NOTE

COMMITMENTS AND CONTINGENCIES

Employment Agreement

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

years, with subsequent

-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

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.

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

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.

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.

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).

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.

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.

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.

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

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.

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.

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.

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.