Table of 18 months from the closing of this credit facility. Prior to maturity of the loan, the principal amount of the borrowings under the credit facility will carry a fixed interest rate of the higher of 13.90% per annum or the prime rate plus 10.65%. After maturity of the loan, until all borrowings are paid in full, with respect to the advances under the credit facility, an additional three percent per annum would be added to such interest rate, and for any other amounts, obligations or payments due to RBL, an annual default rate not to exceed the lesser of (i) the prime rate plus 13% per annum and (ii) 18.635% per annum. Borrowings from the line of credit in the amounts of $3,315,000, $400,000 and $250,000 were converted into term loans. At December 31, 2016 and 2015 we had $10,955,944 and $6,035,000 available on our RBL credit line. On May 2, 2016, we renewed our credit facility with RBL, increasing the facility from $10 million to $15 million, and extended the term through February 2018.

On May 2, 2016, we entered into a Master Exchange Agreement with Crede CG III, Ltd (“Crede”), an entity that purchased a portion our previously issued notes held by RBL. Pursuit to the Master Exchange Agreement, we have the right to direct Crede to exchange up to $3,965,000 of the RBL promissory notes acquired for shares of our common stock.

Effective December 20, 2016, we entered into a $4,044,055 term note with RBL. This note effectively refinanced certain previously issued RBL notes. The term note provides for interest-only payments at 14.15% through May 20, 2017 in the amount of $47,686. From June 20, 2021 through May 20, 2021, we are obligated to make monthly interest and principal payments of $110,814. The promissory note also provides for a $20,000 front end refinancing fee, due upon the execution of the loan and a $104,600 back end fee due at the final payment on May 20, 2021.

Effective March 28, 2016, we entered into a $75,000 term loan note with MBF Merchant Capital, LLC (“MBF”). The loan provides for interest-only payments at 14% through May 28, 2016. From June 28, 2016 through March 28, 2017, we are obligated to make monthly interest and principal payments of $7,990. The loan also provides for a 6% back end fee due at the final payment of the loan. As of December 31, 2016, the balance of the note was $23,420.

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Effective April 19, 2016, we entered into a $300,000 promissory loan note with MBF. The loan provides for interest-only payments at 15.5% through May 28, 2016. From June 28, 2016 through May 28, 2018, we are obligated to make monthly interest and principal payments of $14,617. The loan also provides for a 6% back end fee due at the final payment of the loan. As of December 31, 2016, the balance of the note was $221,826.

Effective July 1, 2016, our subsidiary, TOT Group, Inc., entered into a $353,500 promissory loan note with MBF. The loan provides for interest-only payments at 15.5% through June 28, 2016. From July 28, 2016 through June 28, 2018, we are obligated to make monthly interest and principal payments of $17,224. The loan also provides for a 1% front end fee and a 6.6% back end fee due at the final payment of the loan. As of December 31, 2016, the remaining balance of the note was $275,056.

Off-balance sheet arrangements

At December 31, ~~2016,~~2020, we did not have any off-balance sheet arrangements as defined in Item 303(a) (4) of Regulation S-K.

Recently Issued Accounting Pronouncements

~~In May 2014,~~The information contained in Note 3 to our Consolidated Financial Statements concerning a description of recent accounting pronouncements, including our expected dates of adoption and the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, which defers by one year the effective date of ASU 2014-09. Accordingly, this guidance is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted for interim and annual periods beginning after December 15, 2016. We are evaluating theestimated effects ~~that the adoption of ASU 2014-9 will have~~ on our ~~consolidated financial statements, and do not expect a material impact on our financial position,~~ results of operations ~~or cash flows.~~

~~In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes,” which requires entities to present deferred tax assets~~ and ~~deferred tax liabilities as noncurrent in a classified balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. This ASU~~financial condition, is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is permitted. We adopted this ASU, which had no impact on our financial position, results of operations or cash flows.incorporated by reference herein.

In February 2016, the FASB issued ASU 2016-02, “Leases” which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effects that the adoption of ASU 2016-02 will have on our consolidated financial statements, and expect an increase in Assets and Liabilities associated with the recognition of right-of-use office leases.

In March 2016, the FASB issued Accounting Standards Update 2016-08 Revenue from Contracts with Customers (Topic 606) to clarify implementation guidance on principal versus agent considerations (for reporting revenue on a gross or net basis). The ASU is an amendment to Topic 606, clarifies the implementation guidance, and requires an entity to account for revenue as an agent when another entity controls the specified good or service before that good or service is transferred to the customer. This ASU is effective for annual periods beginning after December 15, 2017. We currently are preparing analyses, across all business lines and customers, to determine the effect of the new revenue recognition standard. While our study is not yet complete, we believe that a portion of our revenue recognized for branded content in our Mobile Solutions business segment may no longer meet the conditions for gross reporting upon adoption of this ASU in 2018.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 8. Financial Statements and Supplementary Data.

The Consolidated Financial Statements and notes thereto and the reports of the independent registered public accounting firm set forth on pages F-2 through ~~F-31~~F-24 are filed as part of this Report and incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

~~Our~~Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Report, our management conducted an evaluation, under the supervision and with the participation of our chief executive officer and our chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Disclosure controls and procedures are designed to provide reasonable, but not absolute, assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~Commission’s~~SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this Report, our management conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer concluded that as of December 31, 2020, our disclosure controls and procedures were not deemed effective ~~because there are a limited number of personnel employed and we cannot have an adequate segregation of duties, and~~ due to the material weaknesses in our internal control over financial reporting as(as defined in Rule 13a-15(f ) and Rule 15d-15(f ) under the Exchange Act discussed ~~below under “Management’s~~below.

Management's Report on Internal Control Over Financial Reporting.” Accordingly, management cannot provide reasonable assurance of achieving the desired control objective. Management works to mitigate these risks by being personally involved in all substantive transactions and attempts to obtain verification of transactions and accounting policies and treatments involving our operations, including those overseas. We are in the process of reviewing and, where necessary, modifying controls and procedures throughout the Company, particularly in light of our recent acquisitions and the continued integration of these businesses. We will continue to address deficiencies as resources permit.Reporting

~~Management’s Report on Internal Control over Financial Reporting~~

~~Management~~The management of the Company is responsible for establishing and maintaining adequate internal control over financial ~~reporting (as defined in Rule 13a-15(f) under Exchange Act). Internal~~reporting. The Company's internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

~~We recognize that because~~Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies ~~and~~or procedures may deteriorate.

Management of the Company conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO II Framework”). Based on management’s assessment in accordance with the criteria in the COSO Framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2016.

~~Management is aware of the following material weaknesses (a~~A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the ~~Company’s~~Company's annual or interim financial statements will not be prevented or detected ~~and corrected~~ on a timely ~~basis) in~~basis.

The management of the ~~Company’s~~Company assessed the effectiveness of the Company's internal control over financial ~~reporting:~~ reporting as of December 31, 2020.

~~Control Environment:~~In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Because of the material weaknesses described in the paragraphs below, management concluded that, as of December 31, 2020, the Company's internal control over financial reporting was not effective based on those criteria. We expect to maintain continuous monitoring and implement changes to existing controls, as deemed necessary, to mitigate or remediate the material control weaknesses, where applicable.

We identified a material weakness in our risk assessment process, which we determined was not operating adequately to identify and address the risks to our business and to establish appropriate control objectives given the environment in which we operate and the decentralized structure used to manage our operating activities in connection with our international operations. This material weakness in our risk assessment process was a factor contributing to the other material weaknesses which we have further described below.

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As of December 31, 2020, the material weaknesses disclosed in our Form 10-K for the prior year ended December 31, 2019 have not yet been fully remediated; however, significant progress was made during 2019 in remediating certain material weaknesses. Several steps taken in improving and remediating internal controls over financial reporting include retaining a financial reporting manager, the formation of a disclosure committee, as well as, formal education and training of our Board members.

Remediation activities for our material weaknesses include:

	■ ●	~~Inadequate Policies~~ Risk Assessment. We are continuing the process of designing and ~~Procedures: Based~~implementing an improved enterprise wide risk management process that follows the COSO 2013 framework and one aspect of this process will focus on ~~management’s review of key accounting policies~~identifying and ~~procedures,~~mitigating risks to our ~~management determined~~business that ~~such policies and procedures were inadequate as of December 31, 2016. Management identified certain policies and procedures as inadequate regarding the design~~could have an impact on our internal control over financial reporting. Our process includes periodic updates of the ~~control~~enterprise risk universe through the consideration of current and ~~formal written documentation.~~

	■	~~We do not have sufficient personnel or financial resources to provide adequate risk assessment functions.~~

	■	Changing Board of Directors and Key Employees: A changing organizational structure provided challenges to ensure a sound control environment with appropriate tone, authority, responsibilities, and high ethical values. Due to continued changes in board membership,historical risks, periodic input from executive management, and our domestic and international segment local management. Each time a new risk is identified, we will evaluate if any additional controls are required to mitigate risks to our internal control over financial reporting. During the ~~composition of Company subsidiaries, we have not been able~~year ended December 31, 2019, management sent a consultant to ~~provide adequate training~~Russia in an effort to ~~new board members~~fully understand, implement, train, and ~~employees in order~~eventually test the internal controls relating to ~~establish adequate best practice procedures.~~

~~Control Activities~~

■

~~Testing of Internal Controls:~~our International Transaction Solution's segment’s internal control over financial reporting. The Company’s accounting staff is relatively small and the Company does not have the required infrastructure for meeting the demands of being a U.S. public company. As a result, we have identified deficiencieslocal management team in our ~~internal~~International Transaction Solution's segment is currently in the process of documenting processes, controls, ~~within our key business processes, particularly with respect to~~and recommendations provided under the ~~design~~guidance and assistance of quarterly accounting financial statement close, consolidation, and external financial reporting procedures. Management believes there are control procedures that are effective in implementation within our key business processes. However, certain of these processes could not be formally tested because of lack of design, inadequate documentation, and lack of financial resources.the Company's consultant.

~~Information~~Due to the current COVID-19 pandemic, the Company has had to allocate resources to mitigate risks with its current merchant accounts and ~~Communication~~is in the process of evaluating its operational plans to eliminate any potential exposure to its disclosure controls and procedures. Pending the outcome of this uncertainty, including travel restrictions to Russia, we cannot determine how or when we expect to remediate the material weaknesses noted above, including the allocation of appropriate resources to department heads during 2021.

■

We did not have adequate written procedures, risk assessment processes or board member and employee training at December 31, 2016. Our quarterly reporting process, particularly in Russia, requires additional controls and processes.

~~Monitoring~~

■

~~Internal Control Monitoring: As a result~~This annual report does not include an attestation report of our limited financial personnel and ineffective controls (both preventative and detective) management’s ability to monitor the design and operating effectiveness of our internal controls is limited. Accordingly, management’s ability to timely detect, prevent and remediate deficiencies and potential fraud risks is inadequate.

~~These material weaknesses impede~~ the ~~ability of management to adequately oversee our~~Company's registered public accounting firm regarding internal control over financial ~~reporting on a timely basis. Management intends~~reporting. Management's report was not subject to ~~continue focusing its remediation efforts~~attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in the near term on providing best practices training to our audit committee. In addition, we will endeavor to design revised accounting and financial reporting policies and procedures that will help ensure that adequate internal controls over financial reporting are met. Additionally, these revised procedures will be formally documented and procedures will focus on transaction processing, period-end account analyses and additional review and monitoring procedures. We plan to periodically assess the need for additional accounting resources as business develops and resources permit. Management also is committed to taking further action by implementing enhancements or improvements as resources permit. We recognize that, due to the size and global nature of our business, implementation of additional measures may take considerable time.this annual report.

~~Notwithstanding the material weaknesses discussed above, our management has concluded that the financial statements included~~Changes in ~~this Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.~~Internal Control Over Financial Reporting

Except as specifically described above in this Item 9A, there was no change in our internal control over financial reporting during our fourth fiscal quarter of ~~2016~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

~~None.~~On March 30, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to Agreement and Plan of Merger dated as of August 4, 2020, as amended by the First Amendment dated as of December 29, 2020 (the “Merger Agreement”) with Mullen Technologies, Inc., a California corporation (“Mullen”), Mullen Acquisition, Inc., a California corporation and wholly owned subsidiary of the Company (“Merger Sub”). Prior to the parties’ execution and delivery of the Second Amendment, Section 8.1(b) of the Merger Agreement, as amended, provided that the Merger Agreement may be terminated and the merger contemplated in the Merger Agreement (the “Merger”) and other transactions contemplated in the Merger Agreement may be abandoned at any time prior to the merger effective time, notwithstanding any requisite approval and adoption of this Agreement and the transactions contemplated in the Merger Agreement by the shareholders of Mullen and/or the stockholders of the Company, by either Company or Mullen if the merger effective time shall not have occurred on or before March 31, 2021 (the “Outside Date”). Pursuant to the Second Amendment, the Company, Mullen and Merger Sub amended Section 8.01(b) of the Merger Agreement to extend the Outside Date to April 30, 2021.

The foregoing description of the Second Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of such agreement, a copy of which is attached hereto as Exhibit 2.10 and incorporated herein by reference.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The directors and executive officers of the Company and their respective ages, and positions with the Company and certain business experience as of ~~March 30, 2017~~the date of this Report are set forth below. There are no family relationships among any of the directors or executive officers.

There are no material legal proceedings to which any director or executive officer of the Company, or any associate of any director or executive officer of the Company, is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.

Name	Age	Position
Oleg Firer	39 43	Executive Chairman and Chief Executive Officer ~~& Director~~
Steven Wolberg	57 61	Chief Legal Officer &and Secretary
~~Jonathan New~~ Jeffrey Ginsberg	56 55	Chief Financial Officer
~~Kenges Rakishev~~ Jon Najarian	37 63	~~Chairman~~ Director
~~William Healy~~John Roland	5279	Director
~~James Caan~~Todd Raarup	7755	Director
~~Drew Freeman~~	59	~~Director~~
~~Howard Ash~~	57	~~Director~~

Each of our directors will hold office until our next annual meeting of shareholders at which directors are elected or until his successor is duly elected and qualified. Executive officers serve at the discretion of our Board of Directors.

Oleg Firer, Executive Chairman and Chief Executive Officer ~~and Director~~. Mr. Firer has served as Executive Chairman since November 27, 2018 and Chief Executive Officer and a director of the Company since April 16, 2013. Previously, Mr. Firer served as Executive Chairman of Unified Payments, LLC from January 2011 until its acquisition by the Company’s subsidiary, TOT Group, Inc., on April 16, ~~2013.~~2013 and has served as the Executive Chairman since November 2018. From July 2004 until December 2012, Mr. Firer served as President, Chief Executive Officer and Secretary (and from May 2006 until December 2012 as Treasurer and from May 2008 until December 2012 as Chief Financial Officer) of Acies Corporation, a provider of payment processing solutions to small and medium size merchants across the United States. Mr. Firer also served as a director of Acies Corporation from May 2005 until December 2012. Mr. Firer served as the President of GM Merchant Solution, Inc. (from August 2002) and Managing Partner of GMS Worldwide, LLC (from August 2003) until their assets were acquired by Acies Corporation in June 2004. From November 2002 to December 2003, Mr. Firer served as the Chief Operating Officer of Digital Wireless Universe, Inc. From December 2001 to November 2002, Mr. Firer served as the Managing Partner of CELLCELLCELL, LLC. From March 1998 to December 2001, Mr. Firer served as Vice President of SpeedUS Corp. Mr. Firer studied Computer Science at New York Technical College from 1993 to 1995. Mr. Firer currently serves as a member of Star Capital Management, LLC and Star Equities, LLC, Florida-based investment group. In addition, Mr. Firer serves as a Chairman of the Supervisory Board of the Eastern Caribbean Blockchain Association, a board member of ~~InList, RealConnex~~Progressive Care, Inc. and Star Development Ltd as well as a member of the Advisory Board of the E2Exchange, the Institute of Entrepreneurs and several non-for-profit ~~organizations.~~organizations, Advisory Board member of CoinBoost, Inc. and several other private technology companies. Mr. Firer supports the initiatives of the Firer Family Charitable Foundation, the charitable family fund focused on helping families and children in need. In addition, Mr. Firer serves on various committees of Electronic Transaction Association (ETA). Mr. Firer holds a diplomatic rank of the Extraordinary and Plenipotentiary Ambassador. The Company believes that Mr. Firer’s leadership roles in various payment processing companies make him qualified to serve as a director of the Company.

Steven Wolberg, Chief Legal Officer and Secretary. Mr. Wolberg has ~~been~~served as Chief Legal Officer and Secretary of the Company since April 16, 2013. Previously, Mr. Wolberg served in various capacities with Acies Corporation from approximately January 2009 until December 2012, including as a consultant from approximately January 2009 until October 2009, as a director from October 30, 2009 until December 2012 and as Chief Strategy Officer from March 1, 2010 until December 2012. Mr. Wolberg currently operates a solo law practice in Newton, Massachusetts, Attorney Steven Wolberg, which he has operated since January 1997. Mr. Wolberg served as Chief Counsel and Vice President of Corporate Development for Mascot Networks in Cambridge, Massachusetts from January 2000 to September 2001. Since September 1996, Mr. Wolberg has served as president of Oakland Properties, Inc., a real estate development company. From February 1993 to December 1994, Mr. Wolberg served as an attorney in the real estate and corporate divisions of Brown and Rudnick in Boston, Massachusetts. From March 1988 to November 1991, Mr. Wolberg was a partner with the law firm of Jordaan and Wolberg in Johannesburg, South Africa. From January 1986 to February 1988, Mr. Wolberg was employed as an attorney with Goodman and North in Johannesburg, South Africa. Mr. Wolberg also currently owns and serves as the Managing Member of Prime Portfolios, LLC, which holds a private investment portfolio of merchants, receiving payment processing services. Mr. Wolberg received his Bachelor of Arts from the University of Witwatersrand in Johannesburg, South Africa, his Bachelors of Laws from the University of Witwatersrand, in Johannesburg, South Africa, and his Juris Doctorate from the New England School of Law in Boston, Massachusetts. Mr. Wolberg is a member of the Massachusetts Bar Association.

~~Jonathan New,~~Jeffrey Ginsberg, Chief Financial ~~Officer~~Officer.. Mr. ~~New~~Ginsberg has ~~been~~served as Chief Financial Officer of the Company since ~~October 2, 2012.~~July 9, 2018. Previously, Mr. ~~New was Chief Financial Officer~~Ginsberg served as the Vice President of Finance and Controller of the ~~Company’s predecessor, Net Element, from March 10, 2008 until October 2, 2012. From 2001 to 2003, Mr. New was Chief Operating Officer~~Company since April 16, 2013, responsible for financial operations management, maintenance of ~~Ener1, Inc. From 2004 until it was sold in 2006, Mr. New owned~~accounting records and ~~operated Wholesale Salon Furniture Corp.com, which imported~~maintenance of consolidated financial statements for the Company and ~~distributed salon equipment. Thereafter, until joining Net Element, Mr. New provided services to public companies on a variety of corporate accounting, reporting and audit related issues.~~its subsidiaries. Prior to ~~joining Ener1, Inc.~~his employment with the Company, Mr. Ginsberg was a Vice President of Finance and Controller of Unified Payments from June 2011 until acquisition by the Company in ~~2001,~~April 2013. Prior to Unified Payments, Mr. ~~New held finance manager and chief financial officer positions~~Ginsberg was a Partner at Strombeck Consulting CPA from December 2009 to April 2013. He is a graduate of Queens College with ~~companies including Häagen-Dazs, Virtacon (a web development company), RAI Credit Corporation (private label credit card company) and Prudential~~a Bachelors of ~~Florida. Mr. New obtained his BS~~Arts degree in ~~Accounting from Florida State University and began his career with Accenture.~~Accounting. He is a member of the ~~Florida Institute of Certified Public Accountants and the~~ American Institute of Certified Public Accountants.

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~~Kenges Rakishev, Director~~Jon Najarian, Director. . Mr. Rakishev has been a director of the Company and Chairman of the Company’s Board of Directors since October 2, 2012. Mr. Rakishev served as a director of the Company’s predecessor, Net Element, from April 23, 2012 until October 2, 2012. Mr. Rakishev is one of the Forbes Top 15 wealthiest, most influential and progressive business leaders of the Republic of Kazakhstan with significant investments in banking, finance, insurance, information technology, oil & gas, mining, manufacturing and retail business sectors worldwide. Mr. Rakishev is a large shareholder and member of the board of the largest bank in Kazakhstan, Kazkommertsbank (KASE: KKGB), with over US$250 billion in total assets, large shareholder and Chairman of ~~SAT & Company (KASE: SATC), a diversified industrial holding, among his numerous other investments.Throughout his career, Kenges has served in several notable positions in the public sector including~~ Vice-President of the Union of Chambers of Commerce of the Republic of Kazakhstan, Vice-President of The Boxing Association of Republic of Kazakhstan and Vice-President of the Asian Boxing Confederation. Mr. Rakishev holds a B.A. (Law) from the Kazakh State Law Academy and a B.A. (International Economics) from the Kazakh Economic University. Mr. Rakishev also has an AMP Diploma from Oxford University. We believe that Mr. Rakishev’s international business leadership and relationships, combined with his extensive knowledge and unique perspectives of global business opportunities, qualifies him to serve as a Director of the Company.

~~William Healy, Director~~. Mr. Healy is an accomplished financial services industry veteran with more than 24 years of merchant financing and electronic payments industry experience. Since 2006, Mr. Healy has served as the President of Funds4Growth, a leading investment firm focused on financing of payment service providers in the United States. Since launching Funds4Growth, Mr. Healy has successfully structured and financed in excess of $150 million in merchant base loans. Prior to his tenure at Funds4Growth, Mr. Healy founded MBF Leasing, LLC in November of 2003, where he was responsible for strategic planning along with the financial and operational management of MBF Leasing. Prior to that, Mr. Healy spent 13 years with the CIT Group, Inc., where he was the President of CIT’s Lease Finance Group out of Chicago, Illinois, overseeing more than 150 employees involved in over 225,000 leasing transactions, and in excess of $125 million in merchant base financings. Prior to joining CIT, Mr. Healy held several senior level positions with NewCourt Financial, including Chief Operating Officer of the Specialty Finance Division. He is a graduate of the University of Notre Dame with a Bachelor’s degree in Accounting. We believe that Mr. Healy’s extensive knowledge in the payments industry qualifies him to serve as a director of the Company.

~~James Caan, Director~~~~. Mr. Caan~~Najarian has been a director of the Company since ~~October 2, 2012.~~March 8, 2018. Mr. ~~Caan served as a director of the Company’s predecessor, Net Element, from January 1, 2011 until October 2, 2012. Mr. Caan~~Najarian is an actor and director, having worked in the film and television industries for over 40 years, and he is one of the entertainment industry’s most renowned talents, having starred in over 80 films. We believe that Mr. Caan’s tenure working as an actor and director in the film and television industry, qualifies him to serve as a director of the Company.

~~Drew J. Freeman, Director~~~~. Mr. Freeman has been a director of the Company since May 21, 2014. Mr. Freeman is an~~ accomplished financial industry veteran with more than 3037 years of ~~electronic payments~~financial and capital markets industry experience. ~~Since June 2007,~~ Mr. ~~Freeman has served as~~Najarian is also well-versed in cryptocurrency and blockchain technologies. Mr. Najarian is a professional investor, money manager and media analyst. He is a co-founder of Investitue, LLC, the ~~President~~industry leading options education firm, which recently launched “Crypto Basics,” a new educational course that covers the basics of ~~Freeman Consulting, Inc.,~~cryptocurrency, blockchain technology, altcoins and Initial Coin Offerings (ICOs). He is also a ~~payments~~host of the International ICO Channel, a part of CoinBoost, whose goal is to bridge the divide between blockchain and mainstream media by offering distribution to traditional financial media outlets. In 2016, Mr. Najarian and his brother Pete co-founded Najarian Advisors, a company advising institutional investors on options strategies. The brothers invest in and work with start-ups via Rebellion Partners, a venture consulting firm ~~that works~~they launched in 2015. Mr. Najarian is a cast member of CNBC’s “Halftime Report” and the “Fast Money” show. He is also the feature of the “DRJ Report” on CBOE-TV popular webcast. Mr. Najarian was a linebacker for the Chicago Bears before he focused his attention to trading on the Chicago Board Options Exchange (“CBOE”). He became a member of the CBOE, NYSE, CME and CBOT and worked as a floor trader for 25 years. In 1990, he founded Mercury Trading, a market-making firm at the CBOE, which he sold in 2004 to Citadel, one of the world’s largest hedge funds. In 2005, Mr. Najarian co-founded optionMONSTER and tradeMONSTER and negotiated a partnership with ~~private equity~~General Atlantic Partners in 2014 resulting ultimately in a sale to E*Trade for $750 million in September of 2016. Mr. Najarian developed and ~~ISOs. Concurrent~~patented trading applications and ~~prior~~algorithms used to ~~that,~~identify unusual activity in stock, options, futures and cryptocurrency markets. optionMONSTER, an options news and education site, was described by Securities Industry News as “content king of the options business.” Mr. ~~Freeman served as President~~Najarian is a graduate of Merchant Data Systems from 2009 to 2013, Group Executive at Chase Paymentech from 2006 to 2007, and Executive Vice President at JP Morgan Chase-First Data JV (Chase Merchant Services) from 2000 to 2006. Mr. Freeman earnedGustavus Adolphus College with a ~~business degree from the University of Miami in 1980.~~BA degree. We believe that Mr. ~~Freeman’s extensive knowledge~~Najarian’s experience in the ~~payments~~financial and capital markets industry ~~qualifies him to serve as a director of the Company.~~

~~Howard Ash, Director.~~ Mr. Ash has been a director of the Company since June 13, 2016. Mr. Ash is an accomplished executive who served as CEO, COO and CFO to a variety of high profile, international companies. Mr. Ash currently serves as Chairman of Claridge Management since 2000. Mr. Ash served as Chief Operating Officer of BioCard Corporation from 1997 to 2007. Mr. Ash served as Chief Operating Officer of CITA Americas, Inc. from 1996 to 1997. Mr. Ash served as Chief Executive Officer of IEDC Marketing, Inc. from 1992 to 1996. Mr. Ash held a CFO/Financial Planning/Investment position at Abrams, Ash & Associates from 1990 to 1992. Mr. Ash currently serves on the Star Telemed Board, functioning initially as the Liaison to the Cuban Government through the Government of Grenada. Mr. Ash currently serves on the Advisory Board of the E2Exchange, the Institute of Entrepreneurs, in the United Kingdom as the only non-UK citizen. Mr. Ash continues to serve since 2009 in a senior development and strategic capacity for One Laptop Per Child, a global NGO created to provide educational opportunities for the world's poorest children by providing each child with a rugged, low-cost, low-power, internet connected laptop with content and software. Prior Chairmanships include the 2009 through 2012 term for the Sturge Weber Foundation, a non-profit organization dedicated to curing this rare but fatal syndrome that affects children. Previously, Mr. Ash was an Advisory Board Member to Edge Global Investment Limited which forged a strategic partnership with the Africa Forum, consisting of 37 former Heads of State and Government to pave the way for a new approach on nutrition and food supplements as part of a comprehensive strategy to fight the HIV and AIDS pandemic. Mr. Ash started an interest-free micro-loan society in 1987 that has provided more than $15 million in micro-loans throughout the United States and Israel. In 1999, Mr. Ash founded the Circle of Life Resource Center, Inc., a food bank in Miami, Florida that feeds several hundred families per week. Mr. Ash earned a Bachelor of Commerce degree, with Honors in Accounting and Law from the University of Witwatersrand (South Africa) in 1980. We believe that Mr. Ash’s extensive experience as a business and finance executive and member of multiple oversight bodies, provides him with the necessary skills to be qualified to serve as a director of the Company. The Company’s Board of Directors determined that Mr. Najarian is an independent director for purposes of the rules and regulations of the Securities and Exchange Commission and under the applicable NASDAQ listing standards, and that he has the other qualifications required for service on the Company’s Audit, Compensation and Nominating and Corporate Governance Committees.

John Roland, Director. Effective July 10, 2020, the Board of Directors of the Company appointed Mr. John Roland as a Director of the Company to fill the vacancy from Mr. Wiegand’s resignation. John Roland, who is 79 years old, is an accomplished broadcast media professional, news presenter and reporter. Since January 2009, John has been an independent media and public relations consultant. Since October 2013, he has also served as a Media Consultant for John Roland Entertainment. From December 1969 to August 2002, John was a news anchor for Fox 5 (WNYW-TV New York). From July 1967 to November 1969, he was a Staff Reporter for KTTV (Los Angeles). In his early years with WNEW/WNYW, he was a political reporter and weekend presenter for The 10 O'Clock News. John earned his B.A. in Journalism degree from California State University at Long Beach in 1964. He has appeared in several films, credited as a television anchor and himself once. Roland played television anchors in Hero at Large (1980), Eyewitness (1981) and The Object of My Affection (1998). He played himself in The Scout (1994). He played himself in three documentaries produced by filmmaker Dennis Michael Lynch, King of the Hamptons (2011) and 2012: They Come to America, The Cost of Illegal Immigration and 2013: They Come to America 2: The Cost of Amnesty. The Board of Directors of the Company concluded that Mr. Roland should serve as a Director of the Company in light of his media and public relations experience and his general financial experience. Mr. Roland was also appointed to serve as a member of the Company’s Audit Committee. The Company’s Board of Directors determined that Mr. Roland is an independent director for purposes of the rules and regulations of the Securities and Exchange Commission and under the applicable NASDAQ listing standards, and that he has the other qualifications required for service on the Company’s Audit Committee.

~~Section 16(a) Beneficial Ownership Reporting Compliance~~

~~Section 16(a)~~ Todd Raarup, Director. Effective July 23, 2020, the Board of Directors of the ~~Exchange Act requires our directors and officers and persons~~Company appointed Mr. Todd Raarup as a Director of the Company to fill the vacancy from Mr. Ash’s resignation. Todd Raarup, who ~~beneficially own more than ten percent~~is 55 years old, is an accomplished financial industry veteran. Mr. Raarup is currently the CEO of Najarian Advisors, a registered ~~class~~investment advisor he co-founded in 2017. From 2013, Mr. Raarup has been serving as President of ~~our equity securities~~Symmetric Systems LLC. Prior to ~~file~~founding Najarian Advisors, Mr. Raarup held a series of senior management roles at Citigroup Global Equities and Knight Trading Group. From 2005 to 2012 he was Global Head of Trading Analytics and Technology Strategy and Co-Head of Derivative Execution Services at Citigroup Global Equities, which provided market access products to institutional and broker-dealer customers. From 2000-2004, Mr. Raarup was Head of Knight Execution Partners and Head of Options Floor Trading at Knight Trading Group prior to that. From 1995 to 1999 he traded listed options for Arbitrade LLC, both on the CBOE trading floor and in London. He started his career as a CBOE floor trader for Mercury Trading from 1990 to 1994. Mr. Raarup graduated in 1994 from the University of Chicago Booth School of Business with ~~the Commission initial reports~~an MBA in Analytical Finance and Econometrics. Mr. Raarup received his B.A. degree in Economics and Religious Studies from Gustavus Adolphus College. The Board of ~~ownership and reports of change in ownership of common stock and other equity securities~~Directors of the Company. Directors, officers and greater than ten percent stockholders are required by Commission regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, the following persons have failed to file onCompany concluded that Mr. Raarup should serve as a ~~timely basis the identified reports required by Section 16(a)~~Director of the Company in light of his experience in the financial industry. Mr. Raarup was also appointed to serve as a member of the Company’s Audit, Compensation and Nominating and Corporate Governance Committees. The Company’s Board of Directors determined that Mr. Raarup is an independent director for purposes of the rules and regulations of the Securities and Exchange ~~Act during~~Commission and under the ~~most recent fiscal year:~~applicable NASDAQ listing standards, and that he has the other qualifications required for service on the Company’s Audit, Compensation and Nominating and Corporate Governance Committees

Name and Relationship Number of
late reports Transactions not timely
reported Known failures to file a
required form
Jonathan New, Chief Financial Officer 1 1 0
Steven Wolberg, Chief Legal Officer and Secretary 1 1 0
47

Code of Ethics

We have adopted a Code of Ethics and Business Conduct that applies to all of our directors, officers and employees, including our principal executive officer and our principal financial and accounting officer. A copy of our Code of Ethics and Business Conduct has been posted to the "Investors—Corporate Governance" section of our Internet website at http://www.netelement.com. We will provide a copy of our Code of Ethics and Business Conduct to any person without charge, upon written request to our Secretary at 3363 NE 163rd Street, Suite ~~705,~~605, North Miami Beach, Florida 33160, fax number (305) 508-5497, e-mail address investors@netelement.com.

Audit Committee

Our Board of Directors has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act, which is currently comprised of ~~Howard Ash~~John Najarian (audit committee chairman), ~~Drew Freeman~~John Roland, and ~~William Healy.~~Todd Raarup.. Our Board of Directors has determined that ~~Howard Ash~~John Najarian is financially sophisticated as described in NASDAQ Listing Rule 5605(c)(2) and qualifies as an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K. ~~We believe that~~Each member of the audit ~~committee's current member composition satisfies~~committee meets the audit committee independence requirements of Nasdaq and the rules under the Exchange Act relating to audit committees.
49
Table of ~~NASDAQ that govern audit committee composition, including the requirement that audit committee members all be "independent directors" as that term is defined by NASDAQ Listing Rule 5605(a)(2).~~
Contents

Item 11. Executive Compensation.

Summary Compensation Table

The following table sets forth information for the fiscal years ended December 31, ~~2016~~2020 and ~~2015~~2019 with respect to all compensation paid to or earned by each of our “named executive officers” (as defined by Item 402(m)(2) of the Regulation S-K).

Stock Option All Other
Stock

Option

All Other

Name and Principal Position Year Salary ($) Bonus ($) Awards ($) Awards ($) Compensation ($) Total ($)
Year

Salary ($)

Bonus ($)

Awards ($) (1)

Awards ($) (1)

Compensation ($)

Total ($)

Oleg Firer, Chief 2016 $ 300,000 $ 300,000 $ 3,614,273 $ - $ 29,734 $ 4,244,007
Oleg Firer, Chairman and Chief

2020
$ 210,750 $ - $ 1,156,608 $ - $ 59,410
(3)
$ 1,426,768
Executive Officer of Net Element 2015 $ 300,000 $ 300,000 $ 3,442,934 (1) $ - $ 29,729 $ 4,072,663 (1) 2019 300,000 600,000 505,964 - 56,348 (3) 1,462,312
Steven Wolberg, Chief Legal Officer and 2016 $ 200,000 $ - $ 245,500 $ 290,743 $ 11,734 $ 747,977
2020
148,542 - 352,452 - 11,734 512,728
Secretary of Net Element 2015 $ 200,000 $ - $ 180,000 (2) $ 252,000 (3) $ 11,734 $ 643,734
2019
230,000 - 140,789 471,750 11,734 842,795
Jeffrey Ginsberg, Chief Financial Officer of Net Element (2)

2020
106,313 - 117,845 - 15,949 240,106

2019
135,000 - - 31,450 12,878 179,328

(1) AnThe amounts disclosed generally reflect the grant date fair value computed in accordance with FASB ASC Topic 718. Grant date fair value for each award ~~of 954,172 restricted shares~~was determined based on the date approved by the Compensation Committee of the ~~Company’s common~~Board of Directors and by the closing stock to Oleg Firer (consisting of 579,172 shares in lieu of and in satisfaction of accrued and unpaid compensation due to him in the amount of $1,042,509 and 375,000 shares as performance bonus) was grantedprice on ~~December 3, 2015.~~such date.

(2) ~~An award~~This amount consists primarily of ~~100,000 restricted shares of the Company’s common stock to Steven Wolberg was granted on December 3, 2015.~~his automobile reimbursement expense in connection with his employment agreement, health and other insurance expense.

(3) Not reflecting a rescission, effective on April 12, 2016 (i.e., subsequent to the fiscal year ended December 31, 2015), of award of 120,000 ISOs (with a fair market value of $216,000 as of the grant date).
Outstanding Equity Awards at Fiscal Year End2020

The following table sets forth information with respect to outstanding equity awards at the end of the Company’s fiscal year ~~2016~~2020 for the “named executive officers”:

OPTION AWARDS SHARE AWARDS
OPTION AWARDS

SHARE AWARDS

Name Number of
securities
underlying
unexercised
options(#)
exercisable Number of
securities
underlying
unexercised options
(#) unexercisable Equity incentive
plan awards:
Number of
securities
underlying
unexercised
unearned options
(#) Option exercise
price ($) Option Expiration
Date Number of shares or
units of stock that
have not vested(#) Market value of
shares of units of
stock that have not
vested($) Equity incentive
plan awards:
Number of
unearned shares,
units or other rights
that have not
vested (#) Equity incentive
plan awards:
Market or payout
value of unearned
shares, units or
other rights that
have not vested ($)
Number of securities underlying unexercised options(#) exercisable

Number of securities underlying unexercised options (#) unexercisable

Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)
Option exercise price ($)
Option Expiration Date

Number of shares or units of stock that have not vested(#)

Market value of shares of units of stock that have not vested($)

Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)

Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)

Steven Wolberg 200,000 - - $ 0.24 December 7, 2025 - $ - - $ - 2,000 - - $ 24.00
3-Oct-25
- $ - - $ -
Steven Wolberg 137,143 - - $ 2.12 June 13, 2026 - $ - - $ - 13,714 - - $ 21.20
13-Jun-26
- $ - - $ -
Steven Wolberg
12,000 - - $ 8.10
28-Feb-27
- $ - - $ -
Steven Wolberg 75,000 - - $ 6.29 10-Apr-29 - $ - - $ -
Jeffrey Ginsberg
966 - - $ 13.40
10-Dec-24
- $ - - $ -
Jeffrey Ginsberg
1,006 - - $ 21.20
13-Jun-26
- $ - - $ -
Jeffrey Ginsberg 4,000 - - $ 24.00 3-Dec-25 - $ - - $ -
Jeffrey Ginsberg 5,000 - - $ 6.29 10-Apr-29 - $ - - $ -
Employment Agreement
On February 25, 2020, as per approval of the Compensation Committee of the board of directors of the Company, the Company entered into an employment agreement (the “Wolberg Agreement”) with Steven Wolberg, the Company's Chief Legal Officer and Corporate Secretary. The Wolberg Agreement provides for continuation of the current base salary of $250,000. The term of the Wolberg Agreement is 5 years, with subsequent 1-year renewals. The Wolberg Agreement provides for a sign-on bonus of 10,000 shares of Company’s common stock, to be granted to Mr. Wolberg pursuant to the Company’s equity incentive plan, the severance in the amount of two times annual base salary of Mr. Wolberg if Mr. Wolberg’s employment is terminated by the Company without “cause” (as defined in the Wolberg Agreement) or Mr. Wolberg terminates the employment for “good reason” (as defined in the Wolberg Agreement). For each fiscal year during the term of the Wolberg Agreement, the Wolberg Agreement provides for a bonus arrangement equal to 50% of Mr. Wolberg’s base salary, payable in the Company’s shares of common stock or, at the Company’s discretion, in cash. Further, for each fiscal year during the term of the Wolberg Agreement, Mr. Wolberg will be eligible to receive long-term equity incentive awards, as determined by the Compensation Committee at the time of grant, pursuant to the Company’s equity incentive plan.

Director Compensation

The following table further summarizes the compensation paid to the Company's non-employee directors for service as a director during ~~2016:~~2020:

Fees earned or
Director Name paid in cash ($) Stock awards ($) Total ($)
Kenges Rakishev $ - $ 4,650 $ 4,650
David P. Kelley II $ 27,500 $ 2,133 $ 29,633
James Caan $ - $ 4,650 $ 4,650
William Healy $ 21,250 $ 4,650 $ 25,900
Drew J. Freeman $ 6,354 $ 4,650 $ 11,004
Howard Ash $ 18,958 $ 2,520 $ 21,478
Director Name

Fees earned or paid in cash ($)

Stock awards ($)

Total ($)

Howard Ash, former director
$ - $ 7,504 $ 7,504
Jonathan Fichman, former director
6,250 - 6,250
Jon Najarian
20,000 15,005 35,005
John J. Wiegand, former director 12,479 - 12,479
Todd Raarup
- 7,501 7,501
John Roland 2,500 7,501 10,001

48
50
Table of Contents

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The table below contains information regarding the beneficial ownership of our Common Stock as of March 21, ~~2017~~2021 by (i) each person who is known to us to beneficially own more than 5% of our Common Stock, (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our directors and executive officers as a group. Except as otherwise noted below, each person or entity named in the following table has the sole voting and investment power with respect to all shares of our Common Stock that he, she or it beneficially owns. Unless otherwise indicated, the address of each beneficial owner listed below is c/o Net Element, Inc., 3363 NE 163rd Street, Suite ~~705,~~605, North Miami Beach, FL 33160.

Name and address of beneficial owner
Amount and nature of beneficial
ownership (number of shares of
Common Stock beneficially owned)
Percent
of class (1)
Kenges Rakishev
c/o SAT & Company
241 Mukanova Street
Almaty Kazakhstan 050008 3,132,961 (2) 16.61 %
Oleg Firer
c/o Net Element, Inc.
3363 NE 163rd Street, Suite 705,
North Miami Beach, Florida 33160 1,815,730 (3) 8.64 %
Steven Wolberg
c/o Net Element, Inc.
3363 NE 163rd Street, Suite 705,
North Miami Beach, Florida 33160 508,091 (4) 2.76 %
James Caan
2791 Hutton Drive
Beverly Hills, CA 90210 18,764 0.11 %
Jonathan New
c/o Net Element, Inc.
3363 NE 163rd Street, Suite 705,
North Miami Beach, Florida 33160 150,160 (5) 0.83 %
Howard Ash
4233 Sheridan Avenue
Miami Beach, Florida 33140 812 0.01 %
William Healy
16W281 83rd Street, Suite B
Burr Ridge, IL 60527 178,599 (6) 0.97 %
Drew Freeman
2542 Nassau Lane
Fort Lauderdale. FL 33312 3,875 0.02 %
All directors and executive officers as a group (8 persons) 5,808,992 29.95 %
Name and address of beneficial owner
Amount and nature of beneficial ownership (number of shares of Common Stock beneficially owned)

Percent of class (1)

Oleg Firer
552,249
(2)
10.60
%
c/o Net Element, Inc.

3363 NE 163rd Street, Suite 605,

North Miami Beach, Florida 33160

Steven Wolberg
180,287
(3)
3.39
%
c/o Net Element, Inc.

3363 NE 163rd Street, Suite 605,

North Miami Beach, Florida 33160

Jeffery Ginsberg
28,179

0.54
%
c/o Net Element, Inc.

3363 NE 163rd Street, Suite 605,

North Miami Beach, Florida 33160

Jon Najarian

c/o Net Element, Inc.
18,492

0.36
%
3363 NE 163rd Street, Suite 605,

North Miami Beach, Florida 33160

John Roland 686 0.01 %
c/o Net Element, Inc.
3363 NE 163rd Street, Suite 605,
North Miami Beach, Florida 33160
Todd Raarup 686 0.01 %
c/o Net Element, Inc.
3363 NE 163rd Street, Suite 605,
North Miami Beach, Florida 33160
Esousa Holdings LLC (4) (4)
211 East 43rd Street, Suite 402
New York, NY 10017
All directors and executive officers as a group (6 persons)
780,579

14.92
%

(1)
Applicable percentage ownership is based on ~~17,681,792~~5,208,236 shares of Common Stock outstanding as of March ~~30, 2017~~23, 2021 together with securities exercisable or convertible into shares of Common Stock within 60 days of March ~~30, 2017~~23, 2021 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. The shares issuable pursuant to the exercise or conversion of such securities are deemed outstanding for the purpose of computing the percentage of ownership of the security holder, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person.
(2)
All information regarding shares that may be beneficially owned by Kenges Rakishev is based on information disclosed in a Schedule 13D/A filed jointly by Mr. Rakishev and Novatus Holding PTE. Ltd. with the Commission and on the information available to us.
~~(3)~~ All information regarding shares that may be beneficially owned by Oleg Firer is based on information disclosed in a Schedule 13D/A filed jointly by Mr. Firer and Star Equities, LLC and on the information available to us. As of the date hereof, Mr. Firer is deemed to have beneficial ownership of ~~1,815,730~~552,249 shares of Common Stock consisting of (1) ~~1,244,300~~484,937 restricted shares of Common Stock held directly by Mr. Firer, and (2) as the sole member of Star Equities, LLC, Mr. Firer can be deemed to beneficially own ~~the above-described~~67,312 restricted shares of Common Stock and shares of Common Stock issuable upon exercise of the certain options of Common Stock beneficially owned by Star Equities, ~~LLC (which equals to 571,430 shares as of the date hereof).~~LLC. Mr. Firer has (a) sole voting power and sole dispositive power with respect to ~~1,244,300~~67,312 restricted shares of Common Stock and (b) shared voting power and shared dispositive power with respect to the above-described shares beneficially owned by Star Equities.
49
~~(4)~~ The ~~shares held directly by Steven Wolberg include 35,715 (as adjusted to reflect a 10-1 reverse stock split on May 25, 2016)~~ restricted shares ~~of Common Stock and~~beneficially owned by Star Equities, LLC include 484,937 restricted shares of Common Stock issuable pursuant to amended option to ~~purchase 35,715 (as adjusted to reflect a 10-1 reverse stock split on May 25, 2016) restricted shares of Common Stock, in each case issued~~ pursuant to the Letter Agreement dated as of September 11, 2015, as modified by that certain Additional Letter Agreement dated as of October 7, 2015, as amended, with the Company.
~~(5)~~ Includes 575 (as adjusted to reflect a 10-1 reverse stock split on May 25, 2016) shares of Common Stock held by Mr. New’s spouse and 1,075 (as adjusted to reflect a 10-1 reverse stock split on May 25, 2016) shares of Common Stock held by Mr. New’s son.
~~(6)~~
(3)
The shares held directly by ~~William Healy~~Steven Wolberg include ~~71,429 (as adjusted to reflect a 10-1 reverse stock split on May 25, 2016) restricted shares of Common Stock and restricted~~107,286 shares of Common Stock issuable ~~pursuant to amended option~~upon exercise of certain options to purchase ~~71,429 (as adjusted to reflect a 10-1 reverse stock split on May 25, 2016) restricted shares of~~ Common Stock ~~in each case issued~~granted to Mr. Wolberg (i) as part of the Company’s incentive compensation awards and (ii) pursuant to the Letter Agreement dated as of September 11, 2015, as modified by that certain Additional Letter Agreement dated as of October 7, 2015, as amended, with the Company.
(4) All information regarding shares that may be beneficially owned by Esousa Holdings LLC is based on information disclosed in a Schedule 13G/A filed by Esousa Holdings LLC with the Commission on February 16, 2021. As more fully described in such Schedule 13G/A, Esousa Holdings LLC beneficially owns 211,481 shares of Common Stock, 404,676 shares of Common Stock issuable upon exercise of the purchase warrants, each issued to Esousa Holdings LLC pursuant to the Unit Purchase Agreement between Esousa Holdings LLC and the Company on December 29, 2017. As described in item 4 of such Schedule 13G, the purchase warrants and the pre-funded Warrants are each subject to a 9.99% blocker, and the percentage set forth in row (11) of such Schedule 13G/A gives effect to such blockers. However, as more fully described in Item 4 of such Schedule 13G/A, the securities reported in rows (5), (7) and (9) of such Schedule 13G/A show the number of shares of Common Stock that would be issuable upon full exercise of such reported securities and do not give effect to such blockers. Therefore, the actual number of shares of Common Stock beneficially owned by Esousa Holdings LLC, after giving effect to such blockers, is less than the number of securities reported in rows (5), (7) and (9) of such Schedule 13G/A.
51
Table of Contents

Equity Compensation Plan Table

The following table summarizes our equity compensation plan information as of December 31, ~~2016.~~2020. Information is included for equity compensation plans approved by our stockholders and equity compensation plans not approved by our stockholders

(c)

Number of securities

(a)

(b)

remaining available

Number of securities

Weighted-average

for future issuance

to be issued upon

exercise price per

under equity

exercise of

share of

compensation plans

outstanding options,

outstanding options,

(excluding securities

Plan Category (a)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (b)
Weighted-average
exercise price per
share of
outstanding options,
warrants and rights (c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
warrants and rights

warrants and rights

reflected in column (a))

Equity compensation plans approved by stockholders 333,956 $ 2.60 1,280,258 154,005 $ 10.73 209,693
Equity compensation plans not approved by stockholders - $ - - - $ - -
Total 333,956 $ 2.60 1,280,258 154,005 10.73 209,693

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Certain Relationships and Related Transactions

~~On September 17, 2014, Digital Provider (formerly TOT Money) entered into~~Since the ~~Supplement Agreement No. 14 and~~beginning of fiscal 2019, the ~~Supplement Agreement No. 15 with Alfa-Bank (“Amendment No. 15”),~~Company did not have any transactions to which ~~renewed and amended~~it has been a participant that involved amounts that exceeded or will exceed the ~~previously expired Factoring Credit Facility with Alfa-Bank. Pursuant to such amendments, the Factoring Credit Facility was renewed until June 30, 2016, the maximum aggregate limit~~lesser of financing (secured by Digital Provider’s accounts receivable) to be provided by Alfa-Bank to Digital Provider under the Factoring Credit Facility was increased to 415 million Russian rubles (approximately US $10,814,614 based on the currency exchange rate on September 17, 2014), Alfa-Bank’s compensation fees (commissions) for providing financing to Digital Provider was amended to be computed as a financing rate that ranged from 13.22% to 14.50%(i) $120,000 or (ii) one percent of the amounts borrowed, depending upon the number of days in the period from the date financing is provided until the date the applicable account receivable is paid, and the maximum amount of financing on account of the monetary claim assigned by Digital Provider to debtor was increased from 80% to 100% of the assigned amount of monetary claim against which the financing is affected. Digital Provider’s obligations under the Factoring Credit Facility were secured by a guarantee given by AO SAT & Company. AO SAT & Company is an affiliate of Kenges Rakishev, who is the Chairman of our Board of Directors of the Company and a significant shareholder. Prior to the expiration of the amended Factoring Credit Facility on June 30, 2016, we did not draw any funds under such credit facility.
In November 2014, Digital Provider entered into a factoring services agreement (together with related and ancillary agreements, collectively, the “Bank Otkritie Agreement”) with Bank Otkritie Financial Corporation. Oleg Firer, our Chief Executive Officer and director, personally guaranteed this loan. No funds were drawn under the Bank Otkritie Agreement, which was terminated on August 31, 2015.
On March 31, 2015, Star Equities, LLC provided an advance to the Company in the amount of $125,000 to pay the invoices from the Company’s investor relations consultant. Such loan was repaid in May 7, 2015. Oleg Firer, our Chief Executive Officer and director, is the chairman and managing member of Star Equities, LLC.
50
In addition, we received advances on each of July 16, 2015 and July 29, 2015 for $150,000, an advance on August 25, 2015 for $200,000, an advance on September 30, 2015 for $125,000, an advance on October 1, 2015 for $85,712, an advance on December 28, 2015 for $35,000, an advance on February 26, 2016 for $55,924 and an advance on July 1, 2016 for $61,735, each from Star Equities, LLC. All such advances were non-interest bearing and were used to fund current operating expenses. As of December 31, 2016, $290,924 remains outstanding.
On September 11, 2015, the Company entered into the Letter Agreement with certain accredited investors, including Star Equities, LLC, Steven Wolberg, our Chief Legal Officer and Secretary, William Healey, a member of our Board of Directors, and Kenges Rakishev, Chairman of our Board of Directors and a significant shareholder (together, the “Investors”). Oleg Firer, our Chief Executive Officer and director, is the chairman and managing member of Star Equities, LLC. Pursuant to the Letter Agreement, the Investors purchased from the Company an aggregate of (i) 11,357,143 restricted shares of Common Stock (the “Restricted Shares”) to be issued in the future and (ii) options to purchase 11,357,143 restricted shares of Common Stock, (the “Restricted Options”). The per share purchase price of each Restricted Share was $0.14 for an aggregate purchase price of $1,590,000. The Restricted Options expire on the fifth (5th) annual anniversary of the date of the Letter Agreement. Prior to expiration, each Restricted Options is exercisable into one Restricted Share at the exercise price equal 110% of the closing trading price per one share of Common Stock reported on The NASDAQ Capital Market on the date of the Letter Agreement. Each Investor may elect to exercise it or his Amended Restricted Option through a cashless exercise.
On October 7, 2015, the Investors and the Company entered into an agreement to modify certain terms of the Letter Agreement relating to the Restricted Shares. Pursuant to such agreement, the parties agreed that the Restricted Shares would not be issued to the Investors until the Company’s stockholders approved the issuance of the Restricted Shares. In addition, on October 7, 2015, certain of the Investors and the Company entered into an agreement to modify the terms of the Restricted Options. Pursuant to such agreement, the parties agreed that the Restricted Options cannot be exercised by the Investors until the Company’s stockholders approve the issuance of common stock in connection with any such exercise. Such stockholder approval was obtained at a special meetingaverage of the Company’s ~~stockholders on November 14, 2015.~~total assets at year-end for the last two completed fiscal years, and in which any of the Company’s directors, executive officers or any other “related person” as defined in Item 404(a) of Regulation S-K had or will have a direct or indirect material interest, other than:

On ~~January 21, 2016, the~~March 27, 2020, our Company entered into a ~~Second Additional Letter~~Master Exchange Agreement ~~as amended on April 14, 2016~~ (the ~~“Second Additional~~“ESOUSA Agreement”) with ~~Kenges Rakishev. The Second Additional~~ESOUSA Holdings, LLC ("ESOUSA"), a related party. Prior to entering into the ESOUSA Agreement, ~~further modified the terms of the Letter Agreement, as amended. The Second Additional Agreement provided for the second and final round of $910,000 equity financing~~ESOUSA agreed to ~~the Company contemplated by the Letter Agreement in consideration for the issuance~~acquire an existing promissory note that had been previously issued by the Company, of up to $2,000,000 in principal amount outstanding plus interest due to RBL Capital Group, LLC ("RBL"). Pursuant to the ESOUSA Agreement, the Company has the right, at any time prior to March 27, 2021, to request ESOUSA, and ESOUSA agreed upon each such request, to exchange this promissory note in tranches on ~~June 13, 2016 to Kenges Rakishev~~the dates when the Company instructs ESOUSA, for such number of ~~(i) 466,428 restricted~~ shares of the Company’s common stock (“Common Stock”) as determined under the ESOUSA Agreement based ~~on $1.95 per share price and (ii) options to purchase 466,428 restricted~~upon the number of shares of Common Stock (already in ESOUSA’s possession) that ESOUSA sold in order to finance its purchase of such tranche of the ~~Company’s common stock with a strike price~~promissory note from RBL Capital Group, LLC. ESOUSA will purchase each tranche of ~~$2.15~~the promissory note equal to 88% of the gross proceeds from the shares of Common Stock sold by ESOUSA to finance the purchase of such Exchange Amount from RBL Capital Group, LLC. Each such tranche to be $148,000 unless otherwise agreed to by the Company and ~~a 5 year life.~~ESOUSA.

~~We issued~~ On April 23, 2020 and August 3, 2020, the ~~following notes payable to MBF Merchant Capital, LLC (MBF), which is owned by William Healy, a member of our board of directors.~~
~~Effective March 28, 2016, we~~Company entered into a $75,000 promissory loan note with MBF Merchant Capital, LLC (“MBF”). The loan provides for interest only payments at 14% through May 28, 2016. From June 28, 2016 through March 28, 2017, we are obligatedcertain amendments to ~~make interest and principal payments of $7,990. The loan also provided a 6% backend fee due at~~ the ~~final payment of the loan. As of December 31, 2016, $23,420 remains outstanding.~~
Effective April 19, 2016, we entered into a $300,000 promissory loan note with MBF. The loan provides for interest only payments at 15.5% through May 28, 2016. From June 28, 2016 through May 28, 2018, we are obligatedESOUSA Agreement, which together increased from $2,000,000 to ~~make interest and principal payments of $14,617. The loan also provided a 6% back end fee due at the final payment of the loan. As of December 31, 2016, $221,826 remains outstanding.~~
Effective July 1, 2016, our subsidiary, TOT Group, Inc., entered into a $353,500 promissory loan note with MBF. The loan provides for interest only payments at 15.5% through June 28, 2016. From July 28, 2016 through June 28, 2018, we are obligated to make interest and principal payments of $17,224. The loan also provided a 1% front end fee and a 6.6% back end fee due at the final payment of the loan. As of December 31, 2016, $275,056 remains outstanding.
~~On March 1, 2017, we entered into a Promissory Note with Star Equities LLC in~~$15,000,000 the principal amount and unpaid interest of ~~$348,083 (the “Note”). Pursuant~~one or more promissory notes of the Company or its direct or indirect subsidiaries that ESOUSA either purchased in whole or has an irrevocable right to purchase in tranches from RBL in connection with the ESOUSA Agreement.
On March 27, 2020, the Company received its first tranche of RBL promissory notes in the aggregate amount of $148,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ~~Note, Star Equities LLC previously lent $348,083~~ESOUSA Agreement. Included in other accrued expenses at September 30, 2020 is approximately $145,000 in connection with this first tranche for which shares of Common Stock have not yet been issued. Concurrently with this transaction, the Company received an equivalent aggregate amount of $148,000 from RBL under the Credit Facility.
On April 28, 2020, the Company received its second tranche of RBL promissory notes in the aggregate amount of $143,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company ~~that is now being repaid~~issued 65,862 shares of Common Stock to ESOUSA in connection with ~~interest under~~ this agreement. The note provides for 18 monthly interest payments of $3,481 through September 30, 2018 followed by one interest and balloon principle payment on October 1, 2018. The principal balance of the Note outstanding shall bear interest at the rate of 12% per annum. In the event of any capital raise byexchange. Concurrently with this transaction, the Company ~~not~~received an equivalent aggregate amount of $143,000 from RBL under the Credit Facility.
On August 11, 2020, the Company received its third tranche of RBL promissory notes in the ~~ordinary course~~aggregate amount of ~~business and that results in funding~~$707,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 66,190 shares of Common Stock to ESOUSA in ~~excess~~connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of ~~$5 million (a “Liquidity Event”)~~$707,000 from RBL under the Credit Facility.
On August 21, 2020, the Company received its fourth tranche of RBL promissory notes in the aggregate amount of $401,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 45,654 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $401,000 from RBL under the Credit Facility.
On September 25, 2020, the Company received its fifth tranche of RBL promissory notes in the aggregate amount of $426,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 50,000 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $426,000 from RBL under the Credit Facility.
On December 30, 2020, the Company received its sixth tranche of RBL promissory notes in the aggregate amount of $1,960,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. In January 2021, the Company issued 200,000 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $1,960,000 from RBL under the Credit Facility.
At December 31, 2020 and 2019, we had accrued expenses of approximately $122,000 and $127,000, respectively, which consisted primarily of various travel, professional fees, and other expenses paid and charged for by our CEO on his personal credit cards. This is reflected as due to related party on the ~~Maturity Date will be accelerated to coincide with the closing date~~accompanying consolidated balance sheets.
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Table of ~~such Liquidity Event. Oleg Firer, our Chief Executive Officer and director, is Chairman and the managing member of Star Equities, LLC.~~
Contents

Director Independence

Our Board of Directors currently includes ~~four~~three non-employee independent members: ~~William Healy, Drew Freeman, Howard Ash~~Jon Najarian, John Roland, and ~~James Caan.~~Todd Raarup. Each of Messrs. ~~Healy, Freeman, Ash~~Najarian, Roland, and ~~Caan is~~Raarup are an "independent director" as defined under NASDAQ Listing Rule 5605(a)(2). A majority of our Board members are independent directors, as ~~four~~three out of the ~~six~~four members of the Board qualify as independent under the NASDAQ listing standards and the rules of the Commission. No director is considered independent unless our Board of Directors affirmatively determines that the director has no relationship with us (directly, or as a partner, shareholder or officer of an organization that has a relationship with us) that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Also, all members of our Board of Director’s audit committee, compensation committee and nominating and governance committee are independent ~~directors.~~directors under applicable NASDAQ and SEC rules and regulations. Howard Ash, Jonathan Fichman and John J. Wiegand, each of whom is a former director that previously served on our Board of Directors during 2020, were previously determined to be independent by our Board of Directors as well.
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Item 14. Principal Accountant Fees and Services.

Audit Fees. The aggregate fees, including expenses, billed by our principal accountant for the audit of our annual financial statements and review of financial statements included in our quarterly reports on Form 10-Q and other services that are normally provided in connection with statutory and regulatory filings or engagements during each of the fiscal years ended December 31, ~~2016~~2020 and ~~2015~~2019 were ~~$375,000 and $370,000, respectively.~~$390,000.

Audit-Related Fees. The aggregate fees, including expenses, billed by our principal accountant for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements not reported under “Audit Fees” above during the fiscal years ended December 31, ~~2016~~2020 and ~~2015~~2019 were ~~$43,623 and $117,129, respectively.~~$ 0.

Tax Fees. The aggregate fees, including expenses, billed by our principal accountant for services rendered for tax compliance, tax advice and tax planning during the fiscal years ended December 31, ~~2016~~2020 and ~~2015~~2019 were ~~$0.~~approximately $14,300 and $19,800, respectively.

All Other Fees. The aggregate fees, including expenses, billed for all other products and services provided by our principal accountant during the fiscal years ended December 31, ~~2016~~2020 and ~~2015~~2019 were $0.

Audit Committee Pre-Approval Policy

Our audit committee is responsible for approving in advance the engagement of our principal accountant for all audit services and non-audit services, based on independence, qualifications and, if applicable, performance, and approving the fees and other terms of any such engagement. The audit committee may in the future establish pre-approval policies and procedures pursuant to which our principal accountant may provide certain audit and non-audit services to us without first obtaining the audit committee’s approval, provided that such policies and procedures (i) are detailed as to particular services, (ii) do not involve delegation to management of the audit committee’s responsibilities described in this paragraph and (iii) provide that, at its next scheduled meeting, the audit committee is informed as to each such service for which the principal accountant is engaged pursuant to such policies and procedures. In addition, the audit committee may in the future delegate to one or more members of the audit committee the authority to grant pre-approvals for such services, provided that the decisions of such member(s) to grant any such pre-approval must be presented to the audit committee at its next scheduled meeting.

All audit and audit-related services performed by our principal accountant during the fiscal years ended December 31, ~~2016~~2020 and ~~2015~~2019 were pre-approved by our audit committee.

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

Documents filed as part of this Report.

1.
The following consolidated financial statements of Net Element, Inc. and subsidiaries and notes thereto and the reports of the independent registered public accounting firms thereon are set forth on pages F-2 through ~~F-31~~F-24 and are filed as part of this Report:
Reports of Independent Registered Public Accounting Firms
Audited Consolidated Balance Sheets ~~as of~~ at December 31, ~~2016~~2020 and ~~2015~~2019
Audited Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, ~~2016~~2020 and ~~2015~~
2019, Audited Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, ~~2016~~2020 and ~~2015~~
2019, and Audited Consolidated Statements of Cash Flows for the years ended December 31, ~~2016~~2020 and ~~2015~~2019
Notes to Consolidated Financial Statements

2.
Exhibits.
A list of the exhibits filed as a part of this Report is set forth on the Exhibit Index that immediately precedes the signature pages to this Report and is incorporated herein by reference.
EXHIBIT INDEX
Exhibit
No.
Description of Exhibit
2.1
2.
~~Exhibits.~~
Agreement and Plan of Merger, dated as of June 12, 2012, by and between Cazador Acquisition Corporation Ltd. and Net Element, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 12, 2012)
2.2
Contribution Agreement, dated April 16, 2013, among Net Element International, Inc., Unified Payments, LLC, TOT Group, Inc., Oleg Firer, and Georgia Notes 18 LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 17, 2013.
2.3
Term Sheet, dated May 20, 2013, among TOT Group, Inc., Net Element International, Inc. and Aptito.com, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 22, 2013)
2.4
Asset Purchase Agreement, dated June 18, 2013, between Aptito, LLC and Aptito.com, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 24, 2013)
2.5
Contribution Agreement, dated September 25, 2013, among T1T Lab, LLC, Net Element International, Inc. and T1T Group, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 25, 2013)
2.6
Assignment of Membership Interest, dated February 11, 2014, among T1T Group, LLC, Net Element, Inc., and T1T LAB, LLC (incorporated by reference to Exhibit 2.7 to the Company’s Annual Report on Form 10-K filed with the Commission on April 15, 2014)
2.7
Binding Offer Letter, dated March 16, 2015, among TOT Group Europe Ltd., Maglenta Enterprises Inc. and Champfremont Holding Ltd. (incorporated by reference to Exhibit 2.1 to Net Element’s Current Report on Form 8-K/A filed with the Commission on March 20, 2015)

2.8 ~~A list~~Agreement and Plan of Merger, dated as of August 4, 2020, among the Company, Mullen Acquisition, Inc. and Mullen Technologies, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 5, 2020)
2.9 First Amendment dated as of December 29, 2020 to Agreement and Plan of Merger, dated as of August 4, 2020, among the Company, Mullen Acquisitions, Inc. and Mullen Technologies, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 30, 2020)
2.10 Second Amendment dated as of March 30, 2021 to Agreement and Plan of Merger, dated as of August 4, 2020, among the Company, Mullen Acquisitions, Inc. and Mullen Technologies, Inc.
3.1
Certificate of Corporate Domestication of Cazador, filed with the Secretary of State of the ~~exhibits~~State of Delaware on October 2, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 5, 2012)
3.2
Amended and Restated Certificate of Incorporation of Net Element International, Inc., a Delaware corporation, filed with the Secretary of State of the State of Delaware on October 2, 2012 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Commission on October 5, 2012)
3.3
Amended and Restated Bylaws of Net Element International, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the Commission on October 5, 2012)
3.4
Certificate of Merger, filed with the Secretary of State of the State of Delaware on October 2, 2012 (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed with the Commission on October 5, 2012)
3.5
Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated December 5, 2013, changing the Company’s name from Net Element International, Inc. to Net Element, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 6, 2013)
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3.6
Certificate of Amendment to Amended and Restated Certificate of Incorporation, to increase authorized common stock to 200 million shares (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on December 17, 2014)
3.7
Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2015)
3.8
Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated June 15, 2015, to increase authorized common stock to 300 million shares (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on June 16, 2015)
3.9
Amendment No. 1 to the Bylaws of the Company, dated June 15, 2015 (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the Commission on June 16, 2015)
3.10
Amendment No. 2 to the Bylaws of the Company, dated July 10, 2015 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on July 10, 2015)
3.11
Certificate of Amendment to Amended and Restated Certificate of Incorporation, as ~~a part~~amended, of the Company (incorporated by reference to Exhibit 3.1 to the Company’s second Current Report on Form 8-K filed with the Commission on May 24, 2016)
3.12
Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, dated June 15, 2016 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on June 16, 2016)
3.13
Certificate of Amendment to Amended and Restated Certificate of Incorporation, as amended, of Net Element, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on October 4, 2017)
4.1
Specimen Common Stock Certificate of Net Element International, Inc. (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 filed by the Company with the Commission on August 31, 2012)
4.2
Warrant Certificate of Cazador Acquisition Corporation Ltd. (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form F-1 filed by the Company with the Commission on September 3, 2010)
4.3
Registration Rights Agreement by and between Cazador Acquisition Corporation Ltd., Cazador Sub Holdings Ltd. and Others (incorporated by reference to Exhibit 10.5 to the Registration Statement, as amended, on Form F-1/A filed by the Company with the Commission on October 6, 2010)
4.4
Warrant Agreement by and between Cazador Acquisition Corporation Ltd. and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.4 to the Registration Statement, as amended, on Form F-1/A filed by the Company with the Commission on October 6, 2010)
4.5
Secured Convertible Senior Promissory Note dated April 21, 2014 between the Company and Cayman Invest, S.A. (incorporated by reference to Exhibit 4.1 to Net Element’s Current Report on Form 8-K filed with the Commission on April 22, 2014)
4.6
Form of Amended and Restated Restricted Options to Purchase Shares of Restricted Common Stock (incorporated by reference to Exhibit 4.1 to Net Element’s Current Report on Form 8-K filed with the Commission on October 7, 2015)
4.7
Form of Option to Kenges Rakishev to Purchase Shares of Restricted Common Stock (incorporated by reference to Exhibit 4.1 to Net Element’s Current Report on Form 8-K filed with the Commission on January 22, 2016)
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4.8
Registration Rights Agreement, dated as of July 6, 2016, between Net Element, Inc. and ESOUSA Holdings, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 12, 2016)
4.9
Registration Rights Agreement, dated as of July 5, 2017, between the Company and Cobblestone Capital Partners LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 7, 2017)
4.10
Registration Rights Agreement, dated as of December 29, 2017, between the Company and Esousa Holdings LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 2, 2018)
4.11
Form of Warrant to Purchase Common Stock issued to Esousa Holdings LLC (incorporated by reference to Exhibit A-1 to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 2, 2018)
4.12
Form of Pre-Funded Warrant to Purchase Common Stock issued to Esousa Holdings LLC (incorporated by reference to Exhibit A-2 to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 2, 2018)
4.13 Description of Company’s securities (incorporated by reference to Exhibit 4.13 to the Company’s Annual Report on Form 10-K filed with the Commission on March 30, 2020)
10.1
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form F-1 filed by the Company with the Commission on September 3, 2010)
10.2
Memorandum of Understanding, dated March 23, 2012, by and between Cazador Acquisition Corporation Ltd. and Cazador Sub-Holdings Ltd. (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Commission on March 30, 2012)
10.3
Membership Interest Purchase Agreement (Motorsport) dated as of February 1, 2011 between Enerfund, LLC and the Company (incorporated by reference to Exhibit 10.29 to the Company’s Transition Report on Form 10-KT/A filed with the Commission on February 3, 2011)
10.4
Joint Venture Agreement, dated April 6, 2012, between Net Element, Inc. and Igor Yakovlevich Krutoy (incorporated by reference to Exhibit 10.1 to Net Element’s Current Report on Form 8-K filed with the Commission on April 12, 2012)
10.5
Loan Agreement, dated July 4, 2012, between OOO Sat-Moscow and OOO Net Element Russia (incorporated by reference to Exhibit 10.1 to Net Element’s Current Report on Form 8-K filed with the Commission on July 10, 2012)
10.6
Credit Agreement, dated August 17, 2012, between Alpha-Bank and OOO Digital Provider (formerly OOO TOT Money) (incorporated by reference to Exhibit 10.1 to Net Element’s Current Report on Form 8-K filed with the Commission on August 23, 2012)
10.7
Agreement of Property Rights Pledge, dated August 17, 2012, between Alpha-Bank and OOO Digital Provider (formerly OOO TOT Money) (incorporated by reference to Exhibit 10.2 to Net Element’s Current Report on Form 8-K filed with the Commission on August 23, 2012)
10.8
General Agreement No. TR-0672 on General Conditions of Financing against Assignment of Monetary Claim (Factoring) within Russia, dated September 19, 2012, between Alpha-Bank and OOO Digital Provider (formerly OOO TOT Money) (including related supplementary agreements) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2012)
10.9
Supplemental Agreements dated September 19, 2012, which amend the General Agreement No. TR-0672 on General Conditions of Financing against Assignment of Monetary Claim (Factoring) within Russia, dated September 19, 2012, between Alpha-Bank and OOO Digital Provider (formerly OOO TOT Money) (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed with the Commission on April 12, 2013)
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10.10#
Management and Consulting Services Agreement, dated October 24, 2012, between Bond Street Management LLC and Net Element International Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 30, 2012)
10.11
Agreement on transfer of rights and obligations, dated July 1, 2012, among Mobile Telesystems OJSC, OOO RM-Invest and OOO Digital Provider (formerly OOO TOT Money), with respect to Contract No. D0811373, dated July 1, 2008, between Mobile Telesystems OJSC and OOO RM-Invest (Net Element International, Inc. is requesting confidential treatment of certain information which has been omitted from this Agreement.  The omitted information has been separately filed with the SEC.) (incorporated by reference to Exhibit 10.33 to the Company’s Current Report on Form 8-K filed with the Commission on November 19, 2012)
10.12
Contract No. D0811373, dated July 1, 2008, between Mobile Telesystems OJSC and OOO RM-Invest (including material supplementary agreements related thereto) (Net Element International, Inc. is ~~set forth~~requesting confidential treatment of certain information which has been omitted from Contract No. D0811373 and certain of the material supplementary agreements related thereto.  The omitted information has been separately filed with the SEC.) (incorporated by reference to Exhibit 10.34 to the Company’s Current Report on Form 8-K filed with the Commission on November 19, 2012)
10.13
Contract No. CPA-86, dated September 1, 2012, between OJSC Megafon and OOO Digital Provider (formerly OOO TOT Money) (Net Element International, Inc. is requesting confidential treatment of certain information which has been omitted from Contract No. CPA-86.  The omitted information has been separately filed with the SEC.) (incorporated by reference to Exhibit 10.35 to the Company’s Current Report on Form 8-K filed with the Commission on November 19, 2012)
10.14
Contract No. 0382, dated September 20, 2012, between OJSC VimpelCom and OOO Digital Provider (formerly OOO TOT Money) (including Supplementary Agreement No. 1 thereto) (Net Element International, Inc. is requesting confidential treatment of certain information which has been omitted from Contract No. 0382 and Supplementary Agreement No. 1 thereto.  The omitted information has been separately filed with the SEC.) (incorporated by reference to Exhibit 10.36 to the Company’s Current Report on Form 8-K filed with the Commission on November 19, 2012)
10.15
Loan Agreement, dated November 26, 2012, between Net Element International, Inc. and Infratont Equities Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on November 30, 2012)
10.16
Term Sheet, dated March 8, 2013, between Unified Payments, LLC and Net Element International, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 12, 2013)
10.17
Loan Agreement, dated March 8, 2013, among Net Element International, Inc., Unified Payments, LLC, Oleg Firer and Georgia Notes 18 LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on March 12, 2013)
10.18
Form of Secured Revolving Note made by Unified Payments, LLC and payable to Net Element International, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on March 12, 2013)
10.19
Non-Recourse Guaranty, dated March 8, 2013, by Oleg Firer and Georgia Notes 18 LLC for the benefit of Net Element International, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on March 12, 2013)
10.20
Pledge Agreement, dated March 8, 2013, among Oleg Firer, Georgia Notes 18 LLC and Net Element International, Inc. (incorporated by reference to Exhibit 10.5 to the Company��s Current Report on Form 8-K filed with the Commission on March 12, 2013)
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10.21
Loan Agreement, dated July 12, 2012, between OOO Digital Provider (formerly OOO TOT Money) and OOO RM Invest, as amended on July 30, 2012, August 17, 2012 and February 25, 2013 (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed with the Commission on April 12, 2013)
10.22
Termination Agreement for Management and Consulting Agreement, dated April 15, 2013, between Net Element International, Inc. and Bond Street Management LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 17, 2013)
10.23
Form of Indemnification Agreement for executive officers, entered into between Net Element International, Inc. and each of Jonathan New, Dmitry Kozko, and Francesco Piovanetti (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, filed with the Commission on May 15, 2013)
10.24
Contract No. CPA/ML-17, dated March 1, 2013, between ZAO MegaLabs and OOO Digital Provider (formerly OOO TOT Money) (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, filed with the Commission on May 15, 2013) (Net Element, Inc. is requesting confidential treatment of certain information which has been omitted from Contract No. CPA/ML-17. The omitted information has been separately filed with the Commission.)
10.25
Commercial Lease, dated May 1, 2013, between BGC LLC and Net Element International, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, filed with the Commission on August 19, 2013)
10.26
Promissory Note, dated May 13, 2013, in the original principal amount of $2 million made by Net Element International, Inc. and payable to K1 Holding Limited (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, filed with the Commission on August 19, 2013)
10.27
Letter Agreement, dated January 14, 2013, among OOO Digital Provider (formerly OOO TOT Money), Tcahai Hairullaevich Katcaev and Varwood Holdings Limited (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, filed with the Commission on August 19, 2013)
10.28
Letter Agreement, dated July 1, 2013, among OOO Digital Provider (formerly OOO TOT Money), OOO NETE, Net Element International, Inc. and Tcahai Hairullaevich Katcaev (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, filed with the Commission on August 19, 2013)
10.29
Settlement, Separation Agreement and General Release, dated May 10, 2013, between Net Element International, Inc. and Curtis Wolfe (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, filed with the Commission on August 19, 2013)
10.30
Letter Agreement, dated August 28, 2013, among Net Element International, Inc., Oleg Firer, Steven Wolberg, Vladimir Sadovskiy, Georgia Notes 18, LLC, Kenges Rakishev and Mike Zoi (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 10, 2013)
10.31
Services Agreement, dated December 5, 2013, between Net Element International, Inc. an K 1 Holding Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 6, 2013)
10.32
Letter Agreement, dated December 5, 2013, among TGR Capital, LLC, Net Element International, Inc. and K 1 Holding Limited (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on December 6, 2013)
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10.33#
Form of Incentive Stock Option Award Agreement Under the Net Element, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed with the Commission on March 30, 2015)
10.34#
Form of Non-Qualified Stock Option Award Agreement Under the Net Element, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed with the Commission on March 30, 2015)
10.35#
Form of Restricted Share Award Agreement Under the Net Element, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K filed with the Commission on March 30, 2015)
10.36
Assignment of Membership Interest, dated February 11, 2014, between Net Element, Inc. and T1T Group, LLC (incorporated by reference to Exhibit 10.1 to Net Element’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, filed with the Commission on May 15, 2014)
10.37
Loan and Security Agreement, dated June 30, 2014, among RBL Capital Group, LLC, as lender, and TOT Group, Inc., TOT Payments, LLC, TOT BPS, LLC, TOT FBS, LLC, Process Pink, LLC, TOT HPS, LLC and TOT New Edge, LLC, as co-borrowers (incorporated by reference to Exhibit 10.1 to Net Element’s Current Report on Form 8-K filed with the Commission on July 2, 2014)
10.38
Amendment No. 1 effective June 30, 2014 between the Company and Oleg Firer, Steven Wolberg, Georgia Notes 18, LLC and Vladimir Sadovskiy (incorporated by reference to Exhibit 10.2 to Net Element’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014, filed with the Commission on August 14, 2014)
10.39
Master Exchange Agreement, dated as of September 15, 2014 between the Company and Crede CG III, Ltd. (incorporated by reference to Exhibit 10.1 to Net Element’s Current Report on Form 8-K filed with the Commission on September 15, 2014)
10.40
Supplement Agreement No. 14, dated May 21, 2014 (but executed by OOO Digital Provider (formerly OOO TOT Money) on September 17, 2014), to the General Agreement No. TR-0672 on General Conditions of Financing against Assignment of Receivables (Factoring) within Russia, dated September 19, 2012, between JSC Alpha-Bank and OOO Digital Provider (formerly OOO TOT Money) (incorporated by reference to Exhibit 10.1 to Net Element’s Current Report on Form 8-K filed with the Commission on September 24, 2014)
10.41
Supplement Agreement No. 15, dated September 17, 2014, to the General Agreement No. TR-0672 on General Conditions of Financing against Assignment of Receivables (Factoring) within Russia, dated September 19, 2012, between JSC Alpha-Bank and OOO Digital Provider (formerly OOO TOT Money) (incorporated by reference to Exhibit 10.2 to Net Element’s Current Report on Form 8-K filed with the Commission on September 24, 2014)
10.42
General Agreement No. 09969-HP on General Conditions of Factoring Services under “Liquidity” Program, dated as of November 5, 2014, between Bank Otkritie Financial Corporation and Digital Provider Limited Liability Company (incorporated by reference to Exhibit 10.1 to Net Element’s Current Report on Form 8-K filed with the Commission on November 19, 2014)
10.43
Additional Agreement on Factoring Services under “Finance” Program to General Agreement on General Conditions of Factoring Services under “Liquidity” Program No. 09969-HP as of November 5, 2014 (incorporated by reference to Exhibit 10.2 to Net Element’s Current Report on Form 8-K filed with the Commission on November 19, 2014)
10.44
Equity Distribution Agreement between the Company and Revere Securities, LLC (incorporated by reference to Exhibit 10.1 to Net Element’s Current Report on Form 8-K filed with the Commission on January 28, 2015)
10.45
Securities Purchase Agreement (Series A Preferred Stock) among the Company and the investors party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2015)
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10.46
Voting Agreement (related to Series A Preferred Stock sale) among the Company and the stockholders party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2015)
10.47
Form of Lock-Up Agreement (related to Series A Preferred Stock transaction) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2015)
10.48
Securities Purchase Agreement (Senior Convertible Notes and Warrants) among the Company and the investors party thereto (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K/A filed with the Commission on July 17, 2015)
10.49
Registration Rights Agreement among the Company and the investors party thereto (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2015)
10.50
Form of Lock-Up Agreement (related to Senior Convertible Notes and Warrants transaction) (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2015)
10.51
Form of Voting Agreement (related to Senior Convertible Notes and Warrants transaction) among the Company and the stockholders thereto (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2015)
10.52
Acquisition Agreement, dated May 20, 2015, among TOT Group Europe Ltd., “OT Group Russia LLC, Maglenta Enterprises Inc. and Champfremont Holding Ltd., Polimore Capital Limited, Brosword Holding Limited and other Target Companies listed in Exhibit B thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 27, 2015)
10.53
Escrow Agreement, dated May 20, 2015, among TOT Group Europe Ltd., “OT Group Russia LLC, Maglenta Enterprises Inc., Champfremont Holding Ltd. and Reznick Law, PLLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 27, 2015)
10.54
Guaranty, dated May 20, 2015, among Net Element, Inc., Maglenta Enterprises Inc. and Champfremont Holding Ltd. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on May 27, 2015)
10.55
Guaranty, dated May 20, 2015, by Lacerta Management Ltd in favor of TOT Group Europe Ltd., and “OT Group Russia LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-Kfiled with the Commission on May 27, 2015)
10.56
Letter Agreement, dated August 4, 2014, by and among the Company and the investors listed on the signature pages attached thereto (incorporated by reference to Exhibit ~~Index that follows page F-31~~10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 4, 2015)
10.57
Letter Agreement, dated August 4, 2015, by and among the Company and the investors listed on the signature pages attached thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on August 4, 2015)
10.58
Letter Agreement, dated as of ~~this~~September 11, 2015, among the Company and the investors listed on the signature pages attached thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 16, 2015)
10.59
Additional Letter Agreement among the Company and ~~is incorporated herein~~the investors listed on the signature pages attached thereto (incorporated by ~~reference.~~reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 7, 2015)
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10.60
Amendment to Letter Agreement dated August 4, 2015, dated December 1, 2015, by and among the Company and the investors listed on the signature pages attached thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 2, 2015)
10.61
Amendment to Letter Agreement dated August 4, 2015, dated December 1, 2015, by and among the Company and the investors listed on the signature pages attached thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on December 2, 2015)
10.62
Second Additional Letter Agreement, dated as of January 21, 2016, between the Company and Kenges Rakishev (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 22, 2016)
10.63
Amendment No. 1, dated as of April 14, 2016, to Second Additional Letter Agreement, dated as of January 21, 2016, between the Company and Kenges Rakishev (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 15, 2016)
10.64
Letter agreement, dated as of April 28, 2016 between the Company and RBL Capital Group, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 28, 2016)
10.65
Master Exchange Agreement, dated as of May 2, 2016 between the Company and Crede CG III, Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 3, 2016)
10.66
Amendment to the Master Exchange Agreement, dated as of May 2, 2016 between the Company and Crede CG III, Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 8, 2017)
10.67
Amendment No. 1, dated as of May 2, 2016, to the Loan and Security Agreement among TOT Group, Inc., TOT Payments, LLC, TOT BPS, LLC, TOT FBS, LLC, Process Pink, LLC, TOT HPS, LLC, TOT New Edge, LLC and RBL Capital Group, LLC. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 4, 2016)
10.68#
2013 Equity Incentive Plan approved on December 5, 2013 (incorporated by reference to Appendix “A” to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Commission on November 4, 2013)
10.69#
Amendment to 2013 Equity Incentive Plan approved on December 9, 2014 (incorporated by reference to Appendix “B” to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Commission on October 31, 2014)
10.70#
Amendment to 2013 Equity Incentive Plan approved on June 15, 2016 (incorporated by reference to Appendix “B” to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 25, 2016)
10.71
Common Stock Purchase Agreement, dated as of July 6, 2016, between the Company and ESOUSA Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 12, 2016)
10.72
Binding Letter of Intent, dated as of July 21, 2016, among the Company, PayStar, Inc. and Nexcharge, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 21, 2016)
10.73
Settlement Agreement Amendment among Net Element, Inc., TOT Group Europe, Ltd., “OT Group Russia LLC, Maglenta Enterprises Inc. and Champfremont Holding Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on October 31, 2016)
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10.74
Amendment to the Acquisition Agreement among Net Element, Inc., TOT Group Europe, Ltd., “OT Group Russia LLC, Maglenta Enterprises Inc., Champfremont Holding Ltd. and the Target Companies parties thereto (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on October 31, 2016)
10.75
Second Amendment to the Acquisition Agreement among Net Element, Inc., TOT Group Europe, Ltd., “OT Group Russia LLC, Maglenta Enterprises Inc., Champfremont Holding Ltd. and the Target Companies parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on March 17, 2017)
10.76
Promissory Note, dated March 1, 2017, in the original principal amount of $348,083.32 made by the Company and payable to Star Equities LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 3, 2017)
10.77
Amendment to Commercial Lease, dated September 12, 2016, between BGC LLC and Net Element International, Inc. (incorporated by reference to Exhibit 10.77 of the Company’s Annual Report on Form 10-K filed with the Commission on March 31, 2017)
10.78
Second Amendment to Commercial Lease, dated November 16, 2016, between BGC LLC and Net Element International, Inc. (incorporated by reference to Exhibit 10.78 of the Company’s Annual Report on Form 10-K filed with the Commission on March 31, 2017)
10.79
Corporate Guaranty, dated March 23, 2017, by Net Element, Inc. in favor of Cynergy Data, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on March 24, 2017)
10.80
Amendment to Master Exchange Agreement, dated as of March 3, 2017, between the Company and Crede CG III, Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 8, 2017)
10.81
Loan Agreement, dated as of May 18, 2017, among Priority Payment Systems LLC, as lender, and TOT Payments, LLC, TOT New Edge, LLC, Process Pink, LLC and TOT FBS, LLC, as co-borrowers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 23, 2017)
10.82
Promissory Note, dated May 18, 2017, by TOT Payments, LLC, TOT New Edge, LLC, Process Pink, LLC and TOT FBS, LLC in favor of Priority Payment Systems LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 23, 2017)
10.83
Security Agreement, dated as of May 18, 2017, by TOT Payments, LLC, TOT New Edge, LLC, Process Pink, LLC and TOT FBS, LLC in favor of Priority Payment Systems LLC, as secured party (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on May 23, 2017)
10.84
Corporate Guaranty, dated March 17, 2017, by Net Element, Inc. in favor of Priority Payment Systems LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on May 23, 2017)
10.85
Amendment of Settlement Agreement among Net Element, Inc., Maglenta Enterprises Inc. and Champfremont Holding Ltd. (accepted and agreed to by TOT Group Europe, Ltd., TOT Group Russia LLC) (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on May 25, 2017)
10.86
Amendment to Loan Agreement, dated as of June 27, 2017, among Priority Payment Systems LLC, as lender, and TOT Payments, LLC, TOT New Edge, LLC, Process Pink, LLC and TOT FBS, LLC, as co-borrowers (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on July 3, 2017)
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10.87
Common Stock Purchase Agreement, dated as of July 5, 2017, between the Company and Cobblestone Capital Partners LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on July 7, 2017)
10.88#
Amendment to 2013 Equity Incentive Plan approved on June 15, 2016 (incorporated by reference to Appendix “B” to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Commission on August 10, 2017)
10.89
Lease, effective August 9, 2017, between the Company and Golden Star Investments Corp. (incorporated by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2017)
10.90
Promissory Note, dated August 29, 2017, by TOT Group, Inc. in favor of MBF Merchant Capital, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on September 1, 2017)
10.91
Letter Agreement, dated as of October 20, 2017, between Net Element, Inc. and Star Equities LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on October 20, 2017)
10.92
Unit Purchase Agreement, dated as of December 29, 2017, between the Company and Esousa Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 2, 2018)
10.93 Advance and Residual Purchase Agreement, dated July 30, 2018, by and between Unified Portfolio Acquisitions, LLC and Universal Partners, LLC (incorporated by reference to Exhibit 10.93 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2019)
10.94# Amendment to 2013 Equity Incentive Plan approved on November 27, 2018 (incorporated by reference to Appendix “A” to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Commission on October 10, 2018)
10.95 Advance and Residual Purchase Agreement, dated December 26, 2018, among Unified Portfolio Acquisitions, LLC, Argus Merchant Services, LLC and Treasury Payments, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 28, 2018)
10.96# Amendment to 2013 Equity Incentive Plan approved on October 23, 2019 (incorporated by reference to Appendix “A” to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Commission on September 4, 2019)
10.97# Employment Agreement, dated as of February 25, 2020, between Net Element, Inc. and Steven Wolberg (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 2, 2020)
10.98 Master Exchange Agreement, dated as of March 27, 2020 between the Company and ESOUSA Holdings, LLC, (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 27, 2020)
10.99 Amendment, dated as of April 23, 2020, to Master Exchange Agreement, dated as of March 27, 2020 between the Company and ESOUSA Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 24, 2020)
10.100 Promissory Note, dated May 7, 2020, between Net Element, Inc. and Truist Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 15, 2020)
10.101 Binding Letter of Intent, dated June 12, 2020, between the Company and Mullen Technologies, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 15, 2020)
10.102 Amendment No. 1, dated as of July 10, 2020, to the Binding Letter of Intent, dated June 12, 2020, between the Company and Mullen Technologies, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 13, 2020)
10.103 Second Amendment to Master Exchange Agreement, dated as of August 3, 2020, to Master Exchange Agreement, dated as of March 27, 2020, as amended on April 23, 2020, between the Company and ESOUSA Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 5, 2020)
10.104 Promissory Note, dated as of August 11, 2020, between Net Element, Inc. and Mullen Technologies, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 filed with the Commission on August 8, 2020)
10.105 Commercial Lease, dated September 26, 2019, between Lara One Investments, LLC and Net Element, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 filed with the Commission on November 16, 2020)
10.106 Commercial Lease, dated September 11, 2020, between Golden Star Investments Corp and Net Element, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 filed with the Commission on November 16, 2020)
10.107# Amendment to 2013 Equity Incentive Plan approved on December 1, 2020 (incorporated by reference to Appendix “A” to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Commission on October 13, 2020)
21.1*
List of Subsidiaries
23.1*
Consent of Independent Registered Public Accounting Firm (Daszkal Bolton LLP)
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350
99.1 Voting Agreement, dated as of August 4, 2020, among the Company, Mullen Technologies, Inc. and the stockholders of the Company identified therein (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 5, 2020)
101*
The following financial information from the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, formatted in XBRL (eXtensible Business Reporting Language), is filed electronically herewith: (i) Consolidated Balance Sheets as of December 31, 2020 and 2019; (ii) Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2020 and 2019 (iii) Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2020 and 2019; (iv) Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019; and (v) Notes to Consolidated Financial Statements
# Indicates management contract or compensatory plan or arrangement.
* Filed herewith (furnished herewith with respect to Exhibit 32.1).

Item 16. Form 10-K Summary.

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Net Element, Inc.
March 31, ~~2017~~2021
~~By:~~
By:
/s/ Oleg Firer
Oleg Firer
Executive Chairman and Chief Executive Officer

53

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

March 31, ~~2017~~2021
By:
/s/ Oleg Firer
Oleg Firer

Executive Chairman and Chief Executive Officer ~~and Director~~ (Principal Executive Officer)
March 31, 2021
By:
/s/ Jeffrey Ginsberg
Jeffrey Ginsberg
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
March 31, 2021
By:
/s/ Jon Najarian
Jon Najarian
Director
March 31, 2021
By:
/s/ John Roland
John Roland
Director

March 31, ~~2017~~2021 By: /s/ ~~Jonathan New~~Todd Raarup
~~Jonathan New~~
~~Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)~~
~~March 31, 2017~~ ~~By:~~ ~~/s/ Kenges Rakishev~~
~~Kenges Rakishev~~
~~Director~~
~~March 31, 2017~~ ~~By:~~ ~~/s/ Drew Freeman~~
~~Drew Freeman~~
~~Director~~
~~March 31, 2017~~ ~~By:~~ ~~/s/ Howard Ash~~
~~Howard Ash~~
~~Director~~
~~March 31, 2017~~ ~~By:~~ ~~/s/ James Caan~~
~~James Caan~~
~~Director~~
~~March 31, 2017~~ ~~By:~~ ~~/s/ William Healy~~
~~William Healy~~Todd Raarup
Director

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Item 8. Financial Statements and Supplementary Data

NET ELEMENT, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets at December 31, ~~2016~~2020 and ~~2015~~2019		F-3

Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, ~~2016~~2020 and ~~2015~~2019		F-4

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, ~~2016~~2020 and ~~2015~~2019		F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2016~~2020 and ~~2015~~2019		F-6

Notes to Consolidated Financial Statements		F-7

F-1

Table of Contents

NOTE 1. ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

~~Organization and Basis of Presentation~~

~~Organization~~ORGANIZATION AND OPERATIONS

Net Element, Inc. ~~(“We”~~(collectively with its subsidiaries, “Net Element”, “we”, “us”, “our” or the “Company”) is a financial technology-driven group specializing in ~~mobile payments~~payment acceptance and ~~other transactional services in emerging countries and~~value-added solutions across multiple channels in the United ~~States. We have three reportable segments: (i) North America Transaction Solutions for electronic commerce, (ii) Mobile Solutions which primarily serves the Russian Federation~~States and ~~Commonwealth of Independent States (“CIS”) and (iii) Online Solutions.~~selected international markets. We are differentiated by our proprietary technology which enables us to provide a broad suite of payment products and end-to-end transaction processing services. Our transactional services business enables merchants to accept credit cards as well as other forms of payment, including debit cards, checks, gift cards, loyalty programs and ~~superior client support.~~ alternative payment methods in traditional card-present or swipe transactions, as well as card-not-present transactions, such as those conducted over the phone or through the Internet or a mobile device. We operate in two reportable business operating segments: (i) North American Transaction Solutions, and (ii) International Transaction Solutions.

We are able to deliver ~~these~~our services across multiple points of access, or “multi-channel,” including brick and mortar locations, software integration, e-commerce, mobile operator billing, mobile and tablet-based solutions. In the United States, via our U.S. based subsidiaries, we generate revenues from transactional services and other payment technologies for small and medium-sized businesses. Through ~~TOT Group Russia and Net Element Russia,~~PayOnline, we provide transactional services, mobile payment transactions, online payment transactions and other payment technologies in emerging countries in the ~~Russian Federation, CIS,~~Eurasian Economic Community ("EAEC"), Europe and Asia.

~~Business~~

Our transactional services business enables merchants to accept credit cards as well as other forms of payment, including debit cards, checks, gift cards, loyalty programs and alternative payment methods in traditional card-present or swipe transactions, as well as card-not-present transactions, such as those conducted over the phone or through the Internet or a mobile device. We market and sell our services through both independent sales groups (“ISGs”), which are non-employee, external sales organizations and other third-party resellers of our products and services, and directly to merchants through electronic media, telemarketing and other programs, including utilizing partnerships with other companies that market products and services to local and international merchants. We have agreements with several banks that sponsor us for membership in the Visa ®, MasterCard ®, American Express ®,and Discover ®card associations and settle card transactions for our merchants. ~~The principal~~~~Sponsoring~~These sponsoring banks include Citizens Bank, through which we processed the majority of our transaction in the United States during 2016 was BMO Harris Bank, N.A. On November 1, 2016, we moved all of our processing from BMO Harris Bank, N.A. to Merrick Bank, N.A. In addition, in February 2016, we entered into a bank identification (“BIN”) sponsorship agreement with Esquire Bank, N.A. ~~As a result of our settlement with First Data, in 2016, we entered into a sponsoring agreement with~~and Wells Fargo Bank, N.A. From time to time, we may enter into agreements with additional banks. We perform core functions for merchants such as application processing, underwriting, account set-up, risk management, fraud detection, merchant assistance and support, equipment deployment and chargeback services.

Our Mobile Solutions business, ~~Digital Provider, LLC (f/k/a Tot Money, LLC) (“Digital Provider”)~~PayOnline, provides ~~carrier-integrated mobile payments solutions. Our~~ relationships and contracts with mobile operators ~~give~~that gives us ~~substantial geographic coverage, a strong capacity for innovation in mobile payments and messaging, and~~ the ability to offer our clients in-app, premium SMS ~~wap click,~~(short message services, which is a text messaging service), Wireless Application Protocol (WAP)-click, one click and other carrier billing services. ~~We also market our own branded content as a separate line of business for our mobile commerce business.~~

PayOnline provides flexible ~~high-tech~~high- tech payment solutions to companies doing business on the Internet or in the mobile environment. PayOnline specializes in integration and customization of payment solutions for websites and mobile apps. In particular, PayOnline arranges payment on the website of any commercial organization, which increases the convenience of using the website and helps maximize the number of successful transactions. In addition, PayOnline is focused on providing online and mobile payment acceptance services to the travel industry through direct integration with leading Global Distribution Systems (“GDS”), which ~~includes~~include Amadeus® and Sabre®. Key geographic regions ofthat PayOnline ~~are the CIS,~~serves include Eastern Europe, Central Asia, Western Europe, North America and Asia major sub regions. The PayOnline ~~offices are~~office is located in ~~Russia, Kazakhstan and in the Republic of Cyprus. We included the results of PayOnline starting in May 20, 2015.~~Moscow, Russia.

Also part of our transactional services business, Aptito is a proprietary, ~~next-generation,~~ cloud-based payments platform for the hospitality industry, which creates an online consumer experience in offline commerce environments via tablet, mobile and all other cloud-connected devices. Aptito’s easy to use point-of-sale (“POS”) system makes things easier by providing a comprehensive solution to the hospitality industry to help streamline management and operations. Orders placed tableside by customers directly speed up the ordering process and improve overall efficiency. Aptito's mobile POS system provides portability to the staff while performing all the same functions as a traditional POS ~~system, and more.~~

~~F-7~~

system.

~~Basis of Presentation~~

~~Use of Estimates~~

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of expenses for the period presented. Actual results could differ from those estimates.

Significant estimates include (i) the valuation of acquired merchant portfolios, (ii) the collectability of accounts receivable (iii) the recoverability of indeterminate-lived assets, (iv) the remaining useful lives of long-lived assets, and (v) the sufficiency of merchant, aggregator, legal, and other reserves. On an ongoing basis, we evaluate the sufficiency and accuracy of our estimates. Actual results could differ from those estimates.

~~Reclassifications~~

Certain reclassifications have been made to the comparative period amounts to conform to our current period presentation. These reclassifications had no impact on previously presented financial condition or results of operations.

~~Cash and Cash Equivalents~~

~~We maintain $498,308 and $922,062 in uninsured bank accounts in Russia and the Cayman Islands at December 31, 2016 and 2015 respectively.~~

~~Accounts Receivable and Allowance for Doubtful Accounts~~

Accounts receivable are stated net of allowance for doubtful accounts. We estimate an allowance based on experience with our service providers and judgment as to the likelihood of their ultimate payment. We also consider collection experience and make estimates regarding collectability based on payout trends of the customers. In Russia, the service providers are subsidiaries of large telecommunication companies and we do not reserve for these receivables given their financial backing and our historical experience with such companies. The allowance for doubtful accounts was $603,031 at December 31, 2016 and $103,031 December 31, 2015, respectively.

~~Other Current Assets~~

We maintain an inventory of POS terminals which we use to service both merchants and independent sales agents. If the terminals are sold for a fee, we expense the cost of these terminals, plus any setup fees at the time of the sale. Often, we will provide the terminals as an incentive for merchants and independent sales agents to enter into a merchant contracts with us. The term of these contracts have an average length of three years and the cost of the terminal plus any setup fees will be amortized over the contract period. If the merchants early terminate their contract with us, they are obligated to either return the terminal or pay for the terminal. The Company has $311,206 and $345,459 in terminals, iPads ® and related equipment as of December 31, 2016 and 2015, respectively, of which $308,582 and $268,501 has been placed with merchants during 2016 and 2015, respectively. Amortization of these terminals amounted to $126,643 and $110,182 for the years ended December 31, 2016 and 2015, respectively.

~~Fixed Assets~~

We depreciate our furniture and equipment over a term of three to ten years. Computers and software are depreciated over terms between two and five years. Leasehold improvements are depreciated over the shorter of the economic life or term of each lease. All of our assets are depreciated on a straight-line basis for financial statement purposes.

Expenditures for repairs and maintenance are charged to operating expense as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. At the time of retirements, sales, or other dispositions of property and equipment, the original cost and related accumulated depreciation are removed from the respective accounts, and the gains or losses are presented as other expenses.

~~Intangible Assets~~

Included in our intangible assets are merchant portfolios, which represent the net book value of an acquired merchant customer base, and are amortized on a straight-line basis over their respective useful lives, generally three to five years. Merchant portfolios are assessed for impairment if events or circumstances indicate that their respective carrying values are not recoverable from the future anticipated undiscounted net cash flows attributable to such assets. In such cases, the amount of any potential impairment would be measured as the excess, if any, of carrying value over the fair value of such assets.

~~F-8~~

~~We capitalize direct expenses associated with filing of patents and patent applications and amortize the capitalized intellectual property costs over five years beginning when the patent is approved.~~

Additionally, we capitalize the fair value of intangible assets acquired in business combinations. We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocates the purchase price of each acquired business to its respective net tangible and intangible assets. Acquired intangible assets include: merchant portfolios, trade names, non-compete agreements, customer relationships and technology.

~~Impairment of Long-Lived Assets~~

We review our long-lived assets for impairment whenever events or changes indicate that the carrying amount of an asset or group of assets may not be recoverable. During the twelve months ended December 31, 2016 and 2015, we did not recognize any charges for impairment of goodwill or intangible assets.

~~Capitalized Customer Acquisition Costs, Net~~

Capitalized customer acquisition costs consist of up-front cash payments made to Independent Sales Groups (“ISG’s”) for the establishment of new merchant relationships. Capitalized customer acquisition costs represent incremental, direct customer acquisition costs that are recoverable through gross margins associated with merchant contracts. The up-front cash payment to the ISG is based on the estimated gross margin for the first year of the merchant contract. The deferred customer acquisition cost asset is recorded at the time of payment and the capitalized acquisition costs are primarily amortized on a straight-line basis over a period of three years.

Management evaluates the capitalized customer acquisition cost for impairment at each balance sheet date by comparing, on a pooled basis by vintage month of origination, the expected future net undiscounted cash flows from underlying merchant relationships to the carrying amount of capitalized customer acquisition costs. If the estimated future net cash flows are lower than the recorded carrying amount, indicating an impairment of the carrying value of the capitalized customer acquisition costs, the impairment loss is charged to operations.

During the years ended December 31, 2016 and 2015, we recorded $1,319,820 and $878,085, respectively, in additional capitalized customer acquisition costs, and $670,543 and $356,757, respectively, in related additional amortization. The balance of customer acquisition costs was $1,697,337 and $1,048,060 at December 31, 2016 and 2015, respectively, and is reflected in intangible assets in the accompanying consolidated balance sheets.

~~Accrued Residual Commissions~~

We report commission payments as a cost of revenues in the accompanying consolidated statement of operations and comprehensive loss. We pay agent commissions to ISGs and independent sales agents based on the processing volume of the merchants enrolled. The commission payments are based on varying percentages of the volume processed by us on behalf of the merchants. Percentages vary based on the program type and transaction volume of each merchant. We report commission payments as a cost of revenues in the accompanying consolidated statement of operations and comprehensive loss.

~~At December 31, 2016 and 2015 the residual commissions payable to ISGs and independent sales agents were $1,347,352 and $1,205,751, respectively.~~

We pay agent commission on annual fees between January and April of each year. We amortize the annual fees paid in equal monthly amounts from date of payment to end of year. We pay our agent commissions for annual fees in advance of recognizing the associated revenue. We deferred $863,604 and $483,090 of agent commissions paid for annual fees at December 31, 2016 and 2015, respectively. Prepaid agent commissions for annual fees are included in prepaid expenses and other assets, and commissions payable are included in accounts payable in the accompanying condensed consolidated balance sheets.

~~Financial Instruments~~

Convertible securities containing detachable warrants where the conversion price of the security and/or the exercise price of the warrants are affected by the current market price of our common stock are accounted for as derivative financial instruments when the exercise and conversion prices are not considered to be indexed to our stock.

~~F-9~~

For such issuances of convertible securities with detachable warrants, we initially record both the warrant and the beneficial conversion feature (“BCF”) at fair value, using option pricing models commonly used by the financial services industry (Black-Scholes-Merton options pricing model) using inputs generally observable in the financial services industry. These derivative financial instruments are marked-to-market each reporting period, with unrealized changes in value reflected in earnings as a gain or loss on change in fair value and settlement of beneficial conversion derivative.

For discounts arising from issuances of instruments embedded in a debt security, the discount is presented on the consolidated balance sheets as a discount to the principal amount of the related note payable. For discounts arising from issuances of instruments embedded in an equity security, the discount is presented as a reduction to additional paid-in-capital.

The resulting discounts arising from the initial recording of the warrants and BCF are amortized over the term of the host security. The classification of the amortization is based on the nature of the host instrument. In this respect, amortization of discounts associated with debt issuances are classified as interest expense, whereas amortization of discounts associated with preferred stock issuances are classified as preferred stock dividends.

At the time a warrant or BCF is exercised or cancelled, the fair value of the derivative financial instrument at the time of exercise/cancellation is calculated, and a realized gain or loss on conversion is determined and reported as a gain or loss on change in fair value and settlement of beneficial conversion derivative on the Statement of Operations and Comprehensive Loss.

~~Fair Value Measurements~~

Our financial instruments consist primarily of cash, accounts receivables, merchant portfolios, notes receivable, trade payables and debt instruments. The carrying values of cash and cash equivalents, accounts receivable and trade payables are considered to be representative of their respective fair values due to the short-term nature of these instruments. The carrying amount of the long-term debt of $4.6 million at December 31, 2016 approximates fair value because current borrowing rate does not materially differ from market rates for similar bank borrowings. The long-term debt is classified as a Level 2 item within the fair value hierarchy.

We measure certain nonfinancial assets and liabilities at fair value on a nonrecurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-level fair value hierarchy to prioritize the inputs used to measure fair value and maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

~~Level 1 — Quoted market prices in active markets for identical assets or liabilities as of the reporting date~~

~~Level 2 — Observable market based inputs or unobservable inputs that are corroborated by market data~~

~~Level 3 — Unobservable inputs that are not corroborated by market data~~

These non-financial assets and liabilities include intangible assets and liabilities acquired in a business combination as well as impairment calculations, when necessary. The fair value of the assets acquired and liabilities assumed in connection with the PayOnline acquisition, as discussed in Note 4, were measured at fair value by us at the acquisition date. The fair values of our merchant portfolios are primarily based on Level 3 inputs and are generally estimated based upon independent appraisals that include discounted cash flow analyses based on our most recent cash flow projections, and, for years beyond the projection period, estimates based on assumed growth rates. Assumptions are also made regarding appropriate discount rates, perpetual growth rates, and capital expenditures, among others. In certain circumstances, the discounted cash flow analyses are corroborated by a market-based approach that utilizes comparable company public trading values, and, where available, values observed in private market transactions. The inputs used by management for the fair value measurements include significant unobservable inputs, and therefore, the fair value measurements employed are classified as Level 3. The goodwill impairment was primarily based on observable inputs using company specific information and is classified as Level 3.

~~Concentrations~~

~~See Note 11 for full concentration disclosure.~~

~~Foreign Currency Transactions~~

We are subject to exchange rate risk in our foreign operations in Russia, the functional currency of which is Russian Ruble, where we generate service fee revenues and interest income and incurs product development, engineering, website development, and general and administrative costs and expenses. The Russian engineering operations pay a majority of their operating expenses in their local currencies, exposing us to exchange rate risk.

~~F-10~~

~~We do not engage in any currency hedging activities.~~

~~Revenue Recognition~~

We recognize revenue when the following four basic criteria have been met: (1) persuasive evidence of a sales arrangement exists; (2) performance of services has occurred, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured. We consider persuasive evidence of a sales arrangement to be the receipt of a billable transaction from aggregators, signed contract or the processing of a credit card transaction. Collectability is assessed based on a number of factors, including transaction history with the customer and the credit worthiness of the customer. If it is determined that the collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured, which is generally upon receipt of cash. We record cash received in advance of revenue recognition as deferred revenue.

~~Our revenues for the years ended December 31, 2016 and 2015 are principally derived from the following sources:~~

~~Transactional Processing Fees:~~ Transactional processing fees are generated primarily from TOT Payments doing business as Unified Payments, which is our North America Transaction Solutions segment, PayOnline, which is our Russian online transaction processing company, consolidated effective May 20, 2015 when we obtained control of PayOnline. See “PayOnline” in Note 4 for additional more information and Aptito our point of sale solution for restaurants.

Our transactional processing companies derive revenues primarily from the electronic processing of services including: credit, debit, electronic benefits transfer and alternative payment methods card processing authorized and captured through proprietary and third party networks, electronic gift certificate processing, and equipment sales. These revenues are recorded as bankcard and other processing transactions when processed. In addition to generating service fees, Aptito earns monthly license fees for use of its platform.

Typically, fees charged to merchants for these processing services are based on a variable percentage of the dollar amount of each transaction and in some instances, additional fees are charged for each transaction. Merchant customers also may be charged miscellaneous fees, including statement fees, annual fees, monthly minimum fees, fees for handling chargebacks, gateway fees, and fees for other miscellaneous services.

Generally, we (i) are the primary obligor in our arrangements with our merchant customers, (ii) have latitude in establishing the price of our services, (iii) have the ability to change the product and perform parts of the services, (iv) have discretion in supplier selection, (v) have latitude in determining the product and service specifications to meet the needs of our merchant customers, and (vi) assume credit risk. In such cases, we report revenues as gross of fees deducted by our sponsoring member banks, as well as fees deducted from card-issuing member banks and card associations (Visa® and MasterCard®) on behalf of our sponsoring member banks for interchange and assessments. These fees charged by the card associations to process the credit card transactions are recorded separately as cost of revenue and interchange fees in the accompanying condensed consolidated statement of operations and comprehensive loss.

~~Service Fees:~~ Service fees are generated primarily from mobile payment processing services provided to third party content aggregators by Digital Provider. Service fees for services provided for content providers were recorded net of mobile operator fees during 2014 and the first half of 2015. In July of 2015, TOT Money began to offer its branded content to customers and changed its name to “Digital Provider”. Digital Provider’s revenues for the access of branded content are recorded at the amounts charged to the mobile subscriber. A corresponding charge to cost of sales for mobile operator and content fees is recorded for branded content. Revenues for access to branded content are recorded on the income statement as branded content revenues.

Mobile payment processing revenues for third party content providers continue to be accounted for as service fees and presented net of aggregator and mobile operator payments on the consolidated financial statements as these revenues are considered to be agency fees.

Cost of revenues for Digital Provider is comprised primarily of mobile operator fees, content provider fees and fees for short numbers paid to mobile operators. Additionally, penalties and penalty recoveries are recorded as cost of sales. Service revenues for mobile payment processing services are presented net as these revenues are considered to be agency fees.

Subscription revenues for our branded content are recognized when a content subscriber initiates the purchase of our access to content using WAP-click, Internet-click, or a SMS-to-short number registered to us.

Digital Provider’s subscription revenues are recorded at the amounts charged to the third party customer. Cost of revenues for Digital Provider branded content includes fees due to mobile operators and marketing partners, as well as short number fees.

~~F-11~~

Cost of revenues for TOT Payments, Aptito and PayOnline is comprised primarily of processing fees paid to third parties attributable to providing transaction processing and service fees for POS system usage by our merchant customers. Interchange fees and cost of services are recognized as incurred, which generally occurs in the same period in which the corresponding revenue is recognized. Interchange fees are set by the card networks, and are paid to the card-issuing bank. Interchange fees are calculated as a percentage of the dollar volume processed plus a per transaction fee. We also pay Visa® and MasterCard® network dues.

~~We have multiple element arrangements that include bundled transactions with merchants encompassing annual PCI (payment card industry) fees, annual membership fees, and monthly processing fees.~~

We adopted Accounting Standard Update No 2009-13, “Multiple–Deliverable Revenue Arrangements” (ASU 2009-13). ASU 2009-13 requires the use of the relative selling price method of allocating total consideration to units of accounting in a multiple element arrangement and eliminates the residual method. This accounting principle requires an entity to allocate revenue in an arrangement using estimated selling price deliverables if it does not have vendor specific objective evidence (VSOE) or third party evidence (TPE) of selling price.

VSOE is the price charged when the same or similar product or service is sold separately. We define VSOE as a median price of recent stand-alone transactions that are priced within a narrow range. TPE is determined based on the prices charged by our competitors for a similar deliverable when sold separately.

We evaluate each deliverable in its arrangements to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value to our customers. Our products (i.e., terminals) and services qualify as separate units of accounting under ASU 2009-13.

Our payment processing division derives revenues primarily from the electronic processing of services including credit, debit and electronic benefits transfer card processing authorized and captured through third party networks, check conversion and guarantee, electronic gift certificate processing, and equipment leasing and sales. These revenues are recorded as bankcard and other processing transactions when processed.

Typically, fees charged to merchants for these processing services are based on a variable percentage of the dollar amount of each transaction and in some instances, additional fees are charged for each transaction. Merchant customers may also be charged miscellaneous fees, including statement fees, annual fees, monthly minimum fees, fees for handling chargebacks, gateway fees, and fees for other miscellaneous services.

The fair value for annual fees is based on the annual contract renewal price and is deemed to represent stand-alone selling price based upon VSOE. The fair value for processing is based on prices charged by our competitors for similar deliverables when sold separately and is deemed to represent stand-alone selling price based upon TPE.

~~Deferred revenue represents primarily amounts received in advance for annual fee billings and are recognized on a pro rata basis over the service period.~~

Generally, we (i) are the primary obligor in its arrangements with its merchant customers, (ii) have latitude in establishing the price of its services, (iii) have the ability to change the product and perform parts of the services, (iv) have discretion in supplier selection, (v) have latitude in determining the product and service specifications to meet the needs of its merchant customers, and (vi) assume credit risk. In such cases, we report revenues as gross of fees deducted by its sponsoring member banks, as well as fees deducted from card-issuing member banks and card associations (Visa/MasterCard) on behalf of its sponsoring member banks for interchange and assessments. These fees charged by the card associations to process the credit card transactions are recorded separately as cost of sales and interchange fees in the accompanying consolidated statement of operations.

~~Net Loss per Share~~

Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares issuable upon exercise of common stock options or warrants. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would have an anti-dilutive effect. At both December 31, 2015 and 2016, respectively, we had warrants outstanding to purchase 893,890 shares of common stock, and we had 1,464,369 and 1,936,099 stock options issued and outstanding that are anti-dilutive in effect.

~~F-12~~

~~Impairment of Long-Lived Assets~~

We review our long-lived assets for impairment whenever events or changes indicate that the carrying amount of an asset or group of assets may not be recoverable. During the year ended December 31, 2016 and 2015, there was no impairment of goodwill and intangible assets.

~~Income Taxes~~

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We account for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. We classify the liability for unrecognized tax benefits as current to the extent we anticipate payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. Our evaluation of uncertain tax positions was performed for the tax years ended December 31, 2012 and forward, the tax years which remain subject to examination at December 31, 2016. Please see Note 16 for discussion of our uncertain tax positions.

~~Recently Issued Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, which defers by one year the effective date of ASU 2014-09. Accordingly, this guidance is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted for interim and annual periods beginning after December 15, 2016. We are evaluating the effects that the adoption of ASU 2014-9 will have on our consolidated financial statements, and do not expect a material impact on our financial position, results of operations or cash flows.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes,” which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is permitted. We adopted this ASU, which had no impact on our financial position, results of operations or cash flows.

~~F-13~~

~~NOTE 2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION~~

~~On May 25, 2016, we completed a one-for-ten reverse stock split of our common stock. Our condensed consolidated financial statements give retrospective effect for this change in capital structure.~~

Following the consolidation principles promulgated by U.S. GAAP, our consolidated financial statements include the assets, liabilities, results of operations, and cash flows of the following subsidiaries:

(1) TOT Group, Inc., a 100% owned subsidiary formed in Delaware; (2) Netlab Systems, LLC, a wholly owned subsidiary formed in Florida; (3) NetLab Systems IP, LLC, a wholly owned subsidiary formed in Florida; (4) OOO Net Element Russia (“Net Element Russia”), a wholly owned subsidiary formed in Russia; and (5) Net Element Services, LLC, a wholly owned subsidiary formed in Florida.

~~The subsidiaries listed above are the parent companies of several other subsidiaries, which hold our underlying investments or operating entities.~~

TOT Group is the parent company of TOT Payments, LLC (“TOT Payments”) doing business as Unified Payments, a wholly owned subsidiary formed in Florida, Aptito, LLC, an 80% owned subsidiary formed in Florida (acquired June 18, 2013), TOT Group Europe LTD, a wholly owned subsidiary formed in the United Kingdom, Unified Portfolios, LLC, a wholly owned subsidiary formed in Florida and OOO TOT Group Russia, a wholly owned subsidiary formed in Russia.

~~TOT Payments, LLC is the parent company of:~~

~~Process Pink, LLC, a wholly owned subsidiary formed in Florida;~~

~~TOT HPS, LLC, a wholly owned subsidiary formed in Florida;~~

~~TOT FBS, LLC, a wholly owned subsidiary formed in Florida;~~

~~TOT New Edge, LLC, a wholly owned subsidiary formed in Florida;~~

~~TOT BPS, LLC, a wholly owned subsidiary formed in Florida;~~

OOO TOT Group Russia is the parent company of its wholly owned subsidiary, OOO Digital Provider (a company formed in Russia), PayOnline Systems, LLC (a wholly-owned company formed in Russia), Innovative Payment Technologies, LLC (a wholly-owned company formed in Russia) and TOT Group Kazakhstan, a wholly owned subsidiary formed in Kazakhstan.

~~Net Element Russia is the parent company of 100% owned OOO TOT Group. OOO TOT Group is inactive and in the process of being liquidated.~~

~~Netlab Systems, LLC is the parent company of Tech Solutions LTD (Cayman Islands).~~

~~TOT Group Europe LTD is 100% owner of Polimore Capital Limited (Cyprus) and Brosword Holding Limited (Cyprus).~~

~~All material intercompany accounts and transactions have been eliminated in consolidation.~~

NOTE 3. 2. LIQUIDITY AND GOING CONCERN CONSIDERATIONS

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We sustained a net loss of ~~$13.6~~approximately $5.9 million for the year ended December 31, ~~2016~~2020 and have an accumulated deficit of ~~$157~~$184.7 million and a negative working capital of ~~$6.3~~$1.7 million at December 31, ~~2016. In addition, we~~2020.

The continuing spread of the novel coronavirus pandemic (“COVID-19”) is currently impacting countries, communities, supply chains and markets, global financial markets, as well as, the largest industry group serviced by our Company. The Company cannot predict, at this time, whether COVID-19 will continue to have a ~~payment obligation of approximately $1.8 million due~~material impact on ~~May 20, 2017 associated with~~ our ~~PayOnline acquisition. These conditions raise substantial doubt about our ability to continue as a going concern.~~

Failure to successfully continue developing our payment processing operations and maintain contracts with merchants, mobile phone carriers and content providers to use TOT Group’s services could harm our revenues and materially adversely affect ourfuture financial condition and results of ~~operations. We face all of~~operations due to understaffing in the ~~risks inherent~~service sector and the decrease in ~~a new business, including the need for significant additional capital, management’s potential underestimation of initial~~revenues and ~~ongoing costs,~~profits, particularly restaurants, and ~~potential delays~~any possible future government ordinances that may further restrict restaurant and other ~~problems in connection with developing our technologies and~~service or retail sectors operations.

~~Our company is continuing with~~During March 2020, our Company evaluated its ~~plan~~liquidity position, future operating plans, and its labor force, which included a reduction in the labor force and compensation to ~~further grow~~executives and ~~expand our~~other employees, in order to maintain current payment processing ~~operations in emerging markets, particularly in Russia~~functions, capabilities, and ~~surrounding countries, and seek~~continued customer service to its merchants. We are also seeking sources of capital to ~~expand and~~ pay our contractual obligations as they come ~~due.~~due, in light of these uncertain times. Management believes that its ~~current~~ operating strategy will provide the opportunity for us to continue as a going concern as long as we are able to obtain additional ~~financing; however,~~financing. At this time, due to our continuing losses from operations, negative working capital, and the COVID-19 pandemic, we cannot predict the impact of these conditions on our ability to obtain financing necessary for the Company to fund its future working capital requirements. Our Company has also decided to explore strategic alternatives and potential options for its business, including sale of the Company or certain assets, licensing of technology, spin-offs, or a business combination. There can be no assurance, at this time, regarding the eventual outcome of our planned strategic alternatives. In most respects, it is still too early in the COVID-19 pandemic to be able to quantify or qualify the longer-term ramifications on our merchant processing business, our merchants, our planned strategic alternatives to enhance current shareholder value, our current investors, and/or future potential investors.

On March 27, 2020, our Company entered into a Master Exchange Agreement (the “ESOUSA Agreement”) with ESOUSA Holdings, LLC ("ESOUSA"), a related party. Prior to entering into the ESOUSA Agreement, ESOUSA agreed to acquire an existing promissory note that had been previously issued by the Company, of up to $2,000,000 in principal amount outstanding plus interest due to RBL Capital Group, LLC ("RBL"). Pursuant to the ESOUSA Agreement, the Company has the right, at any time prior to March 27, 2021, to request ESOUSA, and ESOUSA agreed upon each such request, to exchange this promissory note in tranches on the dates when the Company instructs ESOUSA, for such number of shares of the Company’s common stock (“Common Stock”) as determined under the ESOUSA Agreement based upon the number of shares of Common Stock (already in ESOUSA’s possession) that ESOUSA sold in order to finance its purchase of such tranche of the promissory note from RBL Capital Group, LLC. ESOUSA will purchase each tranche of the promissory note equal to 88% of the gross proceeds from the shares of Common Stock sold by ESOUSA to finance the purchase of such Exchange Amount from RBL Capital Group, LLC. Each such tranche to be $148,000 unless otherwise agreed to by the Company and ESOUSA.

On April 23, 2020 and August 3, 2020, the Company entered into certain amendments to the ESOUSA Agreement, which together increased from $2,000,000 to $15,000,000 the principal amount and unpaid interest of one or more promissory notes of the Company or its direct or indirect subsidiaries that ESOUSA either purchased in whole or has an irrevocable right to purchase in tranches from RBL in connection with the ESOUSA Agreement.

On March 27, 2020, the Company received its first tranche of RBL promissory notes in the aggregate amount of $148,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. Included in other accrued expenses at September 30, 2020 is approximately $145,000 in connection with this first tranche for which shares of Common Stock have not yet been issued. Concurrently with this transaction, the Company received an equivalent aggregate amount of $148,000 from RBL under the Loan and Security Agreement (“Credit Facility”) with RBL.

On April 28, 2020, the Company received its second tranche of RBL promissory notes in the aggregate amount of $143,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 65,862 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $143,000 from RBL under the Credit Facility.

On August 11, 2020, the Company received its third tranche of RBL promissory notes in the aggregate amount of $707,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 66,190 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $707,000 from RBL under the Credit Facility.

On August 21, 2020, the Company received its fourth tranche of RBL promissory notes in the aggregate amount of $401,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement.The Company issued 45,654 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $401,000 from RBL under the Credit Facility.

On September 25, 2020, the Company received its fifth tranche of RBL promissory notes in the aggregate amount of $426,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement.The Company issued 50,000 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $426,000 from RBL under the Credit Facility.

On December 30, 2020, the Company received its sixth tranche of RBL promissory notes in the aggregate amount of $1,960,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. In January 2021, the Company issued 200,000 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $1.960,000 from RBL under the Credit Facility.

On August 4, 2020, our Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Mullen Technologies, Inc., a California corporation (“Mullen”), and Mullen Acquisition, Inc., a California corporation and wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to, and on the terms and subject to the conditions of, the Merger Agreement, Merger Sub will be merged with and into Mullen (the “Merger”), with Mullen continuing as the surviving corporation in the Merger. After Mullen’s completion and delivery to our Company, of the audited financial statements for Mullen and its subsidiaries and affiliates required to be included in a registration statement, the Company intends to prepare and file with the Commission a registration statement on Form S-4 (together with all amendments thereto, the “Registration Statement”) in which the proxy statement will be included as a part of the prospectus, in connection with the registration under the Securities Act of the shares of Parent Shares to be issued in connection with the transactions contemplated in the Merger Agreement. The Merger Agreement contains termination rights for each of the Company and Mullen, including, among others, (i) in the event that the Merger has not been consummated by December 31, 2020, (ii) in the event that the requisite approval of the Company’s stockholders is not obtained upon a vote thereon, (iii) in the event that any governmental authority shall have taken action to restrain, enjoin or prohibit the consummation of the Merger, which action shall have become final and non-appealable and (iv) in the event that there is a breach by the other party of any of its representations, warranties, covenants or agreements, which breach is sufficiently material and not timely cured or curable. In addition, Mullen may terminate the Merger Agreement if, prior to receipt of the requisite approval of the Company’s stockholders, the Company’s board of directors shall have changed their recommendation in respect of the Merger. Further, the Company may terminate the Merger Agreement prior to receipt of the requisite approval of the Company’s stockholders to enter into a definitive agreement with respect to a Superior Proposal (as such term is defined in the Merger Agreement).

As contemplated by the Merger Agreement, on August 11, 2020, our Company as lender, entered into an unsecured Promissory Note, dated August 11, 2020 (the “Note”), with Mullen. Pursuant to the Note, Mullen borrowed from the Company $500,000. Prior to maturity of the loan, the principal amount of the loan will carry an interest rate of 14% per annum compounded monthly and payable upon demand. This loan will mature on the earlier of (i) the date that the Merger Agreement is terminated for any reason by any party thereto and (ii) the Merger Effective Time (as defined in the Merger Agreement).

On December 29, 2020, the Company entered into the First Amendment (the “Amendment”) to the Merger Agreement with Mullen and the Merger Sub. Prior to the parties’ execution and delivery of the Amendment, Section 8.1(b) of the Merger Agreement provided that the Merger Agreement may be terminated and the merger contemplated in the Merger Agreement (the “Merger”) and other transactions contemplated in the Merger Agreement may be abandoned at any time prior to the merger effective time, notwithstanding any requisite approval and adoption of Merger Agreement and the transactions contemplated in the Merger Agreement by the shareholders of Mullen and/or the stockholders of the Company, by either Company or Mullen if the merger effective time shall not have occurred on or before December 31, 2020 (the “Outside Date”). Pursuant to the Amendment, the Company, Mullen and Merger Sub amended Section 8.01(b) of the Merger Agreement to extend the Outside Date to March 31, 2021.

In addition, pursuant to the Amendment, the Company, Mullen and Merger Sub agreed that, if the registration statement on Form S-4 (with the merger proxy statement included as part of the prospectus) is not filed with U.S. Securities and Exchange Commission (the “SEC”) on or prior to January 15, 2021, then Mullen will pay the Company an agreed sum of $13,333 per day (the “Late Fee”) until the such registration statement (with the merger proxy statement included as part of the prospectus) is filed with the SEC. All accumulated Late Fees will be due and payable by Mullen on the 5^th day of each calendar month commencing February 5, 2021 and on the 5^th day of each month thereafter until the above-refenced filing has occurred.

On March 30, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to Agreement and Plan of Merger dated as of August 4, 2020, as amended by the First Amendment dated as of December 29, 2020 (the “Merger Agreement”) with Mullen Technologies, Inc., a California corporation (“Mullen”), Mullen Acquisition, Inc., a California corporation and wholly owned subsidiary of the Company (“Merger Sub”). Prior to the parties’ execution and delivery of the Second Amendment, Section 8.1(b) of the Merger Agreement, as amended, provided that the Merger Agreement may be terminated and the merger contemplated in the Merger Agreement (the “Merger”) and other transactions contemplated in the Merger Agreement may be abandoned at any time prior to the merger effective time, notwithstanding any requisite approval and adoption of this Agreement and the transactions contemplated in the Merger Agreement by the shareholders of Mullen and/or the stockholders of the Company, by either Company or Mullen if the merger effective time shall not have occurred on or before March 31, 2021 (the “Outside Date”). Pursuant to the Second Amendment, the Company, Mullen and Merger Sub amended Section 8.01(b) of the Merger Agreement to extend the Outside Date to April 30, 2021.

At March 31, 2021, the Company is also owed approximately $1 million from Mullen in connection with Late Fees, as previously discussed..

Consummation of the Merger, the Divestiture, the Private Placement and the other transactions contemplated in the Merger Agreement, is subject to customary conditions including, among others, the approval of the Company’s stockholders. There is no ~~assurance this~~guarantee that the Merger, the Divestiture, the Private Placement or the other transactions contemplated in the Merger Agreement will ~~occur.~~be completed.

These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

~~We are required to continually meet the listing requirements~~

F-7

Table of The NASDAQ Capital Market (including a minimum bid price for our common stock of $1.00 per share) to maintain the listing of our common stock on The NASDAQ Capital Market. On November 14, 2016, the bid price of our common stock fell below $1.00 and stayed below $1.00 for 30 consecutive business days. On December 28, 2016, we received a letter from NASDAQ providing us 180 days (until June 26, 2017) to regain compliance. To regain compliance, our stock closing bid price must remain above $1.00 for 10 consecutive trading days. If we do not regain compliance with the minimum closing bid price requirement, the NASDAQ Capital Market will provide written notice that our securities are subject to delisting. At such time, we would be entitled to appeal the delisting determination to a NASDAQ Listing Qualifications Panel. We cannot provide any assurance that our stock price will recover within the permitted grace period.

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Any delisting of our common stock from The NASDAQ Capital Market could adversely affect our ability to attract new investors, reduce the liquidity of our outstanding shares of common stock, reduce our flexibility to raise additional capital, reduce the price at which our common stock trades and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholders. In addition, delisting of our common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, and might deter certain institutions and persons from investing in our securities at all. For these reasons and others, delisting could adversely affect our business, financial condition and results of operations.

The independent auditors’ reports on our consolidated financial statements for the years ended December 31, 2016 and 2015 contain explanatory paragraphs expressing substantial doubt as to our ability to continue as a going concern.

~~NOTE 4. ACQUISITION OF PAYONLINE~~

On May 20, 2015, our subsidiaries TOT Group Europe, Ltd. and TOT Group Russia LLC, entered into an agreement with Maglenta Enterprises Inc. and Champfremont Holding Ltd. (together, the “Sellers”) to acquire all of the assets and liabilities that comprise PayOnline. PayOnline’s business includes the operation of a protected payment processing system to accept bank card payments for goods and services.

On October 25, 2016, we entered into a settlement agreement which incorporated the above charge of $2,162,861 and an additional charge of $125,806 to adjust the accrual relating to the stock price guarantee obligation to the agreed upon amount of $2,288,667 plus 10% per annum interest accrued from May 20, 2016, payable in installments with a balloon payment of $1.8 million due in May 2017. As a result, for the year ended December 31, 2016, we recognized $125,887 for the related interest.

On October 25, 2016, we entered into an amendment to the PayOnline acquisition agreement with the Sellers, in which we agreed to assume $1,433,475 of certain refundable merchant deposit reserves. These reserves are expected to be repaid during the first half of 2017 and we have recorded a charge in this amount for the year ended December 31, 2016.

~~F-15~~

~~The following table summarizes the fair value of consideration paid and the allocation of purchase price to the fair value of tangible and intangible assets acquired and liabilities assumed:~~

	~~Purchase~~
	~~price allocation~~
	~~(in Millions)~~
~~Purchase Consideration:~~
~~Cash~~	$	~~3.6~~
~~Fair Value of Earnout~~		~~0.6~~
~~Issuance of Net Element Stock~~		~~3.6~~
~~Total Consideration Transferred~~	$	~~7.8~~

~~Purchase Price Allocation to Identifiable assets acquired and liabilities assumed (Preliminary)~~
~~Current Assets~~	$	~~0.8~~
~~Merchant Portfolios and Client lists~~		~~1.4~~
~~Other Intangible Assets~~		~~2.9~~
~~Goodwill~~		~~3.0~~
~~Fixed Assets~~		~~0.1~~
~~Current Liabilities~~		~~(0.4~~	)
~~Total Identifiable Net Assets~~		~~7.8~~
~~Total Purchase Price Allocation~~	$	~~7.8~~

Assuming the acquisition of PayOnline occurred on January 1, 2015, Net Revenues and Net Loss from operations for the year ended December 31, 2015 would have been $42,725,207 and $12,240,344, respectively.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. The Company’s significant accounting policies are described below.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the reporting and disclosure rules and regulations of the Securities and Exchange Commission (“SEC”).

Principles of Consolidation

These consolidated financial statements include the accounts of Net Element, Inc and our subsidiary companies. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform to the 2019 presentation. These reclassifications had no effect on net loss or loss per share as previously reported.

Cash

We maintain our U.S. dollar-denominated cash in several non-interest bearing bank deposit accounts. All U.S. non-interest bearing transaction accounts are insured up to a maximum of $250,000 at FDIC insured institutions. The bank balances exceeded FDIC limits by approximately $3.7 million and $134,000 at December 31, 2020 and December 31, 2019, respectively. We maintained approximately $43,000 and $30,000 in uninsured bank accounts in Russia and the Cayman Islands at December 31, 2020 and 2019, respectively.

Restricted Cash

Restricted cash represents funds held-on-deposit with processing banks pursuant to agreements to cover potential merchant losses. It is presented as other long-term assets on the accompanying consolidated balance sheets since the related agreements extend beyond the next twelve months. Following the adoption of ASU 2016-18, StatementofCashFlows:RestrictedCash(Topic 230), the Company includes restricted cash along with the cash balance for presentation in the consolidated statements of cash flows. The reconciliation between the consolidated balance sheet and the consolidated statement of cash flows is as follows:

	December 31, 2020		December 31, 2019
Cash on consolidated balance sheet	$	4,541,013	$	486,604
Restricted cash		780,998		629,651
Total cash and restricted cash	$	5,322,011	$	1,116,255

Accounts Receivable and Credit Policies

Accounts receivable consist primarily of uncollateralized credit card processing residual payments due from processing banks requiring payment within thirty days following the end of each month. Accounts receivable also include amounts due from the sales of our technology solutions to its customers. The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts, if necessary, which reflects management’s best estimate of the amounts that will not be collected. The allowance is estimated based on management’s knowledge of its customers, historical loss experience and existing economic conditions. Accounts receivable and the allowance are written-off when, in management’s opinion, all collection efforts have been exhausted.

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Other Current Assets

Other current assets consist of point-of-sale equipment which we use to service both merchants and independent sales agents ("ISG"). Often, we will provide the equipment as an incentive for merchants and independent sales agents to enter into a merchant contracts with us. The term of these contracts has an average length of three years and the cost of the equipment plus any setup fees will be amortized over the contract period. If the merchants terminate their contract with us early, they are obligated to either return the equipment or pay for it. The table below reflects the changes in other current assets, as it relates to point-of-sale equipment for the years ended December 31, 2020 and 2019.

Balance December 31, 2018	$	525,000
Purchases during 2019		272,000
Amortization 2019		(334,000	)
Balance December 31, 2019	$	463,000
Purchases during 2020		248,000
Amortization 2020		(333,000	)
Balance December 31, 2020	$	378,000

Also included in other current assets are prepaid PCI annual fees of approximately $298,000 and $345,000 as of December 31, 2020 and 2019, respectively, and approximately $708,000 and $663,000 of prepaid annual fee commissions as of December 31, 2020 and 2019, respectively.

Amortization expense for the equipment placed in service for the years ended December 31, 2020 and 2019 was approximately $333,000 and $334,000, respectively.

Intangible Assets

Intangible assets acquired, either individually or with a group of other assets (but not those acquired in a business combination), are initially recognized and measured based on fair value. Goodwill acquired in business combinations is initially computed as the amount paid in excess of the fair value of the net assets acquired. We did not acquire any businesses during the years ended December 31, 2020 and 2019.

The cost of internally developing, maintaining and restoring intangible assets (including goodwill) that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business and related to an entity are recognized as an expense when incurred.

Intangible assets include acquired merchant relationships, recurring cash flow portfolios, referral agreements, trademarks, tradenames, website development costs and non-compete agreements. Merchant relationships represent the fair value of customer relationships purchased by us. Recurring cash flow portfolios give us the right to retain a greater share of the cash flow, in the form of paying less commissions to an independent sales agent, related to certain future transactions with the agent referred sales partners. Referral agreements represent the right to exclusively obtain referrals from a partner for their customers' credit card processing services.

We amortize definite lived identifiable intangible assets using a method that reflects the pattern in which the economic benefits of the intangible asset are expected to be consumed or otherwise utilized. The estimated useful lives of our customer-related intangible assets approximate the expected distribution of cash flows on a straight-line basis from each asset. The useful lives of contract-based intangible assets are equal to the terms of the agreement.

Management evaluates the remaining useful lives and carrying values of long-lived assets, including definite lived intangible assets, at least annually, or when events and circumstances warrant such a review, to determine whether significant events or changes in circumstances indicate that a change in the useful life or impairment in value may have occurred. There were no impairment charges during the years ended December 31, 2020 and 2019 for the intangible assets.

Goodwill

In accordance with ASC 350, Intangibles—GoodwillandOther, we test goodwill for impairment for each reporting unit on an annual basis, or when events or circumstances indicate the fair value of a reporting unit is below its carrying value.

Our goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in business combinations. The goodwill generated from the business combinations is primarily related to the value placed on the employee workforce and expected synergies. Judgment is involved in determining if an indicator or change in circumstances relating to impairment has occurred. Such changes may include, among others, a significant decline in expected future cash flows, a significant adverse change in the business climate, and unforeseen competition.

We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit. Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of its reporting units, sustained decrease in its share price, and other relevant entity specific events. If the management determines on the basis of qualitative factors that the fair value of the reporting unit is more likely than not less than the carrying value, then we perform a quantitative test for that reporting unit. The fair value of each reporting unit is compared to the reporting unit’s carrying value, including goodwill. Subsequent to the adoption on January 1, 2017 of Accounting Standards Update (“ASU”) No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment, if the fair value of a reporting unit is less than its carrying value, we recognize an impairment equal to the excess carrying value, not to exceed the total amount of goodwill allocated to that reporting unit.

At December 31, 2019, our management determined that an impairment charge of approximately $1.3 million was necessary to reduce the goodwill relating to the acquisition of PayOnline which is part of our International Transaction Solutions segment . We did not recognize any impairment charge to goodwill during the year ended December 31, 2020.

For a discussion of the estimate methodology and the significance of various inputs, please see the subheading below titled “Use of Estimates.”

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Capitalized Customer Acquisition Costs, Net

Capitalized customer acquisition costs consist of up-front cash payments made to ISG’s for the establishment of new merchant relationships. Capitalized customer acquisition costs represent incremental, direct customer acquisition costs that are recoverable through gross margins associated with merchant contracts. The up-front cash payment to the ISG is based on the estimated gross margin for the first year of the merchant contract. The deferred customer acquisition cost asset is recorded at the time amounts are receivable but not yet earned and the capitalized acquisition costs are amortized on a straight-line basis over a period of approximately four years. Consideration paid for these agreements for the years ended December 31, 2020 and 2019 was approximately $600,000 and $1.9 million, respectively. Because we pay an up-front fee to compensate the referral partner, the amount is treated as an asset acquisition in which we have acquired an intangible stream of referrals. This asset is amortized over a straight-line period of approximately four years and is included in intangible assets on the accompanying consolidated balance sheets (See Note 6 – item labeled “Client Acquisition Costs”).

Accrued Residual Commissions

We record commissions as a cost of revenues in the accompanying consolidated statement of operations and comprehensive loss. We pay agent commissions to ISGs and independent sales agents based on the processing volume of the merchants enrolled. The commission obligations are based on varying percentages of the volume processed by us on behalf of the merchants. Percentages vary based on the program type and transaction volume of each merchant.

Fair Value Measurements

Our financial instruments consist primarily of cash, accounts receivables, accounts payables, and a note payable. The carrying values of these financial instruments are considered to be representative of their fair values due to the short-term nature of these instruments. The carrying amount of notes payable of approximately $9.9 million and $9.3 million at December 31, 2020 and 2019, respectively, approximates fair value because current borrowing rates do not materially differ from market rates for similar bank borrowings. The notes payable are classified as a Level 2 item within the fair value hierarchy.

Level 1 — Quoted market prices in active markets for identical assets or liabilities as of the reporting date

Level 2 — Observable market based inputs or unobservable inputs that are corroborated by market data

Level 3 — Unobservable inputs that are not corroborated by market data

These non-financial assets and liabilities include intangible assets and liabilities acquired in a business combination as well as impairment calculations, when necessary. The fair value of the assets acquired and liabilities assumed in connection with the PayOnline acquisition, were measured at fair value by us at the acquisition date. The fair values of our merchant portfolios are primarily based on Level 3 inputs and are generally estimated based upon independent appraisals that include discounted cash flow analyses based on our most recent cash flow projections, and, for years beyond the projection period, estimates based on assumed growth rates. Assumptions are also made regarding appropriate discount rates, perpetual growth rates, and capital expenditures, among others. In certain circumstances, the discounted cash flow analyses are corroborated by a market-based approach that utilizes comparable company public trading values, and, where available, values observed in private market transactions. The inputs used by management for the fair value measurements include significant unobservable inputs, and therefore, the fair value measurements employed are classified as Level 3. Goodwill impairment is primarily based on observable inputs using company specific information and is classified as Level 3.

Leases

Effective January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) which supersedes the lease accounting requirements in Accounting Standards Codification (ASC) 840, Leases (Topic 840). Please refer to Recent Accounting Pronouncements below for additional information on the adoption of Topic 842 and the impact upon adoption to the Company’s consolidated financial statements.

Under Topic 842, we applied a dual approach to all leases whereby we are a lessee and classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the Company. Lease classification is evaluated at the inception of the lease agreement. Regardless of classification, we record a right-of-use asset and a lease liability for all leases with a term greater than 12 months. Our lease, for the premises we occupy for the North American Transaction Solutions segment's U.S. headquarters, was classified as an operating lease as of January 1, 2019. Operating lease expense is recognized on a straight-line basis over the term of the lease.

We identify leases in our contracts if the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. We do not allocate lease consideration between lease and non-lease components and record a lease liability equal to the present value of the remaining fixed consideration under the lease. Any interest rate implicit in our leases are generally not readily determinable. Accordingly, we use our estimated incremental borrowing rate at the commencement date of the lease to determine the present value discount of the lease liability. We estimate the incremental borrowing rate for each lease based on an evaluation of our expected credit rating and the prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the term of the lease. The right-of-use asset for each lease is equal to the lease liability, adjusted for unamortized initial direct costs and lease incentives. We exclude options to extend or terminate leases from the calculation of the lease liability unless it is reasonably certain the option will be exercised.

Revenue Recognition and Deferred Revenue

We recognize revenue when all of the following criteria are met: (1) the parties to the contract have approved the contract and are committed to perform their respective obligations, (2) we can identify each party’s rights regarding the goods or services to be transferred, (3) we can identify the payment terms for the goods or services to be transferred, (4) the contract has commercial substance, and (5) it is probable that we will collect substantially all of the consideration to which we will be entitled in exchange for the goods or services that will be transferred to the customer. We consider persuasive evidence of a sales arrangement to be the receipt of a billable transaction from aggregators, signed contract or the processing of a credit card transaction. Collectability is assessed based on a number of factors, including transaction history with the customer and the credit worthiness of the customer. If it is determined that the collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured, which is generally upon receipt of cash. We record cash received in advance of revenue recognition as deferred revenue. Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services and is recognized as revenue during the period the transactions are processed or when the related services are performed.

Our transactional processing fees are generated primarily from TOT Payments doing business as Unified Payments, which is our North American Transaction Solutions segment, PayOnline, which is our International Transaction Solutions segment, and Aptito, which is our point of sale solution for restaurants.

We work directly with payment card networks and banks so that our merchants do not need to manage the complex systems, rules, and requirements of the payments industry. We satisfy our performance obligations and therefore recognize the transactional processing service fees as revenue upon authorization of a transaction by the merchant’s customer’s bank.

The majority of our revenues is derived from volume-based payment processing fees ("discount fees”) and other related fixed transaction or service fees. Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed. Discount fees are recognized at the time the merchants’ transactions are processed. Generally, where we have control over merchant pricing, merchant portability, credit risk and ultimate responsibility for the merchant relationship, revenues are reported at the time of sale on a gross basis equal to the full amount of the discount charged to the merchant. This amount includes interchange fees paid to card issuing banks and assessments paid to payment card networks pursuant to which such parties receive payments based primarily on processing volume for particular groups of merchants. Revenues generated from merchant portfolios where we do not have control over merchant pricing, liability for merchant losses or credit risk or rights of portability are reported net of interchange and other fees.

Revenues are also derived from a variety of fixed transaction or service fees, including authorization fees, convenience fees, statement fees, annual fees, and fees for other miscellaneous services, such as handling chargebacks. Revenues derived from service fees are recognized at the time the services are performed and there are no further performance obligations. Revenue from the sale of equipment is recognized upon transfer of ownership and delivery to the customer, after which there are no further performance obligations.

We primarily report revenues gross as a principal versus net as an agent. Although some of our processing agreements vary with respect to specific terms, the transactional processing service fees collected from merchants generally are recognized as revenue on a gross basis as we are the principal in the delivery of the managed payments solutions to the sellers. The gross fees we collect are intended to cover the interchange, assessments and other processing and non-processing fees which are included and are part of our gross margin.

We have primary responsibility for providing end-to-end payment processing services for our clients. Our clients contract us for all credit card processing services, including transaction authorization, settlement, dispute resolution, data/transmission security, risk management, reporting, technical support and other value-added services. We have concluded that we are the principal because we control the services before delivery to the merchant, and are primarily responsible for the delivery of the services, have discretion in setting prices charged to merchants, and are responsible for losses. We also have pricing latitude and can provide services using several different network options.

Net Loss per Share

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Income Taxes

We recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences,projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We account for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. We classify the liability for unrecognized tax benefits as current to the extent we anticipate payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. The open United States tax years subject to examination with respect to our operations are 2017, 2018 and 2019.

Interchange, Network Fees and Other Cost of Services

Interchange and network fees consist primarily of fees that are directly related to discount fee revenue. These include interchange fees paid to issuers and assessment fees payable to card associations, which are a percentage of the processing volume we generate from Visa and Mastercard, AMEX, and Discover, as well as fees charged by card-issuing banks. Other costs of services include costs directly attributable to processing and bank sponsorship costs, which may not be based on a percentage of volume. These costs also include related costs such as residual payments to sales groups, which are based on a percentage of the net revenues generated from merchant referrals. In certain merchant processing bank relationships we are liable for chargebacks against a merchant equal to the volume of the transaction. Losses resulting from chargebacks against a merchant are included in other cost of services or as a bad debt expense, determined on the timing and nature of the specific transaction, on the accompanying consolidated statement of operations. We evaluate the risk for such transactions and our potential loss from chargebacks based primarily on historical experience and other relevant factors.

Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred. Advertising expense was approximately $223,000 and $273,000 for the years ended December 31, 2020 and 2019, respectively, and is included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss.

Equity-based Compensation

We account for grants of equity awards to employees in accordance with ASC 718, Compensation—StockCompensation. This standard requires compensation expense to be measured based on the estimated fair value of the share-based awards on the date of grant and recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

Equity-based compensation was approximately $2.7 million and $2.1 million for the years ended December 31, 2020 and 2019, respectively, and is reflected on the accompanying consolidated statements of operations and comprehensive loss.

Foreign Currency Transactions

We are subject to exchange rate risk in our foreign operations in Russia, the functional currency of which is the Russian ruble, where we generate service fee revenues, interest income or expense, incur product development, engineering, website development, and selling, general and administrative costs and expenses. Our Russian subsidiaries pay a majority of their operating expenses in their local currencies, exposing us to exchange rate risk.

Use of Estimates

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Such estimates include, but are not limited to, the value of purchase consideration paid and identifiable assets acquired and assumed in acquisitions, goodwill and asset impairment review, valuation reserves for accounts receivable, valuation of acquired or current merchant portfolios, incurred but not reported claims, revenue recognition for multiple element arrangements, loss reserves, assumptions used in the calculation of equity-based compensation and in the calculation of income taxes, and certain tax assets and liabilities, as well as, the related valuation allowances. Actual results could differ from those estimates.

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Below is a summary of the Company’s critical accounting estimates for which the nature of management’s assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and for which the impact of the estimates and assumptions on financial condition or operating performance is material.

Goodwill

The Company tests goodwill for impairment using a fair value approach at least annually, absent some triggering event that would require an interim impairment assessment.

Significant estimates and assumptions are used in our goodwill impairment review and include the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting unit. Our assessment of qualitative factors involves significant judgments about expected future business performance, general market conditions, and regulatory changes. In a quantitative assessment, the fair value of each reporting unit is determined based largely on the present value of projected future cash flows, growth assumptions regarding discount rates, estimated growth rates and our future long-term business plans. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated goodwill impairment charge for each reporting unit.

Recent Accounting Pronouncements

Adoption of ASU 2016-02, Leases

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, “Leases (Topic 842)” which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Effective January 1, 2019, we adopted Topic 842 using the modified retrospective transition method. Under this method, we applied Topic 842 to the lease for the premises we occupy for our North American Transaction Solutions segment's U.S. headquarters. There was no cumulative impact adjustment necessary with the adoption to our accumulated deficit on January 1, 2019. Our consolidated financial statements for periods ending after January 1, 2019 are presented in accordance with the requirements of Topic 842, while comparative prior period amounts have not been adjusted and continue to be reported in accordance with Topic 840. Please refer to "Leases" above for a description of our lease accounting policies upon the adoption on Topic 842.

Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this update changed how companies measure and recognize credit impairment for many financial assets. The new expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets (including trade receivables) that are within the scope of the update. The update also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The guidance was effective for us on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

NOTE 4. DUE FROM MULLEN

As contemplated by the Merger Agreement referred to in Note 2, on August 11, 2020, our Company as lender, borrowed an additional $500,000 from RBL and entered into an unsecured Promissory Note, dated August 11, 2020 (the “Note”), with Mullen. Pursuant to the Note, Mullen borrowed from the Company $500,000. Prior to maturity of the loan, the principal amount of the loan will carry an interest rate of 14% per annum compounded monthly and payable upon demand. This loan will mature on the earlier of (i) the date that the Merger Agreement is terminated for any reason by any party thereto and (ii) the Merger Effective Time (as defined in the Merger Agreement).

At March 31, 2021, the Company is also owed approximately $1 million from Mullen in connection with Late Fees, pursuant to the Amendment to the Merger Agreement with Mullen.

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NOTE 5. ACCOUNTS RECEIVABLE

Accounts receivable, ~~(net)~~net of allowance for doubtful accounts, consist of amounts due from ~~processors~~merchant service providers and to a lesser extent Russian mobile operator intermediaries. ~~Total net~~Net accounts receivable amounted to ~~$7,126,429~~approximately $7.1 million and ~~$5,198,993~~6.6 million at December 31, ~~2016~~2020 and ~~2015,~~2019, respectively. Net accounts receivable consisted primarily of ~~$2,391,646~~approximately $6.7 and ~~$1,764,087~~$6.2 million for North American Transaction Solutions as of ~~amounts due from Russian mobile operators, $185,650~~December 31, 2020 and ~~$211,019 due~~2019and approximately $300,000 and $400,000, attributed to ~~PayOnline business and $4,549,133 and $3,223,287 of credit card~~International Transaction Solutions for merchant processing receivables at December 31, ~~2016~~2020 and ~~2015~~2019, respectively.

~~Total~~Our allowance for doubtful accounts was ~~$603,031~~approximately $214,000 and ~~$103,031 at~~ $214,000 as of December 31, ~~2016~~2020 and ~~2015, respectively. For the year ended December 31, 2016, we recorded a provision of $500,000 for potentially uncollectible accounts receivable in our mobile payments business.~~

~~NOTE 6. FIXED ASSETS~~

~~Fixed assets are stated at acquired cost less accumulated depreciation and amortization as follows:~~

Useful life
(in years) December 31, 2016 December 31, 2015
Furniture and equipment 3 - 10 $ 185,301 $ 174,133
Computers 2 - 5 168,942 141,692
Total 354,243 315,825
Less: Accumulated depreciation (236,948 ) (153,702 )

Total fixed assets, net $ 117,295 $ 162,123

~~Depreciation expense for the years ended December 31, 2016 and 2015 was $83,245 and $129,343, respectively.~~2019. Actual write-offs may exceed estimated amounts.

~~F-16~~

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NOTE 7.6. INTANGIBLE ASSETS

The Company had ~~$3,589,850~~approximately $3.6 and ~~$5,423,880~~$5.7 million in intangible assets, net of amortization, at December 31, ~~2016~~2020 and ~~2015,~~2019, respectively. Shown below are the details at of the components that represent these balances.

Intangible assets consisted of the following as of December 31, ~~2016 and 2015:~~2020

IP Software Portfolios and
Client Lists Client Acquisition
Costs PCI
Certification Trademarks Domain Names Covenant Not to
Compete Total
Balance at December 31, 2014 $ 520,924 $ 1,082,731 $ 526,728 $ - $ - $ - $ 361,667 $ 2,492,050
Additions due to Payonline purchase 1,328,000 1,410,000 - 449,000 708,062 429,939 - 4,325,001
Other additions 163,129 878,085 1,041,214
Amortization (463,452 ) (842,806 ) (356,753 ) (93,542 ) (146,290 ) (90,793 ) (280,000 ) (2,273,636 )
Divested - (160,750 ) - - - - - (160,750 )
Balance at December 31, 2015 $ 1,548,601 $ 1,489,175 $ 1,048,060 $ 355,458 $ 561,772 $ 339,146 $ 81,667 $ 5,423,880
Additions 102,689 - 1,319,820 83 1,422,592
Amortization (1,271,226 ) $ (704,184 ) (670,543 ) (149,668 ) (234,064 ) (145,270 ) (81,667 ) (3,256,622 )
Balance at December 31, 2016 $ 380,064 $ 784,991 $ 1,697,337 $ 205,790 $ 327,708 $ 193,959 $ - $ 3,589,850

	Cost		Accumulated Amortization			Carrying Value		Amortization Life and Method

IP Software	$	2,378,248	$	(2,321,843	)	$	40,185	3 years - straight-line
Portfolios and Client Lists		7,714,665		(6,776,317	)		938,348	4 years - straight-line
Client Acquisition Costs		8,841,617		(6,224,824	)		2,616,794	4 years - straight-line
PCI Certification		449,000		(449,000	)		-	3 years - straight-line
Trademarks		703,586		(703,586	)		-	3 years - straight-line
Domain Names		437,810		(437,810	)		-	3 years - straight-line
Total	$	20,524,925	$	(16,913,379	)	$	3,595,326

Intangible assets consisted of the following as of December 31, 2019

	Cost		Accumulated Amortization			Carrying Value		Amortization Life and Method

IP Software	$	2,343,888	$	(2,240,695	)	$	103,193	3 years - straight-line
Portfolios and Client Lists		7,714,665		(5,614,880	)		2,099,785	4 years - straight-line
Client Acquisition Costs		8,238,018		(4,762,347	)		3,475,671	4 years - straight-line
PCI Certification		449,000		(449,000	)		-	3 years - straight-line
Trademarks		703,586		(703,586	)		-	3 years - straight-line
Domain Names		437,810		(437,810	)		-	3 years - straight-line
Total	$	19,886,967	$	(14,208,318	)	$	5,678,649

Amortization expense for the ~~year~~intangible assets was approximately $2.6 million and $2.7 million for the years ended December 31, ~~2016 was $3,383,265 of which $3,256,622 is described in the table above~~2020 and $126,643 was for the amortization of terminal inventory placed for free. The inventory and its associated amortization are included in prepaid and other expenses, and is not included in the table above.

Amortization expense for the year ended December 31, 2015 was $2,383,818 of which $2,273,636 is described in the table above and $110,182 was for the amortization of terminal inventory placed with merchants without charge. The inventory and its associated amortization are included in prepaid and other expenses, and is not included in the table above.2019, respectively.

The following table presents the estimated aggregate future amortization expense of ~~other~~ intangible assets:

Year Amortization Expense

2017 $ 1,196,616
2018 1,196,617
2019 1,196,617
2020 -
2021 -
Total $ 3,589,850

As a result of the PayOnline acquisition in 2015, we recognized certain intangible assets with a fair market value of $4,325,001. This consisted of software ($1,328,000), client lists ($1,410,000), PCI certification ($449,000), trademarks ($708,062) and Domain names ($429,939). Amounts are included in table above and amortized accordingly.

~~Software~~

We capitalized software development costs that add value to or extend the useful of the related software it develops for internal use and licensing. Costs for routine software updates are expensed as incurred. Capitalized costs are amortized over 36 months on a straight-line basis. Impairment is reviewed quarterly to ensure only viable active costs are capitalized.

~~During the twelve months ended December 31, 2016 and 2015, we capitalized $102,689 and $163,129 of development costs as follows:~~

~~point of sale software ($1,469 and $107,619)~~

~~payment processing software ($89,101 and $46,868)~~

~~mobile payments billing software ($12,119 and $8,642)~~

~~For the twelve months ended December 31, 2016, amortization was $1,271,226. For twelve months ended December 31, 2015, amortization was $463,452.~~

~~Merchant Portfolios~~

Merchant Portfolios consisted of purchased portfolios that earn future streams of income for the foreseeable future. The remaining useful lives of these portfolios range from 15 months to 36 months at the time of acquisition. At December 31, 2016 and 2015 the net value of these portfolios was $784,991 and $1,489,175 respectively.

2021	$	866,629
2022		866,629
2023		866,629
2024		853,234
2025		142,205
Balance December 31, 2020	$	3,595,326

~~F-17~~

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~~The useful lives of merchant portfolios represent management’s best estimate over which the Company will recognize the economic benefits of these intangible assets.~~

~~Trademarks and Domain Names~~

During 2015, we acquired certain trademarks with a $708,062 fair market value and domain names with a $429,939 fair market value at the date of acquisition. At December 31, 2016 and December 31, 2015, the net book values of these trademarks were $327,708 and $561,772, respectively, and the net book value of the domain names were $193,959 and $339,146, respectively.

~~For the twelve- months ended December 31, 2016, amortization for trademarks was $234,064. For the twelve months ended December 31, 2015, amortization was $146,290.~~

~~For the twelve months ended December 31, 2016, amortization for domain names was $145,270. For the twelve months ended December 31, 2015, amortization was $90,793.~~

~~PCI Certification~~

During 2015, we acquired a “Payment Card Industry” (PCI) Certification with our acquisition of PayOnline. This certification had a fair market value of $449,000 at the date of acquisition. At December 31, 2016 and December 31, 2015, the net book value of this certification was $205,790 and $355,458, respectively.

~~For the twelve-months ended December 31, 2016, amortization for this certification was $149,668. For the twelve months ended December 31, 2015, amortization for this certification was $93,542.~~

~~Non-Compete Agreements~~

In connection with our acquisition of Unified Payments, LLC in 2013, two key executives signed covenants not to compete. These covenants had a three-year life with a net book value $0 and $81,667 at December 31, 2016 and December 31, 2015, respectively.

NOTE 8.7. ACCRUED EXPENSES

At December 31, ~~2016~~2020 and December 31, ~~2015,~~2019, accrued expenses amounted to ~~$5,518,823~~approximately $4.6 and ~~$2,975,066~~$1.8 million, respectively. Accrued expenses represent expenses that are owed at the end of the period ~~and~~or are estimates of services provided that have not been billed by the provider or ~~are estimates of services provided.~~vendor. The following table ~~details the items comprising~~reflect the balances outstanding as of December 31, ~~2016~~2020 and December 31, ~~2015.~~2019.

	December 31, 2016		December 31, 2015		December 31, 2020			December 31, 2019
Accrued professional fees	$	220,140	$	220,140	$	268,435		$	276,239
PayOnline Accrual		3,784,451		618,500
PayOnline accrual						61,719			69,039
Accrued interest		183,778		-		409,525			43,021
Accrued payroll		-		79,653
Accrued bonus		774,485		1,635,816		1,690,556			1,318,060
Accrued franchise taxes		180,000		-
Accrued foreign taxes		131,810		79,691		(12,336	)		2,064
Short term loan advances		174,376		200,000
Other accrued expenses		69,783		141,266		2,186,197			91,921
	$	5,518,823	$	2,975,066
Total accrued expenses					$	4,604,097		$	1,800,344

~~The accrual for PayOnline~~Included in accrued bonus are non-discretionary compensation due to our Chairman and CEO approximating $1.3 million and $979,000 at December 31, ~~2016 consists of a $0.3 million earn-out accrual~~2020 and ~~a $2.0 million stock price guarantee obligation pursuant~~2019, respectively, and approximately $386,000 and $339,000 at December 31, 2020 and 2019 for discretionary performance bonuses due to a settlement agreement entered into in connection with the PayOnline acquisition. Additionally, it includes a $1.4 million obligation for refundable merchant reserves assumed pursuant to an amendment to the PayOnline acquisition agreement. See Note 11 for additional information.certain employees.

~~Accrued performance bonuses were $774,485 and $1,635,816 at~~Other accrued expenses includes $2.0 million which was due to ESOUSA for the sixth tranche received on December 31, 2016 and 2015, respectively. At December 31, 2015, the bonus accrual consisted of bonuses that were owed at the date of the Unified Payments acquisition, plus additional bonus accruals from date of acquisition to December 31, 2015.

~~F-18~~

~~Accrued interest at December 31, 2016 is comprised of loan costs associated with RBL notes in the amount of $134,180 as a result of~~30, 2020, which was subsequently paid by the issuance of ~~additional RBL notes and interest payable~~200,000 shares in January of ~~$49,598 associated with the PayOnline settlement agreement.~~2021.

NOTE 8. NOTES PAYABLE

We were required to pay $180,000 to the state of Delaware on March 1, 2017, for franchise taxes relating to 2016. As such we recognized an accrual at December 31, 2016. In addition, we owed $131,810 in foreign taxes, which primarilyNotes payable consist ~~of VAT and payroll taxes related to our Mobile and Online segments at December 31, 2016.~~

~~NOTE 9. SHORT TERM LOANS~~

~~Term Loan~~

On April 14, 2015, Revere Wealth Management, LLC provided a $200,000 term loan with an annual interest rate of 12% due May 31, 2015. Terms of the loan provided for fees of $2,500 and required that the first $65,000 of the loan proceeds be used to fund expenses associated with our convertible preferred stock transaction and convertible senior notes and warrants transaction. This loan was repaid in May 2015.

~~Senior Convertible Notes and Warrants~~

On April 30, 2015, we entered into a $5,000,000 Securities Purchase Agreement (the “Debt SPA”) for the issuance of (i) senior convertible notes in the aggregate principal amount of $5,000,000 (the “Notes”), convertible into shares of our common stock and (ii) 2,709,360 warrants (the “Warrants”) to purchase shares of our common stock.

~~The investors had the right to purchase additional Notes and Warrants, up to $10,000,000.~~

The notes accrued interest at 7% (default rate 18%) per year on the full face amount of $5,000,000, with accelerated interest and principal payments, payable in five (5) monthly installments in cash and/or shares of our common stock, and mature on April 30, 2018. The Notes were convertible into shares of our common stock at an initial price of $1.62 per share, subject to market adjustments and “down round” reductions in the conversion price arising from future stock issuances at prices less than the conversion price.

The Warrants had a term of three years from issuance and were immediately exercisable to purchase shares of our common stock at an initial exercise price of $1.74 per share, subject to market adjustments and “down round” reductions in the conversion price arising from future stock issuances at prices less than the exercise price. Under certain circumstances, the holder of the Warrants may have elected a cashless exercise.

Pursuant to a letter agreement dated August 4, 2015, (i) all Notes became automatically (i.e., without any further action by us or the investors) null and void on October 11, 2015, (ii) the investors' right to purchase, and our obligation to issue, Additional Notes and Additional Warrants became automatically null and void on October 11, 2015.

~~On December 1, 2015, the warrants previously issued to the Series A Preferred stock investors were terminated and cancelled in exchange for 250,000 unrestricted shares of our common stock.~~

~~NOTE 10. LONG TERM DEBT~~

~~Long term debt consists~~ of the following:

December 31, 2016 December 31, 2015
RBL Capital Group, LLC $ 4,044,056 $ 3,965,000
MBF Merchant Capital, LLC 520,303 -
Less Current Portion (808,976 ) (518,437 )
Long Term Debt $ 3,755,383 $ 3,446,563

~~F-19~~

	December 31, 2020			December 31, 2019
RBL Capital Group, LLC	$	9,431,157		$	9,431,157
SBA Loan - EIDL		159,899			-
SBA Loan - PPP		491,493			-
Subtotal		10,082,549			9,431,157
Less: deferred loan costs		(138,944	)		(179,610	)
Subtotal		9,943,605			9,251,547
Less: current portion		(1,330,018	)		(909,086	)
Long term debt	$	8,613,587		$	8,342,461

RBL Capital Group, LLC

Effective June 30, 2014, TOT Group, Inc. and its subsidiaries as co-borrowers, TOT Payments, LLC, TOT BPS, LLC, TOT FBS, LLC, Process Pink, LLC, TOT HPS, LLC and TOT New Edge, LLC (collectively, the “co-borrowers”), entered into a Loan and Security Agreement (“Credit Facility”) with RBL Capital Group, LLC (“RBL”), as lender (the “RBL Loan Agreement”). ~~Pursuant to the~~The original terms of the RBL Loan Agreement, we could borrow up to $10,000,000 from RBL during the 18 month period from the closing of this credit facility. Prior to maturity of the loan, the principal amount of the borrowings under theprovided us with an 18-month, $10 million credit facility ~~will carry a fixed~~with interest ~~rate of~~at the higher of 13.90% per annum or the prime rate plus 10.65%. After maturity of the loan, until all borrowings are paid in full, with respect to the advances under the credit facility, an additional three percent per annum would be added to such interest rate, and for any other amounts, obligations or payments due to RBL, an annual default rate not to exceed the lesser of (i) the prime rate plus 13% per annum and (ii) 18.635% per annum. As further described below, borrowings from the line of credit in the amounts of $3,315,000, $400,000 and $250,000 were converted into term loans. At December 31, 2016 and 2015 we had $10,955,944 and $6,035,000 available on our RBL credit line. On May 2, 2016, we renewed our ~~credit facility~~Credit Facility with RBL, increasing the facility from $10 million to $15 million and ~~extended~~extending the term through February ~~2018.~~2019.

The co-borrowers’ obligations to RBL pursuant to the RBL Loan Agreement are secured by a first priority security interest in all of the co-borrowers’ tangible and intangible assets, including but not limited to their merchants, merchant contracts and proceeds thereof, and all right title and interest in co-borrowers’ processing contracts, contract rights, and portfolio cash flows with all processors of the co-borrowers.

On ~~July 17, 2014,~~December 19, 2019, in connection with an addendum to those certain term notes made by TOT Group, Inc.in favor of RBL, the Credit Facility referred to above, we ~~entered into a $3,315,000 promissory note with RBL. Net proceeds from~~received funding of $1,000,000 and new terms were negotiated for the ~~promissory note~~total outstanding notes payable amount of $9,431,157. This total loan amount bears interest at 14.19%. On January 20, 2020, we were ~~used~~required to ~~repay a $3.0 million note previously due to MBF in addition to approximately $239,000 for working capital. The promissory note required~~make one (1) payment of interest only ~~payments at 13.90% interest through January 2015 commencing on August 20, 2014~~for $117,329, followed by ~~monthly interest and principal~~five (5) payments of ~~$90,421 through January 2019. The promissory note balance reduced~~interest only in the amount ~~available under our RBL credit line. The~~of $111,523. Effective July 20, 2020, we were required to make forty-eight (48) monthly payments, which includes principal and interest for $258,620, until March 20, 2024 the date this term note ~~also provided for a 2% front end fee due at execution~~matures. In the event any of the ~~note~~installments or other payment required to be made is not received by or on behalf of RBL in full within ten (10) days after the due date thereof, and the same subsequently is received and accepted by or on behalf of RBL, the Company shall pay on demand a ~~4% backend fee~~late charge in the amount of five percent (5%) of the amount of the delinquent payment. In the event of the occurrence of an Event of Default (as defined in the Loan Agreement), the entire unpaid balance of principal and interest of the Loan shall become due and payable immediately, without notice or demand, at the ~~final payment~~election of the ~~note. At December 31, 2016,~~Note holder, provided that the ~~promissory note balance was $0. During 2016, Crede CG III, Ltd. (“Crede”) purchased $1,849,481~~holder shall endeavor (but is not required) to provide notice to the Company of any such acceleration. The Company waives demand, presentment for payment, protest, notice of protest and notice of nonpayment or dishonor of the ~~principal balance of~~Note. The Company shall not have any right to prepay this ~~promissory note~~loan except as expressly provided in ~~various tranches. We exchanged and extinguished these promissory note tranches for 164,262 shares of common stock during~~ the second quarter of 2016, 992,032 shares of our common stock during the third quarter of 2016, and 196,080 shares during the fourth quarter of 2016. See “—Crede CG III, Ltd.” At December 20, 2016, the remaining balance of the note was refinanced into another note and its balance is $0.

Effective February 10, 2015, we entered into a $400,000 term note with RBL based on a draw down from the line of credit. The term note provided for interest-only payments at 13.90% interest through July 20, 2015. From August 20, 2015 through July 20, 2019 (maturity date), we were obligated to make interest and principal payments of $10,911 per month. We paid $8,000 in costs related to this loan. This term note was purchased by Crede, which was exchanged and extinguished for an aggregate of 219,284 shares of our common stock on June 9, 2016, June 23, 2016, and June 30, 2016.

Effective March 27, 2015, we entered into a $250,000 term note with RBL based on the draw down from the line of credit. The term note provided for interest-only payments at 13.90% interest through July 20, 2015. From August 20, 2015 through July 20, 2019 (the note maturity date), we were obligated to make interest and principal payments of $6,819 per month. We paid $5,000 in costs related to this term note. This term note was purchased by Crede, which was exchanged and extinguished for an aggregate of 91,744 shares of our common stock on May 9, 2016.

On May 4, 2016, we entered into a $250,000 term note with RBL. The term note provided for interest-only payments at 14.15% interest through October 20, 2016. From November 20, 2016 through October 20, 2020 (the note maturity date), we were obligated to make interest and principal payments of $6,850 per month. The term note also provided for a 2% front end fee, due upon the execution of the term note and a 4% back end fee due at the final payment of the term note. On December 20, 2016, this note was refinanced into another term note and its balance was $0 at December 31, 2016.

On May 20, 2016, we entered into a $400,000 term note with RBL. The term note provided for interest-only payments at 14.15% interest through November 20, 2015. From December 20, 2016 through November 20, 2020 (the note maturity date), we were obligated to make interest and principal payments of $10,961 per month. The term note also provided for a 2% front end fee, due upon the execution of the term note and a 4% back end fee due at the final payment of the term note. On December 20, 2016, this note was refinanced into another term note and its balance was $0 at December 31, 2016.Loan Agreement.

On June ~~23, 2016, we entered into a $190,000~~20, 2020, in connection with those certain term notes made by TOT Group, Inc.in favor of RBL, the Credit Facility referred to above, the Company executed two (2) promissory term notes, totaling $9,431,157, which replaces all previous outstanding term notes with RBL The first term note ~~with RBL. The term note provided~~is for ~~interest-only payments~~$4,432,157 and bears interest at 14.15% interest through December 20, 2016. From January 20, 2017 through December 20, 2020 (the note maturity date), we were obligated to make interest and principal payments of $5,206 per month. The term note also provided for a 2% front end fee, due upon the execution of the term note and a 4% backend fee due at the final payment of the term note.14.19%. On December ~~20, 2016, this note was refinanced into another term note and its balance was $0 at December 31, 2016.~~

On July 15, 2016, we entered into a $350,000 term note with RBL. The term note provided for interest-only payments at 14.15% through January 20, 2017. From February 20, 2017 through January 20, 2021, we were obligated to make interest and principal payments of $9,591. The term note also provided for a 2% front end fee, due upon the execution of the loan and a 4% back end fee due at the final payment of the term note. On December 20, 2016, this note was refinanced into another term note and its balance was $0 at December 31, 2016.

~~F-20~~

On August, 15, 2016, we entered into a $400,000 term note with RBL. The term note provided for interest only payments at 14.15% through February 20, 2017. From March 20, 2017 through February 20, 2021, we were obligated to make interest and principal payments of $10,961. The term note also provided for a 2% front end fee, due upon the execution of the loan and a 4% back end fee due at the final payment of the term note. On December 20, 2016, this note was refinanced into another term note and its balance was $0 at December 31, 2016.

On September 15, 2016, we entered into a $350,000 term note with RBL. The term note provided for interest only payments at 14.15% through March 20, 2017. From April 20, 2017 through March 20, 2021, we were obligated to make interest and principal payments of $9,591. The term note also provided for a 2% front end fee, due upon the execution of the loan and a 4% back end fee due at the final payment of the term note. On December 20, 2016, this note was refinanced into another term note and its balance was $0 at December 31, 2016.

On November 7, 2016, we entered into a $350,000 term note with RBL. The term note provided for interest only payments at 14.15% through May 20, 2017. From June 20, 2017 through May 20, 2021, we were obligated to make interest and principal payments of $9,591. The term note also provided for a 2% front end fee due upon the execution of the loan and a 4% back end fee due at the final payment of the term note. On December 20, 2016, this note was refinanced into another term note and its balance was $0 at December 31, 2016.

On December 15, 2016, we entered into a $325,000 term note with RBL. The term note provided for interest only payments at 14.15% through June 20, 2017. From July 20, 2017 through June 20, 2021, we were obligated to make interest and principal payments of $8,906. The term note also provided for a 2% front end fee, due upon the execution of the loan and a 4% back end fee due at the final payment of the term note. On December 20, 2016, this note was refinanced into another term note and its balance was $0 at December 31, 2016.

On December 20, 2016, we entered into a $4,044,055 term note with RBL. This note effectively refinanced all RBL notes described above. The term note provides for interest only payments at 14.15% through May 20, 2017 of $47,686. From June 20, 2017 through May 20, 2021, we are ~~obligated~~required to make one (1) payment of interest ~~and principal~~only for $67,746, followed by eight (8) payments of ~~$110,814.~~interest only for the same amount, followed by a balloon payment for any outstanding principal and accrued interest of approximately $5,540,128.. The second term note ~~also provides~~is for $5,000,000 and bears interest at 14.19%. On June 20, 2020, we are required to make one (1) payment of interest only for $59,125 followed by six (6) payments of interest only for the same amount. Starting on January 20,2021, the Company shall make twenty (20) equal monthly payments of principal and interest of $137,109, followed by one (1) payment of principal and interest for approximately $3,290,475.In connection with this term note, the Company agreed to pay a ~~$20,000 front end refinancing~~financing fee of $894,311. Such financing fee will be due ~~upon the execution~~and payable as follows; $25,000 on February 20, 2021; $25,000 on June 20, 2021; $94,311 on August 20, 2022; and $750,000 on September 20, 2022. The Company waives demand, presentment for payment, protest, notice of protest and notice of nonpayment or dishonor of the Note. The Company shall not have any right to prepay this loan except as expressly provided in the Loan Agreement. The Company waives demand, presentment for payment, protest, notice of protest and ~~a $104,600 back end fee due at the final payment on May 20, 2021.~~

~~MBF Merchant Capital, LLC~~

~~We issued the following notes payable to MBF Merchant Capital, LLC (MBF), which is owned by William Healy, a member~~notice of ~~our board of directors.~~

On March 28, 2016, we entered into a $75,000 promissory note with MBF. The promissory note provides for interest only payments at 14% through May 28, 2016. From June 28, 2016 through March 28, 2017, we are obligated to make interest and principal payments of $7,990. The promissory note also provides for a 6% backend fee due at the final paymentnonpayment or dishonor of the ~~promissory note. As of December 31, 2016,~~Note. The Company shall not have any right to prepay this loan except as expressly provided in the ~~balance of the note was $23,420.~~Loan Agreement.

On April 19, 2016, we entered into a $300,000 promissory note with MBF. The promissory note provides for interest only payments at 15.5% through May 28, 2016. From June 28, 2016 through May 28, 2018, we are obligated to make interest and principal payments of $14,617. The promissory note also provides for a 6% back end fee due at the final payment of the promissory note. At December 31, 2016, the balance of the note was $221,826.

~~On July 1, 2016,~~March 27, 2020, our subsidiary, TOT Group, Inc., entered into a $353,500 promissory note with MBF. The promissory note provides for interest only payments at 15.5% through June 28, 2016. From July 28, 2016 through June 28, 2018, we are obligated to make interest and principal payments of $17,224. The promissory note also provides for a 1% front end fee and for a 6.6% back end fee due at the final payment of the loan. At December 31, 2016 the remaining balance of the note was $275,056.

~~Crede CG III, Ltd.~~

~~On May 2, 2016, we~~Company entered into a Master Exchange Agreement (the “ESOUSA Agreement”) with ~~Crede CG III, Ltd (“Crede”~~ESOUSA Holdings, LLC ("ESOUSA"), a related party. Prior to entering into the ESOUSA Agreement, ESOUSA agreed to acquire an ~~entity~~existing promissory note that ~~purchased a portion our~~had been previously issued ~~promissory notes held~~ by ~~RBL.~~the Company, of up to $2,000,000 in principal amount outstanding plus interest due to RBL Capital Group, LLC ("RBL"). Pursuant to the ~~Master Exchange~~ESOUSA Agreement, ~~we have~~the Company has the right, at any time prior to March 27, 2021, to request ~~exchanges up~~ESOUSA, and ESOUSA agreed upon each such request, to ~~$3,965,000~~exchange this promissory note in tranches on the dates when the Company instructs ESOUSA, for such number of shares of the Company’s common stock (“Common Stock”) as determined under the ESOUSA Agreement based upon the number of shares of Common Stock (already in ESOUSA’s possession) that ESOUSA sold in order to finance its purchase of such tranche of the promissory note from RBL Capital Group, LLC. ESOUSA will purchase each tranche of the promissory note equal to 88% of the gross proceeds from the shares of Common Stock sold by ESOUSA to finance the purchase of such Exchange Amount from RBL Capital Group, LLC. Each such tranche to be $148,000 unless otherwise agreed to by the Company and ESOUSA.

On March 27, 2020, the Company received its first tranche of RBL promissory notes ~~purchased by Crede~~in the aggregate amount of $148,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. Included in other accrued expenses at September 30, 2020 is approximately $145,000 in connection with this first tranche for which shares of Common Stock have not yet been issued. Concurrently with this transaction, the Company received an equivalent aggregate amount of $148,000 from RBL under the Credit Facility.

On August 21, 2020, the Company received its fourth tranche of RBL promissory notes in the aggregate amount of $401,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 45,654 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $401,000 from RBL under the Credit Facility.

On September 25, 2020, the Company received its fifth tranche of RBL promissory notes in the aggregate amount of $426,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 50,000 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $426,000 from RBL under the Credit Facility.

F-15

Table of Contents

SBA Loans

On May 7, 2020, the Company entered into a promissory note (the “Note”) evidencing an unsecured loan (the “Loan”) in the amount of $491,493 made to the Company under the Paycheck Protection Program (the “PPP”). The Note matures on May 7, 2022 and bears interest at a rate of 1% per annum. Beginning December 7, 2020, the Company is required to make 17 monthly payments of principal and interest, with the principal component of each such payment based upon the level amortization of principal over a two-year period from May 7, 2020. Pursuant to the terms of the CARES Act and the PPP, the Company may apply to the Lender for forgiveness for the amount due on the Loan. The amount eligible for forgiveness is based on the amount of Loan proceeds used by the Company (during the eight-week period after the Lender makes the first disbursement of Loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), interest on mortgage obligations, rent and utilities, subject to certain limitations and reductions in accordance with the CARES Act and the PPP. No assurance can be given, at this time, that the Company will obtain forgiveness of the Loan in whole or in part.

On May 18, 2020, the Company entered into a promissory note (the "Note") in the amount of $159,899 made to the Company by the U.S. Small Business Administration under the Economic Injury Disaster Loan program. Monthly installment payments on the Note will begin twelve months from the date of the Note, with the balance of any accrued principal and interest at 3.75% annually, payable thereafter.

Scheduled Notes Payable Principal Repayment at December 31, 2020 is as follows:

2021		1,330,018
2022		8,574,057
2023		5,514
2024		5,514
2025		167,446
Balance December 31, 2020	$	10,082,549

NOTE 9. CONCENTRATIONS

Credit card processing revenues are from merchant customer transactions, which were processed primarily by one third-party processor (greater than 5%) and our ~~common stock. Also, see Note 18. Subsequent Events.~~own dedicated bank identification number ("BIN")/Interbank Card Association ("ICA") number during the years ended December 31, 2020 and 2019.

For the year ended December 31, ~~2016,~~2020, we ~~exchanged 1,663,402 shares~~processed 32% of our common stock with Crede for an aggregate of $2,499,481 of RBL promissory notes, including the full exchange of the $400,000 promissory note (originally entered into February 10, 2015) and $250,000 promissory note (originally entered into March 27, 2015), and the partial exchange for $1,849,481 of the $3,315,000 promissory note (originally entered July 17, 2014). These notes were purchased by Crede for an average per share exchange price of $1.68. The exchanges also settled current interest and loan fees of $302,294 and a non-cash exchange premium of $487,064. A summary of these exchanges for the year ended December 31, 2016 is as follows:

~~F-21~~

Date Shares
Issued Exchange
Price Principal
Reduction Interest, Fees
& Fair Value
Charges
May 2, 2016 97,857 $ 2.87 $ 250,000 $ 63,142
May 9, 2016 91,744 2.72 237,367 56,214
May 16, 2016 66,405 2.57 162,633 36,581
June 9, 2016 99,025 2.02 148,341 83,378
June 23, 2016 57,663 1.73 88,479 28,000
June 30, 2016 62,596 1.60 85,050 30,123
July 8, 2016 125,220 1.60 178,650 56,762
July 22, 2016 164,603 1.82 284,567 79,200
August 4, 2016 52,791 1.89 80,671 34,939
August 9, 2016 104,942 1.91 182,012 50,961
August 12, 2016 103,617 1.93 184,114 50,059
August 31, 2016 156,546 1.28 177,893 61,619
September 9, 2016 90,138 1.11 86,749 28,629
September 16, 2016 194,175 1.03 181,825 82,253
November 8, 2016 98,040 1.02 81,363 28,441
November 14, 2016 98,040 1.02 89,767 19,057

Totals 1,663,402 $ 1.76 $ 2,499,481 $ 789,358

~~Cayman Invest, S.A.~~

On April 21, 2014, we had a Stock Subscription Receivable from Cayman Invest, S.A. (“CI”) associated with the issuance of a secured convertible senior promissory note. During 2015, we wrote off $1,111,130 for amounts that were not funded by CI.

~~Scheduled Debt Principal Repayment~~

~~Scheduled principal maturities on indebtedness at December 31, 2016 is as follows:~~

2017 $ 808,976
2018 1,046,973
2019 1,010,396
2020 1,163,015
2021 534,999
Balance December 31, 2016 $ 4,564,359

~~NOTE 11. CONCENTRATIONS~~

~~The Company’s total revenue was $54,286,859 and $40,235,362 for the years ended December 31, 2016 and 2015 respectively.~~

Of the $54,286,859 in 2016 revenues, $48,784,854 (which also includes its newly acquired PayOnline Systems) was derived from processing of Visa®, MasterCard®, Discover® and American Express® card transactions and $5,502,004 was derived from providing branded content during 2016.

Of the $40,235,362 in 2015 revenues, $31,204,871 (which also includes its newly acquired PayOnline Systems) was derived from processing of Visa®, MasterCard®, Discover® and American Express® card transactions and $9,030,491 was derived from providing branded content during 2015.

The credit card processing revenues were from merchant customer transactions, which are processed primarily by two third-party processors (greater than 5%) during 2016 and two “third-party” processors (greater than 5%) during 2015. For the twelve months ended December 31, 2016, the Company processed 69% of its total revenue with Priority ~~Data~~Payment Systems, and ~~6% of its total revenue~~53% from our own dedicated BIN/ICA with ~~National Processing Company (NPC) and during 2015, and 51% of its total revenue was processed with Priority Data,~~Esquire Bank, and 10% ~~was processed~~ with ~~National Processing Company (NPC).~~

~~F-22~~

First Data Corp.

Mobile electronic payment revenues are generated from merchant customer transactions which are processed primarily by two mobile operators during the twelve months ended December 31, 2016 and during the twelve months ended December 31, 2015. For the year ended December 31, ~~2016, the Company~~2019, we processed 4%44% of ~~its~~our total revenue with ~~Mobile Internet Solutions~~Priority Payment Systems, and 3%38% from our own dedicated BIN/ICA with Esquire Bank.

F-16

Table of its total revenue with HelpLine. During the twelve months ended December 31, 2015, the Company processed 9% of its total revenue with Beeline (OJSC Vimpelcom) and 5% of its total revenue with MTS (Mobile TeleSystems OJSC).Contents

NOTE ~~12.~~10. COMMITMENTS AND CONTINGENCIES

~~PayOnline Acquisition Commitments~~Employment Agreement

On ~~May 20, 2015, our subsidiaries TOT Group Europe, Ltd. and TOT Group Russia LLC,~~February 25, 2020, as per approval of the Compensation Committee (the “Committee”) of the board of directors of the Company, the Company entered into an employment agreement (the “Agreement”) with ~~Maglenta Enterprises Inc.~~Steven Wolberg, the Company's Chief Legal Officer and ~~Champfremont Holding Ltd. (together, the “Sellers”) to acquire all~~Corporate Secretary. The Agreement provides for continuation of the ~~assets and liabilities that comprise PayOnline. PayOnline’s business includes the operation~~current base salary of ~~a protected payment processing system to accept bank card payments for goods and services.~~

Purchase consideration consisted of a combination of $3.6 million in cash, and restricted common shares with a value of $3.6 million, payable in five quarterly installments, and, if applicable, additional earn-out payments in cash and restricted common shares based on a multiple of EBITDA and subject to certain EBITDA target achievement in the applicable quarter.$250,000. The ~~PayOnline acquisition agreement set forth the determination~~term of the ~~value of such shares based on the closing stock price on the date before each applicable payment date.~~Agreement is 5 years, with subsequent 1-year renewals. The ~~agreement called~~Agreement provides for a ~~guarantee, payable in cash, for decreases in~~sign-on bonus of 10,000 shares of Company’s common stock, to be granted to Mr. Wolberg pursuant to the ~~market value of~~Company’s equity incentive plan, the ~~restricted common shares issued at 12 months from the date of the respective issuances. On May 19, 2016, we recognized a charge~~severance in the amount of ~~$2,162,861 for decreases~~two times annual base salary of Mr. Wolberg if Mr. Wolberg’s employment is terminated by the Company without “cause” (as defined in the ~~market value~~Agreement) or Mr. Wolberg terminates the employment for “good reason” (as defined in the Agreement). For each fiscal year during the term of the ~~restricted~~Agreement, the Agreement provides for a bonus arrangement equal to 50% of Mr. Wolberg’s base salary, payable in the Company’s shares of common ~~shares issued~~stock or, at the Company’s discretion, in cash. Further, for each fiscal year during the term of the Agreement, Mr. Wolberg will be eligible to receive long-term equity incentive awards, as determined by the Committee at the time of grant, pursuant to the ~~stock price guarantee.~~Company’s equity incentive plan.

~~On October 25, 2016,~~Minimum Billing Processing Fees Commitment

We have non-exclusive agreements with two of our processors to provide services related to processing. The agreements require us to submit a minimum number of billable processing fees. If we ~~entered into a settlement agreement with~~submit an amount that is lower than the ~~Sellers relating to the stock price guarantee provision in the PayOnline acquisition agreement pursuant to which~~minimum, we ~~agreed~~are required to pay to each processor the ~~Sellers an aggregate~~fees it would have received if we had submitted the required minimum number of ~~$2,288,667 plus 10% per annum interest accrued from May 20, 2016 in installments pursuant to the payment schedule set forth in the settlement agreement and a balloon payment~~billable processing fees. As of ~~$1.8 million in May 2017. As a result, for the twelve month period ended~~ December 31, ~~2016, we recorded an additional charge of $125,806~~2020, the aggregate minimum monthly processing fees for these processors amounts to adjust the accrual relating to the stock price guarantee obligation to the amount agreed to in such settlement agreement and a charge of $125,887 for the related interest. In addition, on October 25, 2016, we entered into an amendment to the PayOnline acquisition agreement with the Sellers, in which we agreed to assume $1,433,475 of certain refundable merchant deposit reserves. These reserves are expected to be refunded during the first half of 2017, and we have recorded a charge in this amount.approximately $150,000 per month.

Leases

InNorth American Transaction Solutions

During May 2013, we entered into a lease agreement, for approximately ~~4,716~~4,101 square feet of office space located at 3363 N.E. 163rd Street, Suites 705 through 707, North Miami Beach, Florida 33160. The term of the lease agreement was from May 1, 2013 through December 31, 2016, with monthly rent increasing from $16,800 per month at inception to $19,448 per month (or $233,377 per year) for the period from January 1, 2016 through December 31, 2016.

~~In September 2016, this~~ The lease was extended for a period of five years commencing ~~January~~August 1, 2017 and expiring ~~December~~July 31, ~~2021~~2022 with equal monthly base rent ~~increasing each year from $20,421 per month beginning January 1, 2017~~installments of $14,354 ($~~245,046~~172,248 per year) plus sales tax. In September 2020, we entered into an agreement with the Landlord modifying this existing lease. In consideration of payment to ~~$24,821 per month beginning January 1, 2021 ($297,855 per year). The extension has an early termination provision that allows us to cancel~~Landlord of the ~~lease with no cancellation fee if we enter~~sum of $65,600, the Company surrendered all existing premises occupied by it and entered into a new 4 year lease for a smaller premises at Unit #707 in the same building for a monthly rent of $2,954. There will be a $65,600 payment payable as follows: (1) $22,700 due upon the execution of the Modification of Lease Agreement; (2) $20,100 due on or before December 31, 2020; and (3) $22,800 due on or before March 31, 2021. Except as previously mentioned, all other terms and conditions of the initial lease agreement ~~with Canal Park Office, LLC. We are currently negotiating with Canal Park Office, LLC for a new, larger space.~~ continues to remain in effect. The first two payments have been made and the Company is expected to make the third payment on March 31, 2021, at this time.

~~NetLabs Systems, LLC, through~~On September 26, 2019, we entered into a lease for additional office space in the building that our current office space is located for our North American Transactions Solutions. The space is for 5,875 square feet and the term is for 5 years commencing on September 23, 2019 and expiring on September 30, 2024. The monthly base rent is $16,156 ($193,875 per year) plus sales tax. In consideration of our Company foregoing its ~~Russian representative office,~~rights to credits from the landlord towards the cubicle installation and foregoing its rights to one (1) of the (2) month rent deposits prepaid to the landlord , the lease was amended. The amended lease requires the Company to begin paying $11,500 effective July 7, 2020, with the original monthly rent payment of $16,156 commencing on January 1, 2021. In addition, commencing on March 1, 2021, our Company will begin making up the difference between the original monthly lease payment of $16,156 and the amended monthly lease payment of $11,500, the deferred monthly rent, by paying the landlord an additional $2,000 per month until the deferred portion of the rent is fully repaid. All outstanding amounts of deferred rent shall be subject to interest at an annual the rate of 4%. The Company occupied the space in July of 2020.

Net Element Software, our subsidiary, currently leases approximately 1,654 square feet of office space in Yekaterinburg, Russia, where ~~it conducts Value Added Services~~we develop value added services, mobile applications, smart terminals applications, sales central ERP system development and ~~Sales Central CRM development~~marketing activities, ~~at annual rent of approximately $24,300. The current lease term expires in June 1, 2017.~~

~~PayOnline Systems leases approximately 5,090 square feet of office space in Moscow, Russia~~ at an annual rent of ~~$141,867. The current~~approximately $21,000.The lease term ~~for the~~expired on June 1, 2019 and was renewed with indefinite terms.

International Transaction Solutions

The Company occupies an office ~~space expires on July 15, 2017. For the first regional office, PayOnline leases~~in Moscow, Russia with approximately ~~276~~1600 square feet ~~of office space in Ekaterinburg, Russia~~ at an annual rent of ~~$3,328. For the second regional office, PayOnline leases~~ approximately ~~155 square feet of office space in Almaty, Russia at annual rent of $1,340. The leases are automatically renewable.~~ $50,900, which lease expired on February 10, 2020. This lease was renewed with indefinite terms.

We believe that ~~these~~our current facilities are suitable and adequate for our ~~anticipated needs.~~present purposes, and we anticipate that we will be able to extend our existing leases on terms satisfactory to us or move to new facilities on acceptable terms.

~~Net Element Russia leases approximately 2,033 square feet~~The following table presents a reconciliation of ~~office space in Moscow, Russia at annual rent of $73,960, as well as one corporate apartment at annual rent of $22,600. The current~~the undiscounted future minimum lease ~~term~~payments, under the lease for the ~~office space expires on January 31, 2018 and~~premises we ~~expect to renew this lease at that time. The current lease term for the corporate apartment expires on August 16, 2017. We believe that these facilities are adequate~~occupy for our ~~anticipated needs.~~North American Transaction Solutions segment's U.S. headquarters, to the amounts reported as operating lease liabilities on the consolidated balance sheet as of December 31, 2020:

	Total
Undiscounted future minimum lease payments:
2021	$	229,589
2022		230,660
2023		231,764
2024		222,926
2025		129,250
Total	$	1,044,189
Amount representing imputed interest		(242,596	)
Total operating lease liability		801,593
Current portion of operating lease liability		(140,973	)
Operating Lease Liability, non-current	$	660,621

	~~F-23~~	As of December 31, 2020
Remaining term on Leases			4.00
Incremental borrowing rate			12	%

~~Litigation~~As of December 31, 2020, the future minimum lease payments under other operating leases, not subject to Topic 842, approximates $21,000 on a yearly basis.

Litigation, Claims, and Assessments

With respect to all legal, regulatory and governmental proceedings, and in accordance with ASC 450-20, Contingencies—LossContingencies, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, we record an accrual for the estimated amount of loss for the expected outcome of the matter. If the likelihood of a negative outcome with respect to material matters is reasonably possible and we are able to determine an estimate of the amount of possible loss or a range of loss, whether in excess of a related accrued liability or where there is no accrued liability, we disclose the estimate of the amount of possible loss or range of loss. However, management in some instances may be unable to estimate an amount of possible loss or range of loss based on the significant uncertainties involved in, or the preliminary nature of, the matter, and in these instances we will disclose the nature of the contingency and describe why we are unable to determine an estimate of possible loss or range of loss.

F-17

Table of Contents

In addition, we are involved in ordinary course legal proceedings, which include all claims, lawsuits, investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of business and otherwise not described below. We have considered all such ordinary course legal proceedings in formulating our disclosures and assessments, which are not expected to have a material adverse effect on our consolidated financial statements.

Aptito.com, Inc.

On August 6, 2014, our subsidiary (Aptito, LLC) filed a lawsuit against Aptito.com, Inc. and the shareholders of Aptito.com, Inc., in state court in the 11th Judicial Circuit in and for Miami-Dade County. This is an interpleader action in regards to 125,000 shares of our stock. Aptito, LLC acquired Aptito.com, Inc. in exchange for, among other things, 125,000 shares (prior to adjustment for two one-for-ten reverse stock splits) of ~~Net Element, Inc.~~our stock. There has been ~~disagreement~~disagreements among the Aptito.com, Inc. shareholders as to proper distribution of the 125,000 ~~shares.~~shares (prior to adjustment for two one-for-ten reverse stock splits). To avoid any liability in regards to improper distribution, Aptito, LLC filed the interpleader action so as to allow the ~~defendants~~Defendants to litigate amongst themselves as to how the shares (prior to adjustment for two one- for-ten reverse stock splits) should be distributed. Aptito.com, Inc. ~~opposes~~opposed the motion to interplead and ~~has~~ filed counterclaims relative to Aptito, LLC for non-delivery of the 125,000 ~~shares.~~ shares (prior to adjustment for two one-for-ten reverse stock splits).

On ~~February 10,~~July 18, 2017, the Court granted Aptito LLC’s motion to interplead and also indicated that Aptito, LLC could not be held liable for any alleged damages relative to the purported non- delivery of the 125,000 shares after the interpleader action was filed on August 6, 2014.

In March 2018, a ~~hearing on~~new Judge in the case ruled that Aptito.com, Inc.~~’s motion~~ was entitled to ~~dismiss~~receive 125,000 newly issued shares of our common stock, but indicated that he was not ruling that we were required to issue such shares. We plan to appeal this ruling, and our legal counsel is addressing the ~~complaint~~counterclaims filed by Aptito.com, Inc. in this matter.

In July 2018, our counsel was disqualified due to a conflict of interest. We engaged a new law firm to represent our ongoing interests in this case. Since that time, there have been multiple Motions and ~~Aptito, LLC~~claims brought by Aptito.com, Inc., including the request for rescission of the asset purchase agreement that gave rise to the share issuance obligation. All of these Motions and ~~Net Element’s motion~~claims are being vigorously defended.

A court ordered mediation conference was held on April 24, 2019 but the parties were unable to ~~dismiss Aptito.com, Inc.’s counterclaims. The~~reach a settlement. On May 1, 2019 the Court denied Aptito.com, Inc.’s ~~motion~~Motion for Summary Judgement and further hearings on a variety of Motions were scheduled in this matter.

On August 14, 2019, the court granted final Summary Judgment in favor of the Company, removing Net Element as a party to ~~dismiss~~the lawsuit and ~~granted~~denying Aptito.com, Inc’s Motion for rehearing and reconsideration of this matter. Aptito, LLC, in which the Company has a majority ownership interest, remains a Defendant in this litigation. On September 17, 2019, the court granted the Company’s Motion for sanctions against the attorney representing Aptito.com, Inc. in this matter. The Company is pursuing collection of legal fees incurred from the Plaintiff and ~~Net Element’s motion~~their attorney. This matter was pending a special set hearing to ~~dismiss~~be held on March 23, 2020. That hearing was postponed and rescheduled for hearing in July 2020. On July 23, 2020, the ~~counterclaims without prejudice.~~Court entered a judgement against the attorney representing Aptito.com and awarded attorney fees to the Company. The ~~Court also indicated that it will soon hold a hearing~~attorney stated on the ~~motion to interplead. If the motion to interplead is granted, it~~record he will be ~~up to~~filing for bankruptcy. In August 2020, Plaintiffs attorney, filed an appeal against the ~~defendants to litigate as to~~Judgement. This matter is still proceeding. The Company intends pursuing recovery from the ~~proper distribution of shares and Aptito, LLC should be discharged from any purported liability.~~ ~~On March 21, 2017, Aptito.com, Inc. filed several counterclaims against Aptito, LLC and us, which we are disputing and will defend.~~attorney.

Gene Zell

In June 2014, we, as plaintiff, commenced an action in the Miami-Dade Circuit Court, Florida against Gene Zell ("Zell") for defamation of our Company and CEO and tortious interference with our business relationships. In October 2014, the court granted a temporary injunction against Zell enjoining him from posting any information about our Company and CEO on any website and enjoining him from contacting our business partners or investors. Zell violated the Court Order and the Court granted a Motion imposing sanctions against Zell. We continue to seek enforcement of the Court Order. On

In April ~~13,~~ 2015, Zell filed a Motion to set aside the Court Order alleging he was unaware of the Court Proceedings. The Court, on August 26, 2015, dismissed Zell’s Motion to dissolve the ~~injunction and~~injunction. In March 2017 the Court dismissed another Motion brought by Zell to dissolve the injunction. Accordingly, the injunction order prohibiting Zell from making further defamatory posts remains in place.

In 2018, we filed a motion to enforce the injunction and contempt orders against Zell. The court upheld the injunction and we continue to vigorously protect its interests. We ~~intend to protect our rights by ongoing enforcement~~are pursuing an action for damages sustained as a result of the ~~Injunction.~~

~~Other Legal Proceedings~~

We are involved in certain legal proceedings and claims which arise in the ordinary course of business. In our opinion, based on consultations with outside counsel, the results of any of these ordinary course matters, individually and in the aggregate, are not expected to have a material effect on our results of operations, financial condition, or cash flows. As more information becomes available, if management should determine that an unfavorable outcome is probable on such a claim and that the amount of such probable loss that it will incur on that claim is reasonably estimable, we will record a reserve for the claim in question. If and when we record such a reserve is recorded, it could be material and could adversely impact our results of operations, financial condition, and cash flows.

~~NOTE 13. RELATED PARTY TRANSACTIONS~~defamation.

On September 20, 2019, the Court granted a Permanent Injunction against Zell. The Company is evaluating pursuing actions against Zell for collection of legal fees and damages.

A trial was scheduled for April 2020 on the issue of Net Element’s damages. However, Zell recently filed bankruptcy, so that trial and all further legal proceedings involving Zell will be stayed as a result of the automatic bankruptcy stay.

Georgia Notes 18, LLC

On March ~~31, 2015, Star Equities,~~22, 2021, the Company was notified that one of its shareholder, Georgia Notes 18, LLC, ~~(“Star”) provided a $125,000 advance to pay certain expenses. The loan was repaid in May 7, 2015. In addition, we received non-interest bearing advances from Star Equities, LLC,~~filed an action in the ~~aggregate approximately $745,000 in 2015 and $117,000 in 2016. Oleg Firer, our CEO, is the Chairman and managing member of Star.~~

Effective March 28, 2016, we entered into a $75,000 term loan note with MBF Merchant Capital, LLC (“MBF”). The loan provides for interest only payments at 14% through May 28, 2016. From June 28, 2016 through March 28, 2017, we are obligatedDelaware Chancery Court to ~~make interest and principal payments of $7,990. The loan also provided a 6% backend fee due at the final payment~~compel inspection of the ~~loan. MBF~~Company’s books and records pertaining to a 2014 transaction in which the shareholder had an interest. The Company has engaged counsel to protect its interests in this matter. At this time, the Company cannot predict the eventual outcome of ~~which William Healy, a member of our Board of Directors, is the sole member. As of December 31, 2016, $23,420 remains outstanding.~~this matter.

Effective April 19, 2016, we entered into a $300,000 term loan note with MBF. The loan provides for interest only payments at 15.5% through May 28, 2016. From June 28, 2016 through May 28, 2018, we are obligated to make interest and principal payments of $14,617. The loan also provided a 6% back end fee due at the final payment of the loan. As of December 31, 2016, $221,826 remains outstanding.

Effective July 1, 2016, our subsidiary, TOT Group, Inc., entered into a $353,500 term loan note with MBF. The loan provides for interest only payments at 15.5% through June 28, 2016. From July 28, 2016 through June 28, 2018, we are obligated to make interest and principal payments of $17,224. The loan also provided a 1% front end fee and a 6.6% back end fee due at the final payment of the loan. As of December 31, 2016, $275,056 remains outstanding.

~~F-24~~

NOTE 11. RELATED PARTY TRANSACTIONS

During ~~2015~~the years ended December 31, 2020 and ~~2016, indirect~~2019, agent commissions resulting from merchant processing of ~~$108,567~~approximately $105,000 and $75,000, respectively, were paid to Prime Portfolios, LLC, an entity owned by Oleg Firer, our Chairman and CEO, and Steven Wolberg, our Chief Legal Officer. In addition, key members of management owned companies received similar commissions and/or reimbursement for equipment purchased on the Company’s behalf, which amounted to approximately $865,000 and $758,000 for the years ended December 31, 2020 and 2019, respectively.

At December 31, 2020 and December 31, 2019, we had accrued expenses of approximately $122,000 and $127,000, respectively, which consisted primarily of various travel, professional fees, and other expenses paid and charged for by our CEO on his personal credit cards. This is reflected as due to related party on the accompanying consolidated balance sheets.

On March 27, 2020, our Company entered into a Master Exchange Agreement, (the “ESOUSA Agreement”) with ESOUSA Holdings, LLC ("ESOUSA"), a related party. Prior to entering into the ESOUSA Agreement, ESOUSA agreed to acquire an existing promissory note that had been previously issued by the Company, of up to $2,000,000 in principal amount outstanding plus interest due to RBL Capital Group, LLC ("RBL"). Pursuant to the ESOUSA Agreement, the Company has the right, at any time prior to March 27, 2021, to request ESOUSA, and ESOUSA agreed upon each such request, to exchange this promissory note in tranches on the dates when the Company instructs ESOUSA, for such number of shares of the Company’s common stock (“Common Stock”) as determined under the ESOUSA Agreement based upon the number of shares of Common Stock (already in ESOUSA’s possession) that ESOUSA sold in order to finance its purchase of such tranche of the promissory note from RBL Capital Group, LLC. ESOUSA will purchase each tranche of the promissory note equal to 88% of the gross proceeds from the shares of Common Stock sold by ESOUSA to finance the purchase of such Exchange Amount from RBL Capital Group, LLC. Each such tranche to be $148,000 unless otherwise agreed to by the Company and ESOUSA.

On August 21, 2020, the Company received its fourth tranche of RBL promissory notes in the aggregate amount of $401,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 45,654 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $401,000 from RBL under the Credit Facility.

On September 25, 2020, the Company received its fifth tranche of RBL promissory notes in the aggregate amount of $426,000, less any fees, from ESOUSA to be exchanged for Common Stock pursuant to the ESOUSA Agreement. The Company issued 50,000 shares of Common Stock to ESOUSA in connection with this exchange. Concurrently with this transaction, the Company received an equivalent aggregate amount of $426,000 from RBL under the Credit Facility.

F-18

Table of Contents

~~In connection with the ESOUSA Purchase Agreement (see Note 14 for additional information), we issued the following shares of our common stock to ESOUSA subsequent to December 31, 2016:~~

On March 1, 2017, we entered into a Promissory Note with Star in the principal amount of $348,083 (the “Note”). Pursuant to the Note, previously advanced $348,083 to us that is now being repaid with interest under this agreement. The note provides for 18 monthly interest payments of $3,481 through September 30, 2018 followed by one interest and principle payment on October 1, 2018. The principal balance of the Note outstanding bears interest at the rate of 12% per annum. In the event of any capital raise by us that is not in the ordinary course of business and that results in funding in excess of $5 million (a “Liquidity Event”), the Maturity Date will be accelerated to coincide with the closing date of such Liquidity Event.

Effective March 30, 2017, we entered into a $100,000 term note with RBL based on a draw down from the line of credit. The term note provided for interest-only payments at 14.4% interest through May 20, 2017. From June 20, 2017 through June 20, 2021 (maturity date), we were obligated to make interest and principal payments of $2,753 per month. We paid $2,000 in costs related to this loan at its inception and another $4,000 of costs is due at the maturity of the note.

On February 28, 2017, the Compensation Committee (the “Committee”) of our Board of Directors approved and authorized grants of the following equity awards to our employees and consultants of the Company pursuant to our 2013 Equity Incentive Compensation Plan, as amended:

On February 28, 2017, the Compensation Committee of our board of directors awarded to Oleg Firer, our Chief Executive Officer, 471,388 restricted shares of our common stock as performance bonus subject to shareholder approval. In addition, the Committee approved a $300,000 cash performance bonus to Oleg Firer, payable when we have sufficient capital to pay such cash bonus and cover the Company’s on-going monthly operations.

~~Pursuant to the earn out installment provisions of the PayOnline purchase agreement, we issued an additional 130,823 shares of our common stock and paid $108,583 in March 2017.~~

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	NETE	The Nasdaq Stock Market, LLC (Nasdaq Capital Market)

Title of each class		~~Name of each exchange on which registered~~
~~Common Stock, par value $0.0001 per share~~		~~NASDAQ Capital Market~~

Large accelerated filer¨ ☐	Accelerated filer¨ ☐

Non-accelerated filer¨~~(Do not check if a smaller reporting company)~~ ☒	Smaller reporting companyx ☒

	Emerging growth company ☐

	■•	our ability (or inability) to continue as a going concern;
	•	the continued outbreak of a health epidemic or pandemic, including COVID-19;
	•	the impact of any new or changes made to laws, regulations, card network rules or other industry standards affecting our business;
	■•	the impact of any significant chargeback liability and liability for merchant or customer fraud, which we may not be able to accurately anticipate and/or collect;
	■•	our ability to secure or successfully migrate merchant portfolios to new bank sponsors if current sponsorships are terminated;
	■•	our and our bank sponsors’ ability to adhere to the standards of ~~the~~ Visa and MasterCard payment card ~~associations;~~brand;
	■•	our reliance on third-party processors and service providers;
	■•	our dependence on independent sales groups (“ISGs”) that do not serve us exclusively to introduce us to new merchant accounts;
	■•	our ability to retain clients, many of which are small- and medium-sized businesses ("SMBs"), which can be difficult and costly to retain;
	•	our ability to pass along increases in interchange costs and other costs to our merchants;
	■•	our ability to protect against unauthorized disclosure of merchant and cardholder data, whether through breach of our computer systems or otherwise;
	■•	the effect of the loss of key personnel on our relationships with ISGs, card ~~associations,~~brands, bank sponsors and our other service providers;
	■•	the effects of increased competition, which could adversely impact our financial performance;
	■•	the impact of any increase in attrition due to an increase in closed merchant accounts and/or a decrease in merchant charge volume that we cannot anticipate or offset with new accounts;
	■•	the effect of adverse business conditions on our merchants;
	■•	our ability to adopt technology to meet changing industry and customer needs or trends;
	■•	the impact of any decline in the use of credit cards as a payment mechanism for consumers or adverse developments with respect to the credit card industry in general;
	■•	the impact of any adverse conditions in industries in which we obtain a substantial amount of our bankcard processing volume;
	■•	the impact of seasonality on our operating results;
	■•	the impact of any failure in our systems due to factors beyond our control;
	■•	the impact of any material breaches in the security of third-party processing systems we use;
	■•	the impact of any new and potential governmental regulations designed to protect or limit access to consumer information;
	■•	the impact on our profitability if we are required to pay federal, state or local taxes on transaction processing;
	■•	the impact on our growth and profitability if the markets for the services that we offer fail to expand or if such markets contract;
	■•	~~our ability (or inability)~~ significant losses we have incurred and may continue to ~~continue as a going concern;~~experience in the future;
	■•	foreign laws and regulations, which are subject to change and uncertain interpretation;
	■•	geopolitical instability, including the recent outbreak and continuing spread of COVID-19, and other conditions that may adversely affect trends in consumer, business and government spending;
	•	the Company’s ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed;
	■•	the impact on our operating results as a result of impairment of our goodwill and intangible assets;
	■•	our material weaknesses in internal control over financial reporting and our ability to maintain effective controls over financial reporting in the future; and
	■•	ineffective risk management policies and procedures;
	•	our ability to protect our systems and data from continually evolving cybersecurity risks or other technological risks;
	•	the ~~other factors identified~~failure of the Mullen merger to be completed or a significant continued delay in the ~~section~~consummation of the merger, as well as business unceratinties whilc ethe merger is pending, and
	•	the risk factors included in Part I, Item 1A of this Annual Report ~~entitled “Risk Factors.”~~on Form 10-K

		~~Page~~
~~PART I~~

~~Item 1.~~	~~Business.~~	4

~~Item 1A.~~	~~Risk Factors.~~	23

~~Item 1B.~~	~~Unresolved Staff Comments.~~	32

~~Item 2.~~	~~Properties.~~	32

~~Item 3.~~	~~Legal Proceedings.~~	32

~~Item 4.~~	~~Mine Safety Disclosures.~~	33

~~PART II~~

~~Item 5.~~	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.~~	33

~~Item 6.~~	~~Selected Financial Data.~~	34

~~Item 7.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~	34

~~Item 7A.~~	~~Quantitative and Qualitative Disclosures About Market Risk.~~	43

~~Item 8.~~	~~Financial Statements and Supplementary Data.~~	43

~~Item 9.~~	~~Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.~~	43

~~Item 9A.~~	~~Controls and Procedures.~~	44

~~Item 9B.~~	~~Other Information.~~	45

~~PART III~~

~~Item 10.~~	~~Directors, Executive Officers and Corporate Governance.~~	45

~~Item 11.~~	~~Executive Compensation.~~	48

~~Item 12.~~	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.~~	49

~~Item 13.~~	~~Certain Relationships and Related Transactions, and Director Independence.~~	50

~~Item 14.~~	~~Principal Accountant Fees and Services.~~	52

~~PART IV~~

~~Item 15.~~	~~Exhibits and Financial Statement Schedules.~~	52

~~Item 16.~~	~~Form 10-K Summary.~~	52

~~Signatures~~		53

		Page
PART I

Item 1.	Business.	5

Item 1A.	Risk Factors.	27

Item 1B.	Unresolved Staff Comments.	35

Item 2.	Properties.	35

Item 3.	Legal Proceedings.	36

Item 4.	Mine Safety Disclosures.	36

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	36

Item 6.	Selected Financial Data.	36

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	37

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	46

Item 8.	Financial Statements and Supplementary Data.	46

Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.	46

Item 9A.	Controls and Procedures.	46

Item 9B.	Other Information.	47

PART III

Item 10.	Directors, Executive Officers and Corporate Governance.	48

Item 11.	Executive Compensation.	50

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	51

Item 13.	Certain Relationships and Related Transactions, and Director Independence.	52

Item 14.	Principal Accountant Fees and Services.	53

PART IV

Item 15.	Exhibits and Financial Statement Schedules.	54

Item 16.	Form 10-K Summary.	63

Signatures		64

	· ●	~~Payment processing POS~~ Our ability to provide competitive products through use of proprietary technologies;
	●	Our ability to provide in one package a range of services that traditionally had to be sourced from different vendors;
	●	Our ability to provide a single agnostic on-boarding and merchant management platform to our indirect non-bank sales force ("Sales Partners");
	●	Our ability to provide management and optimization tools to our Sales Partners amongst multiple networks and platforms;
	●	Our ability to serve customers with disparate operations in several geographies with technology solutions ~~and value added services throughout the United States provided by TOT Payments doing~~that enable them to manage their business as~~Unified Payments~~; one enterprise; and

	· ●	~~Esquire Bank~~ Unified Payments – doing business as Unified Payments, we provide businesses of all sizes and types throughout the United States with a wide range of fully-integrated payment acceptance solutions, value-added POS and business process management services;
	●	PayOnline – through our subsidiary, PayOnline Systems (“PayOnline”), we provide a wide range of value-added online solutions in the selected international markets utilizing our fully-integrated, agnostic electronic commerce platform that simplifies complex enterprise online transaction processing challenges from payment acceptance and processing through risk prevention and payment security via point-to-point encryption and tokenization solutions;
	●	Pay-Travel – integrated payment processing solutions to the travel industry, which includes integrations with various Global Distribution Systems (“GDS”) such as Amadeus®, Galileo®, Sabre®, additional geo filters and passenger name record (PNR) through Pay-Travel service offered by PayOnline;
	●	Aptito POS Platform – an integrated POS platform developed on Apple’s® iOS and Android® mobile operating systems for the hospitality, retail, service and on the go industries. Our goal with Aptito is to create an easy to use POS and business management solution, which incorporates everything a small business needs to help streamline every-day management, operations and payment acceptance;
	●	Restoactive– utilizing Aptito POS Platform architecture, we have developed and launched Restoactive, which seamlessly plugs into a current restaurant environment through integrations with some of the biggest POS and restaurant management platforms available on the market today;
	●	Unified m-POS – mobile POS application makes accepting payments on the go easy and secure. Mobile application is EMV-compliant, accepts traditional and contactless transactions such as Apple Pay®. Unified m-POS application is available for download in Apple’s App Store and Google Play;
	●	Zero Pay – zero-fee payment acceptance program for SMB merchants in the United ~~States - this multi-year contract includes transaction clearing services, sponsorship for payment networks, bank identification number~~States. Zero Pay program saves merchants costs involved in accepting credit and debit cards using mobile POS;
	●	Netevia – our internally developed future-ready multi-channel payments and merchant ~~marketing agreement.~~management platform. Connecting and simplifying payments across sales channels through a single integration point, Netevia delivers end-to-end payment processing through easy-to-use APIs. The Netevia platform is the core of the Company’s technology stack and includes multiple value-added modules that streamline payment processes and create additional revenue streams for our clients.
	●	Blade - our internally developed, proprietary, fully automated, artificial intelligence powered underwriting solution with predictive scoring. Built for underwriting and on-boarding of new merchants, reducing potential risks and decision-making time while improving the customer experience.
	●	Netevia Mastercard for SMB - The Netevia Mastercard®, powered by Aliaswire’s patented technology, is part of a unique platform that combines efficient and low-cost payment processing with the ability to save money on credit and debit card payment acceptance fees.

	●	Continue managed growth in all key segments and expand our network of referral partners
	●	Drive and improve client retention
	●	Expand our client base in selected markets
	●	Enable our clients with contactless payment acceptance technologies
	●	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 deepening partner relations

	●	Continue to 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 to our clients
	●	Extend our capabilities in next-generation POS hardware and software, and deepening our partner proposition
	●	Commence trials of advanced technologies around business intelligence and mobile based payments acceptance
	●	Continue the further development of disruptive emerging technologies such as contactless payment technologies, payments enablement for Internet of Things (“IoT”), biometrics payment acceptance and artificial intelligence
	●	Continue research and investments in future emerging payment technologies

	●	Assess the current operations in light of current pandemic and the closure of businesses until the economy gears up and businesses achieve normal operations
	●	Develop additional payment network relationships to integrate with our technologies
	●	Diversify our client base to include relationships in the online sales and home delivery segments

	· ●	Continued investment in our core technology and new ~~product~~technology offerings;
	· ●	Allocation of resources and expertise to grow in commerce and payments segments;
	· ●	Grow and control ~~our~~ distribution by adding new merchants and partners;
	· ●	Leverage technology and operational advantages throughout our global footprint;
	· ●	Expansion of our cardholder and ~~mobile~~ subscriber customer base;

	· ●	Continue to develop seamless multinational solutions for our clients;
	· ●	Increase monetization while creating value for our clients;
	· ●	Focus on continued improvement and operation excellence; and
	· ●	Pursue potential domestic and international acquisitions of, investments in, and alliances with companies that have high growth potential, significant market presence or key technological capabilities.

	~~North America~~ ~~Transaction Solutions~~	~~Mobile~~ ~~Solutions~~	~~Online Solutions~~

~~Clients:~~	~~Businesses of all types and sizes. Current focus on SMB merchants~~	~~Mobile customers, Digital merchants such as: social networks, game developers, online magazines, mobile applications and digital media operators~~	~~Online businesses and mobile applications of all type and sizes~~

~~Goals:~~	~~To help business grow commerce at the retail, online and m- POS. Enable omni-channel commerce~~	~~To help digital merchants monetize their content in a mobile environment~~	~~To help business transact business online with ease and security~~

~~Key Solutions:~~	~~Merchant Acquiring~~ ~~Value-added Services~~ ~~Aptito POS technology~~ · ~~m-POS technology~~ · ~~Smart payment terminal~~ · ~~Business software~~ ~~Marketing / Loyalty~~	~~Integrated mobile billing solutions~~ ~~Content monetization~~ · ~~Content management~~ · ~~SMS content delivery~~ · ~~Integrated call center~~	~~Merchant Acquiring~~ ~~Electronic commerce~~ · ~~Complete toolkit for online business~~ · ~~Integrated GDS transaction processing~~ ~~Security / Risk Management~~ ~~Marketing / Loyalty~~

~~2016 Segment Revenue:~~	~~$42.1M~~~~, up 54% from 2015~~	~~$5.9M~~~~, down 34% from 2015~~	~~$6.2M~~~~, up 64% from 2015~~

	North American Transaction Solutions	International Transaction Solutions

Clients:	Businesses and business owners of all types and sizes. Current focus on SMB merchants	Online businesses, merchants requiring cross-border payment acceptance, content providers and mobile applications of all types and sizes

Goals:	To help business grow commerce at the retail, online and m-POS. Enable multi-channel commerce	To help businesses transact online with ease and security and help digital merchants monetize their content in a mobile environment

Key Solutions:	● Integrated payments acceptance ● Value-added services ● Aptito POS technology ● m-POS technology ● Smart payment POS terminal ● Business performance analytics ● Marketing / loyalty	● Integrated online and mobile billing solutions ● Complete cross-border toolkit for online business ● Integrated GDS transaction processing ● Mobile content monetization and management ● Security / risk management ● Marketing / loyalty

Segment Revenue:	$62.6 million for 2020, up 1.3% from 2019	$3.1 million for 2020, down 2.3% from 2019
Dollars Volume Processed:	$2.6 billion for 2020, down 18.7% from 2019	$144 million for 2020, down 66.1% from 2019

	Year ended December 31,
	2020			2019
Total revenues generated:
North American Transaction Solutions		95	%		90	%
International Transaction Solutions		5	%		10	%

	· ●	Discount fees charged to a merchant for processing of a transaction. The discount fee is typically either a percentage of the purchase amount or an interchange fee plus a fixed dollar amount or percentage;
	· ●	Processing fees charged to merchants for processing of a transaction;
	· ●	Processing fees charged to our ~~sales partners~~Sales Partners who have outsourced their transaction processing to us;
	· ●	Sales and ~~leases~~support of POS devices;
	· ●	Fees from providing reporting and other services;
	· ●	Software license fees for Aptito POS platform, which includes hospitality and SMB retail point-of-sale application;
	· ●	PCI compliance fees charged to a merchant for providing PCI compliance on annual basis; and
	· ●	Business software license fees for merchant analytics and back office reporting.

	· ●	Restaurants
	· ●	Schools and educational services
	· ●	Brick and mortar retailers
	· ●	Convenience and liquor stores
	· ●	Professional service providers
	· ●	Hotel and lodging establishments

	2016			2015			2020			2019
Restaurants		36.6	%		47.9	%		50.9	%		47.9	%
Health / Beauty		19.9	%		7.1	%
General Merchandise		15.3	%		6.0	%		11.2	%		13.1	%
Professional Services		8.4	%		3.8	%		11.9	%		11.5	%
Food Stores								9.7	%		9.3	%
Automotive		7.1	%		5.0	%		8.5	%		7.4	%
Food Stores		5.8	%		5.7	%
Health / Beauty								1.4	%		7.3	%
Educational Services		4.4	%		15.9	%		1.3	%		2.7	%
Hospitality/Lodging		1.6	%		1.2	%
Hotels / Motels								1.3	%		0.4	%
Other		0.9	%		7.4	%		3.8	%		0.4	%

	·	~~Fees charged for Digital Provider branded content;~~
	·	~~Discount fees charged to a merchant for processing of a transaction. The discount fee is a percentage of the purchase;~~
	·	~~Processing fees charged to merchants for processing of a transaction; and~~
	·	~~Software license fees for Trinity Mobile Billing Platform.~~

	·	~~Mobile Operators~~ ~~– Mobile operators partner with us to generate revenues for incoming traffic. Mobile operators increase revenues via additional subscription and transactional services used by its subscribers.~~
	·	~~Broadcast Media Networks~~ – Mobile operator billing is becoming an increasingly popular communication tool on both radio & TV. It provides interactivity for the viewer/listener through voting/polls/competitions, and can generate revenues for the stations/production companies.
	·	~~Internet Portals and Content Providers~~ – Mobile operator billing adds a further dimension to the offering of portals and content providers. It enables information alerts, ringtones and logos, Short Messaging Service (“SMS”) sending capabilities for end-users, all of which can generate revenues for the Company.
	·	~~Marketing and Sales Promotion Partners~~ – Mobile operator billing is being used as a new marketing channel. Its immediacy; directness and 2-way communication lends itself to effective measurable marketing and promotion. Integration with existing media adds a new dimension to marketing campaigns (e.g. outdoor, press, on-pack, and direct mail).

	· ●	Payment gateway transaction fees;
	●	Business software license fees for merchant analytics, ~~and~~ back office reporting; and ~~monetarization~~monetarization;

	· ●	Search Engine Optimization – PayOnline is in the top 10 results with most frequently used keywords in Google.ru and Yandex search engines.
	· ●	Social Media – PayOnline social media channels include Facebook, Vkontakte, Twitter, ~~Instagram~~ and YouTube.
	· ●	Corporate Blog – Our corporate blog featured on popular developer communities like HabraHabr and GeekTimes ~~are read by hundreds of thousands of people~~is consistently in ~~Russia and CIS.~~the Top 10.
	· ●	Industry Research – Every year PayOnline specialists prepare and publish over 120+ research papers on popular e-commerce and IT development forums.
	· ●	RUNET – PayOnline is a payment processing provider for RUNET-ID (Russia’s largest Internet professionals’ social platform), Russian Internet Forum and Russian Interactive Week.
	· ●	Conferences – Every year our experts participate in 30+ trade shows and professional conferences.
	· ●	Education – Our senior managers are frequently invited by top ~~Russian Federation~~international regulators, universities and business schools as ~~lecturers.~~lecturers and experts in the field of payments.

	· ●	Suite of individually tailored e-commerce solutions
	· ●	Payment conversion management
	· ●	Seamless client payment acceptance implementation
	· ●	Quick development and implementation of custom payment acceptance solutions
	· ●	Multiple integrated payment acceptance methods
	· ●	Wide geography of payment acceptance with a single integration
	· ●	More than 25120 currencies accepted worldwide
	· ●	Proprietary Anti-Fraud System

	· ●	Internet stores
	· ●	Professional service providers
	· ●	Travel services
	· ●	Telecommunications
	· ●	Social media networks
	· ●	Financial services
	· ●	Utilities and government services
	· ●	Digital content providers

	· ●	Analysis of risks and underwriting of our partners, i.e. acquiring banks, financial companies and payment processors
	· ●	Analysis of potential risks and underwriting of our potential clients, i.e. merchants accepting payments over internet
	· ●	Manual validation of disputed payments
	· ●	Advising of our potential and current clients on how to correctly setup up fraud monitoring methods and tools
	· ●	Future development of our fraud monitoring and prevention systems, based on the client needs and recent trends in e-commerce and m-commerce marketplace and regulations

	· ●	Advance monitoring of the bank card transaction in automated mode, using ~~154~~150 filters, individually tuned for each client, where each transaction is evaluated by key parameters, such as country where bank card is issued, country from where the payment is requested, amount of payment, amount of all payments by this card in the past 24 hours/month, IP address, etc.
	· ●	Additional validation of the bankcard by using 3-D Secure protocol or validation by charging random amount on the card.
	· ●	Monitoring of the transactions by specialists of the Underwriting and Risk Management Department.

	· ●	PCI DSS ~~3.1~~ Level 1 –PayOnline is certified to Payment Card Industry Data Security Standard (“PCI DSS”) Level 1 standard version ~~3.1~~3.2 PCI DSS. Certificate received by PayOnline ~~November 28, 2015,~~March 2, 2018, allows the company to process online payment transactions. During 2018, PayOnline was certified to PCI DSS Level 1 version 3.1, as of March 8, 2018.
	· ●	SDP / CISP – PayOnline has passed international certification by Visa and MasterCard and is involved in MasterCard Site Data Protection (“SDP”) program and the Visa Cardholder Information Security Program (“CISP”).
	· ●	MasterCard– Since 2009, PayOnline is accredited as the official international Service Provider of MasterCard Worldwide, participates in the MasterCard SDP program and, in ~~additional~~addition, has the status of MasterCard DataStorage Entity.
	· ●	Visa –Since 2009, PayOnline is accredited as the official Service Provider of Visa International payment system, participates in the Visa CISP program and holds the status of Visa Third Party Processor (“TPP”).
	· ●	Cryptographic Transport Layer Security (“TLS”) Protocol – Data exchange between the enterprise e-commerce and PayOnline is made via secure channels, using the HTTPS protocol. TLS cryptographic protocol uses asymmetric cryptography for authentication, symmetric encryption for confidentiality and authenticity of the message codes to preserve the integrity of messages.
	· ●	Qualys – PayOnline regularly passes ASV-scan procedure (automated external security audit) provided by Qualys in accordance with the requirements of international payment systems to companies with certified PCI DSS. ~~Provider ASV-scanning service is the company Qualys.~~Approximately 50 companies from the Forbes Global 100 list ~~uses~~use Qualys to secure their business.

· ●	SDM Bank ~~of Moscow~~	· ●	QIWI Bank
· ●	VTB 24Bank	· ●	WebMoney
· ●	Round Bank	· ●	Absolutbank
· ●	Raiffesenbank	· ●	Yandex.Money
·	~~SDM Bank~~

·	Latvijas Pasta Banka	· ●	~~Payvision~~ Kyrgyzkommertsbank
· ●	Rietumu Bank	· ●	~~Astropay~~ Paysafe
· ●	Wirecard Bank	· ●	~~Masapay~~ Authorize.net
· ●	~~Skrill~~ Kazkommertsbank	· ●	~~PPRO~~ Skrill
· ●	~~Authorize.net~~ Kazkommertsbank Tajikistan	· ●	~~Ingenico~~ PayPal
· ●	~~Paysafe~~ Poynt	· ●	~~Apple Pay~~ Paya
●	TSYS	●	Esquire Bank
●	Experian	●	Docusign
●	Clover	●	Cardflight
●	HP	●	Pax

· ●	Net Element	· ●	Restoactive
· ●	Unified Payments	· ●	TOT
· ●	PayOnline	· ●	~~Digital Provider~~ Netevia
· ●	Payonline.ru	●	Aptito
●	Digital Provider	●	Team Unified

	· ●	Declining economies, foreign currency fluctuations, and the pace of economic recovery can change consumer spending behaviors on which a significant portion of our revenues are dependent.
	· ●	Low levels of consumer and business confidence typically associated with recessionary environments, and those markets experiencing relatively high unemployment, may cause decreased spending by cardholders.
	· ●	Budgetary concerns in the United States and other countries around the world could affect the United States and other specific sovereign credit ratings, impact consumer confidence and spending, and increase the risks of operating in those countries.
	· ●	Emerging market economies tend to be more volatile than the more established markets we serve in the United States and Europe, and adverse economic trends may be more pronounced in such emerging markets.
	· ●	Financial institutions may restrict credit lines to cardholders or limit the issuance of new cards to mitigate cardholder defaults.
	· ●	Uncertainty and volatility in the performance of our clients' businesses may make estimates of our revenues, rebates, incentives, and realization of prepaid assets less predictable.
	· ●	Our clients may decrease spending for value-added services.
	· ●	Government intervention, including the effect of laws, regulations, and /or government investments in our clients, may have potential negative effects on our business and our relationships with our clients or otherwise alter their strategic direction away from our products.

	· ●	Rapid and significant changes in technology, resulting in new and innovative payment methods and programs that could place us at a competitive disadvantage and that could reduce the use of our products.
	· ●	Competitors, clients, governments, and other industry participants may develop products that compete with or replace our value-added products and services.
	· ●	Participants in the financial services, payments, and technology industries may merge, create joint ventures, or form other business combinations that may strengthen their existing business services or create new payment services that compete with our services.
	· ●	New services and technologies that we develop may be impacted by industry-wide solutions and standards related to migration to EMV chip technology, tokenization, or other safety and security technologies.

	·	the ability to develop and maintain our operations, applications and technologies;
	· ●	the ability to effectively implement our business plans and strategies;
	· ●	establishing our brand name;
	· ●	financial resources to support working capital needs and required capital investments; and
	· ●	effects of sanctions on our business.

	· ●	create uncertainty in the marketplace that could reduce demand for our services;
	· ●	restrict or limit our ability to sell certain products and services to certain customers;
	· ●	limit our ability to collect and to use merchant and cardholder data; or
	· ●	increase the cost of doing business as a result of litigation costs or increased operating costs;