Net Element International (NETI)

Net Element International (NETI) is the American company specializing in e-commerce, processing of mobile payments and monetization of content.

Assets

The main office of the company is located in Miami (USA), the international headquarters – in Moscow.

Net Element International owns the TOT Money company functioning in the field of mobile payments and also several popular verticals of monetization of content.

Net Element International and subsidiary companies give the chance to the companies working in spheres of e-commerce and content management to monetize their assets.

For September, 2014 Unified Payments recognized by the most promptly developing private company of America of 2012 according to the authoritative Inc. magazine and also the Aptito company, a payment platform of the next generation for sales points based on cloud computing is a part of TOT Group.

Oleg Firer - Chief Executive Officer of Net Element International for October, 2014.

Performance Indicators

2015

• The total amount of transaction means in US dollars in 2015 exceeded $1.75 billion as of December 31, 2015 that is 9.4% more in comparison with an indicator of 2014 in $1.6 billion. (The volume of transactions in Russia depends on impact of currency adjustments in the region).
• The total quantity of the transactions processed in 2015 exceeded $160.7 million in comparison with $51.9 million in 2014, having increased indicators by 210%.
• Total number of users by the end of 2015 exceeded 14 million, having increased by 1.386% in comparison with 942 thousand at the end of 2014. (11 million users joined Net Element together with new subsidiary company PayOnline).

2013

• The net profit of Net Element for 2013 was 18,749,470 dollars that reflects growth in comparison with indicators of 2012 when profit was at the level of 1,384,852 dollars. Increase in net profit generally became result of activity of Unified Payments and TOT Money.
• Net spendings of the company in 2013 made 48,309,3347 dollars whereas in previous year this digit made 16,389,931 dollars. Operational means in 2013 made 10,809,954 dollars, in 2012 - 25,177,746 dollars.
• The key factors which created expenses of the company at the level of 48,309,347 dollars and operational means in the amount of 10,809,954 dollars in 2013:

• • 16,549,820 dollars – the amount of the paid compensations, including 13,305,817 dollars for the stocks issued in connection with Unified Payments acquisition.
  • B 2013 the losses connected with we depreciate goodwill, Unified Payments which arose in connection with acquisition, made 11,200,000 dollars. With respect thereto goodwill of the company was estimated approximately at 17 mln. dollars.
  • the Amount of debts and irrevocable advance payments was recorded at the level of 7,640,008 dollars of which 4,528,759 dollars made advance payments to the Russian aggregators, 1,834,302 dollars are losses on loans in Russia according to returnable bills of exchange and 703.768 expenses of the dollars connected with legal procedures in the USA.
  • Depreciation of intangible assets was 872.354 dollars.
  • Net Element got net profit in the amount of 696.360 dollars from the termination of activity of entertaining company assets. On September 25, 2013 non-core entertaining assets were transferred T1T Lab companies together with financial liabilities of the companies.

Net Element International in the report for the second quarter 2013 announced net profit in the amount of $5,615,719. These digits show increase in net profit which was $37.818 for the same period of previous year. Such indicators are reached as a result of completion of the transaction on Unified Payments acquisition in the second quarter 2013.

The total and administrative expenses in the second quarter made 2013 $3,807,913 in comparison with $2,443,387 the previous year that makes 56% increase. Net losses in a quarter made $20,231,697 or $0.72 counting on an action in comparison with $2,573,263 ($0.13 for an action) for the same period. Such indicators are connected mainly with non-cash payments of the company which were necessary for ensuring clarity of financial performance and strong base for further growth. Impairment of goodwill based on the second quarter 2013 made $11.2 million, besides, the company fixed $5,792,487 of a reserve for losses on loans.

History

2013

In April TOT Money is recognized to the best SMS as content provider according to the largest mobile operator of Russia;

In May the former chief financial officer of Groupon company joins the TOT Group Russia command;

Merger of Unified Payments

In the spring of 2013 the American payment system Unified Payments founded by the native with Ukraine Oleg Firer was absorbed. He after the transaction headed NETI. Assets of Unifiied Payments were transferred in new "subsidiary" of Tot Group, grieving NETI transferred also 70% of stocks of the Russian aggregator of SMS payments of Tot Money. In exchange Unified Payments received 10% of shares in the new company.

Merge to Unifiied Payments considerably improved financial showed NETI. If this consolidation began in 2012 (so-called pro-forma), then revenue of the united company for 2012 would leave $58 million instead of $1.4 million. The net profit of Unifiied Payments for 2012 was $1.4 million.

However, even taking into account merger of this NETI company remains in losses: for 2012 the consolidated loss of the united company would make $15.8 million instead of $16.9 million Besides, merge to Unifiied Payments led to acceptance of NETI of its debt for $24 million.

Soon after completion of the transaction, Net Element initiates integration and localization of the products and services offered Unified Payments in Russia and in emerging markets.

Igor Krutoy increases the share block

The unprofitability forced NETI to look for new investors. The famous Russian composer Igor Krutoy agreed to become like that: he granted to the company a non-interest loan for $2 million in exchange for increase in the size of the share block with 1% up to 10%. Thus, Krutoy should become the third largest shareholder of the American corporation after its founder Mike Zoe and the Kazakh metallurgical magnate Kengez Rakishev.

Aptito purchase

In June, 2013 the Aptito company developing cloud software for restaurants, allowing them to take orders from mobile applications was purchased. Assets of Aptito should be transferred in new "subsidiary" of Tot Group. Sellers will receive 20% of shares of this company (NETI will have an option for the redemption of this packet) and about 0.5% of the stocks NETI (these shares cannot be sold within a year).

The MPos-solution Aptito for restaurants offers tools for sales increase, performance and loyalty of visitors. This solution in sales points is proposed for the tablet and combines traditional functionality of POS with a possibility of the order using mobile devices, payment functions on site, integration with social networks, mobile applications and available data on transaction. The restaurant staff can place the order directly from the mobile phones, having at once sent it to kitchen for execution.

Soon after Aptito acquisition the company announced strategic integration into the TSYS system, one of the largest in the world of the processing companies for merchants and transactions with bank credit cards and also with USAePay, a payment gateway integrated with the main payment platforms.

QuickPay purchase

In July, 2013 Net Element International (NETI) announced acquisition of foreign network of payment terminals of the Russian company QuickPay. The company works in the USA, Kazakhstan, Kyrgyzstan, Panama and the United Arab Emirates. Using the new shareholder expansion of its presence is planned for Ukraine, Turkey, Philippines and the countries of Latin America and also to strengthen presence in the USA.

The transaction is performed in a cashless form: "subsidiary" of NETI - Tot Group will create the new company in which QuickPay will transfer all the assets, having received instead of 35% of its shares. At the same time NETI will receive the option for the redemption of this share, and the CEO of QuickPay Ilya Shurygin will direct the new company.

One more term of transaction - the buyer undertakes QuickPlay debt in the amount of $1.5 million from which the most part (221 billion tenges or $1.45 million) is the share of the Kazakh division of the company, and the rest — to Russia^[1].

Accreditation in Skolkovo

In the second quarter 2013 Net Element obtained accreditation as the investor of the innovation center "Skolkovo". According to the signed agreement Net Element selects to Skolkovo Foundation $ dollars 12 million (more than 370 million rubles) within the next three years for investment of the companies and technologies which correspond to criteria and strategic initiatives of NETE. The interests of Net Element are concentrated on technology projects in the field of mobile payments and services of transactions.

TOT Platform start

Earlier this month Net Element announced TOT Platform start – the platform for transaction services with added value. Started at partnership with PAY.ON, the world leader in the field of infrastructure of multi-channel payments, TOT Platform will become the first company offering such services in the region. This project will allow Net Element TOT Group subsidiary company to propose to the clients the innovative solutions in the industry of mobile payments and transactions. TOT Platform is the transaction processing platform of high performance which conforms to the standards of security and requirements accepted in international market of payments. Start of TOT Platform is expanded by possibilities of TOT Group in the field of technologies with added value in emerging markets.

In July, 2014 Net Element is included into the Russell 3000 index;

In August the Aptito subsidiary company announced integration with USAePay and completes integration with TSYS.

In September the company announced diversification of non-core assets, having focused the activity in the field of mobile payments and transaction technologies with added value;

In October the Russian market was entered by transaction service for financial products with the added value of TOT Platform;

2014: The credit of 415 million rub from Alfa-Bank

In September, 2014 Net Element announced providing borrowing facilities from Alfa-Bank. The credit amount will make 415 million rubles. It was announced that these funds will be allocated for strengthening of positions of Net Element in Russia and the CIS countries.

The agreement signed in September, 2012 according to which the company was granted the loan for the amount of 300 million rubles became the beginning of cooperation of Alfa-Bank and TOT Money, Net Element subsidiary company. In May, 2014 all debt obligations of TOT Money were extinguished at the expense of current assets of the company, in accordance with the terms agreements.

Oleg Firer, the CEO (CEO) of Net Element emphasized the importance of this credit line and value of partnership with Alfa Bank.

"This financing considerably will enhance our liquidity indicators and will allow us to invest means in development of the company in the region. We especially appreciate that our creditor has profound knowledge of the market of transaction technologies in the CIS".

In April, 8:14 pm TOT Money brought to the market the new advanced platform for a mobile commerce, billing of telecom operators and processing of payments. The company is going to use borrowing facilities in the amount of 415 million rubles for involvement of key clients and further development in the markets of Russia and the CIS.

2016

Social Discovery Ventures received compensation in $2.3 million

On November 1, 2016 it became known of payment by Net Element company of $2.3 million to the structures related to the founder of payment system PayOnline Dmitry Volkov (Social Discovery Ventures). It is compensation for falling of share value of Net Element with which the corporation paid for PayOnline purchase.

Net Element settled a dispute with sellers of the Russian payment system PayOnline which was purchased by corporation last year. According to the documents published on the website of the American Securities Commission, Net Element will pay to offshores Maglenta Enterprises Inc. and Champfremont Holding compensation in the amount of $2.23 million.

Compensation will be paid by several tranches till May, 2017. Since May, 2016 interest in the amount of 10% per annum which will be paid by Net Element will be accrued on this amount^[2].

Previously

In the spring of 2015 Net Elelement agreed about purchase of PayOnline from the Social Discovery Ventures (SCD) group. Total amount of the transaction of $7.2 million from which a half is paid by cash, a half - the stocks Net Element.

Offshores Maglenta Enterprises and Champfremont Holding acted as sellers of PayOnline. Within the transaction offshore Maglenta Enterprises received 4.3 million shares Net Element which on the middle of last year made 8.5% of the total number of stocks of corporation. Then specified by the owner of offshore Dmitry Volkov.

Concluding the bargain, the parties agreed about compensation payment to sellers if within a year from the moment of PayOnline acquisition the share market value of Net Element which received Volkov's structures and were not sold in this time frame is below their cost at the time of the transaction. Net Element will pay for falling of share value.

For date of transaction the shares Net Element were traded at the price of $2.7 for one security (the price is specified taking into account Net Element share split which took place at the beginning of this year), now their cost in the range of $1 - $1.1. The corporation agreed to pay to sellers of PayOnline $2.3 million.

In addition Net Element undertook to save jobs for leading experts of PayOnline until completion of payment under the transaction. In case of early contract cancelation with them, the American corporation will pay to each of them compensation which amount will be set individually:

• for Marat Abasaliyev, the CEO of PayOnline, the amount of compensation is set at the level of $30 thousand,
• for A. Borisov - 750 thousand rubles,
• for A. Osokin - 600 thousand rubles.

For other top managers the amount of compensation is from 280 thousand rubles up to 570 thousand rubles.

Net Element sold debts for $4 million

On July 29, 2016 it became known of the arrangement of Net Element and Crede Group (USA) on sale of debt for the amount of $4 million. Debt is converted into stocks of corporation.

Net Element completed the seventh tranche of converting of debt to group of Crede Capital Group funds in the actions for the amount of $300 thousand. In total in July, 2016 debt for the amount of $1.43 million is converted into stocks of corporation^[3].

In the summer of 2014 Net Element agreed with RBL Capital Group (specializes in crediting of payment systems) about opening of a credit line of $10 million for one and a half years. In May, 2016 action of this credit line is prolonged for 22 months, and its volume is increased to $15 million.

At the same time Net Element agreed with Crede Capital Group about sale of three bills of exchange for total amount of $4 million issued for benefit of RBL within an above-mentioned credit line by it. Then the parties agreed about a possibility of converting of these bills of exchange in the stock Net Element.

Converting it has to be executed according to the requests Net Element. The size of one tranche should not exceed $100 thousand if the parties do not discuss other (the extent of the majority of already performed tranches exceeded this amount). At once time of Crede Group cannot receive more than 20% of the shares Net Element. Crede Group has also no right to own more than 10% of the stocks Net Element in total.

In 2014 Crede Group according to the similar scheme invested in Net Element. The group redeemed the debt of corporation for the total amount of $16 million before the American companies Capital Sources of New-York and Georgia Notes. This debt was formed at Net Element in 2014 after absorption of the American system of processing of bank cards of Unifiyed Payments by corporation.

Having redeemed the debt of Net Element, Crede Group converted it into 9% of stocks of corporation. In several months the group sold out this packet.

Activity of Net Element is unprofitable (in 2015 at revenue of $31.2 million net loss of corporation reached $13.3 million) therefore the corporation resides in search of investors.

Net Element began promotion to the Middle East

On July 22, 2016 it became known of takeover plans Net Element company of Nexcharge and Paystar payment systems. Investments into the project will exceed $3 million. A main objective of the transaction - Net Element entry into the markets of the Middle East.

The American corporation Net Element announced creation joint the enterprises with two other companies from the USA - Paystar and Nexcharge. Nexcharge developed own system of payment acceptance and fight against fraudulent transactions. Paystar advances money transfer systems and e-wallets in emerging markets^[4].

Positions of Paystar are strong in the Middle East: the company has contracts with Commercial Bank of Qatar, United Limited and National Bank of Oman, and Habitat Bank in Tunisia, Morocco and Algeria. The company has contracts National Bank in Philippines, Indusind Bank in India and ThamelRemit in Nepal.

In joint venture there will be two types of actions: the actions of class "A" having common laws for actions including vote, and actions of the class "B" - for encouragement of management of the company. Net Element will own 51% of stocks of the created company, owners of Paystar and Nexcharge. Net Element will have an option for the redemption of a share of partners in the new company in a year after transaction at the market price.

Net Element will invest $3.4 million in the company, and Paystar and Nexcharge will transfer in it all the assets. In case of achievement by the company of the approved size of an indicator of EBITDA (a profit before taxes, depreciation expenses and percent on the credits), owners of Paystar and Nexcharge in the first year after transaction will be able to receive $250 thousand, in the second year - $500 thousand, in the third year - $750 thousand more. The founder of Paystar and Nexcharge will receive 0.15% of the shares Net Element and the right to additional stocks of the company for the amount of $100 thousand.

The transaction will allow corporation to work directly with such payment systems as Visa, MasterCard, American Express, etc. Besides, the transaction will help with carrying out the international expansion of Net Element, in particular, to the Middle East. Oleg Firer, president of Net Element

Net Element owns the American system of processing of bank cards TOT Payments (the former Unifieyd Payments), the Russian payment system PayOnilne and one of aggregators of mobile content Digital Provider (the former TOT Money).

Net Element obtained the credit of $20 million

In May, 2016 Net Element, Inc. announced receiving the credit in the amount of $15 million from the leader of the investment market of RBL Capital Group company and also signed the agreement with Crede CG III on restructuring of $5 million a debt. According to the reached agreements with Crede CG III, subsidiary company Crede Capital Group, Net Element has an opportunity to compensate debt obligations the equivalent number of promissory notes of the company till December 31, 2016.

The credit line provided to RBL Capital in combination with restructuring of debt obligations will allow Net Element to continue development and expansion in financial market. The credit totaling $15 million repays the previous debt to RBL Capital in the amount of $10 million behind lapse of time.

In May, 2015 the company announced the beginning of cooperation with RBL Capital for creation of the Uniform System of Financing directed to increase in quantity of merchants by selection up to $50,000,000 for financing of a trading portfolio of the company.

2017: The investment attraction for the amount to $10 million

The Net Element (NETE) corporation in July announced agreement signature with Cobblestone Capital Partners investment fund (CCP, is located in the USA) about the redemption to them stocks of the company for the amount up to $10 million. The duration of the agreement will make 30 months.^[5]

Under the terms of the agreement, Net Element will have a right to designate a time frame when CCP has to redeem shares of corporation. At the same time the volume of one tranche should not exceed 200 thousand stocks of the company (that makes slightly more than 1% of a total quantity of actions for July 24, 2017). Share value will be determined by their market price of the transaction moment.

As it is specified, at the market share price of Net Element the volume of a tranche will be not lower than $0.5 for one security before 750 thousand actions, and at the market value not less than $1 the maximum volume of a tranche will increase to 1 million actions.

If the market share price of Net Element is not less than $0.25, the corporation can oblige to redeem CCP next day shares which volume is the smallest value of double maximum number of actions which, according to the conditions designated above, the company can show to the redemption, and 20% of the trading volume of the stocks Net Element next day.

Besides, the corporation will not sell the shares to fund if the share of CCP according to the results of the corresponding transaction will exceed 10% of the total number of stocks of corporation.

Notes