NET ELEMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

See accompanying notes to unaudited condensed consolidated financial statements.

NET ELEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

See accompanying notes to unaudited condensed consolidated financial statements.

NET ELEMENT, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

See accompanying notes to unaudited condensed consolidated financial statements.

NET ELEMENT, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

Organization

Net Element, Inc. (“we”, “us”, “our” or the “Company”) is a global financial technologytechnology-driven group specializing in payment acceptance and value-added solutions group specializing in mobile payments and other transactional services in emerging countries andacross multiple channels in the United States. We have three reportable segments: (i) North American Transaction Solutions for electronic commerce, (ii) Mobile Solutions which primarily serves the Russian FederationStates 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, end-to-end transaction processing services and superior client support. During the three and six months ended June 30, 2018, we operated in two reportable business operating segments: (i) North American Transaction Solutions, and (ii) International Transaction Solutions. In the fourth quarter of 2017, we consolidated our online and mobile payments business into one segment, International Transaction Solutions. Prior to that we operated in three segments.

We are able to deliver theseour 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 othervalue-added payment technologies for small and medium-sized businesses (“SMBs”).businesses. Through Digital Provider, LLC (“Digital Provider”) (Russia) and PayOnline (Russia),TOT Group Russia, we provide transactional services, mobile payment transactions, online payment transactions and other payment technologies in emerging countries inselected international markets, 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 associationsbrands and settle card transactions for our merchants. These agreements allow us to use the banks’ identification numbers, referred to as Bank Identification Numbers (BIN) for Visa® transactions and Interbank Card Association (ICA) number for MasterCard® transactions. The principal sponsoring banks through which we process the majority of our transaction in the United States include MerrickCitizens Bank, N.A., Esquire Bank, N.A. 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, chargeback services and chargeback services.our own dedicated BIN and ICA for various types of specialty merchants.

Our Mobile Solutionsmobile payments business, previously provided through Digital Provider, provides direct carrier billing payment solutions. Our relationshipshas been combined with PayOnline to provide contracts with mobile operators that give 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 (short message services, which is a text messaging service), Wireless Application Protocol (WAP)-click, one click and other carrier billing services. During August 2017, we substantially reorganized this business and currently we are not generating revenues from new mobile content. We also market our own branded content as a separate line of business for our mobile commerce business from offices in Russiahave not yet been able to find an acceptable joint venture partner or other arrangement that provides sufficient profit potential and Kazakhstan.operating benefit.

PayOnline provides flexible, 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 include Amadeus® and Sabre®. Key geographic regions that PayOnline serves include CIS, Eastern Europe, Central Asia, Western Europe, North AmericanAmerica and Asia major sub regions. PayOnline offices are located in Russia, Kazakhstan and in the Republic of Cyprus. See Note 17 for events that occurred after June 30, 2017.Moscow, Russia.

Aptito is a proprietary, 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'sAptito’s mobile POS system provides portability to the staff while performing all the same functions as a traditional POS system, and more.

Company Overview

Net Element is a global financial technology and value-added solutions group that supports companies in accepting electronic payments in an omni-channel environment that spans across point-of-sale (“POS”), e-commerce and mobile devices. The Company operates in three segments as a provider of North America Transaction Solutions, Mobile Payment Solutions and Online Payment Solutions.

We enable merchants of all sizes to accept and process over 100 different payment options in more than 40 currencies, including credit, debit and prepaid payments. We also provide merchants with value-added services and technologies including integrated payment technologies, POS solutions, security solutions, fraud management, information solutions and analytical tools.

We provide a range of solutions to our clients across the value chain of commerce-enabling services and technologies. We create our value-added solutions from a suite of proprietary technology products which includes cloud-based applications, processing services, security offerings, and customer support programs that we configure to meet our clients’ individual needs.

We provide additional services including:

We have operations and offices located within the United States (“U.S.”) (domestic) and outside of the U.S. (international) where sales, customer service and/or administrative personnel are based. Through U.S. based subsidiaries, we generate revenues from transactional services, valued-added payment services and technologies for SMBs. Through wholly owned subsidiaries, we operate internationally with a focus on transactional services, mobile payment transactions, online payment transactions, value-added payment services and technologies in selected international markets.

Our businessvalue-added transactions services are being developed on our Netevia platform. Netevia is characterized by transaction related fees, multi-year contracts,a future-ready, multi-channel payments platform developed in-house (software-as-a-service “SaaS” and White Label models) and available across all brands. Connecting and simplifying payments across sales channels through a diverse client base which allows us to grow alongside our clients. Our multi-year contracts allow us to achieve a high level of recurring revenues. While the contracts typically do not specify fixed revenues to be realized thereunder, they do provide a framework for revenues to be generated based on volume of services provided during the contract’s term.single integration point, Netevia delivers end-to-end payment processing through easy-to-use APIs.

Basis of Presentation

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“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) collectability of accounts receivable, (iii) the recoverability of long lived and indeterminate-livedlong-lived assets, (iv)(iii) the remaining useful lives of tangible long-lived assets, and (v)(iv) the sufficiency of merchant, aggregator, legal, and other reserves. On an ongoing basis, we evaluatethe Company evaluates the sufficiency and accuracy of our estimates. Actual results could differ from thoseits 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 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 all FDIC insured institutions. The bank balances did not exceedexceeded FDIC limits by $3,029,355 and $10,647,524 at June 30, 20172018 and December 31, 2016.2017, respectively, due to cash received from capital raises.

We had $453,572maintained $67,470 and $498,308$186,353 in uninsured bank accounts in Russia and the Cayman Islands at June 30, 20172018 and December 31, 2016,2017, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated net of an 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. TotalThe allowance for doubtful accounts was $795,925 and $603,031$222,795 at June 30, 20172018 and $256,967 at December 31, 2016.2017.

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 havehas an average length of three years and the cost of the terminal plus any setup fees are capitalized andwill be amortized over the contract period. If the merchants early terminate their contract with us early, they are obligated to either return the terminal or pay for the terminal. The Company had $406,822has $515,504 and $311,206$506,906 in terminals, iPads ® and related equipment as of June 30, 20172018 and December 31, 2016,2017, respectively, of which $397,933$509,217 and $308,582$500,701 has been placed with merchants as of June 30, 20172018 and December 31, 2016,2017, respectively. Amortization of these terminals amounted to $84,864 and $78,549 for the six months ended June 30, 2017 and June 30, 2016. Amortization of these terminals amounted to $38,323 and $35,285 for the three months ended June 30, 2017 and June 30, 2016.

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,retirement, 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.

Goodwill and Other Intangible Assets

IncludedIntangible assets acquired, either individually or with a group of other assets (but not those acquired in our intangible assetsa business combination), are merchant portfolios which represent the net carrying value of merchant customer bases acquired. Merchant portfolios are amortizedinitially recognized and measured based on a straight-line basis over their respective contract terms, 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,fair value. Goodwill acquired in business combinations is initially computed as the amount of any potential impairment would be measured as thepaid in excess if any, of carrying value over the fair value of such assets.the net assets acquired.

We capitalize direct expenses associated with filingThe cost of patentsinternally developing, maintaining and patent applicationsrestoring intangible assets (including goodwill) that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business and amortize the capitalized intellectual property costs over five years beginningrelated to an entity are recognized as an expense when the patent is approved.incurred.

Additionally, we capitalizeAn intangible asset (including goodwill) that is not subject to amortization shall be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. Goodwill is not amortized. It is the Company’s policy to test for impairment no less than annually, by considering qualitative factors to determine whether it is more likely than not that a that the Company’s goodwill carrying value is greater than its fair value. Such factors may include the following: a significant decline in expected revenues, significant decline in the Company’s stock price, a significant downturn in the general economic business conditions, the loss of key personnel or when conditions occur that may indicate impairment. The Company’s intangible assets, acquiredwhich consist of goodwill of $9,643,752 recorded in business combinations. We perform valuations of assets acquiredconnection with the various acquisitions, were tested for impairment during the six months ended June 30, 2018 and liabilities assumed on each acquisition accountedwe determined that no adjustment 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 was necessary.

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 three and six months ended June 30, 20172018 and 2016,2017, 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 (“ISGs”)ISGs 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 paymentamounts are receivable but not yet earned and the capitalized acquisition costs are primarily amortized on a straight-line basis over a period of three years.

Management evaluatesDuring 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 thethree months ended June 30, 2018 and June 30, 2017, we recorded carrying amount, indicating an impairment of the carrying value of the$476,807 and $403,300, respectively, in additional capitalized customer acquisition costs, the impairment loss is charged to operations.

and $358,491 and $251,485, respectively, in related additional amortization. During the six months ended June 30, 20172018 and the twelve months ended December 31, 2016,June 30, 2017, we recorded $778,447 and $806,884, (see Note 6), respectively, in additional capitalized customer acquisition costs, of $806,885 and $1,319,820, respectively. Additionally, we recorded $472,680$697,537 and $670,543$472,679, respectively, in related additional amortization for the six months ended June 30, 2017 and the twelve months ended December 31, 2016, respectively.amortization. The balance of customer acquisition costs was $2,031,542$2,516,245 and $1,697,337$2,435,335 at June 30, 20172018 and December 31, 2016,2017, respectively, and is reflected in intangible assets in the accompanying condensed consolidated balance sheets. 

Accrued Residual Commissions

We report commission paymentscommissions as a cost of revenues in the accompanying condensed 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 paymentsobligations 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 condensed consolidated statement of operations and comprehensive loss.

At June 30, 20172018 and December 31, 2016,2017, the residual commissions payable to ISGs and independent sales agents were $940,222$1,095,834 and $1,347,352,$1,821,790, 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 had deferred $298,761 and $863,604 of agent commissions paid for deferred annual fees of $400,246 and $1,224,044 at June 30, 20172018 and December 31, 2016,2017, 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.

Fair Value Measurements

Our financial instruments consist primarily of cash, accounts receivable, merchant portfolios, notes receivable, trade payables and debt instruments.receivables, accounts payables. The carrying values of cash and cash equivalents, accounts receivable and trade payablesthese financial instruments 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 $7.4$5.1 million and $4.5 million at June 30, 20172018 and $4.6 million at December 31, 20162017, respectively, 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 described below.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 basedmarket-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 is based on level 3 inputs and 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 recoverability calculationimpairment was primarily based on observable inputs using company specific information and is classified as Level 3.

Foreign Currency Transactions

We are subject to foreign currency exchange rate risk in our foreign operations in Russia, the functional currency of which is Russian Ruble,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.

We doThe Company does 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,exists; (2) performance of services or delivery of goods has occurred, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured. We considerThe Company considers persuasive evidence of a sales arrangement to be the receipt of a billable transaction from aggregators, merchantssigned contract or the processing of a signed contract.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.

Adoption of ASC 606, Revenue from Contracts with Customers

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic revenue recognition methodology under ASC 605, Revenue Recognition.

The cumulative impact of adopting ASC 606 resulted in no changes to retained earnings at January 1, 2018. The impact to revenue for the three months ended March 31, 2018 was a decrease of approximately $0.4 million as a result of applying ASC 606 to certain revenues which are now presented net as we do not have control over providing the services related to such revenues.

For the three and six months ended June 30, 2018, the revenue recognized from contracts with customers was $16.5 million and $32.4 million, respectively.

The impact of adoption of ASC 606 on the Company’s consolidated statement of operations was as follows:

Three months ended June 30, 2018

Six months ended June 30, 2018

There was no balance sheet impact. 

Revenue Recognition

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. The Company satisfies its performance obligations and therefore recognizes the transactional processing service fees as revenue upon authorization of a transaction by the merchant’s customer’s bank.

The Company complies with ASC 606 and primarily reports revenues gross as a principal versus net as an agent. Although some of the Company’s processing agreements vary with respect to specific terms, the transactional processing service fees collected from merchants are generally recognized as revenue on a gross basis as the Company is the principal in the delivery of the managed payments solutions to the sellers. The gross fees the Company collects are intended to cover the interchange, assessments and other processing fees and are included in the Company’s gross margin for transactions processed.

The Company has primary responsibility for providing end-to-end payment processing services for its clients. The Company’s clients contract with the Company 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. The Company has concluded it is the principal because it controls the services before delivery to the merchant, it is primarily responsible for the delivery of the services, it has discretion in setting prices charged to merchants and it is responsible for losses. We also have pricing latitude and can provide services using several different network options.

Our revenues for the three-three and six-six months ended June 30, 20172018 and 20162017 are principally derived from the following sources:

Transactional Processing Service Fees: Transactional processing service fees are generated primarily from TOT Payments LLC (doingdoing business as Unified Payments),Payments, which is our U.S. transaction processing company,North American Transaction Solutions segment, PayOnline, which is our Russian online transaction processing company, and Aptito, our POS solution for restaurants.

Our transactional processing businessescompanies 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 processingsupport. Revenue is recognized net of refunds, which arise from reversals of transactions when processed. In addition to generating service fees, Aptito earns monthly license fees for use of its platform.initiated by our merchants. 

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 Company selectively offers custom pricing for certain merchants. The Company collects the primary obligor in our arrangements with our merchant customers, (ii) have latitude in establishingtransaction amount from the priceseller’s customer’s bank, net 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 foracquiring interchange and assessments. Theseassessment fees, charged byprocessing fees and bank settlement fees paid to third-party payment processors and financial institutions. The Company retains its fees and remits the card associationsnet amount to process the credit card transactions are recorded separately as a cost of revenue in the accompanying condensed consolidated statement of operations and comprehensive loss.proper parties.

We have multiple element arrangements that includeincluded bundled multiple element transactions with merchants encompassing annual PCI (payment card industry) fees, annual membership fees, and monthly processing fees and fees for value-added services, which include payment gateway fees, gift and loyalty, point of sale software licensing, business intelligence fees, analytics and fraud management fees.

We adopted Accounting Standard Update (“ASU”) 2009-13, “Multiple–Deliverable Revenue Arrangements.” ASU 2009-13U.S. GAAP requires the useand allocation of fees to a bundled transaction based on an allocation 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 arrangementprices 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., POS terminals) and services qualify as separate units of accounting under ASU 2009-13.

As noted above, merchant customers 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..

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.

Mobile payment Service Fees: ServiceMobile payment service fees are generated primarily from mobile payment processing services provided to third party content aggregators by Digital Provider. During July of 2015, Digital Provider began to offer its branded content to customers.mobile payments business. Digital Provider’s revenues from our mobile payments business are 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-partythird party content providers areis accounted for as service fees and presented net of aggregator and mobile operator payments on the condensed consolidated financial statements 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 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.

Cost of revenues for Digital Providerfrom our mobile payments business is comprised primarily of mobile operator fees, content provider fees and fees for short numbers paid to mobile operators. Additionally, penalties and any related penalty recoveries are recorded aswithin cost of sales. ServiceCost of our revenues for mobile payment processing services are presented netpayments business branded content includes fees due to mobile operators and marketing partners, as these revenues are considered to be agencywell as short number fees.

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, andwhich generally occuroccurs 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.

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 bothJune 30, 2018 and June 30, 2017, and December 31, 2016, we had warrants outstanding to purchase 728,583 and 89,389 shares of common stock. At June 30, 2017stock, and December 31, 2016, we had 234,522234,219 and 193,601238,174 stock options issued and outstanding respectively, that are anti-dilutive in effect..

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 quarter ended June 30, 2017 and the year ended December 31, 2016, 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 condensed consolidated 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 our management believeswe believe these assets are more likely than not to be realized. In making such a determination, management considerswe 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 management determineswe 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 would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. In addition, see "Recently Issued Accounting Pronouncements" below regarding our adoption of guidance related to deferred taxes in the first quarter of 2017.

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 recognize aclassify the liability for unrecognized tax benefits as current to the extent that 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, 20122013 and forward, the tax years which remain subject to examination at June 30, 2017. Please see Note 15 for discussion of our uncertain tax positions.2018.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued 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 condensed 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. We adopted this ASU in the first quarter of 2017, which had no impact on our financial position, results of operations or cash flows.Guidance

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. While we are currently evaluating the effectsWe expect that the adoption of ASU 2016-02 will haveresult in management’s recognition of right of use assets and related obligations on our consolidated Balance sheets. 

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 change 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 in 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 will become effective for us on January 1, 2020. Early adoption is permitted for periods beginning on or after January 1, 2019. We are evaluating the effect of ASU 2016-13 on our consolidated financial statements, we expect an increase in assets and liabilities on our balance sheet associated with the recognition of right-of-use office leases.statements.

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 we are currently evaluating the effects that the adoption of ASU 2016-08 will have on our consolidated financial statements, 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.

NOTE 2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

On May 25, 2016, and subsequently again on October 5, 2017, we completed a one-for-ten reverse stock split of our common stock. Our condensed consolidated financial statements give retrospective effect for these changes in capital structure for all periods presented.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and reflect all adjustments, which are of a normal and recurring nature, that are, in the opinion of management, necessary for a fair presentation of our condensed consolidated financial position and results of operations for the related periods. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated results of operations for any interim periods are not necessarily indicative of results to be expected for the full year.

Following the consolidation principles promulgated by U.S. GAAP, these condensed consolidated financial statementsCompany 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; (5) OOO Net Element Software, LLC, a 25% owned subsidiary we control that was formed in Russia and (5)(6) 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 the Company’s 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, a 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 Acquisition, LLC, a wholly owned subsidiary formed in Florida and OOO TOT Group Russia, a wholly owned subsidiary formed in Russia.

All material intercompany accounts and transactions have been eliminated in consolidation. OOO Digital Provider has been closed down and OOO Net Element Russia is in the process of being wound down through insolvency proceedings in Russia. 

NOTE 3. LIQUIDITY AND GOING CONCERN CONSIDERATIONS

OurThe Company’s condensed consolidated financial statements have been prepared on a going concern basis, which contemplatesbasis. Although the realizationCompany had a net loss of assets and the settlement of liabilities and commitments in the normal course of business. For$0.9 million for the quarter ended June 30, 2017, we sustained a net loss of $1.7 million2018, and have an accumulated deficit of $161.6 million. Furthermore, we had $5.2$169.9 million of negative working capital at June 30, 2017. We sustained2018, the Company had a net losscash balance of $13.6$6.5 million and projects future cash needs of $6.0 million for the year ended December 31, 2016next 12 months to fund operations, indebtedness and have an accumulated deficit of $157.4 million and a negative working capital of $6.3 million at December 31, 2016. The conditions above plus the risk of our ability to secure sufficient financing in order to pay such obligations raise substantial doubt about our ability to continue as a going concern.expenditures.

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 our financial condition and results of operations.   We face all of the risks inherent in a new business, including the need for significant additional capital, management’s potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with developing our technologies and operations.

We areThe Company is continuing with ourits plan to further grow and expand ourits payment processing operations in the United States and emerging markets and seek sources of capital to expand and pay our contractual obligations as they come due.develop blockchain solutions for merchant services. Management believes that its current cash position and operating strategy will provide the opportunity for usthe Company to continue as a going concern as long as we are able to obtain additional financing;concern; however, there is no assurance this will occur.  The accompanying condensed 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 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. The Company did not regain compliance and received a delisting notice from Nasdaq on June 27, 2017. The Nasdaq Listing Qualifications Staff determined that the Company had not regained compliance with the $1.00 per share minimum bid price requirement of the Nasdaq Listing Rules as of June 26, 2017. Further, the Company is not eligible for an extension of such period due to the value of the Company’s stockholders’ equity (as reported by the Company in its quarterly report on Form 10-Q filed with the with the Commission on May 15, 2017) being less than the minimum $5 million stockholders’ equity listing requirement for The Nasdaq Capital Market. We filed an appeal to the delisting with Nasdaq on July 5, 2017 and subsequently presented our appeal at a hearing with Nasdaq on August 10, 2017. We are currently awaiting the decision of the Nasdaq appeals board, which we expect to receive in August 2017.

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. See Note 17.

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

NOTE 4. ACCOUNTS RECEIVABLE

Accounts receivable (net) consistconsists primarily of amounts due from processorsmerchant service providers and Russian mobile operator intermediaries.the sponsoring bank of our own dedicated BIN/ICA. Total net accounts receivable amounted to $6,007,143$6,061,808 and $7,126,429$5,472,856 at June 30, 20172018 and December 31, 2016,2017, respectively. Net accounts receivable consisted primarily of $1,322,818$313,907 and $2,391,646$256,565 attributed to international operations, and $5,747,901 and $5,216,291 of amounts due from Russian mobile operators, $208,851 and $185,650 due to PayOnline online processing business and $4,475,474 and $4,549,133 ofNorth American credit card processing receivables, at June 30, 20172018 and December 31, 2016,2017, respectively.

OurTotal allowance for doubtful accounts was $795,925$222,795 and $603,031$256,967 at June 30, 20172018 and December 31, 2016,2017, 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. We recognized an additional provision of $192,895 for the six months ended June 30, 2017.

NOTE 5. FIXED ASSETS

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

Depreciation expense for fixed assetsthe three months ended June 30, 2018 and June 30, 2017 was $8,713 and ($15,685), respectively. For the three months ended June 30, 2017 the depreciation expense of $11,238 was offset by a reclassification of $26,924 to software amortization, thereby, causing positive adjustment to income of $15,685 for the three andquarter. Depreciation expense for the six months ended June 30, 2018 and June 30, 2017 was ($15,685)$16,112 and $17,518, respectively, and $11,954 and $19,523 respectively, for the three and six months ended June 30, 2016.respectively.

NOTE 6.  INTANGIBLE ASSETS

Shown below are the details ofThe Company had $2,741,486 and $3,127,760 in intangible assets at June 30, 20172018 and December 31, 2016:2017, respectively. Shown below are the details.

Depreciation and amortizationAmortization expense for the period ended June 30, 2017 and June 30, 2016 was $1,230,381 and $1,732,653, respectively. During the sixthree months ended June 30, 2017, we incurred $1,122,9982018 was $653,812 of amortization aswhich $634,086 is described in the table above. Additionally, we incurred $84,864above and $19,726 was for the amortization of terminal inventory placed with merchant customers duringmerchants. The inventory and its associated amortization are included in prepaid and other expenses and are not included in the sixtable above.

Amortization expense for the three months ended June 30, 2017.2017 was $573,018 of which $550,380 was for intangible amortization and $38,323 was for the amortization of terminal inventory placed with merchants. The remaining $17,518, not included in table above,$(15,685) was for fixed assets (See Note 5. Fixed Assets). DuringThe inventory and its associated amortization are included in prepaid and other expenses and are not included in the table above.

Amortization expense for the six months ended June 30, 2016, we amortized $1,713,130 for intangible assets2018 was $1,349,951 of which $1,267,855 is described in the table above and $69,117$82,096 was for the amortization of terminal inventory placed with merchant customers. Additionally, we recorded $19,523merchants. The inventory and its associated amortization are included in depreciationprepaid and other expenses and are not included in the table above.

Amortization expense for the six months ended June 30, 2017 was $1,230,381 of which $1,122,998 was for intangible amortization and $84,864 was for the amortization of terminal inventory placed with merchants. The remaining $17,518 was for fixed assets (See Note 5. Fixed Assets).

Depreciation The inventory and its associated amortization expense for the three months ended June 30, 2017are included in prepaid and June 30, 2016 was $573,018other expenses and $844,535, respectively. During the three months ended June 30, 2017, we incurred $550,380 of amortization as describedare not included in the table above. Additionally, we incurred $38,323 for the amortization of terminal inventory placed with merchant customers. The remaining $(15,685), not included in table above, was for fixed assets (See Note 5. Fixed Assets) due to an adjustment in from our Russian segments. During the three months ended June 30, 2016, we amortized $797,296 for intangible assets and $35,285 for the amortization of terminal inventory placed with merchant customers. Additionally, we recorded $11,954 in depreciation for fixed assets (See Note 5. Fixed Assets).

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

Software

At times,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 six monthsthree and twelvesix months ended June 30, 2017 and December 31, 2016, respectively,2018, we capitalized $45,591$0 and $102,689$3,135 of internally developed POS software development costs, as follows:respectively.

For the three months ended June 30, 2018 and 2017, amortization was $82,243 and $49,042, respectively. For the six months ended June 30, 20172018 and 2016,2017, amortization was $49,042$127,914 and $109,781, and $350,175 and $703,479, respectively.

Merchant Portfolios and client lists

Merchant Portfolios consist ofconsisted portfolios purchased by uson business acquisitions that earn future streams of income.income for the foreseeable future. The remaining contract termsuseful lives of these portfolios range from 15 months to 36 months at the time of acquisition. At June 30, 2018 and December 31, 2017, the net value of these portfolios was $130,719 and $274,054, respectively.

The useful lives of merchant portfolios represent management’s best estimate over which we expect tothe Company will recognize the economic benefits of these intangible assets. At June 30, 2017 and December 31, 2016, the net value of these portfolios was $509,056 and $784,991, respectively. For the three and six months ended June 30, 2017, amortization of merchant portfolios was $117,501 and $275,935, respectively. For the three and six months ended June 30, 2016, amortization of merchant portfolios was $176,046 and $352,092, respectively.

Trademarks and Domain Names

At June 30, 20172018 and December 31, 2016,2017, the net book value of these trademarks was $210,188$0 and $327,708,$92,193, respectively, and the net book value of the domain names were $121,712was $0 and $193,960,$50,753, respectively.

For the three months ended June 30, 2018 and 2017, amortization for trademarks was $33,189 and $59,004, respectively. For the six months ended June 30, 2018 and 2017, amortization for trademarks was $59,004$92,193 and $117,520, respectively and forrespectively.

For the three and six months ended June 30, 2016, amortization was $41,6672018 and $83,334, respectively. For the six and three months ended June 30, 2017, amortization for domain names was $35,931$15,623 and $72,248,$35,931, respectively. For the three and six months ended June 30, 2016,2018 and 2017, amortization for domain names was $24,999$50,753 and $49,998$72,248, respectively.

PCI Certification

At June 30, 20172018 and December 31, 2016,2017, the net book value of ourthe PCI certification was $130,956$0 and $205,790,$56,123, respectively.

For the three months ended June 30, 2018 and 2017, amortization for the PCI certification was $18,706 and 37,417, respectively. For the three and six months ended June 30, 20172018 and 2016,2017, amortization for thisthe PCI certification was $37,417$56,123 and $74,834, respectively.

Non-Compete Agreements

In connection with the Company’s acquisition of Unified Payments, LLC in 2013, two key executives signed covenants not to compete. These covenants had a three-year life and at June 30, 2017 and December 31, 2016, the net book value was zero.

NOTE 7. ACCRUED EXPENSES

At June 30, 20172018 and December 31, 2016,2017, accrued expenses amounted to $4,437,601$2,666,447, and $5,518,823,$3,212,438, respectively. Accrued expenses represent expenses that are owed at the end of the period and have not been billed by the provider or are estimates of services provided.costs to be incurred. The following table details the items comprising the balances outstanding atas of June 30, 20172018 and December 31, 2016:2017.

The accrual for PayOnline at June 30, 2018 and December 31, 2017 consists primarily of a $1.1 million stock price guarantee obligation pursuant to a settlement agreement entered into in connection with the PayOnline acquisition. Additionally, the accrual includes a $1.4 million obligation for refundable merchant reserves assumed pursuant to an amendment to the PayOnline acquisition agreement. See Note 11 and Note 17 for additional information.

The accrual for PayOnline at December 31, 2016 consists of a $0.3 million earn-out accrual and a $2.0 million stock price guarantee obligation pursuant to a settlement agreement entered into in connection with the PayOnline acquisition. Additionally, the accrual includes a $1.4 million obligation for refundable merchant reserves, assumed pursuant to an amendment to the PayOnline acquisition agreement.

Accrued bonuses are attributed to our TOT Group subsidiaries resulting from a discretionary bonus accrual for $1,179,563 and $774,485interest at June 30, 20172018 and December 31, 2016,2017 is comprised primarily of loan costs associated with RBL notes as a result of the issuance of additional RBL notes.

We owed $54,935 and $137,141 in foreign taxes, which primarily consist of VAT and payroll taxes related to our International Transaction Solutions segment at June 30, 2018 and December 31, 2017, respectively.

On March 8, 2018, we paid our Chief Executive Officer (“CEO”) the previously approved discretionary bonus of $300,000. This was offset by $86,374 and $173,748 additional compensation accrued for the three and six months ended June 30, 2018, respectively. On July 12, 2018 we paid $450,000 of accrued compensation due the CEO. See subsequent events.

The remaining balance of $17,644 of other accrued expenses at June 30, 2018 consisted primarily of accrued expenses from the International Transactions Solutions segment.

NOTE 8. SHORT TERM LOANS

Term Loan

Short term loans primarily consist of the current portion of long term debt in amount of $924,597 and $2,493,973 at June 30, 2018 and December 31, 2017, respectively.

NOTE 9. DEBT

At June 30, 2017 and December 31, 2016, short term debt consists of $984,720 and $808,976, respectively in principal repayments due to RBL Capital Group, LLC.

NOTE 9. LONG TERM DEBT

Long term debt consistsDebt consisted of the following:

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 theThe 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 fixedwith interest rate ofat 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,Interest on drawn amounts outstanding after November 30, 2015 carry interest at an additional three percent per annum would be added to such interest rate, and for anyuntil repaid in full, with other amounts, obligations or payments due to RBL,carrying 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. On May 2, 2016, we renewed our credit facilityCredit Facility with RBL, increasing the facility from $10 million to $15 million and extendedextending the term through February 2018.2019.  At June 30, 2017 and December 31, 2016,2018, we had $10,855,944 and $10,955,944$10,455,912 available under our RBL credit line.the Credit Facility.  

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, we entered into a $3,315,000 term note with RBL. Net proceedsAs further described below, the following borrowings from the Credit Facility were converted into RBL term note were used to repay a $3.0 million note previously due to MBF Merchant Capital, LLC (“MBF”) in addition to approximately $239,000 for working capital. The term note required interest only payments at 13.90% interest through January 2015 commencing on August 20, 2014 followed by monthly interest and principal payments of $90,421 through January 2019. The promissory note balance reduced the amount available under our RBL credit line. The note also provided for a 2% front end fee due at execution of the note and a 4% backend fee due at the final payment of the note. During 2016, Crede CG III, Ltd. (“Crede”) purchased $1,849,481 of the principal balance of this promissory note in various tranches. We exchanged and extinguished these promissory note tranches for 16,426 shares of common stock during the second quarter of 2016, 99,203 shares of our common stock during the third quarter of 2016, and 19,608 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 was $0 at June 30, 2017 and December 31, 2016.notes:  

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 21,928 shares of our common stock on June 9, 2016, June 23, 2016, and June 30, 2016. The balance of this note was $0 at June 30, 2017 andDuring December 31, 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 9,174 shares of our common stock on May 9, 2016. The balance of this note was $0 at June 30, 2017 and December 31, 2016.

On May 4, 2016, we entered into a $250,000$4,044,055 RBL term note with RBL.(the “Refinance note”) to effectively refinance certain previously issued RBL term notes. The term note provided for interest-only payments at 14.15% interest($47,686) through October 20, 2016. From November 20, 2016 through October 20, 2020 (the note maturity date), we were obligated to makeMay 2017, with monthly interest and principal payments of $6,850 per month.$110,814 from June 2017 through May 2021. The term note also provided forrequired payment of a 2% front end$20,000 front-end refinancing fee due upon the execution of the term noteat issuance and a 4% back end$104,600 back-end fee due at the final paymentpayment. The outstanding balance of the term note. On December 20, 2016, this note was refinanced into another RBL term note and its balance was $0 atduring June 30, 2017 and December 31, 2016.2017.

On May 20, 2016,During March 2017, we entered into a $400,000$100,000 RBL term note with RBL.note. 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 make14.4% May 2017, with monthly interest and principal payments of $10,961 per month.$2,753 from June 2017 through May 2021. The term note also provided forrequired payment of a 2% front endfront-end fee due upon the execution of the term noteat issuance and a 4% back endback-end fee due at the final paymentpayment. The outstanding balance of the term note. On December 20, 2016, this note was refinanced into another RBL term note and its balance was $0 atduring June 30, 2017 and December 31, 2016.2017.

On June 23, 2016,During April 2017, we entered into a $190,000$400,000 RBL term note with RBL.note. The term note provided for interest-only payments at 14.15% interest14.4% through December 20, 2016. From January 20,May 2017, through December 20, 2020 (the note maturity date), we were obligated to makewith monthly interest and principal payments of $5,206 per month.$11,011 from June 2017 through May 2021. The term note also provided forrequired payment of a 2% front endfront-end fee due upon the execution of the term noteat issuance and a 4% backendback-end fee due at the final paymentpayment. The outstanding balance of the term note. On December 20, 2016, this note was refinanced into another RBL term note and its balance was $0 atduring June 30, 2017 and December 31, 2016.2017.

On July 15, 2016,During April 2017, Crede CG III, Ltd. (“Crede”) purchased a $75,000 tranche of our RBL term note, which we repurchased and extinguished in exchange for 10,235 shares of our common stock. As a result, the terms of the $4,044,055 Refinance note were revised to reduce the monthly interest and principal payments to $108,759. For additional information about the exchange agreement with Crede see Note 13.

During May 2017, we entered into a $350,000$75,000 RBL term note. The term note provided for one interest-only payment at 14.4%, with RBL.monthly interest and principal payments of $2,065 from June 2017 through May 2021. The term note required payment of a 2% front-end fee at issuance and a 4% back-end fee due at final payment. The outstanding balance of the term note was refinanced into another RBL term note during June 2017.

During May 2017, Crede purchased a $150,000 tranche of our RBL term note, which we repurchased and extinguished in exchange for 23,058 shares of our common stock.

During May 2017, we entered into a $150,000 RBL term note. The term note provided for one interest-only payment at 14.4%, with monthly interest and principal payments of $4,129 from July 2017 through June 2021. The term note required payment of a 2% front-end fee at issuance and a 4% back-end fee due at final payment. The outstanding balance of the term note was refinanced into another RBL term note during June 2017.

During June 2017, the $4,044,055 Refinance note was modified to include the $150,000, $75,000, $400,000 and $100,000 term notes described above. The modified note provided for interest only payments at 14.19% from June 2017 through September 2017, with monthly payments of interest and principal of $124,607 from October 2017 through September 2021.

During July 2017, the Refinance note was further modified to reflect the $150,000 tranche extinguishment in May 2017, described above. The terms of the Refinance note were revised to reduce the monthly interest and principal payments to $121,810. During October 2017 we received a six-month extension to the interest-only payment term for a fee of $12,000. At June 30, 2018, the principal balance of the Refinance note was $4,438,086.

During August 2017, we entered into a $106,000 RBL term note. The term note provided for interest-only payments at 14.15%14.9% through January 20, 2017. From February 20,September 2017, through January 20, 2021, we were obligated to makewith monthly interest and principal payments of $9,591.$2,945 from October 2017 through September 2021. The term note also provided forrequired payment of a 2% front endfront-end fee due upon the execution of the loanat issuance and a 4% back endback-end fee due at the final paymentpayment. During October 2017 we received a six-month extension of the term note. On Decemberinterest-only payment term.

Effective March 20, 2016, this note was2018, we refinanced into anotherand combined our $106,000 term note and its balance was $0 at June 30, 2017 and December 31, 2016.

On August, 15, 2016, we entered$4,438,086 Refinance note into a $400,000 termsingle note with RBL.a principal balance of $4,544,807.  The termrefinanced and combined note providedprovides for interest onlyfour (4) interest-only payments at 14.15% through February 20, 2017. From March 20, 2017 through February 20, 2021, we were obligated to make14.19%, with monthly interest and principal payments of $10,961. The term note also provided for$85,634 from August 2018 through June 2021, with a 2% front end fee, due upon the execution of the loan and a 4% back end fee due at the finalballoon payment of $3,170,967 in July 2021.   The back-end fees from prior notes in the term note. On December 20, 2016,amount of $133,600 have been rolled into this note was refinanced into another term note and its balance was $0 at June 30, 2017 and December 31, 2016.also are due in July 2021.

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 June 30, 2017 and 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 June 30, 2017 and 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 June 30, 2017 and 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 to make interest and principal payments of $110,814. The term note also required a $20,000 front end refinancing fee upon execution of the loan and a $104,600 back end fee due at the final payment on May 20, 2021. This note balance was zero at June 30, 2017 as it was refinanced into the new refinancing note on June 1, 2017 as described below. 

On 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 provides for interest-only payments at 14.4% interest rate through May 20, 2017. From June 20, 2017 through May 20, 2021 (maturity date), we are obligated to make interest and principal payments of $2,753 per month. We paid $2,000 in costs related to this term note at its inception and another $4,000 of costs is due at the maturity of the note. This note balance was zero at June 30, 2017 as it was refinanced into the new refinancing note on June 1, 2017 as described below. 

On April 17, 2017, we entered into a $400,000 term note with RBL based on a draw down from the line of credit. The term note provides for interest-only payments at 14.4% through May 20, 2017 of $5,208. From June 20, 2017 through May 20, 2021 (maturity date), we are obligated to make interest and principal payments of $11,011 per month. We paid $8,000 in costs related to this loan at its inception and another $16,000 of costs is due at the maturity of the note. This note balance was zero at June 30, 2017 as it was refinanced into the new refinancing note on June 1, 2017 as described below. 

On April 26, 2017, we exchanged 10,235 shares of our common stock for $75,000 of the original $3,315,000 RBL promissory note partially purchased by Crede, based on an average per share exchange price of $0.73. The exchange also settled current interest and loan fees of $4,500 and a non-cash exchange premium of $9,951.

On April 26, 2017, the $4,044,056 term note with RBL entered into on December 20, 2016 was revised to reflect the $75,000 exchange transaction mentioned above. As a result, the note was updated to reflect a principal payment and interest payment of $108,759 on June 20, 2017.

On May 19, 2017, we entered into a $75,000 term note with RBL based on a draw down from the line of credit. The term note provides for one interest only payment of $947 on May 20, 2017 at a 14.4% interest rate, then 48 equal monthly payments of principal and interest of $2,065. This note balance was zero at June 30, 2017 as it was refinanced into the new refinancing note on June 1, 2017 as described below.

On May 24, 2017, we exchanged 23,058 shares of our common stock for $150,000 of the original $3,315,000 RBL promissory note partially purchased by Crede, based on an average per share exchange price of $0.65. The exchange also settled current interest and loan fees of and a non-cash exchange premium of $23,156.

On May 26, 2017, we entered into a $150,000 term note with RBL based on a draw down from the line of credit. The term note provides for one interest only payment of $1,479 at a 14.4% interest rate, on June 20, 2017 then 48 equal monthly payments of principal and interest of $4,129. This note balance was zero at June 30, 2017 as it was refinanced into the new refinancing note on June 1, 2017 as described below. 

On June 1, 2017 the $4,044,055 refinance note dated December 20, 2016 was updated to roll the above $150,000, $75,000, $400,000 and $100,000 term notes. The note principal amount was $4,544,055 at June 30, 2017. The note provided for the interest rate of $14.19% per annum and interest only payments from June 20, 2017 through September 20, 2017. For the next 48 months thereafter until the maturity date on September 20, 2021, the note provides for $124,607 monthly payments of interest and principal.

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

MBF Merchant Capital, LLC

We issued the following notes payable to MBF, which is owned by William Healy, a former member of our Board of Directors.

On March 28, 2016, we entered into a $75,000 promissory note with MBF. The promissory note provided for interest only payments at 14% through May 28, 2016. From June 28, 2016 through March 28, 2017, we were obligated to make interest and principal payments of $7,990. The promissory note also provided for a 6% backend fee due at the final payment of the promissory note. As of June 30, 2017, and December 31, 2016, the balance of the note was $0 and $23,420, respectively.

OnDuring April 19, 2016, we entered into a $300,000 promissory note with MBF.MBF Merchant Capital, LLC (“MBF”). The promissory note provides for interest onlyinterest-only payments at 15.5% through May 28, 2016. From June 28, 2016, through May 28, 2018, we are obligated to makewith monthly interest and principal payments of $14,617.$14,617 from June 2016 through May 2018. The promissory note also provides forrequires payment of a 6% back endback-end fee due at the final payment of the promissory note.payment. At June 30, 20172018 and December 31, 2016,2017, the balance of the note was $148,997$0 and $221,826,$74,177, respectively.

OnDuring July 1, 2016, our subsidiary, TOT Group, Inc., entered into a $353,500 promissory note with MBF. The promissory note provides for interest onlyinterest-only payments at 15.5% through June 28, 2016. From July 28, 2016, through June 28, 2018, we are obligated to makewith monthly interest and principal payments of $17,224.$17,224 from July 2016 through June 28, 2018. The promissory note also provides forrequired payment of a 1% front endfront-end fee at issuance and for a 6.6% back endback-end fee due at final payment. At June 30, 2018 and December 31, 2017, the final paymentoutstanding balance of the promissory note.note was $0 and $98,829, respectively.

On August 29, 2017, our subsidiary, TOT Group, Inc., entered into a $275,000 promissory note with MBF. The principal amount of the loan carries an interest rate 13.95% per annum, with ten monthly interest and principal payments of $29,289. The promissory note required payment of a 2% front-end fee at issuance and a 4% back-end fee due at final payment. At June 30, 20172018 and December 31, 2016,2017, the remainingoutstanding balance of the promissory note was $190,333$0 and $275,056,$168,798, respectively.

Crede CG III, Ltd.

On May 2, 2016, we entered into a Master Exchange Agreement with Crede (the “Master Exchange Agreement”), an entity that purchased a portion our previously issued notes held by RBL described above. Pursuit to the Master Exchange Agreement, we have the right to request that Crede exchange up to $3,965,000 of the RBL promissory notes for shares of our common stock. On March 3, 2017, we entered into an Amendment to Master Exchange Agreement with Crede, which extended the expiration date of the Master Exchange Agreement from December 31, 2016 to August 31, 2017. Accordingly, this extends the time to which we have the right to request Crede to exchange RBL promissory notes for shares of the Company’s common stock on the terms and conditions set forth in the Master Exchange Agreement.

For the three months ended June 30, 2017, we exchanged 33,323 shares of our common stock with Crede for an aggregate of $225,000 in RBL term notes. These notes were purchased by Crede for an average per share exchange price of $6.80. The exchanges included a non-cash exchange premium of $33,107. For the three months ended March 31, 2017 and 2016, we did not exchange any shares of our common stock for RBL term notes. Also see Note 17 for activity that occurred after June 30, 2017.

For the year ended December 31, 2016, we exchanged 166,340 shares 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 $16.80. The exchanges also settled current interest and loan fees of $302,294 and a non-cash exchange premium of $487,064.

Priority Payment Systems LLC

Effective as of May 18, 2017, we entered into a loan agreement and security agreement with Priority Payment Systems LLC (“PPS”) and issued a promissory note dated May 18, 2017. Pursuant to the loan agreement and the note, we borrowed $2,000,000. Prior to maturity of the loan, the principal amount of the loan will carry a floating interest rate of prime rate plus 6% per annum.annum at 10.25% at December 31, 2017. We may prepay the loan in whole or in part at any time. The loan is repayable in monthly installments consisting of principal plus interest. The loan matures and becomes due and payable in full on May 20, 2019 to the extent not previously prepaid.

Pursuant to the security agreement, the loan is secured by collateral consisting of accounts, cash or cash equivalents, residuals related to the merchants originated by us and processed by Priority Payments Systems LLC.PPS. The loan agreement, the note and the security agreement contain customary representations, warranties, events of default, remedies and affirmative and negative covenants, as well as the right of first refusal and the right related to the merchants.

Effective as of May 17, 2017, we entered into a corporate guaranty in favor of Priority Payments Systems LLC,PPS, pursuant to which we unconditionally guaranteed the full and prompt payment of each present and future liability, debt and obligation under the loan agreement, the note, the security agreement and other related documents.

On June 27, 2017, we entered into an amendment to the loan agreement with Priority Payment Systems LLCPPS pursuant to which:

Also see Note 17 for activity that occurred afterDuring the three months ended June 30, 2017.2018, we borrowed a total of $0 and repaid $365,975 in principal of our $2,500,000 PPS loan. At June 30, 2018 and December 31, 2017, the balance of the loan was $1,516,002 and $2,238,511, respectively.

Scheduled Debt Principal Repayment

Scheduled principal maturities on indebtedness at June 30, 20172018 is as follows:

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

NOTE 10. CONCENTRATIONS

The Company’s total revenue for the three months ended June 30, 2018 and 2017 was $29,702,982$16,464,717 and $24,953,907$16,141,041, respectively. Total revenue for the six months ended June 30, 2018 and 2017 was $32,447,111 and 2016,$29,702,982, respectively.

Of the $16,464,717 in revenues for the three months ended June 30, 2018, $16,457,185 was derived from processing of Visa®, MasterCard®, Discover® and American Express® card transactions during the three months ended June 30, 2018. Of the $32,447,111 in revenues for the six months ended June 30, 2018, $32,002,640 was derived from processing of Visa®, MasterCard®, Discover® and American Express® card transactions during the six months ended June 30, 2018.

Of the $16,141,041 in revenues for the three months ended June 30, 2017, $15,456,310 was derived from processing of Visa®, MasterCard®, Discover® and American Express® card transactions and $684,731 was derived from providing mobile payment services branded content during the three months ended June 30, 2017. Of the $29,702,982 in revenues for the six months ended June 30, 2017, $28,362,086 was derived from processing of Visa®, MasterCard®, Discover® and American Express® card transactions and $1,340,896 was derived from providing mobile payment services branded content during the six months ended June 30, 2017.

Total revenue was $24,953,907 for the six months ended June 30, 2016, of which $21,481,528 was derived from processing of Visa®, MasterCard®, Discover® and American Express® card transactions, and $3,472,379 that was derived from providing mobile payment services branded content during the six months ended June 30, 2016.

The credit card processing revenues were from merchant customer transactions, which were processed primarily by two third-party processors (greater than 5%) and our own dedicated BIN/ICA during the three and six months ended June 30, 2018 and two third-party processors (greater than 5%) during the three and six months ended June 30, 2017. 

For the six months ended June 30, 20172018, the Company processed 65% of its total revenue with Priority Data, 14% from our own dedicated BIN/ICA, and 2016.5% from First Data Corp. For the six months ended June 30, 2017, and 2016, the Company processed 75% and 66%, respectively, of its total revenue with Priority Payment Systems, LLC and 5% and 7%, respectively, of its total revenue with Worldpay, LLC. (f/k/a Vantiv, Inc. (f/k/a, and National Processing Company (NPC)).

Mobile electronic payment revenues were derived from merchant customer transactions processed by mobile operators. For the six months ended June 30, 2017, no mobile operator processed transactions that generated more than 5% our revenues. For the six months ended June 30, 2016, Beeline (OJSC Vimpelcom) processed transactions that generated 10% of our revenues.

NOTE 11. COMMITMENTS AND CONTINGENCIES

PayOnline Acquisition Commitments

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 “PayOnline 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.

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. The PayOnline acquisition agreement set forth the determination of the value of such shares based on the closing stock price on the date before each applicable payment date. The agreement called for a guarantee, payable in cash, for decreases in the market value of the restricted common shares issued at 12 months from the date of the respective issuances. On May 19, 2016, we recognized a charge in the amount of $2,162,861 for decreases in the market value of the restricted common shares issued pursuant to the stock price guarantee.

On October 25, 2016,December 29, 2017, we entered into a settlementunit purchase agreement with Esousa Holdings LLC (“Esousa”) pursuant to which the PayOnline SellersCompany sold to Esousa (i) an aggregate of 350,553 shares of the Company’s common stock at a purchase price of $11.12 per share (i.e., a price equal to the Company’s consolidated closing bid price per share as reported by the Nasdaq Capital Market); (ii) an aggregate of 404,676 five-year warrants to purchase shares of the Company’s common stock at a purchase price of $0.125 per share and exercise price of $11.12 per share; and (iii) an aggregate of 323,907 five-year pre-paid warrants to purchase shares of the Company’s common stock with an exercise price of $0.01 per share (collectively, the “Securities”). As contemplated by the unit purchase agreement, the Company entered into a registration rights agreement with Esousa relating to the stock price guarantee provisionSecurities, which, among other things, requires the Company to use its commercially reasonable efforts to cause a registration statement covering the Securities to become effective not later than 90 days after the closing date of the sale of the Securities. Subject to certain terms provided for in the PayOnline acquisitionregistration tights agreement, pursuant to which we agreedthe Company is required to pay liquidated damages of up to $300,000 to Esousa at a rate of approximately $75,500 per month if the PayOnline Sellers an aggregateCompany fails to meet this deadline. Since a registration statement covering the Securities was declared effective in June 2018, the Company incurred three payments of $2,288,667 plus 10% per annum interest accrued fromapproximately $75,500 (total $226,500) for the periods of March 2018 to May 20, 2016 in installments pursuant to the payment schedule set forth in the settlement agreement.2018.

On October 25, 2016, we entered into an amendment to the PayOnline acquisition agreement with the PayOnline Sellers, in which we agreed to assume $1,433,475 of certain refundable merchant deposit reserves. These reserves are expected to be paid in a mix of cash and stock beginning in 2017. Also see Note 17 for activity that occurred after June 30, 2017.

On May 20,During December 2017, we entered into an amendmenta letter of intent with Bunker Capital for the development of block-chain technology-based solutions, and we made a prepayment of 19,000 shares of our common stock. On February 26, 2018, we terminated the relationship with Bunker Capital as the parties did not reach a definitive agreement, and, as part of such termination, we asked Bunker Capital to return such shares of the PayOnline settlement agreement, which reflected the new terms under which the Company agreed to pay to the PayOnline Sellers an aggregate of $1,792,071 plus $29,604 in interest in installments pursuant to a payment schedule set forth in the amendment. For the three months ended June 30, 2017,Company’s common stock. At this time, we paid $1,000,000 under this payment scheduledo not know whether and how many shares will be returned and the remaining balance is scheduledvalue of these shares were recorded as an expense during the first quarter of 2018 for a charge of $221,160 to be paid in the third and fourth quarters of 2017. Also see Note 17 for activity that occurred after June 30, 2017.other expense.

Leases

InNorth American Transaction Solutions

During May 2013, we entered into a lease agreement, for approximately 4,0004,101 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, thisThe lease was extended for a period of five years commencing JanuaryAugust 1, 2017 and expiring DecemberJuly 31, 20212022 with equal monthly base rent increasing each year from $20,421 per month beginning January 1, 2017installments of $14,354 ($245,046172,248 per year) plus sales tax. When the additional office space located in suite 805 become available, for approximately 1,375 square feet, the total monthly rent will increase to $24,821 per month beginning January 1, 2021 ($297,855$20,535 (or $246,420 per year). This lease was terminated effective as of August 9, 2017 and superseded by a new lease we entered into on August 9, 2017. See Note 17. Subsequent Events and Part II, Item 5 until the end of the Company’s Quarterly Report on Form 10-Q for quarterly period ended June 30, 2017 for additional information.lease term.

Netlab Systems, LLC, through its Russian representative office, effective June 1, 2017 executed a lease forNet Element Software currently leases 1,654 square feet of office space in Yekaterinburg, Russia, where we conduct softwaredevelop value added services, mobile applications, smart terminals applications, sales central ERP system development and marketing activities, at annual rent of approximately $24,000 (utilities are included).$24,300.  The currentlease was renewed on same terms and the lease term expires inon June 1, 2018.2019.

International Transaction Solutions

PayOnline Systems leases approximately 5,4354,675 square feet of office space in Moscow, Russia at an annual rent of $153,623.$84,457. The current lease term for 5,268 square feet of this office space expires on July 15, 2018 and this lease has an auto-renewal feature. The remaining 167 square feet in Moscow has an annual rent of $3,104 and the lease expires AprilSeptember 30, 2018.

PayOnline also operates two regional offices. For the first regional office, PayOnline leasespreviously leased approximately 275 square feet of office space in Ekaterinburg, Russia at annual rent of $3,444. For the second regional office, PayOnline leases approximately 155156 square feet of office space in Almaty, RussiaKazakhstan at an annual rent of $1,536.

Net Element Russia leased approximately 2,033 square feet 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 office space was utilized by both Net Element Russia and Digital Provider.$1,527. The lease term for the office space was throughexpired on January 31, 2018 but we terminated this lease agreement early on May 31, 2017. The lease term for the corporate apartment lapses on August 16, 2017. The corporate apartment leaseand was also terminated early on May 31, 2017. There was no cost for early termination for both office and corporate apartment lease.

On May 12, 2017, Digital Provider leased approximately 1,566 square feet of office space in Moscow, Russia at annual rent of $27,500. The current lease term for the office space expires on April 11, 2018. This lease was terminated in early August 2017. See Note 17 for activity that occurred after June 30, 2017.not renewed.

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

Future maturities of lease agreements are as follow:

Litigation

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 12,500125,000 shares of stock. Aptito, LLC acquired Aptito.com, Inc. in exchange for, among other things, 12,500125,000 shares of Net Element, Inc. stock. There has been disagreement among the Aptito.com, Inc. shareholders as to proper distribution of the 12,500125,000 shares. To avoid any liability in regards to improper distribution, Aptito, LLC filed the interpleader action so as to allow the defendantsDefendants to litigate amongst themselves as to how the shares should be distributed. Aptito.com, Inc. opposed the motion to interplead and has filed counterclaims relative to Aptito, LLC non-delivery of the 12,500125,000 shares.  On February 10, 2017, the Court held a hearing on Aptito.com, Inc.’s motion to dismiss the complaint and Aptito, LLC and Net Element’s motion to dismiss Aptito.com, Inc.’s counterclaims.  The Court denied Aptito.com, Inc.’s motion to dismiss and granted Aptito, LLC and Net Element’s motion to dismiss the counterclaims without prejudice.

On March 20,July 18, 2017, Aptito.com filed amended counterclaims against Aptito, LLC as well as claims against us alleging amongst other matters, breach of contract and violations of federal and state securities laws. Management believes that these counterclaims are without merit, and we and Aptito, LLC and the Company have filed a motion to dismiss the claims and a motion for sanctions. Counsel is waiting for a hearing date for determination on these matters.

A hearing on the motion to interplead was heard in July 2017 and the Court granted Aptito LLC’s motion to interplead.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 new Judge in the case ruled that Aptito.com, Inc. shareholders will now havewas entitled to settle their internal dispute regarding125,000 newly issued Net Element shares but indicated that he was not ruling that Net Element was required to issue such shares. The Company plans on appealing this matter.  Aptito, LLC still has potential liability arising from an alleged delay in issuingruling and the shares toCompany’s legal counsel is addressing the counterclaims filed by Aptito.com, Inc. in this matter.

In July 2018, the Company’s counsel Waldman Barnett P.L was disqualified due to a conflict of interest. The company is disputingengaged the Law Offices of Anthony Accetta PA to represent its ongoing interests in this allegation.case.

Gene Zell

In June 2014, we, as plaintiff, commenced an action in the Miami-Dade Circuit Court, Florida against Gene 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 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. 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.

The Company recently filed a motion to enforce the injunction and contempt orders against Zell. The Company intends to protect its rights by ongoing enforcement of the injunction. vigorously pursue this matter.

Other Legal Proceedings

We also 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 12. RELATED PARTY TRANSACTIONS

In 2016, weWe and our subsidiary, TOT Group, Inc., entered into certain term loan notes with MBF.MBF, which were paid off during the three months ended June 30, 2018. MBF is a company owned by William Healy, a former member of our Board of Directors. For additional information about such term loan notes, see “MBF Merchant Capital, LLC” in Note 9. William Healy, a former member of our Board of Directors, is the sole member of MBF.

During the sixthree months ended June 30, 20172018 and 2016,2017, agent commissions resulting from merchant processing of $44,152$18,000 and $0,$14,572, respectively, were paid to Prime Portfolios, LLC, an entity owned by Oleg Firer, our CEO, and Steven Wolberg, our Chief Legal Officer. In addition, key members of management owned companies that received similar commissions amounting to $127,577and $19,870 for the three months ended June 30, 2018 and 2017, respectively.

During the six months ended June 30, 2018 and 2017, agent commissions resulting from merchant processing of $36,000 and $44,152, respectively, were paid to Prime Portfolios, LLC, an entity owned by Oleg Firer, our CEO, and Steven Wolberg, our Chief Legal Officer. In addition, key members of management owned companies that received similar commissions amounting to $234,910 and $52,716 for the six months ended June 30, 2018 and 2017, respectively.

On March 1, 2017, we entered into a promissory note with Star Capital Management,Equities, LLC, an entity which our CEO is the managing member, in the principal amount of $348,083 (the “Note”“Star Equities Note”). Pursuant to theThe Star Equities Note previously advanced funds of $290,954 plus interest accrued through the date of the Note totaled $348,083. The Note providesprovided for 18 monthly interest payments of $3,481 through September 30, 2018 followed by one interest and principleballoon payment on October 1, 2018. The principal balance of the Star Equities Note outstanding bears interest at the rate of 12% per annum. InOn October 20, 2017, the eventCompany entered into an exchange agreement in which the outstanding principal and interest was exchanged into 67,312 restricted shares of any capital raise by us that is notcommon stock of the Company based on the closing bid price on The NASDAQ Stock Market on the date of the exchange agreement.

At December 31, 2017, we had accrued expenses in the ordinary courseamount of business$461,992, which consisted primarily of various travel, professional and that results in funding in excessother expenses paid for by our CEO and charged on his personal credit cards and not yet paid off. During the three months ended June 30, 2018, we reclassified such accrued expenses as related party loans. The amount of $5 million (a “Liquidity Event”), the maturity date will be accelerated to coincide with the closing date of such Liquidity Event. The balance of this loanrelated party liabilities at June 30, 2017 was $348,083 and2018 is included in Due$496,920 of which $478,763 is due to related parties on our condensed consolidated balance sheet.CEO.

NOTE 13. STOCKHOLDERS’ EQUITY

On May 25, 2016 and subsequently again on October 5, 2017, we completed aeffected one-for-ten reverse stock splitsplits of our common stock. Our condensed consolidated financial statements give retrospective effect forand disclosures reflect these changes in capital structure for all periods presented.

On June 12, 2015 and June 13, 2016, our shareholders approved 100,000,000 increases in our authorized common stock to 300,000,000 and 400,000,000, respectively. On October 2, 2017, our shareholders approved a 300,000,000 decrease in our authorized common stock to 100,000,000.

Also see Note 3 regarding the delisting notice from Nasdaq and our appeal.

Equity Incentive Plan Activity

On December 5, 2013, our shareholders approved the Net Element International, Inc. 2013 Equity Incentive Plan (the “2013 Plan”). Awards under the 2013 Plan may be granted in any one or all of the following forms: (i) incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended; (ii) non-qualified stock options (unless otherwise indicated, references to “Options” include both Incentive Stock Options and Non-Qualified Stock Options); (iii) stock appreciation rights, which may be awarded either in tandem with Options or on a stand-alone basis; (iv) shares of common stock that are restricted; (v) units representing shares of common stock; (vi) units that do not represent shares of common stock but which may be paid in the form of common stock; and (vii) shares of common stock that are not subject to any conditions to vesting. The maximum aggregate number of shares of common stock available for award under the 2013 Plan at June 30, 20172018 and December 31, 2016 was 23,4882017 were 235,594 and 128,026,240,996, respectively. The 2013 Plan is administered by the compensation committee.

2013 Equity Incentive Plan - Unrestricted Shares and Stock Options

During the three and six months ended June 30, 2018, we issued common stock pursuant to the 2013 Plan to the members of our Board of Directors and recorded a compensation charge of $22,500 and $45,000, respectively.

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 theour 2013 Plan, as amended:Plan:

The final vesting of the February 28, 2017 grant occurred on February 28, 2018 and we recorded compensation expense, net of forfeitures, of $59,511 for the quarter ended March 31, 2018.

At June 30, 2018, we had 74,004 incentive stock options outstanding with a weighted average exercise price of $15.52 and a weighted average remaining contract term of 8.27 years. At December 31, 2017, we had 74,004 incentive stock options outstanding with a weighted average exercise price of $15.50 and a weighted average remaining contract term of 8.77 years. All of the stock options were anti-dilutive at June 30, 2018 and December 31, 2017.

Crede CG III, Ltd.

On May 2, 2016, we entered into a Master Exchange Agreement with Crede (the “Master Exchange Agreement”), an entity that purchased a portion our previously issued notes held by RBL described above. Pursuit to the Master Exchange Agreement, we have the right to request that Crede exchange up to $3,965,000 of the RBL promissory notes for shares of our common stock. On March 3, 2017, we entered into an Amendment to Master Exchange Agreement with Crede, which extended the expiration date of the Master Exchange Agreement from December 31, 2016 to August 31, 2017.

There were no Crede exchanges for the quarter ended June 30, 2018. For the six monthsquarter ended June 30, 2017, we recorded $581,473the company exchanged $225,000 in RBL term notes for 33,293 shares of common stock at an exchange price of $6.80. The exchanges included a $33,107 non-cash compensation expense for vesting of stock and options for the above mentioned grants.exchange premium.

Other Stock Issuance

We accrued 2,841On February 28, 2017, the Compensation Committee of our board of directors awarded to Oleg Firer, our CEO, 47,139 restricted shares of our common stock as performance bonus subject to our independent directors for payment of services duringshareholder approval. The share award was made outside the second quarter of 2017. These2013 Plan and these shares were issued in August, 2017. October 2017 following shareholder approval. In addition, the Committee approved a $300,000 discretionary cash performance bonus to Oleg Firer which was paid in March 2018.

AgreementAgreements with ESOUSAEsousa Holdings

On July 6, 2016, we entered into a common stock purchase agreement (“Purchase Agreement”), with ESOUSA Holdings, LLC, a New York limited liability company (“ESOUSA”),Esousa, which provides that ESOUSAEsousa is committed to purchase up to an aggregate of $10 million of our shares of common stock over the 30-month term of the Purchase Agreement.

In consideration for entering intoconnection with the Purchase Agreement, we paid shares of our common stock with a value equivalent $200,000 as a commitment fee to ESOUSA and accordingly, on August 31, 2016, we issued 13,117the following shares of our common stock to ESOUSA based onEsousa during the price of $15.25 per share.

We did not issue any shares of our common stock to ESOUSAsix months ended June 30, 2017. There was no activity during the three and six months ended June 30, 2018 and no activity during the three months ended June 30, 2017.

NOTE 14. WARRANTS AND NON-INCENTIVE PLAN OPTIONS

At June 30, 2018 and December 31, 2017, we had fully vested options outstanding to purchase 234,219 shares of common stock at exercise prices ranging from $8.10 to $134.00 per share.

Due to the high level of volatility in the stock price of the Company’s common stock, the Company determined the grant date fair value of the options granted during the six months ended June 30, 2018 and 2017 using the then quoted stock price at the grant date.

Warrants

In 2013, our predecessor entity (then known as Cazador Acquisition Corporation Ltd.) issued warrants to purchase 89,400 shares (reverse split adjusted) of common stock in connection with its private placement and initial public offering. offering (the “Prior Warrants”). These Prior Warrants were “out-of-the-money” and expired on October 1, 2017.

Pursuant to the unit purchase agreement with Esousa, on December 29, 2017 we issued (i) an aggregate of 404,676 five-year warrants to purchase shares of Company common stock at a purchase price of $0.125 per share and exercise price of $11.12 per share; and (ii) an aggregate of 323,907 five-year pre-paid warrants to purchase shares of Company common stock with an exercise price of $0.01 per share.

At June 30, 20172018 and December 31, 2016,2017, we had warrants outstanding to purchase 89,389728,583 shares of common stock. At June 30, 2017,2018, the warrants havehad a weighted average exercise price of $750.00$6.18 per share purchased and a weighted average remaining contractual term of 0.25 years (0.75 years at4.50 years. At December 31, 2016). These warrants are “out-of-the-money” and have no intrinsic value at June 30, 2017, and December 31, 2016. The warrants are exercisable only if a registration statement relating to the common shares issuable upon exercise of the warrants is effectivehad a weighted average exercise price of $6.18 per share purchased and current. These warrants expire on October 1, 2017.a weighted average remaining contractual term of 5.00 years.

Non-Incentive Plan Options

At June 30, 20172018 and December 31, 2016,2017, we had 160,214 non-incentive options outstanding with a weighted averageweighted-average exercise price of $21.80 and$21.84. The non-incentive options have a remaining contract term of 3.42 and 3.922.42 years respectively.at June 30, 2018. These options were out of the money at June 30, 20172018 and December 31, 20162017 and had no intrinsic value.

NOTE 15. INCOME TAXES

OurDeferred income taxes reflect the net deferred tax effects of temporary differences between the carrying amounts of assets primarily are comprisedand liabilities for financial reporting purposes and the amounts of assets and liabilities used for income tax purposes. At June 30, 2018, we had cumulative federal and state net operating loss carryforwardslosses (“NOLs”), carry forwards of approximately $59.2 million. At June 30, 2017, we had cumulative federal and basis difference in goodwill and intangibles. Thesestate NOLs totalcarry forwards of approximately $53.1 million. We also have $14.8 million and $46.9 million for federal, and approximately $13.0 million and $13.2 million forin foreign NOLs as of June 30, 2018 and 2017, andrespectively. The valuation allowance decreased by $6.5 million for the six months ended June 30, 2016, respectively.2018.

The decrease was primarily due to the reduction of the U.S. federal statutory tax rate as a result of the Tax Cuts and Jobs Act (TCJA) from 35% to 21% effective January 1, 2018. The valuation decrease was from the impact of changes in the tax rate on additional operating loss incurred, and difference in tax and book basis of goodwill and other intangible assets. We have considered all the evidence, both positive and negative, that the NOLs and other deferred tax assets may not be realized and have recorded a valuation allowance for $18.2 million. Federal pre-2018 NOLs of $56.2 million will begin to expire December 2025, while federal post-2017 NOLs of $3.0 million will carry-forward indefinitely.

The timing and manner in which we will be able to utilize oursome of its NOLs is limited by Section 382 of the Internal Revenue Code of 1986, as amended (IRC). IRC Section 382 imposes limitations on a corporation’s ability to use its NOLs when it undergoes an “ownership change.” Generally, an ownership change occurs if one or more shareholders, each of whom owns 5% or more in value of a corporation’s stock, increase their percentage ownership, in the aggregate, by more than 50% over the lowest percentage of stock owned by such shareholders at any time during the preceding three-year period. Because on June 10, 2014, we underwent an ownership change as defined by IRC Section 382, the limitation applies to us. The losses generated prior to the ownership change date (pre-change losses) are subject to the Section 382 limitation. The pre-change losses may only become available to be utilized by usthe Company at the rate of $2.4 million per year. Any unused losses can be carried forward, subject to their original carry forwardcarry-forward limitation periods. In the year 2017,2018, approximately $2.4 million in the pre-change losses was released from the Section 382 loss limitation. WeThe Company can still fully utilize the NOLs generated after the change of the ownership, which was approximately $13.3$19.4 million. Thus, we expect the total of approximately $17.4$23.5 million as of June 30, 20172018 is available to offset future taxable income.

In orderThe open United States tax years subject to fully utilizeexamination with respect to the net deferred tax assets, we will need to generate sufficient taxable income in future years to utilize its NOLs prior to their expiration. ASC Topic 740, “Income Taxes”, requires us to analyze all positiveCompany’s operations are 2014, 2015, 2016, and negative evidence to determine if, based on the weight of available evidence, we are more likely than not to realize the benefit of the net deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon our conclusions regarding, among other considerations, estimates of future earnings based on information currently available, current and anticipated customers, contracts and product introductions, as well as historical operating results and certain tax planning strategies.2017.

We have evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets. From our evaluation, we have concluded that based on the weight of available evidence, it is more likely than not that we will not realize any of the benefit of its net deferred tax assets. Accordingly, at June 30, 2017, we maintain a full valuation allowance totaling approximately $24.6 million.

NOTE 16. SEGMENT INFORMATION

OurPrior to the fourth quarter of 2017, we had three reportable segments include:business segments: (i) North American Transaction Solutions, for electronic commerce, (ii) Mobile Solutions (primarily servicing the Russian Federation and CIS) and (iii) Online Solutions. Management determines the reportable segments based on the internal reporting used by our Chief Operating Decision Maker, who is our CEO, to evaluate performance and to assess where to allocate resources. During the three months ended June 30, 2017 and 2016, the principal revenue stream for all segments came from services fees and branded content.

Factors management used to identify the entity’s reportable segments.The increase growth in our North American Transactions Solutions segment and the consolidation of our mobile solutions business with our online solutions business has changed how management evaluates performance and allocates resources. We now have two reportable business segments (i) North American Transaction Solutions and (ii) International Transaction Solutions.

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

North American Transaction Solutions

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

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

MobileInternational Transaction Solutions

Our Russian mobile and online payment processingInternational Transaction Solutions segment consists of Digital Provider,PayOnline and our mobile payments business provided by PayOnline, which operatesoperate primarily in the Russian FederationRussia. PayOnline provides a protected payment processing system to accept bank card payments for goods and CIS.services.

In June 2012, we formed our subsidiary, OOO TOT Money to develop a business in mobile commerce payment processing. TOT Money launched its initial operations in Russia as a payment facilitator using SMS (short message services, which is a text messaging service) and MMS (multimedia message services) for mobile phone subscribers in Russia. During 2015, we changed or business model, rebranded our name to Digital Provider, and began to offer branded content to subscribers. subscribers.During 2017, the Digital Provider operations were consolidated into PayOnline and we continue to seek monetization of our mobile operator contracts through a joint venture or other arrangement.

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

Online Solutions

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

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

Segment Summary Information

The following tables present financial information of the Company’s reportable segments at and for the three and six months ended June 30, 20172018 and 2016.2017. The “Corporate Expenses & Eliminations”“corporate and eliminations” column includes all corporate expenses and intercompany eliminations for consolidated purposes.