Net Element, Inc.

IFS Securities: Important disclosures appear at the back of this report.

STRONG BUYNETE US

Current Price: $1.41Target Price: $5.50

SHAREHOLDINGS

Top 10 Institutions (%)

Net Element, Inc. (NETE)

Net Element, Inc. (“NETE”), is an emerging leader in the payment processingindustry as the merchant and consumer continue to shift to a cashlesspayment arrangement globally. The Company’s strategic transition towardmobile payment processing and value-added transactional services continueto drive improved performance during 3Q14. The significant debt reductioninitiatives undertaken by the management lowered its outstanding total debtbalance by $13.7 mn to $3.3 mn at the end of 3Q14. The Company wassuccessful in trimming its quarterly loss situation following the divestment ofits non-core assets. The enormous growth in the online retail and m-commerce business globally and NETE’s ability to provide service to Apple Payusers, particularly drives interest and we expect full FY14 revenue of $26.3mn and to post 5-Year CAGR of 27.5% between FY15 through FY19. Weestimate EBITDA of negative $3.7 mn in FY14e from negative $26 mn in FY13.We maintain our “STRONG BUY” rating with a price target of $5.5 /sharebased on DCF valuation.

Third Quarter 2014 Highlights:

• Revenue declined by 7.6% YoY to $6.0 mn, due to restructuring of itsRussian mobile payment processing business

• Led by lower operating expenses, adjusted EBITDA margin trimmed tonegative 12.2% from negative 23.3% in 3Q13

• Adjusted net loss from continuing operations was $2.2 mn or a loss of $0.05/shras compared to an adjusted loss $3.4 mn or a loss of $0.11/shr during 3Q13

• Operating activities generated $3.0 mn positive cash flow in 9M14, ascompared to $6.4 m of net cash used during 9M13

• Secured $11.0 mn and $10.0 mn financing from Alfa-Bank and RBL CapitalGroup, LLC respectively to to fuel its growth initiatives

• Finalized debt exchange transaction with Crede CG III, Ltd., to strengthen itsbalance sheet

• Total debt was reduced to $3.3 mn, versus total debt of $29.6 mn in FY13.Total stockholders’ equity was $7.0 mn as compared to deficit of $15.4 mnat the end of FY13

• Leadership appointed to Electronic Transactions Association (ETA) committees.The appointment demonstrates Net Element’s commitment to the paymentsindustry and expands Company’s visibility in industry organization

• Financial services industry veteran Mr. William Healy was appointed to theNet Element board of directors

MARKET DATA

Price (closing 11/17/14) $1.41

Diluted shares (in M) 45.62

Market cap ($ in M) 64.78

Net Debt ($ in M) 1.91

EV ($ in mn) 66.87

Exchange NASDAQ

Industry Payment Processing

ISIN US64111R1023

Bloomberg NETE:US

Reuters NETE.OQ

$ in M 2013 2014e 2015e 2016e

SALES 18.8 26.3 36.4 47.3

% growth 1253.9 40.0 38.5 30.1

Adj. EBITDA (26.0) (3.7) (0.4) 3.79

% margin (138.4) (14.1) (1.1) 8.0

Adj. PAT (31.6) (7.1) (2.2) 0.4

% margin (168.3) (27.1) (6.0) 0.9

2013 2014e 2015e 2016e

EV/Sales 58.0 8.2 4.2 3.1

EV/A.EBITDA (11.6) (5.9) (29.9) (280.7)

Forward PB 0.8 (0.5) (0.2) (0.2)

REPORT CARD

Management A

Financials B

Catalysts A

Valuation A

Marco BonelliHead of Research+1 (404) 419-7599marco.bonelli@ifssecurities.com

The Vanguard Group, Inc. 0.48Two Sigma Investments LLC 0.10Goldman Sachs & Co. (Pvt.Banking) 0.07Deut. Asset & Wlth Mgmt Invst GmbH 0.07Geode Capital Management LLC 0.04Jane Street Capital LLC 0.03Nomura Secu Co., Ltd. (Pvt. Banking) 0.02Morgan Stanley Smith Barney LLC 0.01Citigroup Global Markets Inc. (Broker) 0.01Tower Research Capital LLC 0.00

Total 0.84

Result Updates

Net Element, Inc.

2

About the Company

Net Element, Inc. (“NETE”), is a global financial technology-driven group specializing in mobile payments and value-added transactional services. The company owns and operates a global mobile payments and transactional processingprovider, TOT Group, Inc. (“TOT Group”). TOT Group companies include Unified Payments, recognized by Inc.Magazine as the #1 Fastest Growing Company in America in 2012; Aptito, a next generation cloud-based point of salepayments platform; and TOT Money, a leading provider of mobile payments, Premium SMS messaging and mobilebilling solutions. In April 2013, it acquired Unified Payments. In June 2013, the Company completed its acquisition ofAptito.

INVESTMENT RATIONALE

• Payment processing industry possesses tremendous opportunityThe payment processing industry in the U.S. is continuously expanding and is expected to grow at a double-digitgrowth rate on the back of the rising E-commerce market and more secured process, offering tremendousopportunity to NETE in monetizing its broad payment processing portfolio of recently-- acquired Unified Payment,which Inc. Magazine recognized as the #1 Fastest Growing Company in America in 2012.

• Apple Pay to further fuel mobile payment processing businessNETE to integrate Apple Pay into its POS acceptance hardware/software, enabling merchants the ability to acceptApple Pay from ~70-80mn potential iPhone 6s’ and Apple Watch users. Riding on the high growth m-commercemarket and integrating with Apple Pay’s mobile payments acceptance offering to grow at ~66% p.a. in FY14e andFY15e.

• Raised fund to expand to penetrate into other Emerging MarketNETE announced $30mn financing round in April 2014 to accelerate its growth initiatives in Russia and otheremerging markets and successfully arranged $32.2mn by now [Fact check: 11.2 cayman + 10 RBL + 11 Alfa = 32.2]. Italso entered into a debt exchange agreement with Crede, immediately eliminated $15.9mn of indebtedness undercertain promissory notes, bringing total funding raised in 2014 through Sept. 2014 of $48.1mn, exceeding its $30mntarget.

Net Element, Inc.

3

Financial Analysis

6.55.8

4.8 4.9

6.0

-11.3%-17.2%

2.6%

22.7%

-25.0%

-15.0%

-5.0%

5.0%

15.0%

25.0%

35.0%

0.0

2.0

4.0

6.0

8.0

3Q13 4Q13 1Q14 2Q14 3Q14

$ in

Mill

ion

NETE’s Total Revenue by Quarter: 3Q13 – 3Q14

Revenue Q-o-Q growth

Revenue: Up by 22.7% QoQ; Down by 7.6% YoY

Driven by organic growth of its current portfolios andintegration of recent acquisitions, NETE reportedsteady growth in revenue during the last 2 quartersas compared to declining trend between 3Q13through 1Q14. The Company restructured itsRussian mobile payment processing revenuesbusiness with new management and its ownproprietary billing system to position it for futuregrowth.

5.54.7 4.0 4.6

5.6

1.01.1

0.7 0.3

0.5

0.0

2.0

4.0

6.0

8.0

3Q13 4Q13 1Q14 2Q14 3Q14

$ in

Mill

ion

NETE's Quarterly Revenue by Segments

Transaction processing services Mobile payments

Segmental Revenue:Transaction processing services: Up by 21.7% QoQ;Up by 1.0% YoYMobile payments: Up by 36.4% QoQ; Down by54.4% YoY

For full FY14, we expect the Company to clock$19.7 mn revenue from transaction processingservices and $6.6 mn revenue from mobilepayment processing.

29% 26%32%

22%

-23%

-40%

26%

-12%

-35%

-53%

13%

-24%

-52%

-76%

41%

-37%

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

3Q13 1Q14 2Q14 3Q14

NETE's Profitability Margins

Adj. Gross Profit Adj. EBITDA Adj. Op. Income Adj. PAT

Profitability Margins

Replacing old higher margin portfolio with newportfolio at lower competitive margins impactedgross profit margin during 3Q14, however loweroperating expenses and interest expenses drove theimprovement in operating margins. Going forward,higher sales, lower interest expense on account ofsignificant debt repayment in FY14 and loweramortization charges in each quarter, as theCompany reaches full amortization on additionalcapitalized portfolios, is likely to drive improvementin profit margins and we expect the Company tobreakeven by FY16.

Operating expenses: Up by 74.3% QoQ; Down by15.7% YoY

Adjusted operating expenses, as a % of totalrevenue, declined to 124% as compared to 135%during 3Q13. General and administrative (G&A)expenses declined by 33.1% YoY due to loweroutflow on account of salaries and benefits andprofessional fees travel and rent.

4.65 4.343.53 3.35

4.72

2.852.65

3.091.85

1.91

0.800.79

0.59

0.62

0.68

0.00

2.00

4.00

6.00

8.00

3Q13 4Q13 1Q14 2Q14 3Q14

$ in

mill

ion

Cost Breakup

Cost of revenue G&A D&A

Net Element, Inc.

4

Per Share performance

The Company’s adjusted net loss from continuingoperations was $2.2 mn or a loss of $0.05/shr ascompared to an adjusted loss $3.4 mn or a loss of$0.11/shr during 3Q13. For full FY14, we expectloss per share to be close to $0.15 and furtherexpect the Company to report positive earningsfrom FY16 onwards.

No dividends were declared and paid during theperiod under consideration.

Capital Employed & Working Capital position

Working capital positions have improvedconsiderably during last five quarters following thedecrease in overall current liabilities mostspecifically due to repayment of short-term loansand notes payable during 3Q14. Improvingworking capital balance acts as a great cushion fordaily liquidity requirements and is also responsiblefor rising level of capital employed during theperiod.

Equity & Total Debt

The significant reduction in debt was those in theU.S. business and in the Russian mobile paymentsbusiness. During Sept’14, it completed a debtexchange program with Crede CG III, Ltd., whicheliminated both the Capital Sources of New York,LLC ($2.3 mn) and Georgia Notes 18, LLC ($13.5mn) debt obligations. Additionally, NETE'sfactoring line at Alfa-Bank was $2.9K at Sept’14 ascompared to $8.5 mn at Dec’13. This is due totiming of the renewal of this line of credit andlower current volume of Russian mobile payment.

Due to the impact of above, the managementexpects going forward that its annual interestexpense will be close to $0.12mn - $0.14 mn ascompared to interest expense of ~$3 mn incurredduring FY13.

The Company’s management succeeded in improvingthe equity balance position by narrowing its netlosses. The total shareholders’ equity stood at $7.0mn at the end of Sept’14 as compared to deficitbalance of $15.4 mn at the end of Dec’13.

-0.11

-0.44

-0.11 -0.04

-0.23

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

3Q13 4Q13 1Q14 2Q14 3Q14

Am

ou

nt

in $

NETE’s Reported Earnings (Loss) per Share during3Q13 – 3Q14

Financial Analysis

8.6

1.8 3.0

10.4 10.2

(7.0) (8.1) (7.0)

(0.9) (0.6)

-10.0

0.0

10.0

20.0

30.0

3Q13 4Q13 1Q14 2Q14 3Q14

$ in

Mill

ion

NETE’s Capital Employed & Working Capital position as at

Capital Employed Working Capital (Excl. Cash & Cash Equivalents)

30.9 29.6 28.6

17.0

3.3

-10.4-15.4 -16.6

-6.2

7.0

-2.6 -1.9 -1.7 -2.5

0.3

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0

-25.0

-15.0

-5.0

5.0

15.0

25.0

35.0

45.0

3Q13 4Q13 1Q14 2Q14 3Q14

in t

imes

$ in

Mill

ion

NETE’s Equity, Total Debt & Net Gearing ratio as at

Total Debt Equity Net Gearing ratio

Net Element, Inc.

NETE is relatively a small player in the U.S. payment processing market and competes with many large and smallplayers in the industry. Unlike large players, the Company is yet to demonstrate its profitability, however it isaggressively reorganizing its business through meaningful acquisitions (Unified Payments, TOT Money, etc.) and hasdelivered comparatively improving performance during the first six months of FY14. It has arranged adequateadditional financing to pursue its ambitious plan in mobile payment and e-commerce markets in emerging countrieswhich is expected to drive overall positive net results in next 3-5 years. NETE occupies 8th position among 11companies considered above. This is largely due to the fact that the industry is denominated with quite establishedlarge players in the payment processing industry, whereas NETE is a nearly new player in this segment. With anexcellent management track record and ability to grow fastest in U.S. and differentiate through value-added offeringscertainly drives our interest.

5

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Currency USD USD USD USD USD USD USD USD USD USD USD

Reuter Ticker Symbol NETE.OQ GPN.N WEX.N HPY.N VNTV.N UEPS.O GCA.N PYDS.PK NEWT.OQ MYEC.PK SPDL.PK

Share Price (10/07/2014) 2.06 75.62 107.01 48.69 31.68 12.18 6.95 0.14 2.65 0.02 0.85

% shareholdings by top 10 institutional shareholders

9 0.4% 44.9% 47.4% 73.2% 53.5% 43.6% 44.4% 0.0% 10.7% 0.4% 0.1%

KEY INFORMATION

Revenue (M in USD) (TTM) 8 22.0 2,550.0 757.5 2,190.0 2,240.0 581.7 582.1 9.2 146.7 0.1 1.1

Net income (M in USD) (TTM) 11 (26.4) 245.3 158.2 72.6 105.3 69.4 23.7 0.4 7.0 0.9 (6.5)

Market cap (M in USD) 8 98.7 5,221.6 4,218.7 1,762.5 5,926.6 586.7 457.6 16.1 102.5 94.3 39.4

VALUATION RATIOS (x)

EV/Revenue (TTM) 7 4.5 2.5 6.2 0.9 3.4 1.0 0.7 (4.8) 1.4 - 30.7

EV/EBITDA (TTM) 7 (5.2) 12.2 15.2 11.7 14.1 3.9 6.1 (95.5) 9.0 - (5.4)

Price/Sales (TTM) 9 3.8 2.0 5.6 0.8 2.0 1.0 0.8 1.8 0.7 0.3 30.9

Beta 2 0.4 1.1 1.6 0.9 0.5 1.2 1.3 0.4 0.4 - -

EFFICIENCY (x)

Asset Turnover (TTM) 3 1.1 0.7 0.2 2.5 0.4 0.4 1.0 0.3 0.8 3.0 0.2

Receivables Turnover (TTM) 8 3.5 12.6 0.4 9.9 4.9 4.6 18.9 12.1 - 9.0

MANAGEMENT EFFECTIVENESS (%)

Return on Assets (TTM) 11 (133.5%) 7.6% 4.3% 7.9% 3.0% 5.3% 4.2% 1.1% 3.8% 3,264.2% (90.8%)

Return on Investment (TTM) 10 (200.0%) 10.9% 7.5% 16.6% 4.0% 14.1% 7.3% 32.3% 4.3% - (100.1%)

PROFITABILITY (%)

Gross Margin (TTM) 7 28.0% 62.7% 59.1% 14.5% 54.7% 55.3% 24.5% 24.2% - 97.3% 51.7%

EBITD Margin (TTM) 10 (97.3%) 20.7% 47.2% 13.3% 24.5% 26.4% 10.8% 5.0% 16.1% (9.5%) (548.5%)

Operating Margin (TTM) 10 (124.7%) 16.0% 38.4% 5.6% 13.3% 17.5% 7.8% 4.6% 13.7% (9.5%) (593.0%)

Net Profit Margin (TTM) 9 (122.5%) 10.6% 20.7% 3.2% 7.3% 12.0% 4.1% 3.9% 4.7% - (600.2%)

FINANCIAL STRENGTH (x)

LT Debt to Equity (MRQ) 10 11.3 1.4 0.0 0.8 4.2 0.2 0.4 0.0 1.3 - 0.0

Total Debt to Equity (MRQ) 8 1.6 1.8 0.7 1.1 4.3 0.2 0.4 0.0 1.3 5.7 0.0

GROWTH RATES (%)

Revenue(TTM) vs TTM 1 Yr. ago 2 1253.9% 7.5% 15.1% 6.1% 13.1% 28.6% (0.3%) (29.5%) 9.5% - 1,474.2%

CAPEX (5 yr growth) - - 14.7% 19.6% 8.6% - 38.0% 9.7% 26.8% (10.3%) - 250.5%

RANK 8

Source: Thomson Reuters, Market ft.com, Yahoo Finance

Global Peer Comparison

Net Element, Inc.

Valuation

NETE enjoys competitive advantages protected byrobust, sustainable, and self‐reinforcing structuralmoats, leveraging through its broad portfolio ofsuccessful payment processing solution for both weband hand held devices. The Company is expected tobe an emerging leader in its operating segment as themerchant and consumer continue to shift to a cashlesspayment arrangement globally. With the rising trendof online retail and m-commerce business globally andits ability to provide service to Apple Pay users, NETEis expected to enjoy double-digit growth over next 7-9years. Its recent fund arrangement of >$30mn fuels anability to rapidly penetrate into other emergingmarket where the online retailing still demands robustmerchant acquirer. We are attracted to its operationalrecord, management track record and its technology-driven efficiency and believe NETE to achieve a toplineof ~28% CAGR in FY13 - FY20e.

We are bullish on NETE, recommend to “STRONGBUY” the stock with a target price of $5.5/share,achievable in 18-24 months, discounted at a WACC of8.8%, using DCF valuation as our preferredmethodology for valuing the stock, as it incorporatesour long-term view about the Company’s operations.

Particulars ($ in M) FY12 FY13 FY14e FY15e FY16e FY17e FY18e FY19e FY20e

Operating Income (EBIT) -7.2 -28.2 -5.9 -1.3 3.0 6.5 9.7 12.7 16.4

Less: CAPEX 0.5 0.8 1.1 1.6 1.8 1.7 1.4 1.2 1.4

Add: D & A 0.3 2.2 2.2 0.9 0.8 1.0 2.0 1.9 1.8

Current Assets excl. cash 22.4 12.6 8.4 10.7 12.6 14.5 17.6 20.2 21.3

Less: Current Liabilities 11.2 20.7 14.3 20.5 25.6 38.2 39.0 40.6 41.6

Working Capital 11.2 -8.1 -5.9 -9.8 -13.0 -23.7 -21.4 -20.4 -20.3

Increase/( Decrease) in Working Capital: 11.2 -19.3 2.2 -3.9 -3.3 -10.7 2.3 1.0 0.0

Less: Taxes 0.2 0.2 0.0 0.0 0.1 0.6 1.1 1.6 2.2

Free Cash Flow for the Firm/Equity = -18.7 -7.7 -7.0 1.9 5.1 15.9 6.8 10.8 14.5

Terminal Value = 397.4

Present Value of Free Cash Flows = -6.7 1.7 4.2 11.8 4.7 6.8 229.4

Particulars ($ in M except per Share data)

Total Present Value of Free Cash Flows = 251.7

Add: Cash & Cash Equivalents = 1.3

Less: Minority Interest 0.2

Equity Value (Present Value) = 252.8

Number of Shares Outstanding (in M)= 45.7

Fair Value per Share ($)= 5.5

WACC Inputs

Risk-free rate 2.6%

Return on Market 19.1%

Market Risk Premium 16.5%

Beta 0.4

Cost of Equity (CAPM) 9.2%

Tax Rate (%) 34.0%

Equity company 10.0%

Debt company 90.0%

Cost of Debt (before tax) 13.3%

Cost of Debt*(1-T) 8.8%

WAC (Debt) 7.9%

Cost of Equity (CAPM) 9.2%

Equity / Capital 10.0%

WAC (Equity) 0.9%

WACC Conclusion 8.8%

Long term growth rate (assumed) = 5.0%

6

Valuation & Outlook

Net Element, Inc.

7

Sensitivity Analysis

Change in Target Price with a 1% change in WACC

WACC 7.82% 8.82% 9.82% 10.82% 11.82%

Terminal Growth % 5.00% 5.00% 5.00% 5.00% 5.00%

Target Price ($ / Share) 7.75 5.53 4.24 3.40 2.81

Change in Target Price with a 0.5% change in Terminal Growth %

WACC 8.82% 8.82% 8.82% 8.82% 8.82%

Terminal Growth % 4.00% 4.50% 5.00% 5.50% 6.00%

Target Price ($ / Share) 4.45 4.93 5.53 6.31 7.37

Valuation & Outlook

Net Element, Inc.Financial Forecasting (All Non-GAAP)

8

PARTICULARS ($ in M) FY12 FY13 FY14e FY15e FY16e

NET REVENUE

Credit Card Processing Fees 0.00 14.80 19.66 25.42 32.06

Mobile Payment Processing 1.31 3.95 6.59 10.94 15.24

Other Revenues 0.07 0.00 0.00 0.00 0.00

TOTAL REVENUES 1.38 18.75 26.25 36.36 47.30

Cost of Revenues 0.83 13.37 16.83 22.58 29.02

Adj. Gross Profit 0.55 5.37 9.42 13.78 18.28

Operating Expenses

General & Administrative 5.85 11.62 10.50 10.91 10.70

Provision for Loan Losses 1.64 7.64 2.63 3.27 3.78

Goodwill Impairment 0.00 11.20 0.00 0.00 0.00

Total operating expenses 7.49 31.33 13.13 14.18 14.48

Adj. EBITDA -6.93 -25.95 -3.70 -0.40 3.79

Depreciation & Amortization 0.27 2.24 2.17 0.90 0.80

Adj. Operating Income -7.20 -28.19 -5.87 -1.30 2.99

Interest (expense) income, net -0.37 2.98 1.23 0.87 2.48

Other Expense 0.00 0.16 0.00 0.00 0.00

(Loss)/Profit Before Tax -6.83 -31.33 -7.10 -2.17 0.51

Income Tax Expense (Benefit) 0.16 0.21 0.00 0.00 0.08

Adj. Net Profit from cont op. -6.98 -31.55 -7.10 -2.17 0.43

PARTICULARS FY12 FY13 FY14e FY15e FY16e

Diluted Earnings/Sh -0.32 -1.07 -0.15 -0.05 0.01

Book Value/Sh 0.8 -0.5 -0.2 -0.2 -0.2

Dividend Per Share 0.00 0.00 0.00 0.00 0.00

LIQUIDITY RATIOS (x)

Debt/Equity Ratio 0.6 11.3 -0.4 -0.3 -0.6

Current Ratio 2.5 0.6 0.8 0.7 0.6

TURNOVER RATIOS (x)

Net Fixed Assets Turnover Ratio 5.3 94.0 164.2 170.1 180.4

PROFITABILITY RATIOS (%)

EBIT Margin -519.9 -150.4 -22.4 -3.6 6.3

EBITDA Margin -500.7 -138.4 -14.1 -1.1 8.0

Return on Capital Employed -42.0 -1525.8 -99.6 -51.2 287.6

Return on Networth -82.1 -3941.2 58.9 22.1 -4.1

VALUATION RATIOS

P/E (x) -10.9 -4.1 -13.5 -44.3 221.7

P/BV (x) 4.4 -8.1 -10.8 -8.7 -9.0

EV/Sales (x) 58.0 8.2 4.2 3.1 2.4

EV/Adj. EBITDA (x) -11.6 -5.9 -29.9 -280.7 29.7

CAPEX / D&A 1.7 0.4 0.5 1.8 2.3

CAPEX / Sales 33.0% 4.4% 4.4% 4.4% 3.9%

No. of Shares Outstanding = 21.4 28.5 45.7 45.7 45.7

Closing Share price (in $.) = 3.5 4.4 2.1 2.1 2.1

Add: Debt = 9.4 29.6 19.7 21.6 22.3

Minority Interest (in $) = -0.1 -0.1 -0.3 -0.3 -0.3

Preferred shares (in $) = 0.0 0.0 0.0 0.0 0.0

Less: Cash & Cash Eq (in $)= 3.5 0.1 3.0 2.8 3.6

Enterprise Value ($ in M)= 80.3 153.7 110.6 112.7 112.6

DU-Pont ANALYSIS

PAT /PBT 102.3 100.7 100.0 100.0 85.0

PBT/EBIT 94.8 111.1 121.0 166.9 17.0

EBIT/Revenue -519.9 -150.4 -22.4 -3.6 6.3

Revenue/Total Assets 0.05 0.83 1.30 1.58 1.77

Total Asset/Total Equity 1.67 -1.46 -2.32 -2.12 -2.55

Return on Equity (%) -41.1% 204.7% 81.6% 19.9% -4.1%

PARTICULARS ($ in M) FY12 FY13 FY14e FY15e FY16e

Current Assets

Cash & Cash Equivalents 5.60 0.13 3.01 2.82 3.56

Accounts Receivables, net 10.86 10.62 4.55 6.10 6.79

Notes receivable, net 6.09 0.00 0.00 0.00 0.00

Advances to Aggregators, net 4.78 1.11 3.00 3.64 4.73

Prepaid Exp & Oth Curr Assets 0.49 0.83 0.87 1.02 1.09

Total Current Assets 28.01 12.69 11.43 13.57 16.17

Property, Plant & Equipment 0.26 0.14 0.18 0.25 0.28

Intangible Assets, net 0.11 2.96 1.89 2.52 3.51

Goodwill 0.00 6.67 6.67 6.67 6.67

Total Non-Current assets 0.37 9.82 8.79 9.48 10.50

Total Assets 28.38 22.51 20.22 23.06 26.67

Current Liabilities:

Accounts Payables 0.50 3.19 4.47 6.19 8.05

Accrued Expenses 0.91 3.48 2.84 3.46 3.77

Deferred Revenues 0.00 0.24 0.34 0.46 0.60

Notes Payable – current 0.00 3.82 3.80 2.77 3.76

Short term Loans 9.40 8.48 1.31 5.45 7.09

Due to Related Parties - current 0.20 1.45 1.58 2.18 2.36

Total Current Liabilities 11.23 20.66 14.33 20.52 25.63

Non-Current Liabilities:

Notes Payable 0.00 17.26 14.60 13.41 11.48

Total Non-Current Liabilities 0.14 17.26 14.60 13.41 11.48

Total Liabilities 11.37 37.92 28.93 33.94 37.12

Common Stock 0.00 0.00 0.00 0.00 0.00

Paid-in Capital 87.45 103.49 116.46 116.46 116.46

Stock Subscription 0.33 0.00 0.00 0.00

Accum oth Compre. Income 0.28 -0.17 0.99 0.99 0.99

Accumulated Deficit -70.62 -118.93 -125.89 -128.02 -127.59

Non-Controlling Interest -0.10 -0.13 -0.27 -0.31 -0.30

Total Shrholdrs’ (Deficit)/Equity 17.01 -15.41 -8.71 -10.88 -10.44

Total Liab & Shareholders’ Equity 28.38 22.51 20.22 23.06 26.67

PARTICULARS ($ in M) FY12 FY13 FY14e FY15e FY16e

Operating Income (EBIT) -7.2 -28.2 -5.9 -1.3 3.0

Less: CAPEX 0.5 0.8 1.1 1.6 1.8

Add: D & A 0.3 2.2 2.2 0.9 0.8

Current Assets excl. cash 22.4 12.6 8.4 10.7 12.6

Less: Current Liabilities 11.2 20.7 14.3 20.5 25.6

Working Capital 11.2 -8.1 -5.9 -9.8 -13.0

Increase/( Decrease) in Working Capital:

11.2 -19.3 2.2 -3.9 -3.3

Less: Taxes 0.2 0.2 0.0 0.0 0.1

Free Cash Flow for the Firm = -18.7 -7.7 -7.0 1.9 5.1

Net Element, Inc.

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Volume Closing Price Upper Band Middle Band

Lower Band EMA(200) Linear (Closing Price)

-0.75

-0.25

0.25

0.75

1.25 MACD Histogram (12,26,9) MACD (12,26) Signal Line = 9 days EMA

MOVING AVERAGES

EMA(20) EMA(50) EMA(100) EMA(200) Summary

2.33 2.23 2.26 2.73SELL

SELL SELL SELL SELL

MOMENTUM OSCILLATORS & INDICATORS

RSI (14) %K Stoch William %R (14) MACD (12,26,9) Summary

26.04 20.75 -91.85 -0.04NEUTRAL

OVERSOLD NEUTRAL OVERSOLD NEUTRAL

VOLATILITY VOLUME ANALYSIS

ATR (14) Summary Current 1,303,200

0.24 Slightly More Volatile14-days Average 3,035,093

30-days Average 4,608,773

SHORT TERM (14 DAYS) PIVOT TABLE

S1 S2 Pivot Point R1 R2

Classic 1.09 1.57 2.44 2.92 3.79

Fibonacci Levels 1.60 1.92 2.44 2.95 3.27

While NETE’s share prices more than doubled in single trading session on September 10, 2014, following theannouncement of collaboration with Apple, it has very recently moved below the 200- & 20-days EMA and ispresently trading below these levels. Trading volumes in previous trading session (10/07/14) were below the 30-daverage trading volumes of 4.6 mn.

As per the daily chart, the important momentum oscillators are in ‘Oversold’ zone. However, the MACD line(12,26) is negative and is trading below the signal line (12,26,9) suggesting weakness in price on short-term basis.

As per the daily chart, the previous day (10/07/14) closing price of $2.06 is below the short-term pivot level of$2.44. The immediate important support level is $1.92. Price movement above the pivot point is likely to faceresistance around the levels of $2.95.

Technical Analysis

Net Element, Inc.

Important Investor Disclosures

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Ratings and Definitions

IFS Securities, Inc. (U.S.) definitions

Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% isexpected to be realized over the next 12 months.

Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and moreconservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable withthe relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months.

Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months.

Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold.

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Net Element, Inc.

Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that madecoverage

IFS Latin American Rating Definitions

Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months.

Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months.

Market Perform (MP3) Expected to perform in line with the underlying country index.

Underperform (MU4) Expected to underperform the underlying country index.

Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that madecoverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when IFS maybe providing investment banking services to the company. The previous rating and price target are no longer in effect for thissecurity and should not be relied upon.

In transacting in any security, investors should be aware that other securities in the IFS research coverage universe might carry ahigher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other availableinvestments.

Suitability Categories (SR)

Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.

Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small dividend, and thepotential for long-term price appreciation.

Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with lesspredictable earnings and acceptable, but possibly more leveraged balance sheets.

High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitiveissues, higher price volatility (beta), and risk of principal.

Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high riskassociated with success, and a substantial risk of principal.

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Coverage Universe Rating Distribution

IFS

Investment Banking Distribution

IFS

Strong Buy and Outperform (Buy) 100%

Market Perform (Hold) 0%

Underperform (Sell) 0%

Rating Distributions

Important Investor Disclosures

Net Element, Inc.

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IFS Relationship Disclosures (next 12 months)IFS expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 12 months.

IFS Relationship Disclosures (past 12 months)IFS has received in the past 12 months compensation from investment banking from Net Element, Inc.

Valuation Methodology: The IFS methodology for assigning ratings and target prices includes a number of qualitative andquantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; managementeffectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subjectto change depending on overall economic conditions or industry- or company-specific occurrences. Only stocks rated Strong Buy(SB1) or Outperform (MO2) have target prices and thus valuation methodologies.

Target Prices: The information below indicates our target price and rating changes for Net Element, Inc (NETE) stock over the pastthree years.

Valuation Methodology: For Net Element, Inc (NETE), our valuation methodology utilizes Discounted Cash Flow methodology, andtakes into account growth potential, earnings quality and visibility, and risk profile.

Risk Factors

General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on IFS research:

• Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impactexpected revenues and earnings;

• Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward thesector or this stock;

• Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alterthe prospective valuation; or

• External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alterinvestor confidence and investment prospects. International investments involve additional risks such as currency fluctuations,differing financial accounting standards, and possible political and economic instability.

Specific Investment Risks Related to the Industry or Issuer

Banking Industry Risk FactorsRisks include various geopolitical and macroeconomic variables, including credit quality deterioration, sudden changes in interestrates, M&A risk related to deal announcements, integration risk, and regulatory and mortgage-related concerns. Furthermore,competition for loans and deposits could exert downward pressure on revenue growth.

Important Investor Disclosures

Net Element, Inc.

Company-Specific Risks for Net Element, Inc. (NETE)

Company-specific risks include the aforementioned industry risk factors and various regulatory, litigation, foreign exchange,political, and macroeconomic risks associated with global exposure.

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Important Investor Disclosures