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NETE > SEC Filings for NETE > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for NET ELEMENT INTERNATIONAL, INC.

Form 10-Q for NET ELEMENT INTERNATIONAL, INC.


14-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with our financial statements, together with the notes to those statements, included in Item 1 of this Quarterly Report. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.

Overview

Net Element International, Inc. (formerly known as Cazador Acquisition Corporation Ltd ) (the "Company", "we", "us" or "our") is an exempted company incorporated on April 20, 2010 in the Cayman Islands with limited liability as a blank check company. The Company was incorporated for the purpose of effecting a merger, share capital exchange, asset acquisition, share purchase, reorganization or similar business combination, with one or more operating businesses or assets. The Company has focused on effecting a business combination in developing countries in Central and Eastern Europe, Latin America and Asia, but it may pursue opportunities in other geographical areas.

On June 12, 2012, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), which is incorporated herein by reference, with Net Element, Inc., a Delaware corporation ("Net Element"). On October 2, 2012, the Company completed its merger with Net Element, and the various transactions contemplated by the Merger Agreement, dated as of June 12, 2012, between the Company and Net Element were consummated. Immediately prior to the effectiveness of the Merger, the Company changed its jurisdiction of incorporation by discontinuing as an exempted company in the Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware. Effective upon consummation of the Merger, (i) Net Element was merged with and into the Company, resulting in Net Element's ceasing to exist and the Company continuing as the surviving company, and (ii) the Company changed its name to "Net Element International, Inc."

Upon completion of the Merger, Net Element's operations became the core business of the Company. As a result of the Merger, we have been merged into a technology driven internet group with two main lines of business, the first being mobile commerce and payment processing for electronic commerce and the second being entertainment and culture internet destinations. The Company's current strategy is to develop and/or acquire technology and applications for use in the online media industry. We believe that our technology platforms and development expertise will enable us to enhance the digital distribution of content in a variety of industries. Accordingly, we are currently exploring the possibility of acquiring other Internet portal properties and companies with similar goals of connecting people in various vertical markets, such as the medical, educational and sports markets.

We expect that our most significant revenue stream is generated from the mobile commerce payment processing platform being developed through one of our subsidiaries, OOO TOT Money, and from advertising. Failure to successfully develop that payment processing platform and enter into contracts with mobile phone carriers and content providers to use that platform, or failure to expand our base of advertisers or generate and maintain high quality content on our websites could harm our revenue projections. We face all of the risks inherent in a new business, including management's potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with developing its technologies, Internet websites and operations.

Liquidity and Capital Resources

At September 30, 2012, total outstanding cash balance available for our working capital needs amounted to $13.2 thousand, and restricted cash held in our trust account amounted to $46.2 million. Since our initial public offering, our only source of revenue has been interest income earned over the net proceeds from the initial public offering, that are currently held in a trust account and invested in United States government securities within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, having a maturity of 180 days or less, or in money market funds meeting the conditions under Rule 2a-7 under the Investment Company Act, until the earlier of (i) consummation of an initial business combination, or (ii) liquidation of the Company.

As described in the "Overview" section above, on October 2, 2012, we completed our Merger with Net Element, and the various transactions contemplated by the Merger Agreement, dated June 12, 2012, between us and Net Element were consummated. As a result of the merger, we now have access to the net proceeds held in the trust account after deducting $19.6 million which were paid to public shareholders who properly exercised their shareholder redemption rights. Immediately after the consummation of the transaction, we paid approximately $2.0 million in transactional related costs, including formation costs incurred by the Company prior to the consummation of the transaction. In addition, pursuant to the Merger Agreement, a portion of the funds were used to repay debt to affiliates, which amounted to approximately $7.9 million as of the closing date of the transaction. Our plan is to use the remaining $16.7 million to expand our operations, for strategic acquisitions and for marketing, research and development of existing or new products.

Results of Operations

Through September 30, 2012, our efforts have been limited to activities related to the organization of the initial public offering of the Company, the identification and evaluation of prospective acquisition candidates and other general corporate matters. We have not generated any revenues, other than interest income earned on the proceeds held in the trust account.

For the quarter ended September 30, 2012, we had a net loss of approximately $1.2 million, which consisted of interest income of approximately $6.4 thousand less expenses attributable to formation and operating costs of approximately $1.2 million. During the quarter ended September 30, 2011, we had a net loss of approximately $108.2 thousand, which consisted of interest income of approximately $12.4 thousand less expenses attributable to formation and operating costs of approximately $120.6 thousand. The increase noted in the formation and operating costs is mainly driven by higher expenses associated to the identification and evaluation of a prospective acquisition candidate, the preparation of the related transaction documents, and required regulatory filings.

For the nine months ended September 30, 2012, we had a net loss of approximately $1.7 million, which consisted of interest income of approximately $18.0 thousand less expenses attributable to formation and operating costs of approximately $1.7 million. During the nine months ended September 30, 2011, we had a net loss of approximately $228.0 thousand, which consisted of interest income of approximately $38.8 thousand less expenses attributable to formation and operating costs of approximately $266.8 thousand. The increase noted in the formation and operating costs is mainly related to higher expenses associated to the identification and evaluation of prospective acquisition candidates and the preparation of the related transaction documents and required regulatory filings with respect to the Merger with Net Element.

For the period from April 20, 2010 (inception) to September 30, 2012, we had a net loss of approximately $2.5 million, which included interest income of approximately $70.4 thousand, offset by formation and operating costs of approximately $2.6 million.

On October 14, 2010, the Company received net proceeds of $40.0 million, before deducting underwriting compensation of $900.0 thousand and $100 for the purchase of 200,000 warrants by the underwriter. On the same date, pursuant to the exercise of the underwriters' over-allotment option, the Company received $6.0 million before deducting underwriting compensation of $135.0 thousand. In addition, immediately before the consummation of the initial public offering, the sponsors purchased 4,340,000 warrants at a price of $0.50 per warrant, which in the aggregate approximates $2.2 million. Total gross proceeds to the Company from the 4,600,000 units sold in the initial public offering and the private placement sale of sponsors' warrants amounted to $48.2 million.

As of September 30, 2012 we had no contractual commitments other than the agreement to pay a service provider a total of $7.5 thousand per month for accounting, legal and operational support, access to support staff, and information technology infrastructure, which amounted to $22.5 thousand, $67.5 thousand and $176.3 thousand for the quarter ended September 30, 2012, the nine months ended September 30, 2012 and the period from April 20, 2010 (inception) to September 30, 2012, respectively.

Off-Balance Sheet Arrangements

As of September 30, 2012, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations, other than in relation to the monthly fee payable to Bond Street Management, LLC of $7.5 thousand for accounting, legal and operational support, access to support staff, and information technology infrastructure. Such agreement has been in place since July 9, 2012 and shall remain effective upon the earlier of (i) the completion of an initial business combination or (ii) dissolution of the Company.

Recent Accounting Pronouncements

We do not believe that the adoption of any recently issued accounting standards will have a material impact on our financial position and results of operations.

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