CAZADOR ACQUISITION (NASDAQ:CAZA)

Item 1.01 Entry into a Material Definitive Agreement.

On July 21, 2016, Net Element, Inc., a Delaware corporation (the “Company”), entered into a binding letter of intent (the “LOI”) with Paystar, Inc., a Delaware corporation, and Nexcharge, Inc., a Nevada corporation (collectively, the “Partner”). Pursuant to this LOI, the parties agreed to negotiate a definitive agreement to enter into a joint venture (the “Transaction”). It is contemplated that the joint venture entity (“Newco”) will be a newly-formed entity and will have two classes of stock: voting Class A stock that will have all the usual rights, votes and obligations associated therewith, and non-voting Class B stock that will be reserved for executives and employees of Newco. It is contemplated that the Partner or its current owners will collectively own 49% of Newco’s voting Class A stock, and the Company will own 51% of Newco’s voting Class A stock. The LOI contemplates that the Partner will contribute all of its assets to this joint venture free and clear of any liens or encumbrances as consideration for such 49% of Newco’s voting Class A stock, and the Company will contribute to Newco up to $3,390,000 (whether in cash, cash equivalents or otherwise, in a manner and time as described in the LOI attached as Exhibit 10.1 to this Current Report on Form 8-K) as consideration for such 51% of Newco’s voting Class A stock. The LOI further contemplates that the Company will have an exclusive option to purchase such 49% of Newco’s voting Class A stock, exercisable during twelve (12) months from the closing of the Transaction, at a purchase price to be agreed to by the parties at fair market value as when such option is considered. It is contemplated that, after the closing of the transaction, the executive management of Newco will be eligible for equity compensation through the Company’s 2013 Equity Incentive Plan, as amended. During the first year of operations of Newco, the parties will determine if it is in their interests to convert their respective stock in Newco to shares of the Company, in which case the parties agreed to work in good faith to seek the necessary approvals from the Company. The parties agreed that, in the event of the closing of the Transaction, the owners of the Partner will pay 50% and the Company will pay 50% of the broker’s fee up to $170,000, with the Company’s option in its sole discretion to pay its share of the broker fee in the shares of Company common stock.

The consummation of the Transaction is subject to, among other things, (i) the completion of due diligence of the Partner and its business satisfactory to the Company in its sole discretion, (ii) approval of the Transaction by the Company’s board of directors and (iii) the execution of definitive legal documents acceptable to the parties.

The foregoing is a summary description of certain terms of the LOI and, by its nature, is incomplete. Copy of the LOI is filed herewith as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference. All readers are encouraged to read the entire text of the LOI.

Item 1.01 Entry into a Material Definitive Agreement.

On July 6, 2016, Net Element, Inc., a Delaware corporation (the “Company”), entered into a common stock purchase agreement (the “Purchase Agreement”) with ESOUSA HOLDINGS, LLC, a New York limited liability company (“ESOUSA”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, ESOUSA is committed to purchase up to an aggregate of $10 million of shares of the Company’s common stock over the 30-month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement, the Company also entered into a registration rights agreement with ESOUSA (the “Registration Rights Agreement”), in which the Company agreed to file one or more registration statements, as permissible and necessary to register under the Securities Act of 1933, as amended (the “Securities Act”), registering the sale of the shares of the Company’s common stock that will and may be issued to ESOUSA under the Purchase Agreement.

Under the Purchase Agreement, after the Securities and Exchange Commission (the “SEC”) declares effective the registration statement referred to above, on any trading day selected by the Company, the Company has the right, in its sole discretion, to present ESOUSA with a purchase notice (each, a “Purchase Notice”), directing ESOUSA (as principal) to purchase up to 50,000 shares of the Company’s common stock per business day (each, a “Regular Purchase”), up to $10 million of the Company’s common stock in the aggregate at a per share price (the “Purchase Price”) equal to the lesser of:

·the consolidated closing bid price of the Company’s common stock established by the Nasdaq Capital Market on the purchase date; or
·the arithmetic average of the 3 lowest consolidated closing bid prices for the Company’s common stock during the 10 consecutive trading days ending on the trading day immediately preceding the purchase date.

However, no Regular Purchase may exceed $1 million per business day. The number of shares for each Regular Purchase may be increased to up to 75,000 shares if the consolidated closing bid price of shares of our common stock is not below $0.50 per share on the date of the applicable Purchase Notice and to up to 100,000 shares if the consolidated closing bid price of shares of our common stock is not below $1.00 per share on the date of the applicable Purchase Notice.

In addition, on any date on which the Company submits a Purchase Notice to ESOUSA and our stock price is not less than $0.25 per share, the Company also has the right, in its sole discretion, to present ESOUSA with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing ESOUSA to purchase on the next trading day (the “VWAP Purchase Date”) an amount of stock to not exceed the lesser of (i) 2 times the maximum number of shares allowed to be sold for a Regular Purchase with applicable consolidated closing bid prices or (ii) 20% of the trading volume of the Common Stock on the business day following VWAP Purchase Notice. The purchase price per share pursuant to such VWAP Purchase Notice (the “VWAP Purchase Price”) is the lesser of (i) the consolidated closing bid price of Common Stock on the VWAP Purchase Date; or (ii) 95% of volume weighted average price for the Common Stock on the VWAP Purchase Date.

The Purchase Price and VWAP Purchase Price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split, or other similar transaction occurring during the period(s) used to compute the Purchase Price and VWAP Purchase Price. The Company may deliver multiple Purchase Notices and VWAP Purchase Notices to ESOUSA from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.

The Purchase Agreement provides that the Company and ESOUSA shall not effect any sales under the Purchase Agreement on any purchase date where the consolidated closing bid price of the Company’s common stock is less than $0.50. There are no trading volume requirements or restrictions under the Purchase Agreement, and the Company will control the timing and amount of sales of the Company’s common stock to ESOUSA. ESOUSA has no right to require any sales by the Company, but is obligated to make purchases from the Company as directed by the Company in accordance with the Purchase Agreement.

In addition, the total number of shares of common stock that may be issued under Purchase Agreement, including the Commitment Shares (as defined below), will be limited to 2,362,724 shares of Company common stock (the “Exchange Cap”), which equals 19.99% of our outstanding shares of common stock as of the date of the Purchase Agreement, unless stockholder approval is obtained to issue more than such 19.99%. The Exchange Cap will be adjusted for any stock dividend, stock split, reverse stock split or similar transaction. The foregoing limitation will not apply if stockholder approval has not been obtained and at any time the Exchange Cap is reached and at all times thereafter the average price paid for all shares of Company common stock issued under the Purchase Agreement is equal to or greater than $1.880, a price equal to the consolidated closing bid price of the Company common stock on the date of the Purchase Agreement. In no event will the Company be required or permitted to issue any shares of its common stock under the Purchase Agreement if such issuance would violate the rules or regulations of the Nasdaq Capital Market.

The Company will not issue any shares of our common stock under Purchase Agreement if such shares proposed to be issued and sold, when aggregated with all other shares of the Company common stock then owned beneficially (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by ESOUSA Holdings and its affiliates would result in the beneficial ownership by ESOUSA Holdings and its affiliates of more than 9.99% of the then issued and outstanding shares of the Company common stock.

There are no limitations on use of proceeds, financial or business covenants, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement.

There are no restrictions on future fundings other than the Company agreed that during the lesser of (i) 30 months from the date of the Purchase Agreement or (ii) the period when ESOUSA still owns the shares of Common Stock issued to ESOUSA under the Purchase Agreement, the Company will not, without consent of ESOUSA, issue any floating conversion rate or variable priced securities convertible into Common Stock if such convertible securities shall have no floor price associated therewith (excluding any at-the-market offerings with a registered broker-dealer).

In consideration for entering into the Purchase Agreement, upon the earlier of (i) on or 1 business day after the SEC declares effective the registration statement referred to the Purchase Agreement or (ii) six months after the date of the Purchase Agreement, the Company will issue to ESOUSA such number of shares of Common Stock that would have a value equivalent to $200,000 calculated using the average of volume weighted average price for the Common Stock during the 3 trading days period immediately preceding the date of issuance of such shares (the “Commitment Shares”). Under the Purchase Agreement, the Commitment Shares are deemed to have been vested and earned as of the date the Purchase Agreement was executed. The Purchase Agreement may be terminated by the Company at any time, at its discretion, without any cost to the Company. ESOUSA has agreed that neither it nor any of its agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of the Company’s common stock during any time prior to the termination of the Purchase Agreement.

Any proceeds from the Company receives under the Purchase Agreement are expected to be used for working capital and general corporate purposes.
 
The foregoing is a summary description of certain terms of the Purchase Agreement and the Registration Rights Agreement and, by its nature, is incomplete. Copies of the Purchase Agreement and Registration Rights Agreement are filed herewith as Exhibits 10.1 and 4.1, respectively, to this Current Report on Form 8-K and are incorporated herein by reference. All readers are encouraged to read the entire text of the Purchase Agreement and the Registration Rights Agreement.

The issuance of the Commitment Shares and all other shares of common stock that may be issued from time to time to ESOUSA under the Purchase Agreement is exempt from registration under the Securities Act, pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act.

This Current Report on Form 8-K contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to the potential future sale of shares of the Company’s common stock and price for such sales under the Purchase Agreement. The words “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. While the Company believes its plans, intentions and expectations reflected in those forward-looking statements are reasonable, these plans, intentions or expectations may not be achieved. The Company’s actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements. For information about the factors that could cause such differences, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, including the information discussed under the captions “Item 1 Business,” “Item 1A. Risk Factors” and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the Company’s various other filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. The Company assumes no obligation to update any forward-looking statement.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On July 8, 2016, Net Element, Inc. (the “Company”) opted to exchange a tranche in the aggregate amount of $200,000 for 125,220 shares of the Company common stock based on the “exchange price” of $1.5972 per share for this tranche pursuant to the Master Exchange Agreement (the “Agreement”) with Crede CG III, Ltd. (“Crede”). The Agreement and its terms were disclosed in our Current Report on Form 8-K filed on May 3, 2016. Such shares of common stock of the Company were issued to Crede under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 3(a)(9) of the Securities Act.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On July 1, 2016, Net Element, Inc. (the “Company”) opted to exchange a tranche in the aggregate amount of $100,000 for 62,596 shares of the Company common stock based on the “exchange price” of $1.5976 per share for this tranche pursuant to the Master Exchange Agreement, (the “Agreement”) with Crede CG III, Ltd. (“Crede”). The Agreement and its terms were disclosed in our Current Report on Form 8-K filed on May 3, 2016. Such shares of common stock of the Company were issued to Crede under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 3(a)(9) of the Securities Act.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On June 24, 2016, Net Element, Inc. (the “Company”) opted to exchange the fourth tranche in the aggregate amount of $100,000 for 57,663 shares of the Company common stock based on the “exchange price” of $1.7342 per share for this fifth tranche pursuant to the Master Exchange Agreement, (the “Agreement”) with Crede CG III, Ltd. (“Crede”). The Agreement and its terms were disclosed in our Current Report on Form 8-K filed on May 3, 2016. Such shares of common stock of the Company were issued to Crede under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 3(a)(9) of the Securities Act.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On June 9, 2016, Net Element, Inc. (the “Company”) opted to exchange the fourth tranche in the aggregate amount of $200,000 for 99,025 shares of the Company common stock based on the “exchange price” of $2.0197 per share for this fourth tranche pursuant to the Master Exchange Agreement, (the “Agreement”) with Crede CG III, Ltd. (“Crede”). The Agreement and its terms were disclosed in our Current Report on Form 8-K filed on May 3, 2016. Such shares of common stock of the Company were issued to Crede under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 3(a)(9) of the Securities Act.

Item 3.03 Material Modification to Rights of Security Holders

As previously announced in our Current Report on Form 8-K filed on November 18, 2015, at a special meeting of stockholders of Net Element, Inc. (the “Company”), the Company’s stockholders, by an affirmative vote of at least a majority of the Company’s issued and outstanding shares of capital stock, approved a proposal authorizing the Company’s Board of Directors, in its discretion, to effect a reverse stock split of the Company’s outstanding shares of common stock (the “Common Stock”), at any ratio not less than 1-for-10 and not greater than 1-for-30 (the “Reverse Stock Split”).

On May 24, 2016, the Board of Directors approved the Reverse Stock Split with a ratio of 1-for-10. On May 24, 2016, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Amendment”), with the Secretary of State of the State of Delaware to effect a 1-for-10 reverse stock split of the Common Stock effective as of 12:01 a.m., Eastern Time on May 25, 2016. As a result of the Reverse Stock split, every ten shares of the Company’s Common Stock will be automatically combined into one issued and outstanding share of the Company’s Common Stock, without any change in the par value per share. No fractional shares will be issued as a result of the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split will be rounded up to the nearest whole share.

Commencing on May 25, 2016, trading of the Company’s Common Stock will continue on the NASDAQ Capital Market on a reverse stock split-adjusted basis. The Company’s trading symbol will remain “NETE.” The new CUSIP number for the Company’s Common Stock following the Reverse Stock Split is 64111R201.

A copy of the Certificate of Amendment is filed herewith as Exhibit 3.1 and incorporated herein by reference. This discussion is qualified in its entirety by reference to the full text of the Certificate of Amendment.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On May 11, 2016, Net Element, Inc. (the “Company”) opted to exchange the second tranche in the aggregate amount of $250,000 for 917,431 shares of the Company common stock based on the “exchange price” of $0.2725 per share for this second tranche pursuant to the Master Exchange Agreement, (the “Agreement”) with Crede CG III, Ltd. (“Crede”). The Agreement and its terms were disclosed in our Current Report on Form 8-K filed on May 3, 2016. Such shares of common stock of the Company were issued to Crede under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 3(a)(9) of the Securities Act.

NET ELEMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Item 1.01 Entry into a Material Definitive Agreement.

On May 2, 2016, TOT Group, Inc. ("TOT"), TOT Payments, LLC (“Payments”), TOT BPS, LLC (“BPS”), TOT FBS, LLC (“FBS”), Process Pink, LLC (“Pink”), TOT HPS, LLC (“HPS”) and TOT New Edge, LLC (“New Edge”; together with TOT, Payments, BPS, FBS, Pink and HPS, “Co-Borrowers”), each a wholly owned subsidiary of Net Element, Inc., a Delaware corporation (the “Company”) entered into Amendment No. 1 (“Amendment”) to the Loan and Security Agreement with RBL Capital Group, LLC (“RBL”).

Pursuant to the Amendment, the parties amended the Loan and Security Agreement, dated as of June 30, 2014 (the “Agreement”) pursuant to which RBL previously provided an up to $10 million credit facility to Co-Borrowers during the period of 18 months from the closing of this credit facility. Because such 18 months period has expired, the Amendment (i) renewed the term of the credit facility for an additional 22 months from the date of the Amendment and (ii) increased the maximum funding amount of such credit facility to $15 million.

The Amendment also amended the definition of “Prepayment Premium” to either (i) 3% of the aggregate principal balance of the outstanding note under such facility if the pre-payment of such note takes place on or before the first anniversary date, (ii) 2% of the aggregate principal balance of outstanding note under such facility if the pre-payment of such note takes place after the first anniversary date and on or before the second anniversary date or (iii) 0% of the principal balance of outstanding note under such facility if the pre-payment of such note takes place after the second anniversary date. Prepayment Premium for Notes 1, 2 and 3 remained 0%. The Amendment also provided that Co-Borrowers may request RBL for additional loans subject to certain conditions set forth in the Agreement, as amended.

The Amendment provided that Co-Borrowers may prepay the principal of any term loan, in whole or in part, by (i) paying the Prepayment Premium on that portion of the term loan Note being prepaid, and (ii) paying all other amounts then due and outstanding under the term loan Note being prepaid; and, (iii) upon prepayment of the final amounts due under the term loan note, paying any backend financing fees applicable to that note. The Amendment provides that Co-Borrowers would be obligated to pay RBL an upfront financing fee equal to 2% of the face amount of each term loan note and a backend financing fee equal to 4% of the face amount of each term loan note. RBL agreed to finance the upfront fee as part of the applicable term loan. Co-Borrowers are obligated to pay the backend financing fees when the payment of the final term loan installment of each term loan is effected. In addition, Co-Borrowers agreed to pay a one-time supplemental backend financing fee of $20,000 at the time of the final installment is paid on Note 3.

The above description of the Amendment is intended as a summary only and is qualified in its entirety by the terms and conditions set forth therein. A copy of the Amendment is attached hereto as Exhibit 10.1 and is incorporated herein by this reference.

Item 1.01 Entry into a Material Definitive Agreement.

On May 2, 2016, Net Element, Inc., a Delaware corporation (the “Company”), entered into a Master Exchange Agreement, (the “Agreement”) with Crede CG III, Ltd., an exempted company incorporated under the laws of Bermuda (“Crede”). Prior to entering into the Agreement, Crede agreed to acquire three existing promissory notes that had been previously issued by the Company, of up to $3,965,000 in principal amount outstanding plus interest due to RBL Capital Group, LLC. Pursuant to the Agreement, the Company has the right, at any time prior to December 31, 2016, to request Crede, and Crede agreed upon each such request, to exchange these promissory notes in tranches on the dates when the Company instructs Crede, for such number of shares of the Company’s common stock (“Common Stock”) as determined under the Agreement based upon the lower of (A) the closing bid price of Common Stock on the date of the applicable exchange notice and (B) (x) the average of the 3 lowest daily dollar volume-weighted average prices (VWAPs) of Common Stock during the 7 trading days immediately preceding the date of the applicable notice less (y) 12% of such average of the 3 lowest daily VWAPs of Common Stock. All such determinations will be appropriately adjusted for any stock split, stock dividend, reverse stock split, stock combination or other similar transaction during any measuring period. Each such tranche to be $100,000 unless otherwise agreed to by the Company and Crede.

Such shares of restricted common stock of the Company are issuable to Crede under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 3(a)(9) of the Securities Act.

On May 2, 2016, the Company opted to exchange the first tranche in the aggregate amount of $281,142.47 for 978,568 shares of Common Stock based on the “exchange price” of $0.2873 per share for this first tranche.

The Agreement provides that the Company will not effect any exchange or otherwise issue any shares of Common Stock under the Agreement if, after giving effect to such exchange or other share issuance under the Agreement, Crede and its affiliates would beneficially own in excess of 9.99% of the outstanding Common Stock.

The Agreement further provides that, under no circumstances may the aggregate number shares of Common Stock issued to Crede under the Agreement at any time exceed 19.99% of the total number of shares of Common Stock outstanding or of the voting power unless the Company has obtained either (i) its stockholders' approval of the issuance of more than such number of shares of Common Stock pursuant to NASDAQ Marketplace Rule 5635(d) or (ii) a waiver from The NASDAQ Stock Market of the Company’s compliance with Rule 5635(d).

The above description of the Agreement is intended as a summary only and is qualified in its entirety by the terms and conditions set forth therein

Item 1.01 Entry into a Material Definitive Agreement.

On April 28, 2016, Net Element, Inc., a Delaware corporation (the “Company”), entered into a letter agreement (the “Agreement”) with RBL Capital Group, LLC (“RBL”). Pursuant to the Agreement, RBL agreed to an 90-day extension of the interest only period in the Revised Term Loan Note #1, dated July 31, 2014, (b) Revised Term Loan Note #2, dated February 10, 2015, and (c) Revised Term Loan Note #3, dated March 27, 2015, each issued by TOT Group, Inc., TOT Payments, LLC, TOT BPS, LLC, TOT FBS, LLC, Process Pink, LLC, TOT HPS, LLC and TOT New Edge, LLC, each a wholly-owned subsidiary of the Company (collectively, “Borrower”) to RBL (collectively, the “Notes”). Pursuant to the Agreement, the Company unconditionally and irrevocably guaranteed all of the Borrower’s obligations under the Notes as consideration for and as a condition precedent to RBL granting such 90-day extension.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On April 18, 2016, the employment of Irina Bukhanova, Chief Financial Officer of OOO Net Element Russia and OOO TOT Group Russia, each a subsidiary of Net Element, Inc. (the "Company"), terminated. Ms. Bukhanova was Chief Financial Officer of OOO Net Element Russia and OOO TOT Group Russia from April 1, 2013 until April 18, 2016.

On April 18, 2016, Natalia Maklashova was appointed as an interim Chief Financial Officer of OOO Net Element Russia and OOO TOT Group Russia until a permanent Chief Financial Officer of such subsidiaries of the Company is appointed. Natalia Maklashova, who is 32 years old, was a Chief Operations Officer and Controller of OOO Net Element Russia and OOO TOT Group Russia from August 01, 2012 to April 18, 2016, responsible for internal operations management and maintenance of consolidated financial statements for Russian entities. Prior to her employment with OOO Net Element Russia and OOO TOT Group Russia, Ms. Maklashova was Controller of Gallery Service LLC from January 1, 2011 to July 31, 2012, where she was responsible for maintenance of accounting records. She is a graduate of the Orenburg Agricultural University with a Master’s degree in Accounting. As an interim Chief Financial Officer of OOO Net Element Russia and OOO TOT Group Russia, Ms. Maklashova will receive a salary of 3,000,000 Russian Rubles per annum (U.S. $45,427 based on the exchange rate as of April 18, 2016). No other compensation arrangements have been made with respect to Ms. Maklashova. Ms. Maklashova does not have any family relationships with any other directors or executive officers of the Company or its subsidiaries. Ms. Maklashova has not been not involved in any affiliate transactions with the Company, its subsidiaries or their respective directors or officers.

Item 1.01 Entry into a Material Definitive Agreement.

On April 14, 2016, Net Element, Inc. (the “Company”) entered into an Amendment No. 1 (the “Amendment No. 1”) to the Second Additional Letter Agreement (the “Second Additional Agreement”) with Kenges Rakishev, an accredited investor (the “Investor”). Mr. Rakishev is a director of the Company.

The Amendment No. 1 extended the deadline from 120 days to 180 days from the date of Second Additional Agreement for the Company to obtain the Company’s stockholders approval (the “Stockholders Approval”) of the issuance of Restricted Shares and the Restricted Options (each as defined in the Second Additional Agreement).

Pursuant to the Second Additional Letter Agreement, as amended by the Amendment No. 1, in the event that the Stockholders Approval is not obtained within 180 days from the original date Second Additional Agreement, the Investor and the Company agreed that at the Investor’s election, (i) the purchase price for the Restricted Shares and the Restricted Options shall be automatically amended to be equal to the product of (x) 4,664,275 and (y) the sum of $0.1951 and $0.125, in which case the Investor will have paid to the Company the difference between such price and the previously paid purchase price for the Restricted Shares and the Restricted Options, (ii) the number of Restricted Shares and the Restricted Options issuable to the Investor will be adjusted to be equal to the quotient determined by dividing (I) $910,000 by (II) $0.3201, or (iii) the Restricted Options will not be issued and the Investor will be issued the number of Restricted Shares calculated on the basis of $0.1951 per share purchase price.

NET ELEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Management Discussion and Analysis

Net revenues consist primarily of payment processing fees. Net revenues were $40,235,362 for the year ended December 31, 2015 as compared to $21,236,704 the twelve months ended December 31, 2014. The increase in net revenues is primarily due to organic growth of merchants in our North America Transaction Solutions segment. In addition, we acquired and began consolidating revenues from our online solutions segments from PayOnline, acquired in May of 2015 and we began generating revenues for branded content in our mobile solutions segment beginning the quarter ending September 30, 2015.

Since our inception, we have incurred significant operating losses. We incurred net losses totaling $13.3 million and $10.2 million for the years ended December 31, 2015 and 2014, respectively. We had a working capital deficit of approximately $3.1 million and an accumulated deficit of $144 million at December 31, 2015. These conditions raise substantial doubt about our ability to continue as a going concern. The independent auditors’ report on our consolidated financial statements for the year ended December 31, 2015 contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. See also “Liquidity and Capital Resources” below.

Item 1.01 Entry into a Material Definitive Agreement.

 
On January 21, 2016, Net Element, Inc. (the “Company”) entered into a Second Additional Letter Agreement (the “Second Additional Agreement”) with Kenges Rakishev, an accredited investor (the “Investor”). The Second Additional Agreement further modified the terms of the Letter Agreement, dated September 11, 2015, as modified by that certain Additional Letter Agreement dated October 7, 2015, with certain accredited investors listed on the signature pages attached to that Letter Agreement (collectively, the “Original Agreement”). Mr. Rakishev is a director of the Company.

The Second Additional Agreement provided for the second and final round of $910,000 equity financing to the Company contemplated by the Original Agreement in consideration for the issuance by the Company to the Investor of (i) 4,664,275 restricted shares of the Company’s common stock (the “Restricted Shares”) based on $0.1951 per share, equal to the closing trading price of the Company Common Stock reported on The NASDAQ Capital Market on January 20, 2016, the trading date immediately preceding the date when the Investor and the Company committed to the transactions contemplated in the Second Additional Agreement; and (ii) options to purchase 4,664,275 restricted shares of the Company’s common stock on the terms set forth in the Investor’s Form of Option to Purchase Shares of Restricted Common Stock (the “Restricted Options”).

The Company intends to use the proceeds from the sale of the Restricted Shares and the Restricted Options for general working capital purposes.

However, such issuance of Restricted Shares and the Restricted Options is subject to the Company’s stockholders approval within 120 days from the date of Second Additional Agreement (the “Stockholders Approval”).

Each Restricted Option will expire on the fifth (5th) annual anniversary of the date of the Second Additional Agreement and shall be exercisable (prior to its expiration) into one (1) Restricted Share at the exercise price equal to $0.2146 (which is 110% of the closing trading price of the Company Common Stock reported on The NASDAQ Capital Market on January 20, 2016, the trading date immediately preceding the date when the Investor and the Company committed to the transactions contemplated in the Second Additional Agreement). The Investor may elect to exercise his Restricted Options through a cashless exercise, in which case the Investor would receive upon such exercise the “net number” of shares of Company common stock determined according to the formula set forth in the Restricted Option.

In the event that the Stockholders Approval is not obtained within 120 days from the date Second Additional Agreement, the Investor and the Company agreed that at the Investor’s election, (i) the purchase price for the Restricted Shares and the Restricted Options shall be automatically amended to be equal to the product of (x) 4,664,275 and (y) the sum of $0.1951 and $0.125, in which case the Investor will have paid to the Company the difference between such price and the previously paid purchase price for the Restricted Shares and the Restricted Options, (ii) the number of Restricted Shares and the Restricted Options issuable to the Investor will be adjusted to be equal to the quotient determined by dividing (I) $910,000 by (II) $0.3201, or (iii) the Restricted Options will not be issued and the Investor will be issued the number of Restricted Shares calculated on the basis of $0.1951 per share purchase price.

The Restricted Shares and the Restricted Options, including the shares of common stock issuable, subject to compliance with Rule 144 under the Securities Act of 1933, as amended (the "1933 Act")), upon exercise of the Restricted Options, were issued to the Investor in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the 1933 Act. All of the Restricted Shares and Restricted Options (including the shares of common stock issuable, subject to compliance with Rule 144 under the 1933 Act, upon exercise of the Restricted Options) will be restricted securities within the meaning of Rule 144 under the 1933 Act and, accordingly, each of the stock certificates of the Company to be issued evidencing such securities will contain a standard Rule 144 restrictive securities legend.

The Second Additional Agreement provides that under no circumstances may the aggregate number shares of Company common stock issued to the Investor under the Agreement at any time exceed 19.99% of the total number of shares of Company common stock issued and outstanding or of the voting power unless the Company has obtained either (i) its stockholders' approval of the issuance of more than such number of shares of Common Stock pursuant to NASDAQ Marketplace Rule 5635 or (ii) a waiver from The NASDAQ Stock Market of the Company’s compliance with Rule 5635.

The foregoing is only a brief description of the terms of the Second Additional Agreement, the Restricted Shares and the Restricted Options, does not purport to be a complete description of the rights and obligations of the parties thereunder, and is qualified in its entirety by reference to the Second Additional Agreement and the Form of Option to Kenges Rakishev to Purchase Shares of Restricted Common Stock which are filed as Exhibits 10.1 and 4.1, respectively, to this Current Report on Form 8-K and incorporated by reference herein.

Item 3.01.    Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On December 17, 2015, Net Element, Inc. (the “Company”) received a letter from the Listing Qualifications Department (the “Staff”) of The NASDAQ Stock Market notifying the Company that the initial period of 180 calendar days previously provided by the Staff to the Company to regain compliance with the NASDAQ Listing Rule 5550(a)(2) with respect to the minimum requirement for the closing bid price for the Company’s common stock for continued inclusion on The NASDAQ Capital Market (the “Rule”), was extended for an additional 180 calendar day period, or until June 13, 2016, to regain compliance with the Rule.

If the Company does not regain compliance with the Rule by June 13, 2016, the Staff will provide written notification to the Company that its common stock may be delisted. At that time, the Company may appeal the Staff’s delisting determination to a NASDAQ Hearings Panel (“Panel”). If the Company timely appeals, it would remain listed pending the Panel’s decision. There can be no assurance that, if the Company does appeal the delisting determination by the Staff to the Panel, that such appeal would be successful.

The Staff letter has no effect on the listing of the Company’s common stock at this time. The Staff advised the Company that, if at any time during this additional time period, the bid price for the Company’s common stock closes at $1.00 or more for a minimum of 10 consecutive business days as required under Listing Rule 5810(c)(3)(A), the Staff will provide written notification to the Company that it complies with the Rule.

The Company notified the Staff of its intention to regain compliance with the Rule during such additional compliance period, including by committing to effectuate a reverse stock split (which was approved by the Company’s stockholders at a special meeting of stockholders held by the Company in November of 2015) within such additional period to regain compliance (assuming the bid price requirement under the Rule is not otherwise satisfied within such period).

Item 1.01 Entry into a Material Definitive Agreement.

On December 1, 2015, Net Element, Inc. (the “Company”), certain qualified institutional investors and certain institutional accredited investors (each, an “Investor” and, collectively, the “Investors”)party to those certain two letter agreements, each dated August 4, 2015 and filed as Exhibits 10.1 and 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 4, 2015 (collectively, the “Letter Agreements”) entered into amendments to the Letter Agreements (collectively, the “Amendments”).

Pursuant to the Amendments, the Investors converted all of the remaining and not yet converted shares of Company’s Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Shares”) into shares of the Company’s common stock. The parties to the Amendments further agreed that all of the Warrants (as defined in the Letter Agreements) previously issued by the Company to the Investors will be terminated and cancelled in exchange for 2,500,000 in the aggregate of unrestricted shares of the Company’s common stock. The Investors remain subject to the same 10% trading volume limitation as currently in place pursuant to the Letter Agreements.

NET ELEMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Management Discussion and Analysis

We reported a net loss attributable to common stock of $5,134,474, or $0.07 per share for the three months ended September 30, 2015 as compared to a net loss attributed to common stock of $4,960,380, or $0.13 per share, for the three months ended September 30, 2014. This resulted in a net loss increase of $174,094 million. These items are discussed further below.

Net revenues consist primarily of payment processing fees. Net revenues were $12,675,123 for the three months ended September 30, 2015 as compared to $6,026,961 for the three months ended September 30, 2014. The increase in net revenues is primarily a result of previous quarter purchases of portfolios and organic net increases in merchants. In addition, we consolidated online payments revenue for PayOnline and began reporting mobile commerce revenues gross for branded content.

Item 1.01 Entry into a Material Definitive Agreement.

As previously reported on Current Report on Form 8-K filed with the Securities and Exchange Commission on August 4, 2015, Net Element, Inc. (the “Company”) entered into two letter agreements dated August 4, 2015 with the certain qualified institutional investors and certain institutional accredited investors listed in the Securities Purchase Agreement (Senior Convertible Notes and Warrants) (the “Debt and Warrants SPA”) and the Securities Purchase Agreement (Series A Convertible Preferred Stock of the Company) (the “Letter Agreements”).

Among other things, the Letter Agreements provide that, absent a written agreement otherwise, all Notes (as defined in the Debt and Warrants SPA) will be automatically (i.e., without any further action by Company or the investors) null and void as of the Moratorium Date with no obligations or liabilities whatsoever of the Company relating thereto; (ii) the investors' right to purchase, and the Company's obligation to issue, Additional Notes and Additional Warrants (each, as defined in the Debt and Warrant SPA) will be automatically (i.e., without any further action by the Company or the investors) null and void as of the Moratorium Date with no obligations or liabilities whatsoever of the Company relating thereto; and (iii) within five (5) business days from the Moratorium Date, the investors will return to the Company the originals of all Notes for cancellation by the Company. The Moratorium Date (as extended to 11:59 pm EST on October 11, 2015 as previously reported on Current Reports on Form 8-K filed with the Securities and Exchange Commission on September 3, 2015, September 14, 2015, and October 1, 2015, respectively) has expired.

Item 1.01 Entry into a Material Definitive Agreement.

On October 7, 2015, Net Element, Inc. (the “Company”) entered into an Additional Letter Agreement (the “Additional Agreement”) with certain accredited investors listed on the signature pages attached to the Additional Agreement (the “Investors”). The Additional Agreement modified the terms of the Letter Agreement with the Investors dated September 11, 2015 (the “Letter Agreement”). Such modifications to the Letter Agreement are intended to be effective as of September 11, 2015, the same date as the effective date of the Letter agreement. Pursuant to the Additional Agreement, each Investor and the Company agreed that the restricted shares of Common Stock, issuable pursuant to the Letter Agreement, would be not issued to such Investor until either (a) the approval of such issuance by the Company’s stockholders, in accordance with NASDAQ Listing Rule 5635 within 120 days from the date of the Additional Letter Agreement, and, (b) in the event that such stockholders approval is not obtained within such 120 days, either (at each Company Investor’s option) (i) such restricted shares of Common Stock per share purchase price will be deemed to be $0.20, in which case the such Investor will have paid to the Company the difference between the previously paid purchase price for such Investor’s portion of the restricted stock or (ii) the number of restricted shares of Common Stock issuable to such Company Investor will have been adjusted to reflect $0.20 per share price. In addition, the restricted shares of Common Stock allocated pursuant to the Letter Agreement to be purchased by David Rozinov will be instead allocated to Star Equities, LLC.

On October 7, 2015, the Company entered into the Amended and Restated Restricted Options to Purchase Shares of Restricted Common Stock with the Investors (other than David Rozinov whose options to purchase restricted shares of Common Stock were allocated to Star Equities, LLC) in the form attached this Current Report as Exhibit 4.1 (the “Amended Options”), modifying the options to purchase restricted shares of the Company’s common stock issued to the Investors pursuant to the Letter Agreement (the “Original Options”). Such modifications to the Original Options are intended to be effective as of September 11, 2015, the same date as the date of the Original Options. The Amended Options modified the Original Options by providing that the options cannot be exercised, and the Company will not issue shares of Common Stock in connection with any such exercise, until and unless the Company’s stockholders shall have approved the issuance of shares of common stock in connection with any such exercise or The NASDAQ has provided a waiver of Listing Rule 5635.

Item 1.01           Entry into a Material Definitive Agreement.

On September 11, 2015, Net Element, Inc. (the “Company”) entered into a Letter Agreement (the “Agreement”) with certain accredited investors listed on the signature pages attached to the Agreement (the “Investors”) providing for the issuance by the Company to the Investors of 11,357,143 shares of the Company’s common stock in the aggregate (the “Restricted Shares”) and options to purchase 11,357,143 shares of the Company’s common stock in the aggregate on the terms set forth in each Investor’s Option to Purchase Shares of Restricted Common Stock (the “Restricted Options”).

The Company intends to use the proceeds from the sale of the Restricted Shares and the Restricted Options for general working capital purposes.

The Restricted Shares and the Restricted Options, including the shares of common stock issuable, subject to compliance with Rule 144 under the Securities Act of 1933, as amended (the "1933 Act")), upon exercise of the Restricted Options, were issued to the Investors in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the 1933 Act. All of the Restricted Shares and Restricted Options (including the shares of common stock issuable, subject to compliance with Rule 144 under the 1933 Act, upon exercise of the Restricted Options) will be restricted securities within the meaning of Rule 144 under the 1933 Act and, accordingly, each of the stock certificates of the Company to be issued evidencing such securities will contain a standard Rule 144 restrictive securities legend.

The Restricted Shares purchase price was $0.14 per share, equal to the closing trading price of the Company Common Stock on July 29, 2015, the date when the Investors committed (subject to the approval of the Company’s board of directors of a committee thereof) to the transactions contemplated in the Agreement. Each Restricted Option will expire on the fifth (5th) annual anniversary of the date of the Agreement and shall be exercisable (prior to its expiration) into one (1) Restricted Share at the exercise price equal 110% of the closing trading price per one (1) share of Company common stock reported on The NASDAQ Capital Market on the date of the Agreement. Each Investor may elect to exercise it or his Option through a cashless exercise, in which case such Investor would receive upon such exercise the “net number” of shares of Company common stock determined according to the formula set forth in such Investor’s Restricted Option. The board of directors of the Company reserved 11,357,143 shares of the Company’s authorized but unissued common stock for the issuance in connection with the conversion of the Options.

The Agreement and the Restricted Options provide that under no circumstances may the aggregate number shares of Company common stock issued to the Investors under the Agreement and the Restricted Options (including the shares of common stock issuable, subject to compliance with Rule 144 under the 1933 Act, upon exercise of the Restricted Options) at any time exceed 19.99% of the total number of shares of Company common stock issued and outstanding or of the voting power unless the Company has obtained either (i) its stockholders' approval of the issuance of more than such number of shares of Common Stock pursuant to NASDAQ Marketplace Rule 5635(d) or (ii) a waiver from The NASDAQ Stock Market of the Company’s compliance with Rule 5635(d).

Some of the Investors are Star Equities LLC, Kenges Rakishev, William Healy and Steven Wolberg. Oleg Firer is a managing member of Start Equities LLC and is also Chief Executive Officer and a director of the Company, Mr. Rakishev and Mr. Healy are directors of the Company, and Mr. Wolberg is Chief Legal Officer and Secretary of the Company.

Item 2.01 Completion of Acquisition or Disposition of Assets.

On August 11, 2015, TOT Group Europe, Ltd. and ТOT Group Russia LLC (collectively, the “Purchasers”), each a subsidiary of Net Element, Inc. (the “Company”), and Maglenta Enterprises Inc. and Champfremont Holding Ltd. (collectively, the “Sellers”) formally completed the transfer to the Purchasers of 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”) pursuant to the Acquisition Agreement among the Purchasers and the Sellers (the "Agreement"). PayOnline’s business includes the operation of a protected payment processing system to accept bank card payments for goods and services.

The consideration for all of the equity interests of PayOnline is a combination of cash and restricted (i.e., issued in reliance on an applicable exemption from registration and subject to Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”)) shares, payable in five installments and, if applicable, the extra payment as described below. 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 and provides certain additional restrictions on trading of the Company's common stock. The Agreement provides that at no time will the Company issue shares of its common stock if such transaction would result in the issuance of more than 19.9% of the amount of common stock of the Company issued and outstanding unless (i) the Company’s stockholders shall have approved the issuance of shares of common stock in excess of 20%, or (ii) NASDAQ has provided a waiver of Listing Rule 5635(d). Upon execution of the Agreement on May 20, 2015, the Purchasers deposited the amount of the first installment, consisting of $3.6 million in cash and the restricted shares of the Company's common stock with a value, as of the trading date immediately preceding the effective date of the Agreement, of $3.6 million, with an escrow agent, to hold and disburse such first installment in accordance with the terms of the Escrow Agreement, dated as of May 20, 2015, among the Sellers, the Purchasers and Reznick Law, PLLC, as the escrow agent. This first installment was released from escrow to the Sellers upon completion of the formal transfer to the Purchasers of the equity interests of PayOnline. The other four installments will be payable after the end of each applicable quarter for which the installment is calculated, and will consist of a combination of cash and the restricted shares of the Company's common stock, in each case equal to the earn-out. The earn out will be calculated based on PayOnline EBITDA for certain post-closing periods, multiplied by 1.35. Pursuant to the Agreement, the aggregate valuation of PayOnline on a debt-free basis will be $8,482,000, and the purchase price will not exceed such amount. If accounts receivable that relate to the PayOnline business during the first 12 months after the closing are in fact collected by PayOnline during the 15th calendar month after the closing, the extra payment (composed of 50% cash and 50% restricted shares of the Company's common stock) equal to: (i) the amount of abovementioned received accounts receivable multiplied by (ii) 1.35 will be due to the Sellers on the date specified in the Agreement.

At the end of the 12-month period following the issuance of restricted shares of the Company's common stock to the Sellers (“Guarantee Period”), 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.

The Company guaranteed the Purchasers’ payment obligations under the Agreement pursuant to the Guaranty with the Sellers dated as of May 20, 2015 (the “Parent Guaranty”). Lacerta Management Ltd guaranteed to the Purchasers the accuracy of the Sellers’ and Payonline’s representations and warranties set forth in Section 3.2 and 3.3 of the of the Agreement and indemnity obligations set forth in Article 6 of the Agreement pursuant to the Guaranty dated as of May 20, 2015 (the “Seller’s Guarantor Guaranty”).

The above description of the Agreement, the Escrow Agreement, the Parent Guaranty and the Seller’s Guarantor Guaranty is intended as a summary only and is qualified in its entirety by the terms and conditions set forth therein. Copies of the Agreement, the Escrow Agreement, the Parent Guaranty and the Seller’s Guarantor Guaranty were previously filed as Exhibit 10.1, 10.2, 10.3 and 10.4 respectively to the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on May 27, 2015, and are incorporated herein by this reference.

The audited financial statements of PayOnline System LLC, Innovative Payment Technologies LLC, Polimore Capital Limited and Brosword Holding Limited at and for the years ended December 31, 2013 and December 31, 2014, including the report of Daszkal Bolton, LLP, independent certified public accountants, and unaudited pro forma condensed consolidated financial information of the Company, giving effect to the acquisition of PayOnline, specifically, the unaudited pro forma condensed consolidated balance sheet at March 31, 2015, the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014 and the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2015, were previously filed as Exhibits 23.1, 99.1, 99.2 and 99.3 respectively to the Current Report on Form 8-K/A filed with the Commission on August 3, 2015, and are incorporated herein by this reference.

Item 3.02 Unregistered Sales of Equity Securities

The disclosures in the second paragraph of Item 2.01 of this Current Report are incorporated herein by reference. As previously reported in the Current Report on Form 8-K filed with the Commission on May 27, 2015, on May 27, 2015, the Company issued to the Sellers 4,768,212 shares of restricted common stock at the price of $0.755 per shares as part of the first installment payment under the Agreement. Such shares of restricted common stock of the Company were issued to the Sellers in reliance upon Section 4(a)(2) of the Securities Act exemption from the registration requirements under the Securities Act.

NET ELEMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Management Discussion and Analysis

Net revenues consist primarily of payment processing fees. Net revenues were $6,906,913 for the three months ended June 30, 2015 as compared to $4,912,035 for the three months ended June 30, 2014. The increase in net revenues is primarily a result of previous quarter purchases of portfolios and organic net increases in merchants. In addition, we consolidated transactional processing revenue from May 20, 2015 to June 30, 2015 for PayOnline for $304,143.

The net loss attributable to noncontrolling interests amounted to $10,527 for the three months ended June 30, 2015 as compared to $12,965 for the three months ended June 30, 2014.

Item 1.01 Entry into a Material Definitive Agreement.

On August 4, 2015, Net Element, Inc. (the “Company”) entered into two letter agreements with the certain qualified institutional investors and certain institutional accredited investors listed in the Securities Purchase Agreement (Series A Convertible Preferred Stock of the Company) (the “Preferred SPA”) and the Securities Purchase Agreement (Senior Convertible Notes and Warrants) (the “Debt SPA”). The letter agreements waived certain terms of the Series A Convertible Preferred Stock of the Company, and waived and amended certain terms of the Preferred SPA and the Debt SPA and of the Senior Convertible Notes and Warrants issued pursuant to the Debt SPA, as follows:

 
1. Notes and Warrants.

a. No interest will accrue on the Senior Convertible Notes issued on April 30, 2015 by the Company to the Investors (the “Notes”) from the date of issuance of the Notes until the Moratorium Date (as defined below), unless otherwise mutually agreed to by the Company and the investors.

b. All obligations of the parties with respect to the Notes, the Warrants (as defined in the Debt SPA and all other Transaction Documents (as defined in the Debt SPA), including but not limited to the investors' obligations to release the purchase price of the Notes to the Company and the Company’s obligations to the holders of the Notes set forth in the Notes or the Investors’ rights to purchase and the Company obligations to issue any Additional Notes or any Additional Warrants (each, as defined in the Debt SPA), were frozen and placed on hold until September 4, 2015 (such date, or such later date agreed to in writing by all Parties, the “Moratorium Date”).

c. On or before the Moratorium Date, the Company and the investors will mutually decide in writing whether to reinstate the Notes and/or the Warrants and act in accordance with the terms thereof or otherwise mutually agreed modified terms thereof. The Company and the investors agreed that prior to the Moratorium Date they will work in good faith on amending the Warrants in a mutually acceptable manner

d. Unless the Company and the investors have reached agreement in writing as contemplated in paragraph(c) above by the Moratorium Date, (i) all Notes will be automatically (i.e., without any further action by Company or the investors) null and void as of the Moratorium Date with no obligations or liabilities whatsoever of the Company relating thereto; (ii) the investors' right to purchase, and the Company's obligation to issue, Additional Notes and Additional Warrants (each, as defined in the Debt SPA) will be automatically (i.e., without any further action by the Company or the investors) null and void as of the Moratorium Date with no obligations or liabilities whatsoever of the Company relating thereto; and (iii) within five (5) business days from the Moratorium Date, the investors will return to the Company the originals of all Notes for cancellation by the Company.

e. Notwithstanding anything to the contrary in the letter agreements or any other prior agreements, the Company's may enter into a transaction in which it obligates itself to issue shares of its common stock without triggering the Investors' participation rights, the anti-dilution provisions or other provisions set forth in any prior Agreements provided that such transaction is entered into on or prior to the Moratorium Date.

 
2. Preferred Securities

The terms of the Preferred SPA and related documents (including but not limited to the Certificate of Designations, Preferences and Rights (the "Certificate of Designations") of the Company's Series A Preferred Stock (the "Preferred Shares")) entered into on April 30, 2015 by and between the Parties with respect to the issuance of the Preferred Shares will be deemed waived to the extent necessary so that the following terms apply to the remaining outstanding Preferred Shares:

a. From the effective date of the letter agreements, Section 4 (installment payment obligations) of the Certificate of Designations will not apply to the remaining outstanding Preferred Shares. From the effective date of the letter agreements until the Moratorium Date, the Equity Condition set forth in Section 24(v)(N) of the Certificate of Designations will be suspended.

b. Notwithstanding anything herein to the contrary, the investors may submit a conversion notice to the Company pursuant to Section 2 of the Certificate of Designations and the Company shall deliver to the applicable Investor the shares of the Company common stock issuable upon such voluntary conversion pursuant to Section 2 of the Certificate of Designations.

In addition, each of the investors, together with any of its affiliates, agree that it will not sell shares of the Company common stock during any trading day in an amount exceeding in the aggregate 10% (ten percent) of the composite aggregate share trading volume of the Common Stock, measured at the time of each sale of common stock during such trading day as reported on Bloomberg L.P.

Further, the investors waived any and all actual, alleged or potential Equity Conditions Failures, Events of Default, any true-up obligations with respect to any Installment Amounts (as defined in the Certificate of Designations), Triggering Events, any failure to pay Interest solely under the Initial Notes (as defined in the Debt SPA) and any other claims with respect to any obligations of the Company prior to and through the effective date of the letter agreements, and any Investors’ remedies with respect thereto. The Company and the Investors exchanged mutual general releases through the date of the letter agreements.

The foregoing is only a brief description of the terms of the letter agreements, does not purport to be a complete description of the rights and obligations of the parties thereunder, and is qualified in its entirety by reference to the letter agreements which is filed as Exhibits 10.1 and 10.2 respectively to this Current Report on Form 8-K and incorporated by reference herein.

Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

 
(a) On June 19, 2015, Net Element, Inc. (the “Company”) received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The NASDAQ Stock Market notifying the Company that, for the last 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on The NASDAQ Capital Market pursuant to NASDAQ Listing Rule 5550(a)(2) (the “Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided an initial period of 180 calendar days, or until December 16, 2015, to regain compliance with the Rule.

The Staff letter has no effect on the listing of the Company’s common stock at this time. The Staff advised the Company that, if at any time before December 16, 2015 the bid price for the Company’s common stock closes at $1.00 or more for a minimum of 10 consecutive business days as required under Listing Rule 5810(c)(3)(A), the Staff will provide written notification to the Company that it complies with the Rule.

If the Company does not regain compliance with the Rule by December 16, 2015, the Company may be eligible for an additional 180 calendar day compliance period, provided that it meets the continued listing requirement for the market value of publicly held shares and all other initial listing standards, with the exception of the bid price requirement, and notifies the Staff of its intention to cure the deficiency during the additional compliance period.

The Company will consider various options available to it if its common stock does not trade at a level to regain compliance. These options include effecting a reverse stock split.

If the Company does not regain compliance with the Rule by December 16, 2015 and is not eligible for an additional compliance period at that time, the Staff will provide written notification to the Company that its common stock may be delisted. At that time, the Company may appeal the Staff’s delisting determination to a NASDAQ Listing Qualifications Panel (“Panel”). If the Company timely appeals, it would remain listed pending the Panel’s decision. There can be no assurance that, if the Company does appeal the delisting determination by the Staff to the Panel, that such appeal would be successful.

The Company intends to continue monitoring the bid price for its common stock and will consider various options available to it if its common stock does not trade at a level to regain compliance. These options include effecting a reverse stock split.

  Volume of the Company's common stock for the previous 20 trading days must
  be greater than $5,000;
 - the 10 day average VWAP (Volume Weighted Average Price) of the Company's
  common stock must be greater than $0.10; and
 - the Company's common stock must be DWAC eligible.

Except with regards to securities issued under an approved stock plan of the Company, if, at any time that the Note is outstanding, the Company sells or issues any of its securities to the Investor or a third party for a price that is less than the Optional Conversion, then such Optional Conversion will automatically be reduced to such lower issuance price.

The Investor is prohibited from owning more than 4.99% of the Company's outstanding shares pursuant to the Note and warrants, unless the market capitalization of the Company's common stock is less than $10,000,000, in which
case the Investor is prohibited from owning more than 9.99% of the Company's outstanding shares.

In addition, Empire State Financial Inc. ("ESFI") of Long Island, NY served as placement agent for the Company in the Transaction. The Company paid commissions of $8,000 to ESFI and will issue an amount of Common Shares of the Company equal to 6% of the aggregate Initial Cash Purchase price based upon the price of the
Common Stock as offered in the Transaction.

The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Act") for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated there under since, among other things, the transaction did not involve a public offering, the Investor is an accredited investor, with access to information about the Company and their investment, the Investor took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

NET ELEMENT, INC.

Item 1.01 Entry into a Material Definitive Agreement.

 
On May 20, 2015, TOT Group Europe, Ltd. and ТOT 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 consideration for all of the equity interests of PayOnline will be a combination of cash and restricted (i.e., issued in reliance on an applicable exemption from registration and subject to Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”)) shares, payable in five installments and, if applicable, the extra payment as described below. 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 and provides certain additional restrictions on trading of the Company's common stock. The Agreement provides that at no time will the Company issue shares of its common stock if such transaction would result in the issuance of more than 19.9% of the amount of common stock of the Company issued and outstanding unless (i) the Company’s stockholders shall have approved the issuance of shares of common stock in excess of 20%, or (ii) NASDAQ has provided a waiver of Listing Rule 5635(d). The first installment will be payable upon closing of the PayOnline acquisition and will consist of $3.6 million in cash and the restricted shares of the Company's common stock with a value, as of the trading date immediately preceding the effective date of the Agreement, of $3.6 million. The Purchasers have deposited the amount of the first installment with an escrow agent, to hold and disburse such first installment in accordance with the terms of the Escrow Agreement, dated as of May 20, 2015, among the Sellers, the Purchasers and Reznick Law, PLLC, as the escrow agent. The other four installments will be payable after the end of each applicable quarter for which the installment is calculated, and will consist of a combination of cash and the restricted shares of the Company's common stock, in each case equal to the earn-out. The earn out will be calculated based on PayOnline EBITDA for certain post-closing periods, multiplied by 1.35. Pursuant to the Agreement, the aggregate valuation of PayOnline on a debt-free basis will be $8,482,000, and the purchase price will not exceed such amount. If accounts receivable that relate to the PayOnline business during the first 12 months after the closing are in fact collected by PayOnline during the 15th calendar month after the closing, the extra payment (composed of 50% cash and 50% restricted shares of the Company's common stock) equal to: (i) the amount of abovementioned received accounts receivable multiplied by (ii) 1.35 will be due to the Sellers on the date specified in the Agreement.

At the end of the 12-month period following the issuance of restricted shares of the Company's common stock to the Sellers (“Guarantee Period”), 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.

In addition, the Purchasers and the Sellers agreed to enter, not later than June 30, 2015, into a 3-year agreement with Anastasiadate.com family of websites on the conditions set forth in the Agreement. If for any reason such agreement is not entered into by June 30, 2015, the Sellers and the Purchasers agreed to use their best efforts to enter into such agreement not later than September 30, 2015. If the escrow agent does not receive such duly executed agreement with Anastasiadate.com family of websites by September 30, 2015, the escrow agent will be obligated under the Escrow Agreement to refund $600,000 and return the restricted shares of the Company's common stock with a value, as of the trading date immediately preceding the effective date of the Agreement, of $600,000.

On May 20, 2015, the Company entered into a Guaranty with the Sellers (the “Parent Guaranty”) pursuant to which the Company guaranteed the Purchasers’ payment obligations under the Agreement.

On May 20, 2015, Lacerta Management Ltd entered into a Guaranty (the “Seller’s Guarantor Guaranty”) pursuant to which Lacerta Management Ltd guaranteed to the Purchasers the accuracy of the Sellers’ and Payonline’s representations and warranties set forth in Section 3.2 and 3.3 of the of the Agreement and indemnity obligations set forth in Article 6 of the Agreement.

The consummation of the acquisition is subject to the satisfaction of the following conditions: (i) the delivery to the Purchasers of all of the issued and outstanding equity interests of PayOnline; (ii) the Sellers warranting that any profit earned by PayOnline in 2014 will remain in Payonline; (iii) no material adverse change to the business of PayOnline; (iv) the Sellers entering into non-compete and non-solicitation covenants; (v) PayOnline not having any outstanding pledges to pay dividends or to proceed any other settlements with its founders at closing; (vi) PayOnline obtaining a lease for the premises PayOnline currently occupies on the terms and conditions not less favorable than the current terms; (vii) PayOnline not having at closing any material overdue liabilities and certain other liabilities; (viii) during the period from the effective date of the Acquisition Agreement and closing, PayOnline having sufficient cash flow reserve to cover internal liabilities, including to pay in full to Payonline employees all outstanding amounts of bonuses and salaries for 2014; (ix) PayOnline having sufficient funds rolling reserves and payments due to merchants; and (x) other customary closing conditions set forth in the Agreement.

The parties to the Agreement intend to close the transactions contemplated in the Agreement as soon as the conditions to closing are satisfied. The Purchasers are entitled to the full economic benefit from the acquisition of PayOnline from the effective date of the Agreement.

The above description of the Agreement, the Escrow Agreement, the Parent Guaranty and the Seller’s Guarantor Guaranty is intended as a summary only and is qualified in its entirety by the terms and conditions set forth therein. A copy of the Agreement, the Escrow Agreement, the Parent Guaranty and the Seller’s Guarantor Guaranty are attached hereto as Exhibit 10.1, 10.2, 10.3 and 10.4 respectively and are incorporated herein by this reference.

Item 3.02 Unregistered Sales of Equity Securities

The disclosures in the second paragraph of Item 1.01 of this Current Report are incorporated herein by reference. On May 27, 2015, the Company issued to the Sellers 4,768,212 shares of restricted common stock at the price of $0.755 per shares as part of the first installment payment under the Agreement. All such shares will be held in escrow by the escrow agent pursuant to the terms of the Escrow Agreement. Such shares of restricted common stock of the Company are issued to the Sellers in reliance upon Section 4(a)(2) of the Securities Act exemption from the registration requirements under the Securities Act.

NET ELEMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Management Discussion and Analysis

Net revenues consist primarily of payment processing fees. Net revenues were $5,540,207 for the three months ended March 31, 2015 as compared to $4,843,479 for the three months ended March 31, 2014. The increase in net revenues is primarily a result of previous quarter purchases of portfolios and organic net increases in merchants. This was offset by a decrease in the mobile payment processing revenues due to changes in our billing system and key personnel that affected the second quarter of 2014 and periods forward.

The net loss attributable to noncontrolling interests amounted to $8,747 for the three months ended March 31, 2015 as compared to $28,690 for the three months ended March 31, 2014.

Net Element, Inc.

 
$5,500,000

Series A Convertible Preferred Stock

This prospectus supplement and accompanying prospectus relate to the offer and sale of 5,500 shares of our Series A Convertible Preferred Stock (the “Convertible Preferred Stock”), $0.01 par value per share, having an aggregate offering price of $5,500,000, plus certain shares of our common stock, par value $0.0001 per share, issuable upon conversion of the Convertible Preferred Stock and issuable as dividends on the Convertible Preferred Stock.

Dividends on the Convertible Preferred will be 9% per annum, payable monthly calculated on the basis of a 360-day year consisting of twelve 30-day months, calculated off the outstanding shares of Convertible Preferred. Such interest is payable, at the Company’s option, in cash, common stock of the Company (the “Common Stock”), par value $0.0001 per share, or a combination of cash and shares of Common Stock, with the first dividend date being May 29, 2015. If the Company elects to pay such dividend in Common Stock, then the Company will deliver to the investors a number of shares of Common Stock equal in value to the dividend amount, divided by 92% of the lowest of (i) the arithmetic average of the three (3) lowest volume weighted average price (“VWAP) of the Common Stock during the fifteen (15) consecutive trading day period ending on the trading day immediately preceding the applicable date of determination, (ii) the VWAP of the Common Stock on the trading day immediately preceding the applicable date of determination and (iii) the VWAP of the Common Stock on the applicable date of determination.

Each share of Convertible Preferred Stock is convertible at the option of the holder into 575 shares of Common Stock (which reflects an initial conversion price of $1.74 per share of Common Stock), subject to anti-dilution adjustments and a make-whole adjustment through the maturity date of April 30, 2017. The Company will not effect the conversion of any portion of a holder’s Convertible Preferred Stock to the extent that after giving effect to such conversion, the holder would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the total outstanding Common Stock of the Company, unless the holder provides written notice to the Company of an increase to such Maximum Percentage, in which case the number of shares of Common Stock issuable upon conversion may increase, but may never increase to more than 9.99% of the total outstanding Common Stock of the Company.

Subject to the terms of the equity distribution agreement, we agreed to issue and sell exclusively through Revere Securities, LLC (“Revere”), acting as sales agent, and Revere agreed to use its best efforts to sell for us, the shares of Convertible Preferred Stock offered by this prospectus supplement. Revere will be deemed an “underwriter” within the meaning of the Securities Act. The amount of compensation to be paid by us to Revere is approximately 5.00% of the gross proceeds from each placement. The purchasers of the Convertible Preferred Stock will be certain qualified institutional investors and certain institutional accredited investors (collectively, the “Investors”).

As of April 30, 2015, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was approximately $37,342,269.19 based on 28,505,549 shares of outstanding Common Stock held by non-affiliates (compared to 18,954,483 shares of Common Stock outstanding including shares held by affiliates), at a price of $1.31 per share, which was the average between bid and sale price of our Common Stock on The NASDAQ Capital Market on March 27, 2015.

Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell common stock in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period so long as our public float remains below $75,000,000. We have not sold any common stock pursuant to General Instruction I.B.6 of Form S-3 during the 12 calendar months prior to and including the date of this prospectus.

Prior to this offering, there has been no public market for the Convertible Preferred Stock. The Preferred Stock will not be listed on any securities exchange or included in any automated quotation system. Our common stock is traded on the NASDAQ Capital Market under the symbol “NETE.” On April 29, 2015, the last reported sale price of our common stock on the NASDAQ Capital Market was $1.15 per share.

NET ELEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Management Discussion and Analysis

Net revenues consist primarily of payment processing fees. Net revenues were $21,194,461 for the year ended December 31, 2014 as compared to $18,749,470 for the year ended December 31, 2013. The increase in net revenues is primarily a result of the purchase of portfolios, increases in merchants and a full year of credit card processing operations in 2014. This was offset by a decrease in the Mobile Payment Processing due to changes in our billing system and changes to key personnel.

The net loss attributable to noncontrolling interests amounted to $29,250 for the year ending December 31, 2014 as compared to $1,129,319 for year ending December 31, 2013. The $1,100,069 decrease was primarily attributed to TOT Group which previously had a 10% noncontrolling interest (See Note 4 of the accompanying Notes to Consolidated Financial Statements). The noncontrolling interest reflects the results of operations of subsidiaries that are allocable to equity owners other than us.

Item 1.01 Entry into a Material Definitive Agreement.

 
On March 16, 2015, TOT Group Europe, Ltd. (“TOT Group Europe”), a subsidiary of Net Element, Inc. (the “Company”), entered into a Binding Offer Letter (the "Offer") with PayOnline System LLC and Social Discovery Ventures to acquire all of the issued and outstanding equity interests of the PayOnline group of companies consisting 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 consideration for all of the equity interests of PayOnline will be a combination of cash and restricted (i.e., issued in reliance on an applicable exemption from registration and subject to Rule 144 of the Securities Act of 1933, as amended) shares, payable in five installments. The Offer sets forth the determination of the value of such shares based on the closing sales price on the date before each applicable payment date and provides certain additional restrictions on trading of the Company's common stock. The Offer states that at no time will the Company issue shares of its common stock if such transaction would result in the issuance of more than 19.999% of the amount of common stock of the Company issued and outstanding unless (i) the Company’s stockholders shall have approved the issuance of shares of common stock in excess of 20%, or (ii) NASDAQ has provided a waiver of Listing Rule 5635(d). The first installment will be payable upon closing of the PayOnline acquisition and will consist of $3.6 million in cash and the restricted shares of the Company's common stock with a value of $3.6 million. The other four installments will be payable after the end of each applicable quarter for which the installment is calculated, and will consist of a combination of cash and the restricted shares of the Company's common stock, in each case equal to the earn-out. The earn out will be calculated based on PayOnline EBITDA for certain post-closing periods, multiplied by 1.35. Pursuant to the Offer, the aggregate valuation of PayOnline on a debt-free basis will be $8,482,000, and the purchase price will not exceed such amount.

At the end of the 12-month period following the issuance of restricted shares of the Company's common stock to the Sellers (“Guarantee Period”), TOT Group Europe will guaranty that the value of such stock then not sold by the sellers of PayOnline equity interests (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, TOT Group Europe will pay a cash amount equaling the difference between such values. If any party that terminates the Offer, it will be subject to $400,000 penalty.

The consummation of the acquisition is subject to the satisfaction of the following conditions: (i) the execution of definitive agreement relating to the acquisition; (ii) the completion of due diligence of PayOnline; (iii) the Sellers warranting that any profit earned by PayOnline in 2014 will remain in Payonline; (iv) no material adverse change to the business of PayOnline; (v) the Sellers entering into non-compete and non-solicitation covenants; (vi) PayOnline not having any outstanding pledges to pay dividends or to proceed any other settlements with its founders at closing; (vii) PayOnline obtaining a 3-years agreement with Anastasiadate.com family of websites on the conditions set forth in the Offer; (viii) PayOnline obtaining a 3-year lease for the premises PayOnline currently occupies on the terms and conditions not less favorable than the current terms; (xi) PayOnline not having at closing any material overdue liabilities and certain other liabilities; (x) during the period from this Offer and closing, PayOnline having sufficient cash flow reserve to cover internal liabilities, including to pay in full to Payonline employees all outstanding amounts of bonuses and salaries for 2014; (xi) PayOnline having sufficient funds rolling reserves and payments due to merchants; and (vi) other customary closing conditions including those set forth in the Offer.

The parties agreed to negotiate the transaction structure and a definitive sale and purchase agreement with customary representations, warranties conditions and covenants.

Item 1.01 Entry into a Material Definitive Agreement.

 
On March 16, 2015, TOT Group Europe, Ltd. (“TOT Group Europe”), a subsidiary of Net Element, Inc. (the “Company”), entered into a Binding Offer Letter (the "Offer") with PayOnline System LLC and Social Discovery Ventures to acquire all of the issued and outstanding equity interests of the PayOnline group of companies consisting 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 consideration for all of the equity interests of PayOnline will be a combination of cash and restricted (i.e., issued in reliance on an applicable exemption from registration and subject to Rule 144 of the Securities Act of 1933, as amended) shares, payable in five installments. The Offer sets forth the determination of the value of such shares based on the closing sales price on the date before each applicable payment date and provides certain additional restrictions on trading of the Company's common stock. The Offer states that at no time will the Company issue shares of its common stock if such transaction would result in the issuance of more than 19.999% of the amount of common stock of the Company issued and outstanding unless (i) the Company’s stockholders shall have approved the issuance of shares of common stock in excess of 20%, or (ii) NASDAQ has provided a waiver of Listing Rule 5635(d). The first installment will be payable upon closing of the PayOnline acquisition and will consist of $3.6 million in cash and the restricted shares of the Company's common stock with a value of $3.6 million. The other four installments will be payable after the end of each applicable quarter for which the installment is calculated, and will consist of a combination of cash and the restricted shares of the Company's common stock, in each case equal to the earn-out. The earn out will be calculated based on PayOnline EBITDA for certain post-closing periods, multiplied by 1.35. Pursuant to the Offer, the aggregate valuation of PayOnline on a debt-free basis will be $8,482,000, and the purchase price will not exceed such amount.

At the end of the 12-month period following the issuance of restricted shares of the Company's common stock to the Sellers (“Guarantee Period”), TOT Group Europe will guaranty that the value of such stock then not sold by the sellers of PayOnline equity interests (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, TOT Group Europe will pay a cash amount equaling the difference between such values. If any party that terminates the Offer, it will be subject to $400,000 penalty.

The consummation of the acquisition is subject to the satisfaction of the following conditions: (i) the execution of definitive agreement relating to the acquisition; (ii) the completion of due diligence of PayOnline; (iii) the Sellers warranting that any profit earned by PayOnline in 2014 will remain in Payonline; (iv) no material adverse change to the business of PayOnline; (v) the Sellers entering into non-compete and non-solicitation covenants; (vi) PayOnline not having any outstanding pledges to pay dividends or to proceed any other settlements with its founders at closing; (vii) PayOnline obtaining a 3-years agreement with Anastasiadate.com family of websites on the conditions set forth in the Offer; (viii) PayOnline obtaining a 3-year lease for the premises PayOnline currently occupies on the terms and conditions not less favorable than the current terms; (xi) PayOnline not having at closing any material overdue liabilities and certain other liabilities; (x) during the period from this Offer and closing, PayOnline having sufficient cash flow reserve to cover internal liabilities, including to pay in full to Payonline employees all outstanding amounts of bonuses and salaries for 2014; (xi) PayOnline having sufficient funds rolling reserves and payments due to merchants; and (vi) other customary closing conditions including those set forth in the Offer.

The parties agreed to negotiate the transaction structure and a definitive sale and purchase agreement with customary representations, warranties conditions and covenants.

Item 1.01 Entry into a Material Definitive Agreement.

On January 22, 2015, Net Element, Inc. (the “Company”) entered into an Equity Distribution Agreement (the "Distribution Agreement") with Revere Securities, LLC (“Revere”). Pursuant to and subject to the terms of the Distribution Agreement, the Company may offer and sell from time to time at its sole discretion, exclusively through Revere, acting as sales agent, and Revere agreed to use its best efforts to sell for the Company, the shares of the Company common stock, preferred stock, warrants, units or subscription rights, having an aggregate offering price of up to $50,000,000, and certain selling securityholders may offer and sell, from time to time at their sole discretion, up to 19,947,334 shares of the Company’s common stock held by such selling securityholders. In no event will the Company issue or sell securities under the Distribution Agreement with a value exceeding more than one-third of the Company public float in any 12 month period where the public float remains below $75,000,000, or if such issuance would result in the issuance of more than 19.999% of the amount of common stock of the Company issued and outstanding unless the Company’s stockholders shall have approved the issuance of shares of common stock in excess of 20% or NASDAQ has provided a waiver of Listing Rule 5635(d).

Revere may sell the securities of the Company by any method permitted by law deemed to be an “at the market” offering under Rule 415 of the Securities Act of 1933, as amended (the “Act”), including without limitation sales made by means of ordinary brokers' transactions on The NASDAQ Capital Market, on any other existing trading market for the securities of the Company or to or through a market maker, at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by the Company. Revere will use its best efforts consistent with its normal trading and sales practices to sell the securities of the Company from time to time, based upon instructions from the Company (including any price, time or size limits the Company or selling securityholders may impose). The amount of compensation to be paid to Revere with respect to each placement (in addition to any expense reimbursements) will be equal to 5.00% of the gross proceeds from each placement. The Company intends to use the net proceeds from the sales of the securities, if any, for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters, repayment of indebtedness, and capital expenditures. The Company may also use a portion of the proceeds to acquire or invest in complementary products or businesses.

The sales of the securities of the Company under the Distribution Agreement will be made pursuant to the Company's effective shelf registration statement on Form S-3 (File No. 333-199432)), including the prospectus dated December 3, 2014, as supplemented by a prospectus supplement filed with the Securities and Exchange Commission on January 28, 2015. Prospective investors should read the prospectus supplement, the prospectus and all documents incorporated therein. In the Distribution Agreement, the Company makes customary representations, warranties and covenants and also agrees to indemnify Revere against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments that Revere may be required to make because of such liabilities.

The foregoing is only a brief description of the terms of the Distribution Agreement, does not purport to be a complete description of the rights and obligations of the parties thereunder, and is qualified in its entirety by reference to the Distribution Agreement that is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated by reference herein. The legal opinion of Snell & Wilmer L.L.P. relating to the legality of the issuance and sale of the securities of the Company is attached as Exhibit 5.1 to this Current Report on Form 8-K.

New Element

Up to $50,000,000

Common Stock

This prospectus supplement and accompanying prospectus relate to the offer and sale from time to time of our common stock, $0.0001 par value per share, having an aggregate offering price of up to $50,000,000. Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made in sales deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, (the “Securities Act”). Subject to the terms of the equity distribution agreement, we agreed to issue and sell exclusively through Revere Securities, LLC (“Revere”), acting as sales agent, and Revere agreed to use its best efforts to sell for us, the shares of our common stock offered by this prospectus supplement. Revere will be deemed an “underwriter” within the meaning of the Securities Act. Sales of the shares, if any, through Revere acting as sales agent, will be made by means of ordinary brokers’ transactions on the NASDAQ Capital Market, or as otherwise agreed by Revere and us. The amount of compensation to be paid by us to Revere with respect to each placement (in addition to any expense reimbursements) will be equal to 5.00% of the gross proceeds from each placement.

As of January 26, 2015, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was approximately $17,444,242 based on 15,575,216 shares of outstanding common stock held by non-affiliates (compared to 31,199,816 shares of Common Stock outstanding including shares held by affiliates), at a price of $1.12 per share, which was the last reported sale price of our common stock on The NASDAQ Capital Market on January 26, 2015. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell common stock in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period so long as our public float remains below $75,000,000. We have not sold any common stock pursuant to General Instruction I.B.6 of Form S-3 during the 12 calendar months prior to and including the date of this prospectus.

Our common stock is traded on the NASDAQ Capital Market under the symbol “NETE.” On January 26, 2015, the last reported sale price of our common stock on the NASDAQ Capital Market was $1.12 per share.

Item 1.01 Entry into a Material Definitive Agreement.

On November 14, 2014, TOT Money Limited Liability Company (“TOT Money”), which is an indirect subsidiary of Net Element, Inc. (the “Company”), entered into a factoring services agreement (together with related and ancillary agreements, collectively, the “Agreement”), dated as of November 5, 2014, with Open Joint-Stock Company “Bank Otkritie Financial Corporation” (“Bank Otkritie”).

Pursuant to the Agreement, TOT Money will assign to Bank Otkritie its accounts receivable as security for financing in an aggregate amount of up to 200 million Russian rubles (or approximately US$4,237,288 based on the currency exchange rate as of the close of business on November 17, 2014) provided by Bank Otkritie to TOT Money. Pursuant to the Agreement, Bank Otkritie is required to track the status of TOT Money’s account receivables, monitor timeliness of payment of such accounts receivable, and provide related services. The term of the agreement is from November 5, 2014 until November 5, 2017.

Bank Otkritie’s compensation pursuant to the Agreement for providing services for the administrative management of accounts receivable is 50 Russian rubles per account receivable. Bank Otkritie’s compensation pursuant to the Agreement for providing financing to TOT Money is calculated as a financing rate that ranges from 14.25% to 15.65% of the amounts borrowed, depending on the number of days in the period from the date financing is provided until the date the applicable account receivable is paid; provided, however, Bank Otkritie has the unilateral right to change such financing rates upon notice to TOT Money.

If there is a delay in payment by TOT Money of any sums due to Bank Otkritie under the Agreement, Bank Otkritie has the right to demand that TOT Money pay a penalty in the amount of 0.3% of the outstanding debt for each day of delay. The Agreement may be terminated by Bank Otkritie and the financial obligations of TOT Money under the Agreement may be accelerated in certain circumstances, including, without limitation: (i) if TOT Money violates its obligations under the Agreement; (ii) if insolvency or involuntary liquidation proceedings are initiated with respect to TOT Money; (iii) if TOT Money’s financial condition deteriorates, including unprofitable activity that leads to a 25% or more reduction of TOT Money’s net assets; (iv) if TOT Money makes amendments to the contracts that are the subject of the assigned accounts receivable without the consent of Bank Otkritie, (v) if TOT Money’s legal status changes, (vi) if TOT Money assigns any invalid or non-existing account receivable to Bank Otkritie, or (vii) if certain other conditions exist as specified in the Agreement.

The above description of the Agreement is intended as a summary only and is qualified in its entirety by the terms and conditions set forth therein. Copies of the Agreement are attached hereto as Exhibits 10.1 and 10.2 and are incorporated herein by this reference.

NET ELEMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Management Discussion and Analysis

We reported a net loss of $9,058,835 or ($0.23) per share, for the three months ended September 30, 2014 as compared with a net loss of $3,869,613 or ($0.13) per share, for the three months ended September 30, 2013. Loss from continuing operations (including loss attributable to the non-controlling interest) for the three months ended September 30, 2014 was $9,058,835 ($0.23) per share as compared to a loss from continuing operations of $3,175,474 or ($0.11) per share for the three months ended September 30, 2013. Our net loss for the three months ended September 30, 2014 was primarily the result of a non-cash compensation expense in the amount of $4,621,436 related to stock compensation bonus to the CEO and a loss on debt extinguishment in the amount of $2,221,813.

Net revenues consist primarily of payment processing fees offset by breakage and mobile processing refunds. Net revenues were $6,026,961 for the three months ended September 30, 2014 as compared to $6,520,788 for the three months ended September 30, 2013. The decrease in net revenues is substantially all due to reduced Russian mobile payment processing revenues as we restructured this business with new management and our own proprietary billing system and positioned it for future growth, which impacted revenues unfavorably by $549,802. Transaction processing fees in the U.S. increased $55,975.

The net loss attributable to noncontrolling interests amounted to $9,912 for the three months ended September 30, 2014 as compared to $266,001 noncontrolling loss for the three months ended September 30, 2013. The $9,912 was attributed to TOT Group’s Aptito subsidiary. The noncontrolling interest reflects the results of operations of subsidiaries that are allocable to equity owners other than the Company.

Item 1.01 Entry into a Material Definitive Agreement.

 
On September 17, 2014, OOO TOT Money (“TOT Money”), which is an indirect subsidiary of Net Element, Inc. (the “Company”), entered into the Supplement Agreement No. 15 between JSC Alpha-Bank and TOT Money (“Amendment No. 15”), which renews and amends the General Agreement No. TR-0672 on General Conditions of Financing against Assignment of Receivables (Factoring) within Russian Federation, dated September 19, 2012, between JSC Alpha-Bank and TOT Money (as amended and supplemented prior to the date hereof by supplement agreements, the “Factoring Credit Facility”).

The Factoring Credit Facility expired on April 20, 2014 and was paid off in full. Pursuant to Amendment No. 15, the Factoring Credit Facility was renewed and will expire on June 30, 2016. Pursuant to Amendment No. 15, Alfa-Bank's compensation fees (commissions) for providing financing to TOT Money was amended to be computed as a financing rate that ranges from 13.22% to 14.50% of the amounts borrowed, depending upon the number of days in the period from the date financing is provided until the date the applicable account receivable is paid. Further, pursuant to Amendment No. 15, the maximum amount of financing on account of the monetary claim assigned by TOT Money to debtor was increased from 80% to 100% of the assigned amount of monetary claim against which the financing is effected.

Also, on September 17, 2014, TOT Money entered into the Supplement Agreement No. 14 between JSC Alpha-Bank and TOT Money (“Amendment No. 14”), which renews and amends the Factoring Credit Facility. Pursuant to Amendment No. 14, the maximum aggregate limit of financing (secured by TOT Money’s accounts receivable) to be provided by Alfa-Bank to TOT Money under the Factoring Credit Facility was increased to 415 million Russian rubles (approximately US$ 10,814,614 based on the currency exchange rate on September 17, 2014). In addition, pursuant to Amendment No. 14, Alfa-Bank's compensation fees (commissions) for providing financing to TOT Money was amended to be computed as a financing rate that ranges from 13.22% to 14.50% of the amounts borrowed, depending upon the number of days in the period from the date financing is provided until the date the applicable account receivable is paid.

The above description of Amendment No. 14 and Amendment No. 15 is intended as a summary only and is qualified in its entirety by the terms and conditions set forth therein. Copies of Amendment No. 14 and Amendment No. 15 are attached hereto as Exhibits 10.1 and 10.2 and are incorporated herein by this reference.

Item 1.01 Entry into a Material Definitive Agreement.

On September 17, 2014, as a result of the true up under the Master Exchange Agreement dated as of September 15, 2014 (the “Agreement”) between the Company and with Crede CG III, Ltd., an exempted company incorporated under the laws of Bermuda (“Crede”), the Company issued an additional 2,000,000 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”). As a result of further true up under the Agreement, Crede is obligated to return to the Company 101,816 shares of Common Stock. After such issuance on September 17, 2014, the true-up period for exchange of the notes purchased by Crede was terminated, concluding the Company’s share issuance obligations to Crede.

Item 1.01 Entry into a Material Definitive Agreement.

 
On September 15, 2014, Net Element, Inc., a Delaware corporation (the “Company”), entered into a Master Exchange Agreement, (the “Agreement”) with Crede CG III, Ltd., an exempted company incorporated under the laws of Bermuda (“Crede”). Prior to entering into the Agreement, Crede acquired two existing promissory notes that had been previously issued by the Company, one with $2,343,500 principal amount outstanding plus interest due to Capital Sources of New York and the other with $13,533,360 principal amount outstanding plus interest due to Georgia Notes 18, LLC. Pursuant to the Agreement, the Company and Crede agreed to exchange, in whole or in part, these promissory notes for such number of shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), as determined under the Agreement based upon 80% of the volume-weighted average trading price of the Common Stock for a specified period of time (up to 90 trading days) subsequent to each exchange (the “True-Up Period”).

The initial number of shares of Common Stock issuable upon exchange will be determined by dividing (i) 125% of the principal and interest under the promissory note(s) to be exchanged, as well as any other amounts owed by the Company to Crede with respect to such promissory note(s) to be exchanged by (ii) an “exchange price” determined as the closing bid price of the Common Stock on the date of the applicable exchange (provided, however, that the Agreement provides that the “exchange price” for the initial exchange (described further below) is $5.70), in each case subject to adjustments over the True-Up Period following the exchange as set forth in the Agreement.

The Agreement provides that the Company will not effect any exchange or otherwise issue any shares of Common Stock under the Agreement if, after giving effect to such exchange or other share issuance under the Agreement, Crede and its affiliates would beneficially own in excess of 9.99% of the outstanding Common Stock. The Agreement further provides that, under no circumstances may the aggregate number shares of Common Stock issued to Crede under the Agreement at any time exceed 19.99% of the total number of shares of Common Stock outstanding or of the voting power unless the Company has obtained either (i) its stockholders' approval of the issuance of more than such number of shares of Common Stock pursuant to NASDAQ Marketplace Rule 5635(d) or (ii) a waiver from The NASDAQ Stock Market of the Company’s compliance with Rule 5635(d).

NET ELEMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Management Discussion and Analysis

Results of Operations for the Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013

We reported net income of $1,347,769 or $.04 per share, for the three months ended June 30, 2014 as compared with a net loss of ($20,231,697) or $(0.72) per share, for the three months ended June 30, 2013. Income from continuing operations (including income attributable to the non-controlling interest) for the three months ended June 30, 2014 was $1,347,769 or $.04 per share as compared to a loss from continuing operations of ($19,978,177) or ($.71) per share for the three months ended June 30, 2013. Our net income for the three months ended June 30, 2014 was primarily the result of gains from restructuring of the MBF debt of $1,596,000, the net effect from Cayman Invest note conversion of $562,908, recovery of $352,993 in mobile operator penalties and a reduction in bad debt allowance of $1,640,111 for aggregator advances in our mobile payment processing business.

Net revenues consist primarily of payment processing fees. Net revenues were $4,912,035 for the three months ended June 30, 2014 as compared to $5,607,609 for the three months ended June 30, 2013. The decrease in net revenues is primarily due to the mobile payment processing operation change of its billing system and business development personnel which impacted revenues unfavorably by $666,953.

Item 1.01 Entry into a Material Definitive Agreement.

Effective June 30, 2014, TOT Group, Inc., a subsidiary of Net Element, Inc. (the “Company), TOT Payments, LLC, TOT BPS, LLC, TOT FBS, LLC, Process Pink, LLC, TOT HPS, LLC and TOT New Edge, LLC, each a subsidiary of TOT Group, Inc., as co-borrowers, entered into a Loan and Security Agreement with RBL Capital Group, LLC, as lender (the “RBL Loan Agreement”). Pursuant to the RBL Loan Agreement, RBL Capital Group agreed to extend to the co-borrowers a credit facility under which such co-borrowers may borrow up to $10,000,000 from RBL Capital Group during the period of 18 months from the closing of this credit facility. Prior to maturity of the loan, the principal amount of the borrowings under the credit facility will carry a fixed interest rate of the higher of 13.90% per annum and the prime rate plus 10.65%. After maturity of the loan, until all borrowings are paid in full, with respect to the advances under the credit facility, an additional three percent per annum would be added to such interest rate, and for any other amounts, obligations or payments due to RBL Capital Group, an annual default rate will not to exceed the lesser of (i) the prime rate plus 13% per annum and (ii) 18.635% per annum.

The co-borrowers’ obligations to RBL Capital Group 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 co-borrowers.

On June 30, 2014, as a result of the closing of the credit facility under the RBL Loan Agreement, the entire principal amount of the Secured Convertible Senior Promissory Note, dated April 21, 2014 (the “Note”), in the original principal amount of $11,200,000 issued by the Company to Cayman Invest, S.A. (“CI”), was converted into shares of common stock of the Company constituting 15% of the then outstanding shares of common stock the Company. Accordingly, the Note is no longer outstanding.

NET ELEMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Management Discussion and Analysis

Results of Operations for the Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

We reported a net loss of $3,593,328 or $(0.11) per share, for the three months ended March 31, 2014 as compared with a net loss of $3,233,831, or $(0.12) per share, for the three months ended March 31, 2013. Loss from continuing operations (including loss attributable to the non-controlling interest) for the three months ended March 31, 2014 was $3,622,018 or $(0.11) per share as compared to a loss from continuing operations of $2,862,701 or ($.10) per share for three months ended March 31, 2013. Our net loss for the three months ended March 31, 2014 and 2013 primarily resulted from our impairment of goodwill, increase in provision for loan losses and general and administrative expenses, as discussed further below.

Net revenues consist primarily of payment processing fees. Net revenues were $4,843,479 for the three months ended March 31, 2014 as compared to $868,150 for the three months ended March 31, 2013. The increase in net revenues is primarily a result of the purchase of Unified Payments, LLC in April 2013. The following table sets forth our sources of revenues for the three month periods ended March 31, 2014 and 2013.

The net loss attributable to noncontrolling interests amounted to $28,690 or the three months ended March 31, 2014 as compared to net income of $188 for the three months ended March 31, 2013. The $28,690 was primarily attributed to TOT Group’s Aptito subsidiary ($28,150). The noncontrolling interest reflects the results of operations of subsidiaries that are allocable to equity owners other than the Company.

Item 1.01 Entry into a Material Definitive Agreement.

On April 21, 2014, Net Element, Inc. (the “Company”) entered into a Secured Convertible Senior Promissory Note (the “Note”) with Cayman Invest, S.A. (“CI”). Pursuant to the Note, CI agreed to loan to the Company $11,200,000.00. No interest will accrue under the Note; provided, however, that upon a default under the Note, the Note will accrue simple interest, at 12% per annum. Prior to March 31, 2015, effective upon a first financing closing after the date of the Note, in which the Company receives financing of at least $10 million from a third party (the “Qualified Financing”), the entire principal amount of the Note will be automatically converted into common shares of the Company equal to 15% of the then outstanding shares of the Company. Effective upon an equity financing after the date of this Note in which the Company issues stock, (other than a Qualified Financing) or at any time before or after March 31, 2015, at the option of CI, the entire principal amount of the Note may be converted into common shares of the Company equal to 15% of the then outstanding shares of the Company. Unless converted, the outstanding amount under the Note will be due and payable on the earlier of March 31, 2015 and the closing of a sale of a majority of the ownership of the Company or any voluntary or involuntary liquidation, dissolution or winding up of the Company. Under the Note, the Company agreed to take all actions to have the obligations under the Note positioned as a senior security interest secured by all assets of the Company and by those payment processing portfolios owned by the Company as of the date of the Note.

Item 4.01 Changes in Registrant’s Certifying Accountant.

On April 16, 2014, the Audit Committee of Net Element, Inc. (the “Company”) approved the engagement of Daszkal Bolton LLP (“Daszkal Bolton”) as its independent registered public accounting firm to audit the Company’s financial statements beginning with the fiscal year ending December 31, 2014.

During the Company’s two most recent fiscal years, and any subsequent interim period prior to engaging Daszkal Bolton, neither the Company (nor someone on its behalf) has consulted with Daszkal Bolton regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, nor was a written report or oral advice provided to the Company that Daszkal Bolton concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue, or on any matter that was the subject of a disagreement (as defined in paragraph (a)(1)(iv) and the related instructions to Item 304(a)(2) of Regulation S-K) or a reportable event (as described in paragraph (a)(1)(v) to Item 304(a)(2) of Regulation S-K).

Item 4.01 Changes in Registrant’s Certifying Accountant.

On April 4, 2014, Net Element, Inc.’s (the “Company”) current auditor, BDO USA LLP (“BDO”), informed the Company and its Audit Committee of its decision to not stand for re-election after completion of the audit of the Company’s consolidated financial statements for the year ended December 31, 2013.

BDO’s audit and related report on the Company's consolidated financial statements for the year ended December 31, 2013 has not been completed as of the date of this filing. The reports of BDO on the Company’s consolidated financial statements as of and for the year ended December 31, 2012 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles, except for an opinion expressing substantial doubt about the ability of the Company to continue as a going concern.

During the two most recently completed year ends, and during the subsequent interim period through April 4, 2014, there have been no disagreements between the Company and BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO, would have caused BDO to make reference thereto in BDO’s reports on the Company’s financial statements for such periods. During the year ended December 31, 2012, and through the subsequent interim period through April 4, 2014, there was a “reportable event” as described in Item 304(a)(1)(v) of Regulation S-K. As disclosed in our Form 10-K for the year ended December 31, 2012, there are material weaknesses in the Company’s internal controls over financial reporting.

Item 1.01 Entry into a Material Definitive Agreement.

On February 11, 2014, Net Element, Inc. (the "Company") executed an Assignment of Membership Interest in favor of T1T Group, LLC ("T1T Group”). Pursuant to such assignment, the Company transferred to T1T Group all of the Company’s Interests in T1T LAB, LLC in consideration for the Company being released from all of its obligations to T1T LAB, LLC (including the obligations to make capital contributions to T1T LAB, LLC). The Company previously owned ten percent (10%) of the membership interest in T1T LAB, LLC. Upon such assignment, the Company has no further interests or obligations to T1T LAB, LLC. Oleg Firer, previously appointed as an “Executive” of T1T LAB, LLC, resigned his position with that entity effective February 11, 2014.

Item 1.01 Entry into a Material Definitive Agreement.

On May 21, 2013, Net Element International, Inc. (the “Company”) and its subsidiary, TOT Group, Inc. (“TOT”), entered into a binding term sheet (the “Term Sheet”) to acquire substantially all of the business assets of Aptito.com, Inc., a New York corporation (“Aptito”). Aptito’s business includes the development, implementation and sales of an all-in-one, cloud-based, digital point-of-sale software and customer relations management and payments platform. Aptito’s Restaurant mPOS is a tablet-based point-of-sale solution that combines traditional point-of-sale functionality with mobile ordering, payments, social media, intelligent offers, mobile applications, loyalty and transactional data all in one solution using Aptito’s cloud-based payments platform. The parties agreed to undertake good faith efforts to close the transaction as soon as possible but not later than May 31, 2013.

Pursuant to the Term Sheet, Aptito will contribute (the “Contribution”) substantially all of its business assets to a newly formed subsidiary of TOT (“NewCo”). As consideration for the Contribution: (a) NewCo will assume approximately $200,000 of Aptito’s auditable debt; (b) the Company will issue to the seller 125,000 restricted shares of the Company’s common stock, which will vest quarterly over 12 months; and (c) NewCo will issue to the seller a 20% equity interest in NewCo. TOT will have an option to purchase the seller’s 20% equity interest in NewCo, with the purchase price based on the fair market value of NewCo as of the end of the calendar month immediately preceding TOT’s request for a valuation in accordance with the terms of the option, payable in cash, cancellation of indebtedness, shares of the Company’s common stock or a combination of the foregoing.

The consummation of the Contribution is subject to the satisfaction (or TOT’s written waiver in its sole and absolute discretion) of the following conditions: (i) the completion of definitive documentation relating to the Contribution; (ii) the completion of due diligence of Aptito and its business, operations, assets, liabilities, financial condition, legal proceedings, contracts and other matters, to the reasonable satisfaction of TOT; (iii) receipt of all necessary consents and approvals, including consents of Aptito’s lenders to the assumption of Aptito’s debt by NewCo without triggering any default or acceleration of such debt; (iv) no material adverse change to Aptito or its business; (v) the entry into a two-year consulting agreement with Genira Enterprises, Inc., a New York corporation (“Genira”), whereby Genira will provide certain services to NewCo including sales, marketing and product development relating to Aptito’s business, which consulting agreement would include customary non-competition provisions and provide for consulting fees of $125,000 per year and a potential annual bonus of $50,000 based on achieved milestones to be tied to the financial pro-forma of NewCo; and (vi) other customary closing conditions.

On May 22, 2013, the Company issued a press release announcing the Company’s entry into the Term Sheet to acquire Aptito. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by this reference.

Net Element (OTCQB: NETE), a global publisher of online destinations and soon-to-be operator of a mobile commerce platform for Russia and other emerging markets, and Cazador Acquisition Corporation (NASDAQ: CAZA, CAZAU, CAZAW), a special purpose acquisition company (SPAC), today announced the execution of a merger agreement that will infuse up to $81 million into Net Element and provide the necessary financial resources for the company’s next stage of growth.