NOTE 16. SEGMENT INFORMATION

As described in Note 1, the Company has two reportable segments: mobile commerce and payment processing for electronic commerce, and entertainment and culture Internet destinations. The Company determines the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. The principal revenue stream for each of these segments varies according to its principal activities. During the quarter ended March 31, 2013, the principal revenue stream for both mobile commerce and payment processing for electronic commerce and entertainment and culture Internet destinations came from services fees.

During the quarter ended March 31, 2012, the Company had only one reportable business segment: entertainment and culture Internet destinations. The principal revenue stream for entertainment and culture Internet destinations came from services fees.

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

Mobile commerce and payment processing for electronic commerce

In June 2012, the Company formed its subsidiary OOO TOT Money (a Russian limited liability company) to develop a business in processing mobile commerce payments. TOT Money launched operations in Russia during the third quarter of 2012. TOT Money has entered into contracts with the three largest mobile phone operators in Russia, Mobile TeleSystems OJSC, MegaFon OJSC and OJSC VimpelCom, to facilitate payments using SMS (short message services, which is a text messaging service) and MMS (multimedia message services) for their mobile phone subscribers in Russia. TOT Money earns service fee revenues for payment processing. The Company plans to increasingly generate most of its revenues from TOT Money's mobile commerce payment operations.

Initially, the Company planned to adapt the existing revenue sharing platform used in Openfilm.com to a mobile commerce payment platform. However, TOT Money currently is using on a trial basis for no consideration the payment processing systems of RM Invest, which is another payment processing business operating in Russia that is 20% owned by TOT Money's general director, Tcahai Hairullaevich Katcaev. RM Invest has agreed to allow TOT Money the right to use RM Invest's systems indefinitely for as long as needed for evaluation purposes in determining whether TOT Money may have an interest in licensing or purchasing RM Invest's systems. TOT Money is concurrently seeking a way to buy, license or build its own mobile payment processing system.

Entertainment and culture Internet destinations

The Company owns controlling interests in several companies that develop and operate online media products (websites and mobile applications) in the peer-to-peer application, music, motorsport and film markets. The Company intends to explore additional acquisitions of, as well as developing internally, other Internet based properties, services and companies with similar goals of connecting people in various vertical markets, such as the medical, music, film, sports and legal markets.

Music1 Russia

OOO Music1 ("Music1 Russia") is a Russian limited liability company that was organized as a partnership with Igor Yakovlevich Krutoy, a Russian composer, performer, producer and music promoter. Music1 Russia promotes the Company's music1.com platform in the Commonwealth of Independent States (CIS) countries. Music1.ru was officially opened for public access in the third quarter of 2012. Music1 mobile application for iOS and Android were launched in December 2012. Music1.ru offers certain digital assets of Igor Yakovlevich Krutoy and his affiliate companies, including ARS Holding and the NewWave International contest (comparable to American Idol in United States). Revenues are expected to be generated through royalty fees and third party advertising on the platform.

Motorsport.com

Motorsport.com is a news and information service that operates a website (motorsport.com) that distributes content related to the motor sports industry to racing enthusiasts all over the world. The website features a graphic-based interface and is a database-driven site with a multi-channel navigation structure, including, News, Features, Photos, Statistics, Directory, Online Competitions and Forums. In the past decade, motorsport.com has established its reputation as a reliable source of news and content by covering major international racing series and events. Motorsport.com won the American Auto Racing Writers and Broadcasters Association (AARWBA) Award for Best Professional Racing Website for eight straight years (2004 to 2011).

Motorsport.com has been in operation for over 13 years and is a mature online media company with an established brand name. According to Google Analytics, in 2012, motorsport.com received approximately 25 million page views (representing approximately 18% year-over-year growth compared to 2011) from 2.4 million unique visitors.

Openfilm

Openfilm is an online media company that supports a community of independent film enthusiasts and filmmakers. Openfilm owns and operates the website openfilm.com, which is based on a proprietary video platform (licensed to Openfilm by the Company's wholly-owned subsidiary, NetLab Systems IP LLC ("NetLab")) and certain know-how and methods developed by Openfilm that unite elements of the film industry that the Company believes are of most interest and value to Openfilm's users in a single location. Openfilm derives revenues from license fees, video advertising, display advertising and membership fees, as well as contest entry fees.

Openfilm has developed an award-winning website that currently showcases over 9,300 films of various lengths and genres, aggregated from film festivals, film schools and independent filmmakers from around the world. Most films are displayed online in high definition (HD) video format and filmmakers are able to upload their films and interact with other users through a social networking platform.

Openfilm offers aspiring filmmakers an opportunity to have their work screened by a distinguished group of Hollywood insiders who make up the Openfilm Advisory Board, including actor James Caan (Chairman as well as Net Element's Board of Directors member), actor Robert Duvall, director Marc Rydell and actor and filmmaker Scott Caan.

The following tables present financial information of the Company's reportable segments for the quarters ended March 31, 2013 and 2012. The "eliminations" column includes all intercompany eliminations for consolidated purposes.

				For the quarter ended March 31, 2013
Description	Mobile Commerce Payment Processing Services			Online Businesses			Eliminations		Totals
Net revenues	$	868,151		$	6,364		$	-	$	874,515
Cost of revenues		(264,504	)		(10,962	)		-		(275,466	)
General and administrative		(229,199	)		(2,839,126	)		-		(3,068,325	)
Allocations		(125,074	)		125,074			-		-
Provision for loan losses		(406,585	)		-			-		(406,585	)
Depreciation and amortization		-			(43,075	)		-		(43,075	)
Interest expense		(145,666	)		(104,904	)		-		(250,570	)
Intercompany interest income (expense)		(253,758	)		253,758			-		-
Other expense		-			(80,541	)		-		(80,541	)
Income tax provision		-			-			-		-
Non-controlling interest		(660	)		16,876			-		16,216
Net Loss	$	(557,295	)	$	(2,676,536	)	$	-	$	(3,233,831	)
Assets	$	21,582,901		$	2,219,908		$	-	$	23,802,809
Short Term Loans	$	8,513,311		$	-		$	-	$	8,513,311


					For the quarter ended March 31, 2012
Description		Mobile Commerce Payment Processing Services			Online Businesses			Eliminations		Totals
Net revenues	$	-		$	74,810		$	-	$	74,810
Cost of revenues		-			(100,585	)		-		(100,585	)
General and administrative		-			(4,017,747	)		-		(4,017,747	)
Allocations		-			-			-		-
Depreciation and amortization		-			(68,663	)		-		(68,663	)
Interest income (expense)		-			(72,674	)		-		(72,674	)
Other Income (expense)		-			(411,225	)		-		(411,225	)
Non-controlling interest		-			72,088			-		72,088
Net Loss	$	-		$	(4,523,996	)	$	-	$	(4,523,996	)