Net Element(US:MULN)2021-08-16 19:13Business Segments and Operations - The company operates two business segments: North American Transaction Solutions and International Transaction Solutions, providing over 100 payment options in more than 120 currencies[187]. - The North American Transaction Solutions segment is the largest, providing a range of integrated payment acceptance solutions, with Merchant Acquiring being the principal service offered[233]. - The company has entered into a merger agreement with Mullen Automotive, which includes a divestiture of the company's existing business operations[200]. - The Company intends to divest its existing business operations prior to the merger, with a divestiture agreement already in place with RBL[214]. - The company is exploring strategic alternatives, including potential sale or licensing of technology, due to uncertainties arising from the COVID-19 pandemic[276]. Financial Performance - For the three months ended June 30, 2021, the company reported net revenues of $33.29 million, a significant increase from $13.72 million in the same period of 2020, representing a growth of approximately 143%[236]. - For the six months ended June 30, 2021, net revenues reached $57.08 million, up from $29.56 million in the same period of 2020, marking an increase of approximately 93%[238]. - The company reported a net income of $1.25 million for the three months ended June 30, 2021, compared to a net loss of $1.72 million in the same period of 2020, indicating a turnaround of approximately $2.97 million[236]. - The company reported a net income attributable to common stockholders of approximately $1.6 million or $0.26 per share for the six months ended June 30, 2021, compared to a net loss of approximately $1.7 million or $0.41 per share for the same period in 2020[239]. - The company reported a net income of approximately $1.6 million for the six months ended June 30, 2021, compared to a net loss of approximately $5.9 million for the year ended December 31, 2020, with an accumulated deficit of approximately $182.3 million[273]. Revenue and Cost Analysis - The gross margin for the three months ended June 30, 2021, was $3.71 million, with a gross margin percentage of 11%, compared to a gross margin of $2.18 million and a gross margin percentage of 16% in the same period of 2020[236]. - The gross margin for the six months ended June 30, 2021, was $6.71 million, with a gross margin percentage of 12%, compared to a gross margin of $4.72 million and a gross margin percentage of 16% in the same period of 2020[238]. - Cost of revenues for the six months ended June 30, 2021, was approximately $50.4 million, up from $24.8 million in 2020, reflecting a 103.2% increase due to higher net revenues[242]. - The increase in cost of revenues was primarily driven by a significant rise in transaction processing volumes as merchants resumed normal operations[241]. - The company experienced competitive pressure affecting gross margins, particularly due to a large wholesale client switching to its platform, which typically has lower margins[243]. Operational Developments - The company has increased its liquidity position by entering into a Master Exchange Agreement with ESOUSA Holdings, LLC, allowing for up to $15 million in promissory notes[204]. - The company has implemented enhanced risk controls for merchants in sectors with extended delivery times, such as catering and travel[202]. - Most merchants have contactless payment acceptance capabilities through POS devices, with initiatives to deploy additional contactless equipment[203]. - The Company aims to expand its market share by leveraging the transition to digital payments and pursuing strategic acquisitions[225]. - The Company is focused on developing its Netevia platform to support value-added solutions and is exploring disruptive technologies like biometric payments and artificial intelligence[222]. Asset and Liability Management - The total segment assets as of June 30, 2021, amounted to $30.76 million, compared to $21.68 million as of June 30, 2020, reflecting an increase of approximately 42%[238]. - The company holds goodwill of $7.68 million as of June 30, 2021, consistent with the previous year, indicating stability in its asset valuation[238]. - The company has a positive working capital of approximately $2.9 million as of June 30, 2021, largely related to amounts due from Mullen Technologies[273]. - The provision for bad debt for the three months ended June 30, 2021, was $514,381, compared to $476,088 in the same period of 2020, indicating an increase in credit risk management[236]. Expenses and Financial Obligations - The company’s selling, general and administrative expenses for the three months ended June 30, 2021, totaled $2.05 million, compared to $1.96 million in the same period of 2020, showing a slight increase in operational costs[236]. - Operating expenses for the six months ended June 30, 2021, were approximately $6.5 million, an increase from $5.8 million in 2020, primarily due to higher personnel costs and bad debt expenses[244]. - Interest expense increased to $719,592 for the six months ended June 30, 2021, compared to $689,433 for the same period in 2020, an increase of $30,159[252]. - Bad debt expense increased to approximately $1.2 million for the six months ended June 30, 2021, compared to $0.5 million for the same period in 2020, primarily due to billing adjustments related to COVID-19[249]. Market Trends and Future Outlook - The financial technology and transaction processing industry is evolving rapidly, with a growing demand for cashless payment solutions among consumers and businesses[229]. - The company plans to continue focusing on expanding its transaction processing capabilities and enhancing service offerings to drive future growth[241]. - The company is committed to investing in core technology and expanding its distribution channels to accommodate expected revenue growth[226]. - The company plans to increase its cardholder and subscriber customer base while enhancing operational excellence and monetization strategies[231].