Net Element Inc. (NETE) SeeThruEquity Report

© 2011-2017 SeeThruEquity, LLC. Important disclosures appear at the back of this report. 1 | P a g e Update (November 21, 2017) Net Element, Inc. (Nasdaq CM: NETE, Target Price: $10.30) Net Element, Inc. (Nasdaq CM: NETE, “Net Element”) is a global financial technology and value-added solutions company that supports payment technology solutions, online payments and value-added transactional services in emerging countries and in the United States. The company’s headquarters is located in Miami Beach, Florida. Investment Highlights On November 14, 2017, Net Element reported 3Q17 results, with highlights as follows: Ø 3Q17 revenues grew by 6.4% YoY to reach $14.9mn, versus $14.0mn in the year-ago period. Revenue for the first nine months of 2017 were $44.6mn, versus $39.0mn in the comparable year-ago period. Ø NETE benefitted from a 17.3% annual increase in its North American Transaction Solutions segment, which was attributed an increase in merchants and higher uptake of value-added services. Ø Net loss to common shareholders in 3Q17 was ($1.7mn), with a loss per share of ($0.90), versus a loss of ($3.5mn), or ($2.47) per share in 3Q16. NA Transaction revenues rise by 17.3% YoY NETE’s revenues grew by 6.4% in 3Q17 to reach $14.9mn, as strong North American Transaction Solutions were offset by a decline in mobile solutions. NETE ‘s NA Transactions segment grew revenues by 17.3% YOY to $13.1mn. This is a segment that now comprises 88.1% of total revenues. NA Transactions includes Unified Payments, a provider of comprehensive turnkey, payment processing solutions, as well as Aptito, a cloud based Software-as- a-Service (“SaaS”) restaurant management solution. NETE made several enhancements to its service offerings in the NA Transaction Solutions segment during the quarter. These included the launch of web-based, integrated same-day ACH payment processing, as well as the launch of a payment acceptance module for popular mobile instant messaging platforms, including Facebook Messenger. NETE also launched what may have the potential to become a popular new feature for its merchant customers in the new “Zero Fee” program. Zero Fee is a new program that lets merchants pass along credit card processing fees directly to its customers. NETE maintains Nasdaq CM listing status NETE disclosed in its 10-Q that it was able to meet continued listing requirements for the Nasdaq CM ahead of the October 20, 2017 deadline for reaching compliance. The company completed a 1:10 reverse share split on October 5, 2017, and the was able to raise $1.1mn after the end of the quarter in order to meet the $2.5mn shareholders’ equity requirement. Funds were raised as part of the company’s previously announced $10mn stock purchase agreement with Cobblestone Capital. . New target of $10.30 for NETE Our price target for NETE moves to $10.30 following the reverse split and recent results. The target suggests a fair valuation of 0.5x EV / Revenue on 2017E revenues of $63.3mn. We continue to see NETE as an intriguing high risk / high reward growth company in the financial technology space. Equity | Financial Tech / Mobile Payments Stock Details (11/19/17) Nasdaq CM: NETE Sector / Industry Financial Tech / Mobile Payments Price target $10.30 Recent share price $4.13 Shares o/s (mn) 2.5 Market cap (in $mn) 10.1 52-week high/low 15.40 / 2.60 Source: Thomson Reuters, SeeThruEquity Research Key Financial ($mn, unless specified) FY15A FY16A FY17E Revenues 40.2 54.2 63.3 EBITDA (7.2) (8.7) (4.9) Operating Inc. (Loss) (10.5) (8.8) (7.4) Net Income (13.3) (13.5) (8.7) EPS ($) (23.22) (10.33) (4.30) Source: SeeThruEquity Research Key Ratios FY15A FY16A FY17E Operating Margin (%) (26.1) (16.3) (11.7) EBITDA margin (%) (18.0) (16.0) (7.7) Net margin (%) (32.9) (24.8) (13.8) P/Revenue (x) 0.3 0.2 0.2 EV/EBITDA (x) NM NM NM EV/Revenue (x) 0.4 0.3 0.3 Source: SeeThruEquity Research Share Performance, LTM Source: Thomson Reuters 0.00 2.50 5.00 7.50 10.00 12.50 15.00 Nov-16 Feb-17 May-17 Aug-17 Nov-17

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