Amended Current Report Filing (8-k/a)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported) August 3, 2015

Net Element, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware		001-34887		90-1025599
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

	3363 NE 163rd Street, Suite 705, North Miami Beach, FL	33160
	(Address of Principal Executive Offices)	(Zip Code)

	(305) 507-8808
	(Registrant’s telephone number, including area code)

	Not Applicable
	(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

Net Element, Inc. (the “Company”) is filing this Amendment No. 1 on Form 8-K/A (this “Amendment”) to its Current Report on Form 8-K filed with the Securities and Exchange Commission on May 27, 2015 (the second such report filed on such date reporting under Items 1.01, 3.02, 8.01 and 9.01) (the “Original Filing”) to include (i) the audited financial statements of PayOnline System LLC, Innovative Payment Technologies LLC, Polimore Capital Limited and Brosword Holding Limited (collectively, “PayOnline”) at and for the years ended December 31, 2013 and December 31, 2014, including the report of Daszkal Bolton, LLP, independent certified public accountants (the “Audited Financial Statements”), and (ii) the pro forma financial information referred to in Item 9.01(b) of this Amendment (the “Pro Forma Financial Statements”).

The Company hereby amends Item 9.01 of the Original Filing to include the Audited Financial Statements and the Pro Forma Financial Statements and to provide the consent of Daszkal Bolton, LLP.

Item 9.01

Financial Statements and Exhibits.

(a)

Financial statements of businesses acquired.

The historical unaudited financial statements of PayOnline at and for the three months ended March 31, 2015 are filed as Exhibit 99.1 to this Amendment and are incorporated by reference herein.

The historical audited financial statements of PayOnline at and for the years ended December 31, 2013 and December 31, 2014 are filed as Exhibit 99.2 to this Amendment and are incorporated by reference herein.

(b)

Pro forma financial information.

The following unaudited pro forma condensed consolidated financial information of the Company, giving effect to the acquisition of PayOnline, are filed as Exhibit 99.3 to this Amendment and are incorporated by reference herein:

Unaudited pro forma condensed consolidated balance sheet at March 31, 2015

Unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014

Unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2015

(d)

Exhibits.

Exhibit No.		Description
23.1		Consent of Daszkal Bolton, LLP

99.1		Unaudited financial statements of PayOnline at and for the three months ended March 31, 2015

99.2		Audited financial statements of PayOnline at and for the years ended December 31, 2013 and December 31, 2014

99.3		Unaudited pro forma financial statements of the Company

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: August 3, 2015

	NET ELEMENT, INC.

	By:	/s/ Jonathan New
	Name:	Jonathan New
	Title:	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description
23.1		Consent of Daszkal Bolton, LLP

99.1		Unaudited financial statements of PayOnline at and for the three months ended March 31, 2015

99.2		Audited financial statements of PayOnline at and for the years ended December 31, 2013 and December 31, 2014

99.3		Unaudited pro forma financial statements of the Company

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

PayOnline Group:

We hereby consent to the incorporation by reference in the registration statements on Form S-3 (File Nos. 333-204840, 333-199432 and 333-186621) and Form S-8 (File No. 333-195476) of Net Element, Inc., of our report dated July 29, 2015 with respect to the statements of assets acquired and liabilities assumed by Net Element, Inc., of the PayOnline Group, wholly owned subsidiaries of Social Discovery Ventures, at December 31, 2014 and 2013, and the related statements of revenues and direct expenses for the years ended December 31, 2014 and 2013, which report appears in the Form 8-K/A of Net Element, Inc. dated August 3, 2015.

/s/ Daszkal Bolton LLP

Fort Lauderdale, Florida

August 3, 2015

Exhibit 99.1

PayOnline Group

Abbreviated Statements of Assets Acquired and Liabilities Assumed

March 31, 2015 and December 31, 2014

	March 31, 2015		December 31, 2014

Current assets
Cash and cash equivalents	$	215,602	$	26,762
Short-term deposits in banks		153,940		159,976
Trade receivables		151,476		323,641
Other current assets		36,574		45,918
Total current assets		557,592		556,297
Non-current assets
Intangible assets, net		296,116		235,434
Property, plant and equipment, net		69,100		37,984
Total non-current assets		365,216		273,418
Total assets acquired	$	922,808	$	829,715
Current liabilities
Customer deposits	$	45,878	$	47,224
Loans		89,646		98,718
Other current liabilities		87,794		64,943
Total current liabilities		223,318		210,885
Non-current liabilities
Deferred tax liabilities		58,439		71,189
Total liabilities assumed		281,757		282,074
Net assets acquired	$	641,051	$	547,641

See notes to the abbreviated financial statements.

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PayOnline Group

Abbreviated Statements of Revenues and Direct Expenses

For Three Months Ended March 31, 2015 and March 31, 2014

Statement of Revenues and Direct Expenses	March 31,2015		March 31, 2014

Net Revenues	$	1,202,878	$	1,390,235
Direct expenses:
Cost of revenues		802,092		947,362
Employee salaries and related benefits		139,276		249,875
Technology consulting and maintenance		19,817		22,431
Professional fees and other consulting expenses		42,300		17,171
Marketing expenses		44,048		9,411
Lease expenses		34,019		68,050
Communications		6,191		8,996
Depreciation expenses		3,908		5,416
Amortization expenses		14,729		12,522
Other direct expenses		22,024		58,305
Total direct expenses		1,128,404		1,399,539
Net Revenues less Direct Expenses	$	74,474	($	9,304	)

See notes to the abbreviated financial statements.

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PayOnline Group

Notes to the Abbreviated Financial Statements

Note 1 – Background and Basis of Presentation

PayOnline Group provides card payment processing services to merchants in the Russian Federation, Europe and Asia. PayOnline Group’s proprietary integrated platform of payment processing solutions enables merchants to process, Credit, Debit, Card2Card transfer and Payment Split transactions. PayOnline Group also is a Validated Level 1 PCI Data Security Service Provider. The business of PayOnline Group is comprised of (i) PayOnline System LLC (Russia), (ii) Innovative Payment Technologies LLC (Russia) (“IPT LLC”), (iii) Brosword Holding Limited (Cyprus), and (iv) Polimore Capital Limited (Cyprus) (collectively, “PayOnline,” “PayOnline Group” or “the Company”).

In March 2015, the Board of Directors of Social Discovery Ventures (“SDV”) approved the sale of its PayOnline merchant payment processing portfolio investments to a subsidiary of Net Element, Inc. The proposed transaction was finalized in May 2015.

The PayOnline carve-out financial information presents the historical carve-out financial position and results of operations of PayOnline. The PayOnline financial information has been derived from the accounting records of SDV on a carve-out basis and the results do not necessarily reflect what the results of operations and financial position would have been had PayOnline been operating as a separate entity or its future results in respect of Net Element, Inc. as it will exist upon completion of the transaction.

SDV’s investment in PayOnline, presented as “Net Assets” in the PayOnline carve-out abbreviated financial information, includes the accumulated net earnings and accumulated net distributions to SDV. PayOnline’s results are comprised of the historical operations of the integrated operations of PayOnline, as well as a portion of the market optimization and corporate functions of SDV.

PayOnline historically has been operated as a component within a large compendium of jointly operated and integrated complimentary investments and has utilized the former owner’s centralized corporate/taxation accounting system, as well as its legal services and certain IT related services, costs which were shared among all of the former owner’s jointly operated investments and businesses.

The majority of the assets and liabilities of PayOnline have been identified based on the existing divisional structure. The operating results of PayOnline have been specifically identified based on SDV’s existing divisional organization. However, certain other expenses presented in the Statement of Revenues and Direct Expenses represent allocations and estimates of the cost of corporate and administrative services incurred by SDV.

Salaries and related benefits have been allocated to PayOnline based on management’s best estimate of how services historically were provided by existing employees.

Estimates for administration costs, namely rent, accounting and legal services and IT support, have been allocated based on methodologies that management believes to be reasonable.

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PayOnline Group

Notes to the Abbreviated Financial Statements

Note 1 – Background and Basis of Presentation, continued

Income taxes have been recorded as if PayOnline had been a separate tax paying legal entity, filing separate tax returns in its local jurisdictions. The calculation of income taxes is based on a number of assumptions, allocations and estimates, including those used to prepare the PayOnline Carve-out financial information.

Note 2 – Summary of Significant Accounting Policies

Principles of Presentation

The carve-out financial information includes the combined accounts of PayOnline System LLC, Polimore Capital Limited, Brosword Holding Limited and Innovative Payment Technologies, LLC (collectively, the “Company”), and are presented in accordance with generally accepted accounting principles in the United States. All significant intercompany account balances and transactions have been eliminated in combination.

Foreign Currency

The Russian Ruble (“RUB”) is the functional currency of PayOnline System LLC and IPT LLC. The U.S. dollar is the functional currency of Polimore Capital Ltd and Brosword Holding Ltd. The presentation currency of the Company is U.S. dollars.

All asset and liability amounts of PayOnline System LLC and IPT LLC have been translated into U.S. dollars at end-of-period exchange rates. Income and expenses have been translated at average exchange rates in effect during the years presented. Differences from translation of foreign currency financial statements into presentation currency have been included in Net assets acquired.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three (3) months or less to be cash equivalents.

Accounts Receivable

The Company continually monitors the rate of credit card collections on a merchant by merchant basis. The Company maintains reserves for potential credit losses which, when realized, have been within the range of management's allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on historical credit card collection experience and any specific merchant collection issues that the Company has identified. At March 31, 2015 and at December 31, 2014, the Company determined that no allowance for doubtful accounts was necessary.

Property and Equipment

Property and equipment is primarily comprised of computer equipment, servers and furniture and are stated at cost. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets, generally five (5) years.

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PayOnline Group

Notes to the Abbreviated Financial Statements

Note 2 – Summary of Significant Accounting Policies

Intangible Assets

Intangible assets consist principally of the cost of internally and externally developed payment processing technologies which are amortized using the straight-line method over their respective useful lives, generally five (5) years.

Intangible assets which were sponsored and funded by government grants are presented net of the amount of the corresponding grant. The grant is amortized concurrently over the life of the corresponding intangible asset as a reduction to amortization expense.

Revenue Recognition

Revenue is generated from fees charged to merchants for web-based payment processing services. The Company charges these merchants a percentage rate based upon the merchant's monthly charge volume and risk profile. In addition the Company receives fees for providing administrative support to merchants. Revenue is recognized when the services are rendered.

In accordance with the agreements of the Company and the banks, the Company bears main risks in relation of the full amount of payment, including credit risk for insolvent merchants. Thus the Company’s revenue includes the Company’s commissions and fees received from merchants and banks, and bank commission retained by banks from merchants.

Income Taxes

Income taxes have been calculated in accordance with local legislation of the country where the corresponding company operates. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilized.

The Company accounts for income taxes in accordance with ASC 740, Income Taxes. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. .At March 31, 2015 and at December 31, 2014, the Company has no liabilities for uncertain tax positions. The Company's policy is to recognize interest and penalties related to income tax matters as a component of income tax expense. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, and changes in tax law and new authoritative rulings.

Generally, the Company is not subject to examinations by income tax authorities prior to 2012.

Date of Management’s Review

Management has considered all events that have occurred subsequent to March 31, 2015and through July 29, 2015, the date these abbreviated financial statements were available to be issued.

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PayOnline Group

Notes to the Abbreviated Financial Statements

Note 3 – Intangible Assets

Intangible assets consisted of the following at March 31, 2015 and December 31, 2014:

	March 31, 2015									December 31, 2014
	Cost			Accumulated Amortization			Net			Cost			Accumulated Amortization			Net
Software	$	404,020		$	(102,135	)	$	301,885		$	334,939		$	(88,460	)	$	246,479
Other		27,081			(1,712	)		25,369			25,546			(1,291	)		24,255
Grant		(56,614	)		25,476			(31,138	)		(58,834	)		23,534			(35,300	)
Total	$	374,487		$	(78,371	)	$	296,116		$	301,651		$	(66,217	)	$	235,434

The following table shows future amortization expenses for intangible assets at March 31, 2015:

		9 months 2015				2016				2017				2018				2019 and later
Amortization expense		$	51,004			$	64,225			$	64,156			$	43,851			$	72,880

The Company received four (4) grants from the Russian government. All grants are fixed-priced and aimed at development of software for payments processing. The Company owns all rights for software developed, while under government request may be required to provide a non-exclusive license for use of the software. At March 31, 2015, the Company remains obligated to provide certain reports to the granting agency.

Note 4 – Loans Payable

During 2014, Polimore Capital Limited issued unsecured loans payable to a third party. The loans aggregate to approximately $60,000, and accrue PIK interest at six percent (6.0%) per annum. The amount of interest charged is payable together with the loan at maturity in 2019. The loans include certain restrictive covenants. At March 31, 2015, Polimore was out of compliance, and therefore the loans have been classified within current liabilities.

Other loans at March 31, 2015 and at December 31, 2014, represent unsecured short-term borrowings received from individuals with interest rates of up to six percent (6.0%) per annum.

Note 5 – Commitments and Contingencies

Legal Matters

From time to time, the Company may become party to asserted claims, litigation and/or administrative proceedings arising from its operations in the ordinary course of business. The Company is not a party to any litigation or administrative proceedings that management believes would have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.

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PayOnline Group

Notes to the Abbreviated Financial Statements

Note 5 – Commitments and Contingencies, continued

Tax legislation

Russian tax, currency and customs legislation is subject to varying interpretation, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Company may be challenged by the regional and federal authorities. The tax authorities may be taking a more assertive position in their interpretation of legislation and their assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect to taxes for three calendar years preceding the year of review. Under certain circumstances, reviews may cover longer periods.

PayOnline System LLC uses a simplified tax regime and pays 15% tax from income calculated by cash method according to tax rules instead of ordinary income tax, VAT and some other. PayOnline System LLC will be required to switch to the ordinary tax system from the simplified tax regime after the acquisition because in accordance with the Russian legislation the simplified tax regime is not allowed for entities owned by corporations.

Note 6 – Concentration of Risk

Cash Concentrations

The Company holds cash and places deposits mainly in VTB Bank and SDM bank. At March 31, 2015, cash and cash equivalents in the amount of $186,133 or 86%,and $12,885 or 48% at December 31, 2014, and 100% of deposits, were held in these banks. In December 2014, an “A-“rating was assigned to SDM bank by Fitch rating agency and “Aaa.ru” rating was assigned to VTB Bank by VTB Moody’s rating agency.

Supplier’s Concentrations

During the three months ended March 31, 2014, there was one (1) supplier who provided $138,224 of software development. There was no software development provided from this supplier during the three months ended March 31, 2015.

Third Party Processors

The Company processes $1,084,440 or 90% of its revenues for three months ended March 31, 2015 ($1,308,339 or 94% of its revenues for three months ended March 31, 2014) via VTB bank (formerly TranskreditBank).

Note 7 – Related Party Transactions

Payonline System LLC received two interest-free loans from a related party, which were repaid during 2014.Innovative Payment Technologies LLC received three interest-free loans from a related party in 2014. The aggregate amount payable at March 31, 2015and December 31, 2014 was $27,367 and $37,328, respectively.

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PayOnline Group

Notes to the Abbreviated Financial Statements

Note 7 – Related Party Transactions, continued

The following expenses represent allocations and estimates of the cost of services incurred by SDV. These allocations and estimates were based on methodologies that management believes to be reasonable.

Shared expense ($)	Three months ended March 31, 2015		Three months ended March 31, 2014
Rent Expense	$	33,247	$	68,051
Professional Fees: Accounting Services		4,824		8,586
Professional Fees: Legal		4,824		8,586
Inside Consulting: Technology		4,824		8,586
Total	$	47,719	$	93,809

Note 8 – Cash Flow Information (unaudited)

The following table presents cash flows detailed by major activities:

	Three months ended March 31, 2015			Three months ended March 31, 2014
Cash flows from operating activities	$	241,402		$	301,767
Cash flows from investing activities		(52,274	)		(151,655	)
Cash flows from financing activities		(9,073	)		(52,437	)
Impact of foreign exchange on cash		8,785			9,355
Net change in cash		188,839			107,030
Cash and cash equivalents – beginning of period		26,762			86,549
Cash and cash equivalents – end of period	$	215,602		$	193,579

-8-

Exhibit 99.2

Independent Auditors’ Report

To the Board of Directors
PayOnline Group
Miami, Florida

We have audited the accompanying statements of and assets acquired and liabilities assumed by Net Element, Inc., pursuant to an Acquisition Agreement dated May 20, 2015, of the PayOnline Group, wholly owned subsidiaries of Social Discovery Ventures, at December 31, 2014 and 2013, and the related statements of revenues and direct expenses for the years ended December 31, 2014 and 2013, and the related notes (collectively, the Abbreviated Financial Information).

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the Abbreviated Financial Information in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Abbreviated Financial information that is free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Abbreviated Financial Information based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the Abbreviated Financial Information referred to above present fairly, in all material respects, the statements of assets acquired and liabilities assumed of the PayOnline Group at December 31, 2014 and 2013, and the statements of revenues and direct expenses for the years then ended, in conformity with U.S. generally accepted accounting principles.

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Continued for previous page

Emphasis of Matter

The accompanying Abbreviated Financial Information was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 8-K as described in Note 1, and are not intended to be a complete presentation of the financial position or the results of operations of the PayOnline Group.

/s/ Daszkal Bolton, LLP

Fort Lauderdale, Florida
July 29, 2015

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PayOnline Group

Abbreviated Statements of Assets Acquired and Liabilities Assumed

December 31, 2014 and 2013

	2014		2013

Current assets:
Cash and cash equivalents	$	26,762	$	86,549
Short-term deposits in banks		159,976		155,824
Trade receivables		323,641		236,852
Other current assets		45,918		94,261
Total current assets		556,297		573,486
Non-current assets:
Intangible assets, net		235,434		193,221
Property, plant and equipment, net		37,984		83,767
Total non-current assets		273,418		276,988
Total assets acquired	$	829,715	$	850,474
Current liabilities:
Customer deposits	$	47,224	$	378,122
Loans		98,718		51,025
Other current liabilities		64,943		69,928
Total current liabilities		210,885		499,075
Non-current liabilities:
Deferred tax liabilities		71,189		10,954
Total liabilities assumed		282,074		510,029
Net assets acquired	$	547,641	$	340,445

See notes to the abbreviated financial statements.

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PayOnline Group

Abbreviated Statements of Revenues and Direct Expenses

For the Years Ended December 31, 2014 and 2013

	2014		2013

Net Revenues	$	6,729,228	$	5,997,495
Direct expenses:
Bank commissions		4,595,623		4,047,877
Employee salaries and related benefits		814,121		966,162
Technology consulting and maintenance		86,475		46,586
Professional fees and other consulting expenses		225,598		96,101
Marketing expenses		201,176		306,613
Lease expenses		216,876		298,651
Communications		38,938		49,165
Depreciation expenses		20,112		16,528
Amortization expenses		65,714		37,506
Other direct expenses		36,075		54,151
Total direct expenses		6,300,709		5,919,340
Net Revenues less Direct Expenses	$	428,520	$	58,155

See notes to the abbreviated financial statements.

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PayOnline Group

Notes to Abbreviated Financial Statements

Note 1 – Background and Basis of Presentation

Salaries and related benefits have been allocated to PayOnline based on management’s best estimate of how services historically were provided by existing employees.

Estimates for administration costs, namely rent, accounting and legal services and IT support, have been allocated based on methodologies that management believes to be reasonable.

-5-

PayOnline Group

Notes to Abbreviated Financial Statements

Note 1 – Background and Basis of Presentation, continued

Note 2 – Summary of Significant Accounting Policies

Principles of Presentation

Foreign Currency

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three (3) months or less to be cash equivalents.

Accounts Receivable

The Company continually monitors the rate of credit card collections on a merchant by merchant basis. The Company maintains reserves for potential credit losses which, when realized, have been within the range of management's allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on historical credit card collection experience and any specific merchant collection issues that the Company has identified. At December 31, 2014 and 2013, the Company determined that no allowance for doubtful accounts was necessary.

Property and Equipment

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PayOnline Group

Notes to Abbreviated Financial Statements

Note 2 – Summary of Significant Accounting Policies

Intangible Assets

Revenue Recognition

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At December 31, 2014 and 2013, the Company has no liabilities for uncertain tax positions. The Company's policy is to recognize interest and penalties related to income tax matters as a component of income tax expense. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, and changes in tax law and new authoritative rulings.

Generally, the Company is not subject to examinations by income tax authorities prior to 2011.

Date of Management’s Review

Management has considered all events that have occurred subsequent to December 31, 2014 and through July 29, 2015, the date these abbreviated financial statements were available to be issued.

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PayOnline Group

Notes to Abbreviated Financial Statements

Note 3 – Intangible Assets

Intangible assets consisted of the following at December 31, 2014 and 2013:

				2014									2013
	Cost			Accumulated Amortization			Net			Cost			Accumulated Amortization			Net
Software	$	334,939		$	(88,460	)	$	246,479		$	330,415		$	(56,494	)	$	273,921
Other		25,546			(1,291	)		24,255			465			(261	)		204
Grant		(58,834	)		23,534			(35,300	)		(101,130	)		20,226			(80,904	)
Total	$	301,651		$	(66,217	)	$	235,434		$	229,750		$	(36,529	)	$	193,221

The following table shows future amortization expenses for intangible assets at December 31, 2014:

		2015				2016				2017				2018				2019
Amortization expense		$	59,113			$	55,238			$	55,230			$	34,129			$	31,724

The Company received four (4) grants from the Russian government. All grants are fixed-priced and aimed at development of software for payments processing. The Company owns all rights for software developed, while under government request may be required to provide a non-exclusive license for use of the software. At December 31, 2014 the Company remains obligated to provide certain reports to the granting agency.

Note 4 – Loans Payable

During 2014, Polimore Capital Limited issued unsecured loans payable to a third party. The loans aggregate to approximately $60,000, and accrue PIK interest at six percent (6.0%) per annum. The amount of interest charged is payable together with the loan at maturity in 2019. The loans include certain restrictive covenants. At December 31, 2014, Polimore was out of compliance, and therefore the loans have been classified within current liabilities.

Other loans at December 31, 2014, and all loans at December 31, 2013, represent unsecured short-term borrowings received from individuals with interest rates of up to six percent (6.0%) per annum.

Note 5 – Commitments and Contingencies

Legal Matters

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PayOnline Group

Notes to Abbreviated Financial Statements

Note 5 – Commitments and Contingencies, continued

Tax legislation

Note 6 – Concentration of Risk

Cash Concentrations

The Company holds cash and places deposits mainly at VTB Bank and SDM bank. At December 31, 2014, cash and cash equivalents in the amount of $12,885 or 48%, and $76 998 or 89% at December 31, 2013, and 100% of deposits, were held in these banks. In December 2014, an “A-“ rating was assigned to SDM bank by Fitch rating agency and “Aaa.ru” rating was assigned to VTB Bank by VTB Moody’s rating agency.

Supplier’s Concentrations

During 2014, there was one (1) supplier who provided $249,811 of software development. There was no software development provided from this supplier in 2013.

Third Party Processors

The Company processes $6,258,927 or 93% of its revenues in 2014 ($5,643,200 or 94% of its revenues in 2013) through arrangements with VTB bank (formerly TranskreditBank).

Note 7 – Related Party Transactions

Payonline System LLC received two interest-free loans from a related party. The aggregate amount payable at December 31, 2013 was $52,437, and was repaid during 2014. Innovative Payment Technologies LLC received three interest-free loans from a related party in 2014. The aggregate amount payable at December 31, 2014 was $37,328.

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PayOnline Group

Notes to Abbreviated Financial Statements

Note 7 – Related Party Transactions, continued

Shared expense ($)	2014		2013
Rent Expense	$	215,265	$	298,651
Professional Fees: Accounting Services		31,232		37,679
Professional Fees: Legal		31,232		37,679
Inside Consulting: Technology		31,232		37,679
Total	$	308,961	$	411,688

Note 8 – Cash Flow Information (unaudited)

The following table presents cash flows detailed by major activities:

	2014			2013
Cash flows from operating activities	$	276,413		$	500,496
Cash flows from investing activities		(340,262	)		(249,680	)
Cash flows from financing activities		17,926			(180,545	)
Impact of foreign exchange on cash		(13,864	)		(2,538	)
Net change in cash		(59,787	)		67,734
Cash and cash equivalents – beginning of the year		86,549			18,816
Cash and cash equivalents – end of the year	$	26,762		$	86,549

-10-

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On May 20, 2015, TOT Group Europe, Ltd. and TOT Group Russia LLC (collectively, the “Purchasers”), each a subsidiary of Net Element, Inc. (the “Company”), entered into an Acquisition Agreement (the "Agreement") with Maglenta Enterprises Inc. and Champfremont Holding Ltd. (collectively, the “Sellers”) to acquire all of the issued and outstanding equity interests of PayOnline System LLC, Innovative Payment Technologies LLC, Polimore Capital Limited and Brosword Holding Limited (collectively, “PayOnline”). PayOnline’s business includes the operation of a protected payment processing system to accept bank card payments for goods and services. The Purchasers are entitled to the full economic benefit from the acquisition of PayOnline from the effective date of the Agreement.

Purchase consideration is 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, the extra earn out payments based on a multiple of EBITDA. The Agreement sets forth the determination of the value of such shares based on the closing sales price on the date before each applicable payment date.

The Purchasers have provided the Sellers with guarantee that the value of the stock held at the end of the 12-month period following the issuance of restricted Common shares (“Guarantee Period”) will not be less than the value at the date of issuance of such stock. Subject to certain conditions, if at the end of the Guarantee Period the value of any such remaining stock is less than the value of such stock at the date of the issuance of such stock, the Purchasers will pay a cash amount equaling the difference between such values.

The following unaudited pro forma condensed consolidated financial information is based on this historical consolidated financial information of the Company and PayOnline and has been prepared to reflect the proposed Acquisition and related financing transactions. The Company financed the cash component of the Acquisition, including the payment of related fees and expenses, with proceeds from the issuance of $5.5 million of Series A, 9% Convertible Preferred Stock.

The unaudited pro forma condensed consolidated financial information is provided for informational purposes only. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of operating results that would have been achieved had the Acquisition been completed at January 1, 2014 and does not intend to project the future financial results of the Company after the Acquisition. The unaudited pro forma condensed consolidated balance sheet does not purport to reflect what the Company’s financial condition would have been had the transaction closed on March 31, 2015 or for any future or historical period. The unaudited pro forma condensed consolidated statements of operations and balance sheet do not reflect the transaction costs of the Acquisition, the costs of any integration activities or benefits from the Acquisition and synergies that may be derived.

The unaudited pro forma condensed consolidated balance sheet combines the consolidated balance sheet of the Company and PayOnline at March 31, 2015, as if the Acquisition occurred at that date. The interim unaudited pro forma condensed consolidated statement of operations combines the unaudited statement of operations for the Company and PayOnline for the three months ended March 31, 2015. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014 combines the audited statements of operations of the Company PayOnline for the year ended December 31, 2014. The unaudited pro forma condensed consolidated statements of operations are prepared as if the Acquisition occurred on January 1, 2014.

The unaudited pro forma condensed consolidated financial information should be read in conjunction with the following information:

•

Notes to the unaudited pro forma condensed consolidated financial information.

•

Net Element, Inc.’s Current Report on Form 8-K filed May 27, 2015, including the exhibits thereto.

•

Unaudited interim financial statements of the Company at and for the three months ended March 31, 2015, which are included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015.

•

Audited financial statements of the Company at and for the year ended December 31, 2014, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

•

Unaudited interim financial information of PayOnline at and for the three months ended March 31, 2015 which are included in Exhibit 99.1 of this Current Report on Form 8-K/A.

•

Audited financial information of PayOnline at December 31, 2014 and for the years ended December 31, 2014 and 2013 which are included in Exhibit 99.2 of this Current Report on Form 8-K/A.

NET ELEMENT, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2015

	Net Element, Inc.			PayOnline		Pro Forma Adj			Pro Forma Consolidated
ASSETS
Current assets:
Cash	$	766,279		$	369,542	$	1,540,520	(a)(b)	$	2,676,341
Accounts receivable, net		3,275,720			151,476					3,427,196
Prepaid expenses and other assets		755,674			36,574					792,248
Total current assets, net		4,797,673			557,592		1,540,520			6,895,785
Fixed assets, net		60,850			69,100		-			129,950
Intangible assets, net		2,273,695			296,116		6,260,310	(a)		8,830,121
Goodwill		6,671,750			-					6,671,750
Other long term assets		225,189			-		-			225,189
Total assets	$	14,029,157		$	922,808	$	7,800,830		$	22,752,795

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	3,398,814		$	-	$	-		$	3,398,814
Deferred revenue		437,625			-		-			437,625
Accrued expenses		2,372,425			192,111		-			2,564,536
Notes payable (current portion)		318,405			89,646		-			408,051
Due to related parties		125,000			-		-			125,000
Total current liabilities		6,652,269			281,757		-			6,934,026
Note payable (non-current portion)		3,646,595			-		-			3,646,595
Total liabilities		10,298,864			281,757		-			10,580,621

STOCKHOLDERS' EQUITY
Preferred stock ($1,000 par value)		-			-		5,500,000	(b)		5,500,000
Common stock ($.0001 par value, 200,000,000 shares authorized)		4,618			-		477	(a)		5,095
Paid in capital		137,290,970			-		3,599,523	(a)		140,890,493
Stock subscription receivable		(1,111,130	)		-		-			(1,111,130	)
Accumulated other comprehensive loss		(1,359,628	)		-		-			(1,359,628	)
Accumulated deficit		(131,355,552	)		-		(658,119	)(a)(b)		(132,013,671	)
Net assets of PayOnline		-			641,051		(641,051	)(a)		-
Noncontrolling interest		261,015			-		-			261,015
Total stockholders' equity		3,730,293			641,051		7,800,830			12,172,174
Total liabilities and stockholders' equity	$	14,029,157		$	922,808	$	7,800,830		$	22,752,795

See accompanying notes to Unaudited Pro Forma Consolidated Condensed Financial Statements

NET ELEMENT, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2014

	Net Element, Inc.			PayOnline		Pro Forma Adj				Pro Forma Consolidated

Net revenues	$	21,194,461		$	6,729,228	$	-			$	27,923,689

Costs and expenses:
Cost of revenues		15,883,681			4,595,623		-				20,479,304
General and administrative (includes $4,267,334 of share based compensation for the twelve months ended December 31, 2014)		11,353,244			1,619,259		359,480		(e)		13,331,983
Recovery of provision for loan losses		(1,153,147	)		-		-				(1,153,147	)
Depreciation and amortization		2,358,136			85,826		1,977,325		(g)		4,421,287
Total costs and operating expenses		28,441,914			6,300,708		2,336,805				37,079,427
Income (Loss) from operations		(7,247,453	)		428,520		(2,336,805	)			(9,155,738	)
Interest expense, net		(3,705,694	)		-		-				(3,705,694	)
Gain on change in fair value and settlement of beneficial conversion derivative		5,569,158			-		478,261		(d)		6,047,419
Loss on debt extinguishment		(6,184,219	)		-		-				(6,184,219	)
Gain on debt restructure		1,596,000			-		-				1,596,000
Loss from asset disposal		(87,151	)		-		-				(87,151	)
Other expense		(155,407	)		-		-				(155,407	)
Income (Loss) from continuing operations before income taxes		(10,214,766	)		428,520		(1,858,544	)			(11,644,790	)
Income taxes		-			-		-				-
Income (Loss) from continuing operations		(10,214,766	)		428,520		(1,858,544	)			(11,644,790	)
Net loss attributable to the noncontrolling interest		29,250			-		-				29,250
Net income (loss) from continuing operations attributable to Net Element, Inc.		(10,185,516	)		428,520		(1,858,544	)			(11,615,540	)
Dividends for the benefit of preferred stockholders		-			-		(1,548,068	)	(c)		(1,548,068	)
Foreign currency translation		(1,080,911	)		-		-				(1,080,911	)
Comprehensive Income (loss)	$	(11,266,427	)	$	428,520	$	(3,406,612	)		$	(14,244,519	)

Loss per share - basic and diluted	$	(0.27	)							$	(0.29	)

Weighted average number of common shares outstanding - basic and diluted		37,255,052					2,503,781		(f) (h)		39,758,833

See accompanying notes to Unaudited Pro Forma Consolidated Condensed Financial Statements

NET ELEMENT, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2015

	Net Element, Inc.			PayOnline		Pro Forma Adj			Pro Forma Consolidated

Net revenues	$	5,540,207		$	1,202,878	$	-		$	6,743,085

Costs and operating expenses:
Cost of revenues		4,614,072			802,092		-			5,416,164
General and administrative (includes $601,371 and $52,050 of share based compensation for the three months ended March 31, 2015 and 2014 respectively)		2,637,469			307,675		-			2,945,144
Provision for bad debts		9,331			-		-			9,331
Depreciation and amortization		438,769			18,637		494,331	(j)		951,737
Total costs and operating expenses		7,699,641			1,128,404		494,331			9,322,376
Income (loss) from operations		(2,159,434	)		74,474		(494,331	)		(2,579,291	)
Interest expense, net		(117,594	)		-		-			(117,594	)
Other income (expense)		29,073			-		-			29,073
Net income (loss) before income taxes		(2,247,955	)		74,474		(494,331	)		(2,667,812	)
Income taxes		-			-		-			-
Net income (loss)		(2,247,955	)		74,474		(494,331	)		(2,667,812	)
Net loss attributable to the noncontrolling interest		8,747			-		-			8,747
Net income (loss) attributable to Net Element, Inc. shareholders		(2,239,208	)		74,474		(494,331	)		(2,659,065	)
Foreign currency translation		(108,167	)				-			(108,167	)
Comprehensive income (loss)	$	(2,347,375	)	$	74,474	$	(494,331	)	$	(2,767,232	)

Loss per share - basic and diluted	$	(0.05	)						$	(0.05	)

Weighted average number of common shares outstanding - basic and diluted		46,057,972					7,974,441	(i)(k)		54,032,413

See accompanying notes to Unaudited Pro Forma Consolidated Condensed Financial Statements

Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

1. Basis of Presentation

The unaudited pro forma condensed combined consolidated financial information presented here is based on the historical consolidated financial information of Net Element, Inc. (the “Company”) and PayOnline System LLC, Innovative Payment Technologies LLC, Polimore Capital Limited and Brosword Holding Limited (collectively, “PayOnline”). The unaudited pro forma condensed statements of operations for the three months ended March 31, 2015 and the year ended December 31, 2014 assume the Company’s acquisition of PayOnline (the “Acquisition”) had been completed at January 1, 2014. The unaudited pro forma condensed consolidated balance sheet at March 31, 2015 assumes the Acquisition and related financings were completed on that date.

Pro forma adjustments reflected in the unaudited pro forma condensed consolidated balance sheet are based on items that are directly attributable to the proposed Acquisition and related financings and that are factually supportable. Pro forma adjustments reflected in the unaudited pro forma condensed consolidated statements of operations are based on items directly attributable to the proposed Acquisition and related financings and are factually supportable and expected to have a continuing impact on the Company.

At this time, the Company has not completed detailed valuation analyses to determine the fair values of PayOnline’s assets and liabilities. Accordingly, the unaudited pro forma condensed consolidated financial information includes a preliminary allocation of the purchase price based on assumptions and estimates that, while considered reasonable under the circumstances, are subject to changes, which may be material.

2. Transaction Summary

The estimated purchase consideration and preliminary estimate of related excess purchase consideration over book value of net assets acquired are as follows:

Cash paid for PayOnline Business	$	3,600,000

Stock paid for PayOnline Business *		3,600,000

Total	$	7,200,000

* At the end of the 12-month period (“Guarantee Period”) following the issuance of restricted shares of the Company's common stock to Maglenta Enterprises Inc. and Champfremont Holding Ltd. (collectively, the “Sellers”), TOT Group Europe, Ltd. and TOT Group Russia LLC (collectively, the “Purchasers”) will guaranty that the value of such stock then not sold by the Sellers will not be less than the value of such at the date of the issuance of such stock. Subject to certain conditions, if at the end of the Guarantee Period the value of the any such remaining stock is less than the value of such stock at the date of the issuance of such stock, the Purchasers will pay a cash amount equaling the difference between such values.

Preliminary Purchase Price Allocation:

	Fair Value Estimate

Gateway and Platform Software	$	3,000,000
Merchant and Consumer Customers		1,866,258
Contract with SD Ventures		1,000,000
PCI Level 1 Compliant		500,000
Domain Names		312,220
Cash		512,736
Accounts Receivable		254,587
Fixed Assets (net)		98,230
Other Assets		32,532
Total Assets	$	7,576,563

Accounts Payable and Accrued Expenses	$	125,615
Other Current Liabilities		54,457
Related Party Payable		95,917
Other Liabilities		100,574
Total Liabilities		376,563
Net Assets	$	7,200,000

The Company has not recognized the deferred tax impact of the purchase accounting adjustments, pending final determination of fair values.

The pro forma presentation does not reflect any voluntary conversion of preferred stock.

For purposes of preparing this unaudited pro forma condensed consolidated financial information, the Company has assumed that funding for the cash component of the Acquisition comes from the issuance of the Company’s Series A Convertible Preferred Stock, $1,000 par value (the “Preferred Stock”).

3. Pro Forma Adjustments

The unaudited pro forma condensed consolidated balance sheet includes adjustments made to historical financial information that were calculated assuming the Acquisition had been completed at March 31, 2015. The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. The adjustments reflect management’s preliminary estimates of the purchase price allocation, which may change upon finalization of appraisals and other valuation studies that are in process.

The unaudited pro forma condensed consolidated statements of operations and comprehensive income (loss) include adjustments made to historical financial information that were calculated assuming the Acquisition had been completed at January 1, 2014. The unaudited pro forma condensed consolidated financial information does not include the impact of potential cost savings or other operating efficiencies that could result from the Acquisition.

The following items resulted in adjustments reflected in the unaudited pro forma condensed consolidated financial information.

Pro Forma Balance Sheet Adjustments

Purchase accounting to record the purchase of PayOnline consisted of estimating fair value of PayOnline’s net assets acquired. The following assets were adjusted to their estimated fair value:

Preliminary Purchase Price Allocation:

	Fair Value Estimate		Book Value		Adjustment
Gateway and Platform Software	$	3,000,000	$	405,948	$	2,594,052
Merchant and Consumer Customers		1,866,258		-		1,866,258
Contract with SD Ventures		1,000,000		-		1,000,000
PCI Level 1 Compliant		500,000		-		500,000
Domain Names		312,220		12,220		300,000
					$	6,260,310

Net Element has issued 5,500 shares of Preferred Stock to fund a portion of the Acquisition. Dividends can be paid in cash or shares of the Company’s common Stock. The calculation of pro forma dividend expense for the periods presented was calculated using 92% of the Volume Weighted Average Price (VWAP) at the end of each month the preferred shares are estimated to be outstanding. In addition, related stock issuance costs of $359,480 were deducted from retained earnings for underwriting and associated fees.

Pro Forma Income Statement Adjustments for the Twelve Months Ended December 31, 2014

The dividend for Preferred Stock issued to fund the cash portion of PayOnline purchase price was calculated using the Volume Weighted Average Price (VWAP) at the end of each month the preferred shares were assumed outstanding plus amortization of the beneficial conversion feature discount.

VWAP Date	VWAP		92% of VWAP		# Shares to Dividend		Market Price		Dividend Expense
6/30/2014		1.8316		1.6851		53,410	$	1.91	$	102,013
5/30/2014		2.1963		2.0206		89,083	$	2.15	$	191,528
4/30/2014		2.2878		2.1048		85,520	$	2.23	$	190,709
3/31/2014		3.4226		3.1488		57,165	$	3.47	$	198,362
2/28/2014		3.7762		3.4741		51,812	$	3.68	$	190,668
1/31/2014		4.5397		4.1765		43,098	$	4.56	$	196,527
						Dividend expense			$	1,069,807
						Beneficial Conversion Feature			$	478,261
						Total Dividend Expense			$	1,548,068

Represents change in fair value of beneficial conversion derivative.

Related stock issuance costs of $359,480 were recorded for underwriting and other fees associated with the sale of preferred stock to fund a portion of the PayOnline acquisition. A corresponding reduction to cash was recorded for pro forma purposes.

Pro forma consideration consisted of 791,209 shares of the Company’s common stock issued with a total fair value $3.6 million.

Represents amortization of capitalized intangible assets over their estimated economic useful lives as follows

	Fair Value Estimate		Amort Life		Mo. Amort		Amort 2014
Gateway and Platform Software	$	3,000,000		36	$	83,333	$	1,000,000
Merchant and Consumer Customers		1,866,258		60		31,104		373,252
Contract with SD Ventures		1,000,000		36		27,778		333,333
PCI Level 1 Compliant		500,000		36		13,889		166,667
Domain Names		312,220		36		8,673		104,073
							$	1,977,325

To reflect the conversion of Preferred Stock issued to common shares during the first six months of 2014. The Preferred Stock self-liquidates in six monthly payments pursuant to the terms of the preferred stock agreement. The pro forma number of shares issued at conversion plus the number of shares issued as dividends were calculated as follows.

VWAP Date	VWAP		92% of VWAP		# Shares to Dividend		Weighted Avg Div Shares	PS Liq Calc - Convert to C/S Using Hist VWAP		Weighted Avg ("WA") Shares Issued
6/30/2014		1.8316		1.6851		53,410	26,705		296,723		148,362
5/30/2014		2.1963		2.0206		89,083	51,965		494,903		288,694
4/30/2014		2.2878		2.1048		85,520	57,013		475,110		316,740
3/31/2014		3.4226		3.1488		57,165	42,874		317,582		238,187
2/28/2014		3.7762		3.4741		51,812	43,177		287,844		239,870
1/31/2014		4.5397		4.1765		43,098	39,507		239,434		219,481
							WA Conversion Shares				1,451,333
							WA Dividend Shares				261,240
							Total Shares Pd for P/S				1,712,572

The number of shares of the Company’s common stock to be issued upon conversion of Preferred Stock is affected by the VWAP of the Company’s common stock. The VWAP has gone down significantly during 2015 and the number of shares actually issued were materially greater than the pro forma presentation above.

Pro Forma Income Statement Adjustments for the Three Months Ended March 31, 2015

Pro forma consideration consisted of 791,209 shares of the Company’s common stock issued with a total fair value $3.6 million.

Represents amortization of capitalized intangible assets over their estimated economic useful lives as follows:

	Fair Value Estimate		Amort Life		Mo. Amort		Amort 1Q15
Gateway and Platform Software	$	3,000,000		36	$	83,333	$	250,000
Merchant and Consumer Customers		1,866,258		60		31,104		93,313
Contract with SD Ventures		1,000,000		36		27,778		83,333
PCI Level 1 Compliant		500,000		36		13,889		41,667
Domain Names		312,220		36		8,673		26,018
							$	494,331

Represents the 2014 conversion of Preferred Stock shares to common stock shares. Preferred Stock shares were sold to fund a portion of the PayOnline purchase price.

The fair value estimate for identifiable intangible assets is preliminary and is determined based on the assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold or are intended to be used in a manner other than their best use. For purposes of the accompanying unaudited pro forma condensed combined financial information, it is assumed that all assets will be used in a manner that represents their highest and best use. The final fair value determination for identified intangibles may differ from this preliminary determination.

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