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

April 1, 2019

MIAMI, April 01, 2019 (GLOBE NEWSWIRE) -- 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 +1 (877) 303-9858, or for international callers +1 (408) 337-0139, 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 500TM -- 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, Mix December 31, Mix (Decrease) 2018 2017 ------------------------------------ ------------ ------ ------------ ------ ------------ 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, revenu December 31, revenu (Decrease) 2018 es 2017 es ------------------------------------ ------------ ----- ------------ ----- ------------ 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 % of Increase / Ended Gross Margin December 31, revenu December revenu (Decrease) 2018 es 31, 2017 es ------------------------------------ ------------ ----- ----------- ----- ----------- 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 ------------------------------------------------- North Internationa Corporate Category American l Expenses Total Transaction Transaction & Solutions Solutions Eliminations ------------------------------------------------- ----------- ----------- ----------- ----------- 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 ------------------------------------------------- North Internationa Corporate Category American l Expenses Total Transaction Transaction & Solutions Solutions Eliminations ------------------------------------------------- ----------- ----------- ----------- ------------ 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 ------------------------------------------------- North Corporate American International Expenses Category Transaction Transaction & Total Solutions Solutions Eliminatio ns ------------------------------------------------- ---------- ------------ --------- ---------- 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 ------------------------------------- North Internatio Corporate American nal Expenses Professional Fees Transactio Transactio & Total n n Eliminations Solutions Solutions ------------------------------------- --------- --------- ----------- ----------- 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 ------------------------------------- North Internatio Corporate American nal Expenses Professional Fees Transactio Transactio & Total n n Eliminations Solutions Solutions ------------------------------------- --------- --------- ----------- ----------- 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 --------------------------- North Internation Corporate American al Expenses Increase / Professional Fees Transaction Transaction & (Decrease) Solutions Solutions Elimination s --------------------------- ---------- ---------- ---------- ---------- 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 of Shares Opt ion s Amount Issued Iss ued --------- ------ -- 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 # of Shares 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.

Twelve Twelve months months Funding Source ended ended Increase / December December (Decrease) 31, 31, 2018 2017 -------------- --------- ----------- ---------- 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.

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

Impa irme nt Char Twelve Months Ended December 31, 2017 GAAP Share-based ge Total Compensation Rela ting to Good will ------------------------------------------------------- ------------ ----------- --- ------------ Net (loss) income attributable to Net Element Inc. $ (9,913,485 ) $ 2,940,424 $ - $ (6,973,061 ) stockholders Basic and diluted loss per share $ (5.04 ) $ 1.49 $ - $ (3.55 ) Basic and diluted shares used in computing earnings per 1,967,676 1,967,676 share

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 ElementNet 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 StatementsSecurities 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, December 31, 2018 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 386 385 and December 31, 2017, respectively) 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-control Accumulated Equity ling (Deficiency) Shares Amount Capital Subscripti Income interest Deficit in Assets on ---------- -------- ------------- --------- ------------ ---------- -------------- ------------- Balance December 1,535,350 $ 154.00 $ 163,920,066 $ - $ (2,486,616 ) $ 70,378 $ (157,442,585 ) $ 4,061,397 31, 2016 --------- - ------ - ----------- - ------- - ---------- - -------- - ------------ - ----------- Shares issued in connection with 3,117 0.31 1 - - - - 1 reverse stock split Share based 242,324 24.00 2,850,155 - - - - 2,850,179 compensation Shares issued for 13,082 1.00 105,965 - - - - 105,966 acquisitions Shares issued to settle merchant 30,759 3.00 252,220 - - - - 252,223 liabilities Shares issued for consulting 19,896 2.00 228,416 (50,585 ) - - - 177,833 services Shares issued in connection with 127,406 13.00 758,181 - - - - 758,194 debt restructuring Shares issued under 1,881,165 188.00 15,004,217 - - - - 15,004,405 ESOUSA/Cobblestone agreements Net loss - - - - - (109,564 ) (9,913,485 ) (10,023,049 ) Comprehensive loss - foreign currency - - - - (43,622 ) - - (43,622 ) translation --------- - ------ - ----------- - ------- - ---------- - -------- - ------------ - ----------- Balance December 3,853,100 $ 385.31 $ 183,119,222 $ (50,585 ) $ (2,530,238 ) $ (39,186 ) $ (167,356,070 ) $ 13,143,528 31, 2017 --------- - ------ - ----------- - ------- - ---------- - -------- - ------------ - ----------- Share based 9,919 0.99 127,010 - - - - 127,011 compensation Shares issued for consulting - - - 50,585 - - - 50,585 services Net loss - - - - - (86,551 ) (4,936,182 ) (5,022,733 ) Comprehensive loss - foreign currency - - - - 298,075 - - 298,075 translation --------- - ------ - ----------- - ------- - ---------- - -------- - ------------ - ----------- Balance December 3,863,019 $ 386.30 $ 183,246,232 $ - $ (2,232,163 ) $ (125,737 ) $ (172,292,252 ) $ 8,596,466 31, 2018 --------- - ------ - ----------- - ------- - ---------- - -------- - ------------ - -----------

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.+1 (786) 923-0502 www.netelement.commedia@netelement.com

Corporate Communications:NetworkWire (NW)New York, New York www.NetworkNewsWire.com 212.418.1217 Office Editor@NetworkWire.com