Net Element(MULN) - 2019 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements The company's Q1 2019 financial statements show total assets decreased to $23.5 million, net revenues declined to $15.0 million, but net loss improved to $1.1 million, with operating cash flow remaining negative at ($0.2 million) Condensed Consolidated Balance Sheet Summary (Unaudited) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $7,037,708 | $9,685,114 | | Total Assets | $23,524,026 | $25,764,014 | | Total Current Liabilities | $9,720,581 | $11,221,502 | | Total Liabilities | $16,061,928 | $17,167,548 | | Total Stockholders' Equity | $7,462,098 | $8,596,466 | Condensed Consolidated Statement of Operations Summary (Unaudited) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Total Revenues | $15,047,182 | $15,982,394 | | Total Costs and Operating Expenses | $15,850,548 | $16,971,637 | | Loss from Operations | ($803,366) | ($989,243) | | Net Loss Attributable to Net Element, Inc. | ($1,120,847) | ($1,610,847) | | Loss Per Share (basic and diluted) | ($0.29) | ($0.42) | Condensed Consolidated Statement of Cash Flows Summary (Unaudited) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($237,806) | ($1,137,757) | | Net Cash Used in Investing Activities | ($1,064,497) | ($401,980) | | Net Cash Provided by (Used in) Financing Activities | $196,992 | ($548,861) | | Net Decrease in Cash | ($1,117,808) | ($2,092,318) | | Cash at End of Period | $1,131,743 | $9,640,953 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's two segments, key accounting policies including Topic 842 adoption, $6.3 million in intangible assets and notes payable, significant revenue concentration, and ongoing legal and related-party transactions - The company operates in two reportable business segments: North American Transaction Solutions and International Transaction Solutions, specializing in payment acceptance and value-added solutions[20] - Effective January 1, 2019, the company adopted the new lease accounting standard (ASU 2016-02, Topic 842), resulting in the recognition of an operating lease right-of-use asset and liability of approximately $471,000[51][74][75] Intangible Assets as of March 31, 2019 | Type | Carrying Value | | :--- | :--- | | IP Software | $152,742 | | Portfolios and Client Lists | $2,868,743 | | Client Acquisition Costs | $3,309,168 | | Total | $6,330,652 | - For Q1 2019, the company had significant revenue concentration, processing 52% of total revenue with Priority Payment Systems, 32% with its own BIN/ICA via Esquire Bank, and 7% with First Data[99][100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Q1 2019 net loss decrease to $1.1 million, driven by North American segment gross margin improvement despite international revenue decline, and outlines future financing needs of $3 million with $10.8 million in available credit facilities - The company operates two business segments: North American Transaction Solutions (largest segment) and International Transaction Solutions (through subsidiary PayOnline)[138][162] Segment Performance Comparison (Three Months Ended March 31) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Total Net Revenues | $15,047,182 | $15,982,394 | | North American Revenues | $14,363,506 | $13,966,617 | | International Revenues | $683,676 | $2,015,777 | | Total Gross Margin | $2,787,034 | $2,364,060 | | Gross Margin % | 18.5% | 14.8% | - The decrease in net loss was primarily due to an increase in the gross margin for the North American Transaction Solutions segment and a decrease in other expenses[168] - The company requires an additional $3 million to finance operations for the next 12 months and has approximately $10.8 million available in credit facilities as of March 31, 2019[189][190] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the reporting period - The company states that Quantitative and Qualitative Disclosures about Market Risk are not applicable[198] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2019, due to material weaknesses, with ongoing remediation efforts including an improved enterprise-wide risk management process and enhanced controls at international operations - The CEO and CFO concluded that disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[201] - Remediation activities are ongoing and include designing an improved enterprise-wide risk management process and enhancing controls at the international segment in Russia[202] PART II — OTHER INFORMATION Legal Proceedings The company refers to Note 9 of the financial statements for details on ongoing legal proceedings, including an interpleader action, a defamation lawsuit, and a patent infringement claim - For details on legal proceedings, the report refers to Note 9, "Commitments and Contingencies" in the financial statements[205] Risk Factors The company directs readers to its Annual Report on Form 10-K for the year ended December 31, 2018, for a comprehensive discussion of risk factors - The report incorporates by reference the risk factors discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2018[206] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, amendments, and required CEO and CFO certifications - The exhibits filed with this report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and XBRL data files[209]