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Note 9 - Commitments and Contingencies | 3 Months Ended
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Mar. 31, 2020
Notes to Financial Statements |
Commitments and Contingencies Disclosure [Text Block] | NOTE 9. COMMITMENTS AND CONTINGENCIES Employment Agreement On February 25, 2020, as per approval of the Compensation Committee (the “Committee”) of the board of directors of the board of directors of the Company , the Company entered into an employment agreement (the “Agreement”) with Steven Wolberg, the Company's Chief Legal Officer and Corporate Secretary. The Agreement provides for continuation of the current base salary of $250,000. The term of the Agreement is 5 years, with subsequent 1 -year renewals. The Agreement provides for a sign in bonus of 10,000 shares of Company’s common stock, to be granted to Mr. Wolberg pursuant to the Company’s equity incentive plan, the severance in the amount of two times annual base salary of Mr. Wolberg if Mr. Wolberg’s employment is terminated by the Company without “cause” (as defined in the Agreement) or Mr. Wolberg terminates the employment for “good reason” (as defined in the Agreement). For each fiscal year during the term of the Agreement, the Agreement provides for a bonus arrangement equal to 50% of Mr. Wolberg’s base salary, payable in the Company’s shares of common stock or, at the Company’s discretion, in cash. Further, for each fiscal year during the term of the Agreement, Mr. Wolberg will be eligible to receive long-term equity incentive awards, as determined by the Committee at the time of grant, pursuant to the Company’s equity incentive plan. As of April 16th, 2020, Mr. Wolberg's base salary referred to above was reduced by 50% in connection with the Company's evaluation of its liquidity position, future operating plans, and its labor force, until further notice. Minimum Processing Commitments We have non-exclusive agreements with several processors to provide services related to transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools. Certain of these agreements require us to submit a minimum monthly number of transactions for processing. If we submit a number of transactions that is lower than the minimum, we are required to pay to the processor the fees it would have received if we had submitted the required minimum number of transactions. As of March 31, 2020, such minimum fee commitments were as follows:
2020 (remainder of year) |  | $ | 680,730 |
2021 |  |  | 60,000 |
2022 |  |  | 70,000 |
2023 |  |  | 80,000 |
Thereafter |  |  | - |
Total |  | $ | 890,730 |
Leases North American Transaction Solutions During May 2013, we entered into a lease agreement, for approximately 4,101 square feet of office space located at 3363 N.E. 163rd Street, Suites 705 through 707, North Miami Beach, Florida 33160. The term of the lease agreement was from May 1, 2013 through December 31, 2016, with monthly rent increasing from $16,800 per month at inception to $19,448 per month (or $233,377 per year) for the period from January 1, 2016 through December 31, 2016. The lease was extended for a period of five years commencing August 1, 2017 and expiring July 31, 2022 with equal monthly base rent installments of $14,354 ( $172,248 per year) plus sales tax. On September 26, 2019, we entered into a lease for additional office space in the building that our current office space is located for our North American Transactions Solutions, due to our growth in the labor force. The space is for 5,875 square feet and the term is for 5 years commencing on September 23, 2019 and expiring on September 30, 2024. The monthly base rent is $16,156 ( $193,875 per year) plus sales tax. Rent payments will commence once the landlord's work is completed and the space is ready to be occupied by us. The Company has not taken physical possession of the premises or moved to the premises, at this time, due to the fact that occupational permits are still open. Net Element Software, our subsidiary, currently leases approximately 1,654 square feet of office space in Yekaterinburg, Russia, where we develop value added services, mobile applications, smart terminals applications, sales central ERP system development and marketing activities, at an annual rent of approximately $24,300.The lease term expired on June 1, 2019 and was renewed with indefinite terms. International Transaction Solutions PayOnline leased approximately 4,675 square feet of office space in Moscow, Russia at an annual rent of $84,457 which expired on September 30, 2018.The Company then moved to a reduced space of 3,385 square feet and signed a lease at an annual rent of approximately $56,000 that expired on August 31, 2019. On March 11, 2019, the Company terminated their lease and moved their operations to another office building occupying approximately 1600 square feet at an annual rent of $50,900, which expires on February 10, 2020. This lease was renewed with indefinite terms. The following table presents a reconciliation of the undiscounted future minimum lease payments, under the lease for the premises we occupy for our North American Transaction Solutions segment's U.S. headquarters, to the amounts reported as operating lease liabilities on the consolidated balance sheet as of March 31, 2020:
|  | Operating Lease |
Undiscounted future minimum lease payments: |  |  |  |
2020 (remainder of year) |  | $ | 129,186 |
2021 |  |  | 172,248 |
2022 |  |  | 100,478 |
Total |  | $ | 401,912 |
Amount representing imputed interest |  |  | (52,876 | )
Total operating lease liability |  |  | 349,036 |
Current portion of operating lease liability |  |  | (101,777 | )
Operating Lease Liability, non-current |  | $ | 247,259 |
|  | As of March 31, 2020 |
Remaining term on Lease |  |  | 2.25 |
Incremental borrowing rate |  |  | 12 | %
As of March 31, 2020, the future minimum lease payments under other operating leases, not subject to Topic 842, are approximately $190,000 for the remainder of the year. Litigation, Claims, and Assessments With respect to all legal, regulatory and governmental proceedings, and in accordance with ASC 450 - 20, Contingencies—Loss Contingencies , we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, we record an accrual for the estimated amount of loss for the expected outcome of the matter. If the likelihood of a negative outcome with respect to material matters is reasonably possible and we are able to determine an estimate of the amount of possible loss or a range of loss, whether in excess of a related accrued liability or where there is no accrued liability, we disclose the estimate of the amount of possible loss or range of loss. However, management in some instances may be unable to estimate an amount of possible loss or range of loss based on the significant uncertainties involved in, or the preliminary nature of, the matter, and in these instances we will disclose the nature of the contingency and describe why we are unable to determine an estimate of possible loss or range of loss. 16 Table of Contents In addition, we are involved in ordinary course legal proceedings, which include all claims, lawsuits, investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of business and otherwise not described below. We have considered all such ordinary course legal proceedings in formulating our disclosures and assessments, which are not expected to have a material adverse effect on our consolidated financial statements. Aptito.com, Inc. On August 6, 2014, our subsidiary (Aptito, LLC) filed a lawsuit against Aptito.com, Inc. and the shareholders of Aptito.com, Inc., in state court in the 11th Judicial Circuit in and for Miami-Dade County. This is an interpleader action in regards to 125,000 shares of our stock. Aptito, LLC acquired Aptito.com, Inc. in exchange for, among other things, 125,000 shares (prior to adjustment for two one -for- ten reverse stock splits) of our stock. There has been disagreements among the Aptito.com, Inc. shareholders as to proper distribution of the 125,000 shares (prior to adjustment for two one -for- ten reverse stock splits). To avoid any liability in regards to improper distribution, Aptito, LLC filed the interpleader action so as to allow the Defendants to litigate amongst themselves as to how the shares (prior to adjustment for two one - for- ten reverse stock splits) should be distributed. Aptito.com, Inc. opposed the motion to interplead and filed counterclaims relative to Aptito, LLC for non-delivery of the 125,000 shares (prior to adjustment for two one -for- ten reverse stock splits). On July 18, 2017, the Court granted Aptito LLC’s motion to interplead and also indicated that Aptito, LLC could not be held liable for any alleged damages relative to the purported non- delivery of the 125,000 shares after the interpleader action was filed on August 6, 2014. In March 2018, a new Judge in the case ruled that Aptito.com, Inc. was entitled to receive 125,000 newly issued shares of our common stock, but indicated that he was not ruling that we were required to issue such shares. We plan to appeal this ruling, and our legal counsel is addressing the counterclaims filed by Aptito.com, Inc. in this matter. In July 2018, our counsel was disqualified due to a conflict of interest. We engaged a new law firm to represent our ongoing interests in this case. Since that time, there have been multiple Motions and claims brought by Aptito.com, Inc., including the request for rescission of the asset purchase agreement that gave rise to the share issuance obligation. All of these Motions and claims are being vigorously defended. A court ordered mediation conference was held on April 24, 2019 but the parties were unable to reach a settlement. On May 1, 2019 the Court denied Aptito.com, Inc.’s Motion for Summary Judgement and further hearings on a variety of Motions were scheduled in this matter. On August 14, 2019, the court granted final Summary Judgment in favor of the Company, removing Net Element as a party to the lawsuit and denying Aptito.com, Inc’s Motion for rehearing and reconsideration of this matter. Aptito, LLC, in which the Company has a majority ownership interest, remains a Defendant in this litigation. On September 17, 2019, the court granted the Company’s Motion for sanctions against the attorney representing Aptito.com, Inc. in this matter. The Company is pursuing collection of legal fees incurred from the Plaintiff and their attorney. This matter is pending a special set hearing to be held on March 23, 2020. This hearing has been postponed. Gene Zell In June 2014, we, as plaintiff, commenced an action in the Miami-Dade Circuit Court, Florida against Gene Zell ("Zell") for defamation of our Company and CEO and tortious interference with our business relationships. In October 2014, the court granted a temporary injunction against Zell enjoining him from posting any information about our Company and CEO on any website and enjoining him from contacting our business partners or investors. Zell violated the Court Order and the Court granted a Motion imposing sanctions against Zell. We continue to seek enforcement of the Court Order. In April 2015, Zell filed a Motion to set aside the Court Order alleging he was unaware of the Court Proceedings. The Court, on August 26, 2015, dismissed Zell’s Motion to dissolve the injunction. In March 2017 the Court dismissed another Motion brought by Zell to dissolve the injunction. Accordingly, the injunction order prohibiting Zell from making further defamatory posts remains in place. In 2018, we filed a motion to enforce the injunction and contempt orders against Zell. The court upheld the injunction and we continue to vigorously protect its interests. We are pursuing an action for damages sustained as a result of the defamation. On September 20, 2019, the Court granted a Permanent Injunction against Zell. The Company is evaluating pursuing actions against Zell for collection of legal fees and damages. A trial was scheduled for April 2020 on the issue of Net Element’s damages. However, Zell recently filed bankruptcy, so that trial and all further legal proceedings involving Zell will be stayed as a result of the automatic bankruptcy stay.

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