UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of ~~April~~May, 2019

Commission File Number 001-38055

NETSHOES (CAYMAN) LIMITED

(Exact name of registrant as specified in its charter)


The Cayman Islands		98-1007784
(State of incorporation or organization)		(I.R.S. Employer Identification No.)

Rua Vergueiro 961, Liberdade

01504-001 São Paulo, São Paulo, Brazil

+55 11 3028-3528

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes ☐ No ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ☐ No ☒

NETSHOES (CAYMAN) LIMITED

~~Consolidated~~Unaudited ~~financial~~condensed ~~statements~~consolidated asinterim offinancial ~~December 31, 2017 and 2018~~statements

as of March 31, 2019, and for the ~~years~~three-month periods ended March 31, 2018 and 2019

~~December 31, 2016, 2017 and 2018~~1

Report of Independent Registered Public Accounting Firm

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Financial Position
December 31, 2018 and March 31, 2019
(Reais and Dollars in thousands)

			December 31,		March 31,
Assets	Note		2018		2019		2019
Current assets:			BRL		BRL		USD Note 2.2
Cash and cash equivalents	10	R$	67,321	R$	43,194	US$	11,085
Restricted cash			2,996		777		199
Trade accounts receivables, net	11		163,807		90,789		23,299
Inventories, net	12		268,594		255,824		65,651
Recoverable taxes	13		59,214		58,577		15,032
Prepaid expenses and other current assets			20,138		25,397		6,518
			582,070		474,558		121,784

Non-current assets held for sale	3		-		14,192		3,642
Total current assets			582,070		488,750		125,426

Non-current assets:
Restricted cash			18,533		21,623		5,549
Judicial deposits	25		119,717		124,516		31,954
Recoverable taxes	13		40,033		37,463		9,614
Other assets			14,166		14,166		3,635
Due from related parties	24		7		-		-
Property and equipment, net	14		76,489		152,889		39,236
Intangible assets, net	15		143,317		143,328		36,782
Total non-current assets			412,262		493,985		126,770

Total assets		R$	994,332	R$	982,735	US$	252,196

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

~~To the Shareholders and Board of Directors Netshoes (Cayman) Limited~~2

Opinion on the Consolidated Financial Statements

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Financial Position
December 31, 2018 and March 31, 2019
(Reais and Dollars in thousands)

			December 31,		March 31,
Liabilities and Shareholders' Equity	Note		2018		2019		2019
Current liabilities:			BRL		BRL		USD Note 2.2
Trade accounts payable	16	R$	337,120	R$	312,440	US$	80,181
Reverse factoring	17		45,276		38,217		9,808
Current portion of long-term debt	19		38,473		66,882		17,164
Taxes and contributions payable			18,467		15,736		4,038
Deferred revenue	8		3,983		3,927		1,008
Accrued expenses	18		136,721		125,917		32,314
Current portion of lease liabilities	2.5		-		16,121		4,136
Other current liabilities			25,711		23,654		6,069
			605,751		602,894		154,718

Liabilities associated with non-current assets held for sale	3		-		18,076		4,639
Total current liabilities			605,751		620,970		159,357


Non-current liabilities:
Long-term debt, net of current portion	19		190,406		164,109		42,115
Provision for labor, civil and tax risks	25		19,935		23,714		6,086
Deferred revenue	8		21,690		20,397		5,234
Leases liabilities, net of current portion	2.5		-		63,650		16,333
Total non-current liabilities			232,031		271,870		69,768
Total liabilities			837,782		892,840		229,125

Shareholders' equity:
Share capital			244		244		63
Additional-paid in capital			1,347,581		1,348,043		345,945
Treasury shares			(1,533)		(1,533)		(393)
Accumulated other comprehensive loss			(11,022)		(11,228)		(2,881)
Accumulated losses			(1,178,464)		(1,245,338)		(319,588)
Equity attributable to owners of the parent			156,806		90,188		23,146
Equity attributable to non-controlling interests			(256)		(293)		(75)
Total shareholders' equity			156,550		89,895		23,071

Total liabilities and shareholders' equity		R$	994,332	R$	982,735	US$	252,196

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

We have audited the accompanying consolidated statements of financial position of Netshoes (Cayman) Limited and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of profit or loss, comprehensive income (loss), cash flows and changes in shareholders’ equity for each of the years in the three‑year period ended December 31, 2018, and the related notes, collectively, the consolidated financial statements. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). 3

Translation of consolidated financial statements into United States Dollars

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Profit or Loss
For the three months ended March 31, 2018 and 2019
(Reais and Dollars in thousands, except loss per share)


			For the three months ended in March 31,
	Note		2018		2019		2019
			BRL		BRL		USD Note 2.2
Continuing operations			Restated
Revenue	7	R$	360,351	R$	326,703	US$	83,841
Cost of sales	9		(248,802)		(238,164)		(61,119)
Gross profit			111,549		88,539		22,722

Operating expenses:
Selling and marketing expenses	9		(98,771)		(89,394)		(22,941)
General and administrative expenses	9		(49,189)		(44,700)		(11,471)
Other operating (expenses) income, net			(1,114)		1,110		285
Total operating expenses			(149,074)		(132,984)		(34,127)
Operating loss			(37,525)		(44,445)		(11,405)

Financial income	9		4,125		3,256		836
Financial expenses	9		(17,314)		(23,102)		(5,929)
Loss before income tax			(50,714)		(64,291)		(16,498)

Income tax expense			-		-		-
Net Loss from continuing operations			(50,714)		(64,291)		(16,498)

Net Loss from discontinued operations	3		(10,586)		(2,626)		(674)

Net Loss		R$	(61,300)	R$	(66,917)	US$	(17,172)


Net loss attributable to:
Owners of the Parent from continuing operations		R$	(50,714)	R$	(64,291)	US$	(16,499)
Owners of the Parent from discontinued operations			(10,468)		(2,583)		(663)
Non-controlling interests from discontinued operations			(118)		(43)		(11)

Loss per share attributable to owners of the Parent
Basic and diluted	6	R$	(1.97)	R$	(2.15)	US$	(0.55)

Loss from continuing operations per share attributable to owners of the Parent
Basic and diluted	6	R$	(1.63)	R$	(2.07)	US$	(0.53)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

The accompanying consolidated financial statements as of and for the year ended December 31, 2018 have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements expressed in Brazilian reais have been translated into United States dollars on the basis set forth in note 2.2 of the notes to the consolidated financial statements4

Going Concern

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
For the three months ended March 31, 2018 and 2019
(Reais and Dollars in thousands)

		For the three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD Note 2.2
		Restated

Net Loss	R$	(61,300)	R$	(66,917)	US$	(17,172)

Items that will subsequently be recorded to profit or loss
Foreign currency translation		(449)		(200)		(51)
Other comprehensive income (loss)		(449)		(200)		(51)
Total comprehensive income (loss)		(61,749)		(67,117)		(17,223)


Total comprehensive income (loss) attributable to:
Owners of the Parent	R$	(61,617)	R$	(67,080)	US$	(17,216)
Non-controlling interests		(132)		(37)		(9)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1.4 to the consolidated financial statements, the Company has incurred operating losses, negative cash flow from operating activities and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1.4. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.5

Basis for Opinion

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2018 and 2019
(Reais and Dollars in thousands)

		For the three months ended in March 31,

		2018		2019		2019
		BRL		BRL		USD
		Restated
Cash flows from continuing operating activities:						Note 2.2
Net loss	R$	(50,714)	R$	(64,291)	US$	(16,498)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Allowance for doubtful accounts		4,681		(1,675)		(430)
Depreciation and amortization		15,676		17,262		4,430
Loss on disposal of property and equipment, and intangible assets		259		48		12
Share-based payment		2,557		571		147
Provision for labor, civil and tax risks		1,878		4,857		1,246
Interest expenses, net		14,397		11,292		2,898
Provision for inventory losses		4,181		(1,424)		(365)
Other		4		-		-
Changes in operating assets and liabilities:
(Increase) decrease in:
Restricted cash		(2,765)		2,219		569
Trade accounts receivable		(1,395)		72,317		18,559
Inventories		(20,855)		685		176
Recoverable taxes		(1,329)		1,968		505
Judicial deposits		(2,972)		(4,799)		(1,232)
Other assets		(9,979)		(8,138)		(2,088)
Increase (decrease) in:
Trade accounts payable		(80,423)		(13,927)		(3,574)
Reverse factoring		(87,802)		(7,059)		(1,812)
Taxes and contributions payable		(520)		(1,889)		(485)
Deferred revenue		(951)		(1,348)		(346)
Accrued expenses		(25,057)		(8,780)		(2,253)
Share-based payment		-		(109)		(28)
Other liabilities		(691)		(2,121)		(544)
Net cash used in continung operating activities		(241,820)		(4,341)		(1,113)

Cash flows from continuing investing activities:
Purchase of property and equipment		(10,424)		(390)		(100)
Purchase of intangible assets		(16,793)		(8,676)		(2,226)
Restricted cash		(2,242)		(3,090)		(793)
Other		961		-		-
Net cash used in continuing investing activities		(28,498)		(12,156)		(3,119)

Cash flows from continuing financing activities:
Proceeds from debt		-		1,426		366
Payments of debt		(28,296)		-		-
Payments of interest		(15,648)		(10,362)		(2,659)
Net cash provided by (used in) continuing financing activities		(43,944)		(8,936)		(2,293)

Net cash (used) provided by discontinued operations (note 3)		(20,965)		1,285		330

Effect of exchange rate changes on cash and cash equivalents		(83)		21		4

Change in cash and cash equivalents		(335,310)		(24,127)		(6,191)

Cash and cash equivalents, beginning of period		395,962		67,321		17,276
Cash and cash equivalents, end of period		60,652		43,194		11,085
	R$	(335,310)	R$	(24,127)	US$	(6,191)
Supplemental disclosure
Non-cash investing and financing activities:
Acquisition of property and equipment and intangible assets (Note 18)	R$	1,431	R$	1,088	US$	279
Adjustment on initial application of IFRS 15 and IFRS 9		1,854		-		-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.6

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity
For the three months ended March 31, 2018 and 2019
(Reais and Dollars in thousand)



		Equity Attributable to owners of the Parent
		Share Capital		Additional Paid-in Capital		Treasury Shares		Accumulated Losses		Foreign Currency Translation		Total		Non-controlling Interest		Total Equity
		BRL		BRL		BRL		BRL		BRL		BRL		BRL		BRL


Balance, December 31, 2017	R$	244	R$	1,345,507	R$	(1,533)	R$	(847,125)	R$	(13,664)	R$	483,429	R$	(80)	R$	483,349

Adjustment on initial adoption of IFRS 15		-		-		-		(1,153)		-		(1,153)		-		(1,153)
Adjustment on initial adoption of IFRS 9		-		-		-		(701)		-		(701)		-		(701)
Adjustment on initial adoption of IAS 29		-		-		-		2,260		-		2,260		42		2,302

Adjusted balance, January 1, 2018		244		1,345,507		(1,533)		(846,719)		(13,664)		483,835		(38)		483,797

Comprehensive Income (Loss)
Net loss		-		-		-		(61,182)		-		(61,182)		(118)		(61,300)
Other comprehensive income (loss)		-		-		-		-		(435)		(435)		(14)		(449)
Total comprehensive income (loss)		-		-		-		(61,182)		(435)		(61,617)		(132)		(61,749)

Share-based payments		-		2,181		-		-		-		2,181		-		2,181

Balance, March 31, 2018	R$	244	R$	1,347,688	R$	(1,533)	R$	(907,901)	R$	(14,099)	R$	424,399	R$	(170)	R$	424,229

Balance, January 1, 2019	R$	244	R$	1,347,581	R$	(1,533)	R$	(1,178,464)	R$	(11,022)	R$	156,806	R$	(256)	R$	156,550

Comprehensive Income (Loss)
Net loss		-		-		-		(66,874)		-		(66,874)		(43)		(66,917)
Other comprehensive income (loss)		-		-		-		-		(206)		(206)		6		(200)
Total comprehensive income (loss)		-		-		-		(66,874)		(206)		(67,080)		(37)		(67,117)

Share-based payments		-		462		-		-		-		462		-		462

Balance, March 31, 2019	R$	244	R$	1,348,043	R$	(1,533)	R$	(1,245,338)	R$	(11,228)	R$	90,188	R$	(293)	R$	89,895

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.7

~~/S/~~NETSHOES ~~KPMG~~(CAYMAN) ~~Auditores~~LIMITED ~~Independentes~~AND SUBSIDIARIES

WeNotes ~~have~~to ~~served~~the asunaudited ~~the~~condensed ~~Company’s~~consolidated ~~auditor~~interim ~~since~~financial ~~2010~~statements

~~São~~For ~~Paulo,~~the ~~BrazilApril~~three 29months ended March 31, 2019

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Consolidated Statements of Financial Position
December 31, 2017 and 2018
(Reais and Dollars in thousands)
			December 31,		December 31,
Assets	Note		2017		2018		2018
Current assets:			BRL		BRL		USD Note 2.2
Cash and cash equivalents	9	R$	395,962	R$	67,321	US$	17,374
Restricted cash			19,397		2,996		773
Trade accounts receivables, net	10		113,168		163,807		42,275
Inventories, net	11		456,632		268,594		69,318
Recoverable taxes	12		80,047		59,214		15,282
Prepaid expenses and other current assets			48,352		20,138		5,198
Total current assets			1,113,558		582,070		150,220
Non-current assets:
Restricted cash			15,048		18,533		4,783
Judicial deposits	24		106,914		119,717		30,896
Recoverable taxes	12		70,765		40,033		10,332
Other assets			1,950		14,166		3,656
Due from related parties	23		12		7		2
Property and equipment, net	13		73,039		76,489		19,740
Intangible assets, net	14		115,839		143,317		36,987
Total non-current assets			383,567		412,262		106,396
Total assets		R$	1,497,125	R$	994,332	US$	256,616
The accompanying notes are an integral part of these consolidated financial statements.

(In thousands of reais and dollars, unless otherwise stated)

Consolidated Statements of Financial Position
December 31, 2017 and 2018
(Reais and Dollars in thousands)
			December 31,		December 31,
Liabilities and Shareholders' Equity	Note		2017		2018		2018
Current liabilities:			BRL		BRL		USD Note 2.2
Trade accounts payable	15	R$	365,835	R$	337,120	US$	87,003
Reverse factoring	16		148,928		45,276		11,685
Current portion of long-term debt	18		106,577		38,473		9,929
Taxes and contributions payable			19,875		18,467		4,766
Deferred revenue	7		3,732		3,983		1,028
Accrued expenses	17		120,366		136,721		35,285
Other current liabilities			31,017		25,711		6,635
Total current liabilities			796,330		605,751		156,331
Non-current liabilities:
Long-term debt, net of current portion	18		179,394		190,406		49,140
Provision for labor, civil and tax risks	24		12,523		19,935		5,145
Deferred revenue	7		25,502		21,690		5,598
Other non-current liabilities			27		-		-
Total non-current liabilities			217,446		232,031		59,883
Total liabilities			1,013,776		837,782		216,214
Shareholders' equity:
Share capital	21		244		244		63
Additional-paid in capital	21		1,345,507		1,347,581		347,781
Treasury shares	21		(1,533)		(1,533)		(396)
Accumulated other comprehensive loss			(13,664)		(11,022)		(2,845)
Accumulated losses			(847,125)		(1,178,464)		(304,135)
Equity attributable to owners of the parent			483,429		156,806		40,468
Equity attributable to non-controlling interests			(80)		(256)		(66)
Total shareholders' equity			483,349		156,550		40,402
Total liabilities and shareholders' equity		R$	1,497,125	R$	994,332	US$	256,616
The accompanying notes are an integral part of these consolidated financial statements.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Consolidated Statements of Profit or Loss
Years ended December 31, 2016, 2017 and 2018
(Reais and Dollars in thousands, except loss per share)
			Years ended December 31,
	Note		2016		2017		2018		2018
			BRL Restated		BRL Restated		BRL		USD Note 2.2
Revenue	6	R$	1,685,151	R$	1,835,212	R$	1,808,064	US$	466,621
Cost of sales	8		(1,144,231)		(1,247,014)		(1,389,842)		(358,687)
Gross profit			540,920		588,198		418,222		107,934
Operating expenses:
Selling and marketing expenses	8		(431,065)		(495,190)		(480,206)		(123,931)
General and administrative expenses	8		(162,338)		(143,253)		(191,695)		(49,472)
Other operating expenses, net			(5,251)		(3,933)		(9,312)		(2,403)
Total operating expenses			(598,654)		(642,376)		(681,213)		(175,806)
Operating loss			(57,734)		(54,178)		(262,991)		(67,872)
Financial income	8		28,285		28,996		15,026		3,878
Financial expenses	8		(104,795)		(129,040)		(83,223)		(21,478)
Monetary position (loss) gain, net			-		-		9,595		2,476
Loss before income tax			(134,244)		(154,222)		(321,593)		(82,996)
Income tax expense	20		-		-		(202)		(52)
Net loss from continuing operations		R$	(134,244)	R$	(154,222)	R$	(321,795)	US$	(83,048)
Net loss from discontinued operations	3	R$	(17,652)		(16,123)		(10,579)	US$	(2,730)
Net loss		R$	(151,896)		(170,345)		(332,374)	US$	(85,778)
Net loss attributable to:
Owners of the Parent from continuing operations		R$	(133,422)	R$	(153,623)	R$	(321,166)	US$	(82,886)
Owners of the Parent from discontinued operations			(17,652)		(16,123)		(10,579)		(2,730)
Non-controlling interests			(822)		(599)		(629)		(159)
Loss per share attributable to owners of the Parent
Basic and diluted	5	R$	(7.05)	R$	(5.95)	R$	(10.68)	US$	(2.76)
Loss from continuing operations per share attributable to owners of the Parent
Basic and diluted	5	R$	(6.22)	R$	(5.39)	R$	(10.34)	US$	(2.67)
The accompanying notes are an integral part of these consolidated financial statements.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Years ended December 31, 2016, 2017 and 2018
(Reais and Dollars in thousands)
		Years ended December 31,
		2016		2017		2018		2018
		BRL Restated		BRL Restated		BRL		USD Note 2.2
Net Loss	R$	(151,896)	R$	(170,345)	R$	(332,374)	US$	(85,778)
Items that will subsequently be recorded to profit or loss
Foreign currency translation		(11,015)		5,502		2,989		771
Foreign currency translation - sale of subsidiary		-		-		64		17
Cash flow hedges – effective portion of changes in fair value		(3,907)		348		-		-
Cash flow hedges – reclassified to initial cost of inventories		3,119		-		-		-
Cash flow hedges – reclassified to profit or loss		(670)		197		-		-
Other comprehensive income (loss)		(12,473)		6,047		3,053		788
Total comprehensive income (loss)		(164,369)		(164,298)		(329,321)		(84,990)
Total comprehensive income (loss) attributable to:
Owners of the Parent	R$	(163,829)	R$	(163,833)	R$	(329,103)	US$	(84,934)
Non-controlling interests		(540)		(465)		(218)		(56)
The accompanying notes are an integral part of these consolidated financial statements.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2016, 2017 and 2018
(Reais and Dollars in thousands)
		2016		2017		2018		2018
		BRL Restated		BRL Restated		BRL		USD
Cash flows from continuing operating activities:								Note 2.2
Net loss from continuing operations	R$	(134,244)	R$	(154,222)	R$	(321,795)	US$	(83,048)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Allowance for doubtful accounts		1,167		25,443		13,014		3,359
Depreciation and amortization		30,776		31,487		58,022		14,974
Loss on disposal of property and equipment, and intangible assets		901		179		3,770		973
Impairment of property and equipment, and intangible assets		-		-		851		220
Impairment of recoverable taxes (note 3)		-		-		4,828		1,246
Share-based payment		930		(13,860)		7,923		2,045
Provision for labor, civil and tax risks		1,247		10,111		10,795		2,786
Interest expense, net		90,605		110,568		62,066		16,018
Monetary position (loss) gain, net		-		-		5,428		1,401
Provision for inventory losses		949		4,904		72,526		18,717
Provision for expected losses, Other non-current assets (note 19)		-		-		13,225		3,413
Other		(9)		179		205		52
Changes in operating assets and liabilities:
(Increase) decrease in:
Restricted cash		(8)		2,549		16,401		4,233
Derivative financial instruments		148		-		-		-
Trade accounts receivable		67,767		75,095		(67,290)		(17,366)
Inventories		(79,904)		(108,386)		84,034		21,687
Recoverable taxes		(57,610)		(53,172)		34,236		8,836
Judicial deposits		(39,940)		(35,097)		(12,803)		(3,304)
Other assets		(20,901)		9,525		6,196		1,599
Increase (decrease) in:
Derivative financial instruments		(209)		(186)		-		-
Trade accounts payable		98,545		29,880		(1,497)		(386)
Reverse factoring		8,104		121,061		(103,652)		(26,750)
Taxes and contributions payable		9,334		5,112		537		139
Deferred revenue		(1,875)		(3,641)		(3,562)		(919)
Accrued expenses		30,118		(2,978)		24,719		6,378
Share-based payment		(715)		(2,366)		(611)		(158)
Other liabilities		(12,954)		(8,683)		(8,273)		(2,135)
Net cash provided by (used in) continuing operating activities		(7,778)		43,502		(100,707)		(25,990)
Cash flows from continuing investing activities:
Proceeds from sale of discontinued operation (note 3a)		-		-		241		62
Purchase of property and equipment		(25,069)		(7,728)		(22,185)		(5,725)
Loan to third parties (note 3a)		-		-		(8,801)		(2,271)
Purchase of intangible assets		(47,043)		(49,378)		(71,743)		(18,515)
Interest received on installment sales		6,987		2,071		1,445		373
Restricted cash		760		6,206		(3,485)		(900)
Net cash used in continuing investing activities		(64,365)		(48,829)		(104,528)		(26,976)
Cash flows from continuing financing activities:
Proceeds from debt		137,325		134,152		-		-
Payments of debt		(79,004)		(141,788)		(57,040)		(14,721)
Payments of interest		(105,234)		(108,429)		(62,889)		(16,230)
Share-based payment		-		(5,824)		-		-
Proceeds from issuance of common shares		-		423,166		-		-
Net cash provided by (used in) continuing financing activities		(46,913)		301,277		(119,929)		(30,951)
Net cash used in discontinued operations (note 03)		(13,620)		(18,162)		(8,121)		(2,096)
Effect of exchange rate changes on cash and cash equivalents		(5,083)		6,869		4,644		1,198
Change in cash and cash equivalents		(137,759)		284,657		(328,641)		(84,815)
Cash and cash equivalents, beginning of period		249,064		111,305		395,962		102,189
Cash and cash equivalents, end of period		111,305		395,962		67,321		17,374
	R$	(137,759)	R$	284,657		(328,641)	US$	(84,815)
Supplemental disclosure
Non-cash investing and financing activities:
Acquisition of property and equipment and intagible assets	R$	4,677	R$	1,710	R$	2,182	US$	563
Deferred offering costs reclassified to equity	R$	-	R$	6,808	R$	-	US$	-
Convertible notes converted to common shares	R$	-	R$	94,151	R$	-	US$	-
Reclassification of share-based payment from Cash-settled arrangement to
Equity-settled arrangement	R$	-	R$	13,706	R$	-	US$	-
The accompanying notes are an integral part of these consolidated financial statements.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
Years ended December 31, 2016, 2017 and 2018
(Reais in thousand)
		Equity Attributtable to owners of the Parent
		Share Capital		AdditionalPaid-inCapital		TresuaryShares		Accumulated Losses		ForeignCurrencyTranslation		Gain (Loss) on Hedge Accounting		Total		Non-controllingInterest		Total Equity
		BRL		BRL		BRL		BRL		BRL		BRL		BRL		BRL		BRL
Balance, January 1, 2016	R$	141	R$	821,988	R$	(925)	R$	(526,305)	R$	(7,735)	R$	913	R$	288,077	R$	925	R$	289,002
Comprehensive Income (Loss)
Net loss		-		-		-		(151,074)		-		-		(151,074)		(822)		(151,896)
Other comprehensive income (loss)		-		-		-		-		(11,297)		(1,458)		(12,755)		282		(12,473)
Total comprehensive income (loss)		-		-		-		(151,074)		(11,297)		(1,458)		(163,829)		(540)		(164,369)
Transactions with Owners and Other
Purchase of treasury shares		-		-		(608)		-		-		-		(608)		-		(608)
Total transactions with owners and other		-		-		(608)		-		-		-		(608)		-		(608)
Balance, December 31, 2016	R$	141	R$	821,988	R$	(1,533)	R$	(677,379)	R$	(19,032)	R$	(545)	R$	123,640	R$	385	R$	124,025
Comprehensive Income (Loss)
Net loss		-		-		-		(169,746)		-		-		(169,746)		(599)		(170,345)
Other comprehensive income (loss)		-		-		-		-		5,368		545		5,913		134		6,047
Total comprehensive income (loss)		-		-		-		(169,746)		5,368		545		(163,833)		(465)		(164,298)
Transactions with Owners and Other
Issuance of common shares in initial public offering, net of offering costs		84		415,466		-		-		-		-		415,550		-		415,550
Conversion of convertible notes to common shares		19		94,132		-		-		-		-		94,151		-		94,151
Share-based payments		-		13,921		-		-		-		-		13,921		-		13,921
Total transactions with owners and other		103		523,519		-		-		-		-		523,622		-		523,622
Balance, December 31, 2017	R$	244	R$	1,345,507	R$	(1,533)	R$	(847,125)	R$	(13,664)	R$	-	R$	483,429	R$	(80)	R$	483,349
Adjustment on initial adoption of IFRS 15 (see note 2.6)		-		-		-		(1,153)		-		-		(1,153)		-		(1,153)
Adjustment on initial adoption of IFRS 9 (see note 2.6)		-		-		-		(701)		-		-		(701)		-		(701)
Hyperinflation adjustment - IAS 29 (see note 3)		-		-		-		2,260		-		-		2,260		42		2,302
Comprehensive Income (Loss)
Net loss		-		-		-		(331,745)		-		-		(331,745)		(629)		(332,374)
Other comprehensive income (loss)		-		-		-		-		2,642				2,642		411		3,053
Total comprehensive income (loss)		-		-		-		(331,745)		2,642		-		(329,103)		(218)		(329,321)
Share-based payments		-		2,074		-		-		-		-		2,074		-		2,074
Balance, December 31, 2018	R$	244	R$	1,347,581	R$	(1,533)	R$	(1,178,464)	R$	(11,022)	R$	-	R$	156,806	R$	(256)	R$	156,550
The accompanying notes are an integral part of these consolidated financial statements.

1. Organization and background

1.1 Nature of Operations

Netshoes (Cayman) Limited (“NSC” or the “Parent") was incorporated in the Cayman Islands on April 12, 2011. NSC is a holding company and conducts its business primarily through its subsidiaries (together with NSC, the “Company”, “we” or “us”). The Company’s registered office is at Willow House, Cricket Square, George Town, KY 1-1104, Cayman Islands. Major shareholders of the Company include Tiger Global Private Investment Partners V, L.P. (“Tiger Global V”), Tiger Global Private Investment Partners V, L.P. (“Tiger Global V”), Tiger Global Private Investment Partners VI, L.P. (“Tiger Global VI”), Ruane Cunniff & Goldfarb LP, CDK Net Fund IC and HCFT Holdings.

The Company is a sports and lifestyle ecommerce destination in ~~Latin America with operations in~~ Brazil ~~and Argentina~~. The Company’s core business is to offer to its customers a reliable and convenient online shopping experience with a wide selection of products including athletic shoes, jerseys, apparel, accessories and sporting equipment from leading international, local and private brands as well as fashion and beauty. The Company conducts its business mainly through its ecommerce websites (Netshoes, Zattini, Shoestock and Freelace).

In August 2018, the Company entered into an agreement with the Grupo Sierra Capital (“Sierra”) to sell the entirety of its Mexico operations. On October 11, 2018 the Company and Sierra concluded the transaction, which was preceded by final adjustments agreed by the parties under the original terms and conditions of the negotiation (see note 3).

In January 2019, the Company decided to divest Argentina operations and in April 2019 the Company entered into an agreement with BT8 S.A. to sell the entirety of its Argentina operations (see note 3).

The Company’s shares are offered, sold and registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement on Form F-1 (Registration No.~~2 Split~~333-216727), ofwhich ~~Shares~~was declared effective by the Securities and Exchange Commission on April 12, 2017. The common stock began trading on the New York Stock Exchange on April 12, 2017 under the symbol "NETS".

~~The Board of Directors approved a~~ 1.02 Going ~~for~~concern 3.0 share split of the Company's outstanding common shares. The share split became effective on April 18, 2017. The Company has retrospectively adjusted loss per share data considering the split of shares (see note 5).considerations

1The Company recorded a net loss and a significant negative operating cash flow in the year ended December 31, 2018 and in the three-month period ended March 31, 2019.~~3 Convertible~~ ~~Notes~~As of and ~~Initial~~for ~~Public~~the ~~Offering~~period ended March 31, 2019, the Company had accumulated losses of R$ 1,245,338 (compared to R$1,178,464 as of December 31, 2018), net loss of R$66,917 (compared to R$61,300 for the period ended March 31, 2018) and net cash used in operating activities of R$4,341 (compared to R$241,820 for the period ended March 31, 2018). In addition, the Company has a working capital deficiency as of March 31, 2019 with R$ 132,220 of net current liabilities (compared to R$ 23,681 as of December 31, 2018).

OnThe ~~February~~Company ~~22,~~expects ~~2017,~~to continue to incur net losses for at least the ~~Company~~next ~~entered~~twelve-months ~~into~~following athe ~~note~~issue ~~purchase~~of ~~agreement~~these ~~pursuant~~condensed consolidated financial statements. Although the Company continues to ~~which~~take itaction ~~issued~~to improve its operating performance and ~~sold~~expects ~~unsecured~~to ~~promissory~~generate ~~notes~~positive ~~convertible~~net ~~into~~operating ~~its~~cash ~~common~~flow ~~shares~~over the next twelve-months, this positive cash flow from operating activities by itself may not be sufficient to meet the Company’s cash requirements in the ~~aggregate~~same ~~principal~~period ~~amount~~arising offrom ~~US$30~~its financing activities.0 ~~million~~As such, Management has concluded that financing alternatives will be necessary to ~~certain~~meet its obligations within one year from the date of issue of these condensed consolidated financial statements. However, there can be no assurance that the Company’s plan to improve its ~~shareholders~~operating performance and financial position will be successful or that the Company will be able to obtain additional financing on commercially reasonable terms, or at all.

The Company determined that the convertible notes constituted a hybrid instrument with characteristics of a debt containing embedded derivative features requiring separate accounting as a derivative instrument. The liability related to the convertible notes was initially recorded at fair value and, subsequently, at amortized cost. The embedded derivative associated with the convertible notes was recorded at fair value with its changes being recorded in the statement of profit or loss.

Immediately prior to the completion of the IPO, the convertible notes (principal amount and any unpaid accrued interest) and its embedded derivative was converted into our common shares with a 10% price discount relative to the initial public offering price of the Company’s outstanding common shares. The value of the Company’s outstanding convertible notes (principal amount and unpaid accrued interest) and its embedded derivative was US$ 30,4 million (or R$94,2 million, using the exchange rate on the date of completion of the IPO) that was converted in 1,870,709 common shares.

On April 18, 2017, the Company completed its Initial Public Offering (IPO). The Company sold 8,250,000 of its common shares at a public offering price of $18.00 per common share, for gross proceeds of $148.5 million (or R$459.7 million, using the exchange rate on the date of completion of the IPO). The Company received net proceeds of $134.2 million (or R$415.6 million, using the exchange rate on the date of completion of the IPO), after deducting $9.7 million (or R$29.9 million, using the exchange rate on the date of completion of the IPO) in underwriting discounts and commissions and $4.6 million (or R$14.2 million, using the exchange rate on the date of completion of the IPO) of other offering expenses.

The shares offered and sold in the initial public offering were registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement on Form F-1 (Registration No.333-216727), which was declared effective by the Securities and Exchange Commission on April 12, 2017. The common stock began trading on the New York Stock Exchange on April 12, 2017 under the symbol "NETS."

1.4 Going concern considerations

The Company recorded a net loss and a significant negative operating cash flow in the year ended December 31, 2018. As of and for the year ended December 31, 2018, the Company had accumulated losses of R$ 1,178,464 (compared to R$ 847,125 as of December 31, 2017), net loss of R$ 332,374 (compared to R$170,345 for the year ended December 31, 2017) and net cash used in operating activities of R$ 100,707 (compared to R$43,502 of net cash provided in operating activities for the year ended December 31, 2017). In addition, the Company has a working capital deficiency as of December 31, 2018, with R$ 23,681 of net current liabilities (compared to a working capital surplus of R$ 317,228 of net current assets as of December 31, 2017).

The Company expects to continue to incur net losses for at least the next twelve-months following the issue of these consolidated financial statements. Although the Company continues to take action to improve its operating performance and expects to generate positive net operating cash flow over the next twelve-months, this positive cash flow from operating activities by itself may not be sufficient to meet the Company’s cash requirements in the same period arising from its financing activities. As such, Management has concluded that financing alternatives will be necessary to meet its obligations within one year from the date of issue of these consolidated financial statements. However, there can be no assurance that the Company’s plan to improve its operating performance and financial position will be successful or that the Company will be able to obtain additional financing on commercially reasonable terms, or at all.

The Company is currently exploring alternatives to obtain access to other sources of capital necessary to meet its ongoing liquidity needs, such as obtaining new lines of credit, and is taking measures to improve its operating performance and cash, liquidity and financial position. Such measures include, among others, the following:

· pursuing the sale of its operations in Argentina by the second quarter of 2019, which have not performed as expected and have had a negative effect on the Company’s operating cash flows;

· continuing to implement cost-saving initiatives across the Company;

· negotiating alternative payment terms with suppliers;

· seeking with current creditors the partial release of collateral provided under certain of the Company’s financing arrangements (basically restricted cash and cash equivalents, which as of December 31, 2018 amounted to R$ 88,760); and8

~~· assessing~~NETSHOES ways of monetizing the Company’s PIS/COFINS judicial deposits, following a favorable decision in its judicial disputes challenging the tax authorities’ interpretation of the calculation basis for PIS/COFINS taxes over products sold by the Company (~~such tax credits amounted to R$ 101,971 as of December 31, 2018~~CAYMAN). ~~Following~~LIMITED ~~the~~AND ~~favorable decision, the Company expects these deposits to be released, however authorization for release is subject to government approval, the timing of which is currently unknown.~~SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

· assessing ways of monetizing the Company’s PIS/COFINS judicial deposits, following a favorable decision in its judicial disputes challenging the tax authorities’ interpretation of the calculation basis for PIS/COFINS taxes over products sold by the Company (such tax credits amounted to R$ 103,595 as of March 31, 2019). Following the favorable decision, the Company expects these deposits to be released, however authorization for release is subject to government approval, the timing of which is currently unknown.

The Company has also engaged financial and other advisors to assist it in those efforts.

Given the above, management acknowledges there is a material uncertainty which may cast substantial doubt on the Company’s ability to continue as a going concern.

The financial statements of the Company have been prepared assuming the Company’s ability to continue as ana going concern as management has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future based on the projections and measures being taken. If for any reason the Company is unable to continue as a going concern, then this could have an impact on the Company’s ability to realize assets at their recognized values, and to settle liabilities in the ordinary course of business at the amounts stated in the condensed consolidated financial statements. The condensed consolidated interim financial statements do not include any adjustments that might result from this uncertainty.

1.5 3 Merger agreement – subsequent event

The Company announced, on April 29, 2019, that it has entered into an Agreement and Plan of Merger (“Merger Agreement”) with Magazine Luiza S.A. and its wholly-owned subsidiary located in the Cayman Islands (“Merger Sub”). Pursuant to the Merger Agreement, Magazine Luiza S.A. will acquire the Company, such that, at the effective time of the transaction, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing after the Merger as the surviving company and a wholly-owned subsidiary of Magazine Luiza S.A. Subject to the terms and conditions of the Merger Agreement, each of Company´s shareholders will receive US$2.00 per share in cash for each common share.

The Merger is subject to the satisfaction of certain conditions precedent established in the Agreement and Plan of Merger, including, among others, its approval by two-thirds (2/3) of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a Company’s general meeting, and by the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica – CADE), the Brazilian anti-trust agency.

In addition, on April 29, 2019, Magazine Luiza S.A. announced that it has entered into a voting and support agreement, with shareholders representing 47.9% of ~~our~~Company’s capital stock, pursuant to which, among other things, each such shareholder has agreed to vote all common shares beneficially owned by such shareholder in favor of the adoption of the Merger Agreement and the approval of the Merger and the other transactions contemplated by the Merger Agreement.

2. Summary of Significant Accounting Policies

2.1. Statement of Compliance

~~The~~These condensed consolidated interim financial statements have been prepared in accordance with International ~~Financial~~Accounting ~~Reporting~~Standard ~~Standards~~34, (“~~IFRSs~~Interim Financial Reporting”) and should be read in conjunction with the Company’s last annual consolidated financial statements as ~~issued~~at byand for the ~~International~~year ~~Accounting~~ended ~~Standards~~December ~~Board~~31, 2018 (“last annual financial statements”). ~~The~~These ~~consolidated~~interim financial statements, ~~were~~which ~~authorized~~are ~~for~~unaudited, ~~issuance~~do bynot include all of the ~~Board~~information required for a complete set of ~~Directors~~financial onstatements ~~April~~prepared ~~29,~~in ~~2019~~accordance with International Financial Reporting Standards (“IFRS”). However, selected explanatory notes are included to explain events and transactions that are significant to

~~2.2. Basis of Presentation~~9

The consolidated financial statements have been prepared under the historical-cost basis, unless otherwise indicated. The presentation of the consolidated financial statements in conformity with IFRS requires the use of certain accounting estimates, and also requires the Company´s Management to exercise its judgment in the process of applying the Company’s accounting policies. Note 2.5 to these consolidated financial statements shows the areas in which a greater level of judgment and estimates have been applied.

Intercompany balances and transactions, including income and expenses and any unrealized income and expenses and the balance of receivables and payables arising from intercompany transactions, are eliminated. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

The functional currency of the Company is US$ and the reporting currency is Brazilian Real (“R$”) as this currency better reflects the underlying operations of the consolidated entities. The Company’s subsidiaries with operations in Brazil and Argentina use their respective currencies as their functional currencies.

Due to the significant inflation in Argentina over the past few years, the three-year cumulative inflation rate in Argentina has exceeded 100% based on data from the national wholesale price index and various available inflation indices in May 2018. As such, Argentina was considered as hyperinflationary economy effective July 1, 2018 and, in these annual financial statements, beginning January 1, 2018 the Company is required to apply inflation accounting. Thus, its statement of financial position and statement of profit or loss are adjusted for the changes in the general purchasing power of the local currency, using official indices at the reporting date, before translation into Brazilian Real (“R$”) and, as a result, are stated in terms of the measuring unit current at the reporting date. The details of recognition of the effects of inflation in Argentina operations are disclosed in note 3.

The comparative information for the years ended December 31, 2016 and 2017 were restated for the purposes of applying IFRS 5 "Non-current assets held for sale and discontinued operations" after approval by the Board of Directors of the sale of its operation in Mexico on August 6, 2018 as presented in note 3.

Translations of balances in the consolidated statement of financial positions, consolidated statement of profit or loss, consolidated statement of comprehensive income (loss) and consolidated statement of cash flows from R$ into US$ are solely for the convenience of the readers and have been calculated at the rate of US$1.00 = R$ 3.8748, representing the exchange rate set forth by the Banco Central do Brasil (Central Bank of Brazil) on December 31, 2018. No representation is made that the R$ amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2018, or at any other rate. All values have been rounded to the nearest thousands of R$ and US$, except where noted.

2.3. Principles of Consolidation

The consolidated financial statements include the accounts of all entities in which NSC has a controlling financial interest.

i. Consolidated subsidiaries

Consolidated subsidiaries are entities controlled by the Parent. The Parent controls an entity when it is exposed, or has the right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of consolidated subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

The consolidated subsidiaries are listed as follows:

		Percentage Ownership and Voting Interest
Company	Country ofIncorporation	December 31,2017	December 31,2018
Netshoes Holding, LLC	United States of America	100.00%	100.00%
NS2 Com Internet S.A.	Brazil	100.00%	100.00%
NS3 Internet S.A.	Argentina	98.17%	98.22%
NS4 Com Internet S.A.	Mexico	100.00%	0.00%
NS4 Servicios de México S.A. C.V.	Mexico	100.00%	0.00%
NS5 Participações Ltda.	Brazil	99.99%	99.99%
NS6 Serviços Esportivos Ltda.	Brazil	100.00%	100.00%

ii. Non-controlling interests

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’s equity. The interest of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interest’s proportionate share of the fair value of the identifiable net assets of the relevant entity. The choice of measurement basis is made on an individual basis. Subsequent to the acquisition of a non-controlling interest, the carrying amount of non-controlling interest is the amount of relevant interests at initial recognition plus the non-controlling interest share of subsequent changes in equity. Total comprehensive income (loss) is attributed to non-controlling interests even if it results in the non-controlling interest having a deficit balance.

Changes in the Parent’s interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.

2.4. Foreign Currency Translation and Transactions

i. Foreign Currency Translation

The financial statements of foreign entities that use a functional currency different from the reporting currency are translated into Brazilian Real as described below:

· Assets and liabilities are translated into Brazilian Real at the closing rate, corresponding to the spot exchange rate at the reporting date; and

· Income statement and cash flow items are translated into Brazilian Real using the average rate of the period unless significant variances occur.

The resulting exchange differences are recognized directly in other comprehensive income (loss). When a foreign operation is disposed of, the cumulative amount of the exchange differences in consolidated equity relating to that operation is recorded to the consolidated statements of profit or loss.

ii. Foreign Currency Operations

Foreign currency transactions are converted into the functional currency using the exchange rate at the transaction date. Monetary assets and liabilities denominated in foreign currencies are re-measured into functional currency using the exchange rate at the reporting date and the resulting exchange differences are recognized as financial income (expenses) in the consolidated statements of profit or loss. Non-monetary assets and liabilities denominated in foreign currencies are not re-measured at the reporting date.

2.5. Use of Judgments, Estimates and Assumptions

In preparing these consolidated financial statements in conformity with IFRS, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.

Information about judgments, assumptions and estimates made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements are included in the following notes:

- Note 3 – Hyperinflation: Determining inflation rate;

- Note 6 – Revenue: Estimating the sales returns;

- Note 10 – Trade Accounts Receivable: Estimated losses on doubtful accounts;

- Note 11 – Inventories: Provision for inventory losses;

- Note 13, 14 and 25 – Property and Equipment and Intangible Assets: Useful lives of property and equipment and intangible, software development costs related to intangible assets and impairment of long-lived assets;

- Note 19 – Credit risk of Other non-current assets: Uncertainty of possible outcomes

- Note 20 – Income Taxes: Recognition of deferred income tax assets and availability of future taxable profit against which tax losses carried forward can be used. The determination of tax positions that are probable of being sustained also involves significant judgment;

- Note 22 – Share-based payments: Valuation and classification of awards; and

- Note 24 – Contingencies: Key assumptions about the likelihood and magnitude of an outflow of resources.

2.6. Changes in accounting policies

The Company applied as of January 1, 2018, IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 (Financial Instruments). The nature and effect of these changes are described below.

i. IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC-31 Revenue-Barter Transactions Involving Advertising Services and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The standard requires entities to exercise judgment, taking into consideration all the relevant facts and circumstances when applying each step of the model to contracts with their customers.

The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.

The Company adopted IFRS 15 using the cumulative effect method of adoption. Accordingly, the effect of adoption has been recorded as an adjustment to equity.

The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below.

a. Revenue from product sales

The Company’s contracts with customers for products sales generally includes a performance obligation. The Company has concluded that revenue from products sales should be recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of the goods. Therefore, the adoption of IFRS 15 did not have any impact on the timing of revenue recognition, as sales were already recognized upon delivery of the goods to customers. However, the amount of revenue to be recognized was affected by the variable consideration, as stated below.

Variable consideration

Some contracts for product sales provide customers with a right of return. Prior to the adoption of IFRS 15, the Company recognized revenue from the sale of goods measured at the fair value of the consideration received or receivable, net of returns. If revenue could not be reliably measured, the Company deferred revenue recognition until the uncertainty was resolved.

Under IFRS 15, rights of return give rise to variable consideration. The variable consideration is estimated at contract inception and constrained until the associated uncertainty is subsequently resolved. The application of the constraint on variable consideration increases the amount of revenue that will be deferred.

Rights of return

For contracts that permit the customer to return an item, under IFRS 15 revenue is recognized to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Therefore, the amount of revenue recognized is adjusted for expected returns, which are estimated based on historical data.

The effect of adoption in January 1, 2018 resulted in the recognition of right of return assets (increase in inventories) of R$1,592 and refund liabilities (increase in other liabilities) of R$2,745. The net effect of R$1,153 was recorded in Accumulated losses. The effect of adoption on Revenues for the year ended December 31, 2018 is a decrease of R$1,058 (USD 273).

b. Freight-related services

The Company’s contracts with customers for freight-related services is recognized once the service is rendered. The shipping fees are linked to the revenue from products sales. Therefore, the adoption of IFRS 15 did not have any impact on the timing of revenue recognition, as services were already recognized upon delivery of the goods to customers. However, the amount of revenue to be recognized was affected by the variable consideration, as stated in topic (a).

c. Marketplace platform

The Company’s contracts with customers for Marketplace platform generates revenue in the form of a commission, when the third-party vendors sell the products on the Company’s platform. The Company recognizes revenue from the marketplace platform on a net basis because the Company acts as an agent and does not have primary responsibility for fulfilling the orders, bear inventory risk or have discretion in establishing prices. Therefore, the adoption of IFRS 15 did not have any impact in the Company’s accounting policies, once the Company already recognized these revenues as an agent.

d. NCard

The Company generates commission revenue from the customers’ activation of NCards (a co-branded credit card). The revenue is recognized when the NCards are activated by the customers. Therefore, the adoption of IFRS 15 did not have any impact in the Company’s accounting policies, once the Company already recognized these revenues when the customers activate the NCards.

e. Presentation and disclosure requirements

As required for the consolidated financial statements, the Company disaggregated revenue recognized from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Company also disclosed information about the relationship between the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment. Refer to notes 4 and 6 for the disclosure on disaggregated revenue.

ii. IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.

The Company has applied IFRS 9 with the initial adoption date of January 1, 2018 and has taken an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 were recognized in Accumulated losses as at January 1, 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 but rather those of IAS 39.

The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below.

a. Classification and measurement of financial assets and liabilities

IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics.

IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.

IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. Therefore, the adoption of IFRS 9 has not had a significant effect on the Company’s accounting policies related to classification and measurement of financial liabilities.

The following table compares the measurement and classification under IAS 39 and IFRS 9 for each class of financial assets.

Financial instrument	Classification under IAS 39	Classification under IFRS 9
Cash and cash equivalents	Loans and receivables	Amortized cost
Restricted cash, current and non-current portion	Loans and receivables	Amortized cost
Trade accounts receivables	Loans and receivables	Amortized cost
Due from related parties	Loans and receivables	Amortized cost
Judicial deposits	Loans and receivables	Amortized cost
Other assets, current and non-current portion	Loans and receivables	Amortized cost

The effect of adopting IFRS 9 on the carrying amounts of financial assets at January 1, 2018 relates solely to the new impairment requirements.

b. Impairment

IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-looking “expected credit loss” (ECL) model. This new model requires the Company to record expected credit losses on trade accounts receivables on lifetime basis.

The Company has assessed the application of IFRS 9 impairment model requirements and its assessment did not have a material impact on its opening balance at January 1, 2018 (except for trade receivables, described below).

Trade accounts receivables

The estimated ECLs were calculated based on actual credit loss experience over the past two years, with ECL rates calculated separately for B2C (business to consumer) and B2B (business to business) trade accounts receivable. The Company already considered the exposure to credit risk over the impairment recognized under IAS 39.

Factors considered were:

· Significant financial difficulty of the customer;

· Payment default;

· Exposure to expected losses;

· High probability of customer bankruptcy;

· Breach of contract, such as default or delinquency in interest or principal; and

· Adverse change in a factor (for example, unemployment rates, external credit ratings).

Exposures within each group are based on credit risk characteristics and aging status.

The application of IFRS 9’s impairment requirements at January 1, 2018 resulted in an additional allowance for doubtful accounts as follows.

		As at January 1, 2018
		Allowance for doubtful accounts (as previously disclosed)		Restated allowance for expected losses
Not past due	R$	(8,199)	R$	(11,222)
Past due 1-30 days		(2,134)		(2,134)
Past due 31-90 days		(3,686)		(3,686)
Past due 91-120 days		(1,845)		(1,845)
Past due 120-180 days		(3,108)		(3,108)
Past due over 180 days		(1,899)		(1,899)
Total	R$	(20,871)	R$	(23,894)

Note 10 includes a table to summarize the effect of adoption of IFRS 9 on new allowance for doubtful accounts.

c. Hedge accounting

The Company´s assessment did not indicate any impact of the application of IFRS 9 for hedge accounting, because no hedge transactions existed as of December 31, 2017 and no hedge transactions were entered into in the year ended December 31, 2018.

2.7. New Accounting Pronouncements not yet effective

i. IFRS 16 Leases

IFRS 16, Leases replaces IAS 17, Leases and related interpretations. The core principle is that a lessee recognizes assets and liabilities for all leases with a lease term of more than 12 months. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. The new standard is intended to provide a faithful representation of leasing transactions, in particular those that do not currently require the lessees to recognize an asset and liability arising from an operating lease. IFRS 16 is effective for annual periods beginning on January 1, 2019.

The actual impacts of adopting the standard on January 1, 2019 may change because:

- the Company has not finalized the testing and assessment over its controls; and

- the new accounting policies are subject to change until the Company presents its first consolidated financial statements that include the date of initial application.

The Company will recognize new assets and liabilities for its operating leases of distribution centers and administrative headquarters. The nature of expenses related to those leases will change because the Company will recognize a depreciation charge for right-of-use assets and interest expense on lease liabilities.

Previously, the Company recognized operating lease expense on a straight-line basis over the term of the lease, and recognized assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognized. In addition, the Company will no longer recognize provisions for operating leases that it assesses to be onerous. Instead, the Company will include the payments due under the lease in its lease liability. No significant impact is expected for the Company’s finance leases.

The Company decides to adopt the modified retrospective application as of January 01, 2019, with the following expedients:

- apply the new definition of a lease to all of their contracts;

- exemptions for short term leases and/or with low values;

- no restatement of its prior-period financial information;

- calculate lease assets and lease liabilities as at the beginning of the current period using:

o the lease liability at the date of initial application as the present value of the remaining lease payments;

o the right of use assets at an amount equal to the lease liability; and

- apply a single discount rate to the portfolio of leases with similar characteristics using market rates which reasonable approximates the Company risks.

Based on the information currently available, the Company estimates that it will recognize amounts between:

		January 1st, 2019
		BRL
Increase/(Decrease)
Right of use - non-current assets	R$	80,000 - 90,000
Recoverable taxes - current and non-current assets		10,000 - 12,000
Lease liability - current liabilities		15,000 - 20,000
Lease liability - non-current liabilities		75,000 - 82,000

The Company has operating leases on a number of buildings where its distribution centers and administrative headquarters are located with third parties in arm’s length conditions. The agreements mature on different date and are usually indexed to the General Market Price Index (IGP-M). The future minimum payments of non-cancellable operating leases are presented below:

		BRL		USD
Up to one year	R$	28,163	US$	7,268
One to five years		72,225		18,640
More than five years		32,031		8,267
Total	R$	132,419	US$	34,175

During the years ended December 31, 2016, 2017 and 2018, the Company recorded total operating lease expenses of R$26,813, R$27,463 and R$28,105 (US$7,253), respectively.

ii. IFRIC 23 - Uncertainty over Income Tax Treatments

IFRIC 23 clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. In such a circumstance, the Company shall recognize and measure its current or deferred tax asset or liability applying the requirements in IAS 12 based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this interpretation. The interpretation is effective from January 1, 2019.

The Company is evaluating the possible effects from the adoption of the interpretation, and until the present moment no relevant impact has been identified.

iii. Other Clarifications, amendments and interpretations

Several other amendments and interpretations apply for the first time in 2018 and 2019, but do not have a significant impact on the consolidated financial statements of the Company.

3. Events occurred during the year

i. Hyperinflation

Argentina was considered a hyperinflationary economy in 2018. As a result, the Company has applied the IAS 29 accounting requirements to its Argentinean subsidiary with effect from January 1, 2018. The main implications of this are as follows:

- 2017 figures were not restated (accounting policy);

- Adjustment of the historical costs of non-monetary assets and liabilities and the various items of equity of the Argentinean subsidiary from their date of acquisition or inclusion in the consolidated statement of financial position to the end of the period to reflect the changes in purchase power of the currency caused by inflation;

- The cumulative impact of the accounting restatement to adjust for the effects of hyperinflationary for years prior to 2018 is reflected in the translation differences (equity) in the beginning of 2018;

- Adjustment of the consolidated statements of profit or loss to reflect the financial gain caused by the impact of inflation in the year on net monetary assets (loss of purchasing power);

- The various components of consolidated statements of profit or loss and statement of cash flows have been adjusted for the inflation index since their recognition; and

- All components of the financial statements of the Argentinean subsidiary have been translated at the closing exchange rate to the Company functional currency.

The main effects on the consolidated financial statement for 2018 are as follows:

		Until December 31, 2017		Year ended December 31, 2018
		BRL		BRL		USD
Gross profit	R$	-	R$	5,232	US$	1,350
Operating loss		-		(13,866)		(3,579)
Net loss		-		6,870		1,773
Non-monetary assets		3,165		3,019		779
Accumulated losses		2,302		9,172		2,367

The index used to reflect current values is derived from a combination of the wholesale price index (IPIM) and the consumer price index (IPC) published by Instituto Nacional de Estatisticas y Censos (INDEC – Argentinean government agency). The movement in the price index for year ended as of December 31, 2018 is 47.60% (24.80% as of December 31, 2017).

ii. Foreign operations

Accounting policy, and Critical accounting estimates and judgments

The classification as a discontinued operation occurs through disposal or when the operation meets the criteria to be classified as held for sale, if this occurs earlier. A discontinued operation is a component of a Company business comprising cash flows and operations that may be clearly distinct from the rest of the Company and that represents an important separate line of business or geographical operational area.

The result of discontinued operations is presented in a single line in the statement of profit or loss, including the results after income tax of these operations less any impairment loss.

When an operation is classified as a discontinued operation, the statement of profit or loss and the cash flow of the prior periods are restated as if the operation had been discontinued since the beginning of the comparative period.

a. Mexico operation

In August 2018, the Company entered into an agreement with the Grupo Sierra Capital (“Sierra”) to sell the entirety of its Mexico operations. In October 11, 2018 (the “Closing date”) the Company and Sierra concluded the transaction, which was preceded by final adjustments agreed by the parties under the original terms and conditions of the negotiation. As consequence of these adjustments, the final consideration has changed, and the Company received an amount of R$ 6,271 (USD 1,693 as of October 11, 2018).

As part of the final agreement, the Company granted to the former Mexican subsidiaries a loan in the amount of R$8,801 (USD 2,462 as of October 11, 2018), recognized within Other current assets, with maturity on the first anniversary of the closing date.

The Company signed a Transitional Services Agreement (“TSA”) with Sierra to outsource certain services relating to IT and marketing. The IT services are being provided to the former subsidiary for a term of eighteen months and Marketing services are being provided for a term of twelve months, both as from the Closing Date. The Company has a cost estimate R$2,865 (USD 739) to provide these services to the former subsidiary, such amount was deferred and will be recognized as expense reduction when the service is rendered. The Company recognized a gain of BRL 241 (USD 62) in the consolidated statements of profit and loss from discontinued operations, as summarized below.

		Year ended December 31, 2018
		BRL
Proceeds from sale	R$	6,271
Deferred revenue - TSA		(2,865)
Other related costs		(1,793)
Investments disposal		(1,308)
Foreign currency translation - OCI		(64)
	R$	241

The Company may receive additional earn-out of the transaction up to USD 1,500 in circumstances where revenue exceed certain levels during each of the twelve months fiscal periods after the completion of the transaction, during three years.

The statements of profit or loss and cash flow from discontinued operations of the Mexico operation for the year ended December 31, 2018 are presented below, as well as the restatement of the corresponding years ended December 31, 2016 and 2017, as mentioned in Note 2.2.

		Years ended December 31,
		2016		2017		2018		2018
Discontinued operations		BRL		BRL		BRL		USD Note 2.2
Revenue	R$	54,389	R$	53,794	R$	45,147	US$	11,651
Cost of sales		(44,422)		(44,413)		(35,984)		(9,287)
Gross Profit		9,967		9,381		9,163		2,364
Operating expenses:
Selling and marketing expenses		(12,708)		(14,017)		(9,550)		(2,465)
General and administrative expenses		(12,238)		(9,884)		(8,514)		(2,197)
Total operating expenses		(24,946)		(23,901)		(18,064)		(4,662)
Operating loss		(14,979)		(14,520)		(8,901)		(2,298)
Financial income		82		1,136		905		234
Financial expenses		(2,755)		(2,737)		(2,824)		(729)
Loss before income tax		(17,652)		(16,121)		(10,820)		(2,793)
Income tax expense		-		(2)		-		-
Net loss	R$	(17,652)	R$	(16,123)	R$	(10,820)	US$	(2,793)
Gain on sale of discontinued operation		-		-		241		63
Net loss from discontinued operations	R$	(17,652)	R$	(16,123)	R$	(10,579)	US$	(2,730)

		Years ended December 31,
		2016		2017		2018		2018
Discontinued operations		BRL		BRL		BRL		USD
Cash flows from operating activities:								Note 2.2
Net loss	R$	(17,652)	R$	(16,123)	R$	(10,820)	US$	(2,793)
Adjustments to reconcile net loss to net cash used in operating activities:
Allowance for doubtful accounts		-		-		155		40
Depreciation and amortization		462		333		294		76
Loss on disposal of property and equipment, and intangible assets		-		19		13		3
Interest expense, net		1,831		2,190		2,155		556
Provision for inventory losses		(100)		479		644		166
Other		(125)		2		-		-
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade accounts receivable		120		(645)		(85)		(22)
Inventories		2,709		(5,696)		3,916		1,011
Recoverable taxes		1,108		458		1,347		348
Other assets		(296)		414		1,374		355
Increase (decrease) in:								-
Trade accounts payable		(3,982)		4,410		(6,192)		(1,598)
Taxes and contributions payable		(157)		5		169		44
Accrued expenses		(625)		1,118		11		3
Other liabilities		(709)		(82)		(4,968)		(1,282)
Net cash provided by (used in) operating activities		(17,416)		(13,118)		(11,987)		(3,093)
Cash flows from investing activities:
Purchase of property and equipment		(165)		(133)		(59)		(15)
Purchase of intangible assets		(23)		(17)		-		-
Net cash provided by (used in) investing activities		(188)		(150)		(59)		(15)
Cash flows from financing activities:
Proceeds from debt		25,306		25,832		26,169		6,754
Payments of debt		(23,548)		(28,671)		(20,240)		(5,224)
Payments of interest		(2,052)		(2,203)		(2,038)		(526)
Net cash provided by (used in) financing activities		(294)		(5,042)		3,891		1,004
Effect of exchange rate changes on cash and cash equivalents		4,278		148		34		8
Net cash used in discontinued operations		(13,620)		(18,162)		(8,121)		(2,096)

b. Argentina operation impairment

During the first quarter of 2019 the Company decided to divest the Argentina operations, and recorded the impairment impact as follows:

		Year ended December 31, 2018
		BRL		USD
				(note 2.2)
Recoverable taxes	R$	4,828	US$	1,246
Property and equipment		839		217
Intangible assets		12		3
	R$	5,679	US$	1,466

See impairment analysis and conclusions in note 25.

Subsequent eventThe subsidiaries (NS2.Com Internet S.A. and NS5 Participações Ltda.) have signed an agreement, on April 26, 2019 (“closing date”), to sell the entirety of its Argentina operations (NS3 Internet S.A.), which belongs to the reportable International segment, through the sale of all shares which they hold.

Pursuant to terms of this transaction, the Company:- will receive ARS 1 (one Argentinean peso) for the shares that are transferred;- has granted to the former subsidiary a license for the period of eighteen months from the closing date, in Argentina, for the Company brand and e-commerce platform;- has agreed to provide certain services relating to IT for the period of eighteen months from the closing date; and - has agreed to contribute approximately ARS106,000 (approximately USD2,500) into NS3.

4. Segment Information

Accounting policy

An operating segment is a component of the Company that : a) engages in business activities from which it may earn revenues and incur expenditures, including revenues and expenses that relate to transactions with any of the Company’s other components, and b) whose operating results are regularly reviewed by the Company’s chief operating decision maker (“CODM”) to make decisions as to allocation of resources to the relevant segment and assess its performance and for which individual financial information is available.

The Company uses the “management approach” to determine its reportable segments. The management approach identifies operating segments based on how the entity is organized and based on how financial information is presented to the chief operating decision maker (“CODM”). The Company concluded that the CODM is the Chief Executive Officer.

The Company is organized around geographical divisions and discloses the following reportable segments:

· Brazil: consists of retail sales of consumer products from all of our verticals (which includes sales of sporting goods and related garments as well as fashion and more recently, beauty goods) carried out through our sites Netshoes.com.br, Zattini.com.br, Shoestock.com.br, Freelace.com.br and third-party sites that we manage as well as our business to business offline operation.

· Argentina: consists of retail sales of consumer products from sporting goods and related garments carried out through our site Netshoes.com.ar and third-party sites that we manage.

Corporate functions and activities (primarily operating expenses, financial income and financial expenses recorded in Netshoes (Cayman) Limited and Netshoes Holding, LLC) are not allocated directly to the reportable segments and are disclosed below to reconcile the segments to the consolidated financial information.

As explained in note 3, the Mexico operations were sold in October of 2018 and consequently they are presented as discontinued operations.

The CODM receives individual financial information based on the nature of revenues and expenses incurred. There is no regular reporting of individual financial information for products, services, or major customers, and therefore the Company concluded that Brazil and Argentina were each independent reportable segment.

No information on segment assets or liabilities is relevant for decision-making. There are no inter segment transactions in the internal reporting structure.

The Company evaluates the performance of its reportable segments using “segment net income (loss)”. A reconciliation of reportable segments is as follows:

		Brazil								Argentina								Reconciling items (corporate and others)								Total
		Year ended December 31,								Year ended December 31,								Year ended December 31,								Year ended December 31,
		2016		2017		2018		2018		2016		2017		2018		2018		2016		2017		2018		2018		2016		2017		2018		2018
Continuing operations		BRL		BRL		BRL		USD		BRL		BRL		BRL		USD		BRL		BRL		BRL		USD		BRLRestated		BRLRestated		BRL		USD
Net Sales	R$	1,554,405	R$	1,693,467	R$	1,681,963	US$	434,077	R$	130,746	R$	141,745	R$	126,101	US$	32,544	R$	-	R$	-	R$	-	US$	-	R$	1,685,151	R$	1,835,212	R$	1,808,064	US$	466,621
Cost of sales		(1,043,700)		(1,132,900)		(1,280,376)		(330,437)		(100,531)		(114,114)		(109,466)		(28,251)		-		-		-		-		(1,144,231)		(1,247,014)		(1,389,842)		(358,687)
Segment gross profit		510,705		560,567		401,587		103,640		30,215		27,631		16,635		4,293		-		-		-		-		540,920		588,198		418,222		107,934
Salaries and employees' benefits		(191,140)		(167,655)		(193,466)		(49,929)		(18,152)		(20,125)		(18,845)		(4,863)		(1,320)	.	(1,449)		(1,810)		(467)		(210,612)		(189,229)		(214,121)		(55,260)
Marketing expenses		(152,759)		(184,836)		(188,416)		(48,626)		(19,108)		(18,392)		(16,306)		(4,208)		(233)		(781)		(886)		(229)		(172,100)		(204,009)		(205,608)		(53,063)
Operating lease		(24,683)		(25,369)		(25,928)		(6,692)		(2,214)		(2,094)		(2,195)		(566)		-		-		-		-		(26,897)		(27,463)		(28,123)		(7,258)
Credit card fees		(25,572)		(30,213)		(31,621)		(8,161)		(5,255)		(5,032)		(4,192)		(1,082)		-		-		-		-		(30,827)		(35,245)		(35,813)		(9,243)
Information technology services		(29,473)		(30,064)		(25,082)		(6,474)		(883)		(712)		(665)		(172)		(6,244)		(6,054)		(3,274)		(845)		(36,600)		(36,830)		(29,021)		(7,491)
Amortization and depreciation		(27,777)		(27,503)		(41,104)		(10,607)		(798)		(634)		(1,094)		(282)		(2,163)		(3,350)		(15,824)		(4,084)		(30,738)		(31,487)		(58,022)		(14,974)
Consulting		(7,785)		(10,081)		(18,861)		(4,868)		(680)		(684)		(620)		(160)		(1,215)		(2,215)		(8,831)		(2,279)		(9,680)		(12,980)		(28,312)		(7,307)
Allowance for doubtful accounts		(6,227)		(25,443)		(13,014)		(3,359)		-		-		-		-		-		-		-		-		(6,227)		(25,443)		(13,014)		(3,359)
Sales commissions and royalties		(12,021)		(16,069)		(17,459)		(4,505)		(959)		(910)		(940)		(243)		-		-		-		-		(12,980)		(16,979)		(18,399)		(4,748)
Facilities expenses		(14,020)		(14,185)		(13,480)		(3,479)		(1,390)		(1,280)		(1,084)		(280)		-		-		-		-		(15,410)		(15,465)		(14,564)		(3,759)
Other selling, general and administrative expenses		(35,803)		(38,445)		(21,587)		(5,571)		(5,465)		(3,948)		(3,728)		(962)		(64)		(920)		(1,589)		(410)		(41,332)		(43,313)		(26,904)		(6,941)
Other operating (expense) income, net		(5,146)		(3,849)		(7,502)		(1,935)		(103)		(28)		(1,803)		(465)		(2)		(56)		(7)		(2)		(5,251)		(3,933)		(9,312)		(2,403)
Total operating expenses		(532,406)		(573,712)		(597,520)		(154,206)		(55,007)		(53,839)		(51,472)		(13,283)		(11,241)		(14,825)		(32,221)		(8,316)		(598,654)		(642,376)		(681,213)		(175,806)
Financial income		26,642		27,672		14,539		3,752		731		500		427		110		912		824		60		15		28,285		28,996		15,026		3,878
Financial expenses		(93,178)		(116,947)		(70,329)		(18,150)		(11,616)		(10,002)		(12,684)		(3,273)		(1)		(2,091)		(210)		(54)		(104,795)		(129,040)		(83,223)		(21,478)
Monetary correction gain (loss), net		-		-		-		-		-		-		9,595		2,476		-		-		-		-		-		-		9,595		2,476
Loss before income tax		(88,237)		(102,420)		(251,723)		(64,964)		(35,677)		(35,710)		(37,499)		(9,677)		(10,330)		(16,092)		(32,371)		(8,355)		(134,244)		(154,222)		(321,593)		(82,996)
Income tax expense		-		-		-		-		-		-		(202)		(52)		-		-		-		-		-		-		(202)		(52)
Net loss	R$	(88,237)	R$	(102,420)	R$	(251,723)	US$	(64,964)	R$	(35,677)	R$	(35,710)	R$	(37,701)	US$	(9,729)	R$	(10,330)	R$	(16,092)	R$	(32,371)	US$	(8,355)	R$	(134,244)	R$	(154,222)	R$	(321,795)	US$	(83,048)

The Company has aggregated its products and services into groups of similar products and provided the supplemental disclosure of Revenue below. The Company evaluates whether additional disclosure is appropriate when a product or service category begins to approach a significant level of Revenue.

		Year ended December 31,
		2016		2017		2018		2018
		BRLRestated		BRLRestated		BRL		USD
Sports (1)	R$	1,504,800	R$	1,528,295	R$	1,435,652	US$	370,510
Fashion (1)		172,077		272,423		309,538		79,885
Market Place		8,274		34,494		62,874		16,226
Total net sales	R$	1,685,151	R$	1,835,212	R$	1,808,064	US$	466,621

(1) Freight services were allocated to the product revenues that they are related to.

Property and equipment and intangible assets by geography are as follows:

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
Property and equipment, net
Brazil	R$	69,350	R$	76,489	US$	19,740
Argentina		2,574		-		-
Mexico		1,115		-		-
Total property and equipment, net	R$	73,039	R$	76,489	US$	19,740
Intangible assets, net
Brazil	R$	95,684	R$	133,117	US$	34,356
Argentina		11		-		-
Mexico		41		-		-
Cayman		20,103		10,200		2,631
Total intangible assets, net	R$	115,839	R$	143,317	US$	36,987
Total		188,878		219,806		56,727

5. Earnings (Loss) Per Share (“EPS”)

Accounting policy

Basic EPS is computed by dividing net income (loss) attributable to the owners of the Parent by the weighted average number of common shares outstanding for the periods presented. Diluted EPS reflects the potential dilution of share options that could be exercised or converted into common shares and is computed by dividing net income (loss) attributable to the owners of the Parent by the weighted average number of common share outstanding plus the potentially dilutive effect of share options. When the Company reports net loss attributable to the owners of the Parent, the diluted losses per common share are equal to the basic losses per common share due to the anti-dilutive effect of the outstanding share options.

Earnings per share data for the periods presented have been calculated giving effect to the stock split of 1.0 for 3.0 which occurred immediately prior to the completion of the Initial Public Offering on April 18, 2017 (see note 1.2).

The following table sets forth the computation of the Company’s basic and diluted loss per share attributable to the owners of the Parent for the years ended December 31, 2016, 2017 and 2018:

		Year ended December 31,
		2016		2017		2018		2018
		BRLRestated		BRLRestated		BRL		USD
Numerator
Net loss for the period attributable to the owners of the Parent from continuing operations	R$	(133,422)	R$	(153,623)	R$	(321,166)	US$	(82,886)
Net loss for the period attributable to the owners of the Parent from discontinued operations		(17,652)		(16,123)		(10,579)		(2,730)
Denominator
Weighted average number of outstanding shares of common stock		21,435,576		28,510,918		31,056,244		31,056,244
Loss per share attributable to the owners of the Parent (1)
Basic and diluted	R$	(7.05)	R$	(5.95)	R$	(10.68)	US$	(2.76)
Basic and diluted from continuing operations		(6.22)		(5.39)		(10.34)		(2.67)
Basic and diluted from discontinued operations		(0.83)		(0.56)		(0.34)		(0.09)

(1) When the Company reports net loss attributable to the owners of the Parent, the diluted loss per common share is equal to the basic losses per common share due to the anti-dilutive effect of the outstanding share options and convertible notes.

6. Revenue

Accounting policy

Revenue is measured based on the consideration to which the Company expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue when it transfers control of a product or service to a customer.

i. Revenue from Product Sales

Revenue from product sales arises from (i) online purchases on the Company’s sites (i.e. Netshoes, Zattini, Shoestock and Freelace) and third-party sites that the Company manages and (ii) offline purchases with the Company.

Revenue is recognized when the goods are delivered and have been accepted by customers at their premises. For contracts that permit the customer to return an item, revenue is recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

Therefore, the amount of revenue recognized is adjusted for expected returns, which are estimated based on the historical data. In these circumstances, a refund liability and a right to recover returned goods asset are recognized.

The Company recognizes revenue from product sales on a gross basis since the Company acts as principal and as such, it has primary responsibility for fulfilling the orders, it bears inventory risk, and it has discretion in establishing prices and bears the customer’s credit risk.

ii. Other Revenues

Other revenues mainly consist of the following:

• Freight-related services: Revenue from the freight-related services is recognized once the service is rendered;

• Marketplace platform: The Company generates revenue from the marketplace platform in the form of a commission, when the third-party vendors sell the products on Company’s platform. The Company recognizes revenue from the marketplace platform on a net basis because the Company acts as an agent and does not have primary responsibility for fulfilling the orders, bear inventory risk or have discretion in establishing prices; and

• NCard: The Company generates commission revenue from the customers’ activation of NCards. The revenue is recognized when the NCards are activated by the customers.

Critical accounting estimates and judgments

For certain contracts that permit the customer to return an item, revenue is currently recognized when a reasonable estimate of return can be made, provided that all other criteria for revenue recognition are met.

Because the contract allows the customer to return the products, the consideration received from the customer is variable. The Company has decided to use the expected value method to estimate the goods that will be returned because this method better predicts the amount of variable consideration to which the Company will be entitled.

Details of Revenue for years ended December 31, 2016, 2017 and 2018 were as follows:

		Year ended December 31,
		2016		2017		2018		2018
		BRLRestated		BRLRestated		BRL		USD
Product sales - B2C	R$	1,579,857	R$	1,734,204	R$	1,672,380	US$	431,604
Product sales - B2B		65,884		9,388		10,364		2,675
Other revenues - Freight related services		31,136		56,479		59,883		15,455
Other revenues - Marketplace		8,274		34,494		62,874		16,226
Other revenues - Ncard		-		647		2,563		661
Total net sales	R$	1,685,151	R$	1,835,212	R$	1,808,064	US$	466,621

The Company has established distribution centers in the Brazilian States of Pernambuco and Minas Gerais, where it has been granted tax incentives by local government which reduce the amount of sales taxes paid, effectively increasing the amount of revenue recognized.

As a result of such tax incentives, sales to purchasers outside of the State of Pernambuco originated from our distribution center located in the city of Recife (State of Pernambuco, Brazil), enjoyed Pernambuco State ICMS tax rate range from 0.5% to 1.0% during 2017 and 2018, depending on the type of product offered. Also, sales to purchasers outside of the State of Minas Gerais originated from our distribution center located in the city of Extrema (State of Minas Gerais, Brazil) enjoyed a Minas Gerais State ICMS tax rate of 1.0% during 2017 and 2018.

The incentive also determines that the Company is not allowed to take any credit for taxes paid on the purchase of products subsequently sold outside of those states such that these amounts become non- recoverable taxes and increase the Cost of Sales. Note 8 (i) of these financial statements presents the impact on cost of sales.

For the years ended December 31, 2016, 2017 and 2018, the total amounts of tax incentives recorded in Revenue are as follows:

		Year ended December 31,
		2016		2017		2018		2018
		BRL		BRL		BRL		USD
State of Pernambuco	R$	95,151	R$	66,587	R$	46,514	US$	12,004
State of Minas Gerais		121,520		152,588		123,706		31,926
Total tax incentives - Net sales	R$	216,671	R$	219,175	R$	170,220	US$	43,930

7. Deferred Revenue

On October 30, 2015, the Company entered into a partnership agreement with a financial institution to create a co-branded credit card (“NCard”). Deferred revenue recorded represents the amount paid in advance by the financial institution for the exclusive use of the Company's customer database and credit card activation.

		2017		2018		2018
		BRL		BRL		USD
Deferred revenue from exclusive use of customer database	R$	11,750	R$	10,986	US$	2,835
Deferred revenue from credit card activation		17,484		14,687		3,791
Total	R$	29,234	R$	25,673	US$	6,626
Current		3,732		3,983		1,028
Non-current		25,502		21,690		5,598

Deferred revenue from exclusive use of the Company’s customer database is recognized as other operating (expense) income, net in the consolidated statements of profit or loss using the straight-line method, over the period of the contract (10 years). In the years ended December 31, 2016, 2017 and 2018, the amount of R$1,500, R$ 1,500 and 1,500 (US$387), respectively, was recorded in other operating income related to customer database.

Deferred revenue from credit card activation is recognized as other revenues within revenue, in the consolidated statements of profit or loss, when the credit cards are activated with the bank by the Company’s customers. In the years ended December 31, 2016, 2017 and 2018 the amount of R$0, R$647 and R$2,563 (US$661), respectively.

In the event the bank decides to terminate the contract early, the Company will be entitled to the remaining amount of deferred revenue related to the customer database proportionally to the remaining period of the contract while credit cards activation deferred revenue balances will be reimbursed to the bank proportionally to credit cards not activated, with interest.

In the event the Company decides to terminate the contract early, the amounts related to the customer database will be reimbursed to the bank proportionally to the remaining period of the contract and the amounts related to credit card activation will be reimbursed to the bank proportionally to credit cards not activated, both including interest. In addition, a penalty will be paid to the bank as follows:

	Penalty
Termination year	BRL
2019	6,300
2020	5,400
2021	4,500
2022	3,600
2023	2,700
2024	1,800
2025	900

Additionally, the bank and the Company will share the profit and loss of this partnership, equally. In case of losses in the partnership, the amount attributable to the Company will be compensated with future profits. Losses in the partnership will only be absorbed by the Company in case of early termination of the contract by the Company, therefore the revenue will be recorded when the right to receive payment is established by the amount net of losses.

8. Expenses and Financial Income and Expenses

Accounting policy

Cost of sales consist of costs related to direct sales, including purchase price of consumer products sold to customers from direct sales, inbound freight charges to fulfillment center and outbound freight cost, packaging supplies, gains related to discounts obtained from suppliers and costs for lost, stolen or damaged goods received. Freight charges to receive products from suppliers are included in inventory and recognized as cost of sales upon sale of products to customers.

Financial income comprises interest income on cash and cash equivalents, imputed interest income on installment sales arising from extended payment terms offered to our customers, foreign exchange gains and gains on derivative financial instruments. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. The rate used to determine imputed interest income on installment sales is 100% of the Brazilian Interbank Deposit Rate (Certificado de Depósito Interbancário, or CDI), plus a percentage that represents the credit risk of the Company’s counterparties.

Financial expenses comprise interest expenses on debt and imputed interest expense on credit purchases with extended payment terms offered by our suppliers. Financial expenses also include bank fees, foreign exchange losses and losses on derivative instruments. Borrowing costs are recognized in the consolidated statements of profit or loss using the effective interest method. The rate to determine imputed interest expense on credit purchase is 100% of the CDI, plus a percentage that represents the Company’s credit risk.

i. Costs of Sales

The following is the breakdown of cost of sales for years ended December 31, 2016, 2017 and 2018, respectively:

		Year ended December 31,
		2016		2017		2018		2018
		BRLRestated		BRLRestated		BRL		USD
Cost of product sales	R$	1,004,917	R$	1,085,362	R$	1,206,757	US$	311,437
Shipping costs		137,144		149,576		160,517		41,426
Others		2,170		12,076		22,568		5,824
Total cost of sales	R$	1,144,231	R$	1,247,014	R$	1,389,842	US$	358,687

Cost of product sales include the non-recoverable ICMS taxes resulting from the tax incentives disclosed in note 6 granted by the States of Minas Gerais and Pernambuco. For the years ended December 31, 2016, 2017 and 2018, the total amounts of non-recoverable ICMS are as follows:

		Year ended December 31,
		2016		2017		2018		2018
		BRL		BRL		BRL		USD
State of Pernambuco	R$	30,507	R$	25,218	R$	26,220	US$	6,767
State of Minas Gerais		52,463		81,113		74,409		19,203
Non-recoverable ICMS	R$	82,970	R$	106,331	R$	100,629	US$	25,970

The impact of tax incentives net of non-recoverable ICMS for the years ended December 31, 2016, 2017 and 2018 is R$133,701, R$112,844 and R$69,591 (US$17,960), respectively.

During the years ended December 31, 2016, 2017 and 2018, the Company reviewed and changed ICMS tax positions taken on past transactions and recorded ICMS tax credits amounting to R$ 5,500, R$10,118, and R$0 (US$0), respectively, as a reduction of the cost of product sales.

ii. Selling and Marketing Expenses

The following is the breakdown of selling and marketing expenses for years ended December 31, 2016, 2017 and 2018, respectively:

		Year ended December 31,
		2016		2017		2018		2018
		BRLRestated		BRLRestated		BRL		USD
Salaries and employees' benefits	R$	132,463	R$	141,896	R$	143,806	US$	37,113
Marketing expenses		172,100		204,009		205,608		53,063
Operating lease		20,300		19,170		19,530		5,040
Credit card fees		30,827		35,245		35,813		9,243
Information technology services		1,896		1,414		1,040		269
Amortization and depreciation		7,624		4,312		7,155		1,846
Consulting		-		870		5,651		1,458
Allowance for doubtful accounts		6,227		25,443		13,014		3,359
Sales commissions and royalties		12,980		16,979		18,399		4,748
Facilities expenses		12,117		12,556		11,271		2,909
Others		34,531		33,296		18,919		4,883
Total selling and marketing expenses	R$	431,065	R$	495,190	R$	480,206	US$	123,931

iii. General and Administrative Expenses

The following is the breakdown of general and administrative expenses for years ended December 31, 2016, 2017 and 2018, respectively:

		Year ended December 31,
		2016		2017		2018		2018
		BRLRestated		BRLRestated		BRL		USD
Salaries and employees' benefits	R$	78,149	R$	47,333	R$	70,315	US$	18,147
Operating lease		6,597		8,293		8,593		2,218
Information technology services		34,704		35,416		27,981		7,221
Amortization and depreciation		23,114		27,175		50,867		13,128
Consulting		9,680		12,110		22,661		5,848
Facilities expenses		3,293		2,909		3,293		850
Others		6,801		10,017		7,985		2,060
Total general and administrative expenses	R$	162,338	R$	143,253	R$	191,695	US$	49,472

iv. Financial Income and Expenses

The following is the breakdown of financial income and expenses of the Company for years ended December 31, 2016, 2017 and 2018, respectively:

		Year ended December 31,
		2016		2017		2018		2018
		BRLRestated		BRLRestated		BRL		USD
Interest income	R$	19,675	R$	24,631	R$	9,833	US$	2,538
Foreign exchange gain		2,090		1,336		2,871		741
Imputed interest on installment sales(1)		5,706		2,255		2,259		583
Derivative financial instruments gain		-		764		-		-
Other		814		10		63		16
Total financial income	R$	28,285	R$	28,996	R$	15,026	US$	3,878

(1) This includes discounts charged by credit card acquirers for the advanced payment of receivables due from them (arising from sales to Company´s customers paid for using credit cards) of R$24,900, R$23,114 and R$16,826 (USD 4,320) for years ended December 31, 2016, 2017 and 2018, respectively.

		Year ended December 31,
		2016		2017		2018		2018
		BRLRestated		BRLRestated		BRL		USD
Interest expense	R$	65,081	R$	61,287	R$	33,302	US$	8,595
Imputed interest on credit purchases		32,653		53,981		30,439		7,856
Bank charges		3,005		6,451		5,287		1,364
Derivative financial instruments loss		492		-		-		-
Foreign exchange loss		-		1,810		6,179		1,595
Debt issuance costs		2,532		4,665		2,447		632
Other		1,032		846		5,569		1,436
Total financial expense	R$	104,795	R$	129,040	R$	83,223	US$	21,478

9. Cash and Cash Equivalents

Accounting policy

Cash and cash equivalents include cash on hand, bank deposits and highly liquid investments in fixed-income funds with an initial maturity of less than three months and subject to an insignificant risk of change in value.

Cash and cash equivalents are held with banks and financial institutions counterparties, which are rated BB-, based on Standards & Poor’s credit rating for local currency credit issuers as at December 31, 2018.

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
Cash and bank balances	R$	17,801	R$	6,108	US$	1,576
Cash equivalents		378,161		61,213		15,798
Total cash and cash equivalents	R$	395,962	R$	67,321	US$	17,374

Cash equivalents are investments in Bank Deposit Certificates (“CDB”) with original maturities of 90 days or less and investments funds with an insignificant risk of change in value and with daily liquidity, issued by Brazilian financial institutions, that accrue at an average interest rate of 89.93% of CDI (Interbank Deposit Certificate rate).

10. Trade Accounts Receivable, Net

Accounting policy

The Company’s trade accounts receivables are represented by credit sales (installments) funded by credit card operators and receivables from B2B (business-to-business) customers. They are included within current assets, with the exception of those maturing in over twelve months from the closing date of the financial statements, in which case they are classified as non-current assets.

Trade accounts receivable are recognized at fair value which primarily represents the present value of the amount receivable and subsequently measured at amortized cost using the effective interest method, less any impairment losses.

When a trade accounts receivable is uncollectible, it is written-off against the allowance for trade accounts receivable. Subsequent recoveries of amounts previously written-off are recognized as income in profit or loss.

Policy applicable before January 01, 2018

An impairment loss of trade accounts receivable is recognized when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the relevant receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payment are considered indicators that the trade accounts receivable may be impaired.

Policy applicable from January 01, 2018

The Company always measures loss allowance for trade receivables at an amount equal to lifetime ECLs. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of the instrument. The Company uses provision matrixes to determine its ECLs for trade account receivables.

Critical accounting estimates and judgments

The estimated ECLs (Expected Credit Loss) were calculated based on actual credit loss experience over the past two years, with ECL rates calculated separately for B2C (business-to-consumer) and B2B (business-to-business) trades accounts receivable.

Factors considered were:

• Significant financial difficulty of the customer;

• Payment default;

• Exposure to expected losses;

• High probability of customer bankruptcy;

• Breach of contract, such as default or delinquency in interest or principal; and

• Adverse change in a factor (for example, unemployment rates, external credit ratings).

Exposures within each group are based on credit risk characteristics and aging status. As disclosed in note 19

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
Trade accounts receivables	R$	134,039	R$	184,954	US$	47,733
Allowance for doubtful accounts		(20,871)		(21,147)		(5,458)
Total trade accounts receivables,net	R$	113,168	R$	163,807	US$	42,275

The changes in the allowance for doubtful trade accounts receivable for years ended December 31, 2016, 2017 and 2018 are as follows:

		Year ended December 31,
		2016		2017		2018		2018
		BRL		BRL		BRL		USD
Balance at January 1	R$	(555)	R$	(1,722)	R$	(20,871)	US$	(5,387)
Additions		(6,227)		(25,443)		(13,014)		(3,359)
Adjustment from adoption of IFRS 9 (a)		-		-		(2,322)		(599)
Adjustment from adoption of IFRS 9 (b)		-		-		(701)		(181)
Sale of Mexico operation		-		-		155		40
Write-offs		5,060		6,294		15,606		4,028
Balance at December 31	R$	(1,722)	R$	(20,871)	R$	(21,147)	US$	(5,458)

a) Impact of adopting IFRS9 on opening balance, related to reclassification from accounts receivables (“gross”) to allowance for doubtful accounts at January 1, 2018 as disclosed in Note 2.6.

b) Impact of adopting IFRS9 on opening balance, recognized in Accumulated losses as at January 1, 2018 as disclosed in Note 2.6.

Information about the Company’s exposure to credit and other market risks is included in note 19.

11. Inventories, Net

Accounting policy

Inventories are valued at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average method, and includes expenditures incurred in acquiring relevant inventories and other costs incurred in bringing them to their existing location and condition. Cost of purchase of inventories comprises their purchase price including non-recoverable taxes, transport and handling costs and any other directly attributable costs, less trade discounts. Net realizable value is the estimated selling price in the ordinary course of business less the estimated selling expenses.

When inventories are sold, the carrying amount of those inventories is recognized as cost of sales in the consolidated statements of profit or loss in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

Critical accounting estimates and judgments

The Company writes down the carrying value of its inventories for estimated amounts related to the lower of cost or net realizable value, obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value. The estimated net realizable value of inventory is based on historical usage and assumptions about future demand, future product purchase commitments and market conditions on a product-by-product basis. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the write-down is reversed (i.e. the reversal is limited to the amount of the original write-down) so that the new carrying amount is the lower of the cost and the revised net realizable value.

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
Finished goods for resale	R$	466,486	R$	308,666	US$	79,660
Right to recover returned goods		-		2,282		589
Allowance for slow moving and others		(9,854)		(42,354)		(10,931)
Total inventories, net	R$	456,632	R$	268,594	US$	69,318

During the years December 31, 2016, 2017 and 2018, inventories of R$1,040,803, R$1,126,781 and R$1,014,856 (US$261,669) were sold and recognized as cost of sales in the consolidated statements of profit or loss, respectively.

Due to obsolescence, damaged and slow-moving items, the Company recognizes an allowance on the related inventories to their net realizable value. For years ended December 31, 2016, 2017 and 2018, the Company recognized a loss of R$949, R$4,904 and R$64,187 (US$16,565), respectively, which was included in cost of sales in the consolidated statements of profit or loss.

During the third quarter of 2018, the Company terminated a commercial relationship with the supplier of B2B operation (Midway Labs). As consequence the Company adjusted margins of nutrition supplements products, in order to accelerate sales through its B2C channel. The Company recognized additional allowances for net realizable value of R$44,367 and a write-off of R$14,914, which reduced its inventories acquired from that former supplier to a net realizable value of R$24,713 (US$ 6,378).

12. Recoverable Taxes

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
VAT Taxes Brazil (ICMS)	R$	107,965	R$	90,069	US$	23,245
VAT Taxes International		16,261		1,168		301
Taxes other than income tax (PIS and COFINS)		14,829		176		45
Withholding income taxes		4,467		5,869		1,515
Others		7,290		1,965		508
Total recoverable taxes	R$	150,812	R$	99,247	US$	25,614
Current		80,047		59,214		15,282
Non-Current		70,765		40,033		10,332

The Company recognized an impairment loss of R$ 4,828 on VAT Taxes International, due to decision to close Argentina operations (see Note 3).

13. Property and Equipment, Net

Accounting policy

Property and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes the purchase price and any other costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating. The cost of a self-constructed asset is determined using the same principles as for an acquired asset.

Depreciation is recognized on a straight-line basis method, reflecting the pattern in which the asset’s future economic benefits are expected to be consumed by the Company. The estimated useful lives are as follows:

Asset Class	Useful Life (years)
Leasehold improvements	10
Machinery and equipment	10
Hardware	6
Facilities	15
Furniture and fixture	12
Vehicles	5

Gain or loss arising from the disposal of property and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and recognized in other operating income (expenses) in the consolidated statements of profit or loss.

Critical accounting estimates and judgments

See impairment analysis and conclusions in note 25.

Breakdown of and changes in property and equipment are as follows:

		Leasehold improvements		Machinery and equipment		Hardware		Facilities		Furniture and fixture		Vehicles		Construction in progress		Total	Total
		BRL		BRL		BRL		BRL		BRL		BRL		BRL		BRL	USD
As of January 1, 2016		33,463		13,596	R$	10,259	R$	5,932	R$	2,995	R$	150	R$	1,287	R$	67,682
Additions		10,903		2,569		7,403		758		1,218		157		3,384		26,392
Disposals		(180)		(76)		(220)		(39)		(194)		(1)		-		(710)
Depreciation for the year		(9,833)		(2,012)		(4,054)		(725)		(629)		(36)		-		(17,289)
Tranfers		602		-		673		-		11		-		(1,286)		-
Net exchange differences arising from translation adjustments		(202)		(278)		(115)		(1,152)		(119)		(7)		-		(1,873)
As of December 31, 2016	R$	34,753	R$	13,799	R$	13,946	R$	4,774	R$	3,282	R$	263	R$	3,385	R$	74,202
Additions		358		207		2,018		543		701		-		4,084		7,911
Disposals		-		-		(23)		(7)		(17)		(152)		-		(199)
Depreciation for the year		(1,944)		(1,444)		(3,925)		(657)		(524)		(34)		-		(8,528)
Tranfers		3,340		131		206		205		755		-		(4,637)		-
Net exchange differences arising from translation adjustments		(43)		(81)		(2)		(190)		(32)		1		-		(347)
As of December 31, 2017		36,464		12,612		12,220		4,668		4,165		78		2,832		73,039	18,850
Additions		185		243		1,308		772		632		-		17,742		20,882	5,389
Disposals		(726)		(75)		(499)		(39)		(202)		-		-		(1,541)	(398)
Depreciation for the year		(5,742)		(2,354)		(3,160)		(422)		(491)		(27)		-		(12,196)	(3,147)
Tranfers		215		18,733				1,602		14		-		(20,564)		-	-
Net exchange differences arising from translation adjustments		(157)		(322)		(70)		(961)		(115)		-		-		(1,625)	(419)
Monetary correction gain, net		366		493		52		1,663		61		(1)		-		2,634	680
Impairment		(366)		(681)		(166)		(2,146)		(176)		-		-		(3,535)	(912)
Sale from Mexico operation		-		(125)		(180)		(769)		(95)		-		-		(1,169)	(303)
As of December 31, 2018	R$	30,239	R$	28,524	R$	9,505	R$	4,368	R$	3,793	R$	50	R$	10	R$	76,489	19,740

At December 31, 2017 and 2018, properties with a carrying amount of R$4,547 and R$0 (US$0), respectively were granted as collateral under certain loan and financing arrangements.

During the year ended December 31, 2018, the main additions relate to the Extrema warehouse expansion.

14. Intangible assets, Net

Accounting policy

Intangible items are recognized as intangible assets when they meet the following criteria:

· the item is identifiable and separable;

· the Company has the capacity to control future economic benefits from the item; and

· the item will generate future economic benefits.

Intangible assets consist mainly of trademark, software purchased, and software internally developed.

Intangible assets acquired separately by the Company are measured at cost, which includes capitalized borrowing costs.

Subsequent to initial recognition, the intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization of the asset begins when development is complete, and the asset is available for use. Indefinite life intangibles are not amortized but are tested for impairment at each year-end or whenever there is an indication that the carrying amount may not be recovered. The estimated useful lives of assets are as follows:

Asset Class	Useful Life (years)
Purchased software	5
Internally developed software	5
Trademark	Indefinite

Amortization methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate and any changes are accounted for as changes in accounting estimates. There were no such changes for any of the periods presented.

An intangible asset is derecognized on disposal when no future economic benefits are expected from its use or disposal. Gain or loss arising from derecognition of an intangible asset is determined as the difference between the net sale proceeds, if any, and the carrying amount of the intangible asset. When an intangible asset is derecognized, it is recorded as other operating expenses in the consolidated statements of profit or loss.

Expenditure on research activities, undertaken with the prospects of gaining new scientific or technical knowledge and understanding, is recognized as an expense in the statements of profit or loss when incurred.

Critical accounting estimates and judgments

Development activities involve a plan or project aimed at putting in use new or significantly improved technologies. Development costs are capitalized only if the Company can demonstrate all of the following:

· the technical feasibility of completing the intangible asset so that it will be available for use or sale;

· its intention to complete the intangible asset and use or sell it;

· its ability to use or sell the intangible asset;

· how the intangible asset will generate probable future economic benefits. Among other things, the Company can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

· the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

· its ability to measure reliably the expenditure attributable to the intangible asset during its development.

The expenditures capitalized include the cost of materials, labor and other costs that are directly attributable to preparing the asset for its intended use. Other development expenditures are recognized as expenses in the statements of profit or loss when incurred.

See impairment analysis and conclusions in note 25.

Breakdown of and changes in intangible assets are as follows:

		Software purchased		Software developed		Software in development		Trademark		Other		Total		Total
		BRL		BRL		BRL		BRL		BRL		BRL		USD
As of January 1, 2016		18,219	R$	26,794	R$	7,087	R$	-	R$	559	R$	52,659
Additions		1,738		15,722		18,760		14,001		-		50,221
Disposals		-		(187)		-		-		-		(187)
Amortization for the year		(5,777)		(8,134)		-		-		-		(13,911)
Tranfers		316		5,529		(5,845)		-		-		-
Net exchange differences arising from translation adjustments		(25)		(1,164)		-		-		-		(1,189)
As of January 1, 2017	R$	14,471	R$	38,560	R$	20,002	R$	14,001	R$	559	R$	87,593
Additions		4,850		10,641		35,562		-		-		51,053
Disposals		-		-		-		-		-		-
Amortization for the year		(6,320)		(16,972)		-		-		-		(23,292)
Tranfers		1,475		27,852		(29,327)		-		-		-
Net exchange differences arising from translation adjustments		(2)		474		13		-		-		485
As of December 31, 2017		14,474		60,555		26,250		14,001		559		115,839		29,897
Additions		11,546		2,231		59,119		-		1		72,897		18,813
Disposals		(1,142)		-		(1,085)		-		-		(2,227)		(575)
Amortization for the year		(8,694)		(36,438)		-		-		-		(45,132)		(11,648)
Tranfers		-		72,970		(72,970)		-		-		-		-
Net exchange differences arising from translation adjustments		(16)		1,951		85		-		-		2,020		521
Monetary correction gain, net		10		-		-		-		-		10		3
Impairment		(48)		-		-		-		-		(48)		(12)
Sale from Mexico operation		(42)		-		-		-		-		(42)		(11)
As of December 31, 2018	R$	16,088	R$	101,269	R$	11,399		14,001	R$	560	R$	143,317	U$	36,988

The amortization cost of intangible assets is recognized in the consolidated statements of profit or loss and allocated into selling expenses and general and administrative expenses based on the nature and use of intangible assets.

During the year ended December 31, 2018, the main additions to software developed relates to the new website platform. Included in this amount are capitalized borrowing costs of R$1,060 (US$274), calculated using a capitalization rate of TJLP (Long-Term Interest Rate) plus 3% p.a..

15. Trade accounts payable

Accounting policy

Trade accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business. Trade accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade accounts payable are initially discounted to the present value of consideration due if payment is deferred and subsequently measured at amortized cost using the effective interest method.

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
Trade accounts payable - domestic	R$	339,634	R$	331,656	US$	85,593
Trade accounts payable - foreign		26,201		5,464		1,410
Total trade accounts payable	R$	365,835	R$	337,120	US$	87,003

Information about the Company’s exposure to currency and liquidity risks is included in note 19.

16. Reverse factoring

Accounting policy

Under reverse factoring, financial institutions commit to pay the Company’s suppliers at an accelerated rate in exchange for a trade discount. The Company derecognizes trade accounts payable to suppliers and recognizes financial liabilities with respect to the relevant financial institutions under “Reverse Factoring” in its consolidated statements of financial position. Cash payments made by financial institutions for reverse factoring to relevant suppliers are classified as operating activities in the consolidated statements of cash flows.

Reverse factoring are initially discounted to the present value of consideration due if payment is deferred and subsequently measured at amortized cost using the effective interest method.

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
Trade accounts payable	R$	126,755	R$	31,731	US$	8,189
Other liabilities		22,173		13,545		3,496
Total reverse factoring	R$	148,928	R$	45,276	US$	11,685

The Company has entered into reverse factoring with financial institutions in order to allow suppliers to advance receivables related to the Company’s purchases of inventories.

17. Accrued Expenses

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
Selling and marketing services	R$	76,228	R$	73,932	US$	19,080
Provision for sales with a right of return		-		3,803		981
Freight		11,087		17,340		4,475
Gift card		7,191		7,722		1,993
Information technology		3,460		6,099		1,574
Acquisition of fixed assets and intangible		1,710		2,182		563
Rentals		2,987		4,226		1,091
Services		4,047		11,188		2,887
Employees benefits		3,566		2,099		542
Other		10,090		8,130		2,099
Total accrued expenses	R$	120,366	R$	136,721	US$	35,285

18. Debt

Accounting policy

Debts are initially measured at fair value, net of transaction costs incurred and are subsequently carried at amortized cost and updated using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statements of profit or loss over the period of the loan, using the effective interest rate method. The fees paid in obtaining the loan are recognized as transaction costs.

The carrying value of the Company’s outstanding debt consists of the following:

		Year ended December 31,
		2017		2018		2018
		BRL		BRL		USD
Secured borrowings	R$	201,769	R$	164,539	US$	42,464
Nonconvertible notes - Debentures		84,202		64,340		16,605
Total long-term debt		285,971		228,879		59,069
Current portion of long-term debt		106,577		38,473		9,929
Long-term debt, net of current portion	R$	179,394	R$	190,406	US$	49,140

The terms and conditions for loans and borrowings as of December 31, 2017 and 2018 are as follows:

					At December 31, 2017	At December 31, 2018	At December 31, 2018
		Currency	Nominal interest rate p.a.	Years of maturity	Carrying amount	Carrying amount	Carrying amount
					BRL	BRL	USD
Secured borrowing - FINAME/BNDES		R$	5.5%	2018	200	-	-
Secured borrowing - FINAME/BNDES		R$	3.0%	2018	338	-	-
Secured borrowing - Working capital	(i)	R$	138.5% of CDI	2021	115,783	93,881	24,229
Secured borrowing - Working capital	(ii)	R$	100% of CDI + 3.6%	2021	56,811	45,338	11,701
Secured borrowing - Working capital	(iii)	R$	TJLP +3%	2026	26,188	25,520	6,586
Nonconvertible notes - Debentures	(iv)	R$	100% of CDI + 3.2%	2021	84,202	64,140	16,553
Bank Loan		MXN	TIIE + 1.6%		2,449	-	-
Total					285,971	228,879	59,069

CDI: Interbank Deposit Certificate rate.

TJLP: Long-Term Interest Rate

FINAME/BNDES: Special Agency for Industrial Financing/ National Bank of Economic and Social Development

The Company’s subsidiary NS2 entered into secured borrowing and bank loan arrangements for working capital and acquisition of property and equipment. Additionally, the subsidiary NS2 issued nonconvertible debentures to settle previous debt and for working capital purposes. The secured borrowings and debentures are secured by the fiduciary assignment of the trade accounts receivable originated by credit card sales with a carrying amount of R$87,418 and R$80,220 (US$20,703) on December 31, 2017 and 2018, respectively.

As a consequence of obtaining secured borrowings for working capital purposes, NS2 assumed the covenant of maintaining the ratio between financial debt and accounts receivable from credit card operators lower or equal to 3 (three).

For the nonconvertible debentures issuance, NS2 assumed contractual commitments that may accelerate the maturity of obligations in their entirety if the following situations occur, mainly related to: i) non-payment by the issuer, on maturity date, of the contracted obligations to debenture holders; ii) non-compliance by the Company, while there are outstanding debentures, with the ratio of financial indebtedness and accounts receivable from credit cards lower or equal to 3 (three) to be calculated semi-annually based on the financial statements.

The Company was in compliance as of December 31, 2017 and 2018, with all financial covenants described above, as demonstrated below:

	Year ended December 31,
	2017	2018	2018
	BRL	BRL	USD
Credit card operations - Gross (1)	114,218	159,023	41,040
Long-term debt	285,971	228,879	59,069
Coefficient ratio (lower or equal to 3)	2.50	1.44	1.44

(2) For covenants calculation purposes, the numerator used to calculate the ratio (credit card gross) represents the balance receivable from credit card operators as of December 31, 2017 and 2018 considering the face value of the corresponding sales invoices (i.e. including interest over installment sales).

(i) In July 2018, the subsidiary NS2.Com Internet S.A. renegotiated a secured borrowing facility agreement with Banco do Brasil S.A. for an aggregate principal amount of R$96.2 million. Principal and interest on the loan are payable on a monthly basis, and the maturity, after renegotiation, changed from August 2020 to July 2021, with a 12-month grace-period (only principal), and the Company paid a debt renegotiation fee over the renegotiated value.

(ii) In July 2018, the subsidiary NS2.Com Internet S.A. renegotiated a secured borrowing facility agreement with Banco Bradesco S.A. for an aggregate principal amount of R$46.1 million. Principal and interest on the loan are payable on a monthly basis, and the maturity, after renegotiation, changed from September 2020 to July 2021, with a 12-month grace-period (only principal), and the Company paid a debt renegotiation fee over the renegotiated value.

(iii) On July 03, 2017, the Company entered into a financing agreement with Financiadora de Estudos e Projetos – FINEP (public institution linked to the Ministry of Science and Technology), in the amount of R$79,667. The funds from this financing will be part of a financing package aimed at supporting the strategic plan of innovation. The financing has a grace period of 24 months, which covers the period from the agreement signature date and to the date of maturity of the amortization installment, payable in 85 installments, with the first one falling due on July 15, 2019 and the last on July 15, 2026. The first tranche of R$25.8 million was received in October 2017. As at December 31, 2018, no further tranches have been drawdown.

(iv) In August 2018, the subsidiary NS2.Com Internet S.A. renegotiated nonconvertible notes (Debentures) agreement for an aggregate principal amount of R$66.1 million. Principal and interest on the loan are payable on a quarterly basis, and the maturity, after renegotiation, changed from March 2020 to September 2021, with a 12-month grace-period (only principal), and the Company paid a debt renegotiation fee over the renegotiated value.

For the three renegotiations explained above (i, ii and iv), the Company determined that the terms have not been substantially modified. The fees paid amount to R$1,682 and is being deferred for the remaining term of these contracts.

The weighted average interest rate for debt was 9.87% and 9.55% for the years ended December 31, 2017 and 2018, respectively.

Reconciliation of movements of assets, liabilities and equity to cash flows arising from financing activities

		Assets or liabilities
		Long term debt				Reverse factoring				Trade accounts payable				Trade accounts receivable
		BRL		USD		BRL		USD		BRL		USD		BRL		USD
As of January 1, 2018	R$	285,971	US$	73,803	R$	148,928	US$	38,435	R$	365,835	US$	94,414	R$	113,168	US$	29,206
Changes from financing cash flows
Payments of debt		(57,040)		(14,721)		-		-		-		-		-		-
Payments of interest		(23,056)		(5,950)		1,788		461		(34,690)		(8,953)		(6,931)		(1,789)
Total from financing cash flows		(80,095)		(20,671)		1,788		461		(34,690)		(8,953)		(6,931)		(1,789)
Other changes
Adjustments to reconcile net loss to net cash used in operating activities		25,453		6,569		(1,789)		(462)		32,227		8,317		(8,350)		(2,155)
Changes in discontinued operations		(2,450)		(632)		-		-		(24,755)		(6,389)		(1,369)		(353)
Changes in operating assets and liabilities		-		-		(103,652)		(26,750)		(1,497)		(386)		67,290		17,366
Total from other changes		23,003		5,936		(105,440)		(27,212)		5,975		1,542		57,570		14,858
As of December 31, 2018	R$	228,879	US$	59,069	R$	45,276	US$	11,685	R$	337,120	US$	87,003	R$	163,807	US$	42,275

	Assets or liabilities
	Long term debt		Reverse factoring		Trade accounts payable		Trade accounts receivable
		BRL		BRL		BRL		BRL
As of January 1, 2017	R$	387,382	R$	27,867	R$	335,430	R$	213,994
Changes from financing cash flows
Proceeds from debt		159,984		-		-		-
Payments of debt		(170,459)		-		-		-
Payments of interest		(46,613)		(916)		(55,936)		(7,166)
Proceeds from issuance of common shares		-		-		-		-
Total from financing cash flows		(57,088)		(916)		(55,936)		(7,166)
Other changes
Adjustments to reconcile net loss to net cash used in operating activities		50,277		916		53,981		(18,277)
Changes in operating assets and liabilities		-		121,061		34,290		(74,450)
Cash flows from investing activities		-		-		-		(2,071)
Non-cash investing and financing activities		(94,151)		-		-		-
Effect of changes in foreign exchange rates		(449)		-		(1,930)		1,138
Total from other changes		(44,323)		121,977		86,341		(93,660)
As of December 31, 2017	R$	285,971	R$	148,928	R$	365,835	R$	113,168

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

AsFor ~~of December 31, 2017 and 2018 and for~~ the ~~years~~three months ended ~~December~~March 31, ~~2016, 2017 and 2018~~2019

(In thousands of reais and dollars, unless otherwise stated)

~~19.~~ ~~Financial~~ ~~Instruments~~an -understanding ~~Fair~~of ~~Value~~the changes in the Company’s financial position and ~~Risk~~performance ~~Management~~since the last annual financial statements.

~~Accounting~~These ~~policy,~~condensed ~~and Critical~~consolidated ~~accounting~~interim ~~estimates~~financial statements as of and ~~judgments~~for the three-month period ended March 31, 2019 were authorized for issuance by the Board of Directors on May 10, 2019.

The Company classifies non-derivative financial assets into the following categories: measured at amortized cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL)2.2. Basis ~~Additionally, non-derivative~~of ~~financial liabilities are classified into the following categories: financial liabilities at fair value through profit or loss and other financial liabilities.~~Presentation

iThe functional currency of the Company is US$ and the reporting currency is Brazilian Real (“R$”) as this currency better reflects the underlying operations of the consolidated entities. ~~Classification~~ The Company’s subsidiaries with operations in Brazil, Argentina and Mexico (last two presented as discontinued operations, as described in note 3) use their respective currencies as their functional currencies.

~~Policy applicable~~Translations ~~before~~of ~~January~~balances 01in the condensed consolidated statement of financial positions, ~~2018~~condensed consolidated statement of profit or loss, condensed consolidated statement of comprehensive income (loss) and condensed consolidated statement of cash flows from R$ into US$ are solely for the convenience of the readers and have been calculated at the rate of US$1.00 = R$ 3.8967, representing the exchange rate set forth by the Banco Central do Brasil (Central Bank of Brazil) on March 31, 2019. No representation is made that the R$ amounts could have been, or could be, converted, realized or settled into US$ at that rate on March 31, 2019, or at any other rate. All values have been rounded to the nearest thousands of R$ and US$, except where noted.

~~The Company~~Due ~~classifies~~to ~~non~~the significant inflation in Argentina over the past few years, the three-~~derivative~~year ~~financial~~cumulative ~~assets~~inflation ~~into~~rate in Argentina has exceeded 100% based on data from the ~~following categories:~~national ~~financial~~wholesale ~~assets~~price atindex ~~fair~~and ~~value~~various ~~through~~available ~~profit~~inflation orindices ~~loss~~in May 2018. As such, ~~held-to-maturity~~ ~~financial~~Argentina ~~assets~~was considered as hyperinflationary economy effective July 1, ~~loans~~2018 and, ~~receivables~~as ~~and~~from ~~available-for-sale financial~~January ~~assets~~1, 2018, the Company was required to apply inflation accounting. ~~Additionally~~Thus, ~~non-derivative~~its statement of financial ~~liabilities~~position and statement of profit or loss are ~~classified~~ ~~into~~adjusted for the ~~following~~changes ~~categories:~~in ~~financial~~the ~~liabilities~~general purchasing power of the local currency, using official indices at ~~fair~~the ~~value through~~reporting ~~profit~~date, orbefore ~~loss~~translation into Brazilian Real (“R$”) and, ~~other~~as ~~financial~~a ~~liabilities~~result, are stated in terms of the measuring unit current at the reporting date.

~~Policy applicable~~These ~~from~~interim ~~January~~condensed 01consolidated interim financial statements were prepared pursuant to the accounting principles, practices and criteria consistent with those adopted in financial statements for the year ended December 31, 2018 and must be analyzed jointly with the referred to financial statements, except for:

~~The Company~~· the ~~classifies~~comparative ~~non-derivative~~information ~~financial~~for ~~assets into~~ the ~~following categories:~~three-month ~~measured~~period atended ~~amortized~~March ~~cost~~31, ~~fair~~2018 ~~value~~which ~~through~~was ~~other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). Additionally~~restated, ~~non-derivative~~ ~~financial~~see ~~liabilities~~note ~~are~~3 ~~classified~~for ~~into~~further ~~the~~information; ~~following categories: financial liabilities at fair value through profit or loss~~ and ~~other financial liabilities.~~

~~ii. Non-derivative financial~~· the ~~assets~~adoption ~~and~~of ~~financial~~IFRS ~~liabilities~~16, –see ~~Recognition~~note ~~and~~2.5 ~~derecognition~~for further information.

The ~~Company initially~~policy ~~recognizes~~for ~~financial~~recognizing ~~assets~~ and ~~financial~~measuring ~~liabilities~~income ~~when~~taxes itin ~~becomes a~~the ~~party~~interim toperiod ~~the~~is ~~contractual~~described ~~provisions~~in ofnote ~~the instrument~~22.

~~The~~2.3. Use Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of ~~the risks and rewards of ownership of the financial asset are transferred~~Judgments, orEstimates ~~it neither transfers nor retains substantially all of the risks~~ and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognized financial assets that is created or retained by the Company is recognized as a separate asset or liability. Assumptions

~~The~~In ~~Company derecognizes~~preparing athese condensed consolidated interim financial ~~liability~~statements ~~when~~in ~~its~~conformity ~~contractual~~with ~~obligations~~IFRS, ~~are extinguished~~management –has imade judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amount of assets, liabilities, income and expenses.e Actual results may differ from those estimates. ~~when~~The ~~they~~significant ~~are~~judgments ~~discharged,~~made ~~cancelled~~by ormanagement ~~expire~~in orapplying ~~are substantially~~the ~~modified~~Company’s oraccounting ~~exchanged~~policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for anthe ~~obligation~~year ~~with~~ended ~~substantially different~~December ~~terms~~31, 2018, except for the initial adoption of IFRS 16 disclosed in note 2.5.

Financial assets and financial liabilities are offset, and the net amount presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously2.4. Fair Value Measurements

~~iii. Non~~Several accounting policies and disclosures require fair value measurement, for both financial and non-~~derivative~~ financial assets –and ~~Measurement~~liabilities. When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

~~Policy applicable before January 01, 2018~~10

a. Financial assets classified as loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the entity intends to sell immediately or in the near term. These assets are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

AsFor ~~of December 31, 2017 and 2018 and for~~ the ~~years~~three months ended ~~December~~March 31, ~~2016, 2017 and 2018~~2019

(In thousands of reais and dollars, unless otherwise stated)

All the Company’s financial assets are classified as loans and receivables.

Policy applicable from January 01, 2018

b. Financial assets at amortized cost

A financial asset is classified as at amortized cost when its contractual cash flows consist only of payment of principal and interest and it is held in a business model whose objective is to hold assets to collect contractual cash flows. These assets are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

All the Company’s financial assets qualify to be measured at amortized cost.

iv. Non-derivative financial liabilities – Measurement

Financial liabilities are classified as other financial liabilities and are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.

v. Fair Value Measurements

Several accounting policies and disclosures require fair value measurement, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

· Level 1 — unadjusted quoted prices in active markets for identical assets or liabilities.

· Level 2 — inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either directly or indirectly

· Level 3 — inputs for the assets or liability that are not based on observable market data.

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Company recognizes transfers between levels of the fair value hierarchy in the reporting period during which the change has occurred.

~~i. Accounting classifications~~Note 20 includes accounting classification and fair ~~values~~value measurement of financial instruments.

~~The following~~2.5. Changes ~~table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels~~ in ~~the~~accounting ~~fair~~policies ~~value hierarchy. It does not include fair value information for financial assets and financial liabilities if the carrying amount is a reasonable approximation of fair value.~~

The Company applied as of January 1, 2019, IFRS 16 (Leases). The nature and effect of these changes are described below.

IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.

Lessor accounting under IFRS 16 is substantially unchanged under IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17.

The Company adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application as of January 1, 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. The Company elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’).

a. Nature of the effect of adoption of IFRS 16

The Company has lease contracts on buildings where its distribution centers and administrative headquarters are located with third parties. Before the adoption of IFRS 16, the Company classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease (the buildings mentioned were classified as operating leases under IAS 17). A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Company; otherwise it was classified as an operating lease. Finance leases were capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between interest (recognized as finance costs) and reduction of the lease liability. In an operating lease, the leased property was not capitalized, and the lease payments were recognized as rent expense in the statement of profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognized under Prepaid expenses and other current assets and Other current liabilities, respectively.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

AsFor ~~of December 31, 2017 and 2018 and for~~ the ~~years~~three months ended ~~December~~March 31, ~~2016, 2017 and 2018~~2019

(In thousands of reais and dollars, unless otherwise stated)

		As at December 31, 2017
		Carrying amount
			Finacial
			assets	Finacial
			measured at	liabilities
			amortized	measured at
Financial assets or liabilities, not measured at fair value		Fair value	cost	amortized cost	Total
		BRL	BRL	BRL	BRL
Cash and cash equivalents		-	395,962	-	395,962
Restricted cash, current and non-current portion		-	34,445	-	34,445
Trade accounts receivables		-	113,168	-	113,168
Due from related parties		-	12	-	12
Judicial deposits		-	106,914	-	106,914
Other assets, current and non-current portion		-	22,246	-	22,246
Trade accounts payable		-	-	(365,835)	(365,835)
Reverse factoring		-	-	(148,928)	(148,928)
Long-term debt		-	-	(285,971)	(285,971)
Accrued expenses		-	-	(120,366)	(120,366)
Other current liabilities		-	-	(31,017)	(31,017)
Total	R$	-	672,747	(952,117)	(279,370)

Upon adoption of IFRS 16, the Company applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which has been applied by the Company.

		As at December 31, 2018
		Carrying amount
			Finacial
			assets	Finacial
			measured at	liabilities
			amortized	measured at
Financial assets or liabilities, not measured at fair value		Fair value	cost	amortized cost	Total		Total
		BRL	BRL	BRL	BRL		USD
Cash and cash equivalents	R$	-	67,321	-	67,321	US$	17,374
Restricted cash, current and non-current portion		-	21,529	-	21,529		5,556
Trade accounts receivables		-	163,807	-	163,807		42,275
Due from related parties		-	7	-	7		2
Judicial deposits		-	119,717	-	119,717		30,896
Other assets, current and non-current portion		-	14,166	-	14,166		3,656
Trade accounts payable		-	-	(337,120)	(337,120)		(87,003)
Reverse factoring		-	-	(45,276)	(45,276)		(11,685)
Long-term debt		-	-	(228,879)	(228,879)		(59,069)
Accrued expenses		-	-	(136,721)	(136,721)		(35,285)
Other liabilities, current and non-current portion		-	-	(25,711)	(25,711)		(6,636)
Total	R$	-	386,547	(773,707)	(387,160)	US$	(99,917)

Leases previously accounted for as operating leases

iiThe Company recognized right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. ~~Measurement~~ The right-of-use ~~fair~~assets ~~values~~for most leases were recognized based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. In some leases, the right-of-use assets were recognized based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognized. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.

The Company’s ~~financial~~also ~~instruments,~~applied ~~including cash and cash equivalents, restricted cash, trade accounts receivable, trade accounts payable and other payables, are carried at cost, which approximates fair value due to~~ the ~~short-term~~available ~~maturity~~practical ofexpedients ~~these~~wherein instruments. The estimated fair value of Long-term debts is based on the current rates offered to the Company for the same remaining maturities, which is categorized as a Level 2 measurement in the fair value hierarchy. As a substantial portion of these financial instruments has been contracted at floating rates of interest, which are reset at short intervals, the carrying value of these financial instruments at December 31, 2017 and 2018 closely approximated the fair value at December 31, 2017 and 2018, respectively. it:

~~During~~- apply the ~~years~~new ~~ended~~definition ~~December~~of ~~31,~~a ~~2017~~lease ~~and 2018, there were no transfers between Level 1 and Level 2 fair value measurements or transfer~~ to orall ~~from~~of ~~Level~~their 3. contracts;

- exemptions to short term leases and/or with low values;

- does not restate its prior-period financial information;

- calculates lease assets and lease liabilities as at the beginning of the current period using:

o measures the lease liability at the date of initial application as the present value of the remaining lease payments;

o measure the right of use assets at an amount equal to the lease liability; and

- apply a single discount rate to the portfolio of leases with similar characteristics using market rates which reasonable approximates the Company risks.

Based on the foregoing, as at January 1^st, 2019:

- Right-of -use assets of R$83,516, recognized in Property and equipment, net, such as Property, were recognized and presented as in the statement of financial position; and

- Additional lease liabilities of R$83,516 (included in Lease liabilities current and non-current) were recognized.

b. Summary of new accounting policies

Set out below are the new accounting policies of the Company upon adoption of IFRS 16, which have been applied from the date of initial application:

Right-of-use assets

The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at/or before the commencement date less any lease incentives received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

AsFor ~~of December 31, 2017 and 2018 and for~~ the ~~years~~three months ended ~~December~~March 31, ~~2016, 2017 and 2018~~2019

(In thousands of reais and dollars, unless otherwise stated)

~~iii~~In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. ~~Financial~~ ~~risk~~After ~~management~~the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

In the regular course of its business, the Company is exposed to market risks mainly related to the fluctuation of interest rates, exchange rate variation, credit risk on credit sales and liquidity risk.

	January 1st,
	2019
	BRL
Operating lease commitment at December 31, 2018 as disclosed in the Company's consolidated financial statements	132,419
Discounted using the incremental borrowing rate at January 1st, 2019	32,147
Discontinued operations effect	4,507
Tax (PIS/COFINS) effect	12,249
Lease liabilities recognized at January 1st, 2019	83,516

~~The~~Short-term ~~Company~~leases ~~adopts~~and ~~certain~~leases ~~instruments to minimize its exposure to such risks, based on monitoring, under the supervision~~ of ~~the~~low-value ~~Company´s executive officers, which in turn is under the oversight of the Company´s board of directors.~~assets

The Company ~~has~~applies ~~exposure~~the short-term lease recognition exemption to ~~the~~its ~~following~~short-term ~~risks~~leases ~~arising~~of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from ~~financial~~the ~~instruments:~~commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.

~~· credit~~Significant ~~risk~~judgement ~~(see~~in ~~(a));~~determining the lease term of contracts with renewal options

~~· liquidity~~The ~~risk~~Company ~~(see~~determines ~~(b));~~the ~~and~~lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

~~· market~~The ~~risk~~Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (~~see~~or not to exercise) the option to renew (ce.g., a change in business strategy)).

The Company recognized rent expense from short-term leases and leases of low-value assets.

Other Clarifications, amendments and interpretations

Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the condensed consolidated interim financial statements of the Company.

3. Specific events occurred

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

3.1 Discontinued operations

(a) Argentina operation

The subsidiaries (NS2.Com Internet S.A. and NS5 Participações Ltda.) have signed an agreement, on April 26, 2019 (“closing date”), to sell the entirety of its Argentina operations (NS3 Internet S.A.), which belongs to the reportable International segment, through the sale of all shares which they hold.

Pursuant to terms of this transaction, the Company:

- will receive ARS 1 (one Argentinean peso) for the shares that are transferred;

- has granted to the former subsidiary a license for the period of eighteen months from the closing date, in Argentina, for the Company brand and e-commerce platform;

- has agreed to provide certain services relating to IT for the period of eighteen months from the closing date; and

- has agreed to contribute approximately ARS106,000 (approximately USD2,500) into NS3.

The Company estimated a total loss of R$15,100 (USD3,873), including the estimated costs for fulfilling the conditions listed above, which will be recognized in the income statement from discontinued operations in the second quarter of 2019.

As at March 31, 2019 the non-current assets and liabilities held for sale comprises:

		March 31,
		2019		2019
Current assets:		BRL		USD Note 2.2
Cash and cash equivalents	R$	2,468	US$	633
Trade accounts receivables, net		4,094		1,051
Inventories, net		6,718		1,724
Recoverable taxes		735		188
Prepaid expenses and other current assets		164		43
Total current assets		14,179		3,639

Total non-current assets		-		-

Total assets	R$	14,179	US$	3,639

Current liabilities:
Trade accounts payable	R$	10,032	US$	2,574
Taxes and contributions payable		955		245
Accrued expenses		5,774		1,482
Other current liabilities		1,315		338
Total current liabilities		18,076		4,639

Total non-current liabilities		-		-

Total liabilities	R$	18,076	US$	4,639

Net non-current assets held for sale	R$	(3,897)	US$	(1,000)

The statements of profit or loss and cash flow from discontinued operations of the Argentina Operation for the period ended March 31, 2018 and 2019 are presented below.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

		For the three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD Note 2.2
Net sales	R$	27,240	R$	18,120	US$	4,650
Cost of sales		(22,692)		(14,693)		(3,771)
Gross Profit		4,548		3,427		879

Operating expenses:
Selling and marketing expenses		(9,333)		(5,132)		(1,318)
General and administrative expenses		(2,193)		(1,362)		(350)
Total operating expenses		(11,526)		(6,494)		(1,668)
Operating loss		(6,978)		(3,067)		(789)

Financial income		51		380		100
Financial expenses		(2,199)		(1,887)		(485)
Monetary position (loss) gain, net		1,135		1,947		500
Loss before income tax		(1,013)		440		115

Income tax expense		-		-		-
Net loss from discontinued operations	R$	(7,991)	R$	(2,627)	US$	(674)

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)


	For the three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
Cash flows from operating activities:						Note 2.2
Net loss from discontinued operations	R$	(7,991)	R$	(2,627)	US$	(674)
Adjustments to reconcile net loss from discontinued operations to net cash provided by (used in) operating activities:
Depreciation and amortization		249		-		-
Loss on disposal of property and equipment, and intangible assets		17		-		-
Interest expense, net		1,474		1,190		305
Monetary (loss) gain, net		839		(621)		(159)
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade accounts receivable		(1,105)		(2,145)		(550)
Inventories		2,523		5,280		1,355
Recoverable taxes		(2,042)		368		94
Other assets		(124)		180		47
Increase (decrease) in:
Trade accounts payable		(9,519)		830		213
Taxes and contributions payable		1,174		228		59
Accrued expenses		(985)		(240)		(62)
Other liabilities		602		219		56
Net cash provided from discontinued operations by (used in) operating activities		(14,888)		2,662		684

Cash flows from investing activities:
Purchase of property and equipment		(95)		(6)		(2)
Purchase of intangible assets		(8)		-		-
Net cash provided from discontinued operations by (used in) investing activities		(103)		(6)		(2)

Cash flows from financing activities:
Payments of interest		(1,474)		(1,190)		(306)
Net cash provided from discontinued operation by (used in) financing activities		(1,474)		(1,190)		(306)

Effect of exchange rate changes on cash and cash equivalents		(463)		(181)		(47)
Net cash used in discontinued operations		(16,928)		1,285		329

(b) Mexico operation

In August 2018, the Company entered into an agreement with the Grupo Sierra Capital (“Sierra”) to sell the entirety of its Mexico operations. On October 11, 2018 (the “Closing date”) the Company and Sierra concluded the transaction, which was preceded by final adjustments agreed by the parties under the original terms and conditions of the negotiation.

The statements of profit or loss and cash flow from discontinued operations of the Mexico Operation for the period ended March 31, 2018 are presented below.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

		For the three months ended in March 31,
		2018
		BRL
Net sales	R$	12,231
Cost of sales		(9,437)
Gross Profit		2,794

Operating expenses:
Selling and marketing expenses		(2,679)
General and administrative expenses		(2,510)
Total operating expenses		(5,189)
Operating loss		(2,395)

Financial income		409
Financial expenses		(609)
Loss before income tax		(200)

Income tax expense		-
Net loss from discontinued operations	R$	(2,595)

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)


	For the three months ended in March 31,
		2018
		BRL
Cash flows from operating activities:
Net loss from discontinued operations	R$	(2,595)
Adjustments to reconcile net loss from discontinued operations to net cash provided by (used in) operating activities:
Depreciation and amortization		88
Interest expense, net		505
Provision for inventory losses		5
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade accounts receivable		(80)
Inventories		769
Recoverable taxes		975
Other assets		(87)
Increase (decrease) in:
Trade accounts payable		(2,110)
Taxes and contributions payable		(573)
Accrued expenses		(794)
Other liabilities		68
Net cash provided from discontinued operations by (used in) operating activities		(3,829)

Cash flows from investing activities:
Purchase of property and equipment		(25)
Net cash provided from discontinued operations by (used in) investing activities		(25)

Cash flows from financing activities:
Proceeds from debt		3,839
Payments of debt		(3,469)
Payments of interest		(505)
Net cash provided from discontinued operation by (used in) financing activities		(135)

Effect of exchange rate changes on cash and cash equivalents		(48)
Net cash used in discontinued operations		(4,037)

4. Seasonality

Like most retail businesses, the Company experiences seasonal fluctuations in its revenues and operating results. Historically, the Company has generated higher revenues in the fourth quarter, which includes Black November period (commercial holiday introduced in 2010 by Brazilian e-commerce websites which is a month-long equivalent to the Black Friday in the United States) and the Christmas season in Brazil, Argentina and Mexico while the first quarter of the year is our slowest period, as the months of January and February correspond to vacation time in Brazil and Argentina.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

The amount of cash flows and working capital we require to support our operations fluctuate throughout the year, primarily driven by the seasonality of our business. Typically, we have higher generation of cash flows during the fourth quarter, given the increase in the volume of sales we generally experience in this period, which includes the Black November period and the holiday season. Conversely, our cash flow requirements increase during the first quarter of the year as a result of (1) the maturity of the payment terms with our suppliers for inventory acquired in advance of our peak selling season and (2) a decrease in sales volumes that typically follows such season.

5. Segment Information

The Company, after past reorganizations and deals, organized around geographical divisions has only one reportable segment, Brazil. Which comprises operating revenues, expenses, financial income and financial expenses recorded in Netshoes (Cayman) Limited Netshoes Holding, LLC and NS2.Com Internet S.A.

No information on segment assets or liabilities is relevant for decision-making. There are no inter segment transactions in the internal reporting structure.

The Company has aggregated its products and services into groups of similar products and provided the supplemental disclosure of revenues below. The Company evaluates whether additional disclosure is appropriate when a product or service category begins to approach a significant level of revenues.

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
		Restated
Sports ⁽¹⁾	R$	299,687	R$	248,044	US$	63,655
Fashion ⁽¹⁾		49,127		55,880		14,340
Marketplace		11,537		22,779		5,846
Total revenues	R$	360,351	R$	326,703	US$	83,841

⁽¹⁾Freight services were allocated to the product revenues that they are related to.

6. Earnings (Loss) Per Share (“EPS”)

The Company computes basic loss per share by dividing net loss, from continuing operations and from discontinued operations, attributable to the owners of the Parent by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution of share options that could be exercised or converted into common shares, and is computed by dividing net loss, from continuing operations and from discontinued operations, attributable to the owner of the Parent by the weighted average number of common shares outstanding plus the potentially dilutive effect of share options.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

The following table sets forth the computation of the Company’s basic and diluted loss, from continuing operations and discontinued operations, per share attributable to the owners of the Parent for the three months ended March 31, 2018 and 2019:

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
		Restated
Numerator
Net loss for the period attributable to the owners of the Parent from continuing operations	R$	(50,714)	R$	(64,291)	US$	(16,499)
Net loss for the period attributable to the owners of the Parent from discontinued operations		(10,468)		(2,583)		(663)

Denominator
Weighted average number of outstanding shares of common stock		31,048,672		31,056,244		31,056,244

Loss per share attributable to the owners of the Parent (1)
Basic and diluted	R$	(1.97)	R$	(2.15)	US$	(0.55)
Basic and diluted from continuing operations		(1.63)		(2.07)		(0.53)
Basic and diluted from discontinued operations		(0.34)		(0.08)		(0.02)

⁽¹⁾When the Company reports net loss, from continuing operations and from discontinued operations, attributable to the owners of the Parent, the diluted loss per common share is equal to the basic losses per common share due to the anti-dilutive effect of the outstanding share options.

7. Revenues

Details of revenues for the three months ended March 31, 2018 and 2019 were as follows:

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
		Restated
Product sales - B2C	R$	330,194	R$	290,219	US$	74,478
Product sales - B2B		6,228		202		52
Other revenues - Freight related services		12,017		12,754		3,273
Other revenues - Marketplace		11,537		22,779		5,846
Other revenues - Ncard		375		749		192
Total Revenue	R$	360,351	R$	326,703	US$	83,841

The Company has established distribution centers in the Brazilian states of Pernambuco and Minas Gerais, where it has been granted tax incentives by local government which reduce the amount of sales taxes paid.

As a result of such tax incentives, sales to purchasers outside of the State of Pernambuco originated from our distribution center located in the city of Recife (State of Pernambuco, Brazil), enjoyed Pernambuco State ICMS tax rates of a range from 0.5% to 1.0% during the three months ended March 31, 2018 and 2019, depending on the type of product offered. Also, sales to purchasers outside of the State of Minas Gerais originated from our distribution center located in the city of Extrema (State of Minas Gerais, Brazil) enjoyed a Minas Gerais State ICMS tax rate of 1.0% during the three months ended March 31, 2018 and 2019.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

The incentive also determines that the Company is not allowed to take any credit for taxes paid on the purchase of products subsequently sold outside of those states such that these amounts become non-recoverable taxes and increase the Cost of Sales. Note 9 (a) of these financial statements presents the impact on cost of sales.

For the three months ended March 31, 2018 and 2019, the total amounts of tax incentives recorded in revenues are as follows:

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD

State of Pernambuco	R$	10,875	R$	7,192	US$	1,846
State of Minas Gerais		28,535		15,726		4,036
Total tax incentives - Net sales	R$	39,410	R$	22,918	US$	5,882

8. Deferred Revenue

Deferred revenue from exclusive use of the Company’s customer database is recognized as Other operating (expense) income, net in the consolidated statements of profit or loss using the straight-line method, over the period of the contract (10 years). In the three months ended March 31, 2018 and 2019 the amount of R$375 and R$340 (US$87) were recognized, respectively.

Deferred revenue from credit card activation is recognized as Other revenues – NCard within Revenues (see note 7), in the consolidated statements of profit or loss, when the credit cards are activated with the bank by the Company’s customers.

9. Expenses

(c) Costs of Sales

The following is the breakdown of cost of sales for the three months ended March 31, 2018 and 2019, respectively:

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
		Restated
Cost of product sales	R$	217,587	R$	202,225	US$	51,896
Shipping costs		30,847		35,939		9,223
Others		368		-		-
Total cost of sales	R$	248,802	R$	238,164	US$	61,119

Cost of product sales include the non-recoverable ICMS taxes resulting from the tax incentives disclosed in note 6 granted by the States of Minas Gerais and Pernambuco. For the three months ended March 31, 2018 and 2019, the total amounts of non-recoverable ICMS are as follows:

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD

State of Pernambuco	R$	3,801	R$	6,612	US$	1,697
State of Minas Gerais		17,276		12,352		3,170
Non-recoverable ICMS	R$	21,077	R$	18,964	US$	4,867

The impact of tax incentives net of non-recoverable ICMS for the three months ended March 31, 2018 and 2019 is R$18,333 and R$3,954 (US$1,015), respectively.

(d) Selling and Marketing Expenses

The following is the breakdown of selling and marketing expenses for the three months ended March 31, 2018 and 2019, respectively:

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
		Restated
Salaries and employees' benefits	R$	31,676	R$	29,636	US$	7,605
Marketing expenses		38,251		36,651		9,406
Operating lease		5,128		328		84
Credit card fees		6,466		6,499		1,668
Information technology services		295		259		66
Amortization and depreciation		1,708		6,324		1,623
Consulting		75		1,394		358
Allowance for doubtful accounts		4,681		(1,676)		(430)
Sales commissions and royalties		3,912		3,722		955
Facilities expenses		2,780		2,099		539
Others		3,799		4,158		1,067
Total selling and marketing expenses	R$	98,771	R$	89,394	US$	22,941

(e) General and Administrative Expenses

The following is the breakdown of general and administrative expenses for the three months ended March 31, 2018 and 2019, respectively:

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
		Restated
Salaries and employees' benefits	R$	18,390	R$	15,801	US$	4,055
Operating lease		1,735		6		2
Information technology services		10,166		7,589		1,948
Amortization and depreciation		13,967		10,949		2,810
Consulting		2,574		7,786		1,998
Facilities expenses		679		575		148
Others		1,678		1,994		510
Total general and administrative expenses	R$	49,189	R$	44,700	US$	11,471

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

(f) Financial Income (Expenses)

The following is the breakdown of financial income and expenses of the Company for the three months ended March 31, 2018 and 2019, respectively:

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
		Restated
Interest income	R$	3,908	R$	2,660	US$	683
Foreign exchange gain		217		596		153
Total financial income	R$	4,125	R$	3,256	US$	836

		Three months ended in March 31,
		2018		2019		2019
		BRL		BRL		USD
		Restated
Interest expense	R$	14,646	R$	12,003	US$	3,080
Interest expense, leases		-		2,336		599
Cost of sale and discount of receivables		-		3,802		976
Bank charges		669		437		112
Foreign exchange loss		206		694		178
Debt issuance costs		526		584		150
Other		1,267		3,246		834
Total financial expense	R$	17,314	R$	23,102	US$	5,929

10. Cash and Cash Equivalents

		December 31, 2018		March 31, 2019
		BRL		BRL		USD
Cash and bank balances	R$	6,108	R$	8,977	US$	2,304
Cash equivalents		61,213		34,217		8,781
Total cash and cash equivalents	R$	67,321	R$	43,194	US$	11,085

Cash equivalents are investments in Bank Deposit Certificates (“CDB”) with original maturities of 90 days or less and investments funds with an insignificant risk of change in value and with daily liquidity, issued by Brazilian financial institutions, that accrue at an average interest rate of 92.26% of CDI (Interbank Deposit Certificate rate).

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

11. Trade Accounts Receivable, Net

		December 31, 2018		March 31, 2019
		BRL		BRL		USD
Trade accounts receivables	R$	184,954	R$	108,589	US$	27,867
Allowance for doubtful accounts		(21,147)		(17,800)		(4,568)
Total trade accounts receivables, net	R$	163,807	R$	90,789	US$	23,299

The changes in the allowance for doubtful accounts receivable for the three months period ended March 31, 2018 and 2019 are as follows:

		2018		2019		2019
		BRL		BRL		USD
Balance at January 1	R$	(20,871)	R$	(21,147)	US$	(5,427)
Additions, net of reversions		(4,681)		1,675		430
Adjustment from adoption of IFRS 9 (a)		(2,322)		-		-
Adjustment from adoption of IFRS 9 (b)		(701)		-		-
Write-offs		7,619		1,672		429
Balance at March 31	R$	(20,956)	R$	(17,800)	US$	(4,568)

a) Impact of adopting IFRS9 on opening balance, related to reclassification from accounts receivables (“gross”) to allowance for doubtful accounts at January 1, 2018.

b) Impact of adopting IFRS9 on opening balance, recognized in Accumulated losses as at January 1, 2018.

Information about the Company’s exposure to credit and other market risks is included in Note 20.

12. Inventories, Net

		December 31, 2018		March 31, 2019
		BRL		BRL		USD
Finished goods for resale	R$	308,666	R$	295,853	US$	75,924
Right to recover returned goods		2,282		818		210
Allowance for slow moving and others		(42,354)		(40,847)		(10,483)
Total inventories, net	R$	268,594	R$	255,824	US$	65,651

Due to obsolescence, damaged and slow-moving items, the Company recognized losses on the related inventories to their net realizable value, which resulted in (reversal)/loss of R$4,180 and R$(1,424) (US$(365)) for the three months ended March 31, 2018 and 2019, respectively.

During the third quarter of 2018, the Company terminated a commercial relationship with the supplier of B2B operation (Midway Labs). As consequence the Company adjusted margins of nutrition supplements products, in order to accelerate sales through its B2C channel. The Company recognized allowances for net realizable value which reduced its inventories acquired from that former supplier to a net realizable value of R$19,675 (US$5,049) as of March 31, 2019 (R$24,713 as of December 31, 2018).

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

13. Recoverable Taxes

		December 31, 2018		March 31, 2019
		BRL		BRL		USD
VAT Taxes Brazil (ICMS)	R$	90,069	R$	87,761	US$	22,522
VAT Taxes International		1,168		-		-
Taxes other than income tax (PIS and COFINS)		176		3,837		985
Withholding income taxes		5,869		2,442		627
Others		1,965		2,000		512
Total recoverable taxes	R$	99,247	R$	96,040	US$	24,646
Current		59,214		58,577		15,032
Non-Current		40,033		37,463		9,614

14. Property and Equipment, Net

The gross amount of property and equipment was R$134,166 at December 31, 2018 and increased to R$213,484 (US$54,781) at March 31, 2019. During the three months ended March 31, 2018 and 2019, the Company acquired property and equipment with a cost of R$10,544 and R$1,481 (US$380), respectively, and also had R$83,516 of additions due to initial adoption of IFRS 16 (see note 2.5) during the three months ended March 31, 2019. During the three months ended March 31, 2018 and 2019, the Company disposed of property and equipment with a carrying amount of R$276 and R$278 (US$71), respectively.

During the three months ended March 31, 2018 and 2019 a loss on disposal of R$259 and R$48 (US$ 12) has occurred, respectively, which was included in Other operating expense in the condensed consolidated statements of profit or loss.

15. Intangible assets, Net

The gross amount of intangible assets was R$ 243,629 at December 31, 2018 and increased to R$252,310 (US$64,750) at March 31, 2019. During the three months ended March 31, 2018 and 2019, the Company acquired and developed intangible assets with a cost of R$16,801 and R$8,675 (US$2,226), respectively. The increase is primarily in connection with software acquired and software in development related to website platform and license software.

16. Trade Accounts Payable

		December 31, 2018		March 31, 2019
		BRL		BRL		USD
Trade accounts payable - domestic	R$	331,656	R$	310,079	US$	79,575
Trade accounts payable - foreign		5,464		2,361		606
Total trade accounts payable	R$	337,120	R$	312,440	US$	80,181

Information about the Company’s exposure to currency and liquidity risks is included in Note 20.

17. Reverse factoring

		December 31, 2018		March 31, 2019
		BRL		BRL		USD
Trade accounts payable	R$	31,731	R$	32,259	US$	8,279
Other liabilities		13,545		5,958		1,529
Total reverse factoring	R$	45,276	R$	38,217	US$	9,808

The Company has entered into reverse factoring with financial institutions in order to allow suppliers to advance receivables related to the Company’s purchases of inventories.

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

18. Accrued Expenses

		December 31, 2018		March 31, 2019
		BRL		BRL		USD
Selling and marketing services	R$	73,932	R$	60,725	US$	15,584
Services		11,188		15,206		3,902
Freight		17,340		15,053		3,863
Information technology		6,099		11,632		2,985
Gift card		7,722		8,884		2,280
Employees benefits		2,099		3,075		789
Rentals		4,226		2,521		647
Provision for sales with a right of return		3,803		1,189		305
Acquisition of fixed assets and intangible		2,182		1,088		279
Other		8,130		6,544		1,680
Total accrued expenses	R$	136,721	R$	125,917	US$	32,314

19. Debt

During the three months ended March 31, 2018 and 2019, the Company repaid (principal and interest, excluding discontinued operations) R$43,944 and R$9,893 (US$2,539) of secured borrowings, nonconvertible loans and bank loans, respectively. The weighted average interest rate for debt was 9.52% and 9.55% for the three months ended March 31, 2018 and 2019, respectively.

The secured borrowings and debentures contain certain affirmative financial covenants for which the Company was in compliance as of March 31, 2019.

The carrying value of the Company’s outstanding debt consists of the following:

		December 31, 2018		March 31, 2019
		BRL		BRL		USD
Secured borrowings	R$	164,539	R$	166,496	US$	42,728
Nonconvertible notes - Debentures		64,340		64,495		16,551
Total long-term debt		228,879		230,991		59,279
Current portion of long-term debt		38,473		66,882		17,164
Long-term debt, net of current portion	R$	190,406	R$	164,109	US$	42,115

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

20. Financial Instruments - Fair Value and Risk Management

(a) Accounting classifications and fair values

The following table shows the carrying amounts of financial assets and financial liabilities. It does not include fair value information for financial assets and financial liabilities if the carrying amount is a reasonable approximation of fair value.

		As at December 31, 2018
			Carrying amount
Financial assets or liabilities, not measured at fair value		Fair value	Financial assets measured at amortized cost	Financial liabilities measured at amortized cost	Total
		BRL	BRL	BRL	BRL
Cash and cash equivalents		-	67,321	-	67,321
Restricted cash, current and non-current portion		-	21,529	-	21,529
Trade accounts receivables		-	163,807	-	163,807
Due from related parties		-	7	-	7
Judicial deposits		-	119,717	-	119,717
Other assets, current and non-current portion			14,166	-	14,166
Trade accounts payable		-	-	(337,120)	(337,120)
Reverse factoring		-	-	(45,277)	(45,277)
Long-term debt		-	-	(228,879)	(228,879)
Accrued expenses		-	-	(136,721)	(136,721)
Other current liabilities		-	-	(25,709)	(25,709)
Total	R$	-	386,547	(773,706)	(387,159)

		As at March 31, 2019
			Carrying amount
Financial assets or liabilities, not measured at fair value		Fair value	Financial assets measured at amortized cost	Financial liabilities measured at amortized cost	Total		Total
		BRL	BRL	BRL	BRL		USD
Cash and cash equivalents	R$	-	43,194	-	43,194	US$	11,085
Restricted cash, current and non-current portion		-	22,400	-	22,400		5,748
Trade accounts receivables		-	90,789	-	90,789		23,299
Judicial deposits		-	124,516	-	124,516		31,954
Other assets, current and non-current portion		-	16,667	-	16,667		4,277
Trade accounts payable		-	-	(312,440)	(312,440)		(80,181)
Reverse factoring		-	-	(38,217)	(38,217)		(9,808)
Long-term debt		-	-	(230,991)	(230,991)		(59,279)
Accrued expenses		-	-	(125,917)	(125,917)		(32,314)
Other current liabilities		-	-	(23,654)	(23,654)		(6,069)
Total	R$	-	297,566	(731,219)	(433,653)	US$	(111,288)

(b) Measurement of fair values

The Company’s financial instruments, including cash and cash equivalents, restricted cash, trade accounts receivable, trade accounts payable and other payables, are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The estimated fair value of Long-term debts are based on the current rates offered to the Company of the same remaining maturities, which is categorized as a Level 2 measurement in the fair value hierarchy. As a substantial portion of these financial instruments has been contracted at floating rates of interest, which are reset at short intervals, the carrying value of these financial instruments at December 31, 2018 and March 31, 2019 closely approximated the fair value at December 31, 2018 and March 31, 2019, respectively.

(c) Financial risk management

The Company adopts certain instruments to minimize its exposure to such risks, based on monitoring, under the supervision of the Company´s executive officers, which in turn is under the oversight of the Company´s board of directors.

The Company has exposure to the following risks arising from financial instruments:

· credit risk (see (a));

· liquidity risk (see (b)); and

· market risk (see (c)).

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

For the three months ended March 31, 2019

(In thousands of reais and dollars, unless otherwise stated)

a. Credit risk

Credit risk is the Company´s risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. This risk principally comes from the outstanding receivables due by customers, ~~derivatives~~ and cash and cash equivalents.

Trade ~~accounts~~Accounts ~~receivable~~Receivable

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.

The Company regularly monitors trade accounts receivable and, for business to customer (B2C) sales, it considers the risk of not collecting from customers as limited because of the intrinsic nature of the payments of credit card operations methods.

For Business-to-business customers, the credit risk exposure and the carrying values reflect management's assessment of the associated maximum exposure to such credit risk. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors (e.g. credit rating).

No customer had balances representing more than 10% of the Company´s consolidated trade accounts receivable as of December 31, ~~2017~~2018 and ~~2018~~March 31, 2019.

At December 31, ~~2017~~2018 and ~~2018~~March 31, ~~the~~2019, ~~maximum~~respectively, ~~exposure~~the toaging ~~credit~~of ~~risk for~~ trade accounts receivable ~~by type of counterparty~~ was as follows:

		Year ended December 31,
		December 31, 2018
		2017		2018		2018
		Gross amount		Allowance for doubtful accounts		Trade accounts receivable, net
		BRL		BRL		~~USD~~BRL
Credit card operations	R$	87,983	R$	140,719	US$	36,316
Not past due	R$	163,924	R$	(4,525)	R$	159,399
B2B customers and others		46,056		44,235		11,417
Past due 1-30 days		1,034		(159)		875
Total trade accounts receivable	R$	134,039	R$	184,954	US$	47,733
Past due 31-90 days		2,461		(731)		1,730
Allowance for doubtful accounts		(20,871)		(21,147)		(5,458)
Past due 91-120 days		1,784		(247)		1,537
Trade accounts receivable, net	R$	113,168	R$	163,807	US$	42,275
Past due 120-180 days		2,183		(1,928)		255
Past due over 180 days		13,568		(13,557)		11
Total	R$	184,954	R$	(21,147)	R$	163,807

NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES

Notes to the unaudited condensed consolidated interim financial statements

AsFor ~~of December 31, 2017 and 2018 and for~~ the ~~years~~three months ended ~~December~~March 31, ~~2016, 2017 and 2018~~2019

(In thousands of reais and dollars, unless otherwise stated)

At December 31, 2017 and 2018, respectively, the aging of trade accounts receivable was as follows:

March 31, 2019
Gross amount	Allowance for doubtful accounts	Trade accounts receivable, net	Trade accounts receivable, net

Filing Compare · Netshoes (Cayman) Ltd.