Net Element Reports Full-Year 2018 Financial Results and Provides Business Update

Miami, Florida--(Newsfile Corp. - April 1, 2019) - Net Element, Inc. (NASDAQ: NETE) ("Net Element" or the "Company"), a global technology and value-added solutions group that supports electronic payments acceptance in a multi-channel environment, including point-of-sale ("POS"), e-commerce and mobile devices, today reports financial results for the fiscal year ended Dec. 31, 2018, and provides an update on recent strategic and operational initiatives.

Conference Call

On April 2, 2019, at 8:30 a.m. EST, the Company will host a conference call to discuss 2018 financial results and business highlights. The conference call can be accessed live over the phone by dialing [phone], or for international callers [phone], and referencing conference code 8437549. It is recommended that participants dial in approximately 10 minutes prior to the start of the call.

The call will also be webcast live from https://edge.media-server.com/m6/p/faqumxh9. Following completion of the call, a recorded replay of the webcast will be available on the www.netelement.com/en/ir website.

2018 Full-Year Financial Highlights

• Total processing volume of $3.3 billion, an increase of 18% compared to $2.8 billion in 2017
• Net revenue of $65.8 million, an increase of 10% compared to $60.1 million in 2017
• Gross margin of $10.2 million, an increase of 15% compared to $8.8 million in 2017
• Operating expenses were $14.5 million, a decrease of 17% compared to $17.4 million in 2017
• Net loss per share decreased to ($1.28) in 2018 compared to net loss per share of ($5.04) in 2017, a decrease of 75%

2018 Significant Achievements

• Acquired recurring cash flow portfolios projected to add over $9 million in gross profits over the next four years.
• Ranked as one of the fastest growing companies in North America on Deloitte's 2018 Technology Fast 500^TM
  
• Ranked in the top 10 retail payment consulting/services companies of 2018 by Retail CIO Outlook magazine
• Jon Najarian of CNBC "Halftime Report" and "Fast Money," and Jonathan Fichman, a fintech and startup executive, joined Net Element's board of directors
• Net Element subsidiary Unified Payments is among the first companies to achieve self-regulatory certification from the Electronics Transactions Association

"Successful execution of our strategy in 2018 has created a predictable and resilient business model for the company entering 2019," said Net Element CEO Oleg Firer. "We believe our technology-centered service offerings built around payment ecosystems will continue to differentiate our company as we continue to provide value-added payment solutions to our clients."

Outlook

Net Element's strategy is to ensure that our business remains successful in a rapidly changing market, creating sustainable value for all our stakeholders, including our clients, distribution partners and shareholders. We aim to achieve superior results for our clients by having a deep understanding of their payment acceptance needs, along with having extensive market reach, strong product development and technology enablement.

Planned for 2019

We will continue to focus on understanding our clients and addressing their payment acceptance needs in core market segments.

• Continue growth in all key segments and expand our network of referral partners
• Drive and improve client retention
• Expand our client base in selected markets
• Deliver value-added products to our clients to increase efficiencies and payment acceptance
• Launch new tools to reach our clients, such as digital channels, and deepen partner relations

The global payments industry continued to deliver healthy growth during 2018, with underlying transaction volumes demonstrating even greater strength. We believe that new and disruptive technologies will provide us with the opportunity to differentiate ourselves from our competition and to continue developing and delivering innovative payment solutions in 2019 and beyond.

• Continue to scale and enhance Netevia, our future-ready multi-channel payments platform, enabling intelligent routing of payments for the application development community
• Continue to scale and enhance new product launches that will add value for our clients
• Extend our capabilities in next-generation POS hardware and software and deepen our partner proposition
• Continue trials of advanced technologies centered on business intelligence and mobile-based payments acceptance
• Continue the further development of disruptive emerging technologies such as blockchain technologies, enablement of Internet of Things ("IoT"), biometrics payment acceptance and artificial intelligence
• Continue research and investments in future emerging payment technologies

Realize the full potential of our business model.

• Deliver stronger organic growth
• Monetize on acquisitions completed in 2018
• Develop additional payment network relationships to integrate with our technologies
• Seek acquisition or investment opportunities to deepen our technological and distribution capabilities

We continue to believe that disruptive technologies such as blockchain, IoT, biometrics payments and artificial intelligence will play key roles in future commerce. These technologies will encourage innovation through development of value-added services and cater to both merchants and their customers.

We believe Netevia, our future-ready payments platform, will act as a framework and core for a number of value-added services that can connect merchants and consumers directly, utilizing these disruptive technologies while increasing the economic efficiency of all transactions being made within the ecosystem. Specifically, Netevia Payments Platform delivers end-to-end payment processing through easy-to-use APIs and complements the Company's ability to perform in a multi-channel environment including point-of-sale (POS), e-commerce and mobile devices. Netevia will enable the Company to perform as a hub for disruptive emerging technology solutions.

Results of Operations for the Year Ended Dec. 31, 2018, compared to the Year Ended Dec. 31, 2017

We reported a net loss attributable to common stockholders of approximately $4.9 million or ($1.28) loss per share for the year ended Dec. 31, 2018, as compared to a net loss of approximately $9.9 million or ($5.04) loss per share for the year ended Dec. 31, 2017. This resulted in a decrease in net loss attributable to stockholders of approximately 50%, primarily due to an increase in revenues and other income, decreases in costs related to branded content, combined with selling, general and administrative expenses, and non-cash compensation. This decrease in net loss was partially offset by an increase in bad debt expense.

The following table sets forth our sources of revenues, cost of revenues and gross margins for the years ended Dec. 31, 2018 and Dec. 31, 2017.

Gross Margin Analysis:

		Twelve								Twelve
		Months Ended								Months Ended								Increase /
Source of Revenues		December 31, 2018				Mix				December 31, 2017				Mix				(Decrease)
North American Transaction Solutions		$	59,138,552				89.9	%		$	51,138,327				85.1	%		$	8,000,225
International Transaction Solutions			6,648,265				10.1	%			8,926,497				14.9	%			(2,278,232	)
Total		$	65,786,817				100.0	%		$	60,064,824				100.0	%		$	5,721,993

		Twelve								Twelve
		Months Ended				% of				Months Ended				% of				Increase /
Cost of Revenues		December 31, 2018				revenues				December 31, 2017				revenues				(Decrease)
North American Transaction Solutions		$	50,545,759				85.5	%		$	44,265,264				86.6	%		$	6,280,495
International Transaction Solutions			5,071,412				76.3	%			6,971,948				78.1	%			(1,900,536	)
Total		$	55,617,171				84.5	%		$	51,237,212				85.3	%		$	4,379,959

		Twelve								Twelve
		Months Ended				% of				Months Ended				% of				Increase /
Gross Margin		December 31, 2018				revenues				December 31, 2017				revenues				(Decrease)
North American Transaction Solutions		$	8,592,793				14.5	%		$	6,873,063				13.4	%		$	1,719,730
International Transaction Solutions			1,576,853				23.7	%			1,954,549				21.9	%			(377,696	)
Total		$	10,169,646				15.5	%		$	8,827,612				14.7	%		$	1,342,034

Net revenues consist primarily of service fees from transaction processing. Net revenues were approximately $65.8 million for the year ended Dec. 31, 2018, as compared to approximately $60.1 million for the year ended Dec. 31, 2017. The increase in net revenues is primarily due to continued organic growth of North American merchants with emphasis on value-added offerings, and the acquisition of a recurring cash flow portfolio in July 2018. The net increase also is reflective of the following factors which consisted of: A $2 million decrease in net revenues from our International Transaction Solutions segment as we experienced increased competition; reorganized assignments from our International Transaction Solutions segment; and an approximate $1.9 million reduction in gross revenues due to the adoption of ASC 606. For the year ended Dec. 31, 2017, approximately $2.2 million was included in gross revenues that would have been excluded under ASC 606.

Cost of revenues represents direct costs of generating revenues including commissions, mobile operator fees, interchange expense, processing and non-processing fees. Cost of revenues for the year ended Dec. 31, 2018, was approximately $55.6 million as compared to approximately $51.2 million for the year ended Dec. 31, 2017. The increase of approximately $4.4 million in cost of revenues in 2018 as compared to 2017 was primarily driven by the increase in North American Transaction Solutions revenues and expenses associated with new sponsoring bank relationships. An approximate $1.9 million reduction in cost of revenues was due to the adoption of ASC 606 for the year ended Dec. 31, 2018. For the year ended Dec. 31, 2017, approximately $2.2 million was included in costs of revenues that would have been excluded under ASC 606.

Gross margin for the year ended Dec. 31, 2018, was approximately $10.2 million or 15.5% of net revenue, as compared to approximately $8.8 million or 14.7% of net revenue, for the year ended Dec. 31, 2017. This increase in the gross margin percentage was primarily the result of North American Transaction Solutions segment processing of transactions utilizing our self-designated BIN/ICA and further acceptance of value-added services by the merchants.

Total operating expenses were approximately $14.5 million for the year ended Dec. 31, 2018, as compared to total operating expenses of approximately $17.4 million for the year ended Dec. 31, 2017. Total operating expenses for the year ended Dec. 31, 2018, consisted of selling, general and administrative costs of approximately $9.8 million, non-cash compensation of approximately $142,000, bad debt expense of approximately $2.1 million, and depreciation and amortization expense of approximately $2.5 million. For the year ended Dec. 31, 2017, total operating expenses consisted of general and administrative costs of approximately $10.6 million, non-cash compensation of approximately $2.9 million, bad debt expense of approximately $1.3 million, and depreciation and amortization expense of approximately $2.5 million.

Selling, general and administrative expenses for the years ended Dec. 31, 2018, and Dec. 31, 2017, consisted of operating expenses not otherwise delineated in the accompanying audited consolidated statements of operations and comprehensive loss, as follows:

Twelve months ended December 31, 2018
Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	1,431,806			$	1,205,885			$	2,760,334			$	5,398,025
Professional fees			350,100				346,084				1,556,497				2,252,681
Rent			-				90,456				204,143				294,599
Business development			134,862				4,636				14,961				154,459
Travel expense			151,098				12,789				138,316				302,203
Filing fees			-				-				49,339				49,339
Transaction (gains) losses			-				94,573				-				94,573
Office expenses			307,593				35,646				51,997				395,236
Communications expenses			112,510				162,444				107,475				382,429
Insurance expense			-				-				136,643				136,643
Other expenses			2,842				18,244				277,415				298,501
Total		$	2,490,811			$	1,970,757			$	5,297,120			$	9,758,688

Twelve months ended December 31, 2017
Category		North American Transaction Solutions				International Transaction Solutions				Corporate  Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	1,970,860			$	1,696,245			$	2,082,294			$	5,749,399
Professional fees			505,383				819,184				1,312,271				2,636,838
Rent			-				245,539				245,186				490,725
Business development			53,011				32,072				3,569				88,652
Travel expense			331,299				32,397				130,198				493,894
Filing fees			-				-				72,035				72,035
Transaction (gains) losses			742				(41,200	)			1,642				(38,816	)
Office expenses			303,586				98,961				120,103				522,650
Communications expenses			47,878				130,046				79,288				257,212
Insurance expense			-				5,401				135,386				140,787
Other expenses			38,788				14,715				162,894				216,397
Total		$	3,251,547			$	3,033,360			$	4,344,866			$	10,629,773

Variance
Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	(539,054	)		$	(490,360	)		$	678,040			$	(351,374	)
Professional fees			(155,283	)			(473,100	)			244,226				(384,157	)
Rent			-				(155,083	)			(41,043	)			(196,126	)
Business development			81,851				(27,436	)			11,392				65,807
Travel expense			(180,201	)			(19,608	)			8,118				(191,691	)
Filing fees			-				-				(22,696	)			(22,696	)
Transaction (gains) losses			(742	)			135,773				(1,642	)			133,389
Office expenses			4,007				(63,315	)			(68,106	)			(127,414	)
Communications expenses			64,632				32,398				28,187				125,217
Insurance expense			-				(5,401	)			1,257				(4,144	)
Other expenses			(35,946	)			3,529				114,521				82,104
Total		$	(760,736	)		$	(1,062,603	)		$	952,254			$	(871,085	)

The total decrease of approximately $0.9 million in selling, general and administrative expenses for the year ended Dec. 31, 2018, as compared to the prior year was primarily due to the Company's continued monitoring of operations and the labor costs necessary to maintain or increase revenues, along with the reorganization of assignments in the International Transaction Solutions segment, which resulted in a decrease of approximately $351,000. These objectives were also responsible for the decrease of approximately $384,000 in professional fees associated with operations.

Professional fees were $2,252,681 for the year ended Dec. 31, 2018, as compared to $2,636,838 for the year ended Dec. 31, 2017, representing a decrease of $384,157 as follows:

Twelve months ended December 31, 2018
Professional Fees		North American Transaction  Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
General Legal		$	12,553			$	39,503			$	206,684			$	258,740
SEC Compliance Legal Fees			-				-				152,168				152,168
Accounting and Auditing			-				7,815				390,000				397,815
Tax Compliance and Planning			-				-				25,500				25,500
Consulting			337,547				298,766				782,145				1,418,458
Total		$	350,100			$	346,084			$	1,556,497			$	2,252,681

Twelve months ended December 31, 2017
Professional Fees		North  American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
General Legal		$	33,480			$	38,386			$	80,724			$	152,590
SEC Compliance Legal Fees			-				-				275,112				275,112
Accounting and Auditing			-				15,433				412,943				428,376
Tax Compliance and Planning			-				-				55,400				55,400
Consulting			471,903				765,365				488,092				1,725,360
Total		$	505,383			$	819,184			$	1,312,271			$	2,636,838

Variance
Professional Fees		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Increase / (Decrease)
General Legal		$	(20,927	)		$	1,117			$	125,960			$	106,150
SEC Compliance Legal Fees			-				-				(122,944	)			(122,944	)
Accounting and Auditing			-				(7,618	)			(22,943	)			(30,561	)
Tax Compliance and Planning			-				-				(29,900	)			(29,900	)
Consulting			(134,356	)			(466,599	)			294,053				(306,902	)
Total		$	(155,283	)		$	(473,100	)		$	244,226			$	(384,157	)

Non-cash compensation expense was $142,000 for the year ended Dec. 31, 2018, as compared to approximately $2.9 million for the year ended Dec. 31, 2017. A summary of 2018 and 2017 non-cash compensation activity follows:

2018 Non-Cash Compensation Activity:

						# of Shares				# of Options
		Amount				Issued				Issued
Board of Directors & Employee stock and Options		$	142,017				9,919				-
Stock issued for consulting			-				-				-
Stock issued for acquisitions			-				-				-
Total for 2018		$	142,017				9,919				-

2017 Non-Cash Compensation Activity:

						# of Shares				# of Options
		Amount				Issued				Issued
Board of Directors & Employee stock and Options		$	2,827,200				242,324				45,106
Stock issued for consulting			7,258				896				-
Stock issued for acquisitions			105,966				13,082				-
Total for 2017		$	2,940,424				256,302				45,106

Bad Debt Expense:

We reflected a bad debt expense on the accompanying consolidated statements of operations, which represents uncollected fees of approximately $2.1 million for the year ended Dec. 31, 2018, compared to bad debt expense representing uncollected fees of approximately $1.3 million for the year ended Dec. 31, 2017. The increase of approximately $800,000 from the prior year primarily resulted from an increase of approximately 15.6% in gross revenues from our North American Transaction Solutions segment, which in the normal course of business resulted in an increase in net ACH rejects and uncollectible non-processing fees. For the year ended Dec. 31, 2018, total gross ACH rejects equaled approximately $4 million, of which $1.9 million was subsequently collected. We were able to pass through to independent sales organizations ("ISO's), via a reduction in commissions, $949,000 from the total gross ACH rejects.

For the year ended Dec. 31, 2017, total gross ACH rejects equaled approximately $3.7 million, of which $2.4 million was subsequently collected. We were able to pass through to independent sales organizations, via a reduction in commissions, $603,000 from the total gross ACH rejects.

During the year ended Dec. 31, 2018, approximately $300,000 of the $4 million in gross ACH rejects was attributable to merchant processing losses, while the remaining $3.7 million was related to non- processing fees billed to merchants. Approximately $200,000 of the merchant processing losses was passed on to ISOs. This resulted in net processing losses of $100,000 or .004% of total volume.

During the year ended Dec. 31, 2017, approximately $400,000 of the $3.7 million in gross ACH rejects is attributable to merchant processing losses, while the remaining $3.3 million was related to non- processing fees billed to merchants. Approximately $323,000 of merchant processing losses were passed on to ISOs. This resulted in net processing losses of $101,000 or 0.004% of total volume.

Depreciation and amortization expense consists primarily of the amortization of merchant portfolios in connection with residual buyout arrangements, depreciation expense on equipment, client acquisition costs, capitalized software expenses, trademarks, domain names and employee non-compete agreements. Depreciation and amortization expense was approximately $2.5 million for the years ended Dec. 31, 2018, and Dec. 31, 2017.

Interest expense was approximately $847,000 million for the year ended Dec. 31, 2018, as compared to approximately $1.2 million for the year ended Dec. 31, 2017, representing a decrease of approximately $340,000, primarily due to payoffs of the MBF and RBL notes in the normal course of business.

Funding Source		Twelve months ended December 31, 2018				Twelve months ended December 31, 2017				Increase / (Decrease)
MBF Notes		$	10,359			$	76,591			$	(66,232	)
RBL Notes			597,440				772,777				(175,337	)
PPS Note			169,501				168,233				1,268
Other			69,879				172,021				(102,142	)
Total		$	847,179			$	1,189,622			$	(342,443	)

Other income for the year ended Dec. 31, 2018, of approximately $792,000 consisted primarily of a gain recorded on the transfer of Digital Provider's net assets to PayOnline (approximately $198,000), net gain in connection with the review and analysis of accounts receivable and accounts payable aging (approximately $856,000), gain on the write-off of TOT Group Russia (approximately $312,000), gain on the reversal of stock price guarantees in connection with the purchase of PayOnline that expired (approximately $313,000), partially offset by costs associated with common stock purchase agreement with ESOUSA Holdings, LLC (approximately $(227,000)), and approximately ($332,000) in miscellaneous other expenses.

Other income and expenses for the year ended Dec. 31, 2017, consisted primarily of approximately $117,000 in foreign taxes and other expenses attributed to our International Transaction Solutions segment, as well as approximately $48,000 in miscellaneous other expenses in the North American Transaction Solutions segment.

The net loss attributable to non-controlling interests amounted to approximately $87,000 and $110,000 for the years ended Dec. 31, 2018, and Dec. 31, 2017, respectively. The loss was attributed to our North American Transaction Solutions segment. representing its 20% non-controlling interest in Aptito. The non-controlling interest reflects the results of operations of subsidiaries that are allocable to minority equity owners.

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

To supplement its consolidated financial statements presented in accordance with United States generally accepted accounting principles ("GAAP"), the Company provides additional measures of its operating results by disclosing its adjusted net loss attributable to Net Element, Inc. stockholders. Adjusted net loss attributable to Net Element, Inc. stockholders is calculated as net loss attributable to Net Element, Inc. stockholders excluding non-cash share-based compensation and other non-operating, non-recurring items. Net Element discloses this amount on an aggregate and per share basis. These measures meet the definition of non-GAAP financial measures. The Company believes that application of these non-GAAP financial measures is appropriate to enhance the understanding by the Company's investors of its historical performance through use of a metric that seeks to normalize period-to-period earnings.

This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Pursuant to Regulation G, a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the 12 months ended Dec. 31, 2018, and Dec. 31, 2017, is presented in the following Non-GAAP Financial Measures Table.

Twelve Months Ended December 31, 2018		GAAP				Share-based Compensation				Impairment Charge Relating to Goodwill				Total
Net (loss) income attributable to Net Element Inc. stockholders		$	(4,936,182	)		$	142,017			$	636,000			$	(4,794,165	)
Basic and diluted loss per share		$	(1.28	)		$	0.04			$	0.16			$	(1.08	)
Basic and diluted shares used in computing earnings per share			3,868,324												3,868,324

Twelve Months Ended December 31, 2017		GAAP				Share-based Compensation				Impairment Charge Relating to Goodwill				Total
Net (loss) income attributable to Net Element Inc. stockholders		$	(9,913,485	)		$	2,940,424			$	-			$	(6,973,061	)
Basic and diluted loss per share		$	(5.04	)		$	1.49			$	-			$	(3.55	)
Basic and diluted shares used in computing earnings per share			1,967,676												1,967,676

Additional information regarding Net Element's results for its year ended Dec. 31, 2018, may be found in Net Element's annual report on Form 10-K, which was filed with the Security and Exchange Commission (SEC) on April 1, 2019, and may be obtained from the SEC's Internet website at http://www.sec.gov.

About Net Element

Net Element, Inc. (NASDAQ: NETE) operates a payments-as-a-service transactional and value-added services platform for small to medium enterprise ("SME") in the U.S. and selected emerging markets. In the U.S., the Company aims to grow transactional revenue by innovating SME productivity services using blockchain technology solutions and Aptito, our cloud-based, restaurant and retail point-of-sale solution. Internationally, Net Element's strategy is to leverage its omni-channel platform to deliver flexible offerings to emerging markets with diverse banking, regulatory and demographic conditions. Net Element was ranked as one of the fastest growing companies in North America on Deloitte's 2017 Technology Fast 500™. In 2017 we were recognized by South Florida Business Journal as one of 2016's fastest-growing technology companies. Further information is available at www.NetElement.com.

Forward-Looking Statements

Securities Exchange Act of 1934, as amended. Any statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Words such as "continue," "will," "may," "could," "should," "expect," "expected," "plans," "intend," "anticipate," "believe," "estimate," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, many of which are generally outside the control of Net Element and are difficult to predict. Examples of such risks and uncertainties include, but are not limited to the predictability and resilience of the Company's business model and whether the Company will be successful in achieving further growth and financial improvement. Additional examples of such risks and uncertainties include, but are not limited to (i) Net Element's ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed; (ii) Net Element's ability to maintain existing, and secure additional, contracts with users of its payment processing services; (iii) Net Element's ability to successfully expand in existing markets and enter new markets; (iv) Net Element's ability to successfully manage and integrate any acquisitions of businesses, solutions or technologies; (v) unanticipated operating costs, transaction costs and actual or contingent liabilities; (vi) the ability to attract and retain qualified employees and key personnel; (vii) adverse effects of increased competition on Net Element's business; (viii) changes in government licensing and regulation that may adversely affect Net Element's business; (ix) the risk that changes in consumer behavior could adversely affect Net Element's business; (x) Net Element's ability to protect its intellectual property; (xi) local, industry and general business and economic conditions; and (xii) adverse effects of potentially deteriorating U.S.-Russia relations, including, without limitation, over a conflict related to Ukraine, including a risk of further U.S. government sanctions or other legal restrictions on U.S. businesses doing business in Russia. Additional factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements can be found in the most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed by Net Element with the Securities and Exchange Commission. Net Element anticipates that subsequent events and developments may cause its plans, intentions and expectations to change. Net Element assumes no obligation, and it specifically disclaims any intention or obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.

NET ELEMENT, INC.

CONSOLIDATED BALANCE SHEETS

		December 31, 2018				December 31, 2017
ASSETS
Current assets:
Cash		$	1,645,481			$	11,285,669
Accounts receivable, net			6,290,412				5,472,856
Prepaid expenses and other assets			1,749,221				2,282,614
Total current assets, net			9,685,114				19,041,139
Equipment, net			25,335				58,268
Intangible assets, net			6,441,743				3,127,760
Goodwill			9,007,752				9,643,752
Other long-term assets			604,070				460,511
Total assets		$	25,764,014			$	32,331,430
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	6,368,444			$	6,785,459
Accrued expenses			2,535,947				3,212,438
Deferred revenue			1,495,849				1,712,591
Notes payable (current portion)			433,448				2,493,973
Due to related party			387,814				461,992
Total current liabilities			11,221,502				14,666,453
Notes payable (net of current portion)			5,946,046				4,521,449
Total liabilities			17,167,548				19,187,902
STOCKHOLDERS' EQUITY
Series A Convertible Preferred stock ($.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding at December 31, 2018 and December 31, 2017)			-				-
Common stock ($.0001 par value, 100,000,000 shares authorized and 3,863,019 and 3,853,100 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively)			386				385
Paid in capital			183,246,232				183,119,222
Accumulated other comprehensive loss			(2,332,163	)			(2,530,238	)
Accumulated deficit			(172,292,252	)			(167,356,070	)
Stock subscriptions receivable			-				(50,585	)
Non-controlling interest			(125,737	)			(39,186	)
Total stockholders' equity			8,596,466				13,143,528
Total liabilities and stockholders' equity		$	25,764,014			$	32,331,430

NET ELEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

		Twelve Months Ended December 31,
		2018				2017
Net revenues
Service fees		$	65,786,817			$	58,723,928
Branded content			-				1,340,896
Total Revenues			65,786,817				60,064,824
Costs and expenses:
Cost of service fees			55,617,171				49,934,371
Cost of branded content			-				1,302,841
Selling, general and administrative			9,758,688				10,629,773
Non-cash compensation			142,017				2,940,424
Bad debt expense			2,145,425				1,320,848
Depreciation and amortization			2,454,637				2,533,985
Total costs and operating expenses			70,117,938				68,662,242
Loss from operations			(4,331,121	)			(8,597,418	)
Interest expense			(847,179	)			(1,189,622	)
Other income (expense)			791,567				(236,009	)
Impairment charge relating to goodwill			(636,000	)			-
Net loss from continuing operations before income taxes			(5,022,733	)			(10,023,049	)
Income taxes			-				-
Net loss from continuing operations			(5,022,733	)			(10,023,049	)
Net loss attributable to the non-controlling interest			86,551				109,564
Net loss attributable to Net Element, Inc. stockholders			(4,936,182	)			(9,913,485	)
Foreign currency translation			298,075				(43,623	)
Comprehensive loss attributable to common stockholders		$	(4,638,107	)		$	(9,957,108	)
Loss per share - basic and diluted		$	(1.28	)		$	(5.04	)
Weighted average number of common shares outstanding - basic and diluted			3,868,324				1,967,676

NET ELEMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

		Common Stock								Paid in				Stock				Comprehensive				Non-controlling				Accumulated				Equity (Deficiency)
		Shares				Amount				Capital				Subscription				Income				interest				Deficit				in Assets
Balance December 31, 2016			1,535,350			$	154.00			$	163,920,066			$	-			$	(2,486,616	)		$	70,378			$	(157,442,585	)		$	4,061,397
Shares issued in connection with reverse stock split			3,117				0.31				1				-				-				-				-				1
Share based compensation			242,324				24.00				2,850,155				-				-				-				-				2,850,179
Shares issued for acquisitions			13,082				1.00				105,965				-				-				-				-				105,966
Shares issued to settle merchant liabilities			30,759				3.00				252,220				-				-				-				-				252,223
Shares issued for consulting services			19,896				2.00				228,416				(50,585	)			-				-				-				177,833
Shares issued in connection with debt restructuring			127,406				13.00				758,181				-				-				-				-				758,194
Shares issued under ESOUSA/Cobblestone agreements			1,881,165				188.00				15,004,217				-				-				-				-				15,004,405
Net loss			-				-				-				-				-				(109,564	)			(9,913,485	)			(10,023,049	)
Comprehensive loss - foreign currency translation			-				-				-				-				(43,622	)			-				-				(43,622	)
Balance December 31, 2017			3,853,100			$	385.31			$	183,119,222			$	(50,585	)		$	(2,530,238	)		$	(39,186	)		$	(167,356,070	)		$	13,143,528
Share based compensation			9,919				0.99				127,010				-				-				-				-				127,011
Shares issued for consulting services			-				-				-				50,585				-				-				-				50,585
Net loss			-				-				-				-				-				(86,551	)			(4,936,182	)			(5,022,733	)
Comprehensive loss - foreign currency translation			-				-				-				-				298,075				-				-				298,075
Balance December 31, 2018			3,863,019			$	386.30			$	183,246,232			$	-			$	(2,232,163	)		$	(125,737	)		$	(172,292,252	)		$	8,596,466

NET ELEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

		Twelve Months Ended December 31,
		2018				2017
Cash flows from operating activities
Net loss attributable to Net Element, Inc. stockholders		$	(4,936,182	)		$	(9,913,485	)
Adjustments to reconcile net loss to net cash used in operating activities
Non-controlling interest			(86,551	)			(109,564	)
Share based compensation			142,017				2,940,424
Deferred revenue			(216,742	)			356,619
Net Non-cash items in other income			(1,202,201	)
Impairment for Goodwill			636,000
Provision for bad debt			16,238
Depreciation and amortization			2,454,637				2,533,985
Non-cash interest			73,442				114,802
Changes in assets and liabilities
Accounts receivable			(1,503,755	)			3,002,425
Prepaid expenses and other assets			384,403				(1,047,811	)
Accounts payable and accrued expenses			971,202				(2,943,154	)
Net cash used in operating activities			(3,267,492	)			(5,065,759	)
Cash flows from investing activities
Purchase of portfolios and client acquisition costs			(5,413,264	)			(1,885,098	)
Receipt of excess deposits			-				149,826
Purchase of equipment and changes in other assets			(114,931	)			(103,341	)
Net cash used in investing activities			(5,528,195	)			(1,838,613	)
Cash flows from financing activities
Proceeds from sale of common stock			-				14,884,435
Proceeds from indebtedness			2,131,500				3,678,824
Repayment of indebtedness			(2,785,134	)			(998,780	)
Related party advances			-				-
Contributed capital			-				-
Net cash (used in) provided by financing activities			(653,634	)			17,564,479
Effect of exchange rate changes on cash			(34,399	)			(20,899	)
Net (decrease) increase in cash			(9,483,720	)			10,639,208
Cash and restricted cash at beginning of year			11,733,271				1,094,063
Cash and restricted cash at end of year		$	2,249,551			$	11,733,271
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest		$	773,737			$	1,074,820
Taxes		$	261,871			$	86,942
Shares issued for redemption of indebtedness		$	-			$	379,874
Shares issued in settlement of related party debt		$	-			$	378,253

Contact:
Net Element, Inc.
[phone]
www.netelement.com
[e-mail]

Corporate Communications:
NetworkWire (NW)
New York, New York
www.NetworkNewsWire.com
212.418.1217 Office
[e-mail]

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