MIAMI, FL--(Marketwired - Nov 14, 2017) - Net Element, Inc. (NASDAQ: NETE) ("Net Element" or the "Company"), a global financial technology and value-added solutions group that supports electronic payments acceptance in an omni-channel environment spanning across point-of-sale (POS), e-commerce and mobile devices, today reported financial results for the third quarter ended September 30, 2017 and provided an update on recent strategic and operational initiatives.

Third Quarter 2017 Results:

• Revenues increased to $14.9 million, an increase of 6.4% compared to $14.0 million in the prior year. The increase is primarily due to organic revenue growth in the North America Transaction Solutions segment, which experienced 17.3% growth over the prior year;
• US accounted for 88% of Revenue, while international revenues were 12%.

Recent Highlights:

• Net Element ranked as one of the fastest growing companies in North America on Deloitte's 2017 Technology Fast 500™
• Unified Payments launched web-based, integrated same-day ACH payment processing
• PayOnline launched payment acceptance for Azimuth Airlines
• Unified Payments supported Florida SMB merchants affected by Hurricane Irma with the free mobile POS card readers
• Unified Payments launched Zero-Fee processing program for SMB merchants in the U.S., giving merchants the flexibility to pass through credit card processing costs to their customers
• PayOnline launched payment acceptance module for Telegram, Viber, Facebook and VK instant messengers
• PayOnline launched support for electronic commerce in the U.S. as a fully integrated offering that allows merchants to expand their business without limiting the way customers can pay
• PayOnline added support for iDEAL, the most popular payment system in Netherlands
• PayOnline expanded payments module to include inSales Platform

"Third quarter was an important period for the Company as we streamlined international operations to build a more profitable and less capital intensive Mobile and Online Solutions business. Additionally, we regained compliance with the Nasdaq continued listing requirements," commented Oleg Firer, CEO of Net Element. "In the United States we continue to grow organically with the focus on value-added solutions."

Conference Call:

The Company will host a conference call to discuss Third Quarter 2017 financial results and business highlights on November 15, 2017 at 8:30 a.m. ET. 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 4797319. It is recommended that participants dial in approximately 10 minutes prior to the start of the 8:30 a.m. Eastern call.

The call will also be webcast live from https://edge.media-server.com/m6/p/mn6s3mja. Following completion of the call, a recorded replay of the webcast will be available on the www.netelement.com/en/ir website.

Results of Operations for the Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016

We reported a net loss attributable to our stockholders of $1,702,536, or $0.90 per share, for the three months ended September 30, 2017 as compared to a net loss attributable to our stockholders of $3,469,540, or $2.47 per share, for the three months ended September 30, 2016. This resulted in a decrease in net loss attributable to stockholders of $1,767,004 primarily due to an increase in revenues, decreases in non-cash compensation and interest expenses, partially offset by an increase in other expenses.  Net loss attributable to stockholders for the three months ended September 30, 2016 was also negatively affected by an expense for loss from stock value guarantee related to the PayOnline acquisition.

Eliminating the effects of non-cash compensation and a 2016 stock value guarantee, we reported an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $1,591,259 or $0.84 per share for the three months ended September 30, 2017 as compared to an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $2,736,839 or $1.95 per share for the three months ended September 30, 2016.

Net revenues consist primarily of payment processing fees. Net revenues were $14,901,131 for the three months ended September 30, 2017 as compared to $14,009,652 for the three months ended September 30, 2016. The increase in net revenue is primarily due to an increase to North American Transaction Solutions segment revenue of $1,936,917 (or 17% increase) for the three months ended September 30, 2017 versus the three months ended September 30, 2016. Increases in our North American Transaction Solutions segment revenue were primarily due to continued organic growth of merchants with emphasis on value-added offerings partially offset by some loss of processing revenues resulting from storms primarily affecting merchants processing in Florida and Texas. Our Online Solutions segment revenue increased $180,803 (or 11%), from $1,597,124 for the three months ended September 30, 2016 to $1,777,927 for the three months ended September 30, 2017. Net revenue for the three months ended September 30, 2017 was also negatively affected by a $1,226,241 (or 100%) decrease in revenue in our Mobile Solutions segment, as we experience increased competition, decreased margins and reorganizing assignments of the Mobile Solutions segment to employees at PayOnline and TOT Group Russia. 

The following table sets forth our sources of revenues, cost of revenues and gross margins for the three months ended September 30, 2017 and 2016:

Gross Margin Analysis
				Three						Three
				Months Ended						Months Ended
				September 30,						September 30,						Increase /
Source of Revenues				2017			Mix			2016			Mix			(Decrease)
	North American Transaction Solutions			$	13,123,204		88	%		$	11,186,287		80	%		$	1,936,917
	Mobile Solutions				-		0	%			1,226,241		9	%			(1,226,241	)
	Online Solutions				1,777,927		12	%			1,597,124		11	%			180,803
		Total		$	14,901,131		100	%		$	14,009,652		100	%		$	891,479

				Three						Three
				Months Ended						Months Ended
				September 30,			% of			September 30,			% of			Increase /
Cost of Revenues				2017			revenues			2016			revenues			(Decrease)
	North American Transaction Solutions			$	11,279,098		86	%		$	9,585,952		86	%		$	1,693,146
	Mobile Solutions				-		0	%			1,045,836		85	%			(1,045,836	)
	Online Solutions				1,477,529		83	%			1,063,380		67	%			414,149
		Total		$	12,756,627		86	%		$	11,695,168		83	%		$	1,061,459

				Three						Three
				Months Ended						Months Ended
				September 30,			% of			September 30,			% of			Increase /
Gross Margin				2017			revenues			2016			revenues			(Decrease)
	North American Transaction Solutions			$	1,844,106		14	%		$	1,600,335		14	%		$	243,771
	Mobile Solutions				-		0	%			180,405		15	%			(180,405	)
	Online Solutions				300,398		17	%			533,744		33	%			(233,346	)
		Total		$	2,144,504		14	%		$	2,314,484		17	%		$	(169,980	)

Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the three months ended September 30, 2017 were $12,756,627 as compared to $11,695,168 for the three months ended September 30, 2016. The $1,061,459 increase in cost of revenues was primarily due to a $1,693,145 increase in our North American Transaction Solutions segment due to the corresponding increase in sales volume. There also was a $414,149 increase in cost of revenues resulting from our Online Solutions segment operations primarily due the costs associated with onboarding additional merchants. This was partially offset by a $1,045,836 decrease in our Mobile Solutions segment cost of revenues, which resulted from the corresponding decrease in revenues for our Mobile Solutions segment for the three months ended September 30, 2017.

Gross margin or the three months ended September 30, 2017 was $2,144,504, or 14% of net revenue, as compared to $2,314,484, or 17% of net revenue, for the three months ended September 30, 2016. The $169,980 decrease in gross margin was primarily due to a decrease of $180,405 in Mobile Solutions margin caused by a decrease in business and a $233,346 decrease in Online Solutions offset by $243,771 increase in gross margin in North American Transaction Solutions caused by continued growth of merchants with emphasis on value-added offerings. 

Total operating expenses were $3,418,716 for the three months ended September 30, 2017, which consisted of general and administrative expenses of $2,357,729, non-cash compensation expenses of $111,277, provision for bad debts of $319,690, and depreciation and amortization of $630,020. Total operating expenses were $4,083,494 for the three months ended September 30, 2016, which consisted of general and administrative expenses of $2,284,737, non-cash compensation expenses of $732,701, provision for bad debts of $301,170, and depreciation and amortization of $764,886. 

The components of our general and administrative expenses are discussed below.

General and administrative expenses for the three months ended September 30, 2017 and 2016 consisted of operating expenses not otherwise delineated in our Condensed Consolidated Statements of Operations and Comprehensive Loss and include salaries and benefits, professional fees, rent, business development, travel expense, filing fees, transaction gains or losses, office expenses, communication expenses, insurance expenses, and other expenses required to run our business, as follows:

Three Months Ended September 30, 2017
Category			North America Transaction Solutions			Mobile Solutions				Online Solutions			Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments			$	459,412		$	44,733			$	213,351		$	539,002			$	1,256,498
Professional fees				100,772			(46	)			233,836			326,876				661,438
Rent				-			5,803				39,037			58,410				103,250
Business development				6,572			(6	)			8,902			222				15,690
Travel expense				21,753			2,897				1,142			20,634				46,426
Filing fees				-			-				-			12,056				12,056
Transaction (gains) losses				-			(13,327	)			54			(3	)			(13,276	)
Office expenses				67,140			566				21,319			13,005				102,030
Communications expenses				5,507			1,173				29,416			20,211				56,307
Insurance expense				-			-				-			34,853				34,853
Other expenses				349			87				1,619			80,402				82,457
	Total		$	661,505		$	41,880			$	548,676		$	1,105,668			$	2,357,729

Three Months Ended September 30, 2016
Category			North America Transaction Solutions			Mobile Solutions				Online Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments			$	414,659		$	107,310			$	167,802			$	442,497			$	1,132,268
Professional fees				89,985			36,874				161,394				384,227				672,480
Rent				-			942				35,682				116,703				153,327
Business development				10,827			4,869				27,752				1,395				44,843
Travel expense				61,700			2,563				5,978				50,466				120,707
Filing fees				-			-				-				17,789				17,789
Transaction (gains) losses				-			(11,068	)			(655	)			(141,639	)			(153,362	)
Office expenses				29,600			8,805				21,534				33,532				93,471
Communications expenses				17,392			583				27,065				20,447				65,486
Insurance expense				-			-				-				123,992				123,992
Other expenses				9,755			6				1,350				2,624				13,736
	Total		$	633,918		$	150,884			$	447,902			$	1,052,034			$	2,284,737

Variance
Category			North America Transaction Solutions				Mobile Solutions				Online Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments			$	44,753			$	(62,577	)		$	45,549			$	96,505			$	124,230
Professional fees				10,787				(36,920	)			72,442				(57,351	)			(11,042	)
Rent				-				4,861				3,355				(58,293	)			(50,077	)
Business development				(4,255	)			(4,875	)			(18,850	)			(1,173	)			(29,153	)
Travel expense				(39,947	)			334				(4,836	)			(29,832	)			(74,281	)
Filing fees				-				-				-				(5,733	)			(5,733	)
Transaction (gains) losses				-				(2,259	)			709				141,636				140,086
Office expenses				37,540				(8,239	)			(215	)			(20,527	)			8,559
Communications expenses				(11,885	)			590				2,351				(236	)			(9,179	)
Insurance expense				-				-				-				(89,139	)			(89,139	)
Other expenses				(9,406	)			81				269				77,778				68,721
	Total		$	27,587			$	(109,004	)		$	100,774			$	53,634			$	72,992

Salaries, benefits, taxes and contractor payments were $1,256,498 for the three months ended September 30, 2017 as compared to $1,132,268 for the three months ended September 30, 2016.

Segment				Salaries and benefits for the three months ended September 30, 2017			Salaries and benefits for the three months ended September 30, 2016			Increase / (Decrease)
North America Transaction Solutions				$	459,412		$	414,659		$	44,753
Mobile Solutions					44,733			107,310			(62,577	)
Online Solutions					213,351			167,802			45,549
Corporate Expenses & Eliminations					539,002			442,497			96,505
		Total		$	1,256,498		$	1,132,268		$	124,230

The increase in salaries of $124,230 was due to the North American Transaction Solutions segment and corporate salaries increasing $44,743 and $96,505, respectively, due to an increase in headcount and sales incentives for key employees as the business grows. In addition, an increase in our Online Solutions segment of $45,549 was primarily due to the Ruble exchange rate. These increases were offset by a decrease of $62,577 in our Mobile Solutions segment due to the elimination of headcount as we assigned the current workloads to existing employees of PayOnline and TOT Group Russia.

Professional fees were $661,438 for the three months ended September 30, 2017 as compared to $672,480 for the three months ended September 30, 2016.

Three Months Ended September 30, 2017
Professional Fees				North America Transaction Solutions			Mobile Solutions				Online Solutions			Corporate Expenses & Eliminations			Total
General Legal				$	819		$	-			$	185		$	4,305		$	5,309
SEC Compliance Legal Fees					-			-				-			88,564			88,564
Accounting and Auditing					-			-				1,000			97,500			98,500
Tax Compliance and Planning					-			-				-			-			-
Consulting					99,953			(46	)			232,651			136,507			469,065
		Total		$	100,772		$	(46	)		$	233,836		$	326,876		$	661,438

Three Months Ended September 30, 2016
Professional Fees				North America Transaction Solutions			Mobile Solutions			Online Solutions			Corporate Expenses & Eliminations			Total
General Legal				$	5,818		$	56		$	847		$	99,179		$	105,900
SEC Compliance Legal Fees					-			-			-			43,750			43,750
Accounting and Auditing					-			-			-			101,732			101,732
Tax Compliance and Planning					-			-			-			33,200			33,200
Consulting					84,167			36,818			160,547			106,366			387,898
		Total		$	89,985		$	36,874		$	161,394		$	384,227		$	672,480

Variance
Professional Fees				North America Transaction Solutions				Mobile Solutions				Online Solutions				Corporate Expenses & Eliminations				Increase / (Decrease)
General Legal				$	(4,999	)		$	(56	)		$	(662	)		$	(94,874	)		$	(100,591	)
SEC Compliance Legal Fees					-				-				-				44,814				44,814
Accounting and Auditing					-				-				1,000				(4,232	)			(3,232	)
Tax Compliance and Planning					-				-				-				(33,200	)			(33,200	)
Consulting					15,786				(36,864	)			72,104				30,141				81,167
		Total		$	10,787			$	(36,920	)		$	72,442			$	(57,351	)		$	(11,042	)

Professional fees decreased by $11,042 mainly due to a decrease in general legal fees because of decreases in litigation and tax compliance fees partially offset by an increases in SEC compliance and consulting fees due to increased public market transactions.

Non-cash compensation expense from share-based compensation was $111,277 for the three months ended September 30, 2017, compared to $732,701 for the three months ended September 30, 2016. The majority of these expenses were for employee and consultant equity incentives for both periods.

We recorded bad debt expense of $319,690 for the three months ended September 30, 2017 as compared to $301,170 for the three months ended September 30, 2016. For the three months ended September 30, 2017, we recorded a loss which was primarily comprised of $227,281 in ACH rejects and a $92,409 provision from our Russian operations. Of the $678,143 of gross ACH rejects, $111,174 were passed through to independent sales organizations via a reduction in commissions. For the three months ended September 30, 2016, we recorded a loss which was primarily comprised of $301,132 in net ACH rejects. Of the $301,132 of net ACH rejects, $117,794 were passed through to independent sales organizations via a reduction in commissions.

Depreciation and amortization expense consists primarily of the amortization of merchant portfolios plus depreciation expense on fixed assets, client acquisition costs, capitalized software expenses, trademarks, domain names and employee non-compete agreements. Depreciation and amortization expense was $630,020 for the three months ended September 30, 2017 as compared to $764,886 for the three months ended September 30, 2016. The decrease was due to the full amortization of certain software and merchant portfolio assets during 2016.

Interest expense was $302,813 for the three months ended September 30, 2017 as compared to $608,716 for three months ended September 30, 2016, representing a decrease of $305,904 due to lower balances as follows:

Funding Source				Three months ended September 30, 2017			Three months ended September 30, 2016			Increase / (Decrease)
MBF Notes				$	15,277		$	11,356		$	3,921
RBL Notes					195,736			510,655			(314,919	)
Priority Payments Note					65,630			-			65,630
Other					26,170			86,705			(60,537	)
		Total		$	302,813		$	608,716		$	(305,904	)

Other interest expense for the three months ended September 30, 2017 consisted of $10,407 resulting from the promissory note entered into on March 1, 2017 with Star Equities, LLC (See Note 12. Related Party Transactions) and $17,762 related to the PayOnline acquisition. During the three months ended September 30, 2016, other interest expense primarily consisted of $76,289 related to the PayOnline acquisition. The primary reason for the decrease was due to less Crede stock exchange paydowns on RBL debt during the three months ended September 30, 2017, which resulted in increased RBL interest expense during 2016.

Other expenses for the three months ended September 30, 2017 consists primarily of a $94,267 of expenses attributed to our Mobile Solutions division.

The net income attributable to non-controlling interests amounted to $32,607 for three months ended September 30, 2017 as compared to the net loss of $33,683 for the three months ended September 30, 2016. The $66,290 decrease was caused by an adjustment to commission expense for prior quarters recorded during the three months ended September 30, 2017.

Results of Operations for the Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016

We reported a net loss attributable to stockholders of $5,830,373, or $3.29 per share, for the nine months ended September 30, 2017 as compared to a net loss attributable to stockholders of $10,663,708, or $8.65 per share, for the nine months ended September 30, 2016. This resulted in a decrease in net loss attributable to stockholders of $4,833,335 primarily due to an increase in revenues and a decrease in the loss from stock value guarantee, a decrease in noncash compensation expense, and a decrease in other income offset by an increase in general and administrative expenses.

Eliminating the effects of non-cash compensation in both years and a 2016 stock value guarantee, we reported an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $4,994,154 or $2.82 per share for the nine months ended September 30, 2017 as compared to an adjusted non-GAAP, Net loss attributable to Net Element, Inc. stockholders of $5,392,573 or $4.73 per share for the nine months ended September 30, 2016.

Net revenues consist primarily of payment processing fees. Net revenues were $44,604,113 for the nine months ended September 30, 2017 as compared to $38,963,559 for the nine months ended September 30, 2016. The increase in net revenue is primarily due to organic growth of merchants in our North American Transaction Solutions segment which resulted in an increase to North American Transaction Solutions segment revenue of $8,258,268 (or 28% increase) for the nine months ended September 30, 2017 versus the nine months ended September 30, 2016. Increases in our North American Transaction Solutions segment revenue were primarily due to continued growth of merchants with emphasis on value-added offerings. Our Online Solutions segment revenue increased $1,006,578 (or 22%), from $4,521,239 for the nine months ended September 30, 2016 to $5,527,817 for the nine months ended September 30, 2017, primarily due to the onboarding of additional merchants. The increases in North American Transaction Solutions and Online Solutions segments were offset by a $3,624,292 (or 72%) decrease in our Mobile Solutions segment, as we have eliminated staff and assigned current responsibilities to team members at PayOnline and TOT Group Russia.

The following table sets forth our sources of revenues, cost of revenues and gross margins for the nine months ended September 30, 2017 and 2016:

Gross Margin Analysis
				Nine						Nine
				Months Ended						Months Ended
				September 30,						September 30,						Increase /
Source of Revenues				2017			Mix			2016			Mix			(Decrease)
	North American Transaction Solutions			$	37,701,136		85	%		$	29,442,868		76	%		$	8,258,268
	Mobile Solutions				1,375,160		3	%			4,999,452		13	%			(3,624,292	)
	Online Solutions				5,527,817		12	%			4,521,239		12	%			1,006,578
		Total		$	44,604,113		100	%		$	38,963,559		100	%		$	5,640,554

				Nine						Nine
				Months Ended						Months Ended
				September 30,			% of			September 30,			% of			Increase /
Cost of Revenues				2017			revenues			2016			revenues			(Decrease)
	North American Transaction Solutions			$	32,213,056		85	%		$	25,206,769		86	%		$	7,006,287
	Mobile Solutions				1,319,704		96	%			4,427,043		89	%			(3,107,339	)
	Online Solutions				4,002,251		72	%			2,931,390		65	%			1,070,861
		Total		$	37,535,011		84	%		$	32,565,202		84	%		$	4,969,809

				Nine						Nine
				Months Ended						Months Ended
				September 30,			% of			September 30,			% of			Increase /
Gross Margin				2017			revenues			2016			revenues			(Decrease)
	North American Transaction Solutions			$	5,488,080		15	%		$	4,236,099		14	%		$	1,251,981
	Mobile Solutions				55,456		4	%			572,409		11	%			(516,953	)
	Online Solutions				1,525,566		28	%			1,589,849		35	%			(64,283	)
		Total		$	7,069,102		16	%		$	6,398,357		16	%		$	670,745

Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the nine months ended September 30, 2017 were $37,535,011 as compared to $32,565,202 for the nine months ended September 30, 2016. The increase in cost of revenues was primarily due to a $7,006,287 increase in our North American Transaction Solutions segment due to the corresponding increase in sales volume. There was also a $1,070,861 increase in cost of revenues resulting from our Online Solutions segment operations also primarily due to with boarding additional merchants. This was offset by a $3,107,339 decrease in our Mobile Solutions segment cost of revenues, which resulted from the corresponding decrease in sales for our Mobile Solutions segment for the nine months ended September 30, 2017.

Gross margin for the nine months ended September 30, 2017 was $7,069,102, or 16% of net revenue, as compared to $6,398,357, or 16% of net revenue, for the nine months ended September 30, 2016. The $670,745 increase in gross margin was primarily due to the increased sales volume of processing and business mix in our North American Transaction Solutions offset by a decrease of $516,953 in our Mobile Solutions margin caused from a decrease in business. 

Total operating expenses were $11,949,998 for the nine months ended September 30, 2017, which consisted of general and administrative expenses of $7,788,068, non-cash compensation expenses of $836,218, provision for bad debts of $1,465,311, and depreciation and amortization of $1,860,401. Total operating expenses were $12,656,323 for the nine months ended September 30, 2016, which consisted of general and administrative expenses of $6,372,361, non-cash compensation expenses of $3,108,274, provision for bad debts of $678,150, and depreciation and amortization of $2,497,538. 

The components of our general and administrative expenses are discussed below.

General and administrative expenses for the nine months ended September 30, 2017 and 2016 consisted of operating expenses not otherwise delineated in our Consolidated Statements of Operations and Comprehensive Loss and include salaries and benefits, professional fees, rent, business development, travel expense, filing fees, transaction gains, office expenses, communication expense, insurance expense, and other expenses required to run our business, as follows:

Nine Months Ended September 30, 2017
Category			North  America  Transaction Solutions			Mobile  Solutions				Online  Solutions				Corporate  Expenses &  Eliminations			Total
Salaries, benefits, taxes and contractor payments			$	1,404,162		$	295,068			$	670,056			$	1,927,741		$	4,297,027
Professional fees				351,736			44,793				717,713				881,613			1,995,855
Rent				-			33,092				119,129				240,172			392,393
Business development				9,381			971				26,689				2,718			39,759
Travel expense				133,901			9,723				6,479				111,551			261,654
Filing fees				-			-				-				26,990			26,990
Transaction (gains) losses				742			(30,423	)			(6,138	)			3,031			(32,788	)
Office expenses				165,742			6,591				62,830				104,506			339,669
Communications expenses				28,894			3,368				88,987				60,373			181,622
Insurance expense				-			-				-				111,194			111,194
Other expenses				3,563			87				4,895				166,148			174,693
	Total		$	2,098,121		$	363,270			$	1,690,640			$	3,636,037		$	7,788,068

Nine Months Ended September 30, 2016
Category			North  America  Transaction Solutions			Mobile  Solutions				Online  Solutions			Corporate  Expenses &  Eliminations				Total
Salaries, benefits, taxes and contractor payments			$	1,223,240		$	343,247			$	423,238		$	1,498,541			$	3,488,266
Professional fees				372,492			39,422				462,650			999,627				1,874,191
Rent				-			3,260				104,056			317,317				424,633
Business development				31,784			4,869				92,544			6,043				135,240
Travel expense				152,795			9,657				15,964			88,368				266,784
Filing fees				-			-				-			77,185				77,185
Transaction (gains) losses				-			(394,880	)			38,449			(115,797	)			(472,228	)
Office expenses				76,347			13,779				47,619			84,971				222,716
Communications expenses				64,369			1,639				42,742			69,756				178,506
Insurance expense				-			87				-			129,776				129,863
Other expenses				269			152				1,615			45,169				47,205
	Total		$	1,921,296		$	21,232			$	1,228,877		$	3,200,956			$	6,372,361

Variance
Category			North  America  Transaction Solutions				Mobile  Solutions				Online  Solutions				Corporate  Expenses &  Eliminations				Total
Salaries, benefits, taxes and contractor payments			$	180,922			$	(48,179	)		$	246,818			$	429,200			$	808,761
Professional fees				(20,756	)			5,371				255,063				(118,014	)			121,664
Rent				-				29,832				15,073				(77,145	)			(32,240	)
Business development				(22,403	)			(3,898	)			(65,855	)			(3,325	)			(95,481	)
Travel expense				(18,894	)			66				(9,485	)			23,183				(5,130	)
Filing fees				-				-				-				(50,195	)			(50,195	)
Transaction (gains) losses				742				364,457				(44,587	)			118,828				439,440
Office expenses				89,395				(7,188	)			15,211				19,535				116,953
Communications expenses				(35,475	)			1,729				46,245				(9,383	)			3,116
Insurance expense				-				(87	)			-				(18,582	)			(18,669	)
Other expenses				3,294				(65	)			3,280				120,979				127,488
	Total		$	176,825			$	342,038			$	461,763			$	435,081			$	1,415,707

Salaries, benefits, taxes and contractor payments were $4,297,027 for the nine months ended September 30, 2017 as compared to $3,488,266 for the nine months ended September 30, 2016.

Segment				Salaries and benefits for the nine months ended September 30, 2017			Salaries and benefits for the nine months ended September 30, 2016			Increase / (Decrease)
North America Transaction Solutions				$	1,404,162		$	1,223,240		$	180,922
Mobile Solutions					295,068			343,247			(48,179	)
Online Solutions					670,056			423,238			246,818
Corporate Expenses & Eliminations					1,927,741			1,498,541			429,200
		Total		$	4,297,027		$	3,488,266		$	808,761

The increase in salaries of $808,761 was due primarily to the increase of corporate expenses for a $300,000 discretionary bonus payable to our CEO and approved by the Board of directors. The bonus is payable when cash flow of the business can support the payment. Additionally, North American Transaction Solutions segment salaries increased $180,922 due to an increase in headcount and sales incentives for key employees. There was also an increase of $246,818 in our Online Solutions segment which were primarily due to increasing payroll and consulting on PayOnline and the Ruble exchange rate. This was offset by a decrease in Mobile Solutions segment of $48,179 due to reducing headcount in response to the continued decrease in sales and reorganizing the business and responsibilities.

Professional fees were $1,995,855 for the nine months ended September 30, 2017 as compared to $1,874,191 for the nine months ended September 30, 2016.

Nine Months Ended September 30, 2017
Professional Fees				North  America Transaction Solutions			Mobile  Solutions			Online  Solutions			Corporate  Expenses & Eliminations			Total
General Legal				$	23,418		$	-		$	4,142		$	62,533		$	90,093
SEC Compliance Legal Fees					-			-			-			191,349			191,349
Accounting and Auditing					-			-			15,433			307,782			323,215
Tax Compliance and Planning					-			-			-			15,400			15,400
Consulting					328,318			44,793			698,138			304,549			1,375,798
		Total		$	351,736		$	44,793		$	717,713		$	881,613		$	1,995,855

Nine Months Ended September 30, 2016
Professional Fees				North  America Transaction Solutions			Mobile  Solutions			Online  Solutions			Corporate  Expenses & Eliminations			Total
General Legal				$	39,215		$	268		$	3,867		$	168,039		$	211,389
SEC Compliance Legal Fees					-			-						131,250			131,250
Accounting and Auditing					-			-			578			326,132			326,710
Tax Compliance and Planning					-			-			-			44,200			44,200
Consulting					273,277			39,154			458,205			390,006			1,160,642
		Total		$	312,492		$	39,422		$	462,650		$	1,059,627		$	1,874,191

Variance
Professional Fees				North  America Transaction Solutions				Mobile  Solutions				Online  Solutions			Corporate  Expenses & Eliminations				Increase / (Decrease)
General Legal				$	(15,797	)		$	(268	)		$	275		$	(105,506	)		$	(121,296	)
SEC Compliance Legal Fees					-				-				-			60,099				60,099
Accounting and Auditing					-				-				14,855			(18,350	)			(3,495	)
Tax Compliance and Planning					-				-				-			(28,800	)			(28,800	)
Consulting					55,041				5,639				239,933			(85,457	)			215,156
		Total		$	39,244			$	5,371			$	255,063		$	(178,014	)		$	121,664

Professional fees increased by $121,664 primarily due to an increase in Online Solutions segment's consulting fees of $239,933 and $60,099 in corporate's SEC compliance fees primarily offset by a decrease in general legal corporate expenses of $105,506 and a $85,457 decrease in corporate consulting expenses.

Non-cash compensation expense from share-based compensation was $836,218 for the nine months ended September 30, 2017, compared to $3,108,274 for the nine months ended September 30, 2016. The majority of these expenses were for employee and consultant incentives in both periods.

We recorded bad debt expense of $1,465,311 for the nine months ended September 30, 2017 as compared to $678,150 for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, we recorded a loss which was primarily comprised of $1,185,804 in net ACH rejects and a $279,508 provision from our Russian operations. Of the $1,185,804 of net ACH rejects, $781,923 were passed through to independent sales organizations that board their merchants with us. For the nine months ended September 30, 2016, we recorded a loss which was primarily comprised of $710,508 in net ACH rejects offset by a $32,358 recovery from our Russian operations. Of the $678,150 of net ACH rejects, $286,128 were passed through as a reduction to commissions to independent sales organizations that board their merchants with us.

Depreciation and amortization expense consists primarily of the amortization of merchant portfolios plus depreciation expense on fixed assets, client acquisition costs, capitalized software expenses, trademarks, domain names and employee non-compete agreements. Depreciation and amortization expense was $1,860,401 for the nine months ended September 30, 2017 as compared to $2,497,538 for the nine months ended September 30, 2016.

Interest expense was $894,553 for the nine months ended September 30, 2017 as compared to $1,186,207 for nine months ended September 30, 2016, representing a decrease of $291,655 as follows:

Funding Source				Nine months ended September 30, 2017			Nine months ended September 30, 2016			Increase / (Decrease)
MBF Notes				$	49,606		$	39,806		$	9,800
RBL Notes					572,231			1,066,227			(493,996	)
Priority Payments Note					90,378			-			90,378
Other					182,338			80,174			102,164
		Total		$	894,552		$	1,186,207		$	(291,655	)

Other interest expense primarily consisted of $84,199 resulting from the promissory note entered into on March 1, 2017 with Star Equities, LLC (see Note 12. Related Party Transactions) and $98,139 related to the PayOnline acquisition. During the nine months ended September 30, 2016, other interest consisted primarily of $76,289 related to the PayOnline acquisition. The primary reason for the decrease was due to less Crede stock paydowns on RBL debt during nine months ended 2017, which resulted in increased RBL interest expense during 2016.

Other expenses for the nine months ended September 30, 2017, consisted of $98,721 attributed to our Mobile Solutions Division, by $48,481 in from our North American Transaction Solutions segment and $9,128 of expenses from corporate, offset by $5,359 in other income from our Online Solutions segment.

The net income attributable to non-controlling interests amounted to $93,175 for nine months ended September 30, 2017 as compared to $110,350 for the nine months ended September 30, 2016. The decrease was caused by an adjustment to commission expense for prior quarters recorded during the three months ended September 30, 2017.

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. Adjusted net loss is calculated as net loss 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 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 three and nine months ended September 30, 2017 and 2016 is presented in the following Non-GAAP Financial Measures Table.

			GAAP				Share-based Compensation			Loss from Stock Value Guarantee			Adjusted Non-GAAP
Three Months Ended September 30, 2017
	Net (loss) income attributable to Net Element Inc. stockholders		$	(1,702,536	)		$	111,277		$	-		$	(1,591,259	)
	Basic and diluted earnings per share		$	(0.90	)		$	0.06		$	-		$	(0.84	)
	Basic and diluted shares used in computing earnings per share			1,891,023										1,891,023

			GAAP				Share-based Compensation			Loss from Stock Value Guarantee			Adjusted Non-GAAP
Three Months Ended September 30, 2016
	Net (loss) income attributable to Net Element Inc. stockholders		$	(3,469,540	)		$	732,701		$	-		$	(2,736,839	)
	Basic and diluted earnings per share		$	(2.47	)		$	0.52		$	-		$	(1.95	)
	Basic and diluted shares used in computing earnings per share			1,403,020										1,403,020

			GAAP				Share-based Compensation			Loss from Stock Value Guarantee			Adjusted Non-GAAP
Nine Months Ended September 30, 2017
	Net (loss) income attributable to Net Element Inc. stockholders		$	(5,830,372	)		$	836,218		$	-		$	(4,994,154	)
	Basic and diluted earnings per share		$	(3.29	)		$	0.47		$	-		$	(2.82	)
	Basic and diluted shares used in computing earnings per share			1,770,947										1,770,947

			GAAP				Non-Cash Share-based Compensation			Loss from Stock Value Guarantee			Adjusted Non-GAAP
Nine Months Ended September 30, 2016
	Net (loss) income attributable to Net Element Inc. common stockholders		$	(10,663,708	)		$	3,108,274		$	2,162,861		$	(5,392,573	)
	Basic and diluted earnings per share		$	(8.65	)		$	2.52		$	1.75		$	(4.37	)
	Basic and diluted shares used in computing earnings per share			1,232,593										1,232,593

Additional information regarding Net Element's results for its third quarter ended September 30, 2017 may be found in Net Element's quarterly report on Form 10-Q, which was filed with the Security and Exchange Commission (SEC) on November 14, 2017 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. it aims to grow transactional revenue by innovating SME productivity services such as its cloud based, restaurant and retail point-of-sale solution Aptito. 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™ and South Florida Business Journal's 2016 fastest growing technology companies. Further information is available at www.netelement.com.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the 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: (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; (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.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
					September 30, 2017				December 31, 2016
ASSETS
Current assets:
	Cash				$	922,102			$	621,635
	Accounts receivable, net					4,446,358				7,126,429
	Prepaid expenses and other assets					1,658,200				1,467,897
		Total current assets, net				7,026,660				9,215,961
Fixed assets, net						64,381				117,295
Intangible assets, net						3,242,889				3,589,850
Goodwill						9,643,752				9,643,752
Other long term assets						456,948				603,209
		Total assets				20,434,630				23,170,067
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable					6,067,319				7,510,113
	Accrued expenses					3,419,879				5,518,823
	Deferred revenue					1,196,743				1,355,972
	Notes payable (current portion)					503,041				808,976
	Due to related parties					376,593				299,004
		Total current liabilities				11,563,575				15,492,888
	Notes payable (net of current portion)					6,887,382				3,615,782
		Total liabilities				18,450,957				19,108,670
STOCKHOLDERS' EQUITY
	Series A Convertible Preferred stock ($.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2017 and December 31, 2016)					-				-
	Common stock ($.0001 par value, 100,000,000 shares authorized and 2,141,208 and 1,535,349 shares issued and outstanding at September 30, 2017 and December 31, 2016					2,142				1,535
	Paid in capital					167,805,711				163,918,685
	Accumulated other comprehensive loss					(2,528,424	)			(2,486,616	)
	Accumulated deficit					(163,272,959	)			(157,442,585	)
	Noncontrolling interest					(22,797	)			70,378
		Total stockholders' equity				1,983,673				4,061,397
			Total liabilities and stockholders' equity		$	20,434,630			$	23,170,067

NET ELEMENT, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
			Three Months Ended September 30								Nine Months Ended September 30
			2017				2016				2017				2016
Net revenues
	Service fees		$	14,901,131			$	12,874,386			$	43,263,217			$	34,355,912
	Branded content			-				1,135,266				1,340,896				4,607,647
Total Revenues				14,901,131				14,009,652				44,604,113				38,963,559
Costs and expenses:
	Cost of service fees			12,756,627				10,683,897				36,232,170				28,285,984
	Cost of branded content			-				1,011,271				1,302,841				4,279,218
	General and administrative			2,357,729				2,284,737				7,788,068				6,372,361
	Non-cash compensation			111,277				732,701				836,218				3,108,274
	Bad debt expense			319,690				301,170				1,465,311				678,150
	Depreciation and amortization			630,020				764,886				1,860,401				2,497,538
Total costs and operating expenses				16,175,343				15,778,662				49,485,009				45,221,525
Loss from operations				(1,274,212	)			(1,769,010	)			(4,880,896	)			(6,257,966	)
	Interest expense, net			(302,813	)			(608,716	)			(894,553	)			(1,186,207	)
	Loss from stock value guarantee			-				(1,559,281	)			-				(3,722,142	)
	Other income (expense)			(92,904	)			433,784				(148,099	)			392,257
Net loss before income taxes				(1,669,929	)			(3,503,223	)			(5,923,548	)			(10,774,058	)
	Income taxes			-				-				-				-
Net loss				(1,669,929	)			(3,503,223	)			(5,923,548	)			(10,774,058	)
	Net (income) loss attributable to the noncontrolling interest			(32,607	)			33,683				93,175				110,350
Net loss attributable to Net Element, Inc. stockholders				(1,702,536	)			(3,469,540	)			(5,830,373	)			(10,663,708	)
	Foreign currency translation gain (loss)			92,191				(96,786	)			(41,809	)			(622,568	)
Comprehensive loss attributable to common stockholders			$	(1,610,345	)		$	(3,566,326	)		$	(5,872,182	)		$	(11,286,276	)
Loss per share - basic and diluted			$	(0.90	)		$	(2.47	)		$	(3.29	)		$	(8.65	)
Weighted average number of common shares outstanding - basic and diluted				1,891,023				1,403,020				1,770,947				1,232,593

NET ELEMENT, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
				Nine Months Ended September 30,
				2017				2016
Cash flows from operating activities
Net loss				$	(5,923,548	)		$	(10,663,708	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
		Non controlling interest			(93,175	)			(110,350	)
		Share based compensation			836,218				3,108,274
		Deferred revenue			(159,228	)			135,003
		Depreciation and amortization			1,860,401				2,497,538
		Non cash interest			98,774				741,857
Changes in assets and liabilities
		Accounts receivable			3,514,440				(610,384	)
		Prepaid expenses and other assets			(352,551	)			(331,498	)
		Accounts payable and accrued expenses			(2,390,495	)			4,165,778
		Net cash used in operating activities			(2,609,164	)			(1,067,490	)
Cash flows from investing activities
	Client acquisition costs				(1,380,661	)			(1,346,718	)
	Receipt of excess reserves and ( purchase) of fixed and other assets				77,430				-
		Net cash used in investing activities			(1,303,231	)			(1,346,718	)
	Proceeds from common stock				1,150,098				-
	Proceeds from indebtedness				3,239,033				2,668,500
	Repayment of indebtedness				(273,360	)			(110,434	)
	Related party advances				77,587				117,779
	Net cash provided by financing activities				4,193,358				2,675,845
	Effect of exchange rate changes on cash				19,504				97,902
	Net (decrease) increase in cash				300,467				359,539
	Cash at beginning of period				621,635				1,025,747
	Cash at end of period			$	922,102			$	1,385,286
Supplemental disclosure of cash flow information
	Cash paid during the period for:
		Interest		$	795,779			$	461,673
		Taxes		$	86,942			$	94,718
	Share issuance for settlement of unpaid compensation			$	-			$	1,042,509
	Shares issued for redemption of indebtedness			$	363,986			$	2,328,351
	Shares issued in settlement of advances from board member			$	-			$	909,285