptance capabilities to eliminate the need for physical payments to help reduce the spread of COVID-19. The following initiatives, including an extensive business continuity plan, have been implemented: Risk Management: ? Enhanced risk controls and safeguards have been put in place for merchants that sell products with an extended delivery time frame, products paid in advance, catering, ticketing, transportation and travel related merchants ? Onboarding of new merchants in the above categories has been put on hold until further notice ? For those employees that will be working from home, we have implemented a "remote work" policy and provided employees with the technology necessary to do so ? For those employees that require office attendance, we are taking significant steps to ensure seamless service delivery while safeguarding employees health Contactless Payments: ? Most of our merchants have contactless payment acceptance capabilities through their POS devices from equipment manufacturers such as PAX, Poynt and Verifone which are fully integrated into Netevia and Aptito platforms ? We launched an initiative to deploy contactless payment acceptance equipment to merchants that don't currently have it ? Mobile contactless payment acceptance is available through our Unified mPOS App which can be downloaded fromApple's App Store andMarch 2020 , our Company evaluated its liquidity position, future operating plans, and its labor force, which included a reduction in the labor force and compensation to executives and other employees, in order to maintain current payment processing functions, capabilities, and continued customer service to its merchants. We are also seeking sources of capital to pay our contractual obligations as they come due, in light of these uncertain times. Management believes that its operating strategy will provide the opportunity for us to continue as a going concern as long as we are able to obtain additional financing. At this time, due to our continuing losses from operations, negative working capital, and the COVID-19 pandemic, we cannot predict the impact of these conditions on our ability to obtain financing necessary for the Company to fund its future working capital requirements. Our Company has also decided to explore strategic alternatives and potential options for its business, including sale of the Company or certain assets, licensing of technology, spin-offs, or a business combination. Accordingly, onAugust 4, 2020 , the Company entered into a merger agreement in connection with the contemplated merger (the "Merger") withMullen Technologies, Inc. , aCalifornia corporation ("Mullen"), and certain related transactions, including a divestiture of the Company's existing business operations. See "-Recent Developments-Mullen Merger and Related Transactions" for additional information. There can be no assurance, at this time, regarding the eventual outcome of our planned strategic alternatives, including the Merger and the related transactions. In most respects, it is still too early in the COVID-19 pandemic to be able to quantify or qualify the longer-term ramifications on our merchant processing business, our merchants, our planned strategic alternatives to enhance current shareholder value, our current investors, and/or future potential investors. As part of our Company's plan to obtain capital to fund future operations, onMarch 27, 2020 , our Company entered into a Master Exchange Agreement, (the "ESOUSA Agreement") withESOUSA Holdings, LLC ("ESOUSA"), a related party. Prior to entering into the ESOUSA Agreement, ESOUSA agreed to acquire an existing promissory note that had been previously issued by the Company, of up to$2,000,000 in principal amount outstanding and unpaid interest due toRBL Capital Group, LLC ("RBL"). Pursuant to the ESOUSA Agreement, the Company has the right, at any time prior toMarch 27, 2021 , to request ESOUSA, and ESOUSA agreed upon each such request, to exchange this promissory note in tranches on the dates when the Company instructs ESOUSA, for such number of shares of the Company's common stock ("Common Stock") as determined under the ESOUSA Agreement based upon the number of shares of Common Stock (already in ESOUSA's possession) that ESOUSA sold in order to finance its purchase of such tranche of the promissory note from RBL. ESOUSA will purchase each tranche of the promissory note equal to 88% of the gross proceeds from the shares of Common Stock sold by ESOUSA to finance the purchase of such exchange amount from RBL. Each such tranche shall be$148,000 unless otherwise agreed to by the Company and ESOUSA. OnApril 23, 2020 , the Company entered into an amendment (the "Amendment") to the ESOUSA Agreement. The Amendment increased from$2,000,000 to$5,000,000 the principal amount and unpaid interest of one or more promissory notes of the Company or its direct or indirect subsidiaries that ESOUSA either purchased in whole or has an irrevocable right to purchase in tranches from RBL in connection with the ESOUSA Agreement. The Company has the right, pursuant to the ESOUSA Agreement (as amended by the Amendment), to request ESOUSA to exchange in tranches such promissory notes for shares of the Company's common stock on the terms and conditions and subject to the limitations set forth in the ESOUSA Agreement. OnAugust 3, 2020 , our Company entered into a Second Amendment (the "Second Amendment") to the ESOUSA Agreement. The Second Amendment increased from$5,000,000 to$15,000,000 the principal amount and unpaid interest of one or more promissory notes of the Company or its direct or indirect subsidiaries that ESOUSA either purchased in whole or has an irrevocable right to purchase in tranches from RBL OnMay 7, 2020 , the Company entered into a promissory note (the "Note") evidencing an unsecured loan (the "Loan") in the amount of$491,493 made to the Company under the Paycheck Protection Program (the "PPP"). The Note matures onMay 7, 2022 and bears interest at a rate of 1% per annum. BeginningDecember 7, 2020 , the Company is required to make 17 monthly payments of principal and interest, with the principal component of each such payment based upon the level amortization of principal over a two-year period fromMay 7, 2020 . Pursuant to the terms of the CARES Act and the PPP, the Company may apply to the Lender for forgiveness for the amount due on the Loan. The amount eligible for forgiveness is based on the amount of Loan proceeds used by the Company (during the eight-week period after the Lender makes the first disbursement of Loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), interest on mortgage obligations, rent and utilities, subject to certain limitations and reductions in accordance with the CARES Act and the PPP. No assurance can be given, at this time, that the Company will obtain forgiveness of the Loan in whole or in part. OnMay 18, 2020 , the Company entered into a promissory note in the amount of$159,899 made to the Company by theU.S. Small Business Administration under the Economic Injury Disaster Loan program.
OnAugust 4, 2020 , the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") withMullen and Mullen Acquisition, Inc. , aCalifornia corporation and wholly owned subsidiary of the Company ("Merger Sub"). Pursuant to, and on the terms and subject to the conditions of, the Merger Agreement, Merger Sub will be merged with and into Mullen, with Mullen continuing as the surviving corporation in the Merger. The parties to the Merger Agreement intend that the number of shares of the Company's common stock outstanding immediately after the Merger effective time on a fully diluted and fully converted basis will not exceed 75,000,000, with 15% of such common stock outstanding immediately after the Merger effective time on a fully diluted and fully converted basis to be allocated to the persons that hold shares of the Company common stock immediately prior to the Merger effective time (the "Parent Pre-Merger Stockholders") (subject to upward adjustment described below). The parties to the Merger Agreement intend that, subject to the Company's stockholders' approval, the Company will effect a private placement of the Company common stock prior to the Merger effective time (the "Private Placement") and to loan at 14% annual interest rate compounding monthly all or a portion of the net proceeds of the Private Placement to Mullen on an unsecured basis. In connection with such financing, for everyone dollar of loan funding (including all accrued interest on such loans) provided by the Company to Mullen prior to the Merger effective time, the Parent Pre-Merger Stockholders will retain an additional 0.00000067% of the shares of the Company common stock to be outstanding on a fully diluted basis immediately after the Merger effective time. The Parties to the Merger Agreement intend that, prior to the Merger effective time but, subject to and after the Company's stockholders' approval, the Company will divest itself of its existing business operations to another party, and will cause such party to assume all liabilities of the Company directly related to its operations of its existing business immediately prior to the closing of such divestiture (the "Divestiture"). As contemplated by the Merger Agreement, onAugust 11, 2020 , our Company as lender, entered into an unsecured Promissory Note, datedAugust 11, 2020 (the "Note"), with Mullen. Pursuant to the Note, Mullen borrowed from the Company$500,000 . Prior to maturity of the loan, the principal amount of the loan will carry an interest rate of 14% per annum compounded monthly and payable upon demand. This loan will mature on the earlier of (i) the date that the Merger Agreement is terminated for any reason by any party thereto and (ii) the Merger Effective Time (as defined in the Merger Agreement). Consummation of the Merger, the Divestiture, the Private Placement and the other transactions contemplated in the Merger Agreement, is subject to customary conditions including, among others, the approval of the Company's stockholders. There is no guarantee that the Merger, the Divestiture, the Private Placement or the other transactions contemplated in the Merger Agreement will be completed. Our Mission and Vision
Our mission is to power global commerce and allow our clients to conduct business globally through a centralized solution. We believe that understanding consumer behavior and the needs of our merchants is the most effective and, ultimately, the most profitable means to accomplish our mission and create long-term value for all stakeholders.
We drive client growth through our in-depth knowledge of global transactional services and related value-added service offerings which separate us from the competition. Our vision is to set the standard for multi-channel payments acceptance and value-added service offerings with focus on the creation of a unified global transaction acceptance ecosystem. We believe in disruptive emerging technologies and, as such, we have developed Netevia, our future-ready multi-channel payments platform to support development of value-added solutions designed for everyday commerce. Moving forward, we believe exciting projects and disruptive technologies like blockchain, IoT, biometric payments and artificial intelligence will provide us the opportunity to continue developing innovative payments solutions, which will provide value to our clients. In order to achieve this vision, we seek to further develop single on-boarding, global transaction acceptance ecosystem. Manifesting this vision requires scaling our direct and indirect connectivity to multiple payment and mobile networks internationally. By implementing this vision, we believe that we will be able to provide centralized, global multi-channel transactional platform to our clients internationally. Our Strategy Our strategy is to capitalize on consumer appetite for digital payment methods, the perceived movement towards a cashless society. To continue to grow our business, our strategy is to focus on providing merchants with the ability to process a variety of electronic transactions across multiple channels. We seek to leverage the adoption of and transition to card, electronic and digital-based payments by expanding our market share through our distribution channels and services innovations. We also seek growth through strategic acquisitions to improve our offerings, scale and geography. We intend to continue to invest in and leverage our technology infrastructure and our people to increase our penetration in existing markets.
Key elements of our business strategy include:
? Continued investment in our core technology and new technology offerings?
? Allocation of resources and expertise to grow in commerce and payments
segments?
? Grow and control distribution by adding new merchants and partners?
? Leverage technology and operational advantages throughout our global
footprint?
? Expansion of our cardholder and subscriber customer base;
? Continue to develop seamless multinational solutions for our clients?
? Increase monetization while creating value for our clients?
? Focus on continued improvement and operation excellence? and
? Pursue potential domestic and international acquisitions of, investments in,
and alliances with companies that have high growth potential, significant
market presence or key technological capabilities.
With our existing infrastructure and supplier relationships, we believe that we
can accommodate expected revenue growth. We believe that our available capacity
and infrastructure will allow us to take advantage of operational efficiencies
and increased margin as we grow our processing volume and expand to other
geographical territories.
Market Overview
The financial technology and transaction processing industry is an integral part
of today's worldwide financial structure. The industry is continually evolving,
driven in large part by technological advances. The benefits of card-based
payments allow merchants to access a broader universe of consumers, enjoy faster
settlement times and reduce transaction errors. By using credit or debit cards,
consumers are able to make purchases more conveniently, whether in person, over
the Internet, or by mail, fax or telephone, while gaining the benefit of loyalty
programs, such as frequent flyer miles or cash back, which are increasingly
being offered by credit or debit card issuers.
In addition, consumers are also beginning to use card-based and other electronic
payment methods for purchases at an earlier age in life, and increasingly for
small dollar amount purchases. Given these advantages of card-based payment
systems to merchants and consumers, favorable demographic trends, and the
resulting proliferation of credit and debit card usage, we believe businesses
will increasingly seek to accept card-based payment systems in order to remain
competitive.
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We believe that cash transactions are becoming progressively obsolete. The
proliferation of bankcards has made the acceptance of bankcard payments a
virtual necessity for many businesses, regardless of size, in order to remain
competitive. In addition, the advent and growth of e-commerce and
crypto-currencies have marked a significant new trend in the way business is
being conducted. E-commerce is dependent upon credit and debit cards, as well as
other cashless payment processing methods.
The payment processing industry continues to evolve rapidly, based on the
application of new technology and changing customer needs. We intend to continue
to evolve with the market to provide the necessary technological advances to
meet the ever-changing needs of our market place. Traditional players in the
industry must quickly adapt to the changing environment or be left behind in the
competitive landscape.
The recent outbreak and continuing spread of the novel coronavirus pandemic
("COVID-19") is currently impacting countries, communities, supply chains and
markets, global financial markets, as well as, the largest industry group
serviced by our Company. The Company cannot predict, at this time, whether
COVID-19 will
continue to have a material impact on our future financial condition and results
of operations due to understaffing in the service sector and the decrease in
revenues and profits, particularly restaurants, and any possible future
government ordinances that may further restrict restaurant and other service or
retail sectors operations.
Business Segments
We operate two reportable business operating segments: (i) North American
Transaction Solutions and (ii) International Transaction Solutions. Our segments
are designed to establish lines of businesses that support our client base and
further globalize our solutions. Management determines the reportable segments
based on the internal reporting used by our Chief Operating Decision Maker to
evaluate performance and to assess where to allocate resources. The principal
revenue stream for all segments comes from service and transaction related fees.
North American Transaction Solutions
North American Transaction Solutions is currently our largest segment, where through our subsidiaryTOT Payments, LLC , doing business as Unified Payments, we provide businesses of all sizes and types with a wide range of fully-integrated payment acceptance solutions at the point of sale, including Merchant Acquiring, e-commerce, mobile commerce, POS and other business solutions. Our largest service in this segment is Merchant Acquiring, which facilitates the acceptance of cashless transactions at the POS, whether a retail transaction at a physical business location, a mobile commerce transaction through a mobile or tablet device, which includes m-POS acceptance, Android Pay™, Apple Pay™ and Samsung Pay or an electronic commerce transaction over the web. Geographical presence for this segment isNorth America .
International Transaction Solutions
Through our subsidiary, PayOnline, we provide a wide range of value-added online and mobile solutions utilizing our fully-integrated, platform agnostic electronic commerce offering that simplifies complex enterprise online transaction processing challenges from payment acceptance and processing through risk prevention and payment security via point-to-point encryption and tokenization solutions. Our proprietary SaaS suite of solutions for electronic and mobile commerce gateway and payment processing platform is compliant at Level 1 of PCI DSS, streamlines the order-to-cash process, improves electronic payment acceptance and reduces the scope of burden of PCI DSS compliance. PayOnline holds a potential leadership position in theRussian Federation as one of the largest independent Internet Payment Services Providers ("IPSP"). Segment Summary Information The following tables present financial information of the Company's reportable segments at and for the three and six months endedJune 30, 2020 and 2019. The "corporate and eliminations" column includes corporate expenses and intercompany eliminations for consolidated purposes. Corp Exp & Three months endedJune 30, 2020 North American
Transaction Solutions International Transaction Solutions Eliminations
Total
Net revenues $ 12,977,536 $ 741,073 $ - $ 13,718,609
Cost of revenues 11,016,028 520,759 - 11,536,787
Gross Margin 1,961,508 220,314 - 2,181,822
Gross margin % 15 % 30 % - 16 %
Selling, general and administrative 720,538 125,785 539,006 1,385,329
Non-cash compensation - - 7,500 7,500
Provision for bad debt 31,755 1,555 - 33,310
Depreciation and amortization 765,823 6,579 - 772,402
Interest expense, net 341,020 - - 341,020
Other expense (17,846 ) 9,289 (10,768 ) (19,325 )
Net (loss) income for segment $ 120,218 $ 77,106 $ (535,738 ) $ (338,414 )
Goodwill 6,671,750 1,009,436 - 7,681,186
Other segment assets 13,545,980 455,704 - 14,001,684
Total segment assets $ 20,217,730 $ 1,465,140 $ - $ 21,682,870
Corp Exp &
Three months ended June 30, 2019 North American Transaction Solutions International Transaction Solutions Eliminations
Total
Net revenues $ 15,737,998 $ 749,313 $ - $ 16,487,311
Cost of revenues 13,444,074 457,291 - 13,901,365
Gross Margin 2,293,924 292,022 - 2,585,946
Gross margin % 15 % 39 % - 16 %
Selling, general and administrative 669,730 248,213 1,381,127 2,299,070
Non-cash compensation 48,433 - 1,957,407 2,005,840
Provision for bad debt 141,827 1,363 - 143,190
Depreciation and amortization 738,117 9,230 - 747,347
Interest expense, net 252,582 - - 252,582
Other (income) expense 295,939 (1,164,554 ) (415,796 ) (1,284,411 )
Net (loss) income for segment $ (647,040 ) $ (8,248,059 ) $ 8,103,532 $ (1,577,672 )
Goodwill 6,671,750 2,336,002 - 9,007,752
Other segment assets 13,888,723 354,620 - 14,243,343
Total segment assets $ 20,560,473 $ 2,690,622 $ - $ 23,251,095
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North American International
Transaction Transaction Corp Exp &
Six months ended June 30, 2020 Solutions Solutions Eliminations Total
Net revenues $ 28,131,616 $ 1,424,559 $ - $ 29,556,175
Cost of revenues 23,840,300 996,895 - 24,837,195
Gross Margin 4,291,316 427,664 - 4,718,980
Gross margin % 15 % 30 % - 16 %
Selling, general and administrative 1,590,103 536,760 1,574,358 3,701,221
Non-cash compensation - - 45,900 45,900
Provision for bad debt 475,018 1,070 - 476,088
Depreciation and amortization 1,537,065 14,779 - 1,551,844
Interest expense, net 689,433 - - 689,433
Other expense (income) (17,846 ) (451 ) (10,768 ) (29,065 )
Net (loss) income for segment $ 17,543 $ (124,494 ) $ (1,609,490 ) $ (1,716,441 )
Goodwill 6,671,750 1,009,436 - 7,681,186
Other segment assets 13,545,980 455,704 - 14,001,684
Total segment assets $ 20,217,730 $ 1,465,140 $ - $ 21,682,870
North American International
Six months ended June 30, Transaction Transaction Corp Exp &
2019 Solutions Solutions Eliminations Total
Net revenues $ 30,101,504 $ 1,432,990 $ - $ 31,534,494
Cost of revenues 25,212,812 948,700 - 26,161,512
Gross Margin 4,888,692 484,290 - 5,372,982
Gross margin % 16 % 34 % - 17 %
Selling, general and
administrative 1,286,166 521,618 2,876,152 4,683,936
Non-cash compensation 48,433 - 1,972,414 2,020,847
Provision for bad debt 491,147 (8,649 ) - 482,498
Depreciation and
amortization 1,580,658 17,909 - 1,598,567
Interest expense, net 497,635 - - 497,635
Other (income) expense 295,939 (1,177,160 ) (316,797 ) (1,198,018 )
Net (loss) income for
segment $ 688,714 $ 1,130,572 $ (4,531,769 ) $ (2,712,483 )
Goodwill 6,671,750 2,336,002 - 9,007,752
Other segment assets 13,888,723 355,008 - 14,243,731
Total segment assets $ 20,560,473 $ 2,691,010 $ - $ 23,251,483 Results of Operations for the Three Months Ended
We reported a net loss attributable to common stockholders of approximately$300,000 or$0.08 per share loss for the three months endedJune 30, 2020 as compared to a net loss of approximately$1.5 million or$0.37 per share loss for the three months endedJune 30, 2019 . The decrease in net loss attributable to stockholders of approximately$1.2 million was primarily due to the reorganization of the labor force, including lay-offs, which reduced our selling, general and administrative expenses.
The following table sets forth our sources of revenues, cost of revenues and the
respective gross margins for the three months ended
Three Three
Months Ended Months Ended Increase /
Source of Revenues June 30, 2020 Mix June 30, 2019 Mix (Decrease)North American Transaction Solutions$ 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 ) Three Three Months Ended % of Months Ended % of Increase / Cost of Revenues June 30, 2020 revenues June 30, 2019 revenues (Decrease) North American Transaction Solutions$ 11,016,028 84.9 %$ 13,444,074 85.4 %$ (2,428,046 ) International Transaction Solutions 520,759 70.3 % 457,291 61.0 % 63,468 Total$ 11,536,787 84.1 %$ 13,901,365 84.3 %$ (2,364,578 ) 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 endedJune 30, 2020 as compared to$16.5 million for the three months endedJune 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
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The gross margin for the three months endedJune 30, 2020 was approximately$2.2 million , or 15.9%, as compared to approximately$2.6 million , or 15.7%, for the three months endedJune 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 endedJune 30, 2020 , as compared to$5.2 million for three months endedJune 30, 2019 . Operating expenses for the three months endedJune 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 endedJune 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 endedJune 30, 2020 and 2019 consisted of operating expenses not otherwise delineated in our Condensed Consolidated Statements of Operations and Comprehensive Loss, as follows:
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