NOTE 16. SEGMENT INFORMATION

Our three reportable segments include: (i) North American Transaction Solutions for electronic commerce, (ii) Mobile Solutions (primarily servicing the Russian Federation and CIS) and (iii) Online 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. During the three months ended June 30, 2017 and 2016, the principal revenue stream for all segments came from services fees and branded content.

Factors management used to identify the entity’s reportable segments

The Company’s reportable segments are business units that offer different products and services in different geographies. The reportable segments are each managed separately because they offer distinct products with different delivery and service processes.

North American Transaction Solutions

Our U.S. payment processing business segment consists of the former Unified Payments business and Aptito. This segment operates primarily in North America. In March 2013, we acquired all of the business assets of Unified Payments, a provider of comprehensive turnkey, payment processing solutions to small and medium size business owners (merchants) and independent sales organizations across the United States.

In April 2013, we purchased 80% of Aptito, a cloud based Software-as-a-Service (“SaaS”) restaurant management solution, which provides integrated POS, mPOS, Kiosk, Digital Menus functionality to drive consumer engagement via Apple® iPad®-based POS, kiosk and all other cloud-connected devices.

Mobile Solutions

Our Russian mobile and online payment processing segment consists of Digital Provider, which operates primarily in the Russian Federation and CIS.

In June 2012, we formed our subsidiary, OOO TOT Money, to develop a business in mobile commerce payment processing. TOT Money launched its initial operations in Russia as a payment facilitator using SMS (short message services, which is a text messaging service) and MMS (multimedia message services) for mobile phone subscribers in Russia. During 2015, we changed or business model, rebranded our name to Digital Provider and began to offer branded content to subscribers.

See Note 17 for activity that occurred after June 30, 2017.

Online Solutions

On May 20, 2015, we acquired the net assets that comprise PayOnline, which includes a protected payment processing system to accept bank card payments for goods and services. PayOnline primarily operates in Russia and CIS.

The accounting policies of the individual transactions in the reportable segments are the same as those of the company, as described in Note 1. Transactions between reportable segments are primarily conducted at market rates, resulting in segment profits or expenses that are eliminated for reporting consolidated results.

Segment Summary Information

The following tables present financial information of the Company’s reportable segments at June 30, 2017 and 2016. The “Corporate Expenses & Eliminations” column includes all corporate expenses and intercompany eliminations for consolidated purposes.

Three Months Ended June 30, 2017	North America Transaction Solutions			Mobile Solutions			Online Solutions			Corporate Expenses & Eliminations		Total
Net revenues	$	13,612,782		$	518,398		$	2,009,861		$	-	$	16,141,041
Cost of revenues		11,472,508			502,742			1,343,142			-		13,318,392
Gross Margin		2,140,274			15,656			666,719			-		2,822,649
Gross margin %		16	%		3	%		33	%		-		17	%
General, administrative, and asset disposal		681,480			197,186			592,357			1,128,155		2,599,178
Non-cash compensation		-			-			-			128,537		128,537
Provision for bad debt		669,051			196,556			27			229		865,863
Depreciation and amortization		332,351			607			236,841			3,219		573,018
Interest expense (income), net		246,804			(31,096)			(8,272)			114,616		322,052
Other expenses (income)		48,272			(3,289)			(4,676)			9,115		49,422
Net (loss) income for segment	$	162,316		$	(344,308)		$	(149,558)		$	(1,383,871)	$	(1,715,421)
Segment assets		18,556,547			1,944,098			4,531,170			(3,058,075)		21,973,740

Three Months Ended June 30, 2016	North America Transaction Solutions			Mobile Solutions			Online Solutions			Corporate Expenses & Eliminations		Total
Net revenues	$	10,403,932		$	1,779,708		$	1,509,208		$	-	$	13,692,848
Cost of revenues		8,967,784			1,566,618			950,391			-		11,484,793
Gross Margin		1,436,148			213,090			558,817			-		2,208,055
Gross margin %		14	%		12	%		37	%		-		17	%
General, administrative, and asset disposal		610,608			(211,658)			446,518			1,153,923		1,999,391
Non-cash compensation		-			-			-			2,014,589		2,014,589
Provision for bad debt		125,109			111			18			-		125,238
Depreciation and amortization		330,217			4,768			490,698			18,852		844,535
Interest expense (income), net		138,792			-			-			300,184		438,976
Loss from stock value guarantee											2,162,861		2,162,861
Other expenses (income)		934			5,558			1,198			16		7,705
Net (loss) income for segment	$	230,488		$	414,311		$	(379,615)		$	(5,650,425)	$	(5,385,240)
Segment assets		9,181,868			2,578,024			6,180,939			4,179,834		22,120,665

Six Months Ended June 30, 2017	North America Transaction Solutions			Mobile Solutions			Online Solutions			Corporate Expenses & Eliminations		Total
Net revenues	$	24,577,701		$	1,375,391		$	3,749,890		$	-	$	29,702,982
Cost of revenues		20,933,958			1,319,704			2,524,722			-		24,778,384
Gross Margin		3,643,743			55,687			1,225,168			-		4,924,598
Gross margin %		15	%		4	%		33	%		-		17	%
General, administrative, and asset disposal		1,436,616			321,390			1,141,964			2,530,368		5,430,338
Non-cash compensation		-			-			-			724,941		724,941
Provision for bad debt		945,376			196,844			1,914			1,487		1,145,621
Depreciation and amortization		691,107			1,653			526,938			10,683		1,230,381
Interest expense (income), net		421,984			(59,537)			(17,435)			246,728		591,740
Other expenses (income)		48,272			(482)			(1,723)			9,129		55,196
Net (loss) income for segment	$	100,388		$	(404,181)		$	(426,490)		$	(3,523,336)	$	(4,253,619)
Segment assets		18,556,547			1,944,098			4,531,170			(3,058,075)		21,973,740

Six Months Ended June 30, 2016	North America Transaction Solutions			Mobile Solutions			Online Solutions			Corporate Expenses & Eliminations		Total
Net revenues	$	18,256,581		$	3,773,211		$	2,924,115		$	-		24,953,907
Cost of revenues		15,620,817			3,381,206			1,868,011			-		20,870,034
Gross Margin		2,635,764			392,005			1,056,104			-		4,083,873
Gross margin %		14	%		10	%		36	%		-		17	%
General, administrative, and asset disposal		1,257,926			(128,950)			781,042			2,177,606		4,087,624
Non-cash compensation		-			-			-			2,375,573		2,375,573
Provision for bad debt		376,450			111			418			-		376,979
Depreciation and amortization		650,288			8,958			978,081			95,326		1,732,653
Interest expense (income), net		286,576			-			-			302,838		589,414
Loss from stock value guarantee											2,162,861		2,162,861
Other expenses (income)		934			10,594			18,062			15		29,604
Net (loss) income for segment	$	63,590		$	501,292		$	(721,499)		$	(7,114,219)	$	(7,270,835)
Segment assets		9,181,868			2,578,024			6,180,939			4,179,834		22,120,665