UNITED STATES
SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549








FORM 20-F

(Mark One)



| | ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIESEXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------------



OR



| | ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934
| | - | -----------------------------------------------------------------------------------



For the fiscal year ended December
31, 2018



OR



| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934
| | - | ---------------------------------------------------------------------------------------



For the transition period from

to .



OR



| | ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------------



Date of event requiring this
shell company report



Commission file number: 001-38714



StoneCo
Ltd.(Exact name of Registrant as specified in its charter)



The Cayman
Islands(Jurisdiction of incorporation or organization)



R. Fidêncio Ramos, 308, 10th floor—Vila
Olímpia



São Paulo—SP, 04551-010,
Brazil



+55 (11) 3004-9680(Address of principal executive offices)



Marcelo Baldin, Vice President, FinanceTel: +55 (11) 3157-3115 – marcelo.baldin@stone.com.brR. Fidêncio Ramos, 308, 10th floor—Vila Olímpia



São Paulo—SP, 04551-010,
Brazil



(Name, Telephone, E-mail and/or Facsimile
number and Address of Company Contact Person)



Securities registered or to be registered pursuant to Section
12(b) of the Act:



|Title of each class                                       | Trading Symbol | Name of each exchange on which registered
|--------------------------------------------------------- | -------------- | -----------------------------------------
|Class A common shares, par value US$0.000079365 per share | STNE           | The Nasdaq Global Select Market          



Securities registered or to be registered pursuant to Section
12(g) of the Act:



None



Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:



None



Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report.



|Title of Class                                            | Number of Shares Outstanding
|--------------------------------------------------------- | ----------------------------
|Class A common shares, par value US$0.000079365 per share | 125,697,438                 
|Class B common shares, par value US$0.000079365 per share | 151,482,561                 









Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.



Yes ☐     No
☒



If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.



Yes ☐     No
☒



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.



Yes ☒     No
☐



Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files).



Yes ☒     No
☐



Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filers,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:





|Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☐ | Emerging growth company ☒
|------------------------- | ------------------- | ----------------------- | -------------------------







If an emerging growth company that prepares its financial statements
in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐



† The term “new or revised financial accounting
standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification
after April 5, 2012.



Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:



|U.S. GAAP ☐ | International Financial Reporting Standards as issued by 
the International Accounting Standards Board ☒ | Other ☐
|----------- | -------------------------------------------------------------------------------------------------------- | -------

If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant has elected to follow.



☐
Item 17	☐ Item 18



If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes ☐     No
☒












StoneCo
Ltd.



Table
of Contents



Page



|Presentation of Financial and Other Information                | 3  
|-------------------------------------------------------------- | ---
|Forward-Looking Statements                                     | 7  
|Certain Terms and Conventions                                  | 9  
|PART I                                                         | 10 
|ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 10 
|A.   Directors and senior management                           | 10 
|B.   Advisers                                                  | 10 
|C.   Auditors                                                  | 10 
|ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE               | 10 
|A.   Offer statistics                                          | 10 
|B.   Method and expected timetable                             | 10 
|ITEM 3.  KEY INFORMATION                                       | 10 
|A.   Selected financial data                                   | 10 
|B.   Capitalization and indebtedness                           | 13 
|C.   Reasons for the offer and use of proceeds                 | 13 
|D.   Risk factors                                              | 13 
|ITEM 4.  INFORMATION ON THE COMPANY                            | 46 
|A.   History and development of the company                    | 46 
|B.   Business overview                                         | 49 
|C.   Organizational structure                                  | 81 
|D.   Property, plant and equipment                             | 82 
|ITEM 4A.  UNRESOLVED STAFF COMMENTS                            | 83 
|ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS          | 83 
|A.   Operating results                                         | 83 
|B.   Liquidity and capital resources                           | 102
|C.   Research and development, patents and licenses, etc.      | 112
|D.   Trend information                                         | 112
|E.   Off-balance sheet arrangements                            | 112
|F.   Tabular disclosure of contractual obligations             | 112
|G.   Safe harbor                                               | 112
|ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES            | 113
|A.   Directors and senior management                           | 113
|B.   Compensation                                              | 117
|C.   Board practices                                           | 118
|D.   Employees                                                 | 121
|E.   Share ownership                                           | 121
|ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     | 122
|A.   Major shareholders                                        | 122
|B.   Related party transactions                                | 124
|C.   Interests of experts and counsel                          | 126
|ITEM 8.  FINANCIAL INFORMATION                                 | 126
|A.   Consolidated statements and other financial information   | 126
|B.   Significant changes                                       | 128
|ITEM 9.  THE OFFER AND LISTING                                 | 128
|A.   Offering and listing details                              | 128
|B.   Plan of distribution                                      | 128
|C.   Markets                                                   | 128
|D.   Selling shareholders                                      | 128
|E.   Dilution                                                  | 128
|F.   Expenses of the issue                                     | 128
|ITEM 10.  ADDITIONAL INFORMATION                               | 128
|A.   Share capital                                             | 128
|                                                              




Table of Contents


Page



|B.   Memorandum and articles of association                                            | 128
|-------------------------------------------------------------------------------------- | ---
|C.   Material contracts                                                                | 148
|D.   Exchange controls                                                                 | 148
|E.   Taxation                                                                          | 148
|F.   Dividends and paying agents                                                       | 152
|G.   Statement by experts                                                              | 152
|H.   Documents on display                                                              | 152
|I.    Subsidiary information                                                           | 153
|J.    The Cayman Islands Economic Substance Law                                        | 153
|ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 153
|ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 154
|A.  Debt securities                                                                    | 154
|B.   Warrants and rights                                                               | 154
|C.   Other securities                                                                  | 154
|D.  American depositary shares                                                         | 154
|PART II                                                                                | 155
|ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 155
|A.   Defaults                                                                          | 155
|B.   Arrearages and delinquencies                                                      | 155
|ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 155
|A.   Material modifications to instruments                                             | 155
|B.   Material modifications to rights                                                  | 155
|C.   Withdrawal or substitution of assets                                              | 155
|D.   Change in trustees or paying agents                                               | 155
|E.   Use of proceeds                                                                   | 155
|ITEM 15.  CONTROLS AND PROCEDURES                                                      | 156
|A.   Disclosure controls and procedures                                                | 156
|B.   Management’s annual report on internal control over financial reporting           | 157
|C.   Attestation report of the registered public accounting firm                       | 157
|D.   Changes in internal control over financial reporting                              | 157
|ITEM 16.  RESERVED                                                                     | 157
|ITEM 16A.  Audit committee financial expert                                            | 157
|ITEM 16B.  Code of ethics                                                              | 157
|ITEM 16C.  Principal accountant fees and services                                      | 157
|ITEM 16D.  Exemptions from the listing standards for audit committees                  | 158
|ITEM 16E.  Purchases of equity securities by the issuer and affiliated purchasers      | 158
|ITEM 16F.  Change in registrant’s certifying accountant                                | 158
|ITEM 16G.  Corporate governance                                                        | 158
|ITEM 16H.  Mine safety disclosure                                                      | 159
|PART III                                                                               | 160
|ITEM 17.  Financial statements                                                         | 160
|ITEM 18.  Financial statements                                                         | 160
|ITEM 19.  Exhibits                                                                     | 160
|Glossary of Terms                                                                      | 162
|Index to Consolidated Financial Statements                                             | 166

ii


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Presentation
of Financial and Other Information



Unless otherwise indicated or the context
otherwise requires, all references in this annual report to “Stone Co.” or the “Company,” “we,”
“our,” “ours,” “us” or similar terms refer to StoneCo Ltd., together with its consolidated
subsidiaries, and Linked Gourmet Soluções Para Restaurantes S.A. (“Linked Gourmet”), and Collact Serviços
Digitais S.A. (“Collact”), being entities which we have a significant minority interest in but do not consolidate.



The term “Brazil” refers to
the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil.
“Central Bank” refers to the Brazilian Central Bank (Banco Central do Brasil). References in the annual report
to “real,” “reais” or “R$” refer to the Brazilian real, the official currency
of Brazil and references to “U.S. dollar,” “U.S. dollars” or “US$” refer to U.S. dollars, the
official currency of the United States.



Financial Statements



We prepare our consolidated financial statements
in accordance with IFRS, as issued by the IASB. We maintain our books and records in Brazilian reais. Unless otherwise noted,
our financial information presented herein as of December 31, 2017 and 2018 and for the years ended December 31, 2016, 2017 and
2018 is stated in reais, our functional and presentation currency. The financial information contained in this annual report
includes our audited consolidated financial statements as of December 31, 2017 and 2018 and for each of the three years in the
period ended December 31, 2018 together with the notes thereto. All references herein to “our financial statements”
and “our audited consolidated financial statements” are to our consolidated financial statements included elsewhere
in this annual report.



The financial information should be read
in conjunction with “Item 5. Operating and Financial Review and Prospects” and our audited consolidated financial statements.



Our fiscal year ends on December 31. References
in this annual report to a fiscal year, such as “fiscal year 2018,” relate to our fiscal year ended on December 31
of that calendar year.



Financial Information in U.S. Dollars



Solely for the convenience of the reader,
we have translated some of the realamounts included in this annual report from reais into U.S. dollars. You should
not construe these translations as representations by us that the amounts actually represent these U.S. dollar amounts or could
be converted into U.S. dollars at the rates indicated. Unless otherwise indicated, we have translated realamounts into
U.S. dollars using a rate of R$3.875 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2018 as reported
by the Central Bank. See “Item 3. Key Information—A. Selected financial data—Exchange rates” for more detailed
information regarding translation of reais into U.S. dollars and for historical exchange rates for the Brazilian real.



Corporate Events



Acquisition of Remaining Interest in
Equals



On September 4, 2018, we acquired an additional
equity interest in Equals S.A., or “Equals”, an entity in which we previously had a significant minority interest but
did not control, bringing our ownership of its outstanding equity interests to 56.0% as of such date. Accordingly, as of and for
the years ended December 31, 2016 and 2017 and the six months ended June 30, 2018 we did not consolidate Equals, but for periods
subsequent to September 4, 2018, we have consolidated Equals in our financial statements. In addition, in connection with the consummation
of the initial public offering, we purchased the remaining 44.0% interest in Equals in exchange for 233,856 Class A common
shares. As of October 29, 2018, Equals is a wholly-owned subsidiary of the Company.



New Investments in Software



In March 2019, we signed two binding memoranda
of understanding, to invest in two new software companies, VHSYS and Tablet Cloud, which we believe will strengthen our ecosystem
of solutions that empower SMBs to manage and grow their businesses. Below of a description of these companies.



3


Table of Contents


| | · | VHSYS is an omni-channel, cloud-based, API driven, POS and ERP platform built to serve an array of service and retail businesses.
The self-service platform consists of over 40 applications, accessible a la carte, such as order and sales management, invoicing,
dynamic inventory management, cash and payments management, CRM, mobile messaging, along with marketplace, logistics, and e-commerce
integrations, among others.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Tablet Cloud is a white-label POS and simple ERP application focused on SMBs with simpler needs which runs on smart POS and
tablet solutions, giving business owners complete control over their cash register and inventory in a fully mobile device while
having a robust ERP platform accessible online.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Together, VHSYS and Tablet Cloud add nearly
18,000 software clients. We expect that these new solutions will assist us in our continued efforts to help clients better manage
their operations, and drive omni-channel growth, giving brick and mortar establishments the tools they need to successfully sell
both online and offline.



Special Note Regarding Non-IFRS Financial Measure



This annual report presents our adjusted
net income (loss) for the convenience of investors. Adjusted net income (loss) is a non-IFRS financial measure. Generally, a non-IFRS
financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes
or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented
in accordance with IFRS. Adjusted net income (loss), however, should be considered in addition to, and not as a substitute for
or superior to, profit (loss), or other measures of the financial performance prepared in accordance with IFRS.



Adjusted net income (loss) is prepared
and presented to eliminate the effect of items from profit (loss) that we do not consider indicative of our core operating performance
within the period presented. We define adjusted net income (loss) as profit (loss) for the period, adjusted for (1) non-cash
expenses related to the grant of share-based compensation and the fair value (mark-to-market) adjustment for share-based compensation
classified as a liability, (2) amortization of the fair value adjustment on intangible assets and property and equipment as
a result of the application of the acquisition method, (3) certain other non-recurring items and (4) tax effects of the
foregoing adjustments, as described in note (3) to “Item 3. Key Information—A. Selected financial data.”



Adjusted net income (loss) is presented
because our management believes that this non-IFRS financial measure can provide useful information to investors, securities analysts
and the public in their review of our operating and financial performance, although it is not calculated in accordance with IFRS
or any other generally accepted accounting principles and should not be considered as a measure of performance in isolation. We
believe adjusted net income (loss) is useful to evaluate our operating and financial performance for the following reasons:



| | · | adjusted net income (loss) is widely used by investors and securities analysts to measure a company’s operating performance
without regard to items that can vary substantially from company to company and from period to period, depending on their accounting
and tax methods, the book value of their assets and the method by which their assets were acquired;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | non-cash equity grants made to executives and employees at a certain price and point in time do not necessarily reflect how
our business is performing at any particular time and the related expenses are not key measures of our core operating performance;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | fair value adjustments to share-based compensation expenses classified as a liability do not directly reflect how our business
is performing at any particular time and the related expense adjustment amounts are not key measures of our core operating performance;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | amortization of the fair value adjustment on intangible assets and property and equipment relating to acquisitions can vary
substantially from company to company and from period to period depending upon the applicable financing and accounting methods,
the fair value and average expected life of the acquired intangible assets, the capital structure and the method by which the intangible
assets were acquired and, as such, we do not believe that these adjustments are reflective of our core operating performance; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | other write-offs that are one-time extraordinary charges and are not reflective of our core operating performance.
| | - | ------------------------------------------------------------------------------------------------------------------



4


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We use adjusted net income (loss) as a
key profitability measure to assess the performance of our business. We believe that adjusted net income (loss) should therefore
be made available to investors, securities analysts and other interested parties to assist in their assessment of the performance
of our business.



Adjusted net income (loss) is not a substitute
for net income or loss for the period, which is the IFRS measure of earnings. Additionally, our calculation of adjusted net income
(loss) may be different from the calculation used by other companies, including our competitors in the payments processing industry,
because other companies may not calculate these measures in the same manner as we do, and therefore, our measure may not be comparable
to those of other companies. Additionally, this measure is not intended to be a measure of cash available for management’s
discretionary use as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements.
For a reconciliation of our adjusted net income (loss), see “Item 3. Key Information—A. Selected financial data.”
You are encouraged to evaluate our adjustments and the reasons we consider them appropriate.



Market Share and Other Information



This annual report contains data related
to economic conditions in the market in which we operate. The information contained in this annual report concerning economic conditions
is based on publicly available information from third-party sources that we believe to be reliable. Market data and certain industry
forecast data used in this annual report were obtained from internal reports and studies, where appropriate, as well as estimates,
market research, publicly available information (including information available from the United States Securities and Exchange
Commission website) and industry publications. We obtained the information included in this annual report relating to the Brazilian
internet, payment solutions and e-commerce markets, and more broadly, the industry in which we operate, as well as the estimates
concerning market shares, through internal research, public information and publications on the industry prepared by official public
sources, such as (1) the Brazilian Association of Credit Card and Service Companies (Associação Brasileira
das Empresas de Cartões de Crédito e Serviços), or the ABECS, (2) the Central Bank, (3) the
Brazilian Federation of Banks (Federação Brasileira de Bancos), or FEBRABAN, (4) the Brazilian Institute
of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the IBGE, among others and (5) an
August 2018 survey comparing the Net Promoter Scores, or NPS, of our peers in our key markets in Brazil, prepared by the Brazilian
Institute of Public Opinion and Statistics (Instituto Brasileiro de Opinião Pública e Estatística),
or the IBOPE, which was commissioned by us. For additional information regarding NPS, see “—Calculation of Net Promoter
Score” below.



Industry publications generally state that
the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of
such information is not guaranteed. Although we have no reason to believe any of this information or these reports are inaccurate
in any material respect and believe and act as if they are reliable, neither we, the selling shareholders, the underwriters, nor
their respective agents have independently verified it. Governmental publications and other market sources, including those referred
to above, generally state that their information was obtained from recognized and reliable sources, but the accuracy and completeness
of that information is not guaranteed. In addition, the data that we compile internally and our estimates have not been verified
by an independent source. Except as disclosed in this annual report, none of the publications, reports or other published industry
sources referred to in this annual report were commissioned by us or prepared at our request. Except as disclosed in this annual
report, we have not sought or obtained the consent of any of these sources to include such market data in this annual report.



Calculation of Net Promoter Score



Net Promoter Score, or NPS, is a widely
known survey methodology that measures the willingness of customers to recommend a company’s products and services. It is
used to gauge customers’ overall satisfaction with a company’s products and services and their loyalty to the brand,
and it is typically based on customer surveys. NPS measures satisfaction using a scale of zero to 10 based on a customer’s
response to the following question: “How likely is it that you would recommend Stone Co. to a friend or colleague?”
Responses of nine or 10 are considered “Promoters.” Responses of seven or eight are considered neutral. Responses of
six or less are considered “Detractors.” The NPS, a percentage expressed as a numerical value, is calculated by subtracting
the percentage of respondents who are Detractors from the percentage who are Promoters and dividing that number by the total number
of respondents. The NPS calculation gives no weight to customers who decline to answer the survey question. Our NPS score of 65
was measured in an August 2018 survey we commissioned, which was conducted by the IBOPE.



5


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Rounding



We have made rounding adjustments to some
of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic
aggregation of the figures that preceded them.



6


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Forward-Looking
Statements



This annual report on form 20-F contains
statements that constitute forward-looking statements. Many of the forward-looking statements contained in this annual report can
be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,”
“expect,” “should,” “plan,” “intend,” “may,” “predict,”
“continue,” “estimate” and “potential,” or the negative of these terms or other similar expressions.



Forward-looking statements appear in a
number of places in this annual report and include, but are not limited to, statements regarding our intent, belief or current
expectations. These forward-looking statements include information about possible or assumed future results of our business, financial
condition, results of operations, liquidity, plans and objectives. Forward-looking statements are based on our management’s
beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties,
and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors,
including, but not limited to, those identified under the section entitled “Item 3. Key Information—D. Risk factors”
in this annual report. The statements we make regarding the following matters are forward-looking by their nature:



| | · | our expectations regarding revenues generated by transaction activities, subscription and equipment rental fees and other services;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | · | our expectations regarding our operating and net profit margins;
| | - | ----------------------------------------------------------------



| | · | our expectations regarding significant drivers of our future growth;
| | - | --------------------------------------------------------------------



| | · | our plans to continue to invest in research and development to develop technology for both existing and new products and services;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to differentiate ourselves from our competition by delivering a superior customer experience and through our network
of hyper-local sales and services;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to attract and retain a qualified management team and other team members while controlling our labor costs;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | · | our plans to expand our global footprint and explore opportunities in adjacent sectors;
| | - | ---------------------------------------------------------------------------------------



| | · | competition adversely affecting our profitability;
| | - | --------------------------------------------------



| | · | fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future;
| | - | --------------------------------------------------------------------------------------------------------------------



| | · | the inherent risks related to the digital payments market, such as the interruption, failure or breach of our computer or information
technology systems;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to anticipate market needs and develop and introduce new and enhanced products and service functionalities to adapt
to changes in our industry;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to innovate and respond to technological advances and changing market needs and customer demands;
| | - | -------------------------------------------------------------------------------------------------------------



| | · | our ability to maintain, protect and enhance our brand and intellectual property;
| | - | ---------------------------------------------------------------------------------



| | · | changes in consumer demands and preferences and technological advances, and our ability to innovate in order to respond to
such changes;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | our failure to successfully maintain a relevant omni-channel experience for our clients, thereby adversely impacting our results
of operations;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



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| | · | our ability to implement technology initiatives successfully and to capture the anticipated benefits of such initiatives; and
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | · | our plans to pursue and successfully integrate strategic acquisitions.
| | - | ----------------------------------------------------------------------



Forward-looking statements speak only as
of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments
or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence
of unanticipated events.



8


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Certain
Terms and Conventions



A glossary of industry and other defined terms is included in
this annual report, beginning on page 162.



9


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PART I



ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



A.       Directors and
senior management



Not applicable.



B.       Advisers



Not applicable.



C.       Auditors



Not applicable.



ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE



A.       Offer statistics



Not applicable.



B.       Method and
expected timetable



Not applicable.



ITEM 3. KEY INFORMATION



A.       Selected financial
data



You should read the following selected
financial data together with “Item 5. Operating and Financial Review and Prospects” and our financial statements and
the related notes appearing elsewhere in this annual report.



The summary statement of profit or
loss data and statement of financial position data as of December 31, 2018 and 2017 and for each of the three years ended
December 31, 2018 have been derived from our audited consolidated financial statements prepared in accordance with IFRS as
issued by the IASB, included elsewhere in this annual report. The statement of financial position date as of December 31, 2016, is
derived from our audited consolidated financial statements previously filed.



|                                                            |  | For the Year Ended December 31,        
|----------------------------------------------------------- |  | ---------------------------------------
|                                                            |  | 2018                                   
|                                                            |  | (US$)(1)                               
|                                                            |  | (in millions, except amounts per share)
|Statement of profit or loss data:                           |  |                                        
|Net revenue from transaction activities and other services  |  |                                        
|Net revenue from subscription services and equipment rental |  |                                        
|Financial income                                            |  |                                        
|Other financial income                                      |  |                                        
|Total revenue and income                                    |  |                                        
|Cost of services                                            |  |                                        
|Administrative expenses                                     |  |                                        
|Selling expenses                                            |  |                                        
|Financial expenses, net                                     |  |                                        
|Other operating income (expense), net                       |  |                                        
|(Loss) income from investment in associates                 |  |                                        
|Profit (loss) before income taxes                           |  |                                        

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|                                                            |  | For the Year Ended December 31,        
|----------------------------------------------------------- |  | ---------------------------------------
|                                                            |  | 2018                                   
|                                                            |  | (US$)(1)                               
|                                                            |  | (in millions, except amounts per share)
|Income tax and social contribution                          |  |                                        
|Net income (loss) for the year                              |  |                                        
|Net income (loss) attributable to non-controlling interests |  |                                        
|Net income (loss) attributable to owners of the parent      |  |                                        
|Basic earnings (loss) per share(2)                          |  |                                        
|Diluted earnings (loss) per share(2)                        |  |                                        
|Other data:                                                 |  |                                        
|Adjusted net income (loss) (in millions)(3)                 |  |                                        
|TPV (in billions)                                           |  |                                        
|Active clients (in thousands)                               |  |                                        
|Take rate                                                   |  |                                        














_____________________



| | (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2018 have been translated to U.S.
dollars using an exchange rate of R$3.875 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2018 as reported
by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been
or could be converted at that or any other exchange rate. See “—Exchange rates” for further information about
recent fluctuations in exchange rates.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Calculated by dividing net income or loss for the period/year attributed to the owners of the parent, adjusted for losses allocated
to contractual rights and participating instruments, by the weighted average number of ordinary shares outstanding during the period.
See note 23 to our audited consolidated financial statements included elsewhere in this annual report.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | In the table below, we have provided a reconciliation of adjusted net income (loss) to our net income (loss) for the period/year,
the most directly comparable financial measure calculated and presented in accordance with IFRS.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                |  | For the Year Ended December 31,
|------------------------------------------------------------------------------- |  | -------------------------------
|                                                                                |  | 2018                           
|                                                                                |  | (US$ millions)(a)              
|Net income (loss) for the period/year                                           |  |                                
|Share-based compensation expenses(b)                                            |  |                                
|Amortization of fair value adjustment on intangibles related to acquisitions(c) |  |                                
|Fair value adjustments of assets whose control was acquired(d)                  |  |                                
|One-time impairment charges(e)                                                  |  |                                
|Pre-tax subtotal                                                                |  |                                
|Tax effect on adjustments(f)                                                    |  |                                
|Adjusted net income (loss)                                                      |  |                                







| | (a) | For convenience purposes only, amounts in reais for the year ended December 31, 2018 have been translated to U.S.
dollars using an exchange rate of R$3.875 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2018 as reported
by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been
or could be converted at that or any other exchange rate. See “—Exchange rates” for further information about
recent fluctuations in exchange rates.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Consists of non-cash expenses related to the grant of share-based compensation, as well as fair value (mark-to-market) adjustments
for share-based compensation expense classified as a liability in our consolidated financial statements. See “Item 5. Operating
and Financial Review and Prospects—A. Operating results—Description of Principal Line Items—Other operating expenses,
net—Liability-classified share-based compensation expense” and note 26 to our consolidated financial statements for
further information.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Consists of expenses resulting from the amortization of the fair value adjustment on intangible assets and property and equipment
as a result of the application of the acquisition method, a significant portion of which relate to the EdB Acquisition. See “Item
5. Operating and Financial Review and Prospects—A. Operating results—EdB Acquisition” for further information.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (d) | Consists of the gain on re-measurement of our previously
held equity interest in Equals to fair value upon the date control was acquired.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (e) | Consists of (1) impairment charges associated with certain processing system intangible assets acquired in the EdB Acquisition
that we no longer use, in an amount of R$6.4 million for the year ended December 31, 2018 and (2) impairment associated with improvements
made to certain leased office space upon the termination of the lease, in an amount of R$2.0 million for the year ended December
31, 2018.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | Represents the tax effect of pre-tax items excluded from adjusted net income (loss). The tax effect of pre-tax items excluded
from adjusted net income (loss) is computed using the statutory rate related to the jurisdiction that was impacted by the adjustment
after taking into account the impact of permanent differences and valuation allowances.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  | As of December 31,
|---------------------------------------------------- |  | ------------------
|                                                     |  | 2018              
|                                                     |  | (US$ millions)(1) 
|Statement of financial position data:                |  |                   
|Assets                                               |  |                   
|Current assets                                       |  |                   
|Cash and cash equivalents and short-term investments |  |                   
|Accounts receivable from card issuers                |  |                   
|Other current assets                                 |  |                   
|Total current assets                                 |  |                   
|Total non-current assets                             |  |                   
|Total assets                                         |  |                   
|Liabilities and Equity                               |  |                   
|Current liabilities                                  |  |                   
|Accounts payable to merchants                        |  |                   
|Other current liabilities                            |  |                   
|Total current liabilities                            |  |                   
|Non-current liabilities                              |  |                   
|Obligations to FIDC senior quota holders             |  |                   
|Other non-current liabilities                        |  |                   
|Total non-current liabilities                        |  |                   
|Total liabilities                                    |  |                   
|Total equity                                         |  |                   
|Total liabilities and equity                         |  |                   

| | (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2018 have been translated to U.S.
dollars using an exchange rate of R$3.875 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2018 as reported
by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been
or could be converted at that or any other exchange rate. See “—Exchange rates” for further information about
recent fluctuations in exchange rates.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Exchange rates



The Brazilian foreign exchange system allows
the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless
of the amount, subject to certain regulatory procedures.



The real depreciated against the
U.S. dollar from mid-2011 to early 2016. In particular, during 2015, due to the poor economic conditions in Brazil, including as
a result of political instability, the real depreciated at a rate that was much higher than in previous years. On September
24, 2015, the real fell to its lowest level since the introduction of the currency, at R$4.1945 per US$1.00. Overall in
2015, the real depreciated 47.0%, reaching R$3.9048 per US$1.00 on December 31, 2015. In 2016, the real fluctuated
significantly, primarily as a result of Brazil’s political instability, appreciating 16.5% to R$3.2591 per US$1.00 on December
31, 2016. In 2017, the real depreciated 1.5% against the U.S. dollar, ending the year at an exchange rate of R$3.308 per
U.S.$1.00. The real/U.S. dollar exchange rate reported by the Central Bank was R$3.875 per U.S.$1.00 on December 31, 2018,
which reflected a 17.1% depreciation in the real against the U.S. dollar during 2018, primarily as a result of lower interest
rates in Brazil, which reduced the volume of foreign currency deposited in Brazil in the “carry trade,” as well as
uncertainty regarding the results of the Brazilian presidential elections held in October 2018. The real/U.S. dollar exchange
rate reported by the Central Bank was R$3.9725 per U.S.$1.00 on April 25, 2019, which reflected a 0.2% depreciation in the real against the U.S. dollar since
December 31, 2018. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar.



12


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There can be no assurance that the real
will not depreciate or appreciate further against the U.S. dollar. The Central Bank has intervened occasionally in the foreign
exchange market to attempt to control instability in foreign exchange rates. We cannot predict whether the Central Bank or the
Brazilian government will continue to allow the real to float freely or will intervene in the exchange rate market by re-implementing
a currency band system or otherwise. The real may depreciate or appreciate substantially against the U.S. dollar in the
future. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or
there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital
abroad. We cannot assure you that the Brazilian government will not place restrictions on remittances of foreign capital abroad
in the future.



The following table sets forth, for the
periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed in Brazilian
reais per U.S. dollar. The average rate is calculated by using the average of reported exchange rates by the Central
Bank on each business day during each annual or monthly period, as applicable.



|Year | Period-end | Average(1) | Low    | High  
|---- | ---------- | ---------- | ------ | ------
|2014 | 2.6562     | 2.3599     | 2.1974 | 2.7403
|2015 | 3.9048     | 3.3876     | 2.5754 | 4.1949
|2016 | 3.2591     | 3.4500     | 4.1193 | 3.1558
|2017 | 3.3080     | 3.193      | 3.0510 | 3.3807
|2018 | 3.8748     | 3.6796     | 3.1391 | 4.1879



|Month                               | Period-end | Average(2) | Low    | High  
|----------------------------------- | ---------- | ---------- | ------ | ------
|October 2018                        | 3.7177     | 3.7584     | 3.6368 | 4.0273
|November 2018                       | 3.8633     | 3.7852     | 3.6973 | 3.8925
|December 2018                       | 3.8748     | 3.8851     | 3.8285 | 3.9330
|January 2019                        | 3.6519     | 3.7416     | 3.6519 | 3.8595
|February 2019                       | 3.7385     | 3.7236     | 3.6694 | 3.7756
|March 2019                          | 3.8967     | 3.8470     | 3.7762 | 3.9682
|April 2019 (through April 25, 2019) | 3.9725     | 3.8915     | 3.8345 | 3.9725



____________________

Source: Central Bank.



| | (1) | Represents the average of the exchange rates on the closing of each day during the year.
| | --- | ----------------------------------------------------------------------------------------



| | (2) | Represents the average of the exchange rates on the closing of each day during the month.
| | --- | -----------------------------------------------------------------------------------------



| | B. | Capitalization and indebtedness
| | -- | -------------------------------



Not applicable.



| | C. | Reasons for the offer and use of proceeds
| | -- | -----------------------------------------



Not applicable.



| | D. | Risk factors
| | -- | ------------



This section is intended to be a summary
of more detailed discussions contained elsewhere in this annual report. The risks described below are not the only ones we face.
Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result,
the trading price of our shares could decline.



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Risks Relating to Our Business and Industry



If we cannot keep
pace with rapid developments and change in our industry and continue to acquire new merchants as rapidly as in the past, the use
of our services could decline, reducing our revenues.



The electronic payments market in which
we compete is subject to rapid and significant changes. This market is characterized by rapid technological change, new product
and service introductions, evolving industry standards, changing client needs and the entrance of non-traditional competitors.
In order to remain competitive and continue to acquire new merchants rapidly, we are continually involved in a number of projects
to develop new services or compete with these new market entrants, including the development of mobile phone payment applications,
e-commerce services, digital banking, ERP, digital wallet account and bank card, prepaid card offerings, credit offerings and other
new offerings emerging in the electronic payments industry. These projects carry risks, such as cost overruns, delays in delivery,
performance problems and lack of client adoption. Any delay in the delivery of new services or the failure to differentiate our
services or to accurately predict and address market demand could render our services less desirable, or even obsolete, to our
clients. Furthermore, even though the market for alternative payment processing services is evolving, it may not continue to develop
rapidly enough for us to recover the costs we have incurred in developing new services targeted at this market.



In addition, the services we deliver are
designed to process very complex transactions and provide reports and other information concerning those transactions, all at high
volumes and processing speeds. Any failure to deliver an effective and secure service or any performance issue that arises with
a new service could result in significant processing or reporting errors or other losses. As a result of these factors, our development
efforts could result in increased costs and/or we could also experience a loss in business that could reduce our earnings or could
cause a loss of revenue if promised new services are not timely delivered to our clients or do not perform as anticipated. We also
rely in part, and may in the future rely in part, on third parties, including some of our competitors and potential competitors,
for the development of, and access to, new technologies. Our future success will depend in part on our ability to develop or adapt
to technological changes and evolving industry standards. We cannot predict the effects of technological changes on our business.
If we are unable to develop, adapt to or access technological changes or evolving industry standards on a timely and cost-effective
basis, our business, financial condition and results of operations could be materially adversely affected.



Furthermore, our competitors may have the
ability to devote more financial and operational resources than we can to the development of new technologies and services, including
e-commerce and mobile payment processing services, that provide improved operating functionality and features to their existing
service offerings. If successful, their development efforts could render our services less desirable to clients, resulting in the
loss of clients or a reduction in the fees we could generate from our offerings.



Unauthorized disclosure,
destruction or modification of data, through cybersecurity breaches, computer viruses or otherwise or disruption of our services
could expose us to liability, protracted and costly litigation and damage our reputation.



Our business involves the collection, storage,
processing and transmission of customers’ personal data, including names, addresses, identification numbers, credit or debit
card numbers and expiration dates and bank account numbers. An increasing number of organizations, including large merchants and
businesses, other large technology companies, financial institutions and government institutions, have disclosed breaches of their
information technology systems, some of which have involved sophisticated and highly targeted attacks, including on portions of
their websites or infrastructure. We could also be subject to breaches of security by hackers. Threats may derive from human error,
fraud or malice on the part of employees or third parties, or may result from accidental technological failure. For example, in
October 2018, an individual or individuals publicly disclosed portions of certain non-material source code from the proprietary
software used in our Pagar.me PSP solution and Stone Pagamentos S.A., or Stone Pagamentos, platforms that we had privately
hosted on a third-party code development website. Concerns about security are increased when we transmit information. Electronic
transmissions can be subject to attack, interception or loss. Also, computer viruses and malware can be distributed and spread
rapidly over the internet and could infiltrate our systems or those of our associated participants, which can impact the confidentiality,
integrity and availability of information, and the integrity and availability of our products, services and systems, among other
effects. Denial of service or other attacks could be launched against us for a variety of purposes, including interfering with
our services or creating a diversion for other malicious activities. These types of actions and attacks could disrupt our delivery
of products and services or make them unavailable,



14


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which could damage our reputation, force us to incur significant
expenses in remediating the resulting impacts, expose us to uninsured liability, subject us to lawsuits, fines or sanctions, distract
our management or increase our costs of doing business.



In the scope of our activities, we share
information with third parties, including commercial partners, third-party service providers and other agents, which we refer to
collectively as “associated participants,” who collect, process, store and transmit sensitive data. Given the rules
established by the payment scheme settlors, such as Visa and Mastercard, and applicable regulations, we may be held responsible
for any failure or cybersecurity breaches attributed to these third parties insofar as they relate to the information we share
with them. The loss, destruction or unauthorized modification of data of the end users of payment services (e.g., payers, receivers,
cardholders, merchants, and those who may hold funds and balance in their accounts) by us or our associated participants or through
systems we provide could result in significant fines, sanctions and proceedings or actions against us by the payment schemes, governmental
bodies or third parties, which could have a material adverse effect on our business, financial condition and results of operations.
Any such proceeding or action, and any related indemnification obligation, could damage our reputation, force us to incur significant
expenses in defense of these proceedings, distract our management, increase our costs of doing business or result in the imposition
of financial liability.



Our encryption of data and other protective
measures may not prevent unauthorized access or use of sensitive data. A breach of our system or that of one of our associated
participants may subject us to material losses or liability, including payment scheme fines, assessments and claims for unauthorized
purchases with misappropriated credit, debit or card information, impersonation or other similar fraud claims. A misuse of such
data or a cybersecurity breach could harm our reputation and deter merchants from using electronic payments generally and our products
and services specifically, thus reducing our revenue. In addition, any such misuse or breach could cause us to incur costs to correct
the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits, and
result in the imposition of material penalties and fines under state and federal laws or regulations or by the payment schemes.
In addition, a significant cybersecurity breach of our systems or communications could result in payment schemes prohibiting us
from processing transactions on their schemes or the loss of Central Bank authorization to operate as a payment institution (instituição
de pagamento) in Brazil, which could materially impede our ability to conduct business. While we maintain insurance policies
to address certain risks associated with cyber attacks, such insurance coverage may be insufficient to cover all losses or types
of claims that may arise.



We cannot assure that there are written
agreements in place with every associated participant or that such written agreements will prevent the unauthorized use, modification,
destruction or disclosure of data or enable us to obtain reimbursement from associated participants in the event we should suffer
incidents resulting in unauthorized use, modification, destruction or disclosure of data. In addition, many of our associated participants
are small- and medium-sized agents that have limited competency regarding data security and handling requirements and may thus
experience data losses. Any unauthorized use, modification, destruction or disclosure of data could result in protracted and costly
litigation, which could have a material adverse effect on our business, financial condition and results of operations.



Cybersecurity incidents are increasing
in frequency and evolving in nature and include, but are not limited to, installation of malicious software, unauthorized access
to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential
or otherwise protected information and the corruption of data. Given the unpredictability of the timing, nature and scope of information
technology disruptions, there can be no assurance that the procedures and controls we employ will be sufficient to prevent security
breaches from occurring and we could be subject to manipulation or improper use of our systems and networks or financial losses
from remedial actions, any of which could have a material adverse effect on our business, financial condition and results of operations.



Substantial and
increasingly intense competition, both within our industry and from other payments methods, may harm our business.



The market for payment processing services
is highly competitive. Other providers of payment processing services have established a sizable market share in the small and
mid-sized merchant processing and servicing sector, which are the markets in which we are principally focused, as well as servicing
large merchants. Our growth will depend on a combination of the continued growth of electronic payments and our ability to increase
our market share.



15


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Our primary competitors include traditional
merchant acquirers such as affiliates of financial institutions and well-established payment processing companies, including Cielo
S.A., a company controlled by Banco Bradesco S.A. and Banco do Brasil S.A.; Redecard S.A., a subsidiary of Itaú Unibanco
Holding SA; and Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Santander Getnet), a subsidiary of Banco
Santander (Brasil) S.A. Our other competitors include other payment processing companies, such as PagSeguro Digital Ltd.; First
Data Corporation; Global Payments – Serviços de Pagamentos S.A., a subsidiary of Global Payments Inc.; Banrisul Cartões
S.A. (known as Vero), a subsidiary of Banrisul S.A.; Adyen B.V.; and SafraPay, a unit of Banco Safra S.A. We also face competition
from non-traditional payment processors that have significant financial resources and develop different kinds of services. Additionally,
we may also face competition from traditional and established financial institutions, such as credit lendors that have significant
financial resources and Brazilian credit industry experience.



Our competitors that are affiliated with
financial institutions may not incur the sponsorship costs we incur for registration with the payment schemes, some of which are
affiliated with our competitors. Many of our competitors also have substantially greater financial, technological, operational
and marketing resources than we have. Accordingly, these competitors may be able to offer more attractive fees to our current and
prospective clients, especially our competitors that are affiliated with financial institutions. If competition causes us to reduce
the fees we charge for our services, we will need to aggressively control our costs in order to maintain our profit margins and
our revenues may be adversely affected. In particular, we may need to reduce the fees we charge in order to maintain market share,
as merchants may demand more customized and favorable pricing from us. We may also decide to terminate client relationships which
may no longer be profitable to us due to such pricing pressure. For instance, in connection with the EdB Acquisition and its associated
merchant base, we discontinued certain client relationships that were not profitable to our business. Furthermore, our ability
to control our costs is limited because we are subject to fixed transaction costs related to payment schemes. Competition could
also result in a loss of existing clients, and greater difficulty in attracting new clients. One or more of these factors could
have a material adverse effect on our business, financial condition and results of operations.



Degradation of the
quality of the products and services we offer, including support services, could adversely affect our ability to attract and retain
merchants and partners.



Our merchants expect a consistent level
of quality in the provision of our products and services. The support services that we provide are also a key element of the value
proposition to our clients. If the reliability or functionality of our products and services is compromised or the quality of those
products or services is otherwise degraded, or if we fail to continue to provide a high level of support, we could lose existing
merchants and find it harder to attract new merchants and partners. If we are unable to scale our support functions to address
the growth of our merchant and partner network, the quality of our support may decrease, which could adversely affect our ability
to attract and retain merchants and partners.



If we fail to manage
our growth effectively, our business could be harmed.



In order to manage our growth effectively,
we must continue to strengthen our existing infrastructure, develop and improve our internal controls, create and improve our reporting
systems, and timely address issues as they arise. These efforts may require substantial financial expenditures, commitments of
resources, developments of our processes, and other investments and innovations. Furthermore, we encourage employees to quickly
develop and launch new features for our products and services. As we grow, we may not be able to execute as quickly as smaller,
more efficient organizations. If we do not successfully manage our growth, our business will suffer.



Our systems and
our third party providers’ systems may fail due to factors beyond our control, which could interrupt our service, cause us
to lose business and increase our costs.



We depend on the efficient and uninterrupted
operation of numerous systems, including our computer systems, software, data centers and telecommunications networks, as well
as the systems of third parties. Our systems and operations or those of our third-party providers, could be exposed to damage or
interruption from, among other things, fire, natural disaster, power loss, telecommunications failure, unauthorized entry and computer
viruses. We do not maintain insurance policies specifically for property and business interruptions. Defects in our systems or
those of third parties, errors or delays in the processing of payment transactions, telecommunications failures or other difficulties
could result in:



| | · | loss of revenues; including subscription revenues owed from equipment rentals;
| | - | ------------------------------------------------------------------------------



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| | · | loss of clients;
| | - | ----------------



| | · | loss of merchant and cardholder data;
| | - | -------------------------------------



| | · | loss of licenses with Visa, Mastercard or other payment schemes;
| | - | ----------------------------------------------------------------



| | · | fines imposed by payment scheme associations and other issues relating to non-compliance with applicable payment scheme requirements;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | a failure to receive, or loss of, Central Bank authorizations to operate as a payment institution (instituição
de pagamento) or as a payment scheme settlor (instituidor de arranjo de pagamento) in Brazil;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | fines or other penalties imposed by the Central Bank, as well as other measures taken by the Central Bank, including intervention,
temporary special management systems, the imposition of insolvency proceedings, and/or the out-of-court liquidation of Stone Pagamentos
and any of our subsidiaries to whom licenses may be granted in the future;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | fines or other penalties imposed by the recently created National Data Protection Authority (Autoridade Nacional de Proteção
de Dados or “ANPD”);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · | harm to our business or reputation resulting from negative publicity;
| | - | ---------------------------------------------------------------------



| | · | exposure to fraud losses or other liabilities;
| | - | ----------------------------------------------



| | · | additional operating and development costs; and/or
| | - | --------------------------------------------------



| | · | diversion of technical and other resources.
| | - | -------------------------------------------



In particular, we rely heavily on our subsidiary,
Buy4 Processamento de Pagamentos S.A., or Buy4, to provide transaction authorization and settlement, computing, storage, processing
and other related services. Any disruption of or interference with our use of Buy4 services could negatively affect our operations
and seriously harm our business. Buy4 provides software and systems to process the authorization and settlement of credit card
and debit card transactions, and provides other products and services to our merchant base. Buy4 has experienced, and may experience
in the future, interruptions, delays or outages in service availability due to a variety of factors, including infrastructure changes,
human or software errors, hosting disruptions and capacity constraints. Capacity constraints could arise from a number of causes
such as technical failures, natural disasters, fraud or security attacks. The level of service provided by Buy4, or regular or
prolonged interruptions in the services provided by Buy4, could also impact the use of, and our clients’ satisfaction with,
our products and services and could harm its business and reputation. To the extent Buy4 begins offering its services to other
payment processors or others, the frequency of interruptions, delays or outages in service availability may increase. In addition,
hosting costs will increase as our user base and user engagement grows. This could materially and adversely affect our business
if our revenues do not increase faster than hosting costs.



In the past, we
and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting
and, if we fail to maintain effective internal controls over financial reporting, we may be unable to accurately report our results
of operations, meet our reporting obligations or prevent fraud.



Prior to our initial public offering, we
were a private company with limited accounting personnel and other resources to address our internal control over financial reporting
and procedures. Our management has not completed an assessment of the effectiveness of our internal control over financial reporting
and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2017 and 2016, we and our
independent registered public accounting firm identified a number of material weaknesses in our internal controls over financial
reporting as of December 31, 2017 and 2016. Specifically, the following controls were not fully effective: (i) inaccuracies in
our treatment of the measurement of and recognition of deferred income and social contribution taxes due to a lack of experienced
personnel; (ii) inadequate controls around the monthly closing process which resulted in the need to make adjustments to historical
financial statements; (iii) inaccuracies in our



17


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treatment of stock-based compensation due to a lack of experienced
personnel; (iv) errors in our application of acquisition accounting policies to our acquisition of Elavon due to a lack of experienced
personnel; (v) inaccuracies in our treatment of related party transactions due to the lack of a process for their identification
and disclosure; and (vi) lack of procedures and controls for (a) the change management process, (b) granting access to our accounting
systems, (c) revoking access for terminated personnel, (d) managing access for transferred and promoted employees, (e) periodically
reviewing the profiles of those with access, (f) segregating access between development and production environments and (g) monitoring,
logging and tracking access to our systems.



We have adopted a remediation plan with
respect to the material weaknesses identified above and, by hiring several new, experienced personnel in our financial reporting
organization, adopting revised processes and procedures and modifying our internal controls to provide additional levels of review,
implementation of new software solutions, training for staff and enhanced documentation we believe that we have remediated each
of the material weaknesses as of December 31, 2018.



Under Section 404 of the Sarbanes-Oxley
Act of 2002, our management is not required to assess or report on the effectiveness of our internal control over financial reporting
in this annual report. We are only required to provide such a report for the fiscal year ending December 31, 2019. At that time,
our management may conclude that our internal control over financial reporting is not effective. In addition, until we cease to
be an “emerging growth company” as such term is defined in the JOBS Act, which may not be until after five full fiscal
years following the date of our initial public offering, our independent registered public accounting firm is not required to attest
to and report on the effectiveness of our internal control over financial reporting. Even if our management concludes that our
internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its
own independent testing, may disagree with our assessment or may issue a report that is qualified if it is not satisfied with our
internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant
requirements differently from us. We may be unable to timely complete our evaluation testing and any required remediation.



During the course of documenting and testing
our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we may
identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain
the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time
to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to maintain an effective internal control environment,
we could suffer material misstatements in our financial statements, fail to meet our reporting obligations or fail to prevent fraud,
which would likely cause investors to lose confidence in our reported financial information. This could, in turn, limit our access
to capital markets, harm our results of operations, and lead to a decline in the trading price of our Class A common shares. Additionally,
ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets
and subject us to potential delisting from Nasdaq, regulatory investigations and civil or criminal sanctions.



Our results of operations
and operating metrics may fluctuate and we may generate losses in the future, which may cause the market price of our Class A
common shares to decline.



We intend to make significant investments
in our business, including with respect to our employee base, sales and marketing, including expenses relating to increased direct
marketing efforts, referral programs, and free hardware and subsidized services, development of new products, services, and features;
expansion of office space, data centers and other infrastructure, development of international operations and general administration,
including legal, finance, and other compliance expenses related to being a public company. If the costs associated with acquiring
and supporting new or larger merchants materially rise in the future, including the fees we pay to third parties to advertise our
products and services, our expenses may rise significantly. In addition, increases in our client base could cause us to incur losses,
because costs associated with new clients are generally incurred up front, while revenue is recognized thereafter as merchants
utilize our services. If we are unable to generate adequate revenue growth and manage our expenses, our results of operations and
operating metrics may fluctuate and we may incur significant losses in the future, which could cause the market price of our Class A
common shares to decline.



We frequently invest in developing products
or services that we believe will improve the experiences of our clients and therefore improve our long-term results of operations.
However, these improvements often cause us to incur significant up-front costs and may not result in the long-term benefits that
we expect, which may materially



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and adversely affect our business. For example, our growth strategy
contemplates an expansion in the number of Stone Hubs and other relevant sales channels. Successful implementation of our growth
strategy will require significant expenditures before any substantial associated revenue is generated. We cannot assure you that
our increased investment in marketing activities will result in corresponding revenue growth. Additionally, many of our existing
Stone Hubs are still relatively new. We cannot assure you that our recently opened or future Stone Hubs will generate revenue and
cash flow comparable with those generated by our more mature Stone Hubs. Furthermore, we cannot assure you that our new Stone Hubs
will continue to mature at the same rate as our existing Stone Hubs, especially if economic conditions deteriorate.



If we cannot pass
increases in fees from payment schemes, including assessment, interchange, transaction and other fees, along to our merchants,
our operating margins will decline.



We pay assessment, interchange and other
fees set by the payment schemes for each transaction we process. From time to time, the payment schemes increase the assessment,
interchange and other fees that they charge payment processors. Under our existing contracts with merchants, we are generally permitted
to pass these fee increases along to our merchants through corresponding increases in our processing fees. However, if we are unable
to pass through these and other fees in the future due to contractual or regulatory restrictions, competitive pressures or other
considerations, it could have a material adverse effect on our business, financial condition and results of operations.



Our business is
subject to extensive government regulation and oversight in Brazil and our status under these regulations may change. Violation
of or compliance with present or future regulation could be costly, expose us to substantial liability and force us to change our
business practices, any of which could seriously harm our business and results of operations.



As a payment institution (instituição
de pagamento) and payment scheme settlor (instituidor de arranjo de pagamento) in Brazil, our business is subject to
Brazilian laws and regulations relating to electronic payments in Brazil, comprised of Brazilian Federal Law No. 12,865/13
and related rules and regulations.



If we fail to comply with the requirements
of the Brazilian legal and regulatory framework, we could be prevented from carrying out our regulated activities, and we could
be (i) required to pay substantial fines (including per transaction fines) and disgorgement of our profits, (ii) required
to change our business practices or (iii) subjected to insolvency proceedings such as an intervention by the Central Bank,
as well as the out-of-court liquidation of Stone Pagamentos, and any of our subsidiaries to whom licenses may be granted in the
future. Pagar.me has applied to the Central Bank to be licensed as a payment institution, and is awaiting such Central Bank
approval. While Pagar.me is permitted to continue operations as a payment institution pending the outcome of the approval
process, the failure to eventually obtain such approval would have material adverse effects on our business. In addition, Pagar.me
currently operates as a payment scheme settlor pursuant to Central Bank license exemption, and depending on its growth in volumes
processed, will be subject to the applicable regulations to operate as a payment scheme settlor. Any disciplinary or punitive action
by our regulators or failure to obtain required operating licenses could seriously harm our business and results of operations.



The working capital solutions that we offer
merchants make up a significant portion of our activities. Law No. 12,865/13 prohibits payment institutions like us from performing
activities that are restricted to financial institutions. There is some debate under Brazilian law as to whether providing early
payment of receivables to merchants could be characterized as “lending,” which is an activity that is restricted to
financial institutions. Similarly, there is some debate as to whether the discount rates applicable to this early payment feature
should be considered as “interest” under Brazilian law, in which case the limits set by Decree No. 22,623, of April 7,
1933 (the Brazilian Usury Law) would apply to these rates. If new laws are enacted or the courts’ interpretation of this
activity changes, either preventing us from providing this feature or limiting the fees we usually charge, our financial performance
could be negatively affected.



For further information regarding these
regulatory matters, see “Item 4. Information on the Company—B. Business overview—Regulatory Matters—Regulation
of the SPB.”



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As we grow our offering
of credit services, we may need to comply with additional laws and regulations applicable to such services.



We are in the initial stages of our credit
offering, currently granted by means of third party financial institutions. To the extent that we may expand our business to offer
financial products directly to our merchants, including by means of a direct credit corporation (sociedade de crédito
direto) for which we have filed a request with the Central Bank or any other type of financial institution, upon authorization
by the Central Bank, we would be operating in an even higher regulated sector and be subject to extensive and continuous regulatory
oversight by the Central Bank. We would be required to have in place a number of additional compliance policies, procedures, regulatory
requirements, as well as a more extensive interaction with the regulator. The additional demands associated with these policies
and procedures may disrupt regular operations of our business by diverting the attention of some of our senior management team,
may increase our legal, accounting and financial compliance costs and make some activities more time-consuming and costly, adversely
affecting our ability to managing and growing our businesses. Any of these effects could harm our business, financial condition
and results of operations.



We have a limited
operating history with financial results that may not be indicative of future performance, and our revenue growth rate is likely
to slow as our business matures.



We began operations in 2014. As a result
of our limited operating history, we have limited financial data that can be used to evaluate our current business, and such data
may not be indicative of future performance. In particular, we have experienced periods of high revenue growth since we began selling
our products and services, and we do not expect to be able to maintain the same rate of revenue growth as our business matures.
Estimates of future revenue growth are subject to many risks and uncertainties and our future revenue may be materially lower than
projected.



We have encountered, and expect to continue
to encounter, risks and difficulties frequently experienced by growing companies, including challenges in financial forecasting
accuracy, determining appropriate investments, developing new products and features, among others. Any evaluation of our business
and prospects should be considered in light of our limited operating history, and the risks and uncertainties inherent in investing
in early-stage companies.



We may face challenges
in expanding into new geographic regions outside of Brazil.



We may expand into new geographic regions
outside of Brazil, and we will face challenges associated with entering markets in which we have limited or no experience and in
which we may not be well-known. Offering our services in new geographic regions requires substantial expenditures and takes considerable
time, and we may not recover our investments in new markets in a timely manner or at all. For example, we may be unable to attract
a sufficient number of merchants, fail to anticipate competitive conditions or fail to adapt and tailor our services to different
markets.



The development of our products and services
globally exposes us to risks relating to staffing and managing cross-border operations, increased costs and difficulty protecting
intellectual property and sensitive data, tariffs and other trade barriers, differing and potentially adverse tax consequences,
increased and conflicting regulatory compliance requirements, including with respect to privacy and security, lack of acceptance
of our products and services, challenges caused by distance, language, and cultural differences, exchange rate risk and political
instability. Accordingly, our efforts to develop and expand the geographic footprint of our operations may not be successful, which
could limit our ability to grow our business.



Merchant attrition
or a decline in our clients’ growth rate could cause our revenues to decline.



We experience attrition in merchant credit
and debit card processing volume resulting from several factors, including business closures, transfers of merchants’ accounts
to our competitors and account closures that we initiate due to heightened credit risks relating to contract breaches by merchants
or a reduction in same-store sales. We cannot predict the level of attrition in the future and our revenues could decline as a
result of higher than expected attrition, which could have a material adverse effect on our business, financial condition and results
of operations.



In addition, our growth to date has been
partially driven by the growth of our clients’ businesses and the resulting growth in TPV. Should the rate of growth of our
clients’ business slow or decline, this could have an adverse effect on volumes processed and therefore an adverse effect
on our results of operations. Furthermore,



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should we not be successful in selling additional solutions
to our active client base, we may fail to achieve our desired rate of growth.



Any acquisitions,
partnerships or joint ventures that we make or enter into could disrupt our business and harm our financial condition.



Acquisitions, partnerships and joint ventures
are part of our growth strategy. We evaluate, and expect in the future to evaluate, potential strategic acquisitions of, and partnerships
or joint ventures with, complementary businesses, services or technologies. We may not be successful in identifying acquisition,
partnership and joint venture targets. In addition, we may not be able to successfully finance or integrate any businesses, services
or technologies that we acquire or with which we form a partnership or joint venture, and we may lose merchants as a result of
any acquisition, partnership or joint venture. Furthermore, the integration of any acquisition (such as the EdB Acquisition), partnership
or joint venture may divert management’s time and resources from our core business and disrupt our operations. Certain acquisitions,
partnerships and joint ventures we make may prevent us from competing for certain clients or in certain lines of business, and
may lead to a loss of clients. We may spend time and money on projects that do not increase our revenue. To the extent we pay the
purchase price of any acquisition in cash, it would reduce our cash reserves, and to the extent the purchase price is paid with
our common shares, it could be dilutive to our shareholders. To the extent we pay the purchase price with proceeds from the incurrence
of debt, it would increase our level of indebtedness and could negatively affect our liquidity and restrict our operations. Our
competitors may be willing or able to pay more than us for acquisitions, which may cause us to lose certain acquisitions that we
would otherwise desire to complete. We cannot ensure that any acquisition, partnership or joint venture we make will not have a
material adverse effect on our business, financial condition and results of operations.



We partially rely
on card issuers or payment schemes to process our transactions. If we fail to comply with the applicable requirements of Visa,
Mastercard or other payment schemes, those payment schemes could seek to fine us, suspend us or terminate our registrations, which
could have a material adverse effect on our business, financial condition or results of operations.



We partially rely on card issuers or payment
schemes to process our transactions, and must pay a fee for this service. From time to time, payment schemes such as Mastercard
and Visa may increase the interchange fees that they charge for each transaction using one of their cards. A significant source
of our revenue comes from processing transactions through Visa, Mastercard and other payment schemes. The payment schemes routinely
update and modify their requirements. Changes in the requirements, including changes to risk management and collateral requirements,
may impact our ongoing cost of doing business and we may not, in every circumstance, be able to pass through such costs to our
clients or associated participants. Furthermore, if we do not comply with the payment scheme requirements (e.g., their rules, bylaws
and charter documentation), the payment schemes could seek to fine us, suspend us or terminate our registrations that allow us
to process transactions on their schemes. On occasion, we have received notices of non-compliance and fines, which have typically
related to transactional or messaging requisites, as well as excessive chargebacks by a merchant or data security failures on the
part of a merchant. If we are unable to recover amounts relating to fines from or pass through costs to our merchants or other
associated participants, we would experience a financial loss. The termination of our registration due to failure to comply with
the applicable requirements of Visa, Mastercard or other payment schemes, or any changes in the payment scheme rules that would
impair our registration, could require us to stop providing payment services to Visa, Mastercard or other payment schemes, which
could have a material adverse effect on our business, financial condition and results of operations.



We are subject to
economic and political risk, the business cycles and credit risk of our clients and issuing banks and volatility in the overall
level of consumer, business and government spending, which could negatively impact our business, financial condition and results
of operations.



The electronic payments industry depends
heavily on the overall level of consumer, business and government spending. We are exposed to general economic conditions that
affect consumer confidence, consumer spending, consumer discretionary income or changes in consumer purchasing habits. A sustained
deterioration in general economic conditions, including a rise in unemployment rates, particularly in Brazil, or increases in interest
rates may adversely affect our financial performance by reducing the number or average purchase amount of transactions made using
electronic payments. A reduction in the amount of consumer spending could result in a decrease in our revenue and profits. If cardholders
make fewer transactions with their cards, our merchants make fewer sales of their



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products and services using electronic payments or people spend
less money per transaction, we will have fewer transactions to process at lower amounts, resulting in lower revenue.



In addition, a recessionary economic environment
could affect our merchants through a higher rate of bankruptcy filings, resulting in lower revenues and earnings for us. Our merchants
are liable for any charges properly reversed by the card issuer on behalf of the cardholder. Our associated participants are also
liable for any fines, or penalties, that may be assessed by any payment schemes. In the event that we are not able to collect such
amounts from the associated participants, whether due to fraud, breach of contract, insolvency, bankruptcy or any other reason,
we may be liable for any such charges. Furthermore, in the event of a closure of a merchant, we are unlikely to receive our fees
for any services rendered to that merchant in its final months of operation, including subscription revenue owed to us from such
merchant’s equipment rental obligations. In turn, we also face a default risk from issuing banks that are counterparty to
our receivables pursuant to our credit card payment arrangements. Accordingly, a default by an issuing bank, due to insolvency,
bankruptcy, intervention, operational error or otherwise could negatively impact our cash flows as we are required to make payments
to merchants independently of the issuing banks’ payments owed to us. As of December 31, 2018, we recorded an estimate for
credit losses for receivables, mainly relating to equipment rental, of R$9.2 million relating to estimated losses on such
doubtful accounts. Any of the foregoing risks would negatively impact our business, financial condition and results of operations.
See “—Risks Relating to Brazil.”



We have business
systems that do not have full redundancy.



While much of our processing infrastructure
is located in multiple, redundant data centers, we have some core business systems that are located in only one facility and do
not have redundancy. An adverse event, such as damage or interruption from natural disasters, power or telecommunications failures,
cybersecurity breaches, criminal acts and similar events, with respect to such systems or the facilities in which they are located
could impact our ability to conduct business and perform critical functions, which could negatively impact our financial condition
and results of operations.



A decline in the
use of credit, debit or prepaid cards as a payment mechanism for consumers or adverse developments with respect to the payment
processing industry in general could have a materially adverse effect on our business, financial condition and results of operations.



If consumers do not continue to use credit,
debit or prepaid cards as a payment mechanism for their transactions or if there is a change in the mix of payments between cash,
credit, debit and prepaid cards that is adverse to us, it could have a material adverse effect on our business, financial condition
and results of operations. We believe future growth in the use of credit, debit and prepaid cards and other electronic payments
will be driven by the cost, ease-of-use, and quality of services offered to consumers and businesses. In order to consistently
increase and maintain our profitability, consumers and businesses must continue to use electronic payment methods including credit,
debit and prepaid cards. Moreover, if there is an adverse development in the payments industry or Brazilian market in general,
such as new legislation or regulation that makes it more difficult for our clients to do business or utilize such payment mechanisms,
our business, financial condition and results of operations may be adversely affected.



Our insurance policies
may not be sufficient to cover all claims.



Our insurance policies may not adequately
cover all risks to which we are exposed. A significant claim not covered by our insurance, in full or in part, may result in significant
expenditures by us. Moreover, we may not be able to maintain insurance policies in the future at reasonable costs or on acceptable
terms, which may adversely affect our business and the trading price of our Class A common shares.



Our risk management
policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types
of risks, which could expose us to losses and liability and otherwise harm our business.



We operate in a rapidly changing industry,
and we have experienced significant change in recent years including certain acquisitions. Accordingly, our risk management policies
and procedures may not be fully effective in identifying, monitoring and managing our risks. Some of our risk evaluation methods
depend upon information provided by others and public information regarding markets, clients or other matters that are otherwise
inaccessible by us. In some cases, however, that information may not be accurate, complete or up-to-date. If our policies and



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procedures are not fully effective or we are not always successful
in capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or regulatory
actions that could have a material adverse effect on our business, financial condition and results of operations.



We offer payments services and other products
and services to a large number of clients, and we are responsible for vetting and monitoring these clients and determining whether
the transactions we process for them are lawful and legitimate. When our products and services are used to process illegitimate
transactions, and we settle those funds to merchants and are unable to recover them, we suffer losses and liability. These types
of illegitimate, as well as unlawful, transactions can also expose us to governmental and regulatory sanctions, including outside
of Brazil (e.g., U.S. anti-money laundering and economic sanctions violations). The highly automated nature of, and liquidity offered
by, our payments services make us a target for illegal or improper uses, including fraudulent or illegal sales of goods or services,
money laundering, and terrorist financing. Identity thieves and those committing fraud using stolen or fabricated credit card or
bank account numbers, or other deceptive or malicious practices, potentially can steal significant amounts of money from businesses
like ours. In configuring our payments services, we face an inherent trade-off between security and client convenience. Our risk
management policies, procedures, techniques, and processes may not be sufficient to identify all of the risks to which we are exposed,
to enable us to mitigate the risks we have identified, or to identify additional risks to which we may become subject in the future.
As a greater number of larger merchants use our services, we expect our exposure to material losses from a single merchant, or
from a small number of merchants, to increase. In addition, when we introduce new services, focus on new business types, or begin
to operate in markets in which we have a limited history of fraud loss, we may be less able to forecast and reserve accurately
for those losses. Moreover, we rely on third party service providers, such as PSP providers, and our risk management policies and
processes may not be sufficient to monitor compliance by such third parties with applicable laws and regulations, including anti-money
laundering laws and settlement of sub-merchants. We may incur significant costs with respect to monitoring third party service
providers. Furthermore, if our risk management policies and processes contain errors or are otherwise ineffective, we may suffer
large financial losses, we may be subject to civil and criminal liability, and our business may be materially and adversely affected.



We incur chargeback
and refund liability when our merchants refuse to or cannot reimburse chargebacks and refunds resolved in favor of their customers.
Any increase in chargebacks and refunds not paid by our merchants may adversely affect our business, financial condition or results
of operations.



We are currently, and will continue to
be, exposed to risks associated with chargebacks and refunds in connection with payment card fraud or relating to the goods or
services provided by our sellers. In the event that a billing dispute between a cardholder and a merchant is not resolved in favor
of the merchant, including in situations in which the merchant is engaged in fraud, the transaction is typically “charged
back” to the merchant and the purchase price is credited or otherwise refunded to the cardholder. If we are unable to collect
chargeback or refunds from the merchant’s account, or if the merchant refuses to or is unable to reimburse us for a chargeback
or refunds due to closure, bankruptcy, or other reasons, we may bear the loss for the amounts paid to the cardholder. Our financial
results would be adversely affected to the extent these merchants do not fully reimburse us for the related chargebacks. In addition,
our exposure to these potential losses from chargebacks increases to the extent that we have provided working capital solutions
to such merchants, as the full amount of the payment is provided up front rather than in installments. We do not collect and maintain
reserves from our merchants to cover these potential losses, and for customer relations purposes we sometimes decline to seek reimbursement
for certain chargebacks. Historically, chargebacks occur more frequently in online transactions than in in-person transactions,
and more frequently for goods than for services. In addition, the risk of chargebacks is typically greater with those of our merchants
that promise future delivery of goods and services, which we allow on our service. If we are unable to maintain our losses from
chargebacks at acceptable levels, the payment schemes could fine us, increase our transaction fees, or terminate our ability to
process payment cards. Any increase in our transaction fees could damage our business, and if we were unable to accept payment
cards, our business would be materially and adversely affected.



Fraud by merchants
or others could have a material adverse effect on our business, financial condition, and results of operations.



We may be subject to potential liability
for fraudulent electronic payment transactions or credits initiated by merchants or others. Examples of merchant fraud include
when a merchant or other party knowingly uses a stolen or counterfeit credit, debit or prepaid card, card number, or other credentials
to record a false sales transaction, processes an invalid card, or intentionally fails to deliver the merchandise or services sold
in an otherwise valid



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transaction. Criminals are using increasingly sophisticated
methods to engage in illegal activities such as counterfeiting and fraud. It is possible that incidents of fraud could increase
in the future. Failure to effectively manage risk and prevent fraud would increase our chargeback liability or other liability.
Increases in chargebacks or other liability could have a material adverse effect on our business, financial condition, and results
of operations.



Increases in interest
rates may harm our business.



Processing consumer transactions made using
credit cards, as well as providing for the prepayment of our clients’ receivables when consumers make credit card purchases
in installments, both make up a significant portion of our activities. If Brazilian interest rates increase, consumers may choose
to make fewer purchases using credit cards, and fewer merchants may decide to use our working capital solutions if our overall
financing costs require us to increase the fee we charge for our working capital solutions. Either of these factors could cause
our business activity levels to decrease. In addition, we have funded our operations in part through financings that have variable
interest rates, whereas we charge merchants a fixed fee for the prepayment of our clients’ receivables. As of December 31,
2018, we had R$2.8 billion of debt and senior quota holder obligations in our FIDCs subject to variable interest and return rates.
Accordingly, a cost or maturity mismatch between the funds raised by us and the funds made available to our clients may materially
adversely affect our liquidity, financial condition and results of operations.



We are exposed to
fluctuations in foreign currency exchange rates.



We hold certain funds in non-Brazilian
realcurrencies, and will continue to do so in the future. Accordingly, our financial results are affected by the translation
of these non-realcurrencies into reais. In addition, to the extent that we need to convert future financing proceeds
into Brazilian reais for our operations, any appreciation of the Brazilian real against the relevant foreign currencies
would materially reduce the Brazilian real amounts we would receive from the conversion. No assurance can be given that
fluctuations in foreign exchange rates will not have a significant impact on our business, financial condition, results of operations
and prospects. We may also have foreign exchange risk on any of our other assets and liabilities denominated in currencies, or
with pricing linked to currencies, other than our functional currency, including certain contract assets. The strengthening of
the Brazilian real versus any of these foreign currencies may have a material adverse effect on our financial position and
results of operations.



Our services must
integrate with a variety of operating systems, software, hardware, web browsers and networks, and the hardware that enables merchants
to accept payment cards must interoperate with mobile networks offered by telecom operators and third-party mobile devices utilizing
those operating systems, software, hardware, web browsers and networks. If we are unable to ensure that our services or hardware
interoperate with such operating systems, software, hardware, web browsers and networks, our business may be materially and adversely
affected.



We are dependent on the ability of our
products and services to integrate with a variety of operating systems, software, hardware and networks, as well as web browsers
that we do not control. Any changes in these systems or networks that degrade the functionality of our products and services, impose
additional costs or requirements on us, or give preferential treatment to competitive services, including their own services, could
materially and adversely affect usage of our products and services. In the event that it is difficult for our merchants to access
and use our products and services, our business may be materially and adversely affected. We also rely on bank platforms and others,
including card issuers, to process some of our transactions. If there are any issues with, or service interruptions in, these bank
platforms, users may be unable to have their transactions completed, which would seriously harm our business.



In addition, our solutions, including hardware
and software, interoperate with mobile networks offered by telecom operators and mobile devices developed by third parties. Changes
in these networks or in the design of these mobile devices may limit the interoperability of our solutions with such networks and
devices and require modifications to our solutions. If we are unable to ensure that our hardware continues to interoperate effectively
with such networks and devices, or if doing so is costly, our business may be materially and adversely affected.



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Our business depends
on a well-regarded and widely known brand, and any failure to maintain, protect, and enhance our brand would harm our business.



We have developed a well-regarded and widely
known brand that has contributed significantly to the success of our business. Our brand is predicated on the idea that sellers
and buyers will know and trust us and find value in building and growing their businesses with our products and services. Maintaining,
protecting, and enhancing our brand are critical to expanding our base of merchants, and other third-party partners, as well as
increasing engagement with our products and services. This will depend largely on our ability to remain widely known, maintain
trust, be a technology leader, and continue to provide high-quality and secure products and services. Any negative publicity about
our industry or our company, the quality and reliability of our products and services, our risk management processes, changes to
our products and services, our ability to effectively manage and resolve seller and buyer complaints, our privacy and security
practices, litigation, regulatory activity, and the experience of sellers and buyers with our products or services, could adversely
affect our reputation and the confidence in and use of our products and services. Harm to our brand can arise from many sources,
including failure by us or our partners to satisfy expectations of service and quality; inadequate protection of sensitive information;
compliance failures and claims; litigation and other claims; third party trademark infringement claims; employee misconduct; and
misconduct by our associated participants, partners, service providers, or other counterparties. If we do not successfully maintain
a well-regarded and widely known brand, our business could be materially and adversely affected.



We have been from time to time in the past,
and may in the future be, the target of incomplete, inaccurate, and misleading or false statements about our company, our business,
and our products and services that could damage our brand and materially deter people from adopting our services. Negative publicity
about our company or our management, including about our product quality and reliability, changes to our products and services,
privacy and security practices, litigation, regulatory enforcement, and other actions, as well as the actions of our clients and
other users of our services, even if inaccurate, could cause a loss of confidence in us. Our ability to respond to negative statements
about us may be limited by legal prohibitions on permissible public communications by us during future periods.



If we are unable
to maintain, promote, and grow our brand through effective marketing and communications strategies, our brand and business may
be harmed.



We believe that maintaining and promoting
our brand in a cost-effective manner is critical to achieving widespread acceptance of our products and services and to expand
our base of clients. Maintaining and promoting our brand will depend largely on our ability to continue to provide useful, reliable,
and innovative products and services, which we may not do successfully. We may introduce, or make changes to, features, products,
services, or terms of service that clients do not like, which may materially and adversely affect our brand. Our brand promotion
activities may not generate customer awareness or increase revenue, and even if they do, any increase in revenue may not offset
the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand or if we incur excessive
expenses in this effort, our business could be materially and adversely affected.



The introduction and promotion of new services,
as well as the promotion of existing services, may be partly dependent on our visibility on third-party advertising platforms,
such as Google or Facebook. Changes in the way these platforms operate or changes in their advertising prices or other terms could
make the maintenance and promotion of our products and services and our brand more expensive or more difficult. If we are unable
to market and promote our brand on third-party platforms effectively, our ability to acquire new merchants would be materially
harmed.



Degradation of the
quality of the products and services we offer, including support services, could adversely impact our ability to attract and retain
merchants and partners.



Our clients expect a consistent level of
quality in the provision of our products and services. The support services that we provide are also a key element of the value
proposition to our clients. If the reliability or functionality of our products and services is compromised or the quality of those
products or services is otherwise degraded, or if we fail to continue to provide a high level of support, we could lose existing
clients and find it harder to attract new merchants and partners. If we are unable to scale our support functions to address the
growth of our merchant and partner network, the quality of our support may decrease, which could adversely affect our ability to
attract and retain merchants and partners.



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Certain ongoing legislative
and regulatory initiatives under discussion by the Brazilian Congress, the Central Bank and the broader payments industry
may result in changes to the regulatory framework of the Brazilian payments and financial industries and may have
an adverse effect on the Company.



During the course of 2018, the Central
Bank issued several regulations related to the Brazilian payments market, aiming to increase the use of electronic payments, increase
competitiveness in the sector, strengthen governance and risk management practices in the industry, encourage the development of
new solutions and the differentiation of products to consumers, and promote the increased use of electronic payment means. Such
measures include the following recently enacted Central Bank regulations: (i) Circular 3,886/18, which defines and classifies
sub-acquirers and determines conditions that require sub-acquirers to use centralized settlement via the Brazilian Interbank Payments
Clearinghouse (CIP) system; (ii) Circular 3,887/18, which establishes that interchange fees on debit cards will be subject
to a cap of up to 0.8% on debit transactions, and that debit card issuers must maintain a maximum average interchange fee of 0.5%
on their total transaction volume, with each cap effective October 2018; and (iii) Circular 3,925/18, which, among other matters,
determined that payment scheme settlors may establish obligations for the monitoring, by the acquirers, of the compliance by the
PSP with the rules of the payment scheme.



Furthermore, CMN’s Resolution 4,707,
Circulars 3,924, 3,926 and 3,928 and Circular-Letter 3,934, which established additional requirements and procedures applicable
to credit transactions with merchants guaranteed by card receivables. These recent regulations aim to promote transparency in credit
transactions, a broader credit offer and a reduction in the banking spread. These rules have been issued as a model for transition
to a more robust legal framework for transactions with credit card receivables in connection with Central Bank Public Hearing 68,
issued in 2018. The implementation of the new rules will require operational and technological changes, which could be costly and
time consuming. There can be no assurance that we will be able to comply with the recent regulations within the timeframe imposed
by the rules that we will be able to fully comply with such recent regulations after they are in effect nor assure full compliance
by the PSP that use our acquiring services as required by the regulation. There can be no assurance that there will be no impact
to the working capital, banking or future credit solutions we currently offer merchants. If we fail to comply with applicable requirements
of the current or future Brazilian legal or regulatory framework, we could be required to (i) pay substantial fines (including
fines per transaction) and disgorgement of our profits, or (ii) change our business practices. We could also be subject to private
lawsuits. Any of these consequences could materially adversely affect our business and results of operations.



In addition to such recently enacted regulations, there
are legislative and regulatory initiatives currently being discussed by the Brazilian Congress, Central Bank and the broader
payments industry which may modify the regulatory framework of the Brazilian payments and financial industries. For instance,
there has been discussion in the Brazilian Congress about the payment cycle currently in place in the Brazilian
payments market. See “Item 4. Information on the Company—B. Business Overview—Our Solutions—More
Information on Working Capital Solutions” for a discussion of the current Brazilian payment cycle. The Central Bank
has recently issued a letter in response to a report issued by the Brazilian Congress regarding the payment cycle currently in
place in the Brazilian payments market, which presents a technical study of the impact of changes to the Brazilian payment cycle
and confirms the Central Bank’s decision to promote a gradual and planned shortening of the existing payment cycles. Should
these discussions lead the Central Bank, as the competent authority over the market, to implement regulatory initiatives
to reduce existing payment cycles, this could adversely affect prepayment services relating to credit card
installment receivables that are commonly used by merchants in Brazil. Any reduction in payment cycles could significantly negatively
impact our working capital solutions business, which could adversely affect our business, revenues and financial condition.



These discussions are in various phases
of development, whether as part of legislative, regulatory or private initiatives in the industry and the overall impact of any
such reform proposals is difficult to estimate. Any such changes in laws, regulations or market practices have the potential to
alter the type or volume of the card-based transactions we process and our payment services and could adversely affect
our business, revenues and financial condition.



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We are subject to
costs and risks associated with increased or changing laws and regulations affecting our business, including those relating to
the sale of consumer products. Specifically, developments in data protection and privacy laws could harm our business, financial
condition or results or operations.



We operate in a complex regulatory and
legal environment that exposes us to compliance and litigation risks that could materially affect our results of operations. These
laws may change, sometimes significantly, as a result of political, economic or social events. Some of the federal, state or local
laws and regulations in Brazil that affect us include: those relating to consumer products, product liability or consumer protection;
those relating to the manner in which we advertise, market or sell products; labor and employment laws, including wage and hour
laws; tax laws or interpretations thereof; bank secrecy laws, data protection and privacy laws and regulations; and securities
and exchange laws and regulations. For instance, data protection and privacy laws are developing to take into account the changes
in cultural and consumer attitudes towards the protection of personal data. There can be no guarantee that we will have sufficient
financial resources to comply with any new regulations or successfully compete in the context of a shifting regulatory environment.



On August 14, 2018, the President of Brazil
approved Law No. 13,709/2018 (Lei Geral de Proteção de Dados), or the LGPD, a comprehensive data protection
law establishing general principles and obligations that apply across multiple economic sectors and contractual relationships.
The LGPD establishes detailed rules for the collection, use, processing and storage of personal data and will affect all economic
sectors, including the relationship between customers and suppliers of goods and services, employees and employers and other relationships
in which personal data is collected, whether in a digital or physical environment. Moreover, on December 28, 2018, the President
enacted Provisional Measure No. 869 of 2018, which amended certain provisions of the LGPD and created the National Data Protection
Authority (Autoridade Nacional de Proteção de Dadosor “ANPD”). The ANPD will be an administrative
body, connected to the Cabinet of the Presidency, with technical autonomy, but no financial and budgetary autonomy. The ANPD is
expected to have the following responsibilities, among others: (i) enact rules and regulations relating to data protection; (ii)
analyze and interpret, in the administrative sphere, matters relating to the LGPD; (iii) request access to information from data
controllers and processors; (iv) supervise processing activities and impose sanctions; and (v) promote cooperation with international
and transnational data protection authorities. The Provisional Measure No. 869 of 2018 also extended the original term of 18 months
for companies to become compliant with the LGPD to 24 months from the date of publication of the law. The LGPD will become effective
in August 2020 by which date all legal entities will be required to adapt their data processing activities to these new rules.
Any additional privacy laws or regulations enacted or approved in Brazil or in other jurisdictions in which we operate could seriously
harm our business, financial condition or results of operations. On August 16, 2018, the Central Bank approved Circular 3,909,
which establishes requirements for the engaging of data processing, storage and cloud computing services by payment institutions
authorized to operate by the Central Bank and determines the mandatory implementation of a cybersecurity policy. In this regard,
Circular 3,909 requires payment institutions to draw up an internal cybersecurity policy and to include specific mandatory clauses
in contracts regarding data processing, storage and cloud computing services. Circular 3,909 will become effective on September
1, 2019. All payment institutions will be required to adapt their activities and agreements to these new rules in accordance with
the timeline for adequacy established by Circular 3,909.



In particular, as we seek to build a trusted
and secure platform for commerce, and as we expand our network of sellers and buyers and facilitate their transactions and interactions
with one another, we will increasingly be subject to laws and regulations relating to the collection, use, retention, security,
and transfer of information, including the personally identifiable information of our employees and our merchants and their customers.
As with the other laws and regulations noted above, these laws and regulations may be interpreted and applied differently over
time and from jurisdiction to jurisdiction, and it is possible they will be interpreted and applied in ways that will materially
and adversely affect our business. Any failure, real or perceived, by us to comply with our posted privacy policies or with any
regulatory requirements or orders or other local, state, federal, or international privacy or consumer protection-related laws
and regulations could cause sellers or their customers to reduce their use of our products and services and could materially and
adversely affect our business.



Our business is
subject to complex and evolving regulations and oversight related to our provision of payments services and other financial services.



The laws, rules, and regulations that govern
our business include or may in the future include those relating to banking, deposit-taking, cross-border and domestic money transmission,
foreign exchange, payments services (such as payment processing and settlement services), consumer financial protection, anti-money
laundering and terrorist



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financing, escheatment, and compliance with the Payment Card
Industry Data Security Standard, a set of requirements designed to ensure that all companies that process, store, or transmit payment
card information maintain a secure environment to protect cardholder data. These laws, rules, and regulations are enforced by multiple
authorities and governing bodies in Brazil, including the Central Bank and the National Monetary Council. In addition, as our business
continues to develop and expand, we may become subject to additional rules and regulations, which may limit or change how we conduct
our business.



For example, although we do not engage
in financial services activities in the United States, we maintain bank accounts in the United States for the international settlement
agent for the payment scheme settlors, such as Visa and Mastercard. We are or may be subject to anti-money laundering and terrorist
financing laws and regulations that prohibit, among other things, involvement in transferring the proceeds of criminal or terrorist
activities. We could be subject to liability and forced to change our business practices if we were found to be subject to, or
in violation of, any laws or regulations governing the ability to maintain a bank account in the countries where we operate, including
the United States, or if existing or new legislation or regulations applicable to banks in the countries where we maintain a bank
account, including the United States, were to result in banks in those countries being unwilling or unable to establish and maintain
bank accounts in our name.



We believe that our activities in the United
States, including maintaining bank accounts in connection with payment scheme settlements do not require a license from federal
or state banking authorities to conduct financial services activities in the United States. If we are found to have engaged in
a banking or financial services business requiring a license, we could be subject to liability, or forced to cease doing such business,
change our business practices, or become a regulated financial entity subject to compliance with applicable laws and regulations,
including anti-money laundering and terrorist financing laws and regulations, which could adversely affect our business, financial
condition, or results of operations.



Although we have a compliance program focused
on applicable laws, rules, and regulations (which currently is principally focused on Brazilian law) and are continually investing
in this program, we may still be subject to fines or other penalties in one or more jurisdictions levied by federal, state or local
regulators, as well as those levied by foreign regulators. In addition to fines, penalties for failing to comply with applicable
rules and regulations could include significant criminal and civil lawsuits, forfeiture of significant assets, or other enforcement
actions, including loss of licensure in a given jurisdiction. We could also be required to make changes to our business practices
or compliance programs as a result of regulatory scrutiny. In addition, any perceived or actual breach of compliance by us with
respect to applicable laws, rules, and regulations could have a significant impact on our reputation as a trusted brand and could
cause us to lose existing clients, prevent us from obtaining new clients, require us to expend significant funds to remedy problems
caused by breaches and to avert further breaches, and expose us to legal risk and potential liability.



We are subject to
regulatory activity and antitrust litigation under competition laws.



We are subject to scrutiny from governmental
agencies under competition laws in countries in which we operate. Some jurisdictions also provide private rights of action
for competitors or consumers to assert claims of anticompetitive conduct. Other companies or governmental agencies may allege
that our actions violate antitrust or competition laws, or otherwise constitute unfair competition. Contractual agreements
with buyers, sellers, or other companies could give rise to regulatory action or antitrust investigations or litigation. Also,
our unilateral business practices could give rise to regulatory action or antitrust investigations or litigation. Some regulators
may perceive our business to have such significant market power that otherwise uncontroversial business practices could be deemed
anticompetitive. Any such claims and investigations, even if they are unfounded, may be expensive to defend, involve negative
publicity and substantial diversion of management time and effort, and could result in significant judgments against us.



Changes in tax laws,
tax incentives, benefits or differing interpretations of tax laws may adversely affect our results of operations.



Changes in tax laws, regulations, related
interpretations and tax accounting standards in Brazil, the Cayman Islands or the United States may result in a higher tax rate
on our earnings and revenues, which may significantly reduce our profits and cash flows from operations. For example, in 2015 the
Brazilian government increased the rate of PIS/COFINS tax (which is a tax levied on revenues) from 0% to approximately 4% on financial
income realized by Brazilian companies that are taxed under the non-cumulative regime (which is the tax regime that applies to
us).



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In addition, our results of operations and financial condition
may decline if certain tax incentives are not retained or renewed. For example, Brazilian Law No. 11,196 currently grants
tax benefits to companies that invest in research and development, provided that some requirements are met, which significantly
reduces our annual income tax expense. If the taxes applicable to our business increase or any tax benefits are revoked and we
cannot alter our cost structure to pass our tax increases on to clients, our financial condition, results of operations and cash
flows could be seriously harmed. Our payment processing activities are also subject to a Municipal Tax on Services (Imposto
Sobre Serviços, or ISS). Any increases in ISS rates would also harm our profitability.



In addition, Brazilian government authorities
at the federal, state and local levels are considering changes in tax laws in order to cover budgetary shortfalls resulting from
the recent economic downturn in Brazil. If these proposals are enacted they may harm our profitability by increasing our tax burden,
increasing our tax compliance costs, or otherwise affecting our financial condition, results of operations and cash flows. Tax
rules in Brazil, particularly at local level, can change without notice. We may not always be aware of all such changes that affect
our business and we may therefore fail to pay the applicable taxes or otherwise comply with tax regulations, which may result in
additional tax assessments and penalties for our company.



At the municipal level, the Brazilian government
enacted Supplementary Law No. 157/16, which imposed changes regarding the tax collection applied to the rendering of our services.
These changes created new obligations, since taxes will now be due in the municipality in which the acquirer of our services is
located rather than in the municipality in which the service provider’s facilities are located. This obligation took force
in January 2018, but has been delayed by Direct Unconstitutionality Action No. 5835, or ADI, filed by taxpayers. The ADI challenges
Supplementary Law No. 157/16’s constitutionality before the Supreme Court, arguing that the new legislation would adversely
affect companies’ activities due to the increase of costs and bureaucracy related to the ISS payment to several Municipalities
and the compliance with tax reporting obligations connected therewith. As a result, the Supreme Court granted an injunction to
suspend Supplementary Law No. 157/16’s enforcement. A final decision on this matter is currently pending.



Furthermore, we are subject to tax laws
and regulations that may be interpreted differently by tax authorities and us. The application of indirect taxes, such as sales
and use tax, value-added tax, or VAT, provincial taxes, goods and services tax, business tax and gross receipt tax, to businesses
like ours is a complex and evolving issue. Significant judgment is required to evaluate applicable tax obligations. In many cases,
the ultimate tax determination is uncertain because it is not clear how existing statutes apply to our business. One or more states,
or Municipalities, the federal government or other countries may seek to challenge the taxation or procedures applied to our transactions
imposing the charge of taxes or additional reporting, record-keeping or indirect tax collection obligations on businesses like
ours. New taxes could also require us to incur substantial costs to capture data and collect and remit taxes. If such obligations
were imposed, the additional costs associated with tax collection, remittance and audit requirements could have a material adverse
effect on our business and financial results.



The costs and effects
of pending and future litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially
affect our business, financial position and results of operations.



We are, and may be in the future, party
to legal, arbitration and administrative investigations, inspections and proceedings arising in the ordinary course of our business
or from extraordinary corporate, tax or regulatory events, involving our clients, suppliers, customers, as well as competition,
government agencies, tax and environmental authorities, particularly with respect to civil, tax and labor claims. Our indemnities
may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome,
may harm our reputation. Furthermore, there is no guarantee that we will be successful in defending ourselves in pending or future
litigation or similar matters under various laws. Should the ultimate judgments or settlements in any pending litigation or future
litigation or investigation significantly exceed our indemnity rights, they could have a material adverse effect on our business,
financial condition and results of operations and the price of our Class A common shares. Further, even if we adequately address
issues raised by an inspection conducted by an agency or successfully defend our case in an administrative proceeding or court
action, we may have to set aside significant financial and management resources to settle issues raised by such proceedings or
to those lawsuits or claims, which could adversely affect our business. See “Item 8. Financial Information—A. Consolidated
statements and other financial information—Legal proceedings.”



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We may not be able
to successfully manage our intellectual property and may be subject to infringement claims.



We rely on a combination of contractual
rights, trademarks and trade secrets to establish and protect our proprietary rights, including technology. Third parties may challenge,
invalidate, circumvent, infringe or misappropriate our intellectual property, or such intellectual property may not be sufficient
to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly
redesign efforts, discontinuance of certain service offerings or other competitive harm. Others, including our competitors, may
independently develop similar technology, duplicate our services or design around our intellectual property, and in such cases,
we could not assert our intellectual property rights against such parties. Further, our contractual arrangements may not effectively
prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our
confidential information. We may have to litigate to enforce or determine the scope and enforceability of our intellectual property
rights, trade secrets and know-how, which is expensive, could cause a diversion of resources and may not prove successful. Also,
because of the rapid pace of technological change in our industry, aspects of our business and our services rely on technologies
developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these
third parties on reasonable terms or at all. The loss of intellectual property protection, the inability to obtain third-party
intellectual property or delay or refusal by relevant regulatory authorities to approve pending intellectual property registration
applications could harm our business and ability to compete.



We may also be subject to costly litigation
in the event our services and technology infringe upon or otherwise violate a third party’s proprietary rights. Third parties
may have, or may eventually be issued, patents that could be infringed by our proprietary rights. Any of these third parties could
make a claim of infringement against us with respect to our proprietary rights. We may also be subject to claims by third parties
for breach of copyright, trademark, license usage or other intellectual property rights. Any claim from third parties may result
in a limitation on our ability to use the intellectual property subject to these claims or could prevent us from registering our
brands as trademarks. Additionally, in recent years, individuals and groups have been purchasing intellectual property assets for
the sole purpose of making claims of infringement and attempting to extract settlements from companies like ours. Even if we believe
that intellectual property related claims are without merit, defending against such claims is time-consuming and expensive and
could result in the diversion of the time and attention of our management and employees. Claims of intellectual property infringement
also might require us to redesign affected services, enter into costly settlement or license agreements, pay costly damage awards,
change our brands, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our services
or using certain of our brands. Even if we have an agreement for indemnification against such costs, the indemnifying party, if
any in such circumstances, may be unable to uphold its contractual obligations. If we cannot or do not license the infringed technology
on reasonable terms or substitute similar technology from another source, our revenue and earnings could be adversely impacted.



We rely upon third-party
data center service providers to host certain aspects of our platform. Any disruption to, or interference with, our use of such
services, could impair our ability to deliver our platform, resulting in customer dissatisfaction, damaging our reputation and
harming our business.



We utilize data center hosting facilities
from third-party service providers to make certain products and services available on our platform. Our primary data centers are
in Rio de Janeiro and São Paulo in Brazil, and in Charlotte, North Carolina, Chicago, Illinois and Atlanta, Georgia
in the United States. Our operations depend, in part, on our providers’ ability to protect their facilities against damage
or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. The occurrence
of spikes in user volume, traffic, natural disasters, acts of terrorism, vandalism or sabotage, or a decision to close a facility
without adequate notice, or other unanticipated problems at our providers’ facilities could result in lengthy interruptions
in the availability of our platform, which would adversely affect our business.



Our use of open
source software could negatively affect our ability to sell our solutions and subject us to possible litigation.



Our solutions incorporate and are dependent
to some extent on the use and development of open source software and we intend to continue our use and development of open source
software in the future. Such open source software is generally licensed by its authors or other third parties under open source
licenses and is typically freely accessible, usable and modifiable. Pursuant to such open source licenses, we may be subject to
certain



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conditions, including requirements that we offer our proprietary
software that incorporates the open source software for no cost, that we make available source code for modifications or derivative
works we create based upon, incorporating or using the open source software and that we license such modifications or derivative
works under the terms of the particular open source license. If an author or other third party that uses or distributes such open
source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required
to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from
the sale of our solutions that contained or are dependent upon the open source software and required to comply with the foregoing
conditions, which could disrupt the distribution and sale of some of our solutions. Litigation could be costly for us to defend,
have a negative effect on our operating results and financial condition or require us to devote additional research and development
resources to change our platform. The terms of many open source licenses to which we are subject have not been interpreted by courts.
As there is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses, the potential
impact of these terms on our business is uncertain and may result in unanticipated obligations regarding our solutions and technologies.



Any requirement to disclose our proprietary
source code, termination of open source license rights or payments of damages for breach of contract could be harmful to our business,
results of operations or financial condition, and could help our competitors develop products and services that are similar to
or better than ours.



In addition to risks related to license
requirements, use of open source software can lead to greater risks than use of third-party commercial software, as open source
licensors generally do not provide warranties, controls on the origin or development of the software, or remedies against the licensors.
Many of the risks associated with usage of open source software cannot be eliminated and could adversely affect our business.



Although we believe that we have complied
with our obligations under the various applicable licenses for open source software, it is possible that we may not be aware of
all instances where open source software has been incorporated into our proprietary software or used in connection with our solutions
or our corresponding obligations under open source licenses. We do not have open source software usage policies or monitoring procedures
in place. We rely on multiple software programmers to design our proprietary software and we cannot be certain that our programmers
have not incorporated open source software into our proprietary software that we intend to maintain as confidential or that they
will not do so in the future. To the extent that we are required to disclose the source code of certain of our proprietary software
developments to third parties, including our competitors, in order to comply with applicable open source license terms, such disclosure
could harm our intellectual property position, competitive advantage, results of operations and financial condition. In addition,
to the extent that we have failed to comply with our obligations under particular licenses for open source software, we may lose
the right to continue to use and exploit such open source software in connection with our operations and solutions, which could
disrupt and adversely affect our business.



If we lose key personnel
our business, financial condition and results of operations may be adversely affected.



We are dependent upon the ability and experience
of a number of key personnel who have substantial experience with our operations, the rapidly changing payment processing industry
and the markets in which we offer our services. Many of our key personnel have worked for us for a significant amount of time or
were recruited by us specifically due to their industry experience. It is possible that the loss of the services of one or a combination
of our senior executives or key managers, including our chief executive officer, could have a material adverse effect on our business,
financial condition and results of operations.



In a dynamic industry
like ours, the ability to attract, recruit, develop and retain qualified employees is critical to our success and growth. If we
are not able to do so, our business and prospects may be materially and adversely affected.



Our business functions at the intersection
of rapidly changing technological, social, economic and regulatory developments that require a wide-ranging set of expertise and
intellectual capital. In order for us to successfully compete and grow, we must attract, recruit, develop and retain the necessary
personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs. While we have a number
of our key personnel who have substantial experience with our operations, we must also develop our personnel to provide succession
plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. However, the market for
qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may



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fail to effectively replace current personnel who depart with
qualified or effective successors. For instance, our Stone Missionaries are highly trained and, accordingly, we may face
challenges in recruiting and retaining such qualified personnel. We must continue to hire additional personnel to execute our strategic
plans. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect
our profitability. We cannot assure that qualified employees will continue to be employed or that we will be able to attract and
retain qualified personnel in the future. Failure to retain or attract key personnel could have a material adverse effect on our
business, financial condition and results of operations.



Our operations may
be adversely affected by a failure to timely obtain or renew any licenses required to operate our hubs.



The operation of our hubs and other properties
we occupy or may come to occupy are subject to certain license and certification requirements under applicable law, including operation
and use licenses (alvará de licença de uso e funcionamento) from the municipalities in which we operate and
certificates of inspection from applicable local fire departments. Our operations may be adversely affected by a failure to timely
obtain or renew any licenses required to operate our hubs. We have not yet obtained licenses for the majority of our hubs, and
we cannot assure you that we will be able to obtain the licenses for which we have applied in a timely manner, as applicable. In
addition, we cannot assure you that we will obtain such licenses in a timely manner for the opening of new hubs.



If we are unable to renew or obtain such
licenses, we may be subject to certain penalties, which include the imposition of fines and the suspension or termination of our
operations at the respective hub. The imposition of such penalties, or, in extreme scenarios, the sealing off of the premises by
relevant public authorities pending compliance with all the requirements demanded by the municipalities and fire departments, may
adversely affect our operations and our ability to generate revenues at the relevant location.



Our operating results
are subject to seasonal fluctuations, which could result in variations in our quarterly profit.



We have experienced in the past, and expect
to continue to experience, seasonal fluctuations in our revenues as a result of consumer spending patterns. Historically, our revenues
have been strongest during the last quarter of the year as a result of higher sales during the Brazilian holiday season. This is
due to the increase in the number and amount of electronic payment transactions related to seasonal retail events. Adverse events
that occur during these months could have a disproportionate effect on our results of operations for the entire fiscal year. As
a result of quarterly fluctuations caused by these and other factors, comparisons of our operating results across different fiscal
quarters may not be accurate indicators of our future performance.



Potential clients
may be reluctant to switch to a new vendor, which may adversely affect our growth.



Many potential clients worry about disadvantages
associated with switching payment processing vendors, such as a loss of accustomed functionality, increased costs and business
disruption. For potential clients, switching from one vendor of core processing or related software and services (or from an internally-developed
system) to a new vendor is a significant undertaking. As a result, potential clients often resist changing vendors. We seek to
overcome this resistance through strategies such as making investments to enhance the functionality of our software. However, there
can be no assurance that our strategies for overcoming potential clients’ reluctance to change vendors will be successful,
and this resistance may adversely affect our growth.



We are dependent
on a single manufacturer for a substantial amount of our POS devices. We are at risk of shortage, price increases, changes, delay
or discontinuation of key components from our POS device manufacturers, which could disrupt and harm our business.



We currently are dependent on PAX BR
Comércio e Serviços de Equipamentos de Informática Ltda., or PAX, to manufacture and assemble a substantial
amount of our POS devices. We are constrained by its manufacturing capabilities and pricing, and may face production delays or
escalating costs if it is unable to manufacture a sufficient quantity of product at an affordable cost. Further, we could face
production delays if it becomes necessary to replace this existing substantial supplier with one or more alternative suppliers.



We may also be subject to product recalls
or other quality-related actions if such devices, or other products supplied by us, are believed to cause injury or illness, or
if such products are defective or fail to meet our quality control standards or standards established by applicable law. If our
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products failing to meet applicable quality standards, we may
be required to recall those products at substantial cost to us. Recalls and government, customer or consumer concerns about product
safety could harm our reputation, brands and relationships with clients, lead to increased costs, loss of revenues (including revenues
from equipment rentals and/or decreased transaction volumes), and/or loss of merchants, any of which could have a material adverse
effect on our business, results of operations and financial condition.



Additionally, agreements for the components
used to manufacture our POS devices are entered into directly by the manufacturer of our POS devices and we do not have agreements
with these suppliers. Some of the key components used to manufacture our POS devices, such as the chip and pin reader, come from
limited sources of supply. Due to the reliance of our POS manufacturers on these components, we are subject to the risk of shortages
and long lead times in the supply of certain products. If our manufacturers cannot find alternative sources of supply, we could
be subject to components shortages or delays or other problems in product assembly. In addition, various sources of supply-chain
risk, including strikes or shutdowns, or loss of or damage to our products while they are in transit or storage, could limit the
supply of our POS devices. Any interruption or delay in component supply, any increases in component costs, the inability of our
manufacturers to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of
time, and/or difficulties in fulfilling obligations in connection with the warranties we provide for our POS devices, would harm
our ability to provide our POS devices or other services to our merchants on a timely basis. This could damage our relationships
with our clients, prevent us from acquiring new clients, and seriously harm our business.



We are subject to
anti-corruption, anti-bribery and anti-money laundering laws and regulations.



We operate in jurisdictions that have a
high risk for corruption and we are subject to anti-corruption, anti-bribery and anti-money laundering laws and regulations, including
the Brazilian Federal Law No. 12,846/2013, or the Clean Company Act, and the United States Foreign Corrupt Practices Act of
1977, as amended, or the FCPA. Both the Clean Company Act and the FCPA impose liability against companies who engage in bribery
of government officials, either directly or through intermediaries. We have a compliance program that is designed to manage the
risks of doing business in light of these new and existing legal and regulatory requirements. Violations of the anti-corruption,
anti-bribery and anti-money laundering laws and regulations could result in criminal liability, administrative and civil lawsuits,
significant fines and penalties, forfeiture of significant assets, as well as reputational harm.



Regulators may increase enforcement of
these obligations, which may require us to make adjustments to our compliance program, including the procedures we use to verify
the identity of our customers and to monitor our transactions. Regulators regularly reexamine the transaction volume thresholds
at which we must obtain and keep applicable records or verify identities of customers and any change in such thresholds could result
in greater costs for compliance. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations
on our ability to grow could harm our business, and any new requirements or changes to existing requirements could impose significant
costs, result in delays to planned product improvements, make it more difficult for new customers to join our network and reduce
the attractiveness of our products and services.



Our business could
be harmed if we are unable to accurately forecast demand for our products and services and to adequately manage our product inventory.



We invest broadly in our business, and
such investments are driven by our expectations of the future success of a product or services. Our products, such as our POS devices,
often require investments with long lead times. In addition, we invest in new Stone Hubs based on our expectation of future demand
for our services from the relevant location. An inability to correctly forecast the success of a particular product or services
could harm our business. We must forecast inventory and capital needs and expenses, hire employees and place orders sufficiently
in advance with our third-party suppliers and contract manufacturers based on our estimates of future demand for particular products
or services. Our ability to accurately forecast demand for our products or services could be affected by many factors, including
an increase or decrease in demand for our or our competitors’ products or services, unanticipated changes in general market
conditions, and the change in economic conditions.



We may not be able
to secure financing on favorable terms, or at all, to meet our future capital needs.



We have funded our operations since inception
primarily through equity financings, bank credit facilities, and financing arrangements, including through FIDCs, which are Brazilian
investment funds established to purchase and



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hold receivables. We do not know when or if our operations will
generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital to respond to business
opportunities, refinancing needs, challenges, acquisitions, or unforeseen circumstances and may decide to engage in equity or debt
financings or enter into credit facilities for other reasons, and we may not be able to secure any such additional debt or equity
financing or refinancing on favorable terms, in a timely manner, or at all. Any debt financing obtained by us in the future could
also include restrictive covenants relating to our capital-raising activities and other financial and operational matters, which
may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
Our credit facilities contain restrictive covenants, including customary limitations on the incurrence of certain indebtedness
and liens. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants
could result in a default under our credit facilities and any future financing agreements into which we may enter. If not waived,
defaults could cause our outstanding indebtedness under our credit facilities and any future financing agreements that we may enter
into under these terms to become immediately due and payable. If we are unable to obtain adequate financing or financing on terms
satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges
could be significantly limited. See “Item 5. Operating and Financial Review and Prospects.”



Requirements associated
with being a public company in the United States will require significant company resources and management attention.



We are subject to certain reporting requirements
of the Securities Exchange Act of 1934, or the Exchange Act, and the other rules and regulations of the SEC and Nasdaq. We are
also subject to various other regulatory requirements, including the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. We
expect these rules and regulations to increase our legal, accounting and financial compliance costs and to make some activities
more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive
for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage
or incur substantial costs to maintain the same or similar coverage. New rules and regulations relating to information disclosure,
financial reporting and controls and corporate governance, which could be adopted by the SEC, Nasdaq or other regulatory bodies
or exchange entities from time to time, could result in a significant increase in legal, accounting and other compliance costs
and make certain corporate activities more time-consuming and costly, which could materially affect our business, financial condition
and results of operations. These rules and regulations may also make it more difficult for us to attract and retain qualified persons
to serve on our board of directors or as executive officers.



These new obligations will also require
substantial attention from our senior management and could divert their attention away from the day-to-day management of our business.
Given that most of the individuals who now constitute our management team have limited experience managing a publicly traded company
and complying with the increasingly complex laws pertaining to public companies, initially, these new obligations could demand
even greater attention. These cost increases and the diversion of management’s attention could materially and adversely affect
our business, financial condition and operation results.



Our balance sheet
includes significant amounts of intangible assets. The impairment of a significant portion of these assets would negatively affect
our business, financial condition and results of operations.



As of December 31, 2018, our balance sheet
includes intangible assets that amount to R$307.7 million. These assets consist primarily of identified intangible assets associated
with our acquisitions. We also expect to engage in additional acquisitions, which may result in our recognition of additional intangible
assets. Under current accounting standards, we are required to amortize certain intangible assets over the useful life of the asset,
while certain other intangible assets are not amortized. On at least an annual basis, we assess whether there have been impairments
in the carrying value of certain intangible assets. If the carrying value of the asset is determined to be impaired, then it is
written down to fair value by a charge to operating earnings. An impairment of a significant portion of intangible assets could
have a material adverse effect on our business, financial condition and results of operations.



Our holding company
structure makes us dependent on the operations of our subsidiaries.



We are a Cayman Islands exempted company
with limited liability. Our material assets are our direct and indirect equity interests in our subsidiaries. We are, therefore,
dependent upon payments, dividends and distributions from our subsidiaries for funds to pay our holding company’s operating
and other expenses and to pay future cash dividends or distributions, if any, to holders of our Class A common shares, and
we may have tax costs in



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connection with any dividend or distribution. Furthermore, exchange
rate fluctuation will affect the U.S. dollar value of any distributions our subsidiaries make with respect to our equity interests
in those subsidiaries. See “—Risks Relating to Brazil—Exchange rate instability may have adverse effects on the
Brazilian economy, us and the price of our Class A common shares,” “Political instability and economic uncertainty
in Brazil, including in relation to country-wide corruption probes, may adversely affect the price of our Class A common shares
and our business, operations and financial condition and ” and “Item 8. Financial Information—A. Consolidated
statements and other financial information—Dividends and dividend policy.”



We are subject to
the risks associated with less than full control rights of some of our subsidiaries and investors.



We own less than 100% of the equity interests
or assets of some of our subsidiaries and investors and do not hold controlling interests in some of the entities in which we have
invested. As a result, we do not receive the full amount of any profit or cash flow from these non-wholly owned entities and those
who hold a controlling interest may be able to take actions that bind us. We may be adversely affected by this lack of full control
and we cannot provide assurance that management of our subsidiaries or other entities will possess the skills, qualifications or
abilities necessary to profitably operate such businesses.



An occurrence of
a natural disaster, widespread health epidemic or other outbreaks could have a material adverse effect on our business, financial
condition and results of operations.



Our business could be materially and adversely
affected by natural disasters, such as fires or floods, the outbreak of a widespread health epidemic, or other events, such as
wars, acts of terrorism, environmental accidents, power shortages or communication interruptions. The occurrence of a disaster
or similar event could materially disrupt our business and operations. These events could also cause us to close our operating
facilities temporarily, which would severely disrupt our operations and have a material adverse effect on our business, financial
condition and results of operations. In addition, our net sales could be materially reduced to the extent that a natural disaster,
health epidemic or other major event harms the economy of the countries where we operate. Our operations could also be severely
disrupted if our clients, merchants or other participants were affected by natural disasters, health epidemics or other major events.



Risks Relating to Brazil



The Brazilian federal
government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well
as Brazil’s political and economic conditions, could harm us and the price of our Class A common shares.



The Brazilian federal government frequently
exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations.
The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other
measures, increases or decreases in interest rates, changes in fiscal policies, wage and price controls, foreign exchange rate
controls, blocking access to bank accounts, currency devaluations, capital controls and import restrictions. We have no control
over and cannot predict what measures or policies the Brazilian government may take in the future. We and the market price of our
securities may be harmed by changes in Brazilian government policies, as well as general economic factors, including, without limitation:



| | · | growth or downturn of the Brazilian economy;
| | - | --------------------------------------------



| | · | interest rates and monetary policies;
| | - | -------------------------------------



| | · | exchange rates and currency fluctuations;
| | - | -----------------------------------------



| | · | inflation;
| | - | ----------



| | · | liquidity of the domestic capital and lending markets;
| | - | ------------------------------------------------------



| | · | import and export controls;
| | - | ---------------------------



| | · | exchange controls and restrictions on remittances abroad;
| | - | ---------------------------------------------------------



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| | · | modifications to laws and regulations according to political, social and economic interests;
| | - | --------------------------------------------------------------------------------------------



| | · | fiscal policy and changes in tax laws;
| | - | --------------------------------------



| | · | economic, political and social instability;
| | - | -------------------------------------------



| | · | labor and social security regulations;
| | - | --------------------------------------



| | · | energy and water shortages and rationing; and
| | - | ---------------------------------------------



| | · | other political, diplomatic, social and economic developments in or affecting Brazil.
| | - | -------------------------------------------------------------------------------------



Uncertainty over whether the Brazilian
federal government will implement changes in policy or regulation affecting these or other factors in the future may affect economic
performance and contribute to economic uncertainty in Brazil, which may have an adverse effect on us and our Class A common
shares. We cannot predict what measures the Brazilian federal government will take in the face of mounting macroeconomic pressures
or otherwise. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility
in the Brazilian securities markets, which also may adversely affect us and our Class A common shares. See “Item 5.
Operating and Financial Review and Prospects—A. Operating results—Significant Factors Affecting our Results of Operations—Macroeconomic
environment.”



Political instability and economic
uncertainty in Brazil, including in relation to country-wide corruption probes, may adversely affect the price of our Class A common
shares and our business, operations and financial condition.



Brazil’s political environment has
historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected
and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration
and heightened volatility in the securities issued by companies with operations mainly in Brazil.



The recent political instability in Brazil
has contributed to a decline in market confidence in the Brazilian economy. Various ongoing investigations into allegations of
money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigation,
known as “Operação Lava Jato” have negatively impacted the Brazilian economy and political environment.



A number of senior politicians, including
current and former members of Congress and the Executive Branch, and high-ranking executive officers of major corporations and
state-owned companies in Brazil were arrested, convicted of various charges relating to corruption, entered into plea agreements
with federal prosecutors and/or have resigned or been removed from their positions as a result of these Lava Jato investigations.
These individuals are alleged to have accepted bribes by means of kickbacks on contracts granted by the government to several infrastructure,
oil and gas and construction companies. The profits of these kickbacks allegedly financed the political campaigns of political
parties forming the previous government’s coalition that was led by former President Dilma Rousseff, which funds were unaccounted
for or not publicly disclosed. These funds were also allegedly destined toward the personal enrichment of certain individuals.
The effects of Lava Jato as well as other ongoing corruption-related investigations resulted in an adverse impact on the image
and reputation of those companies that have been implicated as well as on the general market perception of the Brazilian economy,
political environment and the Brazilian capital markets. We have no control over, and cannot predict, whether such investigations
or allegations will lead to further political and economic instability or whether new allegations against government officials
will arise in the future.



Amidst this background of recent political
uncertainty, in August 2016, the Brazilian Senate approved the removal from office of Brazil’s then-President, Dilma Rousseff,
following a legal and administrative impeachment process for infringement of budgetary laws. Michel Temer, the former Vice-President,
who assumed the presidency of Brazil following Rousseff’s ouster, is also under investigation on corruption allegations and
was arrested on March 21, 2019. In addition, the former President, Luiz Inacio Lula da Silva, began serving a 12-year prison sentence
on corruption and money laundering charges in April 2018 yet had led for a while the polls as a top contender to win the 2018 presidential
election. On October 28, 2018, Jair Bolsonaro, a former member of the military and three-decade congressman, was elected the president
of Brazil and took office on January 1, 2019.



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During his presidential campaign, Mr. Bolsonaro was reported
to favor the privatization of state-owned companies, economic liberalization, and social security and tax reforms. However, there
is no guarantee that Mr. Bolsonaro will be successful in executing his campaign promises or passing certain favored reforms fully
or at all, particularly when confronting a fractured Congress. In addition, his current minister of the economy, Paulo Guedes,
proposed during the presidential campaign the revocation of income tax exemption on the payment of dividends, which, if enacted,
would increase the tax expenses associated with any dividend or distribution by Brazilian companies, which could impact our capacity
to receive, from our subsidiaries, future cash dividends or distributions net of taxes. Moreover, Mr. Bolsonaro was generally a
polarizing figure during his campaign for presidency, particularly in relation to certain of his behavioral views, and we cannot
predict the ways in which a divided electorate may continue to impact his presidency and ability to implement policies and reforms,
all of which could have a negative impact on our business and the price of our Class A ordinary shares.



It is expected from current Brazilian federal
government to propose the general terms of fiscal reform to stimulate the economy and reduce the forecasted budget deficit for
2019 and following years, but it is uncertain whether the Brazilian government will be able to gather the required support in the
Brazilian Congress to pass additional specific reforms. In February 2019, the Brazilian federal government presented to the Congress
a bill proposing a large and comprehensive change of Brazil’s public social security system. If some or all of these public
expenses are maintained and the required reforms are not passed, Brazil will continue to run a budget deficit for 2019 and the
years going forward. We cannot predict the effects of this budget deficit on the Brazilian economy. We cannot predict which policies
the Brazilian federal government may adopt or change or the effect that any such policies might have on our business and on the
Brazilian economy. Any such new policies or changes to current policies may have a material adverse impact on our business, results
of operations, financial condition and prospects.



In addition, our results of operations
are substantially dependent on the macro-economic conditions in Brazil. The Brazilian economy has experienced a sharp downturn
in recent years due, in part, to the interventionist economic and monetary policies of the previous Brazilian government and the
global drop in commodity prices. GDP growth rates were 1.9%, 3.0% and 0.5% in 2012, 2013 and 2014, respectively, but GDP experienced
a contraction of 3.5% in 2015 and 2016, respectively. For the years ended December 31, 2018 and 2017, GDP grew 1.1% and 1.0%, respectively.
We cannot assure that Brazil’s GDP will increase or stabilize in the future. Future developments in the Brazilian economy
may affect Brazil’s growth rates, employment rates, the availability of credit and average wages in Brazil and, consequently,
the demand for our products and services. As a result, any negative developments on these metrics may adversely affect our business
strategies, results of operations, financial condition and/or the trading price of our Class A common shares.



Inflation and certain
measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets,
and high levels of inflation in the future could harm our business and the price of our Class A common shares.



In the past, Brazil has experienced extremely
high rates of inflation. Inflation and some of the measures taken by the Brazilian government in an attempt to curb inflation have
had significant negative effects on the Brazilian economy generally. Inflation, policies adopted to curb inflationary pressures
and uncertainties regarding possible future government intervention have contributed to economic uncertainty and heightened volatility
in the Brazilian economy and capital markets.



According to the National Consumer Price
Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, which is published by the IBGE, Brazilian
inflation rates were 3.8%, 2.9%, 6.3% and 10.7% in 2018, 2017, 2016 and 2015, respectively. Brazil may experience high levels of
inflation in the future and inflationary pressures may lead to the Brazilian government’s intervening in the economy and
introducing policies that could harm our business and the price of our Class A common shares. In the past, the Brazilian government’s
interventions included the maintenance of a restrictive monetary policy with high interest rates that restricted credit availability
and reduced economic growth, causing volatility in interest rates. For example, the official interest rate in Brazil oscillated
from 14.25% as of December 31, 2015 to 6.50% as of December 31, 2018, as established by the Monetary Policy Committee
(Comitê de Política Monetária do Banco Central do Brasil—COPOM). On February 6, 2019, the Monetary
Policy Committee decided to maintain the SELIC rate to 6.50%. The COPOM reconfirmed the SELIC rate of 6.50% on March 20, 2019.
Conversely, more lenient government and Central Bank policies and interest rate decreases have triggered and may continue to trigger
increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which
could negatively affect us and increase our indebtedness.



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Exchange rate instability
may have adverse effects on the Brazilian economy, us and the price of our Class A common shares.



The Brazilian currency has been
historically volatile and has been devalued frequently over the past three decades. Since 1999, the Central Bank has allowed
the real/U.S. dollar exchange rate to float freely and during this period, the real/U.S. dollar exchange rate
has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies.Throughout
this period, the Brazilian government has implemented various economic plans and used various exchange rate policies,
including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to
monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation
of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over
shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar
and other currencies. The real depreciated against the U.S. dollar by 32.0% at year-end 2015 as compared to year-end
2014, and by 11.8% at year-end 2014 as compared to year-end 2013. The real/U.S. dollar exchange rate reported by the
Central Bank was R$3.9048 per U.S. dollar on December 31, 2015 and R$3.2591 per U.S. dollar on December 31, 2016,
which reflected a 16.5% appreciation in the real against the U.S. dollar during 2016. We cannot predict whether the
Central Bank or the Brazilian government will continue to let the real float freely or intervene in the exchange rate market
by returning to a currency band system or otherwise. The real may depreciate or appreciate substantially against the
U.S. dollar. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of
payments or there are substantial reasons to foresee a serious imbalance, temporary restrictions may be imposed
on remittances of foreign capital abroad. We cannot assure that such measures will not be taken by the Brazilian government
in the future.The real/U.S. dollar exchange rate reported by the Central Bank was R$3.308 per U.S. dollar on
December 31, 2017, which reflected a 1.5% depreciation in the real against the U.S. dollar during 2017 and
R$3.8748 per U.S. dollar on December 31, 2018, which reflected a 17.1% depreciation in the real against the U.S.
dollar during 2018. On April 25, 2019 the exchange rate was R$3.9725 per U.S.$1.00. There can be no assurance that the real
will not again depreciate against the U.S. dollar or other currencies in the future.



A devaluation of the real relative
to the U.S. dollar could create inflationary pressures in Brazil and cause the Brazilian government to, among other measures, increase
interest rates. Any depreciation of the real may generally restrict access to the international capital markets. It would
also reduce the U.S. dollar value of our results of operations. Restrictive macroeconomic policies could reduce the stability of
the Brazilian economy and harm our results of operations and profitability. In addition, domestic and international reactions to
restrictive economic policies could have a negative impact on the Brazilian economy. These policies and any reactions to them may
harm us by curtailing access to foreign financial markets and prompting further government intervention. A devaluation of the real
relative to the U.S. dollar may also, as in the context of the current economic slowdown, decrease consumer spending, increase
deflationary pressures and reduce economic growth.



On the other hand, an appreciation of the
real relative to the U.S. dollar and other foreign currencies may deteriorate the Brazilian foreign exchange current accounts.
We and certain of our suppliers purchase goods and services from countries outside of Brazil, and thus changes in the value of
the U.S. dollar compared to other currencies may affect the costs of goods and services that we purchase. Depending on the circumstances,
either devaluation or appreciation of the real relative to the U.S. dollar and other foreign currencies could restrict the
growth of the Brazilian economy, as well as our business, results of operations and profitability.



Infrastructure and
workforce deficiency in Brazil may impact economic growth and have a material adverse effect on us.



Our performance depends on the overall
health and growth of the Brazilian economy. Brazilian GDP growth has fluctuated over the past few years, with a growth rate of
3.0% in 2013 but decreasing to 0.5% in 2014, a contraction of 3.8% in 2015, a contraction of 3.6% in 2016, a growth of 1.0% in
2017, and a growth of 1.1% in 2018. Growth is limited by inadequate infrastructure, including potential energy shortages and deficient
transportation, logistics and telecommunication sectors, the lack of a qualified labor force, and the lack of private and public
investments in these areas, which limit productivity and efficiency. Any of these factors could lead to labor market volatility
and generally impact income, purchasing power and consumption levels, which could limit growth and ultimately have a material adverse
effect on us.



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Developments and
the perceptions of risks in other countries, including other emerging markets, the United States and Europe, may harm the Brazilian
economy and the price of securities issued by companies operating in Brazil, including the price of our Class A common shares.



The market for securities of companies
operating in Brazil, including us, is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions
in other Latin American and emerging markets, as well as the United States, Europe and other countries and regions. To the extent
the conditions of the global markets or economy deteriorate, the business of companies operating in Brazil may be harmed. The weakness
in the global economy has been marked by, among other adverse factors, lower levels of consumer and corporate confidence, decreased
business investment and consumer spending, increased unemployment, reduced income and asset values in many areas, reduction of
China’s growth rate, currency volatility and limited availability of credit and access to capital. Developments or economic
conditions in other emerging market countries have at times significantly affected the availability of credit to Brazilian companies
and resulted in considerable outflows of funds from Brazil, decreasing the amount of foreign investments in Brazil.



Crises and political instability in other
emerging market countries, the United States, Europe or other countries could decrease investor demand for securities related
to companies operating in Brazil, such as our Class A common shares. In June 2016, the United Kingdom had a referendum in
which the majority voted to leave the European Union. We have no control over and cannot predict the effect of the United Kingdom’s
exit from the European Union nor over whether and to which effect any other member state will decide to exit the European Union
in the future. These developments, as well as potential crises and forms of political instability arising therefrom or any other
as of yet unforeseen development, may harm our business and the price of our Class A common shares.



Any further downgrading
of Brazil’s credit rating could reduce the trading price of our Class A common shares.



We may be harmed by investors’ perceptions
of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign ratings,
which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and
the perspective of changes in any of these factors.



The rating agencies began to review Brazil’s
sovereign credit rating in September 2015. Subsequently, the three major rating agencies downgraded Brazil’s investment-grade
status:



| | · | Standard & Poor’s initially downgraded Brazil’s credit rating from BBB-negative to BB-positive and subsequently
downgraded it again from BB-positive to BB, maintaining its negative outlook, citing a worse credit situation since the first downgrade.
On January 11, 2018, Standard & Poor’s further downgraded Brazil’s credit rating from BB to BB-negative.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In December 2015, Moody’s placed Brazil’s Baa3’s issue and bond ratings under review for downgrade and subsequently
downgraded the issue and bond ratings to below investment grade, at Ba2 with a negative outlook, citing the prospect of a further
deterioration in Brazil’s debt indicators, taking into account the low growth environment and the challenging political scenario.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Fitch downgraded Brazil’s sovereign credit rating to BB-positive with a negative outlook, citing the rapid expansion
of the country’s budget deficit and the worse-than-expected recession. In February 2018, Fitch downgraded Brazil’s
sovereign credit rating again to BB-negative, citing, among other reasons, fiscal deficits, the increasing burden of public debt
and an inability to implement reforms that would structurally improve Brazil’s public finances. Brazil’s sovereign
credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently, the prices of securities
issued by companies with significant Brazilian operations have been negatively affected. A prolongation or worsening of the recent
Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further
downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, cause
the trading price of our Class A common shares to decline.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







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Internet regulation
in Brazil is recent and still limited and several legal issues related to the internet are uncertain.



In 2014, Brazil enacted a law, which we
refer to as the Brazilian Civil Rights Framework for the Internet (Marco Civil da Internet), setting forth principles, guarantees,
rights and duties for the use of the Internet in Brazil, including provisions about internet service provider liability, internet
user privacy and internet neutrality. In May 2016, further regulations were passed in connection with the referred law. The administrative
penalties imposed by the Brazilian Civil Rights Framework for the Internet include notification, fines (up to 10% of the revenues
in Brazil of the relevant entity’s economic group in the preceding fiscal year) and suspension or prohibition from engaging
in data processing activities. The Brazilian Civil Rights Framework for the Internet also determines joint and several liability
between foreign parent companies and local Brazilian subsidiaries for the payment of fines that may be imposed for breach of its
provisions. Administrative penalties may be applied cumulatively. Daily fines may be imposed in judicial proceedings, as a way
to compel compliance with a Brazilian court order. If for any reason a company fails to comply with the court order, the fine can
reach significant amounts. We may be subject to liability under these laws and regulations should we fail to adequately comply
with the Brazilian Civil Rights Framework.



However, unlike in the United States, little
case law exists around the Brazilian Civil Rights Framework for the internet and existing jurisprudence has not been consistent.
Legal uncertainty arising from the limited guidance provided by current laws in force allows for different judges or courts to
decide very similar claims in different ways and establish contradictory jurisprudence. This legal uncertainty allows for rulings
against us and could set adverse precedents, which individually or in the aggregate could seriously harm our business, results
of operations and financial condition. In addition, legal uncertainty may harm our clients’ perception and use of our service.



We may face restrictions
and penalties under the Brazilian Consumer Protection Code in the future.



Brazil has a series of strict consumer
protection statutes, collectively known as the Consumer Protection Code (Código de Defesa do Consumidor), that are
intended to safeguard consumer interests and that apply to all companies in Brazil that supply products or services to Brazilian
consumers. These consumer protection provisions include protection against misleading and deceptive advertising, protection against
coercive or unfair business practices and protection in the formation and interpretation of contracts, usually in the form of civil
liabilities and administrative penalties for violations. These penalties are often levied by the Brazilian Consumer Protection
Agencies (Fundação de Proteção e Defesa do Consumidor,or PROCONs), which oversee consumer issues
on a district-by-district basis. Companies that operate across Brazil may face penalties from multiple PROCONs, as well as the
National Secretariat for Consumers (Secretaria Nacional do Consumidor,or SENACON). Companies may settle claims made by
consumers via PROCONs by paying compensation for violations directly to consumers and through a mechanism that allows them to adjust
their conduct, called a conduct adjustment agreement (Termo de Ajustamento de Condutaor TAC). Brazilian Public Prosecutor
Offices may also commence investigations related to consumer rights violations and this TAC mechanism is also available for them.
Companies that violate TACs face potential automatic fines. Brazilian Public Prosecutor Offices may also file public civil actions
against companies in violation of consumer rights, seeking strict observation of the consumer protection law provisions and compensation
for the damages consumers may have suffered.



As of December 31, 2018, we had approximately
143 active proceedings with PROCONs and small claims courts relating to consumer rights. To the extent consumers file such claims
against us in the future, we may face reduced revenue due to refunds and fines for non-compliance that could negatively impact
our results of operations.



Risks Relating to Our Class A Common Shares



Sales of substantial
amounts of our Class A common shares in the public market, or the perception that these sales may occur, could cause the market
price of our Class A common shares to decline.



Sales of substantial amounts of our Class A
common shares in the public market, or the perception that these sales may occur, could cause the market price of our Class A
common shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities.
Under our Articles of Association, we are authorized to issue up to 630,000,000 shares, of which 277,396,282 common shares are
outstanding as of April 5, 2019, (comprised of 145,167,197 Class A common shares and 132,229,085 Class B common shares). We, the
members of our board of directors and our executive officers, as well as the selling shareholders, have agreed with the underwriters,
subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or



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securities convertible into or exchangeable or exercisable for
any shares of our share capital during the 90-day period following April 5, 2019, the date of our secondary share offering. We
cannot predict the size of future issuances of our shares or the effect, if any, that future sales and issuances of shares would
have on the market price of our Class A common shares.



In addition, we have adopted the 2018 Omnibus
Equity Plan, under which we have the discretion to grant a broad range of equity-based awards to eligible participants. See “Item
6. Directors, Senior Management and Employees—B. Compensation—Long-Term Incentive Plans (LTIP) —2018 Omnibus
Equity Plan.” We have registered on a Form S-8 registration statement all common shares that we may issue under the 2018
Omnibus Equity Plan. As a result, these can be freely sold in the public market upon issuance, subject to volume limitations applicable
to affiliates and the lock-up agreements described in “Item 10. Additional Information—B. Memorandum and articles of
association,” and any other applicable restrictions. Sales of these shares in the public market, or the perception that those
sales may occur, could cause the prevailing market price to decrease or to be lower than it might be in the absence of those sales
or perceptions. Also, if a large number of our Class A common shares or securities convertible into our Class A common shares are
sold in the public market after they become eligible for sale, the sales could reduce the trading price of our Class A common shares
and impede our ability to raise future capital.



Our founder shareholders,
in the aggregate, own less than 1.0% of our outstanding Class A common shares and 58.5% of our outstanding Class B common
shares and control all matters requiring shareholder approval. Our founder shareholders also have the right to nominate a majority
of our board and consent rights over certain corporate transactions. This concentration of ownership limits your ability to influence
corporate matters.



Our founder shareholders own less than
1.0% of our Class A common shares and 58.5% of our Class B common shares, resulting in their ownership of 27.9% of our
outstanding common shares, and, consequently, 52.7% of the combined voting power of our common shares. See “Item 7. Major
Shareholders and Related Party Transactions—A. Major shareholders.”



These entities, to the extent they
act together, control a majority of our voting power and have the ability to control matters affecting, or submitted to a
vote of, our shareholders. As a result, these shareholders may be able to elect the members of our board of directors and set
our management policies and exercise overall control over us. In addition, we have entered into a shareholders agreement with
our founder shareholders pursuant to which we have granted the founder shareholders the right to nominate directors to our
board and committees, rights to information, and rights to approve certain of our corporate actions. See “Item 7. Major
Shareholders and Related Party Transactions—A. Major shareholders—Shareholders Agreement.” The rights
granted pursuant to our shareholders agreement mean that our founder shareholders are able to appoint a majority of our board
despite owning a non-proportionate number of common shares and are able to control any transaction involving a merger or
change of control until they own less than 15% of the total voting power of our common shares. In addition, our Articles of
Association require consent of our founder shareholders before our shareholders are able to take certain actions, including
to amend such document. See “Item 10. Additional Information—B. Memorandum and articles of
association—Share Capital,” and “Item 7. Major Shareholders and Related Party Transactions—A. Major
shareholders” for more information.



The interests of these shareholders may
conflict with, or differ from, the interests of other holders of our shares. For example, our current controlling shareholders
may cause us to make acquisitions that increase the amount of our indebtedness or outstanding shares, sell revenue-generating assets
or inhibit change of control transactions that benefit other shareholders. They may also pursue acquisition opportunities for themselves
that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In addition,
the Central Bank may hold our controlling shareholders jointly liable in connection with any regulatory actions against Stone Pagamentos.
Such potential liability could cause the interests of our controlling shareholders to differ from other holders of our shares.
So long as these shareholders continue to own a substantial number of our common shares, they will significantly influence all
our corporate decisions and together with other shareholders, they may be able to effect or inhibit changes in the control of our
company.



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If securities or
industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our
Class A common shares and our trading volume could decline.



The trading market for our Class A
common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business.
Securities and industry analysts do not currently, and may never, publish research on our company. If no or too few securities
or industry analysts commence coverage of our company, the trading price for our Class A common shares would likely be negatively
affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade
our Class A common shares or publish inaccurate or unfavorable research about our business, the price of our Class A
common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on
us regularly, demand for our Class A common shares could decrease, which might cause the price of our Class A common
shares and trading volume to decline.



We do not anticipate
paying any cash dividends in the foreseeable future.



We currently intend to retain our future
earnings, if any, for the foreseeable future, to fund the operation of our business and future growth. We do not intend to pay
any dividends to holders of our Class A common shares. As a result, capital appreciation in the price of our Class A
common shares, if any, will be your only source of gain on an investment in our Class A common shares.



Our dual-class capital
structure means our shares will not be included in certain indices. We cannot predict the impact this may have on our share price.



In 2017, FTSE Russell, S&P Dow Jones
and MSCI announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices to exclude
companies with multiple classes of shares of common stock from being added to such indices. FTSE Russell announced plans to require
new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders, whereas
S&P Dow Jones announced that companies with multiple share classes, such as ours, will not be eligible for inclusion in the
S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. MSCI also opened public
consultations on their treatment of no-vote and multi-class structures and has temporarily barred new multi-class listings from
its ACWI Investable Market Index and U.S. Investable Market 2500 Index. We cannot assure you that other stock indices will not
take a similar approach to FTSE Russell, S&P Dow Jones and MSCI in the future. Under the announced policies, our dual class
capital structure would make us ineligible for inclusion in any of these indices and, as a result, mutual funds, exchange-traded
funds and other investment vehicles that attempt to passively track these indices will not invest in our stock. These policies
are new and it is unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the
indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included.



The disparity in
the voting rights among the classes of our shares may have a potential adverse effect on the price of our Class A common shares,
and may limit or preclude your ability to influence corporate matters.



Each Class A common share will entitle
its holder to one vote per share on all matters submitted to a vote of our shareholders. Each holder of our Class B common
shares will be entitled to 10 votes per Class B common share so long as the voting power of Class B common shares is
at least 10% of the aggregate voting power of our outstanding common shares on the record date for any general meeting of the shareholders.
The difference in voting rights could adversely affect the value of our Class A common shares by, for example, delaying or
deferring a change of control or if investors view, or any potential future purchaser of our company views, the superior voting
rights of the Class B common shares to have value. Because of the ten-to-one voting ratio between our Class B and Class A
common shares, the holders of our Class B common shares collectively will continue to control a majority of the combined voting
power of our common shares and therefore be able to control all matters submitted to our shareholders so long as the Class B
common shares represent at least 9.1% of all outstanding shares of our Class A and Class B common shares. This concentrated
control will limit or preclude your ability to influence corporate matters for the foreseeable future.



Future transfers by holders of Class B
common shares will generally result in those shares converting to Class A common shares, subject to limited exceptions, such
as certain transfers effected to permitted transferees or for estate planning or charitable purposes. The conversion of Class B
common shares to Class A common shares will have the effect, over time, of increasing the relative voting power of those holders
of Class B common shares who retain their



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shares in the long term. For a description of our dual class
structure, see “Item 10. Additional Information—B. Memorandum and articles of association—Meetings of Shareholders—Voting
Rights and Right to Demand a Poll.”



We are a Cayman
Islands exempted company with limited liability. The rights of our shareholders may be different from the rights of shareholders
governed by the laws of U.S. jurisdictions.



We are a Cayman Islands exempted company
with limited liability. Our corporate affairs are governed by our Articles of Association and by the laws of the Cayman Islands.
The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders
and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, the
board of directors of a solvent Cayman Islands exempted company is required to consider the company’s interests, and the
interests of its shareholders as a whole, which may differ from the interests of one or more of its individual shareholders. See
“Item 10. Additional Information—B. Memorandum and articles of association—Principal Differences between Cayman
Islands Corporate Law and U.S. Corporate Law.”



As a foreign private
issuer and an “emerging growth company” (as defined in the JOBS Act), we will have different disclosure and other requirements
than U.S. domestic registrants and non-emerging growth companies.



As a foreign private issuer and emerging
growth company, we may be subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging
growth companies. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements
as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form
10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to
domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable
to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we rely on exemptions from certain U.S. rules
which permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S.
domestic registrants.



We follow Cayman Islands laws and regulations
that are applicable to Cayman Islands companies. However, Cayman Islands laws and regulations applicable to Cayman Islands companies
do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q
or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred
to above.



Furthermore, foreign private issuers are
required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers
that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year.
Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures
of material information, although we will be subject to Cayman Islands laws and regulations having substantially the same effect
as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the
limited information which we have made or are required to make public pursuant to Cayman Islands law, or are required to distribute
to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required
to be disclosed to shareholders of a U.S. company.



The JOBS Act contains provisions that,
among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company,
we are not subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as
an emerging growth company, we are permitted to take advantage of, certain exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies. Also, we do not have to comply with future audit
rules promulgated by the U.S. Public Company Accounting Oversight Board, or PCAOB (unless the SEC determines otherwise) and our
auditors will not need to attest to our internal controls under Section 404(b) of the Sarbanes-Oxley Act. We may follow these
reporting exemptions until we are no longer an emerging growth company. As a result, our shareholders may not have access to certain
information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the
fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have
total annual revenues of at least US$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which
means the market value of our Class A common shares that is held by non-affiliates exceeds US$700 million as of the prior
June 30th, and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior
three-year period.



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Accordingly, the information about us available to you will
not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company. We
could be an “emerging growth company” for up to five years following our initial public offering, although circumstances
could cause us to lose that status earlier, including if the market value of our Class A common shares held by non-affiliates
exceeds US$700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would
no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). We cannot predict
if investors will find our Class A common shares less attractive because we may rely on these exemptions. If some investors
find our Class A common shares less attractive as a result, there may be a less active trading market for our Class A
common shares and the price of our Class A common shares may be more volatile.



Moreover, we are not required to file periodic
reports and financial statements with the SEC as frequently or within the same time frames as U.S. companies with securities registered
under the Exchange Act. We currently prepare our financial statements in accordance with IFRS. We will not be required to file
financial statements prepared in accordance with or reconciled to U.S. GAAP so long as our financial statements are prepared in
accordance with IFRS as issued by the IASB. We are not required to comply with Regulation FD, which imposes restrictions on the
selective disclosure of material information to shareholders. In addition, our officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and the rules under
the Exchange Act with respect to their purchases and sales of our securities.



We cannot predict if investors will find
our Class A common shares less attractive because we will rely on these exemptions. If some investors find our Class A
common shares less attractive as a result, there may be a less active trading market for our Class A common shares and our
share price may be more volatile. See “Item 10. Additional Information—B. Memorandum and articles of association—Principal
Differences between Cayman Islands and U.S. Corporate Law.”



As a foreign private
issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S.
issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford
less protection to holders of our Class A common shares.



Section 5605 of Nasdaq equity rules requires
listed companies to have, among other things, a majority of their board members be independent, and to have independent director
oversight of executive compensation, the nomination of directors and corporate governance matters. As a foreign private issuer,
however, we are permitted to, and we will follow home-country practice in lieu of the above requirements.



We may lose our
foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and
cause us to incur significant legal, accounting and other expenses.



In order to maintain our current status
as a foreign private issuer, either (a) more than 50% of our outstanding voting securities must be either directly or indirectly
owned of record by non-residents of the United States or (b) (i) a majority of our executive officers or directors may not
be U.S. citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our
business must be administered principally outside the United States. If we lose this status, we would be required to comply with
the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than
the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in
accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required
to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we will
incur as a foreign private issuer.



Our shareholders
may face difficulties in protecting their interests because we are a Cayman Islands exempted company.



Our corporate affairs are governed by our
Articles of Association, by the Companies Law (as amended) of the Cayman Islands, or “Cayman Companies Law,” and the
common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under the
laws of the Cayman Islands are not as clearly defined as under statutes or judicial precedent in existence in jurisdictions in
the United States. Therefore, you may have more difficulty protecting your interests than would shareholders of a corporation incorporated
in a jurisdiction in the United States, due to the comparatively less formal nature of Cayman Islands law in this area.



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While Cayman Islands law allows a dissenting
shareholder to express the shareholder’s view that a court-sanctioned reorganization of a Cayman Islands company would not
provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder
appraisal rights in connection with a merger or consolidation of a company. This may make it more difficult for you to assess the
value of any consideration you may receive in a merger or consolidation or to require that the acquirer gives you additional consideration
if you believe the consideration offered is insufficient. However, Cayman Islands statutory law provides a mechanism for a dissenting
shareholder in a merger or consolidation to apply to the Grand Court of the Cayman Islands, or the “Grand Court” for
a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree
on a fair price within the time limits prescribed.



Shareholders of Cayman Islands exempted
companies (such as us) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies
of lists of shareholders. Our directors have discretion under our Articles of Association to determine whether or not, and under
what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our
shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder
motion or to solicit proxies from other shareholders in connection with a proxy contest.



Under Cayman Islands’ law, a minority
shareholder may bring a derivative action against the board of directors only in very limited circumstances, or seek to wind up
the company on a just and equitable ground. Class actions are not recognized in the Cayman Islands, but groups of shareholders
with identical interests may bring representative proceedings, which are similar.



Under Cayman Islands statutory law, a transferee
to a scheme or contract involving the transfer of shares in a Cayman Islands company, which has been approved by holders of not
less than 90% in value of the shares affected, has the power to compulsorily acquire the shares of any dissenting shareholders.
An objection to such acquisition can be made to the Grand Court by any dissenting shareholder but this is unlikely to succeed in
the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion. A Cayman Islands company
may also propose a compromise or arrangement with its shareholders or any class of them. If a majority in number, representing
at least 75% in value, of shareholders agrees to the compromise or arrangement then, subject to Grand Court approval of the same,
it is binding on all of the shareholders. A shareholder may appear at the Grand Court hearing by which the company seeks the Grand
Court’s approval of the compromise or arrangement to oppose it.



United States civil
liabilities and certain judgments obtained against us by our shareholders may not be enforceable.



We are a Cayman Islands exempted company
and substantially all of our assets are located outside the United States. In addition, the majority of our directors and officers
are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is
located outside the United States. As a result, it may be difficult to effect service of process within the United States upon
these persons. It may also be difficult to enforce in judgments obtained in U.S. courts based on the civil liability provisions
of U.S. federal securities laws against us and our officers and directors who are not resident in the United States.



Further, it is unclear if original actions
predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States,
including in the Cayman Islands and Brazil. Courts of the Cayman Islands may not, in an original action in the Cayman Islands,
recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United
States or any state of the United States on the grounds that such provisions are penal in nature. Although there is no statutory
enforcement in the Cayman Islands of judgments obtained in the United States, courts of the Cayman Islands will recognize and enforce
a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, provided it is not in
respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands’ judgment in respect of the same matters,
and is not impeachable under Cayman Islands law for fraud, being in breach of public policy of the Cayman Islands or being contrary
to natural justice. In addition, a Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere.



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Judgments of Brazilian
courts to enforce our obligations with respect to our Class A common shares may be payable only in reais.



Most of our assets are located in Brazil.
If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our Class A common shares,
we may not be required to discharge our obligations in a currency other than the real. Under Brazilian exchange control
laws, an obligation in Brazil to pay amounts denominated in a currency other than the real may only be satisfied in Brazilian
currency at the exchange rate, as determined by the Central Bank, in effect on the date the judgment is obtained, and such amounts
are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may
not fully compensate non-Brazilian investors for any claim arising out of or related to our obligations under the Class A
common shares.



There could be adverse tax consequences
for our U.S. shareholders if we are a passive foreign investment company.



U.S. shareholders of passive foreign investment
companies are subject to potentially adverse U.S. federal income tax consequences. In general, a non-U.S. corporation is a passive
foreign investment company, or PFIC, for any taxable year in which (i) 75% or more of its gross income consists of passive income;
or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production
of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns, directly or indirectly, at least
25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation
and received directly its proportionate share of the income of the other corporation.  Cash is a passive asset for these purposes.



Based on the expected composition of our
income and assets, including goodwill, we do not believe that we currently are a PFIC However, our PFIC status is a factual determination
that is made on an annual basis. Because our PFIC status for any taxable year will depend on the manner in which we operate our
business, the composition of our income and assets and the value of our assets from time to time, there can be no assurance that
we will not be a PFIC for any taxable year.



If we are a PFIC, U.S. holders would be
subject to certain adverse U.S. federal income tax consequences as discussed under “Item 10. Additional Information–E. Taxation.” Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules.



ITEM 4. INFORMATION ON THE COMPANY



A.       History and
development of the company



We are a leading provider of financial
technology solutions that empower merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online,
and mobile channels in Brazil. We have developed a strong client-centric culture that seeks to delight our clients rather
than simply providing them with a solution or service. To achieve this, we created a proprietary, go-to-market approach
called the Stone Business Model, which enables us to control the client experience and ensure that interactions are
provided by our people or our technology. TheStone Business Model combines our advanced, end-to-end, cloud-based
technology platform; differentiated hyper-local and integrated distribution approach; and white-glove, on-demand customer
service, each of which is described below.



| | (1) | Advanced, End-to-End, Cloud-Based Technology Platform—We designed our cloud-based technology platform to (i) help
our clients connect, get paid and grow their businesses, while meeting the complex and rapidly changing demands of omni-channel
commerce; and (ii) overcome long-standing inefficiencies within the Brazilian payments market. Our platform enables us to develop,
host and deploy our solutions very quickly. We also sell our solutions to integrated partners such as Payment Service Providers,
or PSPs, which are firms that contract with a merchant to provide them with payment acceptance solutions, and marketplaces to empower
merchants to conduct commerce more effectively in Brazil.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Differentiated Hyper-Local and Integrated Distribution—We developed our distribution solution to proactively reach
and serve our clients in a more effective manner. In particular, we developed Stone Hubs, which are local operations close to our
clients that include an integrated team of sales, service, and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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operations support staff to reach
small-and medium-sized businesses or SMBs, locally and efficiently, and to build stronger relationships with them. We also have
a specialized in-house sales team that serves online merchants and digital service providers with dedicated expertise. We also
work with integrated partners, such as ISVs, to embed our solutions into their offerings and enable their merchants to accept payments
seamlessly and easily.



| | (3) | White-Glove, On-Demand Customer Service—We created our on-demand customer service team to support our clients
quickly, conveniently, and with high-quality service designed to strengthen our customer relationships and improve their lifetime
value to us. Our customer service approach combines (i) a Human Connection, through which we seek to address our clients’
service needs in a single phone call using a qualified team of technically trained agents; (ii) Proximity, through our Green
Angels team of local support personnel who can serve our clients in person within minutes or hours, instead of days or weeks; and
(iii) Technology, through a range of self-service tools and proprietary artificial intelligence, or AI, that help our clients
manage their operations more conveniently and enable our agents to proactively address merchant needs, sometimes before they are
even aware of an issue.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Stone Business Model is disruptive
and has enabled us to gain significant traction in only four years since the launch of our service. In 2018, we were the largest
independent merchant acquirer in Brazil and the fourth largest based on total volume in Brazil according to data from public sources.
In 2017, we became the first non-bank entity to obtain authorization from the Central Bank of Brazil to operate as a Merchant Acquirer
Payments Institution. In the same year, we grew our total net revenue and income to R$766.6 million, an increase of 74.3%
from 2016, and in 2018, we increased our total net revenue and income to R$1,579.2 million, an increase of 106.0% from 2017.
We have managed this rapid growth while maintaining high-quality service and obtaining high NPS scores. As of August, 2018, we
had an NPS of 65, the highest NPS among our peers in our key markets in Brazil, according to a study comparing industry participants
performed by the Brazilian Institute of Public Opinion and Statistics, or IBOPE.



We served over 267,000 active clients in
Brazil as of December 31, 2018, including digital and brick-and-mortar merchants of varying sizes and types, although our focus
is primarily on targeting the approximately 8.8 million SMBs. We believe these merchants have been historically underserved
and overcharged by traditional bank and legacy providers that use older technology, less effective distribution networks through
bank branches, and outsourced customer service and logistics support vendors. We also served 108 integrated partners as of December
31, 2018, which use or embed our solutions into their own offerings to enable their customers to conduct commerce more conveniently
in Brazil. These integrated partners include global PSPs, digital marketplaces and ISVs.



We provide our clients with a powerful
combination of solutions that help facilitate their in-store, online and mobile commerce activities, and empower them to:



| | · | Connect More Effectively—Our solutions allow our clients to connect more effectively by integrating and
connecting to our cloud-based technology platform using simple and convenient APIs. These solutions provide powerful gateway services
to encrypt, route, and decrypt transactions, and PSP solutions to onboard merchants and connect integrated partners.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Get Paid Quickly and Easily—We offer payment and digital account solutions to help our clients facilitate
and manage their payments:
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | Payment Solutions: Payment collection is streamlined by accepting numerous forms of electronic payments and APMs such
as boletos, and conducting a wide range of transactions in brick-and-mortar and digital storefronts in a quick and user-friendly
manner. We also provide digital product enhancements to help our merchants improve their consumers’ experience, such as our
split-payment processing, multi-payment processing, recurring payments for subscriptions, and one-click buy functionality.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Digital Account Solutions: We can offer our clients a digital account, which can be integrated to the POS and allows
our clients to receive and make payments, issue boletos, pay taxes, all in a cost-effective and user-friendly way.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Grow Your Business—We have the ability to grow our clients’ businesses by automating and streamlining
business processes at the point of sale for digital checkout. These solutions help our clients run their businesses more effectively
and in an integrated manner. Our growth solutions include:
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Software Solutions: POS and ERP software, reconciliation, customer relationship management reporting tools that provide
greater control, transparency of information, insights into their daily operations and consumer engagement, and facilitate brick
and mortar stores to sell online.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | SMB Capital Solutions: we help our clients manage their working capital needs and effectively plan for the future by
offering them prepayment financing options. These provide clients with transparency and control over their receivables and enable
them to manage their cash flow to help their businesses grow.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | SMB Credit Solutions: we can also provide our clients with credit, if they need further funding to grow their businesses
beyond the working capital solutions that we provide. We leverage our client data to offer this solution in a proactive and cost-effective
way. Once onboarded, our clients can access credit through multiple channels including our merchant portal in a simple and transparent
way. Our credit offering enables our clients to pay back their loans effortlessly through the automatic retention of a percentage
of their sales. We are in the initial stages of our credit offering and as of the date of this filing have 143 clients contracted.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We distribute our solutions primarily through
proprietary Stone Hubs. These hubs are located in small and medium-sized cities, or suburban areas of larger cities, and are designed
to provide hyper-local sales and services and high-quality, on-demand support to SMB merchants within the hub’s designated
area of operations. Our hubs may share an office depending on the size of the area served. We believe this approach enables us
to provide a superior customer experience to our clients and is a key part of our go-to-market strategy. We had 245 operational
Stone Hubs in January 2019, and we are currently growing our hubs’ footprint to maximize our presence in Brazil and provide
sales coverage to the country’s approximately 5,500 cities with a total population of 208.5 million.



Our in-house customer relationship team
supports all of our clients. We equip our customer relationship team with the tools and technologies to resolve our clients’
needs, often in a single phone call. We have a strong focus on using first-call resolution as a key performance indicator of our
customer support operation. In December 2018, 86% of our clients who called our customer relationship team had their problems resolved
on the first call.



We generate revenues based on fees we charge
for the services we provide. These include payment processing fees related to transaction activities and other services (which
are typically charged as a percentage of the transaction amount or as a fixed amount per transaction), financial income related
to prepayment financing fees and subscription and equipment rental fees, which accounted for 32.6%, 50.7% and 13.5%, respectively,
of our revenues in 2018. The following is a summary of our key operational and financial highlights:



| | · | In 2018, we generated R$1,579.2 million of total revenue and income, compared to R$766.6 million of total revenue and income
in 2017, representing annual growth of 106.0%.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | As of December 31, 2018, we served approximately 267,900 active clients, compared to approximately 131,200 as of December 31,
2017, representing 104.2% annual growth.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In 2018, we generated net income of R$305.2 million and adjusted net income of R$342.8 million, compared to a loss of R$105.0
million and adjusted net income of R$45.2 million in 2017. See “Presentation of Financial and Other Information” and
“Item 5. Operating and Financial Review and Prospects—A. Operating results” for a reconciliation of adjusted
net income (loss) to our profit (loss) for the period.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In 2018, we processed TPV of R$83.4 billion, compared to R$48.5 billion in 2017, representing 71.8% annual growth.
| | - | ------------------------------------------------------------------------------------------------------------------



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B.       Business overview



The Stone Business Model



We go to market and empower our clients
to conduct commerce more effectively by utilizing our proprietary Stone Business Model, which we believe provides our clients
with a range of new capabilities and a differentiated customer experience compared to our competitors.



g648092g52x57



As illustrated above, the Stone Business
Modelis based on three key pillars, which are supported by our client-centric, entrepreneurial culture:



| | (1) | Advanced, End-to-End Cloud-Based Technology Platform—We developed our fully-integrated and end-to-end Stone
Technology Platform to provide seamless omni-channel capabilities for in-store commerce, e-commerce and mobile commerce. The
advanced nature of our platform enables us to make traditionally complex and cumbersome tasks more simple and user-friendly, which
we believe gives us significant competitive and operating advantages. We use our technology platform to:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Provide Simple API-Based Integrations—We help our e-commerce merchants and integrated partners connect to us easily
and conveniently. We provide a combination of online gateway services, and PSP solutions, through simple and convenient API integrations.
Our Mundipagg gateway serves some of the largest e-commerce merchants in Brazil in terms of gross merchandise value and our Pagar.me
PSP platform serves some of the largest marketplaces in terms of gross merchandise value and fastest growing e-commerce merchants
in Brazil. We also enable key global PSPs and specialized ISVs to conduct commerce in the Brazilian market through a simple integration
with our technologies. Finally, our API technology enables our company to easily integrate new products to our platform.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Develop and Deploy Our Solutions—We use our technology platform to develop, host, manage and deploy all of our
commerce-enabling solutions to help our clients connect, get paid and grow their businesses with differentiated capabilities. For
example, we offer them the ability to complete transactions through: (1) a mobile payment link using SMS and WhatsApp messaging;
(2) multi-buyer functionality, where the bill can be shared among buyers, and multi-payment functionality, where a bill can be
split among different payment methods;
and (3) a frictionless checkout solution that significantly improves conversion rates for e-commerce transactions.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Process Transactions Completely End-to-End—We capture payment credentials through our software and devices, encrypt
and tokenize data via our gateway solutions, authorize and process transactions, and complete the clearing and settlement process
on a single, integrated platform, without the need for third-party vendors. For example, our digital banking solution is directly
integrated to the Central Bank system which enables us to make deposits without the need for an intermediary bank. This enables
us to capture value across the payment chain, maintain control of the transaction data, increase efficiency, and operate with a
lower cost base. This end-to-end functionality provides our clients with a single, integrated service that we believe is more secure,
effective, and convenient than doing business with multiple vendors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Run and Optimize Our Operations—Given its fully digital DNA, our technology platform is able to aggregate data
and utilize advanced technologies, such as AI and machine learning tools across our enterprise. These capabilities provide differentiated
operating advantages internally, and competitive advantages externally. For example, we developed specialized technology that enables
our salespeople to evaluate, document and onboard new merchants in minutes, using fully digital applications. We also use client
interaction data captured in our proprietary CRM platform and AI algorithms to help better understand our clients’ cash flow
needs (for example, when they have supplier payments due, payroll outflows, etc.) and provide them with funding solutions that
match their working capital needs.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Differentiated Hyper-Local and Integrated Distribution—Our distribution model was created to address the main
gaps we believe existed in the Brazilian market. The key elements of our distribution are:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Hyper-Local Distribution—We deliver our solutions to SMBs throughout Brazil, using hyper-local Stone Hubs that
serve and support our clients in an integrated manner close to where they live and work, instead of through bank branches like
many of our competitors. We refer to our salespeople as Stone Missionaries because they are highly-trained and focused on serving
our client-centric mission. We believe that this approach enables us to provide a superior customer experience than that of our
peers and is a key part of our go-to-market strategy. We had 245 operational Stone Hubs in January 2019 and we are currently growing
this base in order to reach and serve additional clients across Brazil.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Integrated Partner Distribution—We enable a range of ISVs and marketplaces to connect to our Stone Technology
Platform through a simple integration and embed our solutions into their offerings that enable their merchants to accept payments
seamlessly and easily. Given the specialization of our APIs, the efficiency of our software, and the flexible nature of our platform,
we believe we eliminate many of the cumbersome tasks associated with integrating to traditional technology platforms.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Specialized E-Commerce Distribution—We have a proprietary sales team, which we call our Special Services, to serve
online merchants and digital service providers with specialized e-commerce expertise. This team understands the unique characteristics
and needs of the Brazilian e-commerce market and aims to help us provide solutions that address specific client needs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | White-Glove, On-Demand Customer Service—We support our clients and solutions with fast, convenient, and high-quality
customer support that we believe is highly differentiated in Brazil. Our customer service approach is designed to continuously
strengthen our client relationships and increase the long-term value of our client relationship, and it has enabled us to achieve
the highest NPS among our peers in our key markets in Brazil according to an August 2018 study prepared by IBOPE. Our on-demand
customer service combines three key elements, that include:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Human Connection—We have a centralized, in-house customer relationship team of technically trained agents equipped
with the data, technology, and autonomy to resolve our clients’ needs. First-call resolution is a key performance indicator
of our customer support operation, and in December 2018, 86% of our clients who called our customer relationship team had their
issues resolved on the first call. 94% of these calls were answered within 20 seconds and 91% were rated as “excellent”
by our clients, in each case according to our internal surveys.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Proximity—We deploy a team of local, specialized personnel, called Green Angels, inside each of our Stone Hubs
and close to our clients, who provide on-demand support. Once we become aware of an issue, our Green Angels commonly travel by
motorcycle and reach our clients within minutes or hours to help a client in need—rather than taking days or weeks and using
the mail service or a third-party logistics company to deliver terminals and other items as other providers in our market do.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Technology—Our customer service system integrates real-time data from our authorization and processing systems,
salesforce management applications, and logistics management systems, to provide a comprehensive understanding of our clients.
We use predictive modeling of merchant behavior to proactively identify customer service issues and deploy our Green Angels to
provide on-demand support. We also offer a range of self-service tools that help our clients manage their operations more conveniently.
For example, we have developed the Stone Merchant Portal, which enables our clients to access their detailed sales and payments
information and perform a range of self-service functions rather than having to call a bank manager or call center. We also provide
similar self-service functions through other technology touch-points, such as our merchant mobile app and our Mamba POS terminal
operating system.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Markets



Merchant Acquiring Market Overview



We operate in Brazil, which is a large
and fast-growing market for financial technology solutions. According to IBGE, Brazil GDP and Private Consumption Expenditures
in 2018 were R$6.8 trillion and R$4.4 trillion, respectively, up from R$6.6 trillion and R$4.2 trillion, respectively, in 2017.
According to Statista, retail e-commerce sales in Brazil excluding digitally distributed services and digital media downloads were
approximately R$61.8 billion (based on the December 31, 2017 exchange rate) in 2017 and are expected to grow to approximately
R$104.8 billion (based on the December 31, 2017 exchange rate) by 2022, representing a compound annual growth rate of
11%. According to the World Payments Report 2018, Brazil is the fourth largest market in the world for non-cash transaction volumes.
The payments market has continued to grow and demonstrate resiliency to macroeconomic fluctuations in Brazil. During Brazil’s
most recent economic recession from 2014 to 2017, nominal GDP grew at a compound growth of 4.3%, according to the World Bank. During
the same period, electronic payments volume grew at a compound annual growth rate of 8.1%, according to ABECS.



Despite Brazil’s large size, we believe
its payments market remains less penetrated and has greater growth upside than more mature economies, such as the United States
and the United Kingdom, as summarized in the graph below. For example:



| | · | According to the World Bank and ABECS, electronic payments volume represented 28.4% of total household consumption in Brazil
in 2016. This penetration percentage is lower than comparable measures of 46.0% and 68.6%, respectively, in the United States and
the United Kingdom, during the same period, according to data from the World Bank and the Bank for International Settlements, or
BIS.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | According to the World Bank, 27.0% of the Brazilian population aged 15 and above had a credit card in 2017, compared to 65.6%
in the United States and 65.4% in the United Kingdom.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We believe Brazil has an increased opportunity for growth in digital payments compared to more mature economies. According
to the World Bank, in 2017, 17.6% of the Brazilian population aged 15 and above used the internet to pay bills or made online purchases
over the previous year, compared to 77.2% in the United States and 80.7% in the United Kingdom.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



g648092g00j39



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Merchant Acquiring Market Share



The Brazilian merchant acquiring
industry processed R$1.5 trillion in TPV during 2018, based on ABECS data for the year, resulting in a market share of 6.0%, for Stone in the fourth quarter of 2018, growing from
4.0% in the fourth quarter 2017. In terms of sales, we estimate Brazilian merchant acquirers posted more than R$20 billion in
total revenue in 2018, based on total revenue reported by the five largest merchant acquirers in 2018 and an estimate for the
other players.







New Markets



As we expand our capabilities to serve
merchants with additional solutions, we enter new markets in Brazil such as retail management software, banking services and credit
solutions. We have already started to offer software solutions to our clients, which is aimed at helping our merchants manage their
business. According to International Data Corporation 2018, the market potential for retail management software in Brazil was R$9.5
billion in 2017, considering a higher penetration of software in the SMB and micro-merchant segments. Our digital banking account
solution targets a market of approximately R$10 billion for 2018, based on our internal estimate for SMB clients, considering the
revenue generated by the Brazilian top five banks in 2018 with checking account services. On credit solutions, we estimate the
market at R$75 billion in 2018, based on our internal estimate for SMBs, considering Brazilian Central Bank data on non-targeted
loans multiplied by the average spread discounted the default rate.



Combined, the new markets we are targeting
are five times larger than merchant acquiring alone. While we have 6.0% market share in merchant acquiring for the fourth quarter
of 2018, we have not yet reached scale on new solutions.







Our Ecosystem



The ecosystem of participants in our market
includes a broad range of parties who we serve, partner with, and compete against. These include:



| | · | Consumers—According to the IBGE, there were 208.5 million people in Brazil in 2018, of which 163.9 million
were aged 15 years or older. According to the Brazilian Tourism Ministry, there were 6.8 million foreign visitors who traveled
to Brazil in 2018. Combined, we believe there were nearly 170 million consumers in Brazil in 2018.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Merchants—According to Neoway, a market data service, as of June 2018, there were 14.3 million total
businesses in Brazil in segments that we believe represent a material market opportunity for electronic payments. According to
the Neoway database, these businesses are categorized according to their annual gross revenues, as follows:
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Large Businesses—Large businesses are businesses with annual gross revenues above R$78 million. There are
over 5,300 large businesses in Brazil. We believe the majority of these are large merchants that use in-store, online, and mobile
channels to conduct commerce.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Small and Medium-Sized Business (SMB)— annual gross revenues between R$81 thousand and R$78 million.
There are approximately 8.8 million SMBs in Brazil. We believe the majority of these are SMB merchants that conduct commerce
primarily through brick-and-mortar storefronts and are increasingly adopting e-commerce and mobile channels to sell goods and services.
SMBs represent the focus of our strategy within the Stone Business Model.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Micro-Businesses—Micro-businesses are businesses with annual gross revenues below R$81 thousand. There are
approximately 5.5 million micro-businesses in Brazil. We believe the majority of these are micro-merchants that either do
not have storefronts or have very small operations. These micro-merchants are increasingly adopting simple, low-cost electronic
commerce applications delivered through mobile devices, or mPOS, which are increasingly being offered by a growing number of vendors
since they are relatively easy to develop and deploy.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | POS Vendors—These are hardware and software vendors, such as VeriFone, Ingenico, PAX, and Gertec, who develop
and sell point-of-sale terminals to financial institutions, payment processors, and larger merchants.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Software Vendors—These are software developers who create a range of software solutions that merchants use to
run their businesses at the point-of-sale, in their daily operations, and in their back-office functions. These can be sold individually
or as integrated solutions that include:
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Point-of-Sale Software, which enables a merchant to facilitate and manage commercial transactions with consumers;
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | Business Automation Software, which enables a merchant to manage its daily front-of-house operations, including scheduling
appointments or reservations, transaction ordering, fulfillment, customer relationship management and inventory management; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | ERP Software, which enables a merchant to manage its back-office functions, such as data reconciliation, financial reporting,
accounting, payroll, and supply chain management.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Payment Processors—These are financial technology vendors that perform a range of functions to facilitate the
acceptance, encryption, routing, decryption, processing, clearing, and settlement of an electronic commercial transaction, and
provide the necessary customer support functions to maintain the technology and service. These include:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Merchant Acquirers— which are licensed firms that contract with a merchant to provide them with payment acceptance
solutions and technology, and then facilitate the processing, clearing and settlement of each electronic transaction. There are
different types of merchant acquirers in Brazil, including bank-owned acquirers, such as Rede and GetNet, bank-controlled acquirers
such as Cielo, and independent merchant acquirers like us.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Payment Services Providers— which are firms, also known as PSPs, that contract with a merchant to provide them
with payment acceptance solutions. PSPs typically focus on selling through online or mobile channels and provide a front-end customer
facing solution. PSPs then partner with a licensed merchant acquirer to facilitate the processing, clearing, and settlement of
each transaction.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Networks— which are firms that create rules and standards, and provide transaction routing or switching services
that help facilitate transactions between financial institutions across disparate ecosystems and geographies. These
include global brands such as Visa, Mastercard and American Express, as well as local brands such as Elo and Hipercard.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Financial Institutions— which are banks and other licensed vendors of financial services that provide a range
of services to consumers, merchants, and other financial institutions. These firms provide financial accounts, such as checking
and savings accounts, issue bank cards, such as credit, debit, and prepaid cards, and offering revolving credit lines and loans.
These include: (1) state-owned banks, such as Banco do Brasil, Caixa Economica Federal, and Banrisul; (2) private banks,
such as Bradesco, Itaú-Unibanco, Votorantim, Safra, and BTG Pactual; and (3) foreign banks, such as Banco Santander.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Key Market Trends



We believe
there are various important trends that are impacting the growth and market opportunity for our services in Brazil. These include:



| | · | Increasing Use of Electronic Commerce—Commerce in Brazil is increasingly being transacted through electronic accounts,
such as credit, debit, and prepaid cards, eWallets, and mobile devices instead of cash and checks.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Increasing Shift to Digital Channels—Consumers and merchants are increasingly conducting commerce through digital
channels online and through mobile devices.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Growing Use of Omni-Channel Commerce—As a result of the growing use of electronic commerce and the increasing
shift to digital channels, consumers and merchants are increasingly conducting commerce across more than one channel. Businesses
are responding to increased consumer spending online and through mobile devices by increasing their e-commerce and mobile commerce
capabilities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Expanding Use of Technology at the POS—As the costs of technology have decreased in Brazil, access to the internet
has increased, and software has become easier to use, merchants are using more solutions, such as smart POS devices, integrated
POS terminals, mobile devices, and specialized software applications to run their front-of-house operations and back-office functions.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Deployment of Technology Services is Changing—As a result of the growing use of omni-channel commerce and the
expanding use of technology at the POS in Brazil, service providers are increasingly deploying technology in new ways, including
through: (1) cloud-based solutions; (2) integrated software solutions; (3) mobile devices; and (4) third-party
applications.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Deployment of Financial Services is Changing—As a result of these trends, the deployment of financial services
is also changing. More financial services are being provided outside of traditional bank branches, such as at the point-of-sale
or online, and more financial services are being provided by non-bank firms that are using technology to deliver these services
more efficiently and conveniently.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | More Open Regulatory Environment—The regulatory environment for the payments industry in Brazil has undergone
significant changes in the past few years due to a concerted effort by the Central Bank and the Brazilian government to foster
innovation and promote more open and fair competition. In 2010, the Central Bank and antitrust authorities initiated a series
of measures that eliminated the exclusivity of certain vendors and opened up the market to new entrants. Since then, a new regulatory
framework has been developed and government authorities have been fostering competition. We believe this has created an attractive
environment for innovative financial technology providers, such as us, to continue to disrupt the market, bring better solutions
to clients, and grow our market share.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Growing Market in Small and Medium-Sized Cities—We believe the incremental growth of electronic payments in Brazil
will be significantly driven by commerce in small and medium cities. According to a 2015 McKinsey report, small and medium cities
with populations between 20,000 and 500,000 inhabitants will account for more than 50% of total consumer spending growth in Brazil
between 2015 and 2025. We believe this spending growth will be compounded by the continued shift to electronic payments to generate
above-market growth rates for electronic payment volumes in Brazil.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Key Market Challenges



As a result of these trends, we believe
our market is undergoing significant change and our ecosystem is adapting to a number of business, technical, and service challenges.
We believe these challenges are also creating new opportunities for disruption and the deployment of new solutions and business
models. These challenges include the need for:



| | · | New Business Models To Serve Clients—As consumers and merchants increasingly adopt new technologies to conduct
commerce and migrate towards digital channels, new approaches and business models are required to meet the demand for faster, safer,
and more convenient commerce-enabling solutions. For example, we believe current models that sell payment acceptance solutions
through traditional bank branches are outdated and provide a poor client experience for business owners. Bank sales representatives
are not specialized in payment acceptance solutions, and as a result, they lack advanced knowledge of how new technologies can
impact the merchant point-of-sale. In addition, the client boarding and fulfillment processes through bank branches can take weeks
to finalize.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | An Effective Way to Reach SMBs Across 5,500 Cities—Brazil’s large geographic size can create logistical
difficulties for SMBs to conduct commerce, such as slow delivery times and slow, inconsistent customer support. In addition, local
infrastructure and customs for conducting commerce can vary across regions. As a result, we believe merchants are increasingly
looking for commerce-enabling solutions, with consistent, high-quality service and quick, on-demand support, that meet their needs
of their specific region.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | More Seamless Omni-Channel Capabilities—As consumers and merchants in Brazil increasingly connect across multiple
channels, in-store, online and on mobile devices, they are demanding better integrated and more seamless shopping and selling experiences.
We believe merchants in particular are looking for solutions that enable them to manage their various commercial activities across
channels on a single platform. For example, most vendors in Brazil typically sell, manage, and process their point-of-sale and
online solutions separately and on different platforms because they use older legacy technology platforms for point-of-sale transactions,
which were not originally designed to incorporate e-commerce or mobile commerce.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | More Powerful Commerce-Enabling Solutions—As the complexity of commerce increases due to the use of new technologies
across multiple channels and an increase in the amount of data that needs to be managed, merchants are looking for more powerful
solutions to enable them to conduct commerce more effectively and with greater functionality and more sophisticated reporting tools.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Better Integrated Technology—As merchants adopt solutions with more advanced functionality across their business,
they are facing the difficulty of having to manage different systems for their front-office operations, payment acceptance, and
back-office functions. These systems are typically provided by different vendors and are not well integrated, which makes it difficult
to manage large amounts of data from different systems. As a result, merchants are demanding solutions that are better integrated
or have easier and more convenient integration capabilities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Better and Easier Connectivity Tools—In order to achieve a more seamless omni-channel experience, implement more
advanced solutions, and integrate them more effectively, merchants are increasingly looking for faster and more flexible connectivity
solutions, such as gateways and APIs, that are safe and easy to implement. The older legacy platforms provided by incumbent vendors
often have limited and rigid connectivity tools that can significantly constrain what a merchant is able to do to deploy new technologies
and improve operating efficiency.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | More Advanced and Robust Technology Platforms—In order to provide the advanced functionality, seamless omni-channel
experience, tighter integration, and better connectivity that merchants are seeking, providers require next-generation technology
platforms with cloud-based architectures to develop, host, deploy and manage these capabilities in a fast, flexible and cost-effective
manner. The older legacy platforms provided by incumbent vendors typically do not have many of these capabilities and can be difficult
and expensive to maintain.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Faster and More Specialized Customer Support—In order to support merchants with advanced technologies and multiple
sales channels, providers in our market need to utilize more specialized and dedicated customer support operations that can help
resolve the complex technical issues they face. The increased complexity that these new technologies can create for merchants requires
customer support teams with experience and expertise in working with advanced technologies, advanced diagnostic technology, and
the ability and support structure to respond quickly and effectively.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Less Bureaucracy—Merchants frequently face bureaucracy when dealing with traditional banks. We believe this bureaucracy
creates time-consuming processes to solve client issues and results in a suboptimal customer experience. In order to improve the
client experience and save their time, providers need to offer integrated technology solutions, streamline processes and on-demand
service
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe we are well-positioned to take
advantage of these trends and opportunities, and to continue to disrupt the market, bring better solutions to clients, and grow
our market share.



Our Competitive Strengths



We believe we have a dynamic mix of core
competencies that significantly distinguish us from our main competitors in the Brazilian market. When combined, these competencies
yield a powerful set of competitive strengths that have: (1) enabled us to disrupt legacy practices, older technologies, and
incumbent vendors in the Brazilian market; (2) empowered us to launch other technology and financial services solutions; and
(3) positioned us favorably to continue to grow our business and expand our addressable market.



Our Unique Culture



We have proactively fostered and developed
a highly-innovative, entrepreneurial, and mission-driven culture that we believe helps attract new talent, enables us to achieve
our objectives, and provides a key competitive advantage. Our culture unites our team across numerous functions and focuses our
collective efforts on passionately developing technology and implementing the Stone Business Model to disrupt legacy practices,
older technologies, and incumbent vendors in order to provide solutions and a level of service that go beyond simply meeting the
needs of our clients, and instead seeks to deliver an enhanced overall client experience. Our client-centric culture is built upon
the following five themes, which we convey to our employees, employee candidates, clients and partners:



| | · | The Reason—Our culture is centered on the fundamental belief that our clients drive everything we do. We
also emphasize to our clients that, like them, we have also worked hard to start and grow a new business. We believe that building
and maintaining close and active relationships with our clients will improve our ability to innovate, expand our leadership in
the market, and grow our business.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Own It—We expect that all employees present an “owner” mindset and use their intelligence to
resolve problems with a primary focus on making our clients’ experience great. We constantly strive to recognize exceptional
achievement.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | No Bullshit—We encourage respectful candor in all interactions and aim to be straight to the point. We
criticize ideas, not people. We expect our teams to always choose the correct path, not the quickest.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Team Play—We have learned that people achieve greater results together. We believe that more ideas flourish,
are debated better, and questioned more effectively in teams. As a result, we strive to work together and constantly look for people
with complementary skills to join our team.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Live the Ride—We believe we will evolve more effectively by trying new ideas and improving on them with
energy and passion. New ideas need to be tested in a controlled way, and only scaled once they have demonstrated authentic promise.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Stone Business Model



Our Stone Business Model combines
our proprietary assets, intellectual property, capabilities and business processes to create a differentiated go-to-market approach
and value proposition in the market. Our model is disruptive and has enabled us to gain significant traction in only four years
since the launch of our service. We believe it provides us with several sustainable competitive
advantages that have enabled us to gain market share and will help us grow in the future, including:



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| | · | Greater Understanding of Our Clients—We proactively interact with our clients and seek to understand their business
needs in order to develop stronger relationships and serve them more effectively. We believe we are able to do this in a manner
that differentiates us from our peers due to: (1) the close proximity to our clients provided by our Stone Hubs and Stone
Missionaries; (2) the hands-on interactions and integrations with our e-commerce merchants and integrated partners provided
by our Special Services team; and (3) the fast, high-touch, and personalized customer support provided by our in-house customer
relationship management team and our local Green Angelteams. We believe these give us a greater understanding of our clients
and their needs than our competitors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Greater Ability to Serve Our Clients—The proprietary nature of our technology, distribution and customer service
assets, combined with their vertical integration within our Stone Business Modelenable us to directly control the development,
deployment, and support of our solutions and services. We believe this provides us with a greater ability to serve our clients
versus competitors who outsource some or all of these capabilities and rely on third-party vendors that may not have the same client
focus.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Full Control of the Client Experience—The Stone Business Model also provides us with the ability to fully
control the client experience that we provide. Our model ensures that all interactions are provided by our people and our technology.
We believe this provides us with a greater ability to ensure that our clients are served with the high-quality solutions and premium
service levels that seek to enhance their experience instead of just fulfilling a function. We believe this control enables us
to build stronger relationships with our clients and deliver a superior value proposition versus competitors who do not have this
type of control because they rely on third parties for portions of their technology, distribution, or customer service.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Greater Flexibility to Adapt and Innovate—Our Stone Business Model positions us to react quickly to competitive
pressures through targeted, localized approaches. We believe the proprietary nature, vertical integration, and control our model
provides enables us to adapt to a rapidly changing competitive environment with greater agility and flexibility than other competitors.
We can understand our clients’ needs, design and develop new solutions, deploy them, and be prepared to support them quickly
in order to meet the changing requirements of our markets.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Low Cost of Acquisition—We believe our model, combined with the power and efficiency of our fully-digital technology
platform, enable us to leverage our hyper-local Stone Hubs and integrated partners to acquire new clients and upsell new solutions
and services at a low marginal cost as compared to our competitors.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Low Cost of Operations—Our Stone Business Modelenables us to operate with a low cost of operations and
significant efficiencies. For example, because we developed our own end-to-end technology platform and do not rely on third-party
vendors for processing and settlement, we operate with low marginal transaction costs.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Strong Lifetime Value—The combined attributes and benefits of the Stone Business Model enable us to provide
high-quality service levels and build strong, local or highly-integrated, relationships with our clients who value our differentiated
approach and value proposition. These enable us to: (1) resist competitive pressures; (2) retain our clients for longer
periods; and (3) upsell new solutions to increase our wallet share. We believe this enables us to enhance the overall lifetime
value of our client portfolio and maintain low marginal client acquisition costs.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Self-Reinforcing Network Effects—As we grow and expand our base of Stone Hubs, integrated partners, and suite
of digital solutions, we benefit from self-reinforcing network effects. Our expanding base of Stone Hubs and integrated partners
enable us to reach more merchants, who we can offer more solutions to. As we expand our base of merchants, integrated partners
and new solutions, we are able to build stronger relationships with them and develop new learnings and market insights from them.
We are able to use the Stone Business Model to act on these new insights to innovate, extend our value proposition, and
win new merchants and integrated partners.
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| | · | Protective Barriers to Replicate—The combination of the various proprietary and vertically integrated elements
of our Stone Business Modelare difficult to replicate in full. We believe this provides us with strong protective barriers
to entry which may make it difficult for our competitors to replicate our value proposition.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Deep Expertise and Track Record



Our founders and management team have deep
expertise in developing and delivering disruptive financial solutions. The team has a proven track record of founding, investing,
and scaling several successful financial technology businesses in Brazil, including:



| | · | Pagafacil—an e-commerce escrow service, which was sold to private investors in 2004;
| | - | ------------------------------------------------------------------------------------



| | · | NetCredit—a provider of consumer credit solutions, which was sold to BNG Bank in 2009;
| | - | --------------------------------------------------------------------------------------



| | · | Braspag—an e-commerce payments solution provider, which was sold to Grupo Silvio Santos in 2009;
| | - | ------------------------------------------------------------------------------------------------



| | · | PGTX—a payments technology company, which was sold to Pontual in 2014;
| | - | ----------------------------------------------------------------------



| | · | Sieve Group—an e-commerce price comparison service, which was sold to B2W in 2015; and
| | - | --------------------------------------------------------------------------------------



| | · | Moip—an e-commerce payments facilitator, which was sold to Wirecard in 2016.
| | - | ----------------------------------------------------------------------------



Our board of directors is composed of highly
successful senior executives who combine strong global operating, financial, and regulatory experience with deep expertise in the
financial services, payments, and technology industries. In addition, we have attracted a strong base of world-class investors,
many of whom have been key strategic advisors to the company and have consistently increased their investment in the group over
our prior capital rounds. We believe the mix of our entrepreneurial, executive, board, and shareholder experience and expertise
provide a key competitive strength for the company.



Our Growth Strategies



Our primary mission is to remain focused
on empowering our clients to grow their businesses and help them conduct commerce and run their operations more effectively. We
believe this focus is a key differentiator for us and an important driver in helping us win and retain clients. We try to achieve
this by leveraging the Stone Business Model to combine and provide powerful and convenient technology, innovative solutions,
and high-quality customer support through sales people and marketing efforts that match our passionate and energetic client-centric
culture. We plan to grow our business primarily by employing the following principal strategies:



Extend Our Reach and Scale our Business



We believe our distribution is a key
competitive strength that will enable us to continue to scale our business, expand our geographic footprint and market
penetration. For example, we intend to continue to:



| | · | Grow Our Base of Stone Hubs—We had 245 operational Stone Hubs across Brazil as of January 2019 and expect
to continue to launch new hubs to increase our coverage and penetration of the market. Brazil has over 5,500 cities, many of which
are underserved by incumbent providers who primarily target clients via their existing bank branch networks. We believe our strategy
of targeting underserved, small-and-medium sized cities, combined with our speed and agility, provides us with a significant growth
opportunity. Following the development of the Stone Hub, we have established highly-scalable, plug-and-play processes that enable
us to deploy new hubs faster and more effectively, with more efficient hiring, training, and selling. Our hubs are set up either
as proprietary hubs or franchised hubs, as described below:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Proprietary Stone Hub—We establish local operations and send highly trained Stone Missionaries and Green
Angels to develop our operations, train new team members, and ensure that our focus on high-quality service is instilled. Proprietary
Stone Hubs currently represent substantially all of our hub base and are our primary method of establishing new Stone Hubs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Franchise Stone Hub—Our franchise hubs are similar to our proprietary hubs, except that the hub is owned
and operated by a local business owner who typically provides local sales and operational support and relationships in the community.
These hubs are entirely Stone-branded and operated by highly trained personnel who perform the same duties as personnel working
in our proprietary hubs, in accordance with our policies, procedures and internal targets. We utilize the franchise hub method
selectively when we identify an attractive potential partner in a region where it makes sense for our expansion plans.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The vast majority of our existing hubs
are proprietary hubs, as our franchise hub strategy is in its early stages. As of December 31, 2018, we had 21 active franchised
hubs in operation. Proprietary hubs remain the focus of our expansion strategy.



| | · | Grow Our Base of Integrated Partners—As of December 31, 2018, we had over 108 integrated partners, such as PSPs,
marketplaces, and ISVs. We believe these integrated partners represent an important growth channel for us to capture more e-commerce
and software-integrated payment volumes. We expect to continue to leverage our powerful connectivity and integration capabilities,
including our Mundipagg gateway and Pagar.me PSP platform, to grow our base of integrated partners and help our existing
clients grow their businesses. For example:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | PSPs—PSPs sell online payment acceptance solutions to e-commerce merchants, but may also offer in-store solutions,
and are increasingly looking to expand their capabilities and offer their customers the ability to conduct commerce in Brazil.
PSPs offer us increased processing volumes from a base of merchants we may not directly access. We integrate our capabilities and
enable our PSP partners to extend them to their customers in a seamless manner.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Marketplaces—Marketplaces provide digital platforms that enable sellers and buyers in specific market segments
to connect more effectively. Marketplaces are one of the fastest growing segments in e-commerce because they enable small businesses
with limited infrastructures to access large groups of potential buyers more efficiently online or through mobile applications.
We provide marketplaces with advanced payment functionalities, such as split payments and automated settlement rules, which enable
them to improve and streamline their operations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | ISVs—ISVs develop vertical-specific software for merchants. These developers are increasingly looking to embed
payment acceptance and data reconciliation capabilities into their software in order to improve functionality and convenience,
and to participate in a portion of the economics generated by payments processed through their software. We integrate our capabilities
and enable our ISV partners to offer payment acceptance services in a seamless manner.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Sell Additional Solutions to Our Clients—As in-store merchant locations continue to become digitalized, we believe
our broad suite of solutions and our omni-channel commerce capabilities provide us with significant opportunity to sell additional
existing solutions into our client base. We intend to leverage the strong relationships and distribution capabilities provided
by our Stone Hubs to sell additional solutions to our merchant base with a view to minimizing incremental acquisition costs.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Sell to New Client Segments—Micro-Merchant Commerce—Despite targeting the SMB segment as our core
strategy, we are deploying Stone Mais, an independently branded easy-to-use, out-of-the-box, and cost-effective solution,
which combines point-of-sale technology with our payment acceptance services and a fully integrated digital wallet account and
bank card to help the approximately 5.5 million micro-merchants in Brazil (according to Neoway data as of June 2018). This solution
enables us to serve an additional client segment beyond our SMB focus.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Expand our Offering and Capabilities



We believe our culture of innovation and
technology development combined with our distribution capabilities are key competitive strengths that will allow us to continue
to expand our offerings and grow our business through a multi-product strategy. We intend to continue to leverage these capabilities
to develop and invest in new solutions that further empower and help our clients grow their businesses more effectively, and new
capabilities that enable us to better serve our clients by providing them with a centralized point of contact to solve most of
their issues in a fast manner. We intend to expand our offerings to our current and future clients in the following ways:



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| | · | Software Solutions—by integrating our payment offerings with software solutions, we believe we will improve the
lifetime value of our client relationships, and obtain access to transactional data that will allow us to be more proactive in
providing financial solutions such as working capital and credit. Approximately 14,000 clients use at least one type of software
product we provide. We also aim to invest in new software opportunities to help merchants become more productive, including opportunities
to develop and deploy ERP software in other industry verticals. Recently, we entered into two binding memoranda of understanding
to invest in Vhsys and Tablet Cloud, which will add nearly 18,000 software clients to our ecosystem. Our software solutions currently
offer the following capabilities:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Reconciliation—we currently offer Equals, a reconciliation software to help merchants better manage their cash
flows and reconcile multiple payment methods;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | POS and ERP—we offer Linked Gourmet, VHSYS, and Tablet Cloud, POS and ERP softwares that help merchants manage
and integrate their point-of-sale transactions with their front-of-house functions and back-office operations more effectively
across an array of industry verticals.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | CRM—we offer Collact, a provider of customer relationship management (CRM) software for customer engagement, focused
mainly in the food service segment, which enables merchants to increase their sales consistently by increasing recurrence while
also leveraging on customer data.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Gateways—our online and offline gateways allow our clients to connect effortlessly to multiple payment methods
and provide simple and transparent dashboards that allow our for operational monitoring and improvements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Financial Solutions—we believe that there is a significant opportunity to provide our clients with additional
financial solutions, given that those products, when offered by incumbents, present similar characteristics as payments: traditional
players and legacy business models have limited focus on client service, transparency and innovation. We intend to leverage our
distribution, service and technology capabilities to expand our offering of financial solutions and improve revenue yield per client.
As an example, we intend to grow our presence in the following markets beyond payments:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Digital Banking Solutions—We are developing a suite of digital banking solutions designed to enable our clients
to conduct financial transactions, receive and remit funds, issue boletos, pay bills, and integrate their enterprise financial
data in a more efficient, streamlined, and cost-effective manner than traditional bank accounts. Our technology platform is proprietary
and directly integrated to the Brazilian Central Bank’s system. As of February 2019, our pilot had more than 2.5 thousand
open accounts.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Credit Solutions—We are developing a product to allow our clients to effortlessly contract, monitor and payback
loans, by fully integrating our credit solution within our payments platform. We are in the initial stages of our credit offering
and as of the date of hereof, have 143 clients contracted.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Enter New Markets



We believe our Stone Business Model
is well suited to serve clients in other markets where our technology, solutions, and support model can continue to disrupt traditional
vendors and legacy business models. We believe this opportunity exists in:



| | · | New Geographies—We are also expanding our geographic footprint by growing our base of Stone Hubs across Brazil.
In the future, we may also seek to grow our business by selectively expanding into new international markets where we can leverage
our Stone Business Model.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | New Sectors—We are exploring new complementary business opportunities in adjacent sectors, such as digital banking,
software solutions and credit. In the future, we may selectively expand into other sectors where we see an opportunity to leverage
our capabilities to provide a differentiated value proposition for clients.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Selectively Pursue Acquisitions



Although we are primarily focused on growing
our business organically, we may selectively pursue strategic acquisitions to enhance our competitive position, improve our operations
and expand our business. We may choose to acquire new technologies, expertise, volume and capabilities, enter new market segments
or enter new geographies. We have established a track record of successfully investing, acquiring and integrating complementary
solutions and businesses. For example, in 2016, we: (1) completed the EdB Acquisition, which added an attractive portfolio
of SMB and e-commerce merchants onto our platform; (2) acquired full control of Pagar.me, which gave us our proprietary
PSP service; and (3) acquired joint control of Equals, which gave us a powerful data reconciliation tool widely used
in the markets we serve. We acquired full control of Equals in September 2018.



New Investments in Software



In March 2019, we signed two binding memoranda
of understanding, to invest in two new software companies, VHSYS and Tablet Cloud, which we believe will strengthen our ecosystem
of solutions that empower SMBs to manage and grow their businesses. Below of a description of these companies.



| | · | VHSYS is an omni-channel, cloud-based, API driven, POS and ERP platform built to serve an array of service and retail businesses.
The self-service platform consists of over 40 applications, accessible a la carte, such as order and sales management, invoicing,
dynamic inventory management, cash and payments management, CRM, mobile messaging, along with marketplace, logistics, and e-commerce
integrations, among others.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Tablet Cloud is a white-label POS and simple ERP application focused on SMBs with simpler needs which runs on smart POS and
tablet solutions, giving business owners complete control over their cash register and inventory in a fully mobile device while
having a robust ERP platform accessible online.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Together, VHSYS and Tablet Cloud add nearly
18,000 software clients. We expect that these new solutions will assist us in our continued efforts to help clients better manage
their operations, and drive omni-channel growth, giving brick and mortar establishments the tools they need to successfully sell
both online and offline.



Our Solutions



Connect More Effectively



We empower our clients to connect more
effectively by integrating and connecting to our cloud-based technology platform using simple and convenient APIs. These solutions
provide powerful gateway services to encrypt, route, and decrypt transactions and PSP solutions to onboard merchants and connect
integrated partners.



|Solution              | Description                                                                                                                                                | Features
and Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|POS Capture Solutions | Mamba, our POS operating system, enables in-store merchants to accept a variety of credit cards, debit cards and other APMs, through POS hardware devices. | ·Facilitates safe chip and pin payments.
        
        ·Easy and user-friendly interface.
        
        ·Lower processing times.
        
        ·Universe of applications that enable alternative types of services.
        
        ·Effective and efficient single deployment rollout of updates across the entire merchant base.
        
        ·Continuous and real-time, remote monitoring of connectivity and integrity of machines.
        
        ·Connectivity solutions such as 3G, Bluetooth and/or wi-fi enabled.

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|Solution | Description | Features
and Benefits
|-------- | ----------- | ---------------------



|e-Commerce Gateway    | Mundipagg is a full-featured e-commerce gateway that seamlessly connects e-commerce merchants to the acquirers of their choice, enabling them to accept a wide variety of electronic payment options. Our clients are provided with a set of robust analytics, reporting and auditing capabilities through their Mundipagg portal.                    | ·Increased conversion rates.
        
        ·Easy, user-friendly consumer checkout interface.
        
        ·Merchant management portal.
        
        ·Merchant acquirer agnostic with connections to all major providers in Brazil.
        
        ·Secure transactions utilizing proprietary encryption and tokenization technologies.
        
        ·Accepts all major payment schemes and APMs in Brazil.
        
        ·API-based with simple, public documentation enabling self-directed customer integration.                                                                                                                 
|--------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Point of Sale Gateway | Cappta is an in-store gateway for the point-of-sale that connects merchants to the acquirers of their choice enabling a wide array of payment options including traditional and APM methods. It also offers clients the ability to integrate their POS with other business management software, such as inventory and tax management solutions.       | ·Customizable rules that give merchants the ability to split transaction volume between multiple acquirers.
        
        ·Integrates with other business management software solutions to provide enhanced business analytics for our merchants.                                                                                                                                                                                                                                                                                                                                                                                                   
|                      |                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|PSP Platform          | Pagar.me is a sophisticated PSP solution with a quick and simple API integration, enabling omni-channel players and marketplaces to accept a wide array of electronic payments through multiple channels. With a large basket of features and products, clients are equipped with the tools and features they need to grow and manage their business. | ·Comprehensive set of solutions for marketplaces.
        
        ·Increased conversion rates.
        
        ·Easy, user-friendly consumer checkout interface.
        
        ·Merchant management portal.
        
        ·Merchant acquirer agnostic with connections to all providers in Brazil.
        
        ·Secure transactions utilizing proprietary encryption and tokenization technologies.
        
        ·Built-in anti-fraud capabilities.
        
        ·Accepts all major payment schemes and APMs in Brazil.
        
        ·API based with simple, public documentation enabling self-directed customer integration.

Get Paid Quickly and Easily



We enable our clients to get paid quickly
and easily by accepting numerous forms of electronic payments and APMs such as boletos, and conducting a wide range of transactions
in brick-and-mortar and digital storefronts in a quick and user-friendly manner. We also provide digital product enhancements to
help our clients improve their consumers’ experience, such as our split-payment processing,
multi-payment processing, recurring payments for subscriptions, and one-click buy functionality.



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|Solution                        | Description                                                                                                                                                                                                                                                                                                                                                    | Features
and Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Omni-Channel Merchant Acquiring | We are a fully licensed, end-to-end omni-channel merchant acquiring solution. With a large basket of features and products, clients are equipped with the tools they need to accept a wide array of electronic payments and effectively and efficiently manage their transaction receivables. Clients can integrate to our platform through multiple channels. | ·Efficient and secure.
        
        ·Simple APIs for quick and seamless connection with integrated partners.
        
        ·Acceptance
of global and regional payment schemes along with local meal voucher schemes, and other APMs.
        
        ·Higher conversion rates.
        
        ·Data reconciliation.
        
        ·Soft-descriptor code which allows merchants to write customizable client fields in transaction data.
        
        ·Built-in anti-fraud capabilities.
|Split Payments                  | Enables merchants and marketplaces to predetermine multiple accounts for receiving the settlement of their transactions. Through customizable splitting rules, consumer payments can be routed and deposited instantly to multiple parties.                                                                                                                    | ·Fully customizable rules that simplify and automate cash settlement for multiple parties linked within a single transaction.
        
        ·Settles directly to different bank accounts.                                                                                                                                                                                                                                                                                                            
|Web Checkout                    | Frictionless e-checkout that simplifies the buying experience leading to increased client conversion.                                                                                                                                                                                                                                                          | ·Frictionless interface.
        
        ·Improves client experience and conversion rates.                                                                                                                                                                                                                                                                                                                                                                                                             
|                                |                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Automated Retrial               | Proprietary automated retry technology that helps to drastically reduce lost business from failed transactions, many of which are caused by payment scheme and third-party systems involved in a payment transaction. This is achieved by instantly reprocessing the transaction utilizing predetermined rules that could be reprocessed via another acquirer. | ·Increased conversion rates.
        
        ·Fully configurable rules that allow the merchant to redirect failed payments to other acquirers.
        
        ·Automated email reminders to consumers to attempt to recapture failed purchase attempts.                                                                                                                                                                                                                                              
|                                |                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|One-Click Buy                   | Encrypts and stores consumer payment methods in a secure virtual account that facilitates quick and easy one-click payments.                                                                                                                                                                                                                                   | ·Saves client data in a secure manner.
        
        ·Simplifies payment process for consumers.                                                                                                                                                                                                                                                                                                                                                                                                      
|                                |                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Recurring Billing               | Simplifies and automates our clients’ businesses by allowing periodic and recurring billing, such as subscription services, in a simple and fully customizable manner.                                                                                                                                                                                         | ·Simplifies and automates reoccurring charges.
        
        ·Fully customizable and flexible rules that incorporate installment features, pre and post payment settings and specific
pre-programmed payments based on calendar dates and exceptions.                                                                                                                                                                                                                                                

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|Solution | Description | Features
and Benefits
|-------- | ----------- | ---------------------



|Multi-Buyer Payment—Bill Split | Enables consumers to make group payments easier for their customers. This solution allows a single purchase to be billed, and paid, to multiple consumers.                                                                    | ·Omni-channel
offering for both digital service providers and online merchants.
        
        ·Simple
and user-friendly functionality leading to improved consumer loyalty for our clients.
        
        ·Emails
receipt to each consumer involved in the purchase.
|------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Multi-Payment Acceptance       | Enables a consumer to pay for a single invoice using multiple payment methods such as multiple debit and/or credit cards along with other alternative methods such as boletos.                                                | ·Omni-channel offering for both digital service providers and online merchants.
        
        ·Simple
and user-friendly functionality leading to improved consumer loyalty for our clients.                                                                            
|                               |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                           
|Social Commerce                | Provides merchants and digital service providers with the ability to request payments from their customers via WhatsApp, SMS text or an email link.                                                                           | ·Simplifies the card-not-present Mail Order Telephone Order payment process for transactions where the buyer and seller
are in separate locations.
        
        ·Integrates with other solutions such as Multi-Buyer Payments or Multi-Payment Acceptance.            
|Digital Banking                | Fully digital banking platform that enables merchants to get paid and manage their finances more effectively. This platform can provide the automation of cash management through a direct integration with the client’s ERP. | ·Single
API integration.
        
        ·Allows cash management automation through integration to ERP and other business automation software.
        
        ·TED/DOC bank transfers.
        
        ·Boleto generation.
        
        ·Bill payment.            

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Grow Our Clients’ Businesses



We empower our clients to manage and grow
their business by automating and streamlining business processes at the point-of-sale or digital checkout. These solutions help
our clients run their businesses more effectively and in a more integrated manner with ERP software, reconciliation, and reporting
tools that provide greater control, transparency of information, and insights into their daily operations. We also help our clients
manage their working capital needs and effectively plan for the future by providing our clients with prepayment financing options
with total transparency and control over their receivables, enabling them to convert their daily sales into cash more quickly and
plan for their future growth.



|Solution                  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Features
and Benefits                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Working Capital Solutions | Omni-channel cash management solution that allows clients to
        accelerate the payment of their future receivables, including installment-based receivables up to 12 months. Clients can request
        and predetermine the payment of their receivables via their client portal, directly on their mobile application, POS device, via
        email, or over the phone with our dedicated receivables prepayment team.
        
        We provide more information on this solution at the end of this
        section. | ·Fully customizable a la carte payment options that gives clients complete control over when they get paid.
        
        ·Ability to automate anticipating receivables payments with simple rules that can be set up quickly and easily in the client
portal.
        
        ·Dedicated and proactive team available to assist clients with their needs and equipped with AI yielding insights into client
cash flow needs.
|SMB Credit Solutions      | Allows our clients to contract, monitor and payback loans by fully integrating our credit solution within our payments platform.                                                                                                                                                                                                                                                                                                                                                                                                  | ·Self-service functionality pre-approved clients can order credit through the merchant portal.
        
        ·Transparent pricing and no hidden fees.
        
        ·Clients payback loans as a percentage of their credit cards receivables.                                                                                                                                                                              
|Software                  | VHSYSis an omni-channel, cloud-based, API driven, POS and ERP platform built to serve a wide array of service and retail businesses. The fully self-service platform consists of over 40 applications such as order and sales management, invoicing, dynamic inventory management, cash and payments management, CRM, mobile messaging, along with multi-marketplace, logistics, and e-commerce integrations amongst others.                                                                                                      | ·Customizable and fully integrated customer dashboards that gives merchants a complete snapshot of their business.
        
        ·Robust reporting applications to help the client manage their business.
        
        ·End-to-end integration of operations, payment transactions, accounting and compliance reporting.                                                                                                  
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                          | Tablet Cloud is a white label Point of Sale and simple ERP application focused on less sophisticated SMBs, which runs on smart POS and tablet solutions, giving business owners complete control over their cash register and inventory in a fully mobile device while having a robust ERP platform accessible online.                                                                                                                                                                                                            | ·Applications are acquired a la carte based on each business’s particular needs & preferences, built to
scale with growth of business.
        
        ·Online & offline browser features, along with mobile, smart POS and tablet functionality.                                                                                                                                                                               

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|Solution | Description | Features
and Benefits
|-------- | ----------- | ---------------------

|                                   | LinkedGourmet is a vertical-specific cloud-based ERP system built to simplify and empower SMBs in the food and beverage sector with a full suite of integrated business management tools including a mobile waiter app, inventory management, checkout, payment integration at the point-of-sale, and a suite of delivery management integrations and tools.                                                                                                                                              | ·Broad array of tools and applications that assist in B&M merchants to list and sell products and services online.
        
        ·API driven to seamlessly integrates into third party apps and solutions providers.                                                                                                                                                                                                                  
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                   | Collact is a multisided customer engagement and loyalty platform that enables small and medium sized businesses to acquire, engage and grow their client base by offering customized loyalty and marketing programs while giving consumer insights.                                                                                                                                                                                                                                                       | ·Full suite of tools to increase customer acquisition, loyalty and engagement.
        
        ·Consumer app actively helps drive consumers into the client’s place of businesses.                                                                                                                                                                                                                                                      
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                   | Equals is a card-based receivables reconciliation solution that streamlines the complex process of reconciling payments transactions and managing cash flow. This powerful tool enables our clients, from B&M SMBs to large online enterprises, to reconcile and monitor transactional data from all payment solutions providers, such as merchant acquirers and gateways, giving transparency of fees paid, discounts/chargebacks, and taxes at the individual transaction level, in a single dashboard. | ·Straightforward reporting and easy to use tools that assist merchants in resolving flagged inconsistencies in their transactions.
        
        ·Merchant acquirer agnostic.
        
        ·Integrates with client ERP systems.
        
        ·Automates the process of receivables management, such as downloading data from payments providers, reconciling transactions,
and uploading information to a client’s ERP system.
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|App Store for POSs                 | Mamba is an application in our POS devices that can provide additional software features to a merchant’s point-of-sale through our open, cloud-based Mamba App store. This enables third-party app developers to deploy new complementary solutions to the point-of-sale for merchants and consumers, such as mobile phone top-up, bill pay, and APM acceptance.                                                                                                                                          | ·Open App Store that enables third-party app developers to create and deploy new app solutions.
        
        ·Easily connects to third-party platforms.
        
        ·Developer friendly with capabilities in more than 10 common code languages.
        
        ·Ability for merchants to integrate more robust transaction reporting.                                                                                        
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Data Reporting and Merchant Portal | Gives merchants full transparency and enterprise-level insight into their transactions in a simplified and easy manner with fully customizable dashboards and automated reporting functionality.                                                                                                                                                                                                                                                                                                          | ·Simple and user-friendly.
        
        ·Robust reporting functionality.
        
        ·Receivables
management tools that help merchants better understand and manage their cash flows.
        
        ·Accessible
via the web or mobile app.                                                                                                                                                                                   

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More Information on Working Capital Solutions



In Brazil, a standard credit card transaction,
in which a consumer pays his or her credit card bill in 26 days on average, results in the card issuer paying the merchant acquirer
approximately 28 days after the transaction date, and the merchant acquirer paying the merchant approximately 30 days after the
transaction date. In addition, many merchants in Brazil allow their consumers to pay for goods and services in several interest-free
installments, instead of having to pay upfront. Typically, these installments are spread across two to twelve monthly billing cycles
on the consumer’s credit card. The merchant receives the initial payment a month after the transaction, and any future installments
in the month the consumer’s card installments are charged. To allow our merchants to optimize their cash flows, we offer
prepayment options to the merchant for the future expected receivables of these installments and charge a small, predetermined
fee for the service.



In contrast to traditional models where
merchants need to call a third-party call center or the bank manager to order prepayment under a rigid set of rules, our clients
can do so quickly and easily through multiple digital channels, such as the merchant’s portal, app or POS device. This self-service
approach provides merchants increased autonomy to request upfront cash under the terms that best fit their business needs. Merchants
can set their own disbursement rules, like prepaying specific payment schemes or setting average duration, and choose the date
they wish to receive a disbursement, program automatic reoccurring disbursements, or select instant spot transactions.



Our Sales and Distribution



We sell and distribute our solutions using
two primary channels: Hyper-Local and Integrated. We also have an in-bound sales team that affiliates merchants who
call us as a result of digital advertising campaigns and referrals resulting from networking effects of our clients within the
Hubs.



Hyper-Local Sales and Distribution



We distribute our technology and solutions
to brick-and-mortar merchants primarily through our Stone Hubs, which are designed to provide hyper-local sales and service
to SMB merchants in a designated geographic region. Our hubs are local operational offices that house an integrated team of sales
and logistics support personnel. These offices are located in small-and-medium sized cities (or regions of larger cities), which
have historically been underserved and disregarded by many of our competitors who sell their services through ordinary bank branches
or remote call centers. As of January 2019, we had 245 operational Stone Hubs in Brazil and we are currently growing these operations
to penetrate the country further. Our hubs are staffed by sales personnel that include:



| | · | Missionaries—Our troops-on-the-ground sales team. This is a qualified team of young entrepreneurs who are
highly trained to deliver personalized and effective sales and support directly to the doorstep of our clients. We believe that
by being close to our clients, we have a unique ability to attend to their specific needs and react quickly to changes in each
local market. Our Stone Missionaries are supported by an integrated technology platform, which combines smart routing with
merchant behavior mapping, which enables them to provide sales and support services efficiently and effectively.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | District “Owners” and Hub “Owners”—Our regional sales leadership.
This team is composed of highly trained and experienced former Stone Missionaries that are tasked with opening and managing
new hub territories. Regional managers are supported extensively with daily performance indicators and tools provided by our technology
platform and management to facilitate active interaction and support with their teams.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have developed our method of training
and supporting our sales personnel that we believe has directly increased our team’s results. Our Stone Missionariesreceive
extensive training in our company’s culture and operations during their onboarding process, and on an on-going basis, to
help reinforce our client-centric culture and high-performance standards. Our sales personnel have disciplined daily, weekly, and
monthly touchpoints with their leaders, along with routine reporting, KPI reviews, and other core processes to help ensure they
are equipped with the tools and support they need to maximize their effectiveness. In addition, our sales personnel are supported
by direct marketing campaigns to help build brand awareness as we enter new markets.



Over the last nine quarters, we have significantly
scaled our Stone Hub operations throughout Brazil, achieving consistent growth and ramp-up of our active client base within our
Stone Hubs. The following chart illustrates the



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average relative growth in active clients per Stone Hub for
all Stone Hubs as of the fourth quarter of 2018 separated by their quarterly vintages. For purposes of the following chart, a quarterly
vintage of Stone Hubs refers to all of the Stone Hubs opened within a specific quarter, relative to the second quarter of 2018.
The average number of active clients per Stone Hub for the first quarter of 2018 has been indexed to 100 for the purpose of this
analysis.



LOGO



On a same hub analysis considering hubs
that were active in October, 2017, we were able to grow revenues by 128% in the fourth quarter year over year while growing the
number of sales people by only 8%, which shows that our teams are able to scale the business consistently as they mature. Also,
this reflects in the 111% growth on revenue per salesperson in the period compared to an inflation growth of 4%.



LOGO



LOGO



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Integrated Sales and Distribution



We distribute our technology and solutions
to digital merchants primarily through highly trained sales and technical personnel and software vendors that have expertise in
business process engineering and product development for digital solutions. These include:



| | · | Special Services—Our highly-specialized team of digital commerce experts. This team has a deep technical
knowledge of our capabilities which enables them to target digital merchants, PSPs and marketplaces that we believe would most
benefit from our digital commerce solutions. The Special Services team hosts initial discovery meetings with potential clients
to understand their needs, and then meets with their technology developers and architects to design digital commerce solutions
that meet the client’s needs. This team positions us as a trusted technology provider and a key business partner for our
digital and integrated clients, and helps promote loyalty and long-term value.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | ISVs—Our technology distribution partners. ISVs develop vertical-specific software for merchants that help
them run their front-of-house functions and back-office operations. We integrate and embed our connection, payment acceptance,
and data reconciliation capabilities into their software in order to improve functionality and convenience. ISVs may also participate
in a portion of the economics generated by payments processed through their software.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Inbound Sales and Distribution



We also sell our solutions to brick-and-mortar
and digital merchants through a similar, highly trained sales team that is centrally located and dedicated to fielding in-bound
calls and sales leads. This team can manage and onboard a new client in-house.



Customer Service and Support



We service and support our clients with
fast, convenient, and high-quality customer service and support teams and technology tools that we believe are highly differentiated,
and have enabled us to achieve the highest NPS among our peers in our key markets in Brazil in 2018. Our service and support functions,
processes and tools were designed to embody our strong client-centric culture, continuously strengthen our client relationships,
and increase the long-term value of our client relationships. These teams and tools include:



| | · | Client Relationship Team—This is a centralized, in-house customer relationship team largely consisting
of technically trained agents trained in-house and equipped with the data, technology, and autonomy to resolve our clients’
needs. First-call resolution is a key goal of our customer support operation, and in December 2018, 86% of our clients who called
our customer relationship team had their issues resolved on the first call. 94% of these calls were answered within 20 seconds
and 91% were rated as “excellent” by our clients according to our internal surveys.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Client Retention Team—This is a centralized team that is responsible for trying to keep clients who are
considering canceling the services we provide. If a client calls our client relationship team to cancel their services, our retention
team is notified and contacts the client within one business day. Our retention team studies the client’s profile, speaks
with them to understand the cause of their cancelation, and discusses potential ways in which we can better serve them. We also
have an adjacent data analytics group that constantly monitors our clients, uses AI technology to predict potential churn, and
proactively identifies possible actions that our client retention team could take to reverse the propensity for churn.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Green Angels—These are teams of local, specialized personnel, who provide on-demand logistics support in
the field. Green Angel teams are embedded inside our local Stone Hubs, where they interact with Stone Missionaries
and our centralized client relationship team and leverage our cloud-based logistics platform to rapidly respond to the needs of
our clients. Once they become aware of an issue, our Green Angels commonly travel by motorcycle and reach our clients within
minutes or hours to help a client in need instead of taking days or weeks, through mail service, or using a third-party logistics
company. Green Angels can deliver terminals, help with installation, set up a merchant’s wi-fi connectivity, replace
parts, or provide other services.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | CRM AI Technology—We use a range of integrated systems, powered by the Stone Technology Platformand
artificial intelligence, which empower our client relationship, client retention and Green Angel teams, and enable us to
optimize our customer service and support functions. For example:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Celebro—This is a system that helps our client relationship, client retention and Green Angel teams
manage service calls and access a 360-degree view of our clients through an integrated dashboard to view client sales, payments,
logistics issues, activity history, registry data and more. This system integrates real-time data from our authorization and processing
systems, salesforce management applications, and logistics management systems and can provide our personnel with the responses
for a client’s particular service call issue.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The Professor—This is an AI-based system that provides predictive modeling of client behavior and activity.
The system constantly gathers information from Celebro and other databases to understand our clients’ historical patterns,
monitor their activity, and proactively identify anomalies that may indicate a potential client service issue or an opportunity
to upsell a new solution. Our customer service and support teams use The Professor to identify and resolve a client’s
issues, sometimes even before the client is aware themselves, which can create a superior client experience, reinforce our client-centric
positioning, and strengthen our relationship.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Stone Self-Service Tools—We also offer a range of apps, online portals, and self-service tools that help
our clients check all of their data, manage their operations more conveniently, and solve certain issues by themselves, according
to their preference.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition to achieving the highest NPS
among our peers in our key markets in Brazil, we believe our use of technology to support our customer service team and our focus
on self-service tools provide us with scalable customer service operations, while maintaining the quality of our services. As shown
in the charts below, we have grown our active client base while maintaining a relatively stable customer service headcount, reducing
total number of calls per active client, and sustaining the same level of perceived quality by our clients.



LOGO



LOGO



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LOGO





Our Operations



We run and manage our operations with dedicated
teams of specialized and experienced personnel that run various administrative, processing, and back-office functions. These enable
us to serve, fulfill, and support our clients in a high-quality and efficient manner, and help us achieve operating efficiencies
and minimize operating risks. These functions include:



| | · | Client Onboarding—Our client onboarding team works closely with our Stone Missionaries and other sales
teams to provide a smooth and efficient transition from sales, to implementation and ongoing client services. Our onboarding team
is highly trained and relies on advanced technologies, including risk assessment tools that collect public and private market information,
to:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | appropriately evaluate, document, and onboard new merchants quickly and safely using digital applications;
| | - | ----------------------------------------------------------------------------------------------------------



| | · | carry out appropriate Know Your Customer and Anti-Money Laundering assessments, check appropriate databases, such as OFAC,
and run various other internal procedures;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | continuously monitor the risk profile of our client portfolio to determine adherence to our internal policies; and
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | ensure the appropriate application and implementation of solutions and safeguards, based on a clients’ specific business
model and inherent risks.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Settlement Operations—Our settlement operation team manages the clearing and settlement processes of our transaction
processing functions with financial institutions and payment schemes. This team ensures that our transaction processes and fee
collections adhere to the appropriate regulations and payment scheme rules, and help safeguard our clients’ receivables and
our operations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Chargeback Operations—Our chargeback team uses agile monitoring technology to secure payment transactions carried
out on our platform and identify potentially fraudulent or improper sales. They manage processes to enhance our ability to prevent
and manage fraud risk and avoid potential losses for our clients’ and our own operations. The team also provides support
on behalf of our clients when disputed charges are filed, working closely with payment scheme settlors and card issuers involved
in disputed transactions and, when appropriate, opens claim processes to seek reversal of the chargeback.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Logistics Management—Our logistics management team manages the deployment of POS devices and related accessories
and uses predictive modeling of merchant behavior to proactively identify potential client logistics service issues. This centralized
team manages terminal programming and equipment services, deployment, set-up, technical support, repair and replacement, remote
terminal software updates, warehousing, and inventory control and reporting. They communicate with and deploy our local Green
Angels to provide on-demand support.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Risk Management, Compliance and Controls



We have made significant investments and
have retained key personnel to manage our risk management, compliance and controls functions. These teams help us identify and
understand the risks to which we are exposed while conducting our activities, and they enable us to effectively manage, mitigate,
and/or monitor them to protect our operations, our clients, and our partners. We continuously seek to enhance our risk management,
compliance



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and controls functions by improving our processes and making
investments in technology and personnel in these areas, including:



| | · | Risk Management—We face operational risks inherent to our business, such as those discussed in “Item 3.
Key Information—D. Risk factors—Risks Relating to Our Business and Industry.” We have risk management teams allocated
across our operations that work with consultants and advanced technology in order to assess, plan, and implement strategies to
minimize any potential risks and adverse effects on our operations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Compliance and Controls—Our compliance and controls teams monitor risks, including those of third parties such
as merchants, suppliers, PSPs, business partners, and others. This team advises on and oversees the implementation of effective
risk management actions, and addresses process and control inadequacies. Our compliance and controls team continuously manages
and executes a compliance program designed to map out and assure compliance with all of our internal risk policies and regulatory
compliance requirements. To achieve this, the team seeks to ensure that:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Internal compliance and risk policies and appropriate training are continuously implemented and updated;
| | - | --------------------------------------------------------------------------------------------------------



| | · | Internal and third-party operations are assessed and audited to validate that they comply with all policies and requirements
in an ongoing manner; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Actions are promptly taken to avoid potential reoccurrences, including appropriate reporting and revising of processes, policies,
and controls.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



Our Proprietary Technology



We developed and operate the Stone Technology
Platform, which brings together an integrated suite of advanced technologies designed to provide differentiated capabilities
and seamless omni-channel commerce client experiences in a more secure, all-in-one environment. Our platform was developed to operate
in a completely digital environment and enables us to develop, host, and deploy our solutions, conduct a broad range of transactions
seamlessly across in-store, online and mobile channels, manage our distribution hubs, and optimize our client support functions—all
in a fully-digital, fully-integrated and holistic manner. Given its digital DNA and cloud-based architecture, our platform is agile,
reliable, and scalable with fast processing speeds and a broad range of capabilities that can be maintained and expanded relatively
easily and cost-effectively. The advanced nature and flexibility of our platform enables us to provide a number of technologies
and benefits, which we believe provides operating advantages, including the ability to:



| | · | Connect and Integrate Easily with Our Clients—We develop and provide a range of powerful connection and integration
technologies, user-friendly client portals, and convenient reporting tools that are simple and easy to use. These were designed
to eliminate the technical complexity and difficulty that many clients and partners typically encounter when trying to conduct
electronic commerce, and they are designed to require minimum effort to implement by our clients or our personnel. We have publicly
published our proprietary APIs, which provide a set of programming instructions and standards to access and connect to our systems.
We have also developed a set of SDKs, which provide software development tools, code, and documentation to help third-party developers
create applications on our platform. Together, these help our clients connect to our systems easily and make us a partner of choice
for many ISVs, PSPs, and marketplaces seeking to do business in Brazil.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Provide Seamless Omni-Channel Experiences—We designed our platform to enable merchants to conduct commerce and
reconcile data seamlessly across various sales channels in a single, brick-and-mortar store or multi-location environment, online
through an e-commerce or mobile commerce-enabled website, or inside of a mobile application. We believe that this provides a competitive
advantage that appeals to merchants and integrated partners who are increasingly operating across more than one channel and are
looking to provide their consumers with a streamlined shopping experience.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Implement and Deploy New Capabilities—We utilize our digital, cloud-based architecture and integration capabilities
to implement and deploy new features and technologies to our clients and integrated
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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partners. Our technology platform
provides the flexibility to do this easily without the need for expensive upgrades, complex conversions, or lengthy service disruptions.
This enables us to provide our clients with the latest functionality in a quick and frictionless process. In addition, our architecture
and infrastructure are designed for rapid scalability, which enables us to expand our capacity and manage utilization efficiently
and cost-effectively.



| | · | Utilize AI and Machine Learning Technology—The digital DNA and cloud-based architecture of our platform enables
us to generate, capture, and aggregate a vast array of data across our various business activities. For example, we have developed
and deployed machine-learning technologies throughout our enterprise to leverage this data to improve the speed, functionality,
and quality of many of our services and operations. For example, we use AI to (1) predict merchant behavior and enable proactive
action by our sales teams; and (2) increase the accuracy of our fraud management. In addition, we use AI in many of our internal
processes to create better efficiencies and performance. For example, we use AI to (1) improve the management and interpretation
of our operational KPIs; and (2) better predict cultural fit, job satisfaction, and long-term performance of job candidates
during our talent recruitment and retention processes.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Operate at Low Marginal Costs—The architecture and various operating advantages of the Stone Technology Platform
enable us to run our business increasingly efficiently and with lower incremental transaction costs.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Key Technology Components



Our Stone Technology Platformis
comprised of several integrated systems managed by our technology and product development team, which had 502 team members as of
December 31, 2018. Some of the key components include:



| | · | Infrastructure—Our proprietary infrastructure’s architecture was designed to provide a high level of performance
and security to meet the demands of our business. We have private and public cloud-based servers, along with mirrored data centers,
dedicated disaster recovery centers, and global load balancers. Our private data centers give us the flexibility, scalability and
cost-effectiveness of the public cloud infrastructure, with the control and reliability of a private cloud environment.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | POS System—We developed and operate a POS operating system, called Mamba, that runs on Linux and Android-based
point of sale terminals, and offers simple features and functions that enhance the user experience. Our Mamba POS system
also enables us to integrate our platform with a broad range of POS manufacturers, third-party software, our proprietary app store,
and other app stores.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | POS App Store—We developed and operate a proprietary, cloud-based app store that hosts third-party applications
that can be accessed and used by our Mamba-run POS devices. This app store also provides software developers with access
to our POS system’s code, SDKs, and certain standards to help them create new applications for clients and their consumers
to use on our Mamba POS devices.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | POS Connectivity Technology—Our POS operating system also utilizes Unstructured Supplementary Data, or USSD, technology,
which gives our terminals additional connectivity capabilities when conventional networks such as 2G, 3G and wi-fi are not fully
functional. This functionality is relevant and differentiated in more remote regions of the country and enables us to reduce connectivity
failures, increase the number of transactions we process, and improve our clients’ experience and perception of our company.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Processing System—We developed and operate an advanced front-end authorization processing system, which captures
and processes all major card capture methods, including EMV, magnetic stripe, and contactless, among others. We also developed
and operate an advanced back-end processing system that provides transaction clearing and settlement. These integrated systems
have some of the highest transaction speeds in the market, and are fully compliant with all local and international regulatory
requirements and security standards.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Network Operations Center—We operate a proprietary Network Operational Center, or NOC, that actively monitors
our operations in real time, 24 hours per day and 7 days per week. Our NOC tracks each step of our payment transactions, the availability
of payment scheme systems, telecom services providers’ systems, issuers’ systems,
and latency and conversion rates. Our NOC manages notification and escalation rules used by developers to evaluate their services,
by business teams to be aware of any potential threat to our clients, and by some of our largest clients through direct communication.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Information and Cybersecurity—Our well-trained and dedicated team of information security and cybersecurity professionals
holds various certifications, including Sans, NIST, EC-Council and ISACA, and monitor our systems and transactions around the clock
and work to keep our data secure. This team monitors and upholds stringent security and compliance policies in line with global
best practices, including the Payment Card Industry Data Security Standard (PCI-DSS). This team and its technologies monitor all
employees and third-parties who access our platforms, and manage tight authentication controls and physical authorization technologies
in all of our operating environments. We also have adopted safe coding and development practices.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Product Development—We use a unique, client-centric product development approach and continuous deployment process
to create and deliver fast, advanced, and easy-to-use solutions to our clients. Our development is driven by multi-function development
teams that leverage user-experience designers and agile development methods. We use project management and design thinking flow
tools and have implemented lean practices in product development. We frequently measure merchant satisfaction and product performance
indicators—such as adoption, retention and engagement ratios—to come up with new and better potential solutions. Our
new solution and features launches are preceded by extensive integration tests and pilot testing with real customers before roll-out.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We currently rely on PAX to manufacture
and assemble a significant amount of our POS devices. For more information, see “Item 3. Key Information—D. Risk factors—Risks
Relating to Our Business and Industry—We are dependent on a single manufacturer for a substantial amount of our POS devices.
We are at risk of shortage, price increases, changes, delay or discontinuation of key components from our POS device manufacturers,
which could disrupt and harm our business.”



Our Competition



The Brazilian payments industry is highly
competitive and fast-changing. We face competition to acquire merchants from a variety of providers of payments and payment-related
services. Our primary competitors include traditional merchant acquirers such as affiliates of financial institutions and well-established
payment processing companies, including Cielo S.A., a company controlled by Banco Bradesco S.A. and Banco do Brasil S.A., Redecard
S.A., a subsidiary of Itaú Unibanco Holding SA, Getnet Adquirência e Serviços para Meios de Pagamento S.A.
(Santander Getnet), a subsidiary of Banco Santander (Brasil) S.A. Our other competitors include other payment processing companies,
such as PagSeguro Digital Ltd., First Data Corporation, Global Payments—Serviços de Pagamentos S.A., a subsidiary
of Global Payments Inc., Banrisul Cartões S.A.(known as Vero), a subsidiary of Banrisul S.A., Adyen B.V. and SafraPay, a
unit of Banco Safra S.A. We also face competition from non-traditional payment processors and banks that have significant financial
resources and develop different kinds of services, including gateways, PSPs, other reconciliation providers, ERPs, banking services
and credit operations.



Like the digital payments industry in general,
we believe that other means of payment, both digital and traditional, including cash, checks, money orders and electronic bank
deposits or transfers, compete indirectly with our products and services.



The most significant competitive factors
in this segment are price, brand, breadth of features and functionality, scalability and service capability. While competitive
factors and their relative importance vary based on the size, industry and focus of each merchant, we seek to differentiate ourselves
from our competitors through our disruptive business model.



For information on risks relating to increased
competition in our industry, see “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and
Industry—If we cannot keep pace with rapid developments and change in our industry and continue to acquire new merchants,
the use of our services could decline, reducing our revenues” and “Item 3. Key Information—D. Risk factors—Risks
Relating to Our Business and Industry—The payment processing industry is highly competitive, and we compete with certain
firms that are larger and that have greater financial resources. Such competition could adversely affect the transaction and other
fees we receive from merchants and financial institutions, and as a result, our margins,
business, financial condition and results of operations.”



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Seasonality



We have experienced in the past, and
expect to continue to experience, seasonal fluctuations in our revenues as a result of consumer spending patterns.
Historically, our revenues have been strongest during the last quarter of each year as a result of higher sales during the
Brazilian holiday season. This is due to the increase in the number and amount of electronic payment transactions related to
seasonal retail events. Adverse events that occur during these months could have a disproportionate effect on our results of
operations for the entire fiscal year. As a result of quarterly fluctuations caused by these and other factors, comparisons
of StoneCo Ltd.’s operating results across different fiscal quarters may not be accurate indicators of its future
performance. For additional information, see “Item 3. Key Information—D. Risk factors—Risks Relating to Our
Business and Industry—Our operating results are subject to seasonality, which could result in fluctuations in our
quarterly profit.”



Regulatory Matters



Our business is subject to a number of
laws and regulations that affect payment schemes and payment institutions, many of which are still evolving and could be interpreted
in ways that could harm our business. While it is difficult to fully ascertain the extent to which new developments in the field
of law will affect our business, there has been a trend towards increased consumer and data privacy protection. It is possible
that general business regulations and laws, or those specifically governing payment institutions, may be interpreted and applied
in a manner that may place restrictions on the conduct of our business. Below is a summary of the most relevant laws that apply
to the operations of the SPB.



Regulation of the SPB



Our activities in Brazil are subject to
Brazilian laws and regulations relating to payment schemes and payment institutions. Law No. 12,865/13, which was enacted
on October 9, 2013, establishes the first set of rules regulating the electronic payments industry within the overall Brazilian
Payment System (the Sistema de Pagamentos Brasileiro, or SPB) and creates the concepts of payment schemes, payment scheme
settlors and payment institutions.



In addition, Law No. 12,865/13 gave
the Central Bank, in accordance with the guidelines set out by the CMN, and the CMN authority to regulate entities involved in
the payments industry. Such authority covers matters such as the operation of these entities, risk management, the opening of payment
accounts, and the transfer of funds to and from payment accounts. After the enactment of Law No. 12,865/13, the CMN and the
Central Bank created a regulatory framework regulating the operation of payment schemes and payment institutions. The framework
consists of Resolutions 4,282, Circulars 3,680, 3,681 and 3,682, as amended, all of which were published on November 4, 2013,
and Circular 3,885 published on March 26, 2018, among others.



Payment Schemes



A payment scheme, for Brazilian regulatory
purposes, is the collection of rules and procedures that governs payment services provided to the public, with direct access by
its end users (i.e. payors and receivers). In addition, such payment service must be accepted by more than one receiver in order
to qualify as a payment scheme:



| | · | Payment schemes that exceed certain thresholds are considered to form part of the SPB and are subject to the legal and regulatory
framework applicable to the payment industry in Brazil, including the requirement to obtain an authorization by the Central Bank.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Payment schemes that operate below these thresholds are not considered to form part of the SPB and are therefore not subject
to the legal and regulatory framework applicable to the payment industry in Brazil, including the requirement to obtain an authorization
from the Central Bank, although they are required to report certain operational information to the Central Bank on an annual basis.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Limited-purpose payment schemes are not considered to form part of the SPB and, therefore, are not subject to the legal and
regulatory framework applicable to the payment industry in Brazil, including the requirement to obtain authorization from the Central
Bank. Limited-purpose payment schemes are those whose payment orders are: (a) accepted only at the network of merchants that
clearly display the same
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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visual identity as that of the issuer,
such as franchisees and other merchants licensed to use the issuer’s brand; or (b) intended for payment of specific
public utility services, such as public transport and public telecommunications, or (c) related to employee benefits established
by law (such as meal vouchers).



| | · | Certain types of payment schemes have specific exemptions from the requirement to obtain authorization from the Central Bank.
This applies, for example, to payment schemes set up by governmental authorities, payment schemes set up by certain financial institutions,
payment schemes aimed at granting benefits to natural persons due to employment relationships and payment schemes set up by an
authorized payment institution in which financial settlement of payment transactions are carried out exclusively using the book-transfer
method.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Payment Scheme Settlor



A payment scheme is set up and operated
by a payment scheme settlor, which is the entity responsible for the payment scheme’s authorization and function. Payment
scheme settlors, for Brazilian regulatory purposes, are the legal entities responsible for managing the rules, procedures and the
use of the brand associated with a payment scheme. Central Bank regulations require that payment scheme settlors must be (i) incorporated
in Brazil, (ii) have a corporate purpose compatible with its payments activities and (iii) have the technical, operational,
organizational, administrative and financial capacity to meet their obligations. They must also have clear and effective corporate
governance mechanisms that are appropriate for the needs of payment institutions and the users of payment schemes.



Payment Institutions



A payment institution is defined as the
legal entity that participates in one or more payment schemes and is dedicated to the execution of the remittance of funds to the
receivers in payment schemes, among other activities. Specifically, based on the Brazilian payment regulations, payment institutions
are entities that can be classified into one of the following three categories:



| | · | Issuers of electronic currency (prepaid payment instruments): These payment institutions manage prepaid payment accounts for
cardholders or end-users. They carry out payment transactions using electronic currency deposited into such prepaid accounts, and
convert the deposits into physical or book-entry currency or vice versa.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Issuers of post-paid payment instruments (e.g. credit cards): These payment institutions manage payment accounts where the
end-user intends to make payment on a post-paid basis. They carry out payment transactions using these post-paid accounts.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Acquirers: These payment institutions do not manage payment accounts, but enable merchants to accept payment instruments issued
by a payment institution or by a financial institution that participates in a payment scheme. They participate in the settlement
process for payment transactions by receiving the payment from the card issuer and settling with the merchant.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Payment institutions must operate in Brazil
and must have a corporate purpose that is compatible with payments activities. As for payment schemes, the regulations applicable
to payment institutions depend on certain features, such as the annual cash value of transactions handled by the payment institution
or the value of resources maintained in prepaid payment accounts. Certain financial institutions have specific exemptions from
the requirement to obtain authorization from the Central Bank to act as a payment institution and provide payment services. Furthermore,
certain payment institutions are not subject to the legal and regulatory framework applicable to the payment industry in Brazil.
This applies, for example, to payment institutions that only participate in limited-purpose payment schemes and payment institutions
that provide services in the scope of programs set up by governmental authorities aimed at granting benefits to natural persons
due to employment relationships.



The CMN and Central Bank regulations applicable
to payment institutions cover a wide variety of issues, including (i) penalties for noncompliance; (ii) the promotion
of financial inclusion; (iii) the reduction of systemic, operational and credit risks; (iv) reporting obligations; and
(v) governance. The regulations applicable to payment institutions also cover “payment accounts” (contas de
pagamento), which are the end-user accounts, in registered (i.e., book-entry) form, which are opened with payment institutions
that are card issuers of prepaid or post-paid instruments and used for carrying out each payment transaction.
Circular No. 3,860/13 classifies payment accounts into two types:



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| | · | Prepaid payment accounts: Where the funds have been deposited into the payment account in advance of the intended payment transaction;
and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | · | Post-paid payment accounts: Where the payment transaction is intended to be performed regardless of whether or not funds have
been deposited into the payment account in advance.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In order to provide protection from bankruptcy,
Law No. 12,865/13 requires payment institutions that issue electronic currency to segregate the funds deposited in prepaid
payment accounts from their own assets. In addition, with respect to prepaid electronic currency, the payment institutions must
hold a portion of the funds deposited in the prepaid payment account in certain specified instruments: either (i) in a specific
account with the Central Bank that does not pay interest; or (ii) in federal government bonds registered with the SELIC. The
portion of the prepaid electronic currency that must be held in this form is currently 100%.



Our Regulatory Position



Three of our subsidiaries perform activities
that are in particular subject to Law No. 12,865/13 and regulations from the Central Bank and the CMN, which are Stone Pagamentos
S.A., or Stone Pagamentos, MNLT Soluções de Pagamento S.A. (formerly Elavon), or EdB, and Pagar.me Pagamentos S.A.,
or Pagar.me. As required by the applicable regulations, the three of them have all applied for licenses of operation within the
Central Bank, which current status follows below:



| | · | Stone Pagamentos was granted a license to operate as a payment institution in the acquirer category on July 3, 2017, and
in the issuer of electronic currency category on April 24, 2018;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | EdB applied for a license to operate as a payment institution in the acquirer category on June 22, 2014. On June 3, 2016,
EdB informed the Central Bank regarding the EdB Acquisition and submitted supplemental documentation in connection with the license
application. As of the date of this annual report, the Company is revising its strategic position regarding EdB license and therefore
is currently discussing directly with Central Bank as to the need for EdB’s license application;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Pagar.me applied for a license to operate as a payment scheme settlor on February 3, 2017, and as a payment institution
in the acquirer and issuer of electronic currency category on April 7, 2017. Due to recent changes in the Central Bank regulation,
Pagar.me’s payment scheme is no longer subject to the authorization of Central Bank. Therefore, Pagar.me’s
application for authorization as a payment scheme was dismissed by the Central Bank on June 8, 2017. In regard to the application
for a license to operate as a payment institution, Pagar.me has supplemented the documentation submitted to the Central
Bank in the application for authorization, and is currently waiting for the Central Bank’s approval; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Stone Sociedade de Crédito Direto S.A. applied for a license to operate as a direct credit corporation (sociedade
de crédito direto) on March 18, 2019.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



Since its license to operate was granted
by the Central Bank, Stone Pagamentos has been in compliance with applicable payment laws and regulations. Pagar.me is in
a period of transition and adaptation to the payment laws and regulations, given that the request for authorization filed by Pagar.me
with the Central Bank is still undergoing review. In this sense, its policies and operational routines are being created and adapted,
and the changes that have been implemented in Stone Pagamentos for purposes of adapting to the payment rules will be replicated
in Pagar.me.



In addition, Law No. 12,865/2013 prohibits
payment institutions from performing activities that are restricted to financial institutions, which are regulated by Law No. 4,595/1964.
There is some debate under Brazilian law as to whether providing early payment of receivables to merchants could be characterized
as “lending,” which is an activity that is restricted to financial institutions. Similarly, there is some debate as
to whether the discount rates applicable to this early payment feature should be considered as “interest,” in which
case the limits set by the Brazilian Usury Law would apply to these rates.



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For transactions that form part of the
Brazilian financial system, financial institutions may set interest rates freely, provided that they are not excessively burdensome
to consumers. For transactions that do not form part of the Brazilian financial system, the Brazilian Usury Law (Decree-Law No. 22,623/1933)
capped interest rates at 12% per year. Subsequently, the Brazilian Civil Code, which replaced the Usury Law, capped interest rates
at two times the interest rates applicable to National Treasury (Fazenda Nacional), which is currently the SELIC rate (although
there is some legal debate as to whether the Brazilian Civil Code has effectively replaced the original Usury Law). As a result,
if the discount rate that we charge merchants for early payment of their receivables is considered to be “interest,”
it would be capped at two times the SELIC rate.



If we fail to comply with the requirements
of the Brazilian legal and regulatory frameworks, we could be prevented from carrying out our regulated activities, we could be
(i) required to pay substantial fines (including per transaction fines) and disgorgement of our profits, (ii) required
to change our business practices or (iii) subjected to insolvency procedures such as an intervention by the Central Bank and
the out-of-court liquidation of Stone Pagamentos. We could also be subject to private lawsuits. For additional information,
see “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and Industry—Our business is
subject to extensive government regulation and oversight in Brazil and our status under these regulations may change. Violation
of or compliance with present or future regulation could be costly, expose us to substantial liability and force us to change our
business practices, any of which could seriously harm our business and results of operations.”



The Central Bank’s regulations also
allow payment schemes to set additional rules for entities that use their brands. Since we participate in these third-party payment
schemes, we must comply with their rules in order to continue accepting payments from payment instruments bearing their brands.



Anti-Money Laundering Rules



Our activities in Brazil are subject to
Brazilian laws and regulations relating to anti-money laundering, or AML, terrorism financing and other potentially illegal activities.
These rules require us to implement policies and internal procedures to monitor and identify suspicious transactions, which must
be duly reported to the relevant authorities.



We comply with the applicable AML laws
and regulations and we have implemented required policies and internal procedures to ensure compliance with such rules and regulations,
including procedures to report suspicious activities, suspected terrorism financing and other potentially illegal activities to
the authorities. Our employees are aware of our policies and internal procedures, which shall be mandatorily complied with and
supervised. We also have an internal division focused on the prevention of risks and fraud, which is led by a specialized risk
officer.



The Brazilian AML law specifies the acts
that may constitute a crime and the required measures to prevent such crimes. It also prohibits the concealment or dissimulation
of the origin, location, availability, handling or ownership of assets, rights or financial resources directly or indirectly originated
from crimes, and subjects the agents of these illegal practices to imprisonment, temporary disqualification from managing enterprises
up to 10 years and monetary fines.



The Brazilian AML law also created the
Financial Activities Control Council, or COAF, which is the Brazilian financial intelligence unit that operates under the jurisdiction
of the Ministry of Finance. COAF has a key role in the Brazilian AML and counter-terrorism financing system, and it is legally
liable for the coordination of the mechanisms for international cooperation and information exchange.



We have adopted the internal controls and
procedures required by the Brazilian AML rules, which are focused on:



| | · | identifying and knowing our clients;
| | - | ------------------------------------



| | · | checking the compatibility between the volume of funds of a client and such client’s economic and financial capacity;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | checking the origin of funds;
| | - | -----------------------------



| | · | carrying out a prior analysis of new products and services, under the perspective of money laundering prevention;
| | - | -----------------------------------------------------------------------------------------------------------------



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| | · | keeping records of all transactions;
| | - | ------------------------------------



| | · | reporting to COAF, within one business day and without informing the involved person or any third party, (i) any transaction
exceeding the limit set by the competent authority and as required under applicable regulations; (ii) any transaction deemed to
be suspicious, as required under applicable regulations; and (iii) at least once a year, whether or not suspicious transactions
are verified, in order to certify the non-occurrence of transactions subject to reporting to COAF (negative report);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | applying special attention to (i) unusual transactions or proposed transactions with no apparent economic or legal bases; (ii)
clients and transactions for which the UBO cannot be identified; and (iii) situations in which it is not possible to keep the clients’
identification records duly updated;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | offering anti-money laundering training for employees;
| | - | ------------------------------------------------------



| | · | monitoring transactions and situations which could be considered suspicious for anti-money laundering purposes;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | ensuring that policies, procedures and internal controls are commensurate with the size and volume of transactions; and
| | - | -----------------------------------------------------------------------------------------------------------------------



| | · | the unavailability of goods, values and rights possessed, directly or indirectly, by any individual or legal entity sanctioned
by any resolution of the United Nations Security Council.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



E-Commerce, Data Protection, Consumer
Protection and Taxes



In addition to regulations affecting digital
payment schemes, we are also subject to laws relating to internet activities and e-commerce, as well as banking secrecy laws, consumer
protection laws, tax laws and other regulations applicable to Brazilian companies generally. Internet activities in Brazil are
regulated by Law No. 12,965/14, known as the Brazilian Civil Rights Framework for the internet, which embodies a substantial
set of rights of internet users and obligations relating to internet service providers. This law exempts intermediary platforms
such as Stone Co. or EdB from liability for user generated content and certain activities carried out by their users. Since the
Brazilian Civil Rights Framework for the internet is a new legislation and, therefore, there are few court decisions in this area,
it is still possible that we may be subject to joint civil liability for activities carried out by our users.



Law No. 8,078/90, known as the Consumer
Protection Code, regulates consumer relations in Brazil, including matters such as: commercial practices; product and service liability;
areas where suppliers of products or services are subject to strict liability; the reversal of the burden of proof so as to benefit
consumers; the joint and several liability of all companies within a supply chain; unfair contract terms; advertising; and information
on products and services that are offered to the public. Consumers have the right to receive clear and accurate information regarding
retail products and services, with correct specification of characteristics, structure, quality, price, risks, and consumers’
rights to access and amend personal information collected about them and stored in private databases.



Customer accounts on our digital platform
are subject to data protection under the Brazilian Civil Rights Framework for the internet and bank secrecy laws (Complementary
Law 105/01 c/c/ Article 17 of the CMN’s Resolution No. 4,282/13). We are also subject to trademark protection rules,
and to tax laws and related obligations such as the rules governing the sharing of customer information with tax and financial
authorities. It is unclear whether the tax and regulatory authorities would seek to obtain information regarding our customers.
Any such request could come into conflict with the data protection rules, which could create risks for our business.



The laws and regulations applicable to
the Brazilian digital payments industry are subject to ongoing interpretation and change, and our digital payments business may
become subject to regulation by other authorities. For further information on the risks relating to regulation of business, please
see “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and Industry—Our business is
subject to extensive government regulation and oversight and our status under these regulations may change. Violation of or compliance
with present or future regulation could be costly, expose us to substantial liability and force us to change our business practices,
any of which could seriously harm our business and results of operations.”



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Consumer
Protection Laws



Brazil’s Consumer Protection Code
(Código de Defesa do Consumidor) sets forth the legal principles and requirements applicable to consumer relations
in Brazil. This law regulates, among other things, commercial practices, product and service liability, strict liability of the
supplier of products or services, reversal of the burden of proof to the benefit of consumers, the joint and several liability
of all companies within the supply chain, abuse of rights in contractual clauses, advertising and information on products and services
offered to the public. Specifically, we are subject to several laws and regulations designed to protect consumer rights—most
importantly, Law No. 8,078 of September 11, 1990—known as the Consumer Protection Code. The Consumer Protection Code establishes
the legal framework for the protection of consumers, setting out certain basic rights, and the consumers’ rights to access
and modify personal information collected about them and stored in private databases. These consumer protection laws could result
in substantial compliance costs.



Data Privacy
and Protection



The Brazilian Civil Rights Framework for
the internet establishes principles, guarantees, rights and duties for the use of the internet in Brazil, including regulation
about data privacy for internet users. Under Brazilian law, personal data may only be treated (i.e., collected, used, transferred,
etc.) upon users’ prior and express consent. Privacy policies of any company must be clear and detailed and include information
regarding all contemplated uses for such users’ data and excessively ample or vague consent for data treatment may be deemed
invalid in Brazil.



Furthermore, consent from users must be
obtained separately and contractual clauses relating to consent must be specifically highlighted. Brazilian courts have applied
joint and several liability among all entities that shared and/or used personal data subject to a breach. See “Item 3. Key
Information—D. Risk factors—Risks Relating to our Business and Industry—Unauthorized disclosure, destruction
or modification of data, through cybersecurity breaches, computer viruses or otherwise or disruption of our services could expose
us to liability, protracted and costly litigation and damage our reputation.”



On August 14, 2018, the Brazilian President
signed Law No. 13,709 (Lei Geral de Proteção de Dados,or the LGPD), a comprehensive data protection law establishing
general principles and obligations that apply across multiple economic sectors and contractual relationships. The LGPD establishes
detailed rules for the collection, use, processing and storage of personal data and is expected to affect all economic sectors,
including the relationship between customers and suppliers of goods and services, employees and employers and other relationships
in which personal data is collected, whether in a digital or physical environment. Moreover, on December 28, 2018, the President
enacted Provisional Measure No. 869 of 2018, which amended certain provisions of the LGPD and created the ANPD. The ANPD will be
a administrative body, connected to the Cabinet of the Presidency, with technical autonomy, but no financial and budgetary autonomy.
The ANPD is expected to have the following responsibilities, among others: (i) enact rules and regulations relating to data protection;
(ii) analyze and interpret, in the administrative sphere, matters relating to the LGPD; (iii) request access to information from
data controllers and processors; (iv) supervise processing activities and impose sanctions; and (v) promote cooperation with international
and transnational data protection authorities, among others. Provisional Measure No. 869 of 2018 also extended the original term
of 18 months for companies to become compliant with the LGPD to 24 months. In this regard, the LGPD will become effective in August
2020, by which date all legal entities will be required to conform their data processing activities to these new rules. A comprehensive
data mapping of the company’s personal data flows and the subsequent review of internal and external documents and procedures,
as well as the negotiation of contractual amendments regulating data sharing are examples of adaptations required for compliance
with the LGPD.



The foregoing list of laws and regulations
to which we are subject is not exhaustive and the regulatory framework governing our operations changes continuously. Although
we do not believe that compliance with future laws and regulations related to the payment processing industry and our business
will have a material adverse effect on our business, financial condition or results of operations, the enactment of new laws and
regulations may increasingly affect the operation of our business, directly and indirectly, which could result in substantial regulatory
compliance costs, litigation expense, adverse publicity, the loss of revenue and decreased profitability.



Intellectual Property



Most of our services are based on proprietary
software and related payment systems solutions. We rely on a combination of software laws, trademark and trade secret laws, as
well as employee and third-party non-disclosure,



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confidentiality and other types of contractual arrangements
to establish, maintain and enforce our intellectual property rights, including with respect to our proprietary rights related to
our products and services. In addition, we license technology from third parties.



As of December 31, 2018, we owned 30 trademarks
issued in Brazil, including “Stone,” “Mundipagg,” “Pagar.me,” “Equals,” “Buy4,”
and have 45 trademark applications pending in Brazil.



We have also registered several domain
names with NIC.br, Brazil’s internet domain name registry, and domain registrars in the United States and elsewhere, including
“stone.com.br,” “pagar.me,” “mundipagg.com.br,” “mundipagg.com,” “cappta.com.br,”
“equals.com.br” , “stonemais.com.br”, “stone.co” and “investors.stone.co”.



We have material contracts with Visa and
Mastercard in connection with our activities as an acquirer for these card schemes. Our Visa Payment Arrangements Participation
and Trademark License Agreement, dated as of February 19, 2016 (as amended from time to time), between Visa do Brasil Empreendimentos
Ltda. and Stone Pagamentos S.A. sets forth the general terms and conditions under which Stone Pagamentos S.A. acts as a merchant
acquiring principal participant for Visa in Brazil and provides Stone Pagamentos S.A. with a non-exclusive and non-transferable
license to use certain trademarks owned by Visa in connection with its activities as an acquirer in Brazil. Under this agreement,
Stone Pagamentos S.A. is exclusively responsible for all the costs and risks associated with its participation as a merchant acquiring
principal and consideration payable to Visa under this agreement is determined by the standard payment terms set forth in the Visa
Core Rules and Visa Product and Service Rules, available on Visa’s website. Our License Agreement, dated as of December 21,
2015 and as amended from time to time, between MasterCard International Incorporated and Stone Pagamentos S.A. sets forth the general
terms and conditions under which Mastercard grants Stone Pagamentos S.A. a non-exclusive license to use certain trade names, trademarks,
service marks and logotypes (including Mastercard, Cirrus and Maestro branded marks) in Brazil in connection with Stone Pagamentos
S.A.’s issuing and acquiring activities. No consideration is due to Mastercard under this agreement.



Trademarks



We own or have rights to trademarks, service
marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website
names. Other trademarks, service marks and trade names appearing in this annual report are the property of their respective owners.
Solely for convenience, some of the trademarks, service marks and trade names referred to in this annual report are listed without
the ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service
marks and trade names.



C.       Organizational
structure



We are an exempted company with limited
liability incorporated under the laws of the Cayman Islands with the legal name StoneCo Ltd. Our principal executive offices are
located at R. Fidêncio Ramos, 308, Vila Olímpia, 10th floor,
São Paulo—SP, 04551-010, Brazil. Our telephone number at this address is +55 (11) 3004-9680.



Investors should contact us for any inquiries
through the address and telephone number of our principal executive office. Our principal website is www.stone.co. The information
contained in, or accessible through, our website is not incorporated by reference in, and should not be considered part of, this
annual report.



We carry out our operations principally
through our Brazilian operating companies. A simplified organizational chart showing our corporate structure is set forth below.



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| | (1) | Ownership interests in these entities not held by Stone Co. or its affiliates are held by the original founders of such businesses.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



| | (2) | Formerly known as Elavon do Brasil Soluções de Pagamento S.A.
| | --- | -------------------------------------------------------------



See Exhibit 8.1 for a list of our
subsidiaries.



D.       Property, plant
and equipment



Properties



Our corporate headquarters, which includes
product development, sales, marketing, and business operations, are located in São Paulo. It consists of two offices of
3,836 and 2,814 square meters of space each under leases that expire in 2021 and 2022. We also lease 6,380 square meters of corporate
office space in Rio de Janeiro for part of our business activities, including client relationship and technology development, under
a lease that expires in 2021. In line with our business strategy, as of January 31, 2019, we had 245 operational Stone Hubs in
Brazil. We believe our facilities are sufficient for our current needs.



In addition to our corporate headquarters,
as of December 31, 2018, we leased operational, sales, and administrative facilities in Rio de Janeiro. Additionally, of December
31, 2018, we leased data center facilities in Rio de Janeiro and São Paulo in Brazil, and in Charlotte, North Carolina,
Chicago, Illinois and Atlanta, Georgia in the United States.



Many of our operational, sales, and administrative
facilities, including our corporate headquarter and hubs, are held pursuant to lease agreements. The term of our leases for our
facilities in São Paulo is greater than five years, and may be renewed with landlord consent or by filing a renewal lawsuit.
However, the term of our leases for our facilities in Rio de Janeiro is less than five years, and there is no possibility of filing
a renewal lawsuit. We may be required to vacate these facilities upon request of the landlord if we are not able to reach an agreement
to renew our leases or the terms of any renewals are unfavorable.



In addition, the lease agreements are not
registered, nor annotated on the real estate record files of the leased properties. Therefore: (i) in the event of sale of
the leased real properties to third parties, even if the lease term is effective, the new owner will be entitled to terminate the
lease upon a 90-day prior written notice period, counted as



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from the date of such acquisition, and the lessee will be forced
to vacate the real property; and (ii) the lessee will not be entitled to adjudicate the leased properties in the event the
respective lessor does not respect the lessee’s right of first refusal and sell the property to third parties.



We believe that our facilities are suitable
and adequate for our business as presently conducted. However, we periodically review our facility requirements and may acquire
new space to meet the needs of our business or consolidate and dispose of facilities that are no longer required.



ITEM 4A. UNRESOLVED STAFF COMMENTS



Not applicable.



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS



The following discussion of our financial
condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes thereto
as well as the information presented under “Item 3. Key Information—A. Selected financial data.” The following
discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from
those discussed in the forward-looking statements as a result of various factors, including those set forth in “Item 3. Key
Information—D. Risk factors.”



A.       Operating results



Overview



We are a leading provider of financial
technology solutions that empower merchants and integrated partners to conduct electronic commerce seamlessly across in-store,
online, and mobile channels. We have developed a deep client-centric culture that seeks to delight our clients rather than to simply
provide them with a solution or service. To achieve this, we created a proprietary, go-to-market approach called the Stone Business
Model, which enables us to create and adapt the client experience and interact with our clients through our people and technology.
The Stone Business Model combines our advanced, end-to-end, cloud-based technology platform; differentiated hyper-local
and integrated distribution approach; and white-glove, on-demand customer service. The Stone Business Model is disruptive
and has enabled us to gain significant traction in only five years since the launch of our service. In 2017, we also became the
first non-bank entity to obtain authorization from the Central Bank of Brazil to operate as a Merchant Acquirer Payments Institution.
In 2018, we ranked as the largest independent merchant acquirer in Brazil and the fourth largest based on total volume in Brazil,
according to data from public filings.



We currently serve over 267,000 active
clients of all sizes and types that transact online, offline or have an omni-channel sales approach, though our focus is primarily
on targeting the approximately 8.8 million small-and-medium-sized businesses, or SMBs, in Brazil. We also served over 108
integrated partners as of December 2018, which use or embed our solutions into their own offerings to enable their customers to
conduct commerce more conveniently in Brazil. These integrated partners include global payment service providers, or PSP’s,
digital marketplaces, and integrated software vendors, or ISVs. Since the roll-out of our Stone Business Model, we have
rapidly grown our client base with a particular focus on the SMB market. As a result, our volume concentration has diminished over
time. Our top ten clients represented 25.0% of TPV for the year ended December 31, 2018, which represents a 3% decrease from
28.0% for the year ended December 31, 2017. In addition, as the chart below highlights, our focus on SMB merchants has enabled
us to grow our take rate from 1.55% in the first quarter of 2017 to 1.88% in the fourth quarter of 2018, representing 33 basis
points of improvement in the period.







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The following is a summary of our key operational
and financial highlights:



| | · | We generated R$1,579.2million of total revenue and income in the year ended December 31, 2018, compared to R$766.6 million
of total revenue and income in 2017, representing period over period growth of 106.0%. In 2017. We generated R$766.6 million of
total revenue and income, compared to R$439.9 million of total revenue and income in 2016, representing annual growth of 74.3%.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We served approximately 267,900 active clients as of December 31, 2018, compared to approximately 131,200 as of December 31,
2017, representing period over period growth of 104.2%. As of December 31, 2017, we served approximately 131,200 active clients,
compared to approximately 82,000 as of December 31, 2016, representing 60.1% annual growth.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We generated net income of R$305.2 million and adjusted net income of R$342.8 million in the year ended December 31,
                                                                                                               2018, compared to a loss of R$105.0 million and adjusted net loss of R$45.2 million in the year ended December 31, 2017. In
                                                                                                               2017, we generated a loss of R$105.0 million and adjusted net income of R$45.1 million, compared to a loss of R$122.2 million
                                                                                                               and adjusted net loss of R$51.9 million in 2016. See “Item 3. Key Information—A. Selected Financial Data”
                                                                                                               for a reconciliation of adjusted net income (loss) to our profit (loss) for the year.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We processed TPV of R$83.4 billion in 2018, compared to R$48.5 billion in 2017, representing period over period growth of 71.8%.
In 2017, we processed TPV of R$48.5 billion, compared to R$28.1 billion in 2016, representing 72.6% annual growth.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Significant Factors Affecting our Results of Operations



Total Payments Volume and Processing
Fees



We derive a substantial part of our revenue
from fees earned as a percentage of the TPV of our clients. Our TPV is primarily driven by:



| | · | Growth of volume within our active client base. As our active clients grow their transaction volume, our TPV will also
grow. Our active clients are positioned in attractive growth market segments. Our focus is primarily on targeting the approximately
8.8 million SMBs in Brazil, which we believe have historically been underserved. In addition, despite the large size of Brazil’s
economy, we believe its Payments market, particularly among SMBs in small and medium cities, remains less penetrated and has greater
growth upside than more mature economies, such as the U.S. and the U.K. We also target the e-commerce market, which is expected
to grow faster than the overall Payments markets in Brazil.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Growth of our active client base. Growth of our active clients is driven by (i) growth in the number of merchants
resulting from openings and ramp-up of Stone Hubs; (ii) growth in the number of integrated partners in specific verticals
and niche market segments; and (iii) growth in our e-commerce merchant base.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our quarterly TPV grew 126.8% in a two-year
period, from R$11.7 billion for the quarter ended December 31, 2016 to R$26.6 billion for the quarter ended December 31, 2018,
and our number of active clients expanded 226.8% over the same period, from approximately 82,000 active clients as of December
31, 2016 to approximately 267,900 active clients as of December 31, 2018, as shown in the graphs below.



|LOGO |  | LOGO
|---- |  | ----

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A significant part of our net revenues
is generated through fees we charge for providing end-to-end processing services using the Stone Technology Platform, which
include the authorization, capture, transmission, processing and settlement of transactions. In the case of e-commerce merchants,
we may additionally charge a fixed fee per transaction to provide gateway services.



The fees we charge our clients for processing
services are subject to a variety of external factors such as competition, interchange and assessment fees and other macroeconomic
factors, such as interest rates, inflation, among others. Our ability to sustain or increase our fees depends on our ability to
continue to execute on our Stone Business Model and sustain a competitive advantage.



Adoption of our commerce-enabling solutions



We leverage our active client base and
distribution capabilities to generate subscription-based revenue and upsell new solutions that we may develop or acquire.



Growth of recurring revenue from our active
client base



In addition to net revenues driven by payment
processing, we also generate revenues from fixed monthly subscription fees paid by our active client base. These fees are charged
for providing different combinations of integrated service and solutions offerings to support our clients’ businesses, depending
on their specific needs. These services can include, among others, POS rental, reconciliation solutions, and business automation
solutions.



We may also generate additional revenues
within our active client base by upselling new solutions as they are developed or acquired. We expect that, by executing this strategy,
we will increase the lifetime value of our active client base. We expect to leverage our distribution capabilities through our
Stone Hubs to increase penetration of our solutions at minimal incremental costs.



Working capital solutions



We provide working capital solutions to
help merchants manage their cash flows more effectively. We offer our merchants prepayment options for their future expected receivables
from credit card installments and we charge a discount rate equivalent to a percentage of the total volume requested to be prepaid.
The discount rate depends on factors such as merchant size, the maturity of receivables to be prepaid, and local market dynamics.
An overall increase in TPV generally increases financial income from our working capital solutions due to an overall increase in
the volume of prepayments. Higher levels of installment transactions usually lead to higher demand for our working capital solutions.
On the other hand, a smaller share of credit transactions leads to a decrease in the ratio of financial income from our working
capital solutions relative to total revenue and income, since debit card transactions are not eligible for prepayment.



Due to our working capital solutions offering,
optimizing funding costs is a key driver of our margins. Through the date of this annual report, we have funded prepayments to
our active client base by (i) selling receivable rights owed to us by card issuers to banks we hold a commercial relationship
with, or to special purpose investment funds, Fundo de Investimento de Direitos Creditórios (Fund for Investment
in Credit Rights) or FIDCs, controlled by us that exclusively buy these receivables such as FIDC AR1 or AR2, (ii) using proceeds
from general third-party borrowings, and (iii) using our own capital. For further information on our FIDCs, see “—Description
of Principal Line Items—Financial Expenses, Net” and note 18 of our audited consolidated financial statements. Our
funding costs are primarily affected by our capital structure, interest rates, availability of third-party receivables financing
on attractive terms, and our ability to continue to attract investment into our FIDC AR1 and FIDC AR2 on attractive terms. See
“Item 4. Information on the Company—B. Business overview—Our Solutions—Grow Our Clients’ Businesses.”



Complement Solutions Offerings through Acquisition
and Investment Activity



We have an established track record
of investing, acquiring and integrating complementary technology solutions and businesses. Future acquisitions will likely
remain an important part of our competitive strategy in order to enhance our portfolio of offerings and execute ISV
strategies within specific verticals. Since January 1, 2016, we have made seven acquisitions and minority investments.
Five of these have been of businesses or technologies which have strengthened our solutions offerings. In addition, our
acquisition of Elavon do Brasil Soluções de Pagamento S.A.,
or EdB, on April 22, 2016 allowed us to expand our TPV and number of active clients, thereby increasing total revenue and
income.



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The financial impact of acquisitions may
affect the comparability of our results from period to period. In addition to the revenues and expenses associated with such acquisitions
only being included in our financial results for any period upon the closing of the acquisition, we will incur transaction and
other expenses associated with acquisitions, including amortization of intangibles relating to those acquisitions, which we expect
will negatively impact our profit (loss). Amortization of intangibles related to acquisitions can vary substantially from
company to company and from period to period depending upon the applicable financing and accounting methods, the fair value and
average expected life of the acquired intangible assets, the capital structure and the method by which the intangible assets were
acquired. See “—B. Liquidity and capital resources—Critical Accounting Policies and Estimates—Estimated
Useful Life of Intangible Assets.”



In connection with the acquisition of EdB
and certain other entities, we recorded amortization expense for the years ended December 31, 2018, 2017 and 2016 of R$12.6 million,
R$14.8 million and R$17.2 million, respectively, related to the fair value adjustment on intangible assets, primarily
software, and property and equipment, as a result of the application of the acquisition method.



Economies of scale resulting from our
Stone Technology Platform



Our advanced, end-to-end, cloud-based technology
platform allows us to grow our volumes and increase the number of active clients while reducing marginal transaction and operational
costs.



Due to the relatively fixed cost nature
of this platform, which relies on our data-centers and our internal team of engineers and developers, we expect that, as TPV grows,
our cost per transaction will continue to decrease. The technologically advanced and integrated nature of our platform also allows
us to run our operations in a cost-effective manner, by reducing the need for operational personnel and allowing several processes
to be run with a high level of automation. For example, we are able to quickly onboard merchants because our platform is able to
combine different sources of data and run automatic risk checks within minutes. Also, our Green Angelsteam of operations
and support personnel allows us to improve POS deployment costs as we further penetrate and grow our active client base within
our Stone Hubs.



Timing differential between future revenues
generated and operational investments



In executing the Stone Business Model,we expect to incur initial operational investments in periods prior to the realization of any future revenues associated with
this upfront investment. For example, in the process of opening a new Stone Hub, we incur the expense of hiring a team of Stone
Missionariesand Green Angelsto set up the operation. As sales productivity from this Stone Hub ramps up and marginal
operational costs are reduced, we realize greater contribution margins from our Stone Hubs. With the deployment of new and better
technologies, management processes and training, we expect the productivity of our Stone Business Modelto improve over
time.



Interchange and assessment fees



Our revenue from processing services is
mainly composed of the net merchant discount rate, or net MDR, which is a commission withheld by us from the transaction value
paid to the merchant. Our net revenue from MDR is defined as the total MDR charged to our merchants, net of interchange fees retained
by card issuers, assessment fees charged by payment scheme settlors and sales taxes. Interchange fees are set by the payment schemes
according to certain variables, including the type of card product (e.g., credit vs debit), merchant segment, type of card (e.g.
standard, gold, premium, business, others), transaction type (e.g., online vs POS terminal) and the origin of the card (international
vs. domestic). Assessment fees are charged per transaction by the payment scheme settlors, such as Visa and Mastercard, to cover
the cost of providing access to their payment network.



We are unable to predict if or when payment
schemes will increase or decrease their fees or what the amount of any such variations may be. Our standard contract with our clients
allows us to readjust our rates and tariffs by notice to the merchant to offset any increase in interchange fees. However, our
ability to adjust our pricing remains subject to a variety of factors, including competition from other payment providers, market
conditions and, in certain cases, direct price negotiations with the merchant. As a result, at times, we might not be able or willing
to pass through all increases or decreases in assessment and/or interchange fees to our clients, and therefore, increases or decreases
in these fees may reduce or increase our revenue from processing services.



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On March 26, 2018, the Central Bank of
Brazil issued a ruling whereby the interchange fees on debit cards will be subject to a cap of up to 0.8% on debit transactions,
effective October 2018. Furthermore, debit card issuers must maintain a maximum average interchange fee of 0.5% on their total
transaction volume. Before this ruling, no such cap existed. We expect that, as a result of such ruling, interchange fees passed
through, and overall prices charged to, merchants may change.



For further information, see “Item
3. Key Information—D. Risk factors—Risks Relating to Our Business and Industry—If we cannot pass increases in
fees from payment schemes, including assessment, interchange, transaction and other fees, along to our merchants, our operating
margins will decline,” and “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and
Industry—Certain ongoing legislative and regulatory initiatives under discussion by the Brazilian Congress, the Central Bank
and the broader payments industry, which may result in changes in the regulatory framework of the Brazilian payments and financial
industries and may have an adverse effect on the Company.”



Reclassification of liability-classified
share-based compensation expense



Prior to our initial public offering, certain
of our outstanding share-based compensation awards were liability-classified. In particular:



| | · | Class C Shares. Certain of our founding partners and senior executives received a one-time issuance of fully vested
Class C shares (as classified under our Articles of Association in effect prior to the consummation of our initial public offering)
as compensation for services rendered to us. These shares were subject to a lock-up period, and their terms provided Stone Co.
with the right to redeem or repurchase such shares at any time at a price to be determined by our board of directors. Prior to
January 2018, as our founding partners were deemed to have the power to cause the Company to redeem or repurchase shares beneficially
owned by the founding partners, the fair value of the redemption or repurchase price related to the Class C shares beneficially
owned by the founding partners was recorded as a liability in our financial statements. During the periods that these Class C shares
were liability classified, the liability was adjusted to fair value at each reporting date through profit or loss.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Co-Investment Shares.Certain employees were also granted incentive shares, or the Co-Investment Shares, in one of our
subsidiaries. These Co-Investment Shares are subject to a lock-up period and a discounted buy-back feature to be exercised by Stone
Co. if the employee leaves prior to lockup expiration. As a result, the Co-Investment Shares were recorded as a liability in our
financial statements. DLP Capital, LLC and DLP Par Participações S.A. each have a 90-day option to repurchase the
Co-Investment Shares at the price of the most recent capital increase of DLP Pagamentos Brasil S.A. following expiration of the
lock-up period and adjusted by 110% of the CDI Rate.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In January 2018, the terms of the articles
of association of the entity wholly owned by the founding partners and senior executives that held the Class C shares were modified
to create an independent committee to approve any share redemptions or repurchases beneficially owned by the founding partners
within the vehicle (including the redemption of Class C shares of Stone Co.). As such, as of January 31, 2018, all outstanding
Class C Shares held by the founding partners were reclassified to equity in our financial statements.



On July 17, 2018, we repurchased and immediately
canceled 1,814,022 of the Class C shares. The total purchase price per Class C share amounted to 90% of the price per Class A common
share sold in our initial public offering, after deducting underwriting discounts and commissions. Pursuant to the terms of the
repurchase, the initial aggregate payment for this repurchase was R$63.2 million and was paid upon repurchase, with an additional
aggregate payment of R$79.2 million paid to this entity.



In addition, in connection with our initial
public offering, the Co-Investment Shares and Class C shares were reclassified into common shares pursuant to our amended and restated
Articles of Association.



Accordingly, we do not have any outstanding
Class C shares or Co-Investment Shares, and due to the modification of the articles of association noted above and the reclassification
of the Co-Investment Shares (and associated removal of the Co-Investment Shares’ discounted buyback feature), after our initial
public offering, we no longer had any liability-classified share-based compensation or related fair value adjustments impacting
our profit or loss.



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Macroeconomic environment



The vast majority of our operations are
located in Brazil. As a result, our revenues and profitability are subject to political and economic developments and the effect
that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our results
of operations are affected by levels of consumer spending, interest rates and the expansion or retraction of consumer credit in
Brazil, each of which impacts the number and overall value of payment transactions. For more information, see “Item 3. Key
Information—D. Risk factors—Risks Relating to Brazil—Political instability and economic uncertainty in Brazil,
including in relation to country-wide corruption probes, may adversely affect the price of our Class A common shares and our business,
operations and financial condition.”



The following table shows data for real
GDP, inflation and interest rates in Brazil and the U.S. dollar/real exchange rate at the dates and for the periods indicated.



|                                                                 |  | For the Year Ended December 31,
|---------------------------------------------------------------- |  | -------------------------------
|                                                                 |  | 2018                           
|Real growth (contraction) in gross domestic product              |  |                                
|Inflation (IGP-M)(1)                                             |  |                                
|Inflation (IPCA)(2)                                              |  |                                
|Long-term interest rates–TJLP (average)(3)                       |  |                                
|CDI interest rate (average)(4)                                   |  |                                
|Period-end exchange rate—reais per US$ 1.00                      |  |                                
|Average exchange rate—reais per US$ 1.00(5)                      |  |                                
|Appreciation (depreciation) of the real vs. US$ in the period(6) |  |                                
|Unemployment rate(7)                                             |  |                                








Source:FGV, IBGE, Central
Bank and Bloomberg.



| | (1) | Inflation (IGP-M) is the general market price index measured by the FGV.
| | --- | ------------------------------------------------------------------------



| | (2) | Inflation (IPCA) is a broad consumer price index measured by the IBGE.
| | --- | ----------------------------------------------------------------------



| | (3) | TJLP is the Brazilian long-term interest rate (average of monthly rates for the period).
| | --- | ----------------------------------------------------------------------------------------



| | (4) | The CDI (certificado de deposito interbancário) Rate is an average of interbank overnight rates in Brazil (daily average
for the period).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Average of the exchange rate on each business day of the year.
| | --- | --------------------------------------------------------------



| | (6) | Comparing the US$ closing selling exchange rate as reported by the Central Bank at the end of the period’s last day with
the day immediately prior to the first day of the period discussed.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Average unemployment rate for the year, as measured by the IBGE.
| | --- | ----------------------------------------------------------------



Interest rate



Interest rates have an effect on our ability
to generate revenue. While higher interest rates can lead to decreases in private consumption, negatively impacting our TPV, they
may also positively correlate to prepayment spreads, positively impacting our results to the extent that we are able to increase
our prices in excess of increases in funding costs.



Inflation



Inflation has an effect on our obligations
towards certain suppliers, such as office leasing and telecommunications operators, whose costs are indexed to inflation rates.
However, most of our revenues are naturally hedged against inflation, since our TPV also tends to fluctuate according to inflation.
When merchants adjust their prices for inflation, the purchasing power of consumers may be reduced, which may adversely affect
our revenue if it results in a reduction in the number and volume of transactions. However, if our merchants raise their prices
due to inflation, this will positively impact our TPV and, consequently, our revenues.



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Currency fluctuations



The results of our operations are primarily
denominated in reais (R$). However, our results may be subject to currency fluctuations as we hold cash, accounts payable
and receivables denominated in foreign currency (primarily U.S. dollars). For example, we process transactions originated from
our active client base in Brazil with credit cards issued by foreign banks that are settled in a foreign currency. In addition,
we purchase items that have their prices partially indexed to U.S. dollars, such as POS devices, other equipment and our data centers.
To partially offset our exchange rate risk, we may use derivative contracts. For the year ended December 31, 2018 2017 and
2016, we had a net foreign currency gain (loss) of R$(5.8) million, R$8.1 million and R$(36.1) million, respectively.



Seasonality



We
have experienced in the past, and expect to continue to experience, seasonal fluctuations in our revenues as a result of consumer
spending patterns. Historically, our revenues have been strongest during the last quarter of each year as a result of higher sales
during the Brazilian holiday season. This is due to the increase in the number and amount of electronic payment transactions related
to seasonal retail events. Adverse events that occur during these months could have a disproportionate effect on its results of
operations for the entire fiscal year. As a result of quarterly fluctuations caused by these and other factors, comparisons of
our operating results across different fiscal quarters may not be accurate indicators of our future performance. For additional
information, see “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and Industry—Our
operating results are subject to seasonality, which could result in fluctuations in our quarterly profit.”



EdB Acquisition



On April 22, 2016, we completed the
acquisition of EdB, a payments company formed in 2010 as a joint venture between Elavon, Inc. (“Elavon Inc.”), USB
Americas Holding Company and Banco Citibank S.A. We acquired 100% of EdB’s equity for the purchase price of 1 real.
Upon the acquisition, we implemented initiatives to improve the efficiency of operations and the liquidity of EdB. Such initiatives
were funded through capital contributions of R$409.9 million.



The EdB Acquisition enabled us to strengthen
our position in the Brazilian payments market and to increase our transaction volume and access to a well-established portfolio
of active clients and business partners. Of our total TPV of R$28.1 billion in 2016, 40.4% was processed on our processing
platform and 59.6% was processed on Elavon Inc.’s legacy processing platform. Of our total TPV of R$48.5 billion in
2017, 69.3% was processed on our processing platform and 30.7% was processed on Elavon Inc.’s legacy processing platform.
Of our total TPV of R$83.4 billion in 2018, 98% was processed on our processing platform and 2% was processed on Elavon Inc.’s
legacy processing platform. This change in TPV on each platform was driven by organic growth of our active client base as well
as the migration of merchants from Elavon Inc. to our processing platform. As a result of this migration, our margins have improved
due to lower processing costs on our platform. As of the date of this annual report, nearly all of EdB’s merchant base has
been migrated to our processing platform. For further information, see note 5.1 of our audited financial statements.



In conjunction with the EdB Acquisition,
EdB and Elavon Inc. entered into a Master Processing and Operational Services Agreement, or MPA, pursuant to which Elavon Inc.
agreed to provide certain processing services to EdB. The MPA had an initial term of two years, but was subsequently extended to
August 22, 2018. During the term of this agreement, we have paid payment processing fees to Elavon Inc. in connection with
volumes processed on their platform. Prior to August 22, 2018, we negotiated an extension of the MPA exclusively for transactions
carried out by one specific EdB client until October 31, 2018. As of the date of this annual report, we no longer incur any costs
associated with authorization and capture of new transactions on the Elavon Inc. platform.



As a result of the EdB Acquisition, our
results of operation for 2017 may not be comparable to 2016 due to the results of EdB only being included in our reported results
from and after April 22, 2016.



Description of Principal Line Items



The following is a summary of the principal
line items comprising our statement of profit or loss and other comprehensive income.



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Total revenue and income



Our total revenue and income consists of
the sum of our net revenue from transaction activities and other services, net revenue from subscription services and equipment
rental, financial income and other financial income.



Net revenue from transaction activities and
other services



Our net revenue from transaction activities
and other services consists of commissions and fees charged for end-to-end processing services we provide through the Stone
Technology Platform, which include the capture, routing, transmission, authorization, processing, and settlement of transactions,
carried out using credit and debit cards, meal vouchers, boletosand other APMs. Our net revenue from transaction activities
and other services consists mainly of net MDR, which is a commission withheld by us that is discounted from the transaction values
paid to the merchant, and/or other per-transaction commissions for providing gateway services. We recognize revenue from transaction
activities when the purchase transaction is captured. We recognize revenue from other services when the service is rendered. For
more information on our revenue recognition policies, see note 3.14 of our audited financial statements. License fees paid to payment
schemes are included in the cost of services as discussed below.



Our net MDR revenue is recognized net of
interchange fees retained by card issuers, assessment fees charged by payment schemes and deductions. Such deductions consist primarily
of the applicable Brazilian sales taxes and social security contributions: service tax (Imposto sobre Serviços, or
ISS); contributions to the Brazilian government’s Social Integration Program (Programa de Integração Social,
or PIS); and contributions to the Brazilian government’s social security program (Contribuição para o Financiamento
da Seguridade Social, or COFINS). We are required to collect each of the above-mentioned taxes and contributions on our transaction
activities and other services.



In the event of a chargeback, the net revenues
associated with such transactions are deducted from net revenue from transaction activities and other services. Losses from chargebacks
resulting from billing disputes are included in the cost of services as discussed below.



Net revenue from subscription services and
equipment rental



We earn monthly recurring revenue from
subscription services and equipment rental, which include rentals of electronic capture equipment and other solutions or services,
such as reconciliation solutions and business automation solutions, among other services. Revenue generated by electronic capture
equipment rental varies according to the value of the equipment, the quantity of equipment rented to a particular merchant and
the location of the merchant. Each subscription service fee is charged as a fixed monthly fee and is either billed and deducted
from the merchant’s transaction receivables or is billed to the client monthly. We recognize revenue from subscription services
as the services are rendered and from equipment rental on a straight-line basis over the contractual lease term.



The amounts deducted from our revenue from
subscription services and equipment rentals consist primarily of the applicable Brazilian sales taxes and social security contributions,
including ISS, PIS and COFINS. We are required to collect each of the above-mentioned taxes and contributions on our subscription
services and equipment rentals when applicable.



Financial income



Financial income is generated by our working
capital solutions and consists of fees charged for the prepayment of our clients’ receivables from credit card transactions.
Some merchants allow cardholders to elect to pay for purchases in multiple installments. We allow our merchants to elect early
payment of single or multiple installment receivables, less a prepayment fee.



The prepayment fee included in financial
income is charged, in addition to our payment processing transaction fees, as described above under “—Net revenue from
transaction activities and other services.” The prepayment fee is recognized as financial income once the merchant elects
for the receivable to be prepaid. If the merchant elects prepayment of a receivable on a weekend or bank holiday, the prepayment
fee will be recognized in financial income on the next business day when the merchant receivable is paid.



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The expenses we incur in funding the prepayment
of receivables are included in financial expenses as discussed below. For more information regarding our working capital solutions,
see “Item 4. Information on the Company—B. Business overview—Our Solutions.”



Other financial income



Our other financial income consists principally
of interest generated by funds held in interest-bearing bank accounts and by deposits we are required to make by the Brazilian
courts, known as judicial deposits, which are legal reserves as security for any damages or settlements we may be required to pay
as a result of litigation.



Cost of services



Our cost of services include transaction
costs, depreciation and amortization, costs to deploy merchant equipment, personnel expenses related to customer service, technology,
operations, logistics and other, payment scheme license fees, losses from chargebacks and other costs. For further information
on these costs, see note 24 to our audited consolidated financial statements.



| | · | Transaction costs consist of amounts related to processing, data center costs, telecommunications costs related to leased terminals,
third-party payment processor fees (principally associated with payments processed through Elavon Inc. for merchants acquired pursuant
to the EdB Acquisition) and wire transfer costs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Depreciation and amortization expenses allocated to cost of services and administrative and selling expenses. Depreciation
and amortization included in our cost of services consists mainly of (i) depreciation of equipment leased to merchants, (ii) the
amortization of software that we develop internally for use in our operations and (iii) depreciation of datacenter used in
our processing operations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Costs to deploy merchant equipment consist of third-party supplier logistics services and internal and external costs related
to delivery of leased equipment to merchants and other supply chain costs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Personnel expenses are divided between cost of services and administrative expenses and selling expenses. Personnel expenses
included in cost of services relate to customer relations personnel, certain personnel in our technology team, logistics personnel,
and other personnel that support our transaction processing and other services.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Payment scheme license fees under cost of services are fees paid to Visa, Mastercard and other card schemes to enable communications
between network participants, access to specific reports, expenses related to projects involving the development of new functions,
operational fixed fees, fees related to chargeback restatements and royalties.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Losses from chargebacks consist of transactions credited back or refunded to the cardholder in the event a billing dispute
between a cardholder and merchant is not resolved in favor of the merchant. Chargebacks may occur due to a variety of factors,
such as a claim by the cardholder or cases of fraud. If we are unable to collect chargeback or refund from the merchant’s
account, or if the merchant refuses to or is unable to reimburse us for a chargeback or refund due to closure, bankruptcy, or other
circumstances, and, we bear the loss for the amounts paid to the cardholder.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Other expenses are allocated to our cost of services as well as our administrative and selling expenses. Other expenses included
in our cost of services consist mainly of items such as travel expenses and costs of office supplies incurred in connection with
the services that we sell.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Administrative expenses



Administrative expenses represent the amounts
that we spend on back-office activities, quality control, indirect relations with our clients and overhead. These amounts consist
of certain personnel expenses, depreciation and amortization and other expenses.



| | · | The portion of our personnel expenses that form part of our administrative expenses relate to our finance, legal, human resources,
administrative, and other administrative personnel, as well as fees paid for
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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professional services, including
legal, tax and accounting services. The portion of our depreciation and amortization expenses that forms part of our administrative
expenses relates to (i) the depreciation of the equipment, furniture, tools and technology used in our head office, back-office,
and other operations, (ii) the amortization of acquired intangibles for customer relationships and brand, and (iii) the
amortization of software developed internally to support our head office and back-office needs.



| | · | The portion of our other costs that form part of our administrative expenses includes items such as travel, lodging, insurance,
facilities, rent, consultancy fees, reimbursement of staff expenses and office supplies.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our administrative expenses have increased as a result of becoming a publicly traded company and compliance with the Sarbanes-Oxley
Act. Public company costs include expenses associated with annual and quarterly reporting, investor relations, registrar and transfer
agent fees, incremental insurance costs, and accounting and legal services.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Selling expenses



Selling expenses represent the amounts
we spend on commercial teams, marketing, publicity and commissions for third-party commercial partners.



| | · | The portion of our personnel expenses that form part of selling expenses relates to our commercial team which has direct interactions
with potential and existing clients. The main portion of this team are individuals who act in a direct sales model.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The portion of our commissions for third-party commercial sales partners that form part of our selling expenses relates to
amounts paid for sales partners or franchisees that act directly with potential clients in some determined areas. These sales partners
are generally paid in accordance with a profit-sharing model and are paid monthly.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The portion of marketing and advertising expenses included in our selling expenses relates to the production and distribution
of our marketing and advertising campaigns on traditional offline media, traditional online advertising, the positioning of our
products in internet search platforms and expenses incurred in relation to trade marketing at events.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Financial expenses, net



Our financial expenses, net include (i) discounts
charged to us for the sale of our receivables from card issuers, (ii) interest expense on our other borrowings, (iii) the
net amount of foreign currency gains and losses on cash balances denominated in foreign currencies, (iv) the cost of swaps
relating to our foreign currency borrowings and (v) bank services fees.



To date, we have funded our working capital
solutions primarily (i) by selling receivables owed to us by card issuers to certain banks, (ii) with capital raised
by securitizing the receivables owed to us by card issuers through two significant FIDCs, namely FIDC AR1 and FIDC AR2, (iii) through
our general third-party borrowings and (iv) with our own capital. In 2017, we set up two Brazilian special purpose investment
funds, FIDC AR1 and FIDC AR2, to purchase and hold receivables, through which we have raised capital to finance our working capital
solutions. These FIDCs are controlled by us, and raised capital by issuing senior quotas in the FIDCs to outside investors, who
receive a return on these investments. For further information regarding these FIDCs, see note 19 to our audited consolidated financial
statements and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and capital resources—Note
on the impact of different funding sources in our operating and financing cash flows.”



All of our bank borrowings and senior quota
holder obligations in FIDC AR1 and FIDC AR2 as of December 31, 2018, 2017 and 2016 were denominated in Brazilian reais.
However, the interest rate on certain of these borrowings is indexed to the UMBNDES Rate, which is based on a basket of currencies
including the U.S. dollar, the euro and other currencies. For further information on our borrowings, see note 18 to our audited
consolidated financial statements.



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Other operating expenses, net



Other operating expenses, net consists
mainly of share-based payments, contingencies, charges and miscellaneous income and/or expense items.



Liability-classified share-based compensation
expense



Certain of our founding partners and senior
executives received a one-time issuance of fully-vested Class C shares (as classified under our Articles of Association in
effect prior to the consummation of our initial public offering) in us, as compensation for services rendered to us. These shares
are subject to a lock-up period, and their terms provide us with the right to redeem such shares at any time at a redemption price
to be determined by our board of directors. As our founding partners were deemed to have the power to cause Stone Co. to redeem
shares beneficially owned by the founding partners, the fair value of the redemption price related to these Class C shares
was recorded as a liability in our financial statements until January 2018. Prior to this date liability associated with these
Class C shares was adjusted to fair value through each reporting date through profit or loss.



Certain employees have also been granted
Co-Investment Shares in one of our subsidiaries. Incentive shares are subject to a lock-up period and a discounted buy-back feature
retained by us if the employee leaves prior to lockup expiration. As a result, the plan has been liability classified and as such
has been re-measured at each reporting date and expensed in our consolidated statements of profit or loss. For further information
about share-based payment expenses see note 26 to our audited consolidated financial statements and “—Significant Factors
Affecting our Results of Operations—Reclassification of Liability-Classified Share-Based Compensation Expense”.



Share-based awards in connection with
our initial public offering and follow-on offering



In September 2018, we granted new awards
of restricted share units (RSUs) and stock options. In addition, we converted all outstanding Phantom Shares to RSU awards. These
awards are equity settled, the majority of the awards are subject to performance conditions, and the related compensation expense
will be recognized over the vesting period. We granted 5,396,454 awards (including pursuant to the Phantom Share conversion), and,
after giving effect to the acceleration of certain awards in connection with our initial public offering to allow recipients to
participate in our initial public offering, such awards have the following aggregate vesting schedule: approximately 6% vested
at the initial public offering, approximately 9% will vest in four years, approximately 18% will vest in five years, approximately
21% will vest in seven years, and approximately 46% will vest in 10 years. The aggregate share-based compensation expense associated
with such RSU and stock option awards was approximately R$300 million and will be recognized over the vesting periods described
above. We incurred 24 million and R$36 million of share-based compensation expense associated with these awards vesting in the
fiscal quarters ending September 30, 2018 and December 31, 2018, respectively. As the award was a one-time, nonrecurring event
related to our initial public offering, all incurred future share-based compensation expense associated with these awards will
be an adjustment in our calculation of adjusted net income.



In connection with our follow-on offering,
we accelerated the vesting of an aggregate of approximately 180,000 Class A common shares underlying RSU awards. This relates to
the acceleration of certain awards to allow recipients to participate in this offering and/or to sell Class A common shares in
the open market on or around the closing of our follow-on offering. We expect to incur approximately R$23 million of share-based
compensation expense associated with these RSU vestings in the fiscal quarter ended June 30, 2019.



Gain (loss) on investment in associates



Gain (loss) on investment in associates
consists mainly of results from operations from other entities that are not consolidated into our financial statements.



Income tax and social contributions



Current income tax and social contribution
tax on net profits



The current corporate income tax (“CIT”)
is calculated at a joint nominal rate of approximately 34%. CIT is composed of (i) income tax at the rate of 15% in addition to
a surplus rate of 10% for taxable income exceeding R$20,000.00 per month; and (ii) the statutory rate, totaling 34% in Brazil,
composed of 25% income tax and 9% social contribution tax on net income at a 9% rate applicable to non-financial institutions.



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Our tax assets for the current year are
calculated based on the expected recoverable amount, and tax liabilities for the current year are calculated based on the amount
payable to the applicable tax authorities. The tax rates and tax laws used to calculate this amount are those enacted or substantially
enacted at the reporting date. We periodically evaluate our tax positions with respect to interpreting tax regulations and, when
appropriate, establish provisions. Due to the nature of income tax and social contributions in Brazil described above, where income
tax and social contributions are payable on a legal entity basis as opposed to on a consolidated basis, tax losses for one subsidiary
entity cannot be used to offset income tax owed by other subsidiary entities.



Deferred income tax and social contributions
tax on net profits



The accounting records of deferred tax
assets on income tax losses and/or social contribution loss carryforwards, as well as those arising from temporary differences,
are based on technical feasibility studies which consider the expected generation of future taxable income, taking into account
the history of profitability for each subsidiary individually. In accordance with the Brazilian tax legislation, and as a general
rule, loss carryforwards can be used to offset up to 30% of taxable profits for the year and do not expire.



Our deferred tax assets are generated by
our net tax operating loss carryforwards. These are derived primarily from the acquisition of Elavon, as well as from carryforward
losses accrued in connection with our operations.



Tax Incentives



Similar to other Brazilian companies across
multiple industries, we benefit from certain tax and other government-granted incentives associated with technological innovation
under Law 11,196/05, (“Lei do Bem”), which enable us to reduce the overall financial impact of CIT. For the
effective tax rate reconciliation, see note 11 of our audited consolidated financial statements.



Year Ended December 31, 2018 Compared
to the Year Ended December 31, 2017



The following table sets forth our statement
of profit or loss and other comprehensive income data for the years ended December 31, 2018 and 2017. Share and per share
data for the year ended December 31, 2017 in the table below has been retroactively adjusted to give effect to the 126-for-one
share split of our common shares effective as of October 14, 2018.



|                                                                                       |  | For the Year Ended December 31,            
|-------------------------------------------------------------------------------------- |  | -------------------------------------------
|                                                                                       |  | 2018                                       
|                                                                                       |  | (R$ millions, except for amounts per share)
|Statement of profit or loss data:                                                      |  |                                            
|Net revenue from transaction activities and other services                             |  |                                            
|Net revenue from subscription services and equipment rental                            |  |                                            
|Financial income                                                                       |  |                                            
|Other financial income                                                                 |  |                                            
|Total revenue and income                                                               |  |                                            
|Cost of services                                                                       |  |                                            
|Administrative expenses                                                                |  |                                            
|Selling expenses                                                                       |  |                                            
|Financial expenses, net                                                                |  |                                            
|Other operating expenses, net                                                          |  |                                            
|Loss on investment in associates                                                       |  |                                            
|Profit (loss) before income tax                                                        |  |                                            
|Income tax and social contribution                                                     |  |                                            
|Profit (loss) for the year                                                             |  |                                            
|Profit (loss) attributable to:                                                         |  |                                            
|Owners of the parent                                                                   |  |                                            
|Non-controlling interests                                                              |  |                                            
|Basic profit (loss) per share for the year attributable to owners of the parent (R$)   |  |                                            
|Diluted profit (loss) per share for the year attributable to owners of the parent (R$) |  |                                            

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TPV and Active Clients



The following table sets forth our TPV
and active clients for the years ended December 31, 2018 and 2017:



|                              |  | For the Year Ended December 31,            
|----------------------------- |  | -------------------------------------------
|                              |  | 2018                                       
|                              |  | (R$ millions, except for amounts per share)
|TPV (R$ billion)              |  |                                            
|Active Clients (in thousands) |  |                                            



As discussed in “—Significant
Factors Affecting our Results of Operations,” TPV is one of the main drivers of revenue for our business. Growth for the
year ended December 31, 2018, both in TPV and active clients, was primarily driven by our Stone Hubs, both through new Stone Hub
openings and growing market share within existing Stone Hubs, which enabled us to onboard new SMB merchants and grow transaction
volumes from existing and new clients. Due to our strategic focus on the SMB market segment, we grew our active client base faster
than our TPV in the year ended December 31, 2018. As a result, our volume concentration has diminished over time. Our top ten clients
represented 25.0% of TPV for the year ended December 31, 2018, representing a 3% decrease from 28.0% for the year ended December 31,
2017.



Total revenue and income



Total revenue and income was R$1,579.2
million for the year ended December 31, 2018, an increase of R$812.6 million or 106.0% from R$766.6 million for the year ended
December 31, 2017. Total revenue and income growth was driven primarily by an increase in TPV and an increase in the number of
SMBs as a proportion of our total client base.



|                                                            |  | For the Year Ended December 31,            
|----------------------------------------------------------- |  | -------------------------------------------
|                                                            |  | 2018                                       
|                                                            |  | (R$ millions, except for amounts per share)
|Net revenue from transaction activities and other services  |  |                                            
|Net revenue from subscription services and equipment rental |  |                                            
|Financial income                                            |  |                                            
|Other financial income                                      |  |                                            
|Total revenue and income                                    |  |                                            



Net revenue from transaction activities
and other services. Net revenue from transaction activities and other services was R$514.6 million for the year ended December
31, 2018 an increase of R$290.4 million or 129.5% from R$224.2 million for the year ended year over year December 31, 2017. This
increase was primarily attributable to (i) the R$34.9 billion growth in TPV, which translated to an increase of R$188.1 million
in net revenue from transaction activities and other services, and (ii) an improvement in average rates, mainly driven by a shift
in the mix of our client base, with a greater proportion of SMB merchants, accounting for an increase in net revenue from transaction
activities and other services of R$102.3 million.



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Net revenue from subscription services
and equipment rental. Net revenue from subscription services and equipment rental was R$213.7 million for the year ended December
31, 2018, an increase of R$108.7 million or 103.5% from R$105.0 million for the year ended December 31, 2017. This increase was
primarily attributable to the increase in the number of active SMB clients.



Financial income. Financial income
for the year ended December 31, 2018 was R$801.3 million, an increase of R$389.1 million or 94.4% from R$412.2 million for the
year ended December 31, 2017, primarily attributable to the 71.8% growth in TPV year over year. The R$34.9 billion growth of TPV
year over year, which translates to an increase of R$315.5 million in financial income, and an increase in financial income as
a percentage of TPV, from 0.85% in 2017 to 0.96% in 2018, which translated to an increase of R$73.6 million in financial income.



Other financial income. Other financial
income was R$49.6 million for the year ended December 31, 2018, an increase of R$24.3 million from the year ended December 31,
2017, primarily attributable to an increase in our cash and cash equivalents and short-term investments primarily attributable
our initial public offering proceeds



Cost of services



Cost of services for the year ended December
31, 2018 was R$323.0 million, an increase of R$98.9 million, or 44.1%, from R$224.1 million for the year ended December 31, 2017.
Cost of services as a percentage of total revenue and income was 20.5% for the year ended December 31, 2018, an efficiency gain
of 8.7%, from 29.2% for the year ended December 31, 2017. This efficiency gain is primarily driven by (i) dilution of fixed costs
of our proprietary processing platform and personnel expenses, which contributed 4.7% and (ii) an improvement of 2.6% due to efficiency
gains in our logistics and customer relationship operations.



Administrative expenses



Administrative expenses for the year ended
December 31, 2018 were R$252.9 million, an increase of R$78.3 million or 44.9% from R$174.6 million for the year ended December
31, 2017. Administrative expenses as a percentage of total revenue and income was 16.0% for the year ended December 31, 2018, an
efficiency gain of 6.8%, from 22.8% for the year ended December 31, 2017.



The increase in administrative expenses
is primarily attributed to growth in headcount, depreciation and amortization expenses and facilities costs to support our growth.
This consists of: (i) R$39.4 million of increases in personnel expenses; (ii) R$14.4 million in depreciation and amortization expenses;
and (iii) R$10.2 million in facilities costs primarily related to new office lease contracts in São Paulo and the lease
of office spaces for the newly created Stone Hubs.



Selling expenses



Selling expenses were R$190.2 million for
the year ended December 31, 2018, an increase of R$98.2 million or 106.7% from R$92.0 million the year ended December 31, 2017,
primarily attributable to an increase of R$83.9 million in personnel expenses due to additional headcount in the sales team in
connection with the our strategy to grow through the Stone Hubs.



Financial expenses, net



Financial expenses, net were R$301.1 million
for the year ended December 31, 2018, an increase of R$64.0 million from R$237.1 million for year ended December 31, 2017. This
increase was primarily attributable to an increase in funding expenses of R$59.5 million due to higher prepayment volumes.



Financial expenses, net as a percentage
of financial income reduced from 57.5% for the year ended December 31, 2017 to 37.6% for the year ended December 31, 2018. This
reduction was due to (i) an increase in financial income and especially by (ii) lower financial expenses due to the cost of funds
due to the lower base rate, less expensive funding arrangements and use of a higher amount of our own cash to fund prepayment operations.



Other operating expenses, net



Other operating expenses, net was R$69.3
million for the year ended December 31, 2018 a decrease of R$64.9 million or 48.4% from R$134.2 million for the year ended December
31, 2017. This was primarily attributable to a R$78.1 million reduction in share-based compensation expenses.



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In the fourth quarter 2018, share-based
compensation expense is related to the one-time pre-IPO grants, which are booked over time, according to the different vesting
periods of each grant. These awards are equity classified and the majority of the awards are subject to performance conditions.
For further information of share-based payment see Note 26 on our audit consolidated financial statements.



Loss on investment in associates



Losses on investments in associates for
the year ended December 31, 2018 was R$0.4 million, or change of R$0.1 million from $0.3 million for the year ended December 31,
2017.



Profit (loss) before income taxes



Profit before income taxes was R$442.3
million for the year ended December 31, 2018 an increase of R$538.0 million from a loss of R$95.7 million before income taxes for
the year ended December 31, 2017.



Income tax and social contribution



Our operations are in Brazil, where CIT
is calculated at a joint nominal rate of approximately 34%. CIT is composed of (i) income tax at the rate of 15% in addition to
a surplus rate of 10% for taxable income exceeding R$20,000.00 per month; and (ii) the statutory rate, totaling 34% in Brazil,
composed of 25% income tax and 9% social contribution tax on net income at a 9% rate applicable to non-financial institutions.



Our total effective tax rate for the year
ended December 31, 2018 was 31.0%, compared to 10.0% for the year ended December 31, 2017.



For further information about our income
taxes, see note 11 to our audited consolidated financial statements.



Net income (loss) for the year



Net income was R$305.2 million for the
year ended December 31, 2018 an increase of R$410.2 million from a net loss of R$105.0 million for the year ended December 31,
2017. This improvement is mainly related to the increase in total revenue and income in addition to operating leverage in cost
of services, administrative expenses and financial expenses.



Adjusted net income



Adjusted net income was R$342.8 million
for the year ended December 31, 2018 an increase of R$297.7 from R$45.1 million for the year ended December 31, 2017. The main
factors that contributed to the growth in adjusted net income were: (i) increase in total revenue and income, primarily due to
higher TPV and our focus on growing our base of SMB merchants; (ii) operating leverage in most lines, especially cost of services
and administrative expenses; and (iii) reduced cost of funds, as we transition to less expensive funding arrangements and increase
the use of own cash to fund our prepayment operations. See “Summary Financial and Other Information” for a reconciliation
of adjusted net income (loss) to our profit (loss) for the period.



Year Ended December 31, 2017 Compared
to the Year Ended December 31, 2016



The following table sets forth our statement
of profit or loss and other comprehensive income data for the years ended December 31, 2017 and 2016. Share and per share
data in the table below has been retroactively adjusted to give effect to the 126-for-one share split of our common shares effective
as of October 14, 2018.



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|                                                                                        |  | For the Year Ended December 31,            
|--------------------------------------------------------------------------------------- |  | -------------------------------------------
|                                                                                        |  | 2017                                       
|                                                                                        |  | (R$ millions, except for amounts per share)
|Statement of profit or loss data:                                                       |  |                                            
|Net revenue from transaction activities and other services                              |  |                                            
|Net revenue from subscription services and equipment rental                             |  |                                            
|Financial income                                                                        |  |                                            
|Other financial income                                                                  |  |                                            
|Total revenue and income                                                                |  |                                            
|Cost of services                                                                        |  |                                            
|Administrative expenses                                                                 |  |                                            
|Selling expenses                                                                        |  |                                            
|Financial expenses, net                                                                 |  |                                            
|Other operating expenses, net                                                           |  |                                            
|(Loss) gain on investment in associates                                                 |  |                                            
|Loss before income tax                                                                  |  |                                            
|Income tax and social contribution                                                      |  |                                            
|Loss for the year                                                                       |  |                                            
|Loss attributable to:                                                                   |  |                                            
|Owners of the parent                                                                    |  |                                            
|Non-controlling interests                                                               |  |                                            
|Basic and diluted loss per share for the year attributable to owners of the parent (R$) |  |                                            



TPV and Active Clients



The following table sets forth our TPV
and active clients for the years ended December 31, 2017 and 2016:



|                              |  | For the Year Ended December 31,            
|----------------------------- |  | -------------------------------------------
|                              |  | 2017                                       
|                              |  | (R$ millions, except for amounts per share)
|TPV (R$ billion               |  |                                            
|Active Clients (in thousands) |  |                                            



As discussed in “—Significant
Factors Affecting our Results of Operations,” TPV is one of the main drivers of revenue for our business. The TPV for the
year ended December 31, 2016 considers EdB volumes as of April 22, 2016, the date of acquisition.



Growth for the year ended December 31,
2017, both in TPV and active clients, was primarily driven by our Stone Hubs, both through new Stone Hub openings and growing market
share within existing Stone Hubs, which enabled us to onboard new SMB merchants and grow transaction volumes from existing and
new clients. Due to our strategic focus in the SMB market segment, we grew our active client base faster than our TPV, after adjusting
for Elavon’s volumes for the full year of 2016. As a result, our volume concentration has diminished over time. Our top ten
clients represented 28.0% of TPV for the year ended December 31, 2017, which represents a 6.5% decrease from 34.5% for the
year ended December 31, 2016.



Total revenue and income



Total revenue and income for the year ended
December 31, 2017 was R$766.6 million, an increase of R$326.7 million or 74.3% from R$439.9 million for the
year ended December 31, 2016. This increase was driven largely by increases in TPV and an increase in the number of SMBs as
a proportion of our client base. The increase in SMBs as a proportion of our overall client base improved our take rate by 0.02%,
to 1.53% for the year ended December 31, 2017 from 1.51% for the year ended December 31, 2016.



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|                                                            |  | For the Year Ended December 31,      
|----------------------------------------------------------- |  | -------------------------------------
|                                                            |  | 2017                                 
|                                                            |  | (R$ millions, except for percentages)
|Net revenue from transaction activities and other services  |  |                                      
|Net revenue from subscription services and equipment rental |  |                                      
|Financial income                                            |  |                                      
|Other financial income                                      |  |                                      
|Total revenue and income                                    |  |                                      



Net revenue from transaction activities
and other services. Net revenue from transaction activities and other services for the year ended December 31, 2017 was
R$224.2 million, an increase of R$103.1 million or 85.1% from R$121.1 million for the year ended December 31,
2016. This increase was primarily attributable to (i) the R$20.4 billion growth of TPV year over year which was translated
to an increase of R$88.0 million in our net revenue from transaction activities and other services, and (ii) an improvement
in the mix of our client base, with a greater proportion of SMB merchants, who pay higher rates per transaction, accounting for
an increase in revenue from transaction activities and other services of R$15.1 million.



Net revenue from subscription services
and equipment rental. Net revenue from subscription services and equipment rental for the year ended December 31, 2017
was R$105.0 million, an increase of R$50.3 million or 91.9% from R$54.7 million for the year ended December 31,
2016. This increase was primarily attributable to (i) an increase in the number of active clients that use our subscription
services and rent our equipment, which contributed R$32.9 million, and (ii) an improvement in the mix of our client base, with
a greater proportion of SMB merchants, who generally pay higher rental rates than our existing client base, accounting for an increase
in revenue from subscription services and equipment rental of R$17.4 million.



Financial income. Financial income
for the year ended December 31, 2017 was R$412.2 million, an increase of R$164.8 million or 66.6% from R$247.4 million
for the year ended December 31, 2016, primarily attributable to the 72.7% growth in TPV year over year. The R$20.4 billion
growth of TPV year over year, which translated to an increase of R$179.8 million in financial income, was offset by a R$15.0 million
decrease resulting from the reduction in financial income as a percentage of TPV, from 0.88% in 2016 to 0.85% in 2017. Such reduction
was driven by a smaller share of large key accounts in our TPV, which present a larger share of credit transactions and a higher
share of installments. An overall increase in TPV generally increases financial income from our working capital solutions due to
an overall increase in the volume of prepayments. Higher levels of installment transactions usually lead to higher demand for our
working capital solutions. On the other hand, a smaller share of credit transactions leads to a decrease in the ratio of financial
income from our working capital solutions, since debit card transactions are not eligible for prepayment.



Other financial income. Other financial
income for the year ended December 31, 2017 was R$25.3 million, an increase of R$8.6 million or 51.5% from R$16.7 million
for the year ended December 31, 2016, primarily attributable to an increase of R$8.0 million of interest income resulting
from an increase in our cash balance.



Cost of services



Cost of services for the year ended December 31,
2017 was R$224.1 million, an increase of R$90.9 million, or 68.3%, from R$133.2 million for the year ended December 31, 2016.
Cost of services as a percentage of total revenue and income was 29.2% for the year ended December 31, 2017, an efficiency
gain of 1.1%, from 30.3% for the year ended December 31, 2016. This change was primarily due to (i) an increase of R$44.0
million in transaction and client service cost, which represents a decrease of 2.3% of total revenue and income. Such decrease
was driven by the dilution of fixed costs of our proprietary processing platform, migration of clients from Elavon Inc. platform
and efficiency gains; (ii) an increase of R$34.7 million in personnel expenses, which represents an increase of 1.5% of total revenue
and income, to support the expected growth of our operations; and (iii) an increase of R$12.2 million in depreciation and amortization
costs, which represents a decrease of 0.2% of total revenue and income.



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Administrative expenses



Administrative expenses for the year ended
December 31, 2017 were R$174.6 million, an increase of R$68.5 million or 64.6% from R$106.1 million for the
year ended December 31, 2016.



The increase in administrative expenses
is primarily attributed to growth in headcount, third-party services and facilities costs to support our growth. This consists
of: (i) R$29.7 million in increases on headcount; (ii) R$13.9 million in third-party operational consultants
and advisors; and (iii) R$11.6 million in facilities costs primarily related to new office lease contracts in São
Paulo and the lease of office spaces for the newly created Stone Hubs.



Selling expenses



Selling expenses for the year ended December 31,
2017 were R$92.0 million, an increase of R$42.5 million or 85.9% from R$49.5 million for the year ended December 31,
2016, primarily attributable to an increase of R$40.6 million due to additional headcount in our sales team in line with strategy
to grow through our Hub strategy, and an increase of R$2.0 million due to higher spending on marketing and advertising in
connection with events and marketing campaigns.



Financial expenses, net



Financial expenses, net for the year ended
December 31, 2017 were R$237.1 million, a decrease of R$7.6 million from R$244.7 million for the year ended
December 31, 2016. This reduction was primarily attributable to, among other things (i) a gain of R$44.2 million
due to appreciation in the value of the U.S. dollar relative to the real on foreign-currency denominated investments, offset
by (ii) an increase in cost of funding of R$35.4 million resulting from the net effect between higher prepayment volumes,
a decrease in Brazilian interest rates and better funding cost efficiency.



Our financial expenses, net as a percentage
of our financial income was 57.5% and 98.9% for the year ended December 31, 2017 and December 31, 2016, respectively.



Other operating expenses, net



Other operating expenses, net for the year
ended December 31, 2017 were R$134.2 million, an increase of R$78.5 million or 140.9% from R$55.7 million for
the year ended December 31, 2016. This was primarily attributable to an increase of R$85.8 million of share-based payment
expenses for the year ended December 31, 2017, which was driven by the adjustment to fair value of the Class C awards
to our founding partners in 2017, along with new awards granted in the same period; and offset by R$7.4 million from other operating
income due to asset sales and write-offs and other minor effects.



Gain (loss) on investment in associates



Gain (loss) on investment in associates
for the year ended December 31, 2017 was R$(0.3) million, a change of R$0.4 million from R$0.1 million for
the year ended December 31, 2016.



Loss before income taxes



As a result of the foregoing, loss before
income taxes for the year ended December 31, 2017 was R$95.7 million, a decrease of R$53.5 million from a loss of
R$149.2 million for the year ended December 31, 2016.



Income tax and social contribution



Our operations are in Brazil, where the
nominal income tax rate is 34%.



Although we reported a consolidated net
loss in 2017, we incurred R$9.3 million in income tax expense of which R$5.7 million relates to current income tax expense of our
subsidiaries that generated taxable income during the year and R$3.6 million related to the effect of deferred taxes during the
year.



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For the year ended December 31, 2016, we
recorded an income tax gain of R$27.0 million. Such gain primarily relates to the recognition of previously unrecognized unused
tax loss carryforwards and other deferred tax assets from prior periods for an amount of R$12.2 million, R$2.5 million in relation
to the recognition of tax credit carryforwards, and R$12.5 million related to the effect of changes in deferred tax assets and
liabilities during the year.



For further information about our income
taxes, see note 11 to our audited consolidated financial statements.



Loss for the year



As a result of the foregoing, loss for
the year ended December 31, 2017 was R$105.0 million, a decrease of R$17.2 million, or 14.1%, from a loss for the
year ended December 31, 2016 of R$122.2 million.



Adjusted net income (loss)



Adjusted net income was R$45.2 million
for the year ended December 31, 2017, an increase of R$97.1 million from an adjusted net loss of R$51.9 million for the
year ended December 31, 2016.



The main factors that contributed to the
growth in adjusted net income were: (i) increase of our total revenue and income, primarily due to higher TPV and our focus
on growing our base of SMB merchants; (ii) improvement in financial efficiency, reflected by the reduction in financial expenses,
net as a percentage of our financial income from 98.9% in 2016 to 57.5% in 2017; and (iii) operational leverage, which resulted
in a reduction in cost of services, administrative and selling expenses as a percentage of total revenue and income from 65.7%
in 2016 to 64.0% in 2017. See “Item 3. Key information—A. Selected financial data” for a reconciliation of adjusted
net income (loss) to our profit (loss) for the period.



Quarterly Financial Data (Unaudited)
and Other Information



The following tables set forth certain
of our financial information for the periods indicated.



|                                                             |  | Three Months Ended       
|------------------------------------------------------------ |  | -------------------------
|                                                             |  | March 31, 2017           
|                                                             |  | (unaudited) (R$ millions)
|Income Statement Data:                                       |  |                          
|Net revenue from transaction activities and other services   |  |                          
|Net revenue from subscription services and equipment  rental |  |                          
|Financial income                                             |  |                          
|Other financial income                                       |  |                          
|Total revenue and income                                     |  |                          
|Cost of services                                             |  |                          
|Administrative expenses                                      |  |                          
|Selling expenses                                             |  |                          
|Financial expenses, net                                      |  |                          
|Other operating expenses, net                                |  |                          
|Gain (loss) on investment in associates                      |  |                          
|Profit (loss) before  income tax                             |  |                          
|Income tax and social contribution                           |  |                          
|Net income (loss)                                            |  |                          
|Profit (loss) attributable to:                               |  |                          
|Owners of the parent                                         |  |                          
|Non-controlling interests                                    |  |                          
|Basic gain (loss) attributable to owners of the parent       |  |                          
|Diluted Gain (loss) attributable to owners of the parent     |  |                          
|Adjusted net income (loss)                                   |  |                          

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In the table below, we have provided a
reconciliation of adjusted net income (loss) to our net income (loss) for the quarter, the most directly comparable financial measure
calculated and presented in accordance with IFRS. For more information, see “Summary Financial and Other Information.”



|                                                                             |  | Three Months Ended       
|---------------------------------------------------------------------------- |  | -------------------------
|                                                                             |  | March 31, 2017           
|                                                                             |  | (unaudited) (R$ millions)
|Net income (loss) for the period                                             |  |                          
|Share-based compensation expenses                                            |  |                          
|Amortization of fair value adjustment on intangibles related to acquisitions |  |                          
|Fair Value adjustments of assets whose control was acquired                  |  |                          
|One-time impairment charges                                                  |  |                          
|Pre tax subtotal                                                             |  |                          
|Tax effect on adjustments                                                    |  |                          
|Adjusted net income (loss)                                                   |  |                          





B.       Liquidity and
capital resources



The following discussion of our liquidity
and capital resources is based on the financial information derived from our audited consolidated financial statements included
elsewhere in this annual report.



Liquidity



Our sources of liquidity have primarily
been derived from our: (i) sale of our receivables from card issuers to banks, (ii) funding from the issuance of senior quotas
in FIDC AR1 and FIDC AR2, and (iii) capital contributions and cash flows from operations. Our primary capital needs relate to funding
include: (i) funding our working capital solutions to clients; (ii) purchase of POS equipment; (iii) investment in product development;
and (iv) selective acquisitions. We believe our current working capital is sufficient for our present requirements.



The following table is a summary of the
generation and use of cash in the years ended December 31, 2018, 2017 and 2016.



|                                                    |  | For the Year Ended December 31,
|--------------------------------------------------- |  | -------------------------------
|                                                    |  | 2018                           
|                                                    |  | (R$ millions)                  
|Liquidity and Capital Resources:                    |  |                                
|Cash and cash equivalents                           |  |                                
|Net cash provided by (used in) operating activities |  |                                
|Net cash provided by (used in) investing activities |  |                                
|Net cash provided by (used in) financing activities |  |                                
|Foreign exchange in cash equivalents                |  |                                

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Our cash and cash equivalents include cash
on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less, which
have an immaterial risk of change in value. For more information, see note 6 to our audited consolidated financial statements.



Short-term investments included bonds and
other short-term investments. Our short-term investments were R$2,770.6 million as of December 31, 2018, R$201.8 million as of
December 31, 2017 and R$66.3 million as of December 31, 2016. For more information, see note 7 to our audited consolidated financial
statements.



We regularly evaluate opportunities to
enhance our financial flexibility through a variety of methods, including, without limitation, through the issuance of debt securities,
entering into additional credit lines, and the sale of receivables. As a result of any of these actions, we may be subject to restrictions
and covenants in the agreements governing these transactions that may place limitations on us, and we may be required to pledge
collateral to secure such instruments.



Cash Flows



Our net cash provided by (used in) operating
activities has consisted of profit (loss) for the period adjusted for certain non-cash items including depreciation and amortization,
share-based payments expense, other financial costs and foreign exchange, net, deferred income tax expense, loss on disposal of
assets, among other non-cash items, as well as changes in our operating assets and liabilities and the cash amounts of income taxes
and social contributions that we pay and net interest income that we receive during the period.



Our net cash provided by (used in) investing
activities has consisted of amounts paid on our purchase of property and equipment, purchases and development of intangible assets,
acquisition (redemption) of financial instruments, cash received on disposal of non-current assets, acquisition of interest in
associates and cash received in acquisitions.



Our net cash provided by (used in) financing
activities has consisted of proceeds from capital contributions, amounts we raised from senior quota holders of FIDC AR1 and FIDC
AR2, the net amount of proceeds from borrowings and amortization of debt and finance leases, repurchases of our own shares and
acquisitions of Non-controlling interests in our subsidiaries. For further information on third-party funding, see “—Indebtedness
and FIDC Senior Quota Holder Obligations.”



Note on the impact of different funding
sources in our operating and financing cash flows



A natural consequence of TPV growth is
the corresponding increase in both accounts receivable from card issuers and accounts payable to clients. When we make a prepayment
to our clients as part of our working capital solutions offering, we derecognize our accounts payable by the corresponding prepaid
amount plus our fees earned by providing such prepayment service. In order to fund our prepayment operation, we principally use
one of the following sources of funding: (i) the sale of our receivables from card issuers, to third-party banks or financial institutions,
(ii) the issuance of senior quotas by FIDCs to institutional investors or (iii) by deploying our own capital from capital contributions
or cash flows from operations. These funding options lead to different impacts on our statement of cash flows and balance sheet:



| | (i) | Sale of our receivables: the true sale of receivables
results in the derecognition of our accounts receivable from card issuers. As a result, when a prepayment operation is funded
through the true sale of receivables, both accounts receivable from card issuers and accounts payable to clients are derecognized
from our balance sheet in the same amount and the combined effect to our cash flows is a positive operational cash flow equivalent
to our net fees earned by providing such prepayment service.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Issuance of senior quotas by FIDCs: when we
launch a new FIDC in order to raise capital, such as FIDC AR1 and FIDC AR2, the amount we raise from senior quota holders less
structuring and transaction costs will be recognized on our balance sheet as cash and as a non-current liability to senior quota
holders. We then transfer our receivables from card issuers from our operating subsidiary to the FIDC and use the cash to fund
our prepayment operations. As a result of consolidating the FIDC in our financial statements, the accounts receivable from card
issuers held by the FIDC remain on our consolidated balance sheet. These set of transactions will generate a positive impact on
our cash flows from financing
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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activities
in the amount received by the FIDC from senior quota holders less structuring and transaction costs. However, as our accounts
receivable from card issuers will remain on our balance sheet but our accounts payable to our clients will be derecognized, these
transactions will also cause a negative impact on our cash flow from operations.



| | (iii) | Deploying our own capital: when we use our
own capital to fund our prepayment operations, we do not sell our receivables from card issuers and they remain on our balance
sheet but our accounts payable to our clients will be derecognized, and therefore these transactions will cause a negative impact
on our cash flow from operations.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net cash used in operating activities



For the year ended December 31, 2018, net
cash used in operating activities was R$2,415.6 million, primarily as a result of:



| | · | Net income of R$305.2 million combined with non-cash expenses consisting primarily of other financial costs and foreign exchange,
net R$126.8 million, and depreciation and amortization of R$92.3 million. The total amount of adjustment to net income from non-cash
items for the year ended December 31, 2018 was R$255.9 million.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Net cash from changes in working capital, arising from changes in operating assets and liabilities, totaled an outflow of R$3,262.6
million, principally due to:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | an increase in the balance of accounts receivable from card issuers which led to negative cash flows of R$3,990.4 million,
driven by the growth in TPV and the launch of FIDC AR1 and FIDC AR2 to fund our prepayment operations;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | partially offset by an increase in the balance of accounts payable which led to positive cash flows of R$570.1million, mainly
driven by the growth of our TPV which in turn was partially offset by the growth/decrease of prepayments made to clients under
our working capital solutions offering.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In addition, amounts received from interest income of R$514.8 million, income tax and social contribution paid of R$87.4 million,
and interest paid of R$141.4 million generated a net inflow of R$285.9 million.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the year ended December 31, 2017, net
cash used in operating activities was R$1,284.0 million, primarily as a result of:



| | · | Net loss of R$105.0 million, offset by non-cash expenses consisting primarily of share-based payments of R$138.9 million, other
financial costs and foreign exchange, net, of R$71.9 million and depreciation and amortization of R$57.2 million. The total amount
of adjustment to net loss from non-cash items in 2017 was R$277.0 million.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Net cash from changes in working capital, arising from changes in operating assets and liabilities, totaled an outflow of R$1,552.7
million, principally due to:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | an increase in the balance of accounts receivable from card issuers which led to negative cash flows of R$1,774.3 million,
driven by the growth in TPV and the launch of FIDC AR1 and FIDC AR2 to fund our prepayment operations;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | partially offset by an increase in the balance of accounts payable which led to positive cash flows of R$210.3 million, mainly
driven by the growth of our TPV which in turn was partially offset by the growth of prepayments made to clients under our working
capital solutions offering.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In addition, amounts received from interest income of R$147.4 million, income tax and social contribution paid of R$3.2 million,
and interest paid of R$47.5 million generated a net inflow of R$96.7 million.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the year ended December 31, 2016, net
cash used in operating activities was R$493.4 million, primarily as a result of:



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| | · | Net loss of R$122.2 million and other non-cash adjustments that contributed negatively to cash flow, such as decrease of deferred
income tax equal to R$27.3 million and other financial costs and foreign exchange, net of R$26.8 million. Those were partially
offset by non-cash expenses consisting primarily of share-based payments of R$53.1 million and depreciation and amortization of
R$43.0 million. The total amount of adjustment from non-cash items in 2016 was R$42.3 million.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Net cash from changes in working capital, arising from changes in operating assets and liabilities, totaled an outflow of R$469.1 million,
principally due to:
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | an increase in the balance of accounts receivable from card issuers which led to negative cash flows of R$1,461.3 million,
mainly driven by the growth in our TPV;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | partially offset by an increase in the balance of accounts payable, which led to positive cash flows of R$982.5 million,
mainly driven by the growth of our TPV.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In addition, amounts received from interest income of R$ 63.1 million, income tax and social contribution paid of R$0.1 million
and interest paid of R$7.3 million generated a net inflow of R$ 55.7 million.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net cash provided by (used in) investing
activities



Net cash used in investing activities for
the year ended December 31, 2018 was R$2,737.1 million, compared to R$299.7 million of net cash used in investing activities
for the year ended December 31, 2017. Net cash used in investing activities for the year ended December 31, 2018 was mainly driven
by net acquisitions of short-term financial investments of R$2,557.3 million compared to net acquisition of short-term financial
instruments of R$145.5 million for the year ended December 31, 2017. In addition, for the year ended December 31, 2018 we purchased
property and equipment, including POS equipment and hardware for use in our data centers, amounting to R$140.9 million, compared
to R$141.0 million for the year ended December 31, 2017.



Net cash used in investing activities for
the year ended December 31, 2017 was R$299.7 million, compared to R$189.9 million of net cash provided by investing activities
for the year ended December 31, 2016. Net cash used in investing activities for the year ended December 31, 2017 was mainly driven
by the purchases of property and equipment, including POS equipment and hardware for use in our data centers, amounting to R$141.0
million, compared to R$31.6 million in 2016. In addition, in 2017 we had net acquisitions of short-term financial investments of
R$145.5 million using funds raised from capital contributions, compared to net redemption of short-term financial instruments of
R$216.7 million in 2016.



Net cash provided by (used in) financing
activities



Net cash provided by financing activities
in the year ended December 31, 2018 was R$4,794.9 million, compared to net cash provided by financing activities of R$2,053.4 million
for the year ended December 31, 2017. The increase was mainly driven by a capital increase, net of transaction costs of R$4,229.2
million mainly related to the initial public offering proceeds in 2018 compared to R$2,053.3 million from senior quota holders
of FIDC AR1 and FIDC AR2 in 2017.



Net cash provided by financing activities
in the year ended December 31, 2017 was R$2,053.4 million, compared to R$378.0 million for the year ended December 31,
2016, which represents an increase of R$1,675.9 million. The increase was mainly driven by (i) a contribution of R$2,053.3 million
from senior quota holders of FIDC AR1 and FIDC AR2 in 2017 and (ii) an increase in capital funding of R$529.0 million, offset
by a repurchase of shares from certain of our shareholders of R$280.8 million and an increase in the amount of our acquisition
of non-controlling interests of R$223.4 million in 2017.



Indebtedness and FIDC Senior Quota Holder Obligations



As of December 31, 2018, we had outstanding
debt and FIDC senior quota holder obligations in the aggregate amount of R$2,837.0 million. The following table contains a
summary of our third-party debt and quota holder obligations as of December 31, 2018 and 2017:



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|                                               |  | Average annual interest rate % |  | Maturity |               | At December 31, 2018 Amount (R$ million) |  | At December 31, 2017 Amount (R$ million)
|---------------------------------------------- |  | ------------------------------ |  | -------- | ------------- | ---------------------------------------- |  | ----------------------------------------
|Obligations to FIDC AR senior quota holders    |  | 106.8% of CDI Rate(1)          |  |          | Jun/20,Nov/20 |                                          |  |                                         
|Obligations to FIDC TAPSO senior quota holders |  | 118.0% of CDI Rate(1)          |  |          | Sep/19        |                                          |  |                                         
|Leasing                                        |  | CDI Rate(1) + 2.1% per year    |  |          | Feb/19        |                                          |  |                                         
|Leasing                                        |  | 7.1% per year                  |  |          | Jul/20        |                                          |  |                                         
|Finame(3)                                      |  | UMBNDES(2) + 4.0% per year     |  |          | Jul/19        |                                          |  |                                         
|Loans with private entities                    |  | 103.0% of CDI Rate(1)          |  |          | Oct/19        |                                          |  |                                         
|                                               |  |                                |  |          |               |                                          |  |                                         
|Current portion of debt                        |  |                                |  |          |               |                                          |  |                                         
|Obligations to FIDC AR senior quota holders    |  | 106.8% of CDI Rate(1)          |  |          | Jun/20,Dec/20 |                                          |  |                                         
|Leasing                                        |  | CDI Rate(1) + 2.1% per year    |  |          | Feb/19        |                                          |  |                                         
|Leasing                                        |  | 7.1% per year                  |  |          | Jul/20        |                                          |  |                                         
|Finame(3)                                      |  | UMBNDES(2) + 4.0% per year     |  |          | Jul/19        |                                          |  |                                         
|Non-current portion of debt                    |  |                                |  |          |               |                                          |  |                                         
|Total Debt                                     |  |                                |  |          |               |                                          |  |                                         








| | (1) | “CDI Rate” means the Brazilian interbank deposit (Certificado de Depósito Interbancário) rate,
which is an average of interbank overnight rates in Brazil.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | “UMBNDES rate” means a floating exchange rate based on a monetary unit of the BNDES, which is based on a basket
of currencies including the U.S. dollar, the euro and other currencies.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Lending program through the BNDES. Finame is a lending program through the BNDES, with such loans being collateralized by the
equipment being financed.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------



In 2015, EdB entered into financial lease
agreements with two commercial banks in order to finance the acquisition of POS and other equipment to be leased to our clients,
as well as other fixed assets. Pursuant to the terms of these agreements, we pay a fixed monthly payment which is adjusted at a
rate of the CDI Rate plus 2.1% per year. As of December 31, 2018, the outstanding obligations under these agreements totaled R$0.8 million,
with the final payment due in February 2019. In 2015, EdB entered into a credit line with the BNDES (Banco Nacional de Desenvolvimento
Econômico e Social) in order to finance the acquisition of POS and other equipment. The credit line bears interest at
a rate of the UMBNDES Rate plus 3.93% per six months. As of December 31, 2018, the outstanding balance under this credit line totaled
R$0.8 million, and matures in July 2019. We assumed the obligations under these agreements in connection with the EdB Acquisition.



As December 31, 2018, we had approximately
R$149.8million of unused borrowing capacity under revolving credit lines we have entered into with commercial banks.



In June 2017 and November 2017, in order
to raise capital to fund prepayment services to merchants, we launched two special purpose investment funds known as Fundos
de Investimento em Direitos Creditórios, or FIDCs, which we refer to as FIDC AR1 and FIDC AR2. A FIDC is an investment
fund authorized by the Brazilian Monetary Council, and specifically designed as an investment vehicle for investing in Brazilian
credit rights, such as credit card receivable rights. Based on the contractual terms governing FIDC AR1 and FIDC AR2, we control
these investment funds and therefore they are consolidated in our consolidated financial statements.



FIDC AR1 and FIDC AR2 raised a total of
R$2,053.3 million, net of transaction costs, by issuing three-year senior quotas to a pool of institutional investors. Both
FIDCs’ senior quotas have a benchmark return rate of 106.8% of the CDI Rate per year and receive interest payments every
six months. At the end of the third annual period, the senior quotas must be fully redeemed by the applicable FIDC. Accordingly,
FIDC AR1 matures in June 2020 and FIDC AR2 matures in December 2020. These FIDCs, in turn, use the capital raised to acquire our
receivables against card issuers arising from credit card transactions and therefore finance our prepayment of receivables working
capital solution. We hold 100% of the subordinated quotas in these FIDCs. Residual returns from these FIDCs, if any, are paid to
subordinated quota holders.



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On October 1, 2018, we entered into an
agreement with SRC Companhia Securitizadora de Créditos Financeiros (“SRC”). The transaction is a revolving
loan in an amount of R$746.9 million, at a discount rate equivalent to 103.0% of the CDI Rate, and has a maturity of 12 months.
Accounts receivables from card issuers are used as collateral, in the equivalent amount of 106% of loan balance.



For further information on our financing
activities, see note 18 to our audited consolidated financial statements.



Capital Expenditures



Capital expenditures comprise purchases
of intangible assets and property and equipment.



In the year ended December 31, 2018,
we made capital expenditures of R$185.7 million. Of these, R$140.9 million was spent on the purchase of property and
equipment, comprised primarily of expenditures related to the purchase of equipment, mainly POS and other equipment to lease to
our client base. In addition, R$44.8 million was spent in relation to the purchase and development of intangible assets, primarily
related to software licenses and compensation expenses of software developers that we capitalize.



In the year ended December 31, 2017, we
made capital expenditures of R$162.3 million. Of these, R$141.0 million was spent on the purchase of property and equipment, comprised
primarily of: (i) R$75.4 million of expenditures related to the purchase of equipment, mainly POS and other equipment to lease
to our client base; and (ii) R$43.7 million to the purchase of datacenter and other IT equipment in order to achieve additional
capacity to sustain the growth in our transaction volumes. In addition, R$21.3 million was spent in relation to the purchase and
development of intangible assets, primarily related to software licenses and compensation expenses of software developers that
we capitalize.



In the year ended December 31, 2016, we
made capital expenditures of R$43.1 million. Of these, R$31.6 million was on purchase of property and equipment, which mainly include:
(i) R$13.0 million expenditures related to purchase of equipment, mainly POS and other equipment to lease to our client base; and
(ii) R$5.3 million in purchase of IT equipment. In addition, R$11.5 million was spent in relation to purchase and development of
intangible assets, primarily related to software licenses and compensation expenses of software developers which we capitalize.



We estimate that our capital expenditures
for 2019 will be primarily for purchases of property and equipment (mainly relating to purchases of POS and other equipment to
lease to our client base and IT equipment) and intangible assets (mainly relating to software licenses and compensation expenses
of software developers that we capitalize). We expect to increase our capital expenditures to support the growth in our business
and operations. We expect to meet our capital expenditure needs for the foreseeable future from our cash flows from operations
and our existing cash and cash equivalents.



Critical Accounting Policies and Estimates



Our consolidated financial statements are
prepared in conformity with IFRS. In preparing our audited consolidated financial statements, we make assumptions, judgments and
estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions,
judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances.
Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate
our assumptions, judgments and estimates. Our significant accounting policies are described in note 3 to our audited consolidated
financial statements included elsewhere in this annual report. We believe that the following critical accounting policies are more
affected by the significant judgments and estimates used in the preparation of our consolidated financial statements:



Consolidation of structured entities



We consider each of the FIDC AR1 and FIDC
AR2 to be structured entities as defined by IFRS 10. We hold all subordinated quotas issued by these FIDCs, representing approximately
10% of the total outstanding quotas, while third parties hold all senior quotas, representing approximately 90% of the total outstanding
quotas.



The bylaws of these FIDCs were established
by us at their inception, and grant us significant decision-making authority over these entities, such as the right to determine
which credits rights are eligible to be acquired by these



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FIDCs.
In addition, senior quota holders receive a fixed remuneration payment every six months and the senior quotas must be fully redeemed
by us at the end of the third annual period. As sole holders of the subordinated quotas, we are entitled to the full residual
value of the entities, if any, and thus we have the rights to their variable returns, if any.



In accordance with IFRS 10, we concluded
we control each of FIDC AR1 and FIDC AR2 and, therefore, they are consolidated in our financial statements. The senior quotas are
accounted for as a financial liability under “Obligations to FIDC senior quota holders” and the fixed remuneration
paid to senior quota holders is recorded as interest expense.



Revenue recognition



Revenue is recognized when we have evidence
of an arrangement, as services are rendered or transactions are cleared, consideration is reliably measurable and collectability
is probable. When equipment or services are bundled in an agreement with a client, the components are separated using objective
evidence of the fair value of the components, which is based on our customary pricing for each element in separate transactions.
If evidence of fair value exists for all undelivered elements and there is no such evidence of fair value established for delivered
elements, revenue is first allocated to the elements where fair value has been established and the residual amount is allocated
to the delivered elements. If evidence of fair value for any undelivered element of the arrangement does not exist, all revenue
from the arrangement is deferred until such time that there is evidence of delivery for that undelivered element.



We recognize revenue from transaction activities
net of interchange fees retained by card issuers and assessment fees charged by payment schemes since we consider we are an agent
in the authorization, processing and settlement of payment transactions as we do not bear the significant risks and rewards of
those services, given that: (i) we are not the primary entity responsible for the authorization, processing and settlement
services performed by the payment scheme networks and card issuers; (ii) we have no latitude to establish the assessment and
interchange fees; (iii) we do not collect the interchange fee and the assessment fee is collected on behalf of the clients;
and (iv) we do not bear the credit risk of the cardholder.



Intangible assets



Certain direct development costs associated
with internally developed software and software enhancements of our technology platform are capitalized. Capitalized costs, which
occur post determination by management of technical feasibility, include external services and internal payroll costs. These costs
are recorded as intangible assets when development is complete and the asset is ready for use, and are amortized straight-line,
generally over a period of three to five years. Research and pre-feasibility development costs, as well as maintenance and training
costs, are expensed as incurred. In certain circumstances, management may determine that previously developed software and its
related expense no longer meets management’s definition of feasible, which could then result in the impairment of such asset.



Intangible assets with finite useful lives
are amortized over their estimated useful lives and tested for impairment whenever there is an indication that their carrying amount
may be not be recovered. The period and method of amortization for intangible assets with finite lives are reviewed at least at
the end of each fiscal year or when there are indicators of impairment. Changes in estimated useful lives or expected consumption
of future economic benefits embodied in the assets are considered to modify the amortization period or method, as appropriate,
and treated as changes in accounting estimates. The amortization of intangible assets with definite lives is recognized in profit
or loss in the expense category consistent with the use of intangible assets.



As of December 31, 2018, 2017 and 2016,
we do not hold indefinite life intangibles assets, except for goodwill.



We test whether goodwill suffered any impairment
on an annual basis at December 31 and, when circumstances indicate that the value may be impaired, at our single Cash Generating
Unit, or CGU. The recoverable amount of our CGU is determined based on a value in use calculation using cash flow projections from
financial budgets approved by senior management covering a five-year period, based on past performance and management’s expectations
of market development and on current industry trends and including long-term inflation forecasts for each territory.



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We performed our annual impairment test
as of December 31, 2018, 2017 and 2016, which did not result in the need to recognize impairment losses on the carrying value
of goodwill.



Share-based payments



We have equity-settled and cash-settled
share-based payment plans, under which management grants shares or optional cash amounts based on the price or value of shares
to employees and non-employees in exchange for services.



The cost of equity-settled transactions
with employees is measured using their fair value at the date they are granted. The cost of equity-settled transactions and a corresponding
increase in equity is recognized on the date of grant.



We account for cash-settled share-based
payment transactions with employees and nonemployees within liabilities and initially measure the cost of the services received
based on the fair value of the liability. This liability is remeasured at the end of each reporting period up to the date of settlement,
such that the liability ultimately is measured at the fair value of the liability on the date of settlement. This requires a reassessment
of the estimates used to value these shares at the end of each reporting period.



Estimating fair value for share-based payment
transactions requires determination of the most appropriate valuation model and underlying assumptions, which depends on the terms
and conditions of the grant and the information available at the grant date. We use certain methodologies to estimate fair value,
which include equity transactions with third parties close to the grant date and other valuation techniques, including option pricing
models such as Black-Scholes.



On December 5, 2017, our wholly owned subsidiary,
DLP Par, issued 47,996 Co-Investment Shares under a share based compensation plan. In connection with our initial public offering,
holders of Co-Investment Shares exchanged these shares for 939,708 Class A common shares. -The share-based compensation expense
associated with these awards was measured using a fair value based on the purchase price of shares issued in an investment round
completed on December 8, 2017. Multiple third-party investors participated in the investment round on arm’s-length terms,
which resulted in 2,676,492 ordinary nonvoting shares being issued for US$24.2 million, at a price per share of US$9.06. Such investors’
valuation of Stone was based on discussions with management and their own due diligence and internal analysis.



Management believes the difference between
the fair value of the December 2017 award of Co-Investment Shares and the price per share of our initial public offering was the
result of (i) the high level of growth achieved by Stone, as demonstrated by its principal operational and financial metrics, and
(ii) a customary liquidity discount for privately issued securities without an established trading market.



Management believes that the Co-Investment
Shares issued in December 2017 and the ordinary nonvoting shares issued in the December 2017 private placement were substantially
identical in terms. Neither instrument entitled its holder to vote in an ordinary meeting of shareholders of the Company. Due to
StoneCo Ltd. being a holding company without any material operations, assets or liabilities of its own, and the exchange ratio
to be applied to the Co-Investment Shares, the economic interest in the consolidated corporate group that each Co-Investment Share
represented is the same as the economic interest of the consolidated corporate group represented by the number of Class A common
shares that were issued upon exchange. Furthermore, each ordinary nonvoting share was reclassified into Class A common shares on
a one-for-one basis in connection with our initial public offering. Accordingly, the economic interest in the consolidated corporate
group that each Co-Investment Share represented is the same as the economic interest of the consolidated corporate group represented
by the number of ordinary nonvoting shares that were reclassified into Class A common shares in connection with our initial public
offering.



In addition, Management believes that the
Co-Investment Shares and the Class A common shares that they were exchanged into are substantially identical in terms and, as a
consequence, their estimated fair value was the same at the date at which the exchange occurs. As stated above, the economic interest
in the consolidated corporate group that each Co-Investment Share represented is the same as the economic interest of the consolidated
corporate group represented by the number of Class A common shares that were issued upon exchange. In addition, the ten-year lock-up
period that was applicable to the Co-Investment applies equally to the Class A common shares issued upon exchange
that are held by holders of the previous Co-Investment Shares after the initial public offering. Therefore, the Company did not
recognize incremental share-based compensation expense in connection with the exchange.



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Deferred income tax and social contribution



Deferred income tax and social contribution
is recognized, using the liability method, on temporary differences between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. Deferred tax assets and liabilities are presented net in the statement of financial position
when there is a legally enforceable right and the intention to offset them upon the calculation of current taxes.



Deferred tax assets are recognized only
to the extent it is probable that future taxable profit will be available against which the temporary differences and/or tax losses
can be utilized. Significant judgment from management is required to determine the amount of deferred tax assets that can be recognized,
based on the likely timing and level of future taxable profits, together with future tax planning strategies.



Application of New Accounting Standards and New Accounting
Policies



On January 1, 2018 we applied the following
accounting standards. For further information on the impact of these IFRS standards and interpretations on the presentation of
our financial position or performance once they become effective, see note 3.19(i) to our audited consolidated financial statements
included elsewhere in this annual report.



IFRS 15—Revenue from Contracts
with Customers



IFRS 15, issued in May 2014, establishes
a five-step model to account for revenues 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.
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenues and related interpretations and it applies to all revenue
arising from contracts with customers, unless those contracts are in the scope of other standards.



We adopted IFRS 15 on its effective date
of January 1, 2018, using a modified retrospective approach with no impact on our audited financial statements.



IFRS 9—Financial Instruments



In July 2014, IASB issued the final version
of IFRS 9—Financial Instruments, which supersedes IAS 39—Financial Instruments: Recognition and Measurement. IFRS 9
brings together all three aspects of the accounting for financial instrument project: classification and measurement, impairment
and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018.



We adopted the new standard as of January 1,
2018.



| | (a) | Classification and measurement
| | --- | ------------------------------



Accounts receivable from card issuers previously
measured at amortized cost were reclassified to be measured at fair value through other comprehensive income, or OCI.



Trade accounts receivable are held to collect
contractual cash flows and give rise to cash flows that represent exclusively principal and interest payments. As such, loans continue
to be measured at amortized cost.



Accounts receivable from card issuers that
are held to collect contractual cash flows and then sell the receivable are now measured at fair value through other comprehensive
income, or FVOCI, under IFRS 9. For accounts receivable from card issuers measured at FVOCI, all changes in the fair value are
now taken through OCI, except for the recognition of impairment gains or losses, interest income, gains and losses arising on de-recognition,
and foreign exchange gains and losses, which are recognized in profit or loss.



On January 1, 2018, the effect of applying
the classification and measurement provisions of IFRS 9 resulted in a reduction of R$71.0 million in accounts receivable from card
issuers and a corresponding adjustment, net of taxes, of R$46.8 million to equity recognized in other comprehensive income.



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| | (b) | Impairment
| | --- | ----------



IFRS 9 requires the recording of expected
credit losses on debt securities, loans and trade accounts receivable, for 12 months or on a lifetime basis. We implemented a three-stage
model to record the expected losses on our accounts receivable. We have undertaken an analysis of the impact of adopting the expected
loss model. Based on the past history of defaults as well as on expected nature and level of risk associated with loans and receivables,
the effect of adoption of the expected loss model on January 1, 2018 resulted in an increase in the provision for losses of R$0.8
million, and a corresponding deferred tax asset of R$0.3 million, with a corresponding entry to equity of R$0.5 million.



New Accounting Standards under IFRS



Certain IFRS standards and interpretations
that have been issued but that are not in effect until January 1, 2019 could impact the presentation of our financial position
or performance once they become effective. For further information on the impact of these IFRS standards and interpretations on
the presentation of our financial position or performance once they become effective, see note 3.19(ii) to our audited consolidated
financial statements included elsewhere in this annual report.



IFRS 16—Leases



IFRS 16 was issued in January 2016 and
supersedes IAS 17—Leases. IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure
of leases and requires lessees to account for all leases under a single model in the statement of financial position, similar to
the recognition of finance leases under IAS 17. On the commencement date of the lease agreement, the lessee will recognize
a lease payment liability (i.e. a lease liability) and an asset that represents the right to use the underlying asset during the
lease term (i.e. the right to use asset). IFRS 16 is effective for annual periods beginning on or after January 1, 2019.



We will apply the standard from its mandatory
adoption date of January 1, 2019. We intend to apply the simplified transition approach and will not restate comparative amounts
for the year prior to first adoption. Right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted
for any prepaid or accrued lease expenses). We will elect to use the exemptions proposed by the standard on lease contracts for
which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying
asset is of below US$ 5,000.



We expect to recognize lease liabilities
of approximately R$ 40,000 on January 1, 2019 and right-of-use assets in the same amount.



IFRIC 23—Uncertainty over Income tax treatments



On June 7, 2017, the IFRS Interpretations
Committee (“IFRS IC”) issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12 ‘Income
taxes’, are applied where there is uncertainty over income tax treatments.



The IFRS IC had clarified previously that
IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies to accounting for uncertain
income tax treatments. IFRIC 23 explains how to recognize and measure deferred and current income tax assets and liabilities where
there is uncertainty over a tax treatment.



We will adopt IFRIC 23 on its effective
date, January 1, 2019, using the simplified retrospective approach, and do not expect to have any impact on our consolidated financial
statements.



Material Weakness in Internal Controls and Remediation



In connection with the audit of our consolidated
financial statements for the year ended December 31, 2017 and 2016, we and our independent registered public accounting firm identified
a number of material weaknesses in our internal controls over financial reporting as of December 31, 2017 and 2016. Specifically,
the following controls were not fully effective: (i) inaccuracies in our treatment of the measurement of and recognition of deferred
income and social contribution taxes due to a lack of experienced personnel; (ii) inadequate controls around the monthly closing
process which resulted in the need to make adjustments to historical financial statements; (iii) inaccuracies in our treatment
of stock-based compensation due to a lack of experienced personnel; (iv) errors in our application



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of
acquisition accounting policies to our acquisition of Elavon due to a lack of experienced personnel; (v) inaccuracies in our treatment
of related party transactions due to the lack of a process for their identification and disclosure; and (vi) lack of procedures
and controls for (a) the change management process, (b) granting access to our accounting systems, (c) revoking access for terminated
personnel; and (d) managing access for transferred and promoted employees, (e) periodically reviewing the profiles of those with
access, (f) segregating access between development and production environments; and (g) monitoring, logging and tracking access
to our systems.



We have adopted a remediation plan with
respect to the material weaknesses identified above and, by hiring several new, experienced personnel in our financial reporting
organization, adopting revised processes and procedures and, modifying our internal controls to provide additional levels of review,
implementation of new software solutions, training for staff and enhanced documentation we believe that we have remediated each
of the material weaknesses, as of December 31, 2018. These measures include implementation of new processes and procedures, modifying
our internal controls to provide additional levels of review, implementation of new software solutions, training for staff and
enhanced documentation. There can be no assurance that our remediation efforts will continue to be successful. See “Item
3. Key Information—D. Risk factors—In the past, we and our independent registered public accounting firm identified material weaknesses in our internal control
over financial reporting and, if we fail to maintain effective internal controls over financial reporting, we may be unable
to accurately report our results of operations, meet our reporting obligations or prevent fraud.”



| | C. | Research and development, patents and licenses, etc.
| | -- | ----------------------------------------------------



Our research and development focuses on
developing an integrated suite of advanced technologies designed to provide differentiated capabilities and seamless omni-channel
commerce client experiences in a more secure, all-in-one environment, that is developed to operate in a completely digital environment
and enables us to develop, host, and deploy our solutions, conduct a broad range of transactions seamlessly across in-store, online
and mobile channels, manage our distribution hubs, and optimize our client support functions—all in a fully digital, fully
integrated, and holistic manner.



| | D. | Trend information
| | -- | -----------------



For a discussion of trend information,
see “Item 5. Operating and Financial Review and Prospects.”



| | E. | Off-balance sheet arrangements
| | -- | ------------------------------



As of December 31, 2018, we did not have
any off-balance sheet arrangements.



| | F. | Tabular disclosure of contractual obligations
| | -- | ---------------------------------------------



Our contractual obligations at December
31, 2018 were as follows:



|                                              |  | Payments Due By Period
|--------------------------------------------- |  | ----------------------
|                                              |  | Total                 
|                                              |  | (R$ millions)         
|Debt and FIDC senior quota holder obligations |  |                       
|Operating leases(1)                           |  |                       
|Total                                         |  |                       








| | (1) | Consists of office leases and lease and insurance costs for motorcycles used by our Green Angels.
| | --- | -------------------------------------------------------------------------------------------------



| | G. | Safe harbor
| | -- | -----------



See “Forward-Looking Statements.”



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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



| | A. | Directors and senior management
| | -- | -------------------------------



Board of Directors



We are managed by our board of directors
and by our senior management, pursuant to our Articles of Association and the Cayman Companies Law.



Our board of directors is responsible for,
among other things, establishing our overall strategy and general business policies, supervising management, appointing and removing
our executive officers, and appointing our independent auditors.



Our board of directors is composed of five
members. Each director holds office for the term, if any, fixed by the shareholders’ resolution that appointed him or her
or, if no term is fixed on the appointment of the director, until the earlier of his or her death, resignation or removal. Directors
appointed by the board of directors hold office until the next annual general meeting. Our directors do not have a retirement age
requirement under our Articles of Association. The current members of our board of directors hold office until the next annual
general meeting.



Our Articles of Association provide that
from and after the date on which the founder shareholders (and/or their respective affiliates) no longer constitute a group that
beneficially owns more than 50% of our outstanding voting power (the “classifying date”), the directors shall be divided
into three classes designated Class I, Class II, and Class III. Each director shall serve for a term ending on the date of the
third annual general meeting of the shareholders following the annual general meeting of the shareholders at which such director
was elected as subject to the provisions of our Articles of Association. The founding directors shall be allocated to the longest
duration classes unless otherwise determined by the founder shareholders.



The following table presents the names
of the members of our board of directors:



|Name                                      | Age | Position                  
|----------------------------------------- | --- | --------------------------
|André Street(1)                           | 34  | Director and Chairman     
|Eduardo Cunha Monnerat Solon de Pontes(1) | 40  | Director and Vice Chairman
|Roberto Moses Thompson Motta(1)(2)        | 61  | Director                  
|Thomas A. Patterson                       | 53  | Director                  
|Ali Mazanderani(2)                        | 37  | Director                  








| | (1) | Member of our Compensation Committee
| | --- | ------------------------------------



| | (2) | Member of our Audit Committee.
| | --- | ------------------------------



The following is a brief summary of the
business experience of our directors. Unless otherwise indicated, the current business addresses for our directors is R. Fidêncio
Ramos, 308, Torre A, 10th floor, Vila Olímpia, São Paulo – SP, 04551-010, Brazil.



André Street is the Chairman
of our board of directors, and has been a member of our board of directors since 2018. He has held the position of member of the
advisory committee of DLP Capital LLC since 2014. In 2000, he founded Pagafacil.com, a company specialized in internet payments
in Brazil that partnered with websites such as I-Bazar, Mercadolivre, Lokau.com and Arremate. In 2005, he founded Braspag Tecnologia
Em Pagamentos, a service provider of payment solutions in Latin America, where he served as CEO until 2009, when the company was
sold. In 2007, he also founded Netcredit Promoção de Crédito S.A., a consumer credit company that geared towards
facilitating business growth by offering extended payment terms and emphasizing digital credit approval processes. Mr. Street is
a founding partner of ACP Investments Ltd – Arpex Capital (formed in 2011), a company focused on investing in e-commerce
technology companies in Latin America and in the United States. While at Arpex, he founded StoneCo Ltd., the issuer company, controller
of Stone Pagamentos S.A. and Mundipagg Tecnologia em Pagamentos S.A., two of our subsidiaries. Between 2012 and 2015 he had indirectly
controlled Sieve Group Brasil Tecnologia S.A., a holding company that was the owner of several technology companies, sold in 2015.
He also







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served
on the board of directors of B2W Companhia Digital S.A. from 2015 to June 2018 and currently serves on the board of directors
of Lojas Americanas S.A. In 2010, Mr. Street completed the Owner President Manager Program at Harvard Business School. We
believe that Mr. Street is well qualified to serve as the Chairman of our board of directors given his extensive experience in
the financial technology sector and background as one of our founders and as one of our executives since inception.



Eduardo Cunha Monnerat Solon de Pontes
is the Vice Chairman of our board of directors, and has been a member of our board of directors since 2018. He has held the position
of member of the Advisory Committee of DLP Capital LLC since 2014. Mr. Pontes is a founding partner of ACP Investments Ltd - Arpex
Capital (formed in 2011), a company focused on investing in e-commerce technology companies in Latin America and in the United
States. While at Arpex, he founded StoneCo Ltd., and Stone Pagamentos S.A. and Mundipagg Tecnologia em Pagamentos S.A., two of
our subsidiaries. He has also served on the board of directors of several companies, whether in a capacity as member or advisor,
including Site Blindado S.A. and MOIP Pagamentos S.A. In 2005, he founded Braspag Tecnologia em Pagamentos, a service provider
of payment solutions in Latin America, where he served as CEO until 2009. In 2007, he founded Netcredit, a consumer credit company
that is geared towards facilitating business growth by offering extended payment terms and emphasizing digital credit approval
processes. Between 2012 and 2015, he served as indirect controlling shareholder of Sieve Group Brasil Tecnologia S.A. through certain
investment vehicles. Mr. Pontes served as the CEO of Stone Pagamentos S.A. since its inception until early 2018 and currently serves
on the board of directors of CVC Brasil Operadora e Agência de Viagens S.A. Mr. Pontes completed studies in data processing
from the Pontifícia Universidade Católica do Rio de Janeiro in 2000, an MBA degree in e-business from Fundação
Getulio Vargas in 2001, and also completed the Owner President Manager Program at Harvard Business School in 2010. We believe that
Mr. Pontes is well qualified to serve as a member of our board of directors given his extensive experience in the financial technology
sector and background as a founder of certain of our subsidiaries and one of our executives since inception.



Roberto Moses Thompson Motta is
a member of our board of directors, a position he has held since 2018. He has held the position of member of the Advisory Committee
of DLP Capital LLC since 2014. Mr. Thompson Motta serves as Chairman of our Finance Committee and Vice-chairman of our Compensation
Committee. Mr. Thompson Motta has served as a member of the board of directors of Restaurant Brands International Inc. since 2014,
of AmBev S.A. since 1999, of Lojas Americanas S.A. since 2001, and of Sao Carlos Empreendimentos e Participações
S.A. since 2001. He also served as a member of the board of directors of Anheuser-Busch InBev from August 2004 to April 2014. Mr.
Thompson Motta is also one of the founding partners of 3G Capital Inc., and continues to serve as a member of its board of directors.
Prior to 3G Capital, he was one of the founders and managing partners of GP Investimentos Ltda. Mr. Thompson Motta is a Brazilian
citizen and holds a degree in mechanical engineering from Pontifícia Universidade Católica do Rio de Janeiro and
an MBA from the Wharton School of the University of Pennsylvania. We believe that Mr. Thompson Motta is well qualified to serve
as a member of our board of directors given his extensive experience in the financial technology sector and background as a member
of the Advisory Committee of DLP Capital LLC.



Thomas A. Pattersonis a member
of our board of directors, a position he has held since 2018. Mr. Patterson is a General Partner at Madrone Capital Partners,
an investment firm based in Menlo Park, California that focuses on investments in founder/family owned businesses, the emerging
middle class in China and Brazil, and clean energy technology. Prior to joining Madrone, he was at Weston Presidio, a private equity
firm focused on growth equity and leveraged buyout transactions, from 1995 until 2004. Prior to Weston Presidio, he worked for
four years at McKinsey & Company and focused on the financial services and building materials industries. Mr. Patterson
serves on the Boards of Stone Co., Barry-Wehmiller, Castleton Commodities, View and Dr Consulta. He is active in private land
conservation and is a Director-At-Large of the Montana Land Reliance and a trustee of Rare. He holds an MBA from Harvard Business
School and an AB in history from Harvard College where he rowed on the Crimson’s varsity lightweight crew team. We believe
that Mr. Patterson is well qualified to serve as a member of our board of directors given his extensive experience and background
in the financial services sector.



Ali Mazanderani is a member of our
board of directors, a position he has held since 2018. Mr. Mazanderani is a partner at Actis, a leading growth market private
equity company, which has raised US$14 billion since inception. He joined Actis in 2010 and leads financial technology investments
for the firm globally. He has been instrumental in several Actis investments including those in leading payment platforms operating
across the world, from Africa and the Middle (Emerging Market Payments) to Southern Africa (PayCorp Investments) to South East
Asia (GHL Systems Berhad), India (PineLabs) and Brazil (Stone Group). He is a non-executive director of several companies both
in payments — Paycorp, GHL and Stone, as well as other growth market technology companies — Compuscan



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Holdings
(credit bureau) and Upstream Systems (mobile commerce). Before Actis, Mr. Mazanderani was the lead strategy consultant for First
National Bank (South Africa) based in Johannesburg. Prior to that, he advised private equity and corporate clients for OC&C
Strategy Consultants in London. He holds a Bachelors degree in Economics from the University of Pretoria, a Masters in Economics
for Development from Oxford University, a Masters in Economic History from the London School of Economics, and an Executive MBA
from INSEAD. We believe that Mr. Mazanderani is well qualified to serve as a member of our board of directors given his extensive
experience and background in the financial technology sector.



Executive Officers



Our executive officers are responsible
for the management and representation of our company. We have a strong centralized management team led by Thiago dos Santos Piau,
our CEO, with broad experience in information technology, strategy, operations, finance, sales, communications and training. Many
of the members of our management team have worked together as a team for many years. Our executive officers were appointed by our
board of directors for an indefinite term.



The following table lists our current
executive officers:



|Name                            | Age | Position                                              
|------------------------------- | --- | ------------------------------------------------------
|Thiago dos Santos Piau          | 29  | Chief Executive Officer                               
|Augusto Barbosa Estellita Lins  | 56  | President                                             
|Marcelo Bastianello Baldin      | 36  | Vice President, Finance                               
|Rafael Martins Pereira          | 33  | Investor Relations Executive Officer                  
|Felipe Salvini Bourrus          | 35  | Chief Technology Officer                              
|Vinícius do Nascimento Carrasco | 42  | Chief Economist & Regulatory Affairs Executive Officer
|Lia Machado de Matos            | 42  | Chief Strategy Officer                                





The following is a brief summary of the
business experience of our executive officers. Unless otherwise indicated, the current business addresses for our executive officers
is R. Fidêncio Ramos, 308, Torre A, 10th floor, Vila Olímpia, São Paulo—SP, 04551-010, Brazil.



Thiago Dos Santos Piau is our Chief
Executive Officer, a position he has held since 2017. Prior to 2017, he was our Chief Operations Officer and prior to 2016, he
was our Chief Financial Officer. He is a partner at ACP Investment Ltd. – Arpex Capital, where he was responsible for the
definition of the business strategy, investment structuring, merger and acquisition transactions and oversees the management of
portfolio companies. In 2011, he founded Paggtaxi, a company that facilitated the payment of taxi rides through a mobile app and
credit card machines, where he served as a partner until 2013. Mr. Piau conducted studies in mechanical engineering at Universidade
Federal do Rio de Janeiro from 2007 to 2011 and participated in the Key Executive Program at Harvard Business School in 2013. He
also participated in the Owner President Manager Program at Harvard Business School in 2018.



Augusto Barbosa Estellita Lins is
our President, a position he has held since 2018. He is responsible for our overall strategy, operations and procedures, the development
and consolidation of our distribution channels and our marketing strategies. Prior to joining Stone Co., he served as Commercial
Director at Redecard from 2011 to 2013 where he was responsible for managing the relationship with merchants and oversaw a sales
team of over 50 people. Between 2001 and 2011, he served as Director in different capacities at Itaú Unibanco, Hipercard
Banco Múltiplo and Cartāo Unibanco where he was responsible for marketing credit cards and consumer financial products,
including personal loans, insurance products and installment plans. Between 1993 and 2001, he served as Corporate Finance Director
at ING Bank, where he participated in numerous mergers and acquisitions, structured debt financings and other capital market transactions
involving Brazilian and Latin American companies. Prior to joining ING Bank, he worked in the corporate finance department at N
M Rothschild & Sons in England, Portugal, Spain and the United States, where he participated in several structured transactions
and investments in Brazil. Mr. Lins received a degree in electric and electronic engineering from the Universidade Federal
do Rio de Janeiro in 1985, an MBA degree in Finance from Boston University School of Management in 1990 and completed an advanced











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management
program in Business Administration from Fundação Dom Cabral/INSEAD in 2004. He also participated in the Owner President
Manager Program at Harvard Business School in 2017.



Marcelo Bastianello Baldinis our
Vice President, Finance, a position he has held since 2018. Prior to joining Stone Co., he served in various capacities at PricewaterhouseCoopers
for over a decade between 2004 and 2017, most recently as a partner responsible for the financial risk management practice. Mr. Baldin
received a bachelor’s degree in Business Administration from the Fundação Getulio Vargas in 2004 and a master
of science degree in quantitative finance from the London Business School in 2011.



Rafael Martins Pereira is our Investor
Relations Executive Officer, a position he has held since 2018. Prior to joining Stone Co., from 2012 to 2016 he served as an analyst
and financial advisor for 3G Capital Group, providing support to the Board of companies such as Lojas Americanas S.A., B2W Companhia
Digital S.A., Anheuser Busch InBev SA/NV, São Carlos Empreendimentos e Participacões S.A. and Restaurant Brands International
Inc., in connection with new investments, mergers and acquisitions, strategic planning, compensation, budget planning, among others.
Prior to that, he served as an investment banking analyst at Goldman Sachs from 2010 to 2012. Mr. Martins was also the founder
of Exotic Cafés, where he served as a director until 2010. Between 2005 and 2006 he was an associate at the Barbosa de Souza
Advogados law firm and he previously worked at the General Consulate of Canada in São Paulo. Mr. Martins received a
law degree from Universidade de São Paulo in 2008 and a bachelor’s degree in Business Administration from Fundação
Getúlio Vargas in 2010.



Felipe Salvini Bourrus is our Chief
Technology Officer, a position he has held since 2018. Prior to joining Stone Co., he was an executive director of B2W Companhia
Digital S.A. from 2015 to 2018 and was a founder of Sieve Group Brasil Tecnologia S.A., as well as the company’s Chief Technology
Officer from 2010 until 2015. Between 2005 and 2009, he was a developer at Ponto de Referência, CarrierWeb and Cortex Intelligence.
He also founded MeuTelefone (Voip) and MeuServidor, where he served as a partner until 2006. Mr. Salvini received a bachelor’s
degree in computer science from the Pontifícia Universidade Católica do Rio de Janeiro in 2009 and completed the
Key Executives Program, Business Administration and Management at Harvard Business School in 2013.



Vinícius do Nascimento Carrascois our Chief Economist & Regulatory Affairs Executive Officer, a position he has held since 2018. Prior to joining Stone
Co., he was the Planning and Research Executive Officer at the BNDES, having conducted, along with the Brazilian Central Bank and
the Ministry of Finance, the credit reform that led to the creation of the Long Term Interest Rate (TLP). He also regularly acted
as a consultant on matters of economics and econometrics, and has provided consulting services for the CVM in connection with the
qualitative and econometric evaluation of the auditor rotation policy, for a credit guarantee fund in connection with the role
of institutional investors as bank overseers in the reduction of systemic risk, among others. He has published several papers in
his field of expertise and has also acted as a contributor for the American Economic Review, Econometrica, Review of Economic Studies,
Journal of Economic Theory, Journal of Economic Behavior and Organizations, and Review of Brazilian Econometrics. Mr. Carrasco
received a bachelor’s degree in economics from the Universidade Federal do Rio Grande do Sul in 1997, a master’s degree
in economics from the Pontifícia Universidade Católica do Rio de Janeiro in 2000 and a PhD in economics from Stanford
University in 2005. He has been a fellow at the economics department of Stanford University, the economics department at Pontifícia
Universidade Católica do Rio de Janeiro, the John M. Olin Program in Law and Economics at Stanford Law School and the Stanford
Institute for Economic Policy Research. He was an elected affiliated member of the Brazilian Academy of Sciences between 2012 and
2017 and is an Economics Professor at PUC-Rio.



Lia Machado de Matos is our Chief
Strategy Officer, a position she has held since 2016. She is responsible for designing our strategy and leading the implementation
of key strategic projects. She was responsible for the development of the Hub Strategy in 2015 and for the migration process subsequent
to the Elavon acquisition in 2016. Prior to joining Stone Co., she served as a Family Office Director for Varbra between 2012 and
2016. Between 2006 and 2012, she served in several positions at McKinsey & Company in Brazil, including as an Associate
Partner, where she was responsible for strategy, M&A and organizational projects of several Brazilian and global companies.
Mrs. Matos received a bachelor’s degree in physics from the Universidade Federal do Rio de Janeiro in 1998, a PhD
in physics and electrical engineering from the Massachusetts Institute of Technology in 2005 and was a teaching assistant
and research fellow at the Massachusetts Institute of Technology between 1999 and 2005.



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| | B. | Compensation
| | -- | ------------



Compensation of Directors and Officers



Under Cayman Islands law, we are not required
to disclose compensation paid to our senior management on an individual basis and we have not otherwise publicly disclosed this
information elsewhere. For the year ended December 31, 2018, the aggregate compensation expense for the members of the Board
of Directors and Stone Co.’s executive officers for services in all capacities was R$25.3 million, which includes both
benefits paid in kind and variable compensation.



Our executive officers, directors and management
receive fixed and variable compensation as well as benefits which are in line with market practice in Brazil. The fixed component
is set on market terms and adjusted annually.



The variable component consists of share-based
compensation (including both share- and cash-settled awards) as discussed below and certain annual cash performance-based compensation.



Employment agreements



None of our executive officers have entered
into employment agreements with the Company.



Long-Term Incentive Plans (LTIP)



Certain of our employees and other service
providers receive share-based compensation under our long-term incentive plans described below. Prior to our initial public offering,
we maintained long-term incentive plans that related to shares of our subsidiaries, which, as described throughout this section,
were replaced with the DLP Payments Holdings Ltd. Long-Term Incentive Plan (the “2018 Plan”) in connection with the
consummation of our initial public offering. All shares underlying awards granted under such plans were exchanged for our Class
A common shares.



On September 1, 2018, we adopted the 2018
Plan to enable us to grant equity-based awards to our employees and other service providers with respect to our Class A common
shares, and we granted RSUs and stock options to certain key employees under the 2018 Plan to incentivize and reward such individuals
in connection with the successful completion of our initial public offering. These awards are scheduled to vest over a four, five,
seven and ten year period, subject to and conditioned upon the achievement of certain performance conditions. Assuming achievement
of these performance conditions, awards will be settled in, or exercised for, our Class A common shares. If the applicable performance
conditions are not achieved, the awards will be forfeited for no consideration. As of December 31, 2018, there were RSUs including
the Phantom Shares outstanding with respect to 5,114,450 Class A common shares and stock options outstanding with respect to 135,198
Class A common shares (with a weighted average exercise price of US$24.00). The terms of the 2018 Plan are described in more detail
below under “—2018 Omnibus Equity Plan”



Prior to our initial public offering, we
granted Co-Investment Shares to certain key employees that entitled participants to receive a cash bonus which they could use to
purchase a specified number of preferred shares in DLP Pagamentos Brasil S.A. (“DLP Brasil”), which were then exchanged
for common shares in DLPPar Participações S.A. (“DLPPar”), subject to a lock-up period. In connection
with our initial public offering, all shares in DLPPar were exchanged for our Class A common shares (subject to a lock-up period)
through the execution of a contribution agreement entered into between us and each holder of awards under such plans. As of December
31, 2018, there were Co-Investment Shares outstanding with respect to 5,333,202 Class A common shares. In addition, in connection
with this offering, we intend to release transfer restrictions applicable to a number of Co-Investment Shares.



Certain of our founding partners and senior
executives have received a one-time indirect issuance of our fully vested Class C shares, or the Class C shares, which permitted
the holders of such shares to participate in our initial public offering. In connection with our initial public offering, the Class
C shares were converted into Class B shares, of which there were 7,695,072 Class B shares outstanding as of December 31, 2018.
These shares are subject to a lock-up period.



In 2018, certain of the key employees of
our subsidiaries held phantom shares, or the Phantom Shares, that entitled participants to receive a cash payment in connection
with a qualifying “settlement event” based on a change



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in
control, which payment was determined based on the positive difference between the share price of DLP Brasil on the date of the
settlement event and the share price of DLP Brasil on the grant date. In September 2018, we converted all outstanding Phantom
Shares into RSU awards (with the terms described above) under the 2018 Plan. The then outstanding Phantom Shares were converted
into RSU awards.



We have also entered into agreements with
certain non-executive key employees pursuant to which these employees purchased Class A common shares on or after our initial public
offering. Any such purchased shares are issued and outstanding shares and are deemed to be awards of restricted stock under the
terms of the 2018 Plan, subject to either a three- or five-year lockup period. If the employee terminates employment with us prior
to the end of the lock-up period, we may repurchase such shares for the lesser of the then-current fair market value or the purchase
price. In connection with these equity agreements, we have also entered into full recourse loan agreements with such key employees
to help fund their purchase of such Class A common shares.As of December 31, 2018, no share options relating to our shares were
outstanding.



2018 Omnibus Equity Plan



In September 2018, we adopted, and our
board of directors approved, the 2018 Plan for the purpose of advancing the interests of our shareholders by enhancing our ability
to motivate and reward individuals to perform at the highest level. The 2018 Plan governs the issuances of equity incentive awards
with respect to our Class A common shares. At the time of adoption, we reserved a maximum share capacity under the 2018 Plan of
approximately 7,560,000 Class A common shares (which represents a pool that was approved by our pre-IPO shareholders for equity
incentives to our key employees), of which there were approximately 976,374 Class A common shares remaining as of April 5, 2019.
We intend to use this remaining share pool for issuances.



Equity incentive awards may be granted
to our employees, non-employee directors, consultants or other advisors, as well as holders of equity compensation awards granted
by a company that may be acquired by us in the future. Awards under the 2018 Plan may be granted in the form of options, stock
appreciation rights, restricted stock, unrestricted stock, RSUs, performance awards or other stock-based awards. Share options
and share appreciation rights will have an exercise price determined by the administrator.



The vesting conditions for grants under
the 2018 Plan will be determined by the administrator and, in the case of restricted stock and RSUs, will be set forth in the applicable
award documentation. For restricted stock and unrestricted stock, the award documentation will specify any purchase price that
the participant might be required to pay. For share options, the administrator will determine the exercise price of the option,
the term of the option (which may not exceed 15 years from the grant date) and the time or times at which the option may be exercised.



The 2018 Plan is administered by the compensation
committee of our board of directors or another committee as may be designated by the board of directors.



| | C. | Board practices
| | -- | ---------------



Committees of the Board of Directors



Our board of directors has two standing
committees: the audit committee and the compensation committee. In addition, we have established two additional committees to assist
the board of directors in a consultative capacity: the advisory committee and the finance committee. The advisory committee, which
is comprised of board members, executives and other advisors, has been formed for the purpose of assisting management with its
long-term strategy discussions, sourcing and evaluating business opportunities and devising plans and strategies to optimize the
growth of our business. The finance committee, comprised of board members, executives and other advisors, has been formed for the
purpose assisting management with assessing and managing market risks, liquidity risks, capital allocation decisions and other
strategies and goals relating to our financial position.



Audit Committee



The audit committee, which consists of
Roberto Moses Thompson Motta and Ali Mazanderani, assists our board of directors in overseeing our accounting and financial reporting
processes and the audits of our financial statements. In addition, the audit committee is directly responsible for the appointment,
compensation, retention and oversight of the work of our independent registered public accounting firm. Ali Mazanderani is the
chairman of the committee. The audit committee consists exclusively of members of our board of directors who are financially



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literate,
and Ali Mazanderani and Roberto Moses Thompson Motta are considered “audit committee financial experts” as defined
by the SEC. Our board of directors has determined that Roberto Moses Thompson Motta and Ali Mazanderani satisfy the “independence”
requirements of Section 5605 of the Corporate Governance Rules of Nasdaq and Rule 10A-3 under the Exchange Act. SEC and Nasdaq
rules with respect to the independence of our audit committee require that all members of our audit committee must meet the independence
standard for audit committee membership within one year of the effectiveness of the registration statement for our initial public
offering. The audit committee consists entirely of independent directors as of the date of this annual report. The audit committee
is governed by a charter that complies with applicable Nasdaq rules, which charter is posted on our website.



Compensation Committee



The compensation committee, which consists
of André Street, Eduardo Pontes and Roberto Moses Thompson Motta, assists the board of directors in reviewing and approving
the compensation structure, including all forms of compensation, relating to our directors and executive officers. The committee
reviews the total compensation package for our executive officers and directors and recommends to the board of directors for determination
the compensation of each of our directors and executive officers, and will periodically review and approve any long-term incentive
compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and benefits plans. As permitted
by the listing requirements of Nasdaq, we have opted out of Nasdaq Listing Rule 5605(d) which requires that a compensation committee
consist entirely of independent directors. The compensation committee is governed by a charter that is posted on our website.



Advisory Committee



The advisory committee assists our board
of directors and management in conducting the business of the Company and deciding upon strategic matters. The members of such
committee who are not members of our board of directors are not board members by virtue of their membership on the advisory committee,
and shall not have fiduciary responsibilities resulting from their membership on the advisory committee. The advisory committee
currently consists of Arminio Fraga, Carl Pascarella, Ali Mazanderani, André Street, Eduardo Pontes, Vinicius Carrasco,
José Alexandre Scheinkman, and Jonas Gomes, who we believe are experienced and notable in our industry and qualified to
support our management with their decision making process. We intend to rely on the advisory committee’s recommendations,
despite the fact that recommendations will not have a binding effect on the Company. Our board of directors can extinguish the
advisory committee at any time.



The biographies of those members of the
advisory committee that are not members of our board of directors are as follows:



Arminio Fraga is the founding partner
at Gavea Investimentos, an investment management firm he founded in August 2003, based in Rio de Janeiro, Brazil. Mr. Fraga
was the Chairman of the Board, of B3 (formerly BM&F Bovespa), Brazil’s securities, commodities and derivatives exchange,
from April 2009 to April 2013, and was the President of the Central Bank of Brazil from March 1999 to December 2002. From
1993 until his appointment as Governor of the Central Bank, he was Managing Director of Soros Fund Management in New York. From
1991 to 1992, he was the Director responsible for international affairs at the Central Bank of Brazil. Earlier in his career,
he held positions with Salomon Brothers and Garantia Investment Bank. Mr. Fraga has taught at the Pontifícia Universidade
Católica do Rio de Janeiro, the Graduate School of Economics at Getulio Vargas Foundation, the School of International Affairs
at Columbia University and the Wharton School. He is a trustee of Princeton University, and a member of the Group of Thirty and
of the Council on Foreign Relations, and serves on the boards of several NGOs. Mr. Fraga has published widely in the areas
of international finance, macroeconomics, and monetary policy. Mr. Fraga earned his Ph.D. in Economics from Princeton University
in 1985, and his BA/MA in Economics from the Pontifícia Universidade Católica do Rio de Janeiro, in 1981.



Carl Pascarella is currently affiliated
with TPG Capital as an Executive Advisor. Prior to that, he was President & Chief Executive Officer of Visa U.S.A. Inc. and
a member of the Board of Directors of Visa International. Before assuming that position, he was President & CEO of Visa Asia
Pacific Limited and Director of the Board. Prior to joining Visa, Mr. Pascarella was Vice President, International Division at
Crocker National Bank and Vice President, Metropolitan Banking at Bankers Trust Company. His experience also included retail banking,
commercial banking, corporate banking, credit review and policy, and DeNovo banking. Mr. Pascarella was also head of the California
International Banking and Trade Finance organization for Crocker National Bank. Mr.



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Pascarella
received a Master of Science in Management from Stanford Sloan Program at the Graduate School of Business at Stanford University.
Mr. Pascarella has been affiliated with the arts for over two decades and is currently Chairman of the San Francisco Ballet, Vice
Chairman for the Fine Arts Museums and a life-time governor of the San Francisco Symphony.



José Alexandre Scheinkmanis
the Charles and Lynn Zhang Professor of Economics at Columbia University and Theodore A. Wells ‘29 Professor of Economics
(emeritus) at Princeton University. Previously, Scheinkman was the Alvin H. Baum Distinguished Service Professor and Chairman of
the Department of Economics at the University of Chicago, Blaise Pascal Research Professor (France) and a Vice President in the
Financial Strategies Group of Goldman, Sachs & Co. He has served as consultant to several financial institutions and is a member
of the board of directors of Cosan Limited. Mr. Scheinkman was born in Brazil and is a naturalized citizen of the U.S. He has a
Masters in mathematics from Instituto de Matemática Pura e Aplicada (Brazil) and a PhD in economics from the University
of Rochester. Mr. Scheinkman is a Member of the National Academy of Sciences (USA), Fellow of the American Academy of Arts and
Sciences, Corresponding Member of the Brazilian Academy of Sciences, and recipient of a John Simon Guggenheim Memorial Fellowship
and of a “doctorat honoris causa” from the Université Paris-Dauphine.



Jonas Gomes was partner and Private
Equity fund manager at Bozano Investimentos from 2013 to April of 2018. Prior to that, he was the founding partner responsible
for the Private Equity practice at BR Investimentos from 2007 to 2013, when BR Investimentos merged with asset management companies
Mercatto and Trapezus to create Bozano Investimentos. Mr. Gomes has worked in the Private Equity industry in Brazil since 1999,
when he became the CEO of Innovate, an investment vehicle of Banco Opportunity created to pursue investments in internet start-up
companies. Mr. Gomes was also the CEO of W-Aura, an Opportunity investee company that pioneered mobile internet in Brazil. The
Brazilian Ministry of Science and Technology granted Mr. Gomes the title of Constructor of the Brazilian Internet as a recognition
of his pioneering work in founding the Brazilian Research Network, or RNP, a government organization that created and operated
the first backbone of the Brazilian internet. Mr. Gomes has also worked at TV Globo, a major media & television group in Brazil,
as the head of research and development, responsible for developing computer graphics technology for media and television applications.
He has a Masters and a PhD degree in mathematics from Instituto de Matemática Pura e Aplicada (Brazil), or IMPA, where he
worked actively for several years as a scientist, developing computer graphics, and conducting vision and image process research.
While at IMPA, he also founded the Computer Graphics Laboratory Visgraf and sponsored the Masters and PhD programs in the area.
Mr. Gomes has published widely in the areas on computer graphics, both in Brazil and in the United States. He is a member of the
Brazilian Academy of Sciences and is currently a board member of IMPA and Muxi. He is also a board member of AfferoLab and of the
public companies Somos Educação (formerly Abril Educação) and Anima Educação.



Foreign Private Issuer Status



We currently follow Cayman Islands corporate
governance practices in lieu of the corporate governance requirements of Nasdaq in respect of the following:



| | · | the majority independent director requirement under Section 5605(b)(1) of Nasdaq listing rules;
| | - | -----------------------------------------------------------------------------------------------



| | · | the requirement under Section 5605(c)(2)(A) of Nasdaq listing notes that the audit committee must be comprised of at least
three members;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | the requirement under Section 5605(d) of Nasdaq listing rules that a compensation committee comprised solely of independent
directors governed by a compensation committee charter oversee executive compensation;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the requirement under Section 5605(e) of Nasdaq listing rules that director nominees be selected or recommended for selection
by either a majority of the independent directors or a nominations committee comprised solely of independent directors; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the requirement under Section 5605(b)(2) of Nasdaq listing rules that the independent directors have regularly scheduled meetings
with only the independent directors present.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Cayman Islands law does not impose a requirement
that the board consist of a majority of independent directors or that such independent directors meet regularly without other members
present. Nor does Cayman Islands law impose specific requirements on the establishment of a compensation committee or nominating
committee or nominating process.



| | D. | Employees
| | -- | ---------



As of December 31, 2018, 2017 and
2016, we had 3,574, 2,806 and 1,129 full-time employees, respectively. As of December 31, 2018, 1,224 of these employees were based
in our offices in São Paulo, 1,284 of these employees were based in our offices in Rio de Janeiro, and 1,066 were based
in other cities elsewhere in Brazil. We also engage consultants as needed to support our operations.



The table below breaks down our full-time
personnel by function as of December 31, 2018:



|Function                           |  | Number of Employees |       | % of Total
|---------------------------------- |  | ------------------- | ----- | ----------
|Administrative                     |  |                     | 567   |           
|Operations                         |  |                     | 865   |           
|Technology and Product Development |  |                     | 502   |           
|Sales and Marketing                |  |                     | 1,640 |           
|Total                              |  |                     | 3,574 |           



Our employees in Brazil are affiliated
with the labor unions of independent sales agents and of consulting, information, research and accounting firms for the geographic
area in which they render services. We believe we have a constructive relationship with these unions, as we have never experienced
strikes, work stoppages or disputes leading to any form of downtime.



None of our executive officers have entered
into employment agreements with the Company.



| | E. | Share ownership
| | -- | ---------------



The following table presents the beneficial
ownership of our shares owned by our directors and officers as of April 5, 2019. Other than those persons listed below, none of
our directors or officers beneficially own any of our shares.



|                                                            |  | Shares Beneficially Owned |            | % of Total Voting Power (1)
|----------------------------------------------------------- |  | ------------------------- | ---------- | ---------------------------
|                                                            |  |                           | Class A    |                            
|                                                            |  |                           | Shares     |                            
|André Street (2)                                            |  |                           | 35,655     |                            
|Eduardo Cunha Monnerat Solon de Pontes (3)                  |  |                           | 35,655     |                            
|Roberto Moses Thompson Motta                                |  |                           | —          |                            
|Thomas A. Patterson (4)                                     |  |                           | 8,959,532  |                            
|Ali Mazanderani                                             |  |                           | —          |                            
|Thiago dos Santos Piau                                      |  |                           | —          |                            
|Augusto Barbosa Estellita Lins                              |  |                           | 1,836,591  |                            
|Marcelo Bastianello Baldin                                  |  |                           | —          |                            
|Rafael Martins Pereira                                      |  |                           | —          |                            
|Felipe Salvini Bourrus                                      |  |                           | —          |                            
|Vinícius do Nascimento Carrasco                             |  |                           | —          |                            
|Lia Machado de Matos                                        |  |                           | 9,905      |                            
|All directors and senior management as a group (12 persons) |  |                           | 10,841,683 |                            
|                                                            |  |                           |            |                            





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| | (1) | Percentage of total voting power represents voting power with respect to all of our Class A common shares and Class B
common shares, as a single class. Holders of our Class B common shares are entitled to 10 votes per share, whereas holders of our
Class A common shares are entitled to one vote per share.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Shares beneficially owned consists of (i) 35,655 Class A common shares and 3,880,576 Class B common shares held of record
                                                            by VCK Investment Fund Limited (SAC) (“VCK”), (ii) 4,988,151 Class B common shares held of record by Cakubran
                                                            Holdings Ltd., a company controlled by VCK (“Cakubran”) and (iii) 68,490,839 Class B Common Shares held of record
                                                            by HR Holdings, LLC, a company controlled by ACP Investments Ltd.—Arpex Capital, in turn controlled by VCK (“HR
                                                            Holdings”), over which Mr. Street may be deemed to share voting and investment power. See footnote (2) under
                                                            “Item 7—Major Shareholders and Related Party Transactions—A. Major shareholders.”
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Shares beneficially owned offering consists of (i) 35,655 Class A common shares and 3,880,576 Class B common shares held of
record by VCK, (ii) 4,988,151 Class B common shares held of record by Cakubran and (iii) 68,490,839 Class B Common Shares held
of record by HR Holdings,  over
which Mr. Pontes may be deemed to share voting and investment power. See footnote (2) under “Item 7—Major Shareholders
and Related Party Transactions—A. Major shareholders.”
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The information in the above table concerning Mr. Patterson was obtained from a Schedule 13D/A filed with the Securities and
Exchange Commission by Madrone Partners, L.P. on December 12, 2018 reporting beneficial ownership at December 7, 2018. Shares beneficially
owned consists of 8,959,532 Class A common shares and 20,379,744 Class B common shares held of record by Madrone Partners L.P.,
over which Mr. Patterson may be deemed to share voting and investment power. See footnote (3) under “Item 7—Major
Shareholders and Related Party Transactions—A. Major shareholders.”
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



| | A. | Major shareholders
| | -- | ------------------



The following table and accompanying footnotes
present information relating to the beneficial ownership of our Class A common shares and Class B common shares as of
April 5, 2019. We are not aware of any other shareholder that beneficially owns more than 5% of our common shares nor of any arrangements
the operation of which may at a subsequent date result in a change of control of the company.



The number of common shares beneficially
owned by each entity, person, executive officer or director is determined in accordance with the rules of the SEC, and the information
is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any
shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual
has the right to acquire within 60 days through the exercise of any option, warrant or other right.



Except as otherwise indicated, and subject
to applicable community property laws, we believe that each shareholder identified in the table below possesses sole voting and
investment power over all the Class A common shares or Class B common shares shown as beneficially owned by the shareholder
in the table. Percentages in the table below are based on 145,167,197 outstanding Class A common shares and 132,229,085 outstanding
Class B common shares.





|                             |  | Shares Beneficially Owned |            | %
of Total Voting Power (1)
|---------------------------- |  | ------------------------- | ---------- | ---------------------------
|                             |  | Class A                   |            | Class B                    
|                             |  | Shares                    |            | %                          
|5% Shareholders              |  |                           |            |                            
|HR Holdings LLC (2)          |  |                           | —          |                            
|Madrone Partners L.P. (3)    |  |                           | 8,959,532  |                            
|Tiger Global Investors (4)   |  |                           | —          |                            
|T. Rowe Price Funds (5)      |  |                           | 28,883,228 |                            
|Actis 4 PCC (6)              |  |                           | 18,675,685 |                            
|Berkshire Hathaway Inc.  (7) |  |                           | 14,166,748 |                            










| | (1) | Percentage of total voting power represents voting power with respect to all of our Class A common shares and Class B
common shares, as a single class. Holders of our Class B common shares are entitled to 10 votes per share, whereas holders of our
Class A common shares are entitled to one vote per share.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Consists of common shares held of record by HR Holdings, LLC. André Street and Eduardo Pontes may be deemed to
                                                            have voting and dispositive power over the shares held by HR Holdings, LLC. In addition, Mr. Street and Mr. Pontes are the beneficial
owners of (i) 64,634 Class A common shares and 4,192,588 Class B common shares held of record by VCK Investment Fund Limited (SAC)
(“VCK”), and (ii) 5,460,077 Class B common shares held of record by Cakubran Holdings Ltd., a company controlled by
VCK. HR Holdings, LLC is controlled by ACP Investments Ltd.—Arpex Capital, which is in turn controlled by VCK.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (3) | The information in the above table concerning Madrone Partners, L.P. was obtained from a Schedule 13D/A filed with the Securities
and Exchange Commission by Madrone Partners, L.P. on December 12, 2018 reporting beneficial ownership at December 7, 2018. Consists
of common shares held of record by Madrone Partners, L.P. Madrone Capital Partners, LLC is the general partner of Madrone Partners,
L.P. Thomas Patterson, Greg Penner and Jameson McJunkin are managing members of Madrone Capital Partners, LLC and may be deemed
to have voting and dispositive power over the shares held by Madrone Partners, L.P. The address of each of these entities is 1149
Chestnut Street, Suite 200, Menlo Park, CA 94025.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The information in the above table concerning Tiger Global Investors was obtained from a Schedule 13G filed with the Securities
and Exchange Commission by Tiger Global Management, LLC on February 14, 2019 reporting beneficial ownership at December 31, 2018.
Consists of common shares held by Tiger Global Private Investment Partners IX, L.P. and Tiger Global Private Investment Partners
VII, L.P. affiliates of Tiger Global Management, LLC. Tiger Global Management, LLC is controlled by Chase Coleman, Lee Fixel and
Scott Shleifer. The business address for each of these entities is c/o Tiger Global Management, LLC, 9 West 57th Street, 35th Floor,
New York, New York 10019.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | The information in the above table concerning T. Rowe Price Associates, Inc. was obtained from a Schedule 13G/A filed with
the Securities and Exchange Commission by T. Rowe Price, Associates, Inc. on February 14, 2019 reporting beneficial ownership at
December 31, 2018. Disclaimer: T. Rowe Price Associates, Inc. (“TRPA”) serves as investment adviser or subadviser,
as applicable, with power to direct investments and/or sole power to vote the securities owned by the funds and accounts listed
above. For purposes of reporting requirements of the Securities Exchange Act of 1934, TRPA may be deemed to be the beneficial owner
of all the shares listed above; however, TRPA expressly disclaims that it is, in fact, the beneficial owner of such securities.
TRPA is the wholly owned subsidiary of T. Rowe Price Group, Inc., which is a publicly traded financial services holding company.
T. Rowe Price Investment Services, Inc. (“TRPIS”), a registered broker-dealer (and FINRA member), is a subsidiary of
TRPA. TRPIS was formed primarily for the limited purpose of acting as the principal underwriter and distributor of shares of the
funds in the T. Rowe Price fund family. TRPIS does not engage in underwriting or market-making activities involving individual
securities. T. Rowe Price provides brokerage services through this subsidiary primarily to complement the other services provided
to shareholders of the T. Rowe Price funds.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | The information in the above table concerning Actis 4 PCC-Cell Granite was obtained from a Schedule 13G filed with the Securities
and Exchange Commission by Actis 4 PCC-Cell Granite on February 13, 2019 reporting beneficial ownership at December 31, 2018. Consists
of common shares held by Actis 4 PCC-Cell Granite. Actis 4 PCC-Cell Granite is a Mauritian protected cell company the shareholders
of which are investment funds managed by Actis GP LLP or members of the Actis Group. The business address for Actis 4 PCC-Cell
Granite is Les Cascades Building, Edith Cavell Street, Port Louis, Mauritius. Actis Global 4 LP and Actis Global 4 A LP hold a
majority of the interests of Actis 4 PCC–Cell Granite. Actis GP LLP is the general partner of Actis Global 4 LP and Actis
Global 4 A LP. Actis New GP Co Ltd holds a majority of the interests of Actis GP LLP. Actis LLP is the sole shareholder of Actis
New GP Co Ltd. H Ebco S.a.r.l. holds a majority of the interests of Actis LLP. Savina Holdings L.P. is the sole owner of H Ebco
S.a.r.l. Savina Holdings GP LLP is the general partner of Savina Holdings L.P.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | The information in the above table concerning Berkshire Hathaway, Inc. (“Berkshire Hathaway”) was obtained from
a Schedule 13G filed with the Securities and Exchange Commission by Berkshire Hathaway on November 8, 2018 reporting beneficial
ownership at October 29, 2018. Berkshire Hathaway’s controlling shareholder is its Chairman and Chief Executive Officer,
Warren E. Buffett, who may be deemed to have voting and dispositive power over the shares held by Berkshire Hathaway. The address
for each of Berkshire Hathaway and Warren E. Buffet is 3555 Farnam Street, Omaha, Nebraska 68131.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Shareholders Agreement



We have entered into a shareholders agreement,
or the Shareholders Agreement, with our founder shareholders. Among other things, the Shareholders Agreement provides our founder
shareholders with the right to nominate a certain number of directors based on the aggregate voting power of the shares of our
outstanding share capital held by them, so long as our founder shareholders own at least 5% of the voting power of our outstanding
share capital.



The Shareholders Agreement provides that,
subject to compliance with applicable law and Nasdaq rules, for so long as our founder shareholders and their affiliates beneficially
own shares comprising at least 25% of the voting power of our outstanding share capital, they shall collectively be entitled to
designate up to three nominees to our board of directors (or if the size of the board of directors is increased, a majority of
the members of the board of directors); for so long as our founder shareholders and their affiliates beneficially own at least
10% of the voting power of our outstanding share capital, they shall collectively be entitled to designate up to two nominees to
our board of directors (or if the size of the board of directors is increased, 25% of the members of the board of



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directors);
and for so long as our founder shareholders and their affiliates beneficially own at least 5% of the voting power of our outstanding
share capital, they shall collectively be entitled to designate one nominee to our board of directors (or if the size of the board
of directors is increased, 10% of the members of the board of directors).



In addition, the Shareholders Agreement
provides that for so long as our founder shareholders and their affiliates own at least 10% of the voting power of our outstanding
share capital, our founder shareholders will have the right to cause each of the compensation committee, the audit committee, the
finance committee and the advisory committee of our board of directors to include in its membership the pro rata share of the total
number of members of each committee that is equal to the proportion that the number of directors that our founder shareholders
are entitled to designate bears to the total number of directors on our board of directors, except to the extent that such membership
would violate applicable securities laws or Nasdaq rules.



The rights granted to our founder shareholders
to designate directors are additive to and not intended to limit in any way the rights that our founder shareholders or any of
their affiliates may have to nominate, elect or remove our directors under our memorandum and articles of association or laws of
the Cayman Islands.



The Shareholders Agreement also provides
that for so long as founder shareholders own at least 15% of the voting power of our common shares then outstanding, we agree not
to take, or permit our subsidiaries to take, certain actions, such as incurring indebtedness in excess of our net equity, entering
into a transaction that would result in a Change of Control (as defined therein), entering into a merger, consolidation, reorganization
or other business combination, taking any steps to liquidate or declare bankruptcy or insolvency, issue any capital shares other
than pursuant to the 2018 Omnibus Equity Plan, acquire or dispose of assets in excess of 20% of our fair market value, or approve
any annual compensation of officers and directors, without the approval of our founder shareholders. Additionally, for as long
as our founder shareholders and their affiliates hold at least 5% of the total voting power of our outstanding share capital, our
founder shareholders and their designated representatives will have certain information and access rights to our management. Finally,
the Shareholders Agreement provides that from and after the date on which our founder shareholders no longer collectively beneficially
own more than 50% of the voting power of our outstanding share capital, we will cause the board of directors to be divided into
three classes of directors, whose members will serve for staggered terms as set forth in our Articles of Association.



| | B. | Related party transactions
| | -- | --------------------------



Loan Arrangements



On December 5, 2017, our subsidiaries Stone
Pagamentos S.A. and Buy4 Processamento de Pagamentos S.A. provided loans to two of our principal executives in an aggregate amount
of R$282,593. These loans mature on December 5, 2023, subject to an additional 60-month renewal, and amounts outstanding under
such loans are subject to annual adjustments for inflation at the Brazilian Consumer Price Index (IPCA) rate. As of September 17,
2018, these loans were forgiven and terminated.



In June 2015, our subsidiary DLP Pagamentos
Brasil S.A. entered into an agreement to provide a loan amounting to R$2.2 million to one of our principal executives, which was
disbursed in January 2017. This loan matures in June 2022. As of September 17, 2018, this loan was repaid in full.



On May 1, 2018, our subsidiaries DLP Pagamentos
Brasil S.A. and Stone Pagamentos S.A. provided loans of R$411,986 and R$250,000, respectively, to Equals, an entity in which we
had a significant minority interest at the time of the transaction which is currently a wholly-owned subsidiary of the Company.
The loans bear an interest at a per annum rate of the CDI Rate plus 1.0%. The loans mature on May 1, 2020. On September 4, 2018,
these loans were capitalized and as a result no amounts remain outstanding.



Class C Repurchase



On July 17, 2018, we repurchased 1,814,022
of our Class C shares from an entity owned by certain of our founding partners and senior executives for an initial aggregate payment
of R$63.2 million. Upon the closing of the initial public offering, an additional aggregate payment of R$79.2 million
was paid to this entity. The total purchase price per Class C share represented 90% of the price per share sold in the initial
public offering, after underwriting discounts and commissions.



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Services Agreement and Reimbursements



On January 2, 2014, DLP Capital LLC,
our wholly-owned subsidiary, entered into a services agreement with Genova Consultoria e Participações Ltda., or
Genova, an entity controlled by Mr. André Street, the Chairman of our board of directors, and Mr. Eduardo Pontes,
one of our directors, to engage Genova for certain consulting and management services. The services agreement had an initial term
of 60 months with termination on January 2, 2019. The agreement was automatically renewed. We also incurred in travel expenses
reimbursement costs with Zurich Consultoria e Participações Ltda., or Zurich, an entity also controlled by Mr. André
Street and Mr. Eduardo Pontes. Therefore, we recognized an expense in the line item “entity controlled management personnel”
for R$7.7 million, R$6.5 million and R$6.5 million to Genova and Zurich pursuant to the services agreement and reimbursement expenses
for the years ended on December 31, 2018, 2017 and 2016, respectively. For further information, see note 19 to our consolidated
financial statements.



Cost-sharing and Checking Account Agreements



Our subsidiary Stone Pagamentos entered
an agreement with our other subsidiaries and Equals, an entity in which we had a significant minority interest at the time of the
transaction which is currently a wholly-owned subsidiary of the Company, under which Stone Pagamentos apportions to other subsidiaries
and Equals the expenses of certain services and personnel hired by Stone Pagamentos for the benefit of the group and expenses related
to our head office. Under this agreement, Stone Pagamentos apportions to other subsidiaries and Equals expenses relating to leased
facilities, back-office, legal and HR services and certain ordinary course corporate services.



The agreement apportions the costs and
expenses for these services as between Stone Pagamentos and other subsidiaries and Equals. The amounts that other subsidiaries
and Equals pay to Stone Pagamentos are based on different criteria depending on the type of service, such as the number of employees
allocated to each subsidiary when relating to legal and HR services or number of employees allocated to the head office when relating
to facilities expenses.



Our subsidiary Stone Pagamentos is also
party to an agreement with our other subsidiaries and Equals, pursuant to which a checking account balance is established between
entities under common control. The agreement relates to expenses in the ordinary course of business resulting from the cost-sharing
agreement.



For further information on our transactions
with Equals, see “Associates” in note 20 to our consolidated financial statements.



Registration Rights Agreement



We have entered into a Registration Rights
Agreement, or the Registration Rights Agreement, with our founder shareholders (Cakubran Holdings Ltd., HR Holdings, LLC and VCK
Investment Fund Limited SAC), Madrone Partners L.P. and our directors and officers.



At any time that our founder shareholders
and Madrone Partners L.P. are no longer subject to lock-up agreements entered into with the underwriters of our initial public
offering, subject to several exceptions, including underwriter cutbacks and our right to defer a demand registration under certain
circumstances, our founder shareholders and Madrone Partners L.P. may require that we register for public resale under the Securities
Act all common shares constituting registrable securities that they request be registered so long as the securities requested to
be registered in each registration statement have an aggregate estimated market value of at least $25 million. If we become eligible
to register the sale of our securities on Form F-3 under the Securities Act, which will not be until at least twelve months after
the date of the initial public offering, our founder shareholders and Madrone Partners L.P. have the right to require us to register
the sale of the registrable securities held by them on Form F-3, subject to offering size and other restrictions.



If we propose to register any of our securities
under the Securities Act for our own account or the account of any other holder (excluding any registration related to employee
benefit plan, a corporate reorganization, other Rule 145 transactions, in connection with a dividend reinvestment plan or for the
sole purpose of offering securities to another entity or its security holders in connection with the acquisition of assets or securities
of such entity), our founder shareholders and Madrone Partners L.P. and certain of our executive officers, are entitled to notice
of such registration and to request that we include registrable securities for resale on such registration statement, and we are
required, subject to certain exceptions, to include such registrable securities in such registration statement.



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In connection with the transfer of their
registrable securities, the parties to the Registration Rights Agreement may assign certain of their respective rights under the
Registration Rights Agreement under certain circumstances. In connection with the registrations described above, we will indemnify
any selling shareholders and we will bear all fees, costs and expenses (except underwriting discounts and spreads).



Related Person Transaction Policy



Our related person transaction policy states
that any related person transaction must be approved or ratified by our audit committee, board of directors or a designated committee
thereof. In determining whether to approve or ratify a transaction with a related person, our audit committee, board of directors
or the designated committee will consider all relevant facts and circumstances, including without limitation the commercial reasonableness
of the terms, of the transaction the benefit and perceived benefit, or lack thereof, to us, opportunity costs of alternate transaction,
the materiality and character of the related person’s direct or indirect interest and the actual or apparent conflict of
interest of the related person. Our audit committee, board of directors or the designated committee will not approve or ratify
a related person transaction unless it has determined that, upon consideration of all relevant information, such transaction is
in, or not inconsistent with, our best interests and the best interests of our shareholders.



Indemnification Agreements



We have entered into indemnification agreements
with our directors and executive officers. The indemnification agreements and our amended and restated memorandum and articles
of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.



| | C. | Interests of experts and counsel
| | -- | --------------------------------



Not applicable.



ITEM 8. FINANCIAL INFORMATION



| | A. | Consolidated statements and other financial information
| | -- | -------------------------------------------------------



See “Item 18. Financial statements.”



Legal proceedings



From time to time, we are involved in disputes
that arise in the ordinary course of our business. Any claims against us, whether meritorious or not, can be time-consuming, result
in costly litigation, require significant management time and result in the diversion of significant operational resources.



We are subject to a number of judicial
and administrative proceedings in the Brazilian court systems, including civil, labor and tax law claims and other proceedings,
which we believe are common and incidental to business operations in Brazil, in general. We recognize provisions for legal proceedings
in our financial statements, in accordance with accounting rules, when we are advised by independent outside counsel that (i) it
is probable that an outflow of resources will be required to settle the obligation and (ii) a reliable estimate can be made of
the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence,
the hierarchy of laws, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable
losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management
relies on the opinions of our external legal advisors.



As of December 31, 2018, we have
provisions recorded in our financial statements in connection with legal proceedings for which we believe a loss is probable
in accordance with accounting rules, in an aggregate amount of R$1.2 million and have made judicial deposits in an aggregate
amount of R$7.7 million, as of December 31, 2018. However, legal proceedings are inherently unpredictable and subject to
significant uncertainties. If one or more cases were to result in a judgment against us in any reporting period for amounts
that exceeded our management’s expectations, the impact on our operating results or financial condition for that
reporting period could be material. See “Item 3. Key Information—D. Risk factors—Risks Relating to Our
Business and Industry—Unfavorable decisions in our legal, arbitration or administrative proceedings may adversely
affect us.”



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Civil Matters



As of December 31, 2018, we were party
to approximately 435 judicial and administrative proceedings of a civil nature for which we recorded a provision of R$1.0 million.
We believe these proceedings are unlikely to have a material adverse impact, individually or in the aggregate, on our results of
operations or financial condition.



EdB filed a lawsuit with a motion for preliminary
injunction to suspend the protest of unpaid bank-issued invoices amounting to approximately R$12.8 million made by Cedro Preparação
de Documentos e Serviços LTDA. and Brasil B. Preparação de Documentos e Serviços EIRELI, in the context
of a service agreement entered into by the aforementioned parties. EdB alleges that the amount charged is not due because the services
that were contracted for were not performed. On December 4, 2017, the trial court granted the injunction to suspend the protests
and EdB amended its complaint seeking a judgment to declare the protests null and unenforceable. On February 18, 2018, the defendants
presented their response to the initial claims, arguing that the charge was correct and presented a counterclaim for the payment
of R$13.3 million. The judge referred the matter to an accounting expert to confirm the amount involved in the claim, and in October
2018 the parties presented their respective analysis and technical questions. Currently, the lawsuit is pending entry of the judgment.



On September 10, 2018, we filed a lawsuit
with a motion for preliminary injunction to suspend the increased guarantee requested by Elo Serviços S.A (“Elo”)
and to avoid total or partial termination of the contract between us and Elo. The amount indicated in our initial petition was
R$50,000. On September 11, 2018, the trial court granted the injunction requested by us to suspend the increased guarantee. On
September 19, 2018, after Elo’s response, the trial court retracted its injunction. Thereafter, each party presented its
defense and response to the initial claims, respectively, and on March 7, 2019, the trial court ruled in favor of Elo and amend
the amount of the claim to R$ 25 million, and ordered us to pay Elo’s attorneys’ fees up to 10% of the amount of the
claim. Currently, we have not decided whether to appeal the decision to the regional court.



Labor Matters



As of December 31, 2018, we were party
to 66 labor-related judicial and administrative proceedings in a total amount of approximately R$4.6 million for which R$0.3 million
was recorded as a provision in our audited financial statements, and R$4.3 million provision was recorded. In general, the labor
claims to which we are a party were filed by former employees or third-party employees seeking our joint and/or secondary liability
for the acts of our suppliers and service providers. The principal claims involved in these labor suits relate to secondary liability
of the company, overtime payment, salary differences (enquadramento sindical), termination fees, and indemnities based on
Brazilian labor laws. We believe these proceedings are unlikely to have a material adverse impact, individually or in the aggregate,
on our results of operations or financial condition.



Tax and Social Security Matters



As of December 31, 2018, we were not involved
in any material tax or social security proceedings.



Material Proceedings with Adverse Director,
Management or Affiliate



None.



Dividends and dividend policy



We currently intend to retain all available
funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any
cash dividends in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board
of directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future
prospects and any other factors deemed relevant by our board of directors.



Under the Cayman Companies Law and our
Articles of Association, a Cayman Islands company may pay a dividend out of either its profit or share premium account, but a dividend
may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business.
According to our Articles of Association, dividends can be declared and paid out of funds lawfully available to us, which include
the share premium account. Dividends, if any, would be paid in proportion to the number of common shares a shareholder holds. For
further information, see “Taxation—Cayman Islands Tax Considerations.”



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Additionally, please refer to “Risk
Factors—Risks Relating to Our Business and Industry—Our holding company structure makes us dependent on the operations
of our subsidiaries.” Our ability to pay dividends is directly related to positive and distributable net results from our
Brazilian subsidiaries. If, due to new laws or bilateral agreements between countries, our Brazilian subsidiaries are unable to
pay dividends to Cayman Islands companies such as us, or if Cayman Islands companies such as us become incapable of receiving them,
we may not be able to make dividend payments in the future



| | B. | Significant changes
| | -- | -------------------



Except as disclosed elsewhere in this annual
report, we have not experienced any significant changes since the date of our audited consolidated financial statements included
in this annual report.



ITEM 9. THE OFFER AND LISTING



| | A. | Offering and listing details
| | -- | ----------------------------



Not applicable.



| | B. | Plan of distribution
| | -- | --------------------



Not applicable.



| | C. | Markets
| | -- | -------



In October 2018, we completed our initial
public offering and listed our common shares on the Nasdaq Global Select Market. Our common shares have been listed on the Nasdaq
under the symbol “STNE” since October 25, 2018.



| | D. | Selling shareholders
| | -- | --------------------



Not applicable.



| | E. | Dilution
| | -- | --------



Not applicable.



| | F. | Expenses of the issue
| | -- | ---------------------



Not applicable.



ITEM 10. ADDITIONAL INFORMATION



| | A. | Share capital
| | -- | -------------



Not applicable.



| | B. | Memorandum and articles of association
| | -- | --------------------------------------



The following description of our share
capital summarizes certain provisions of our Amended and Restated Memorandum and Articles of Association. Such summaries do not
purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of our Amended
and Restated Memorandum and Articles of Association. Prospective investors are urged to read the exhibits incorporated by reference
for a complete understanding of our Amended and Restated Memorandum and Articles of Association. For the avoidance of doubt, our
Amended and Restated Memorandum and Articles of Association are collectively referred to below as the “Articles of Association.”



General





We are a Cayman Islands exempted company
with limited liability duly registered with the Cayman Islands Registrar of Companies. Our constitutional documents consist of
our Articles of Association. Our corporate



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purposes
are unrestricted and we have the authority to carry out any object not prohibited by any law as provided by Section 7(4)
of the Cayman Companies Law, or the Cayman Companies Law generally.



Our affairs are governed principally by:
(1) our Articles of Association; (2) the Cayman Companies Law; and (3) the common law of the Cayman Islands. As
provided in our Articles of Association, subject to Cayman Islands law, we have full capacity to carry on or undertake any business
or activity, do any act or enter into any transaction, and, for such purposes, full rights, powers and privileges. Our registered
office is at Harneys Fiduciary (Cayman) Limited, Fourth Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman
KY1-1002, Cayman Islands. Our principal executive offices are located at R. Fidêncio Ramos, 308, Torre A,10th floor,
Vila Olímpia, São Paulo—SP, 04551-010, Brazil.



The following is a summary of the material
provisions of our shares and our Articles of Association. This discussion does not purport to be complete and is qualified in its
entirety by reference to our Articles of Association. The form of our Articles of Association is incorporated by reference to this
annual report.



Share Capital



Our Articles of Association authorize two
classes of common shares: Class A common shares, and Class B common shares. Any holder of Class B common shares
may convert his or her shares at any time into Class A common shares on a share-for-share basis. The rights of the two classes
of common shares are otherwise identical, except as described below.



Our authorized share capital is US$50,000
divided into 630,000,000 shares of a par value of US$0.000079365 each.



The authorized but unissued shares are
presently undesignated and may be issued by the board of directors as common shares of any class or as shares with preferred, deferred
or other special rights or restrictions.



As of December 31, 2018, 125,697,438 Class
A common shares and 151,482,561 Class B common shares were issued, fully paid and outstanding.



Treasury Shares



As of December 31, 2018, we had no shares
in treasury.



Class A and Class B Common Shares



Holders of our Class A and Class B
common shares who are nonresidents of the Cayman Islands may freely hold and vote their shares.



The following summarizes the rights of
holders of our Class A and Class B common shares:



| | · | each holder of Class A common shares is entitled to one vote per share on all matters to be voted on by shareholders generally,
including the election of directors;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | each holder of Class B common shares is entitled to 10 votes per share on all matters to be voted on by shareholders generally,
including the election of directors;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the holders of our Class A common shares and Class B common shares are entitled to dividends and other distributions as
may be recommended and declared from time to time by our board of directors out of funds legally available for that purpose, if
any; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | upon our liquidation, dissolution or winding up, each holder of Class A common shares and Class B common shares will be
entitled to share equally on a pro rata basis in the distribution of all of our assets remaining available for distribution after
satisfaction of all our liabilities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







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The Articles of Association provide that
at any time when there are Class A common shares in issue, Class B common shares may only be issued pursuant to: (a) a share
split, subdivision or similar transaction or as contemplated in the Articles of Association; or (b) a business combination involving
the issuance of Class B common shares as full or partial consideration. A business combination, as defined in the Articles of Association,
would include, amongst other things, a statutory amalgamation, merger, consolidation, arrangement or other reorganization.



Share Repurchase



The Cayman Companies Law and the Articles
of Association permit us to purchase our own shares, subject to certain restrictions. The board of directors may only exercise
this power on behalf us, subject to the Cayman Companies Law, the Articles of Association and to any applicable requirements imposed
from time to time by the SEC, the applicable stock exchange on which our securities are listed.



Preemptive or Similar Rights



The Class A common shares and Class B
common shares are not entitled to preemptive rights upon transfer and are not subject to conversion (except as described below
under “—Conversion”), redemption or sinking fund provisions.



Conversion



At the option of the holder, a Class B
common share may be converted at any time into one Class A common share. In addition, each Class B common share will
convert automatically into one Class A common share upon any transfer, whether or not for value, except for certain transfers
described in the Articles of Association, including transfers to affiliates, one or more trustees of a trust established for the
benefit of the shareholder or their affiliates, and partnerships, corporations and other entities owned or controlled by the shareholder
or their affiliates. Furthermore, each Class B common share will convert automatically into one Class A common share
and no Class B common shares will be issued thereafter if, at any time, the voting power of outstanding Class B common
shares represents less than 10% of the aggregate voting power of the Class A common shares and Class B common shares
then outstanding.



No class of our common shares may be subdivided
or combined unless the other class of common shares is concurrently subdivided or combined in the same proportion and in the same
manner.



Transfer of Shares



Subject to any applicable restrictions
set forth in the Articles of Association, any shareholder of ours may transfer all or any of his or her common shares by an instrument
of transfer in the usual or common form or in the form prescribed by Nasdaq or any other form approved by our board of directors.



The Class A common shares sold in
this offering will be traded on Nasdaq stock exchange in book-entry form and may be transferred in accordance with the Articles
of Association and rules and regulations of Nasdaq or of any recognized stock exchange on which our securities are listed.



However, our board of directors may, in
its absolute discretion, decline to register any transfer of any common share which is either not fully paid up to a person of
whom it does not approve or is issued under any share incentive scheme for employees which contains a transfer restriction that
is still applicable to such common share. The board of directors may also decline to register any transfer of any ordinary share
unless:



| | · | a fee of such maximum sum as Nasdaq may determine to be payable or such lesser sum as the board of directors may from time
to time require is paid to us in respect thereof;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the instrument of transfer is lodged with us, accompanied by the certificate (if any) for the common shares to which it relates
and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the instrument of transfer is in respect of only one class of shares;
| | - | ---------------------------------------------------------------------



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| | · | the instrument of transfer is properly stamped, if required;
| | - | ------------------------------------------------------------



| | · | the common shares transferred are free of any lien in favor of us; and
| | - | ----------------------------------------------------------------------



| | · | in the case of a transfer to joint holders, the transfer is not to more than four joint holders.
| | - | ------------------------------------------------------------------------------------------------



If the directors refuse to register a transfer
they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice
of such refusal.



Transmission of Shares



Our Articles of Association provide provisions
for the transmission of shares where a person becomes entitled to a share in consequence of the death or bankruptcy of a shareholder.
These provisions include, amongst other things, provisions relating to Class B common shares and that no conversion is applicable
upon transmission of such shares to a new holder who must be an affiliate (as defined in the Articles of Association) of the previous
holder.



Limitations on the Rights to Own Securities



As provided in our Articles of Association,
our Class A common shares may be issued to individuals, corporations, trusts, estates of deceased individuals, partnerships
and unincorporated associations of persons. Our Articles of Association contain no limitation on the rights to own our shares and
no limitation on the rights of non-Cayman Islands residents or foreign shareholders to hold or exercise voting rights.



Directors



We are managed by our board of directors.
The Articles of Association provide that, unless otherwise determined by a special resolution of shareholders, the board of directors
will be composed of 5 to 11 directors, with the number being determined by a majority of the directors then in office. There are
no provisions relating to the retirement of directors upon reaching an age limit.



Each director shall be appointed and elected
for such terms as the resolution appointing him or her may determine or until his or her death, resignation or removal, subject
to any applicable provision set forth in the Articles of Association.



A Director is not required to hold any
shares in us by way of qualification nor is there any specified upper or lower age limit for directors either for accession to
or retirement from the board.



The board of directors may also delegate
any of its powers to committees consisting of such Director(s) or other person(s) as the board of directors thinks fit, and from
time to time it may also revoke such delegation or revoke the appointment of and discharge any such committees either wholly or
in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers so delegated,
conform to any regulations that may from time to time be imposed upon it by the board of directors.



Appointment, Disqualification and Removal of Directors



Subject to our Articles of Association,
directors shall be elected by an ordinary resolution of the shareholders. Notwithstanding the foregoing, for so long as the founder
shareholders, respectively, hold any shares, the founder shareholders, collectively, shall be entitled to nominate a certain number
of designees to the board for a specific term, as set out in the Articles of Association. The founder shareholders may in like
manner remove such director(s) appointed by them and appoint replacement director(s).



Our Articles of Association provide that
from and after the date on which the (and/or their respective affiliates) no longer constitute a group that beneficially owns more
than 50% of our outstanding voting power on the classifying date, the directors shall be divided into three classes designated
Class I, Class II and Class III. Each director shall serve for a term ending on the date of the third annual general meeting of
the shareholders following the annual general meeting of the shareholders at which such director was elected as subject to the
provisions of our Articles of Association. The founding directors shall be allocated to the longest duration classes unless otherwise
determined by the founder shareholders.



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Before the expiration of his or her term
of office, a director may only be removed for cause by ordinary resolution in accordance with the provisions of our Articles of
Association and as subject to specific provisions in respect of founding directors. Cause shall mean, in relation to a director,
the occurrence of any of the following events: (a) the person’s conviction by final judgment issued by a competent court
or declaration of guilt before a competent court with respect to any offense considered an intentional crime or punishable by detention,
or a torpid act, intentional fraud, improbity, theft or anti-ethical business conduct in the jurisdiction involved; (b) fraud,
theft, financial dishonesty, misappropriation or embezzlement of funds by the person, whether before or after the date of his or
her election, that adversely affects us; (c) breach or wilful misconduct by the person in the performance of its obligations, including,
among others, (i) uninterrupted or repeated omission or refusal to perform the obligations and duties established in our Articles
of Association or in the applicable laws, (ii) incapacity, by the person, to comply with the obligations and duties as a result
of an alcohol or drug addiction; or (d) willful misconduct that causes material damages to or that adversely affects the our financial
situation or commercial reputation.



Executive Officers



Our executive officers are primarily responsible
for the day-to-day management of our business and for implementing the general policies and directives established by our board
of directors. Our board of directors is responsible for establishing the roles of each executive officer.



The Articles of Association provide that
the board of directors may appoint such officers as they consider necessary on such terms, at such remuneration and to perform
such duties, and subject to such provisions as to disqualification and removal as the board of directors may think fit. Unless
otherwise specified in the terms of his or her appointment an officer may be removed by the board of directors.



Power to Allot and Issue Shares and Warrants



Subject to the provisions of the Cayman
Companies Law, the Articles of Association and without prejudice to any special rights conferred on the holders of any shares or
class of shares, any share may be issued with or have attached to it such rights, or such restrictions, whether with regard to
dividend, voting, return of capital or otherwise, as the board of directors may determine. Any share may be issued on terms that,
upon the happening of a specified event or upon a given date and either at our option or the option of the holder of the share,
it is liable to be redeemed.



The board of directors may issue warrants
to subscribe for any class of shares or other securities of ours on such terms as we may from time to time determine.



We will not issue shares or warrants to
bearer.



Subject to the provisions of the Cayman
Companies Law, the Articles of Association and, where applicable, the rules of Nasdaq or any recognized stock exchange on which
our securities are listed and without prejudice to any special rights or restrictions for the time being attached to any shares
or any class of shares, all of our unissued shares shall be at the disposal of the board of directors, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions
as it in its absolute discretion thinks fit, provided that no shares shall be issued at a discount below par value.



Neither we nor the board of directors shall
be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available,
any such allotment, offer, option or shares to members or others whose registered addresses are in any particular territory or
territories where, in the absence of a registration statement or other special formalities, this is or may, in the opinion of the
board of directors, be unlawful or impracticable. However, no member affected as a result of the foregoing shall be, or be deemed
to be, a separate class of members for any purpose whatsoever.



Power to Dispose of our Assets of or any of our Subsidiaries



While there are no specific provisions
in the Articles of Association relating to the disposal of our assets or any of our subsidiaries, the board of directors may exercise
all powers and do all acts and things which may be exercised or done or approved by us and which are not required by the Articles
of Association or the Cayman Companies Law to be exercised or done by us in general meeting, but if such power or act is regulated
by us in general meeting, such



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regulation
shall not invalidate any prior act of the board of directors which would have been valid if such regulation had not been made.



Borrowing Powers



The board of directors may exercise all
of our powers to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and uncalled capital
of ours and, subject to the Cayman Companies Law, to issue debentures, bonds and other securities of ours, whether outright or
as collateral security for any debt, liability or obligation of ours or of any third party.



Remuneration



The Directors shall be entitled to receive,
as ordinary remuneration for their services, such sums as shall from time to time be determined by the board of directors or us
in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be
divided among the Directors in such proportions and in such manner as they may agree or, failing agreement, either equally or,
in the case of any Director holding office for only a portion of the period in respect of which the remuneration is payable, pro
rata. The Directors shall also be entitled to be repaid all expenses reasonably incurred by them in attending any board of directors
meetings, committee meetings or general meetings or otherwise in connection with the discharge of their duties as Directors. Such
remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office with
us may be entitled by reason of such employment or office.



Any Director who, at our request, performs
services which in the opinion of the board of directors go beyond the ordinary duties of a Director may be paid such special or
extra remuneration as the board of directors may determine, in addition to or in substitution for any ordinary remuneration as
a Director. An executive director appointed to be a managing director, joint managing director, deputy managing director or other
executive officer shall receive such remuneration and such other benefits and allowances as the board of directors may from time
to time decide. Such remuneration shall be in addition to his or her ordinary remuneration as a director.



The board of directors may establish, either
on its own or jointly in concurrence or agreement with our subsidiaries or companies with which we are associated in business,
or may make contributions out of our monies to, any schemes or funds for providing pensions, sickness or compassionate allowances,
life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any
Director or former Director who may hold or have held any executive office or any office of profit with us or any of our subsidiaries)
and former employees of ours and their dependents or any class or classes of such persons.



The board of directors may also pay, enter
into agreements to pay or make grants of revocable or irrevocable, whether or not subject to any terms or conditions, pensions
or other benefits to employees and former employees and their dependents, or to any of such persons, including pensions or benefits
additional to those, if any, to which such employees or former employees or their dependents are or may become entitled under any
such scheme or fund as mentioned above. Such pension or benefit may, if deemed desirable by the board of directors, be granted
to an employee either before and in anticipation of, or upon or at any time after, his or her actual retirement.



Loans and Provision of Security for Loans
to Directors



We shall not directly or indirectly make
a loan to a Director or a director of any holding company of ours or any of our respective close associates, enter into any guarantee
or provide any security in connection with a loan made by any person to a Director or a director of any holding company of ours
or any of our respective close associates, or, if any one or more Directors hold(s) (jointly or severally or directly or indirectly)
a controlling interest in another company, make a loan to that other company or enter into any guarantee or provide any security
in connection with a loan made by any person to that other company.



Disclosure of Interest in Contracts with
us or any of our Subsidiaries



With the exception of our office of auditor,
a Director may hold any other office or place of profit with us in conjunction with his or her office of Director for such period
and upon such terms as the board of directors may determine, and may be paid such extra remuneration for that other office or place
of profit, in whatever form, in addition to any remuneration provided for by or pursuant to the Articles of Association. A Director
may be or



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become
a director, officer or member of any other company in which we may be interested, and shall not be liable to account to us or
the members for any remuneration or other benefits received by him as a director, officer or member of such other company. The
board of directors may also cause the voting power conferred by the shares in any other company held or owned by us to be exercised
in such manner in all respects as we think fit, including the exercise in favor of any resolution appointing the directors or
any of them to be directors or officers of such other company.



No Director or intended Director shall
be disqualified by his or her office from contracting with us, nor shall any such contract or any other contract or arrangement
in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested
be liable to account to us for any profit realized by any such contract or arrangement by reason only of such Director holding
that office or the fiduciary relationship established by it. A Director who is, in any way, materially interested in a contract
or arrangement or proposed contract or arrangement with us shall declare the nature of his or her interest at the earliest meeting
of the board of directors at which he or she may practically do so.



There is no power to freeze or otherwise
impair any of the rights attaching to any share by reason that the person or persons who are interested directly or indirectly
in that share have failed to disclose their interests to us.



A Director shall not vote or be counted
in the quorum on any resolution of the board of directors in respect of any contract or arrangement or proposal in which he or
she or any of his or her close associate(s) has/have a material interest, and if such Director shall do so, his or her vote shall
not be counted nor shall such Director be counted in the quorum for that resolution, but this prohibition shall not apply to any
of the following matters:



| | · | the giving of any security or indemnity to the Director or his or her close associate(s) in respect of money lent or obligations
incurred or undertaken by him or any of them at our request of or for our benefit or any of our subsidiaries;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the giving of any security or indemnity to a third party in respect of a debt or obligation of ours or any of our subsidiaries
for which the Director or his or her close associate(s) has/have himself/themselves assumed responsibility in whole or in part
whether alone or jointly under a guarantee or indemnity or by the giving of security;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any proposal concerning an offer of shares, debentures or other securities of or by us or any other company which we may promote
or be interested in for subscription or purchase, where the Director or his or her close associate(s) is/are or is/are to be interested
as a participant in the underwriting or sub-underwriting of the offer;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any proposal or arrangement concerning the benefit of our employees or any of our subsidiaries, including the adoption, modification
or operation of either: (i) any employees’ share scheme or any share incentive or share option scheme under which the
Director or his or her close associate(s) may benefit; or (ii) any of a pension fund or retirement, death or disability benefits
scheme which relates to Directors, their close associates and employees of ours or any of our subsidiaries and does not provide
in respect of any Director or his or her close associate(s) any privilege or advantage not generally accorded to the class of persons
to which such scheme or fund relates; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any contract or arrangement in which the Director or his or her close associate(s) is/are interested in the same manner as
other holders of shares, debentures or other securities of ours by virtue only of his or her/their interest in those shares, debentures
or other securities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Proceedings of the Board of Directors



The Articles of Association provide that
subject to the provisions of the Cayman Companies Law, the Articles of Association, the applicable stock exchange rules and any
directions given by Ordinary or Special Resolution, our business and affairs will be managed by, or under the direction or supervision
of, the board of directors. The board of directors shall have all the powers necessary for managing, and for directing and supervising,
our business and affairs. A duly convened meeting of the board of directors at which a quorum is present may exercise all powers
exercisable by the board of directors. Subject to the provisions of the Articles of Association, the board of directors



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may
regulate their proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In the
case of an equality of votes, the chairman shall have a second or casting vote.



Chairman and Vice-Chairman



The board of directors will have a chairman
who is elected and appointed by the founder shareholders to act as the chairman at board meetings as long as the founder shareholders
hold at least 50% of all outstanding voting powers of the shareholders. Where the founder shareholders do not have such voting
power then the board of directors shall have a chairman elected and appointed by the board of directors to act as the Chairman
at board meetings. A Vice-Chairman may be elected to act in the absence of the Chairman at board meetings in the same manner as
above including Founding Shareholder appointment.



The period for which the Chairman and/or
the Vice-Chairman shall hold office shall be determined in accordance with the Articles of Association. The chairman shall preside
as Chairman at every meeting of the board of directors at which he is present. Where the Chairman is not present at a meeting of
the board of directors, the Vice-Chairman, if any, shall act as Chairman, or in his absence, the attending directors of the board
of directors may choose one director to be the chairman of the meeting.



Alterations to the Constitutional Documents and Our Name



To the extent that the same is permissible
under Cayman Islands law and subject to the Articles of Association, our Articles of Association may only be altered or amended,
and our name may only be changed, with the sanction of a Special Resolution of ours together with the consent of the founder shareholders
as set out in our Articles of Association.



Liquidation Rights



If we are voluntarily wound up, the liquidator,
after taking into account and giving effect to the rights of preferred and secured creditors and to any agreement between us and
any creditors that the claims of such creditors shall be subordinated or otherwise deferred to the claims of any other creditors
and to any contractual rights of set- off or netting of claims between us and any person or persons (including without limitation
any bilateral or any multi-lateral set-off or netting arrangements between us and any person or persons) and subject to any agreement
between us and any person or persons to waive or limit the same, shall apply our property in satisfaction of its liabilities pari
passuand subject thereto shall distribute the property amongst the shareholders according to their rights and interests in
us.



Changes to Capital



Pursuant to the Articles of Association,
we may from time to time by ordinary resolution:



| | · | increase our authorized share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | · | consolidate and divide all or any of our share capital into shares of a larger amount than its existing shares;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | convert all or any of our paid-up shares into common shares and reconvert those common shares into paid-up shares of any denomination;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | · | subdivide our existing shares or any of them into shares of a smaller amount, provided that in the subdivision the proportion
between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share
from which the reduced share is derived; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person
and diminish the amount of our share capital by the amount of the shares so cancelled.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Mergers and Consolidations



Our Articles of Association provide that
subject to the Cayman Companies Law and the rules of any applicable stock exchange, we will, with the approval of a special resolution,
have the power to merge or consolidate with one



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or
more constituent companies, upon such terms as the directors may determine, provided that any such merger or consolidation shall
require the consent of the founder shareholders.



Meetings of Shareholders



Special and Ordinary Resolutions



Special resolutions must be passed in accordance
with the Cayman Companies Law, which requires that resolutions must passed by at least two-thirds of our shareholders who are entitled
to vote in person or by proxy at a general meeting where notice specifying the intention to propose such resolution as a special
resolution has been duly given.



Under the Cayman Companies Law, a copy
of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands.



An ordinary resolution, by contrast, is
a resolution passed by a simple majority of the votes of our members as, being entitled to do so, vote in person or, in the case
of members which are corporations, by their duly authorized representatives or by proxy at a general meeting of which notice has
been duly given.



A resolution in writing signed by or on
behalf of all members shall be treated as an ordinary resolution duly passed at a general meeting of ours duly convened and held,
and where relevant as a special resolution so passed.



Voting Rights and Right to Demand a Poll



Subject to any special rights, restrictions
or privileges as to voting for the time being attached to any class or classes of shares at any general meeting: (a) on a
poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorized representative
shall have one vote for every share which is fully paid or credited as fully paid registered in his or her name in our register
of members, (each Class B common share shall entitle the holder to 10 votes on all matters subject to a vote at our general meetings)
provided that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for this purpose
as paid up on the share; and (b) on a show of hands every member who is present in person (or, in the case of a member being
a corporation, by its duly authorized representative) or by proxy shall have one vote. Where more than one proxy is appointed by
a member which is a Clearing House or its nominee(s), each such proxy shall have one vote on a show of hands. On a poll, a member
entitled to more than one vote need not use all his or her votes or cast all the votes he or her does use in the same way.



At any general meeting, a resolution put
to the vote of the meeting is to be decided by poll save that the chairman of the meeting may, pursuant to the applicable stock
exchange listing rules, allow a resolution to be voted on by a show of hands. Where a show of hands is allowed, before or on the
declaration of the result of the show of hands, a poll may be demanded by (in each case by members present in person or by proxy
or by a duly authorized corporate representative):



| | · | at least two members;
| | - | ---------------------



| | · | any member or members representing not less than one-tenth of the total voting rights of all the members having the right to
vote at the meeting; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a member or members holding shares in us conferring a right to vote at the meeting on which an aggregate sum has been paid
equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Should a Clearing House or its nominee(s)
be a member of ours, such person or persons may be authorized as it thinks fit to act as its representative(s) at any meeting of
ours or at any meeting of any class of members of ours provided that, if more than one person is so authorized, the authorization
shall specify the number and class of shares in respect of which each such person is so authorized. A person authorized in accordance
with this provision shall be deemed to have been duly authorized without further evidence of the facts and be entitled to exercise
the same rights and powers on behalf of the Clearing House or its nominee(s) as if such person were an individual member including
the right to vote individually on a show of hands.



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Where we have knowledge that any member
is, under the applicable stock exchange rules, required to abstain from voting on any particular resolution or restricted to voting
only for or only against any particular resolution, any votes cast by or on behalf of such member in contravention of such requirement
or restriction shall not be counted.



Subject to any special rights or restrictions
as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in
the case of a shareholder being a corporation, by its duly authorized representative not being himself or herself a shareholder
entitled to vote) shall have one vote per Class A common share and 10 votes per Class B common share.



Annual General Meetings



As a Cayman Islands exempted company, we
are not obligated by the Cayman Companies Law to call annual general meetings; however, our Articles of Association provide that
we must hold an annual general meeting each year other than the year of adoption of our Articles of Association. Such meeting must
be held at least once every calendar year and take place at such place as may be determined by the board of directors from time
to time.



As a condition of admission to a shareholders’
meeting, a shareholder must be duly registered as our shareholder at the applicable record date for that meeting and all calls
or installments then payable by such shareholder to us in respect of our Class A common shares must have been paid.



Members Requisition of Meetings



Our Articles of Association provide that
for so long as the founder shareholders, collectively hold 50% of all the voting powers of the shareholders, then shareholders
who collectively hold a majority of all the outstanding voting power shall be entitled to request directors to convene an extraordinary
general meeting of ours. In the event that the founder shareholders collectively, hold less than 50% of all the voting powers,
then no shareholder shall have the power to make a requisition to convene a meeting to directors.



Notices of Meetings and Business to be
Conducted



An annual general meeting of ours shall
be called by at least 21 days’ (and not less than 20 clear business days’) notice in writing, and any other general
meeting of ours shall be called by at least 14 days’ (and not less than 10 clear business days’) notice in writing.
The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and
must specify the time, place and agenda of the meeting and particulars of the resolution(s) to be considered at that meeting and,
in the case of special business, the general nature of that business.



Except where otherwise expressly stated,
any notice or document (including a share certificate) to be given or issued under the Articles of Association shall be in writing,
and may be served by us on any member personally, by post to such member’s registered address or (in the case of a notice)
by advertisement in the newspapers. We will give notice of each general meeting of shareholders by publication on our website and
in any other manner that we may be required to follow in order to comply with Cayman Islands Law, the applicable stock exchange
rules and SEC requirements.



Subject to the Cayman Companies Law and
the applicable stock exchange rules, a notice or document may also be served or delivered by us to any member by electronic means.



Although a general meeting of ours may
be called by shorter notice than as specified above, every general meeting may be deemed to have been duly called if it is so agreed
by all of our members entitled to attend and vote thereat.



All business transacted at an extraordinary
general meeting shall be deemed special business. All business shall also be deemed special business where it is transacted at
an annual general meeting, with the exception of certain routine matters which shall be deemed ordinary business.



Quorum for meetings and separate class
meetings



The quorum for a general meeting shall
be one or more shareholders holding not less than one-third in aggregate of the voting power of all shares in issue and entitled
to vote, present in person or by proxy or, if a



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corporation
or other non-natural person, by its duly authorized representative. In respect of a separate class meeting (other than an adjourned
meeting) convened to sanction the modification of class rights, the necessary quorum shall be persons holding or representing
by proxy not less than two-thirds of the issued shares of the applicable class.



Proceedings at General Meetings



Our Articles of Association provide that
no business shall be transacted at any meeting unless a quorum is present at the time when the meeting proceeds to business and
continues to be present until the conclusion of the meeting. One or more shareholders holding not less than one-third in aggregate
of the voting power of all shares in issue and entitled to vote, present in person or by proxy or, if a corporation or other non-natural
person, by its duly authorized representative, shall represent a quorum.



Proxies



Any member of ours entitled to attend and
vote at our meeting is entitled to appoint another person as his or her proxy to attend and vote instead of him. A member who is
the holder of two or more shares may appoint more than one proxy to represent him or her and vote on his or her behalf at a general
meeting of ours or at a class meeting. A proxy need not be a member of us and shall be entitled to exercise the same powers on
behalf of a member who is an individual and for whom he or her acts as proxy as such member could exercise. In addition, a proxy
shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he or she acts as proxy
as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally
(or, in the case of a member being a corporation, by its duly authorized representative) or by proxy.



The instrument appointing a proxy shall
be in writing under the hand of the appointor or of his or her attorney duly authorized in writing, or if the appointor is a corporation,
either under seal or under the hand of a duly authorized officer or attorney. Every instrument of proxy, whether for a specified
meeting or otherwise, shall be in such form as the board of directors may from time to time approve, provided that it shall not
preclude the use of the two-way form. Any form issued to a member for appointing a proxy to attend and vote at an extraordinary
general meeting or at an annual general meeting at which any business is to be transacted shall be such as to enable the member,
according to his or her intentions, to instruct the proxy to vote in favor of or against (or, in default of instructions, to exercise
his or her discretion in respect of) each resolution dealing with any such business.



Accounts and Audit



The board of directors shall cause proper
books of account to be kept of the sums of money received and expended by us, and of our assets and liabilities and of all other
matters required by the Cayman Companies Law (which include all sales and purchases of goods by us) necessary to give a true and
fair view of the state of our affairs and to show and explain our transactions.



Our books of accounts shall be kept at
our head office or at such other place or places as the board of directors decides and shall always be open to inspection by any
Director. No member (other than a Director) shall have any right to inspect any account, book or document of ours except as conferred
by the Cayman Companies Law, Nasdaq listing rules or ordered by a court of competent jurisdiction or authorized by the board of
directors.



The board of directors shall from time
to time cause to be prepared and laid before us at our annual general meeting the consolidated statements of financial position,
profit or loss, comprehensive income (loss), cash flows and changes in shareholders’ equity (including every document required
by law to be annexed thereto), together with a copy of the Directors’ report and a copy of the auditors’ report. Copies
of these documents shall be sent to every person entitled to receive notices our general meetings under the provisions of the Articles
of Association together with the notice of annual general meeting, not less than 10 days before the date of the meeting.



We shall appoint auditor(s) to hold office
from time to time and with such duties as may be agreed with the board of directors. The appointment of and provisions relating
to auditors shall be in accordance with any applicable law and Nasdaq listing rules.



The auditors shall audit our financial
statements in accordance with generally accepted accounting principles of IFRS or such other standards as may be permitted by Nasdaq.



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Principal Differences between Cayman Islands and U.S. Corporate
Law



The Cayman Companies Law was modeled originally
after similar laws in England and Wales but does not follow subsequent statutory enactments in England and Wales. In addition,
the Cayman Companies Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary
of the significant differences between the provisions of the Cayman Companies Law applicable to us and the laws applicable to companies
incorporated in the United States and their shareholders.



Cayman Islands Company Law



We were incorporated in the Cayman Islands
as an exempted company on March 11, 2014, subject to the Cayman Companies Law. Certain provisions of Cayman Islands company
law are set out below but this section does not purport to contain all applicable qualifications and exceptions or to be a complete
review of all matters of the Cayman Companies Law and taxation, which may differ from equivalent provisions in jurisdictions with
which interested parties may be more familiar.



Protection of Non-controlling Shareholders



The Grand Court may, on the application
of shareholders holding not less than one-fifth of our shares in issue, appoint an inspector to examine our affairs and report
thereon in a manner as the Grand Court shall direct.



Subject to the provisions of the Cayman
Companies Law, any shareholder may petition the Grand Court which may make a winding-up order, if the court is of the opinion that
this winding up is just and equitable.



Notwithstanding the U.S. securities laws
and regulations that are applicable to us, general corporate claims against us by our shareholders must, as a general rule, be
based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established
by our Articles of Association.



The Cayman Islands courts ordinarily would
be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against
us, or derivative actions in our name, to challenge (1) an act which is ultra viresor illegal, (2) an act which
constitutes a fraud against the minority and the wrongdoers themselves control us, and (3) an irregularity in the passing
of a resolution that requires a qualified (or special) majority.



Exempted Company



We are an exempted company with limited
liability under the Cayman Companies Law. The Cayman Companies Law distinguishes between ordinary resident companies and exempted
companies. Where the proposed activities of a company are to be carried out mainly outside of the Cayman Islands, the registrant
can apply for registration as an exempted company. The requirements for an exempted company are essentially the same as for an
ordinary company except for the exemptions and privileges listed below:



| | · | an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | an exempted company’s register of shareholders is not open to inspection;
| | - | -------------------------------------------------------------------------



| | · | an exempted company does not have to hold an annual general meeting;
| | - | --------------------------------------------------------------------



| | · | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually
given for 20 years in the first instance);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | · | an exempted company may register as a limited duration company;
| | - | ---------------------------------------------------------------



| | · | an exempted company may register as a segregated portfolio company; and
| | - | -----------------------------------------------------------------------



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| | · | an exempted company may register as a special economic zone company.
| | - | --------------------------------------------------------------------



We are subject to reporting and other informational
requirements of the Exchange Act, as applicable to foreign private issuers.



Company Operations



An exempted company such as us must conduct
its operations mainly outside the Cayman Islands. An exempted company is also required to file an annual return each year with
the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorized share capital.



Share Capital



Under Cayman Companies Law, a Cayman Islands
company may issue ordinary, preference or redeemable shares or any combination thereof. Where a company issues shares at a premium,
whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred
to an account, to be called the share premium account. At the option of a company, these provisions may not apply to premiums on
shares of that company allotted pursuant to any arrangements in consideration of the acquisition or cancellation of shares in any
other company and issued at a premium. The share premium account may be applied by the company subject to the provisions, if any,
of its memorandum and articles of association, in such manner as the company may from time to time determine including, but without
limitation, the following:



| | · | paying distributions or dividends to members;
| | - | ---------------------------------------------



| | · | paying up unissued shares of the company to be issued to members as fully paid bonus shares;
| | - | --------------------------------------------------------------------------------------------



| | · | any manner provided in section 37 of the Cayman Companies Law;
| | - | --------------------------------------------------------------



| | · | writing-off the preliminary expenses of the company; and
| | - | --------------------------------------------------------



| | · | writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.
| | - | -----------------------------------------------------------------------------------------------------------------------------



Notwithstanding the foregoing, no distribution
or dividend may be paid to members out of the share premium account unless, immediately following the date on which the distribution
or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business.



Subject to confirmation by the court, a
company limited by shares or a company limited by guarantee and having a share capital may, if authorized to do so by its articles
of association, by special resolution reduce its share capital in any way.



Financial Assistance to Purchase Shares
of a Company or its Holding Company



There are no statutory prohibitions in
the Cayman Islands on the granting of financial assistance by a company to another person for the purchase of, or subscription
for, its own, its holding company’s or a subsidiary’s shares. Therefore, a company may provide financial assistance
provided the directors of the company, when proposing to grant such financial assistance, discharge their duties of care and act
in good faith, for a proper purpose and in the interests of the company. Such assistance should be on an arm’s-length basis.



Purchase of Shares and Warrants by a
Company and its Subsidiaries



A company limited by shares or a company
limited by guarantee and having a share capital may, if so authorized by its articles of association, issue shares which are to
be redeemed or are liable to be redeemed at the option of the company or a member and, for the avoidance of doubt, it shall be
lawful for the rights attaching to any shares to be varied, subject to the provisions of the company’s articles of association,
so as to provide that such shares are to be or are liable to be so redeemed. In addition, such a company may, if authorized to
do so by its articles of association, purchase its own shares, including any redeemable shares; an ordinary resolution of the company
approving the manner and terms of the purchase will be required if the articles of association do not authorize the manner and
terms of such purchase. A company may not redeem or purchase its shares unless they are



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fully
paid. Furthermore, a company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there
would no longer be any issued shares of the company other than shares held as treasury shares. In addition, a payment out of capital
by a company for the redemption or purchase of its own shares is not lawful unless, immediately following the date on which the
payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.



Shares that have been
purchased or redeemed by a company or surrendered to the company shall not be treated as canceled but shall be classified as treasury
shares if held in compliance with the requirements of Section 37A(1) of the Cayman Companies Law. Any such shares shall continue
to be classified as treasury shares until such shares are either canceled or transferred pursuant to the Cayman Companies Law.



A Cayman Islands company may be able to
purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate.
Thus there is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific
provision enabling such purchases. The directors of a company may under the general power contained in its memorandum of association
be able to buy, sell and deal in personal property of all kinds.



A subsidiary may hold shares in its holding
company and, in certain circumstances, may acquire such shares.



Dividends and Distributions



Subject to a cash-flow solvency test, as
prescribed in the Cayman Companies Law, and the provisions, if any, of the company’s memorandum and articles of association,
a company may pay dividends and distributions out of its share premium account. In addition, based upon English case law which
is likely to be persuasive in the Cayman Islands, dividends may be paid out of profits.



For so long as a company holds treasury
shares, no dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the company’s assets
(including any distribution of assets to members on a winding up) may be made, in respect of a treasury share.



Protection of Minorities and Shareholders’
Suits



It can be expected that the Cayman Islands
courts will ordinarily follow English case law precedents (particularly the rule in the case of Foss vs. Harbottle and the
exceptions to that rule) which permit a minority member to commence a representative action against or derivative actions in the
name of the company to challenge acts which are ultra vires, illegal, fraudulent (and performed by those in control of the company)
against the minority, or represent an irregularity in the passing of a resolution which requires a qualified (or special) majority
which has not been obtained.



Where a company (not being a bank) is one
which has a share capital divided into shares, the court may, on the application of members holding not less than one-fifth of
the shares of the company in issue, appoint an inspector to examine the affairs of the company and, at the direction of the court,
to report on such affairs. In addition, any member of a company may petition the court, which may make a winding-up order if the
court is of the opinion that it is just and equitable that the company should be wound up.



In general, claims against a company by
its members must be based on the general laws of contract or tort applicable in the Cayman Islands or be based on a potential violation
of their individual rights as members as established by a company’s memorandum and articles of association.



Disposal of assets



There are no specific restrictions on the
power of directors to dispose of assets of a company, however, the directors are expected to exercise certain duties of care, diligence
and skill to the standard that a reasonably prudent person would exercise in comparable circumstances, in addition to fiduciary
duties to act in good faith, for proper purpose and in the best interests of the company under English common law (which the Cayman
Islands courts will ordinarily follow).



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Accounting and Auditing Requirements



A company must cause proper records of
accounts to be kept with respect to: (i) all sums of money received and expended by it; (ii) all sales and purchases
of goods by it and (iii) its assets and liabilities.



Proper books of account shall not be deemed
to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs
and to explain its transactions.



If a company keeps its books of account
at any place other than at its registered office or any other place within the Cayman Islands, it shall, upon service of an order
or notice by the Tax Information Authority pursuant to the Tax Information Authority Law (Revised) of the Cayman Islands, make
available, in electronic form or any other medium, at its registered office copies of its books of account, or any part or parts
thereof, as are specified in such order or notice.



Exchange Control



There are no exchange control regulations
or currency restrictions in effect in the Cayman Islands.



Stamp Duty on Transfers



No stamp duty is payable in the Cayman
Islands on transfers of shares of Cayman Islands companies save for those which hold interests in land in the Cayman Islands.



Inspection of Corporate Records



The members of a company have no general
right to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such
rights as may be set out in the company’s articles of association.



Register of Members



A Cayman Islands exempted company may maintain
its principal register of members and any branch registers in any country or territory, whether within or outside the Cayman Islands,
as the company may determine from time to time. There is no requirement for an exempted company to make any returns of members
to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public
record and are not available for public inspection. However, an exempted company shall make available at its registered office,
in electronic form or any other medium, such register of members, including any branch register of member, as may be required of
it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law (Revised)
of the Cayman Islands.



Register of Directors and Officers



Pursuant to the Cayman Companies Law, a
company is required to maintain at its registered office a register of directors, alternate directors and officers which is not
available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands
and any change must be notified to the Registrar within 60 days of any change in such directors or officers, including a change
of the name of such directors or officers.



Winding Up



A Cayman Islands company may be wound up
by: (i) an order of the court; (ii) voluntarily by its members; or (iii) under the supervision of the court.



The court has authority to order winding
up in a number of specified circumstances including where, in the opinion of the court, it is just and equitable that such company
be so wound up.



A voluntary winding up of a company (other
than a limited duration company, for which specific rules apply) occurs where the company resolves by special resolution that it
be wound up voluntarily or where the company in general meeting resolves that it be wound up voluntarily because it is unable to
pay its debt as they fall due. In the



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case
of a voluntary winding up, the company is obliged to cease to carry on its business from the commencement of its winding up except
so far as it may be beneficial for its winding up. Upon appointment of a voluntary liquidator, all the powers of the directors
cease, except so far as the company in general meeting or the liquidator sanctions their continuance.



In the case of a members’ voluntary
winding up of a company, one or more liquidators are appointed for the purpose of winding up the affairs of the company and distributing
its assets.



As soon as the affairs of a company are
fully wound up, the liquidator must make a report and an account of the winding up, showing how the winding up has been conducted
and the property of the company disposed of, and call a general meeting of the company for the purposes of laying before it the
account and giving an explanation of that account.



When a resolution has been passed by a
company to wind up voluntarily, the liquidator or any contributory or creditor may apply to the court for an order for the continuation
of the winding up under the supervision of the court, on the grounds that: (i) the company is or is likely to become insolvent;
or (ii) the supervision of the court will facilitate a more effective, economic or expeditious liquidation of the company
in the interests of the contributories and creditors. A supervision order takes effect for all purposes as if it was an order that
the company be wound up by the court except that a commenced voluntary winding up and the prior actions of the voluntary liquidator
shall be valid and binding upon the company and its official liquidator.



For the purpose of conducting the proceedings
in winding up a company and assisting the court, one or more persons may be appointed to be called an official liquidator(s). The
court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more than
one person is appointed to such office, the court shall declare whether any act required or authorized to be done by the official
liquidator is to be done by all or any one or more of such persons. The court may also determine whether any and what security
is to be given by an official liquidator on his or her appointment; if no official liquidator is appointed, or during any vacancy
in such office, all the property of the company shall be in the custody of the court.



Reconstructions



Reconstructions and amalgamations may be
approved by a majority in number representing 75 percent in value of the members or creditors, depending on the circumstances,
as are present at a meeting called for such purpose and thereafter sanctioned by the courts. Whilst a dissenting member has the
right to express to the court his or her view that the transaction for which approval is being sought would not provide the members
with a fair value for their shares, the courts are unlikely to disapprove the transaction on that ground alone in the absence of
evidence of fraud or bad faith on behalf of management, and if the transaction were approved and consummated the dissenting member
would have no rights comparable to the appraisal rights (that is, the right to receive payment in cash for the judicially determined
value of their shares) ordinarily available, for example, to dissenting members of a United States corporation.



The Cayman Islands Economic Substance Law



The Cayman Islands recently enacted the
International Tax Co-operation (Economic Substance) Law, 2018, or “The Economic Substance Law’” which became
effective on January 1, 2019, together with Guidance Notes published by the Cayman Islands Tax Information Authority on February
22, 2019. The Company is required to comply with the economic substance requirements beginning on July 1, 2019 and file annual
reports in the Cayman Islands as to whether or not they are carrying out such relevant activities and if they are, they must satisfy
an economic substance test.



Takeovers



Where an offer is made by a company for
the shares of another company and, within four months of the offer, the holders of not less than 90 per cent of the shares
which are the subject of the offer accept, the offeror may, at any time within two months after the expiration of that four-month
period, by notice require the dissenting members to transfer their shares on the terms of the offer. A dissenting member may apply
to the Cayman Islands courts within one month of the notice objecting to the transfer. The burden is on the dissenting member to
show that the court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith
or collusion
as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority members.



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Mergers and Consolidations



The Cayman Companies Law permits mergers
and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies.



For these purposes, (a) “merger”
means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of
such companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent
companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies in the consolidated
company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan
of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent
company; and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association.
The plan must be approved by the directors of each constituent company and filed with the Registrar of Companies together with
a declaration as to: (1) the solvency of the consolidated or surviving company, (2) the merger or consolidation is bona
fide and not intended to defraud unsecured creditors of the constituent companies; (3) no petition or other similar proceeding
has been filed and remains outstanding and no order or resolution to wind up the company in any jurisdiction, (4) no receiver,
trustee, administrator or similar person has been appointed in any jurisdiction and is acting in respect of the constituent company,
its affairs or property, (5) no scheme, order, compromise or similar arrangement has been entered into or made in any jurisdiction
with creditors; (6) a list of the assets and liabilities of each constituent company; (7) the non-surviving constituent
company has retired from any fiduciary office held or will do so; (8) that the constituent company has complied with any requirements
under the regulatory laws, where relevant; and (9) an undertaking that a copy of the certificate of merger or consolidation
will be given to the members and creditors of each constituent company and published in the Cayman Islands Gazette.



Dissenting shareholders have the right
to be paid the fair value of their shares (which, if not agreed between the parties, may be determined by the Cayman Islands’
court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation
which is effected in compliance with these statutory procedures.



In addition, there are statutory provisions
that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority
in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent
three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either
in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement
must be sanctioned by the Grand Court. While a dissenting shareholder would have the right to express to the court the view that
the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:



| | · | we are not proposing to act illegally or ultra vires and the statutory provisions as to majority vote have been complied with;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | the shareholders have been fairly represented at the meeting in question;
| | - | -------------------------------------------------------------------------



| | · | the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of
his or her interest; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the arrangement is not one that would more properly be sanctioned under some other provision of the Cayman Companies Law or
that would amount to a “fraud on the minority.”
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



When a takeover offer is made and accepted
by holders of 90.0% in value of the shares affected within four months, the offeror may, within a two-month period, require the
holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court
but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.



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If the arrangement and reconstruction are
thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which might otherwise ordinarily
be available to dissenting shareholders of U.S. corporations and allow such dissenting shareholders to receive payment in cash
for the judicially determined value of their shares.



Shareholders’ Suits



Class actions are not recognized in
the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar.
However, a class action suit could nonetheless be brought in a U.S. court pursuant to an alleged violation of U.S. securities laws
and regulations.



In principle, we would normally be the
proper plaintiff and as a general rule, whilst a derivative action may be initiated by a minority shareholder on our behalf in
a Cayman Islands court, such shareholder will not be able to continue those proceedings without the permission of a Grand Court
judge, who will only allow the action to continue if the shareholder can demonstrate that we have a good case against the Defendant,
and that it is proper for the shareholder to continue the action rather than the board of directors. Examples of circumstances
in which derivative actions would be permitted to continue are where:



| | · | a company is acting or proposing to act illegally or beyond the scope of its authority;
| | - | ---------------------------------------------------------------------------------------



| | · | the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a
simple majority vote that has not been obtained; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | those who control the company are perpetrating a “fraud on the minority.”
| | - | -------------------------------------------------------------------------



Corporate Governance



Cayman Islands law restricts transactions
between a company and its directors unless there are provisions in the articles of association which provide a mechanism to alleviate
possible conflicts of interest. Additionally, Cayman Islands law imposes on directors’ duties of care and skill and fiduciary
duties to the companies which they serve. Under our Articles of Association a director must disclose the nature and extent of his
or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable
law or the applicable stock exchange rules, and unless disqualified by the chairman of the relevant meeting, the interested director
may vote in respect of any transaction or arrangement in which he or she is interested. The interested director shall be counted
in the quorum at such meeting and the resolution may be passed by a majority of the directors present at the meeting.



Indemnification of Directors and Executive Officers and
Limitation of Liability



The Cayman Companies Law does not limit
the extent to which a company’s articles of association may provide for indemnification of directors and officers, except
to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification
against civil fraud or the consequences of committing a crime. Our Articles of Association provide that we shall indemnify and
hold harmless our directors and officers against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities,
judgments, fines, settlements and other amounts incurred or sustained by such directors or officers, other than by reason of such
person’s dishonesty, wilful default or fraud, in or about the conduct of our company’s business or affairs (including
as a result of any mistake of judgment) or in the execution or discharge of his or her duties, powers, authorities or discretions,
including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director
or officer in defending (whether successfully or otherwise) any civil, criminal or other proceedings concerning us or our affairs
in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the
Delaware General Corporation Law (the “DGCL”) for a Delaware corporation. In addition, we intend to enter into indemnification
agreements with our directors and executive officers that will provide such persons with additional indemnification beyond that
provided in our Articles of Association.



Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions,
we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.



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Directors’ Fiduciary Duties



As a matter of Cayman Islands law, a director
of a Cayman Islands company is in the position of a fiduciary with respect to the company. Accordingly, directors owe fiduciary
duties to their companies to act bona fide in what they consider to be the best interests of the company, to exercise their powers
for the purposes for which they are conferred and not to place themselves in a position where there is a conflict between their
personal interests and their duty to the company. Accordingly, a director owes a company a duty not to make a profit based on his
or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position
where the interests of the company conflict with his or her personal interest or his or her duty to a third party. However, this
obligation may be varied by the company’s articles of association, which may permit a director to vote on a matter in which
he or she has a personal interest provided that he or she has disclosed the nature of his or her interest to the board of directors.
Our Articles of Association provides that a director must disclose the nature and extent of his or her interest in any contract
or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the applicable stock
exchange listing rules, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any
transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.



A director of a Cayman Islands company
also owes to the company duties to exercise independent judgment in carrying out his or her functions and to exercise reasonable
skill, care and diligence, which has both objective and subjective elements. Recent Cayman Islands case law confirmed that directors
must exercise the care, skill and diligence that would be exercised by a reasonably diligent person having the general knowledge,
skill and experience reasonably to be expected of a person acting as a director. Additionally, a director must exercise the knowledge,
skill and experience which he or she actually possesses.



A general notice may be given to the board
of directors to the effect that (1) the director is a member or officer of a specified company or firm and is to be regarded
as interested in any contract or arrangement which may after the date of the notice be made with that company or firm; or (2) he
or she is to be regarded as interested in any contract or arrangement which may after the date of the notice to the board of directors
be made with a specified person who is connected with him or her, will be deemed sufficient declaration of interest. This notice
shall specify the nature of the interest in question. Following the disclosure being made pursuant to our Articles of Association
and subject to any separate requirement under applicable law or the applicable stock exchange listing rules, and unless disqualified
by the chairman of the relevant meeting, a director may vote in respect of any transaction or arrangement in which he or she is
interested and may be counted in the quorum at the meeting.



In comparison, under Delaware corporate
law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components:
the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily
prudent person would exercise under similar circumstances. Under this duty, a director must inform himself or herself of, and disclose
to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires
that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not
use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that
the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or
controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been
made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.
However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented
concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction
was of fair value to the corporation.



Shareholder Proposals



Under the DGCL, a shareholder has the right
to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing
documents. The DGCL does not provide shareholders an express right to put any proposal before the annual meeting of shareholders,
but Delaware corporations generally afford shareholders an opportunity to make proposals and nominations provided that they comply
with the notice provisions in the certificate of incorporation or bylaws. A special meeting may be called by the board of directors
or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.



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The Cayman Companies Law provides shareholders
with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal
before a general meeting. However, these rights may be provided in a company’s articles of association.



Cumulative Voting



Under the DGCL, cumulative voting for elections
of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative
voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority
shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s
voting power with respect to electing such director. As permitted under Cayman Islands law, our Articles of Association do not
provide for cumulative voting. As a result, our shareholders are not afforded any fewer protections or rights on this issue than
shareholders of a Delaware corporation.



Removal of Directors



As described in further details above,
the office of a director shall be vacated automatically if, among other things, he or she (1) becomes prohibited by law from
being a director, (2) becomes bankrupt or makes any arrangement or composition with his or her creditors, (3) dies or
is in the opinion of all his or her co-directors, incapable by reason of mental disorder of discharging his or her duties as director
(4) resigns his or her office by notice to us or (5) has for more than six months been absent without permission of the
directors from meetings of the board of directors held during that period, and the remaining directors resolve that his or her
office be vacated.



Transactions with Interested Shareholders



The DGCL provides that; unless the corporation
has specifically elected not to be governed by this statute, it is prohibited from engaging in certain business combinations with
an “interested shareholder” for three years following the date that this person becomes an interested shareholder.
An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding
voting shares or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation’s
outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make
a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other
things, prior to the date on which the shareholder becomes an interested shareholder, the board of directors approves either the
business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential
acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.



Cayman Islands law has no comparable statute.
As a result, we cannot avail itself of the types of protections afforded by the Delaware business combination statute. However,
although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide
that the board of directors owes duties to ensure that these transactions are entered into bona fide in the best interests of the
company and for a proper corporate purpose and, as noted above, a transaction may be subject to challenge if it has the effect
of constituting a fraud on the minority shareholders.



Dissolution; Winding Up



Under the DGCL, unless the board of directors
approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation.
If the dissolution is initiated by the board of directors it may be approved by a simple majority of the corporation’s outstanding
shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement
in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order
of the courts of the Cayman Islands or by a special resolution of its members or, if the company resolves by ordinary resolution
that it be wound up because it is unable to pay its debts as they fall due. The court has authority to order winding up in a number
of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.



Under the Cayman Companies Law, we may
be dissolved, liquidated or wound up by a special resolution of shareholders (requiring a two-thirds majority vote).



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Variation of Rights of Shares



Under the DGCL, a corporation may vary
the rights of a class of shares with the approval of a majority of the outstanding shares of that class, unless the certificate
of incorporation provides otherwise. Under our Articles of Association, if the share capital is divided into more than one class
of shares, the rights attached to any class may only be varied with the written consent of the holders of two-thirds of the shares
of that class or the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.



Also, except with respect to share capital
(as described above), alterations to our Articles of Association may only be made by special resolution of shareholders (requiring
a two-thirds majority vote).



Rights of Non-Resident or Foreign Shareholders



There are no limitations imposed by our
Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares.
In addition, there are no provisions in the Articles of Association governing the ownership threshold above which shareholder ownership
must be disclosed.







| | C. | Material contracts
| | -- | ------------------



For information concerning our material
contracts, see “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects,”
“Item 7. Major Shareholders and Related Party Transactions—A. Major shareholders—Shareholders Agreement”
and “Item 7. Major Shareholders and Related Party Transactions—B. Related party transactions.”



Except as otherwise disclosed in this Annual
Report on Form 20-F (including the Exhibits), we are not currently, and have not been in the last two years, party to any material
contract, other than contracts entered into in the ordinary course of business.



| | D. | Exchange controls
| | -- | -----------------



The Cayman Islands currently has no exchange
control restrictions.



In Brazil, the right to convert dividend
payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions
under foreign investment legislation, which generally requires, among other things, that the relevant investments have been registered
with the Central Bank.



Under current Brazilian legislation, whenever
there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance,
temporary restrictions may be imposed on remittances of foreign capital abroad. For further information on Brazilian exchange controls,
see “Item 3. Key Information—A. Selected financial data” and “Item 3. Key Information—D. Risk factors.”



| | E. | Taxation
| | -- | --------



The following summary contains a description
of certain Cayman Islands and U.S. federal income tax consequences of the acquisition, ownership and disposition of our Class A
common shares. It does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision
to hold the Class A common shares, is not applicable to all categories of investors, some of which may be subject to special
rules, and does not address all of the Cayman Islands and U.S. federal income tax considerations applicable to any particular holder.
The summary is based upon the tax laws of the Cayman Islands and regulations thereunder and on the tax laws of the United States
and regulations thereunder and the other authorities described below as of the date hereof, which are subject to change.



Holders of our Class A common shares
should consult their own tax advisors about the particular Cayman Islands and U.S. federal, state, local and other tax consequences
to them of the acquisition, ownership and disposition of our Class A common shares.



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Cayman Islands Tax Considerations



Pursuant to section 6 of the Tax Concessions
Law (Revised) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet that:



| | (a) | no law which is enacted in the Cayman Islands imposing
any tax to be levied on profits or income or gains or appreciations shall apply to the Company or its operations; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | no tax be levied on profits, income, gains or appreciations
or which is in the nature of estate duty or inheritance tax shall be payable by the Company:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | on or in respect of the shares, debentures or other
obligations of the Company; or
| | --- | ----------------------------------------------------------------------------------



| | (ii) | by way of withholding in whole or in part of any relevant
payment as defined in section 6(3) of the Tax Concessions Law (Revised).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------



The undertaking for the Company is for
a period of 20 years from April 26, 2016.



The Cayman Islands currently levy no taxes
on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance
tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands
save for certain stamp duties which may be applicable, from time to time, on certain instruments.



Payments of dividends and capital in respect
of our Class A common shares will not be subject to taxation in the Cayman Islands and no withholding will be required on
the payment of a dividend or capital to any holder of our Class A common shares, nor will gains derived from the disposal
of our Class A common shares be subject to Cayman Islands income or corporation tax.



There is no income tax treaty or convention
currently in effect between the United States and the Cayman Islands.



Material U.S. Federal Income Tax Considerations for U.S.
Holders



The following section is a description
of the material U.S. federal income tax consequences of the ownership and disposition of our Class A common shares, but it
does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s
decision to acquire the shares.



This summary applies only to U.S. Holders
(as defined below) that hold our Class A common shares as capital assets for tax purposes. In addition, it does not describe
all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including alternative
minimum tax consequences, the potential application of the provisions of the Internal Revenue Code of 1986, as amended, or the
“Code”, known as the Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special
rules, such as:



| | · | certain financial institutions;
| | - | -------------------------------



| | · | insurance companies;
| | - | --------------------



| | · | real estate investment trusts or regulated investment companies;
| | - | ----------------------------------------------------------------



| | · | dealers or traders in securities that use a mark-to-market method of tax accounting;
| | - | ------------------------------------------------------------------------------------



| | · | persons holding Class A common shares as part of a hedging transaction, straddle, wash sale, conversion transaction or
other integrated transaction or persons entering into a constructive sale with respect to the Class A common shares;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
| | - | ----------------------------------------------------------------------------------------------





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| | · | tax-exempt entities, including an “individual retirement account” or “Roth IRA”;
| | - | --------------------------------------------------------------------------------



| | · | persons that own or are deemed to own ten percent or more of our Class A common shares, by vote or value;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | persons holding our Class A common shares in connection with a trade or business conducted outside of the United States;
or
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes.
| | - | ------------------------------------------------------------------------------------------------------------



If an entity that is classified as a partnership
for U.S. federal income tax purposes holds our Class A common shares, the U.S. federal income tax treatment of a partner will
generally depend on the status of the partner and the activities of the partnership. Partnerships holding our Class A common
shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences
of owning and disposing of the Class A common shares.



This discussion is based on the Code, administrative
pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, all as of the date hereof, any of which
is subject to change or differing interpretations, possibly with retroactive effect.



A “U.S. Holder” is a holder
who, for U.S. federal income tax purposes, is a beneficial owner of our Class A common shares and is:



| | · | an individual that is a citizen or resident of the United States;
| | - | -----------------------------------------------------------------



| | · | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any
state therein or the District of Columbia; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
| | - | -----------------------------------------------------------------------------------------------------------



U.S. Holders should consult their tax advisers
concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of our Class A common shares
in their particular circumstances.



This discussion assumes that we are not,
and will not become, a passive foreign investment company (a “PFIC”), as described below.



Taxation of Distributions



As discussed above under “Item 8.
Financial Information—A. Consolidated statements and other financial information—Dividends and dividend policy,”
we do not currently intend to pay dividends. In the event that we do pay dividends, and subject to the discussion below under “—Passive
Foreign Investment Company Rules,” distributions paid on our Class A common shares, other than certain pro rata distributions
of Class A common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits
(as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under
U.S. federal income tax principles, we expect that distributions generally will be reported to U.S. Holders as dividends. Subject
to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be eligible for taxation as “qualified
dividend income” and therefore may be taxable at rates applicable to long-term capital gains so long as our Class A
common shares are listed and trade on Nasdaq or are readily tradable on another established securities market in the United States.
U.S. Holders should consult their tax advisers regarding the availability of the reduced tax rate on dividends in their particular
circumstances.



The amount of a dividend will generally
be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally
available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S.
Holder’s receipt of the dividend.



Sale or Other Disposition of Common Shares



Subject to the discussion below under “—Passive
Foreign Investment Company Rules,” for U.S. federal income tax purposes, gain or loss realized on the sale or other disposition
of our Class A common shares will be capital gain



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or
loss, and will be long-term capital gain or loss if the U.S. Holder held the Class A common shares for more than one year.
The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the Class A common
shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will
generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to various
limitations.



Passive Foreign Investment Company Rules



A non-U.S. corporation will be a PFIC for
any taxable year in which either (i) 75% or more of its gross income consists of “passive income,” or (ii) 50% or more
of the average quarterly value of its assets consist of assets that produce, or are held for the production of, “passive
income.” For this purpose, subject to certain exceptions, passive income includes interest, dividends, rents, and certain
gains from transactions. Cash is a passive asset for these purposes. A non-U.S. corporation will be treated as owning its proportionate
share of the assets and earning its proportionate share of the income of any other corporation in which it owns, directly or indirectly,
more than 25% (by value) of the stock.



We do not believe we were a PFIC for
our 2018 taxable year, and based on the composition of our income and assets, and the value of our assets, we do not expect
to be a PFIC for our current taxable year; however, because our PFIC status for any taxable year can be determined only after
the end of such taxable year and will depend on the composition of our income and assets and the market value of our assets
from time to time, our tax counsel cannot opine as to whether we will be a PFIC for our current taxable year or any future
year. Moreover, there can be no assurance that the IRS will agree with our conclusion. In addition, because it is uncertain
how certain services we offer and related assets will be treated for purposes of the PFIC rules, there can be no assurance
that we will not be a PFIC for any taxable year. If we were a PFIC for any year during which a U.S. Holder holds our Class A
common shares, we generally would continue to be treated as a PFIC with respect to that U.S. Holder for all succeeding years
during which the U.S. Holder holds the Class A common shares, even if we ceased to meet the threshold requirements for PFIC
status. If we were a PFIC for any taxable year and any of our subsidiaries, consolidated affiliated entity or other companies
in which we own or are treated as owning equity interests were also a PFIC (any such entity, a “Lower-tier
PFIC”), U.S. Holders would be deemed to own a proportionate amount (by value) of the shares of each Lower-tier PFIC and
would be subject to U.S. federal income tax according to the rules described in the subsequent paragraph on (i) certain
distributions by a Lower-tier PFIC and (ii) dispositions of shares of Lower-tier PFICs, in each case as if the U.S.
Holders held such shares directly, even though the U.S. Holders had not received the proceeds of those distributions or
dispositions.



If we were a PFIC for any taxable year
during which a U.S. Holder held our Class A common shares, the U.S. Holder may be subject to adverse tax consequences. Generally,
gain recognized upon a disposition (including, under certain circumstances, a pledge) of our Class A common shares by the
U.S. Holder would be allocated ratably over the U.S. Holder’s holding period for such shares. The amounts allocated to the
taxable year of disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to
each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate,
for that taxable year and an interest charge would be imposed on the tax on such amount. Further, to the extent that any distribution
received by a U.S. Holder on its Class A common shares exceeds 125% of the average of the annual distributions on the Class A
common shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution
would be subject to taxation in the same manner as gain, described immediately above.



Alternatively, if we were a PFIC and if
our Class A common shares were “regularly traded” on a “qualified exchange,” a U.S. Holder could make
a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above.
Our Class A common shares would be treated as “regularly traded” in any calendar year in which more than a de
minimis quantity of our Class A common shares were traded on a qualified exchange on at least 15 days during each calendar
quarter. The Nasdaq is a qualified exchange for this purpose.



If a U.S. Holder makes a mark-to-market
election, the holder generally will recognize as ordinary income any excess of the fair market value of its Class A common
shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess
of the adjusted tax basis of the Class A common shares over their fair market value at the end of the taxable year (but only
to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes
the election, the holder’s tax



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basis
in the Class A common shares will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or
other disposition of Class A common shares in a year when the Company is a PFIC will be treated as ordinary income and any
loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of
the mark-to-market election). Because the mark-to-market election only applies to marketable stock, however, it would not apply
to a U.S. Holder’s indirect interest in any of the Company’s subsidiaries that were also determined to be PFIC.



In addition, if we were a PFIC or, with
respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable
year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would
not apply.



If a U.S. Holder owns Class A common
shares during any year in which we are a PFIC, the holder generally must file an annual report containing such information as the
U.S. Treasury may require on IRS Form 8621 (or any successor form) with respect to us, generally with the holder’s federal
income tax return for that year.



U.S. Holders should consult their tax advisers
concerning our potential PFIC status and the potential application of the PFIC rules.



Information Reporting and Backup Withholding



Payments of dividends and sales proceeds
that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information
reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient
or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies
that it is not subject to backup withholding.



Backup withholding is not an additional
tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against such holder’s
U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to
the IRS. U.S. Holders should consult their tax advisers regarding the application of the U.S. information reporting and backup
withholding rules.



Information with Respect to Foreign Financial
Assets



Certain U.S. Holders who are individuals
(and certain entities) may be required to report information on their U.S. federal income tax returns relating to an interest in
our Class A common shares, subject to certain exceptions (including an exception for Class A common shares held in accounts
maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisers regarding the effect, if any,
of this requirement on their ownership and disposition of the Class A common shares.



THE ABOVE DESCRIPTION IS NOT INTENDED TO
CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP AND DISPOSITION BY U.S. HOLDERS OF OUR CLASS A
COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF THEIR PARTICULAR SITUATION.



| | F. | Dividends and paying agents
| | -- | ---------------------------



Not applicable.



| | G. | Statement by experts
| | -- | --------------------



Not applicable.



| | H. | Documents on display
| | -- | --------------------



We are subject to the informational requirements
of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports
on Form 20-F and reports on Form 6-K. The SEC maintains an Internet website that contains reports and other information about issuers,
like us, that file electronically with the SEC. The address of that website is www.sec.gov.



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As a foreign private issuer, we are exempt
under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our
directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section
16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements
with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.



I.        Subsidiary
information



See note 2.1 to our audited consolidated
financial statements for a description of the Company’s subsidiaries.



J.       The Cayman
Islands Economic Substance Law



The Cayman Islands recently enacted the International Tax Co-operation
(Economic Substance) Law, 2018, or “The Economic Substance Law” which became effective on January 1, 2019, together
with Guidance Notes published by the Cayman Islands Tax Information Authority on February 22, 2019. The Company is required to
comply with the economic substance requirements beginning on July 1, 2019 and file annual reports in the Cayman Islands as to whether
or not they are carrying out such relevant activities and if they are, they must satisfy an economic substance test.



ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK



General



Our overall market risk management program
focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance.



Foreign
Exchange Risk



Foreign exchange risk arises when commercial
transactions or recognized assets or liabilities are denominated in a currency that is not our functional currency.



Virtually all of our revenues and our expenses
are denominated in, or linked to, the Brazilian Real. Accordingly, we do not face any significant revenue or operating expense
exposure to fluctuations between the real and other currencies.



As of December 31, 2018, 2017 and
2016 we had cash and cash equivalents and short-term investments denominated in U.S. dollars and euros in the amount of R$254.9
million, R$232.5 million and R$202.9 million, respectively.



Interest Rate Risk



Interest rate risk is the risk that the
fair value of future cash flows of a financial instrument fluctuates due to changes in market interest rates. Our exposure to the
risk of changes in market interest rates arises primarily from short-term investments and long-term borrowings subject in each
case to variable interest rates, principally the LIBOR rate for our short-term investments and the CDI Rate for our long-term borrowings.



We conducted a sensitivity analysis of
the interest rate risks to which our financial instruments are exposed as of December 31, 2018. For this analysis, we adopted
as a probable scenario for the future interest rates of 6.55% for the CDI Rate. When estimating an increase or decrease in current
interest rates for the period of one year by 25% and 50%, other financial income (in connection with short-term investments) and
financial expense, net (in connection with long-term borrowings) would be impacted as follows:



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|                                                   |  |                    |  | Scenarios       
|-------------------------------------------------- |  | ------------------ |  | ----------------
|Transactions                                       |  | Interest Rate Risk |  | Current Exposure
|                                                   |  |                    |  | (R$ millions)   
|Short-term investments                             |  | CDI variation      |  |                 
|Loans and financing – Leasing and Private entities |  | CDI variation      |  |                 
|Obligations to FIDC senior quota holders           |  | CDI variation      |  |                 



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



| | A. | Debt securities
| | -- | ---------------



Not applicable.



| | B. | Warrants and rights
| | -- | -------------------



Not applicable.



| | C. | Other securities
| | -- | ----------------



Not applicable.



| | D. | American Depositary Shares
| | -- | --------------------------



Not applicable.



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PART II



ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



| | A. | Defaults
| | -- | --------



No matters to report.



| | B. | Arrearages and delinquencies
| | -- | ----------------------------



No matters to report.



ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS



| | A. | Material modifications to instruments
| | -- | -------------------------------------



Not applicable.



| | B. | Material modifications to rights
| | -- | --------------------------------



Not applicable.



| | C. | Withdrawal or substitution of assets
| | -- | ------------------------------------



Not applicable.



| | D. | Change in trustees or paying agents
| | -- | -----------------------------------



Not applicable.



| | E. | Use of proceeds
| | -- | ---------------



On April 2, 2019, our registration statement
on Form F-1 (File No. 333-230642), as amended, was declared effective by the SEC for our follow on offering of our Class A common
shares, pursuant to which certain of our selling shareholders offered and sold a total of 19,500,000 of our Class A common shares,
par value $0.000079365 per share, at a public offering price of $40.50 per share. Goldman Sachs & Co. LLC, J.P. Morgan Securities
LLC, Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. acted as global coordinators for the offering. The offering
began on April 2, 2019 and was completed on April 5, 2019.



Certain selling shareholders sold 19,500,000
Class A common shares for an aggregate price of approximately $770.0 million.



We did not receive any proceeds from the
sale of Class A common shares by certain selling shareholders in our initial public offering.



Our expenses in connection with our follow
on offering through April 5, 2019, other than underwriting discounts and commissions, were the following:



|Expenses                                                 |  | Amount (US$)
|-------------------------------------------------------- |  | ------------
|U.S. Securities and Exchange Commission registration fee |  |             
|FINRA filing fee                                         |  |             
|Printing and engraving expenses                          |  |             
|Legal fees and expenses                                  |  |             
|Transfer agent and registrar fees                        |  |             
|Accounting fees and expenses                             |  |             
|Miscellaneous costs                                      |  |             
|Total                                                    |  |             

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None of the underwriting discounts and
commissions or other expenses were paid directly or indirectly to any director, officer or general partner of ours or to their
associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates.



On October 24, 2018, our registration statement
on Form F-1 (File No. 333-227634), as amended, was declared effective by the SEC for our initial public offering of our Class A
common shares, pursuant to which we and certain of our selling shareholders offered and sold a total of 58,333,333 of our Class
A common shares, par value $0.000079365 per share, at a public offering price of $24.00 per share. Goldman Sachs & Co. LLC,
J.P. Morgan Securities LLC and Citigroup Global Markets Inc. acted as global coordinators for the offering. The offering began
on October 24, 2018 and was completed on October 29, 2018.



We sold 45,818,182 Class A common shares
and certain selling shareholders sold 12,515,151 Class A common shares, including 7,608,695 Class A common shares purchased by
the underwriters pursuant to their option to purchase additional shares, for an aggregate price of approximately $1,350.2 million.



On October 22, 2018, we entered into an
agreement to sell U.S.$100.0 million of Class A common shares to Ant Financial in a placement
exempt from registration under the U.S. Securities Act of 1933, as amended, or the “Ant Financial Placement.” The price
per share sold in the Ant Financial Placement was US$24.00, being the price per share to the public in this offering and 4,166,666
Class A common shares were issued in the Ant Financial Placement. The offering was completed onNovember 21, 2018.



We received net proceeds of approximately
US$1,140.1 million in the initial public offering and the Ant Financial Placement, after deducting underwriting discounts and commissions
of approximately US$43.3 million and other expenses of approximately US$20.5 million. We did not receive any proceeds from the
sale of Class A common shares by certain selling shareholders in our initial public offering.



Our expenses in connection with our initial
public offering through December 31, 2018, other than underwriting discounts and commissions, were the following:



|Expenses                                                 |  | Amount (US$)
|-------------------------------------------------------- |  | ------------
|U.S. Securities and Exchange Commission registration fee |  |             
|Nasdaq listing fee                                       |  |             
|FINRA filing fee                                         |  |             
|Printing and engraving expenses                          |  |             
|Legal fees and expenses                                  |  |             
|Transfer agent and registrar fees                        |  |             
|Accounting fees and expenses                             |  |             
|Financial advisory services                              |  |             
|Miscellaneous costs                                      |  |             
|Total                                                    |  |             



None of the underwriting discounts and
commissions or other expenses were paid directly or indirectly to any director, officer or general partner of ours or to their
associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates.



ITEM 15. CONTROLS AND PROCEDURES



| | A. | Disclosure controls and procedures
| | -- | ----------------------------------



We have evaluated, with the participation
of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of December
31, 2018. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurance of achieving their control objectives.



Based on such evaluation, our Chief Executive
Officer and Vice President, Finance concluded that our disclosure controls and procedures are effective to provide reasonable assurance
that the information we are required



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to
disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management to allow timely
decisions regarding required disclosures.



| | B. | Management’s annual report on internal control
over financial reporting
| | -- | -----------------------------------------------------------------------



This annual report does not include a report
of management’s assessment regarding internal control over financial reporting due to a transition period established by
rules of the Securities and Exchange Commission for newly public companies.



| | C. | Attestation report of the registered public accounting
firm
| | -- | -----------------------------------------------------------



This annual report does not include an
attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and
Exchange Commission for newly public companies.



| | D. | Changes in internal control over financial reporting
| | -- | ----------------------------------------------------



See
“Item 5.Operating and Financial Review and Prospects—B. Liquidity and
capital resources—Application of New Accounting Standards and New Accounting Policies” for changes in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered
by this annual report that have materially affected, or are reasonably likely to materially affect, internal control over financial
reporting.



ITEM 16. RESERVED



ITEM 16A. Audit committee financial expert



Our board of directors has determined that
Ali Mazanderani and Roberto Moses Thompson Motta are audit committee financial experts, as that term is defined by the SEC, and
are both independent for the purposes of SEC and Nasdaq rules.



ITEM 16B. Code of ethics



We have adopted a code of ethics that applies
to all of our employees, officers and directors and posted the full text of our code of ethics on the investor relations section
of our website, www.stone.co. We intend to disclose future amendments to our code of ethics, or any waivers of such code, on our
website or in public filings. The information on our website is not incorporated by reference into this Annual Report on Form 20-F,
and you should not consider information contained on our website to be a part of this Annual Report on Form 20-F.



ITEM 16C. Principal accountant fees and services



The
following table sets forth the fees billed to us by our independent registered and public accounting firm during the years ended
December 31, 2018 and 2017. Our independent accounting firm was Ernst & Young Auditores Independentes S.S. for the years
ended December 31, 2018 and 2017.



|                   |  | 2018                    |         | 2017
|------------------ |  | ----------------------- | ------- | ----
|                   |  | (in thousands of reais)
|Audit fees         |  |                         | 6,125.0 |     
|Audit related fees |  |                         | 91.0    |     
|Tax fees           |  |                         | -       |     
|All other fees     |  |                         | -       |     
|Total              |  |                         | 6,216.0 |     



Audit fees



Audit fees are fees billed for professional
services rendered by the principal accountant for the audit of the registrant’s annual combined financial statements
or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for
those fiscal years. It includes the audit of our financial statements, interim reviews and other services that generally only the
independent accountant reasonably



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can
provide, such as comfort letters, statutory audits, consents and assistance with and review of documents filed with the SEC.



Audit-related fees



Audit-related fees are fees billed
for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements
and not reported under the previous category. These services would include, among others: accounting consultations and audits
in connection with acquisitions, internal control reviews, attest services that are not required by statue or regulation and consultation
concerning financial accounting and reporting standards.



Tax fees



Tax fees are fees billed for professional
services for tax compliance, tax advice and tax planning. There were no tax fees in 2018 or 2017.



All other fees



There were no other fees in 2018 or 2017.



Audit Committee Pre-Approval Policies and Procedures



In accordance with the requirements of
the U.S. Sarbanes-Oxley Act of 2002 and rules issued by the Securities and Exchange Commission, in connection with the establishment
of our audit committee (which was undertaken as a result of our initial public offering in October 2018), we introduced a procedure
for the review and pre-approval of any services performed by Ernst & Young Auditores Independentes S.S., including audit services,
audit related services, tax services and other services. The procedure requires that all proposed engagements of Ernst & Young
Auditores Independentes S.S. for audit and permitted non-audit services are submitted to the audit committee for approval prior
to the beginning of any such services.



ITEM 16D. Exemptions from the listing standards for audit
committees



See “Item 6. Directors, Senior Management
and Employees—C. Board Practices—Foreign Private Issuer Status.”



ITEM 16E. Purchases of equity securities
by the issuer and affiliated purchasers



None.



ITEM 16F. Change in registrant’s certifying accountant



Not applicable.



ITEM 16G. Corporate governance



We are subject to the Nasdaq corporate
governance listing standards. As a foreign private issuer, however, the standards applicable to us are considerably different from
the standards that apply to U.S. listed companies. Under the Nasdaq rules, as a foreign private issuer, we may follow the “home
country” practice of the Cayman Islands, except that we are required (a) to have an audit committee or audit board that meets
certain requirements, pursuant to an exemption available to foreign private issuers (subject to the phase-in rules described above
under “Item 6. Directors, Senior Management and Employees—Audit Committee” (b) to provide prompt certification
by our chief executive officer of any material non-compliance with any corporate governance rules; and (c) to provide a brief description
of the significant differences between our corporate governance practices and the Nasdaq corporate governance practice required
to be followed by U.S. listed companies.



A summary of the significant differences
between our corporate governance practices and those required of U.S. listed companies is included below and under “Item
6. Directors, Senior Management and Employees—C.
Board practices—Foreign Private Issuer Status.”





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Majority of Independent Directors



The Nasdaq rules applicable to U.S. companies
require a majority of the board of directors to be comprised of Independent Directors. Independence is defined by various criteria,
including the absence of a material relationship between the director and the listed company. This is not required by the laws
of the Cayman Islands. While our directors meet the qualification requirements of Cayman corporate law, we do not believe that
a majority of our directors would be considered independent under the Nasdaq test for director independence. Currently, two of
our directors, Ali Mazanderani and Roberto Moses Thompson Motta, are independent. Within one year of the date of our initial public
offering, three of our six directors are expected to be independent. We intend to appoint one additional independent board member
within one year following our initial offering.



Compensation Committee



The Nasdaq rules applicable to U.S. companies
require the company to have, and to certify that it has and will continue to have, a compensation committee composed entirely of
independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required
responsibilities. This is not required by the laws of the Cayman Islands. Our board of directors is responsible for determining
the individual compensation of each executive officer, as well as the compensation of our board and committee members. In making
such determinations, the board will review the performance of our executive officers, including the performance of our principal
executive officer, who will be required to excuse him or herself from discussions regarding his or her performance and compensation.



ITEM 16H. Mine safety disclosure



Not applicable.



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PART III



ITEM 17. Financial statements



We have responded to Item 18 in lieu of
this item.



ITEM 18. Financial statements



See our audited consolidated financial
statements beginning at page F-1.



ITEM 19. Exhibits



|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1    | Amended and Restated Articles of Association of StoneCo Ltd. (incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 16, 2018).                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.1    | Form of Indemnification Agreement(incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 1, 2018).                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.2    | Visa Payment Arrangements Participation and Trademark License Agreement, dated as of February  19, 2016 between Visa do Brasil Empreendimentos Ltda. and Stone Pagamentos S.A.(incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 1, 2018).                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.3*** | License Agreement, dated as of December  21, 2015 between Mastercard International Incorporated and Stone Pagamentos S.A., including the Acceptance Letter, dated as of December  21, 2015, from Mastercard International Incorporated to Stone Pagamentos S.A.; the Summary of Licenses Granted, dated as of December  21, 2015; and Supplement to Mastercard License Agreement, effective as of April 19, 2016, between Mastercard International Incorporated and Stone Pagamentos S.A.(incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 1, 2018).
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.4    | Loan Agreement dated as of May 1, 2018 between Equals S.A. and Stone Pagamentos S.A.(incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 1, 2018).                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.5    | Loan Agreement dated as of May 1, 2018 between Equals S.A. and DLP Pagamentos Brasil S.A.(incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 1, 2018).                                                                                                                                                                                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.6    | English translation of FIDC AR1 Bylaws, as amended and restated, dated as of June 25, 2018(incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 1, 2018).                                                                                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.7    | English translation of FIDC AR2 Bylaws, as amended and restated, dated as of June 28, 2018(incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 1, 2018).                                                                                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.8*** | English translation of the Supply Agreement ( Contrato de Fornecimento), dated as of October 15, 2018, by and among PAX BR Comércio e Serviços de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda. and Stone Pagamentos S.A.(incorporated herein by reference to Exhibit 10.9 to the Company’s Registration Statement on Form F-1 (File No. 333-227634) filed with the SEC on October 1, 2018).                                                                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|4.9    | Shareholders
Agreement among StoneCo Ltd., Cakubran Holdings Ltd., HR Holdings LLC and VCK Investment Fund Limited(incorporated
herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form F-1 (File No. 333-230642) filed with
the SEC on April 1, 2019).                                                                              
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                   
|4.10   | Registration
Rights Agreement between StoneCo Ltd., Cakubran Holdings Ltd., HR Holdings LLC and VCK Investment Fund Limited, Madrone Partners
L.P. and the persons listed on Schedule 1 thereto (incorporated herein by reference
to Exhibit 10.11 to the Company’s Registration Statement on Form F-1 (File No. 333-230642) filed with the SEC on April 1,
2019).
|       |                                                                                                                                                                                                                                                                                                                                                                   
|4.11   | DLP Payments Holdings Ltd. Long-Term Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-230629) filed with the SEC on March 29, 2019).                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                   
|4.12   | StoneCo Ltd. Contribution Agreement Plan (incorporated herein by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (File No. 333-230629) filed with the SEC on March 29, 2019).                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                   
|8.1    | List of Subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company’s Registration Statement on Form F-1 (File No. 333-230642) filed with the SEC on April 1, 2019).                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                   
|12.1*  | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                   
|12.2*  | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                   
|13.1*  | Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                   
|13.2*  | Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                   
|15.1*  | Consent of Ernst & Young Auditores Independentes S.S.                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                   
|99.1   | Consent of IBOPE
    Inteligência, dated April 29, 2019                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                   
|99.2   | Consent of Neoway Business
    Solutions, dated April 29, 2019                                                                                                                                                                                                                                                                                                    
|       |                                                                                                                                                                                                                                                                                                                                                                   
|101**† | The following materials from our Annual Report on Form 20-F for the year ended December 31, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Financial Statements and (ii) the Notes to the Consolidated Financial Statements, tagged as blocks of text and in detail.                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                   








| | * | Filed with this Annual Report on Form 20-F.
| | - | -------------------------------------------



| | ** | In accordance with Rule 402 of Regulation S-T, the information in this exhibit shall not be deemed to be “filed”
for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated
by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall
be expressly set forth by specific reference in such filing.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | *** | Confidential treatment of certain provisions of these exhibits has been requested with the SEC. Omitted material for which
confidential treatment has been requested has been filed separately with the SEC.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







| | † | To be filed by amendment.
| | - | -------------------------





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Glossary
of Terms



The following is a glossary of certain
industry and other defined terms used in this annual report:



“ABECS” means the Brazilian
Association of Credit Card and Services Companies (Associação Brasileira de Empresas de Cartões de Crédito
e Serviços).



“active client” means a merchant
that has completed at least one electronic payment transaction with us within the preceding 90 days.



“acquirer” means a payment
institution that, without managing payment accounts, provides the following services: (i) accreditation of receivers for the
acceptance of payment instruments issued by a payment institution or financial institution participating in the same payment scheme;
and (ii) participation in the settlement process of payment transactions as a creditor with respect to the card issuer, in
accordance with the rules of the payment scheme. The acquirer receives the transaction details from the merchant’s terminal,
passes them to the card issuer for authorization via the payment scheme, and completes the processing of the transaction. The acquirer
arranges settlement of the transaction and credits the merchant’s bank account with the funds in accordance with its service
agreement with the merchant. The acquirer also processes any chargebacks that may be received via the card issuer regarding consumer
transactions with merchants.



“Adjusted net margin” means
adjusted net income (loss) divided by total revenue and income for any given period/year, and “Net margin” means profit
(loss) divided by total revenue and income for any given period/year.



“APIs” means application programming
interfaces, a set of clearly defined methods of communication between different software components, which, together with our SDKs
and other tools, enables developers and resellers to create applications that can easily connect and integrate with our payment
processing technology platform.



“APMs” means alternative payment
methods, and includes any payment method used by customers that is not a credit or debit transaction involving a major payment
scheme. APMs include, but are not limited to, local meal voucher schemes and boletos.



“boleto” means a printable
document issued by merchants that is used to make payments in Brazil.Boletos can be used to pay bills for products
or services, utilities or taxes. Eachboleto refers to a specific merchant and customer transaction, and
includes the merchant’s name, customer information, expiration date and total amount due, plus a serial number that identifies
the account to be credited and a barcode so the entire document can be read and processed by a Brazilian ATM. Aboleto can
be paid in cash at a bank teller, at an ATM, or by bank transfer. Our payment platform and merchant account can be used to payboletos.



“BNDES” means the Brazilian
Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Social).



“cardholder” means an applicant
(either an individual or an entity) for a credit, prepaid or debit card that has been approved by a card issuer. The cardholder
may use its card at any affiliated merchant.



“card brand” means the name
of the payment scheme settlor that is printed on the issued branded credit, debit and/or prepaid cards.



“card issuer” means a payment
institution or a financial institution that acts as issuer of cards and administrator of prepaid/postpaid payment accounts or deposit
accounts operated by such institutions in a certain payment scheme and that meets the brand qualification requirements to issue
branded credit, debit and/or prepaid cards. Card issuers are also responsible for collecting amounts spent with branded credit,
debit and/or prepaid cards from cardholders.



“CDI Rate” means the Brazilian
interbank deposit (certificado de deposito interbancário) rate, which is an average of interbank overnight rates
in Brazil.



“Central Bank” means the Brazilian
Central Bank (Banco Central do Brasil).



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“chargeback” means a claim
where the consumer makes a purchase using a payment card and subsequently requests a reversal of the transaction amount from the
card issuer on the basis of a commercial claim (for example, if the goods are not delivered, or are delivered damaged). Chargebacks
occur more frequently in online transactions than in in-person transactions, and more frequently for goods than for services.



“clients” means integrated
partners and merchants.



“CMN” means the Brazilian National
Monetary Council (Conselho Monetário Nacional).



“CVM” means the Brazilian Securities
Commission (Comissão de Valores Mobiliários).



“DOC” means credit document
(documento de crédito), a means of making an electronic transfer of funds used in Brazil.



“EdB” means our subsidiary,
MNLT Soluções de Pagamento S.A., which was formerly known as Elavon do Brasil Soluções de Pagamento
S.A. prior to our acquisition of such entity on April 22, 2016, or the “EdB Acquisition”.



“ERP” means enterprise resource
planning.



“eWallet” means a digital wallet
that offers clients the ability to make payments online using a variety of payment methods, including credit or debit cards, without
having to type in the card details each time.



“FIDC” means a Receivables
Investment Fund (Fundo de Investimento em Direitos Creditórios), an investment fund legal structure established under
Brazilian law designed specifically for investing in credit rights receivables. FIDCs (and quotas representing interests therein)
are regulated by the rules and regulations of the CMN and the CVM; in particular Resolution No. 2,907/01 of the CMN, and CVM
Instruction No. 356/01, as amended from time to time, including by CVM Instruction No. 489/11 and CVM Instruction No. 531/13.



“FIDC AR1” means Fundo de
Investimento em Direitos Creditórios—Bancos Emissores de Cartão de Credito—Stone, a FIDC launched
by the Group in June 2017 in order to raise capital.



“FIDC AR2” means Fundo de
Investimento em Direitos Creditórios—Bancos Emissores De Cartão De Credito—Stone II, a FIDC launched
by the Group in November 2017 in order to raise capital.



“FIDC TAPSO” means TAPSO—Fundo
de Investimento em Direitos Creditórios, a FIDC launched by the Group to provide working capital solutions to clients.



“gateway” means an online application
that connects an e-commerce point of sale to the payment processor enabling online payment transactions.



“integrated partners” means
PSPs, ISVs and marketplaces.



“interchange fee” means a fee
paid by the acquirer to the card issuer (via the payment scheme settlors) for transaction established in the scope of a payment
scheme.



“ISV” means integrated software
vendor.



“marketplace” means digital
platforms that enable sellers and buyers in specific market segments to connect more effectively.



“merchant” means any person,
entity or organization that accepts electronic payment transactions for the payment of goods or services.



“merchant discount rate” or
“MDR” means the fee or commission paid by merchants for the service of capturing, processing, transmitting and settling
transactions. The merchant discount rate is applied to the value of each cardholder’s transaction and includes the interchange
fee.



“net merchant discount rate”
or “net MDR” means the total MDR charged to our merchants, net of interchange fees retained by card issuers, assessment
fees charged by payment scheme settlors and sales taxes.



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“payment institution” means
a legal entity that participates in one or more payment schemes and is dedicated to executing, as its principal or ancillary activity,
those payment services described in article 6, item III, of Law 12,865/13 to cardholders or merchants, including those activities
related to the provision of payment services. Specifically, based on current regulations, the Central Bank has opted to narrow
the definition of payment institutions as set out in Law 12,865/13 to include only those entities that can be classified into one
of the following three categories: (i) issuer of electronic money (prepaid payment instruments), (ii) issuer of postpaid payment
instruments (e.g., credit cards), and (iii) acquirers.



“payment scheme” means the
collection of rules and procedures that govern payment services provided to the public, with direct access by its end users (i.e.,
payers and receivers). Such payment services must be accepted by more than one receiver in order to qualify as a payment scheme.
A payment scheme is established by and operated by a payment scheme settlor.



“payment scheme settlor” means
the entity responsible for the functioning of a payment scheme, for the associated card brand and for the authorization of card
issuers and acquirers to participate in the payment scheme. Visa and Mastercard are major payment scheme settlors.



“POS” means a point of sale
where a transaction is completed. “POS devices” allow merchants to accept payments where a sale is made, whether inside
an establishment or in outdoor or mobile environments.



“PSP” means payment services
providers, which are firms that contract with a merchant to provide them with payment acceptance solutions.



“reconciliation provider” means
a service provider that integrates with, among other agents, acquirers and gateways in order to provide to merchants with a reconciliation
of receivables resulting from their transactions, chargebacks and refunds. Equals is a reconciliation provider that offers reconciliation
solutions.



“SDK” means software development
kit, which is typically a set of software development tools that allows for the creation of applications for software packages
or frameworks, hardware platforms, computer or operating systems or similar development platforms.



“SPB” or “Brazilian Payments
System” (Sistema de Pagamentos Brasileiro) means all the entities, systems and procedures related to the clearing
and settlement of funds transfer, foreign currency operations, financial assets, and securities transactions in Brazil. The SPB
includes systems in charge of check clearing; the clearing and settlement of electronic debit and credit orders, funds transfer,
and other financial assets; the clearing and settlement of securities transactions; the clearing and settlement of commodities
and futures transactions; and, since the introduction of Brazilian Federal Law No. 12,865/13 dated as of May 17, 2013,
payment schemes and payment institutions.



“Take rate” means the sum of
our net revenue from transaction activities and other services, net revenue from subscription services and equipment rental and
financial income, divided by our TPV.



“TPV” means total payment volume,
which is the value of payments successfully processed through our integrated platform, net of cancellations and chargebacks.



“transaction” means, unless
the context otherwise requires, any and all electronic payment transactions for the acquisition of goods and services.



“transaction volume” means
the volume of transactions captured, processed, transmitted, and settled by acquirers or any other entity responsible for the settlement
of transactions.



“UMBNDES Rate ” means a floating
exchange rate based on a monetary unit of the BNDES, which is based on a basket of currencies including the US dollar, the euro
and other currencies.





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Signatures



The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual
Report on Form 20-F on its behalf.



|      |                | StoneCo Ltd.
|----- | -------------- | ------------
|      |                |             
|      |                |             
|Date: | April 29, 2019 |             
|      |                |             
|      |                |             
|      |                |             
|      |                |             
|      |                |             

|Date: | April 29, 2019 |  | By: | /s/ Marcelo Baldin
|----- | -------------- |  | --- | ------------------
|      |                |  |     | Name:             
|      |                |  |     | Title:            
|      |                |  |     |                   

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Index to
Consolidated Financial Statements



|Audited Annual Consolidated Financial Statements                                                                             | Page
|---------------------------------------------------------------------------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting Firm                                                                      | F-2 
|Consolidated Statement of Financial Position as of December 31, 2018 and 2017                                                | F-3 
|Consolidated Statement of Profit or Loss and Other Comprehensive Income for the years ended December 31, 2018, 2017 and 2016 | F-4 
|Consolidated Statement of Changes in Equity for the years ended December 31, 2018, 2017 and 2016                             | F-5 
|Consolidated Statement of Cash Flows for the years ended December 31, 2018, 2017 and 2016                                    | F-6 
|Notes to Consolidated Financial Statements                                                                                   | F-7 



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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM





To
the Shareholders and the Board of Directors of StoneCo Ltd.



Opinion
on the Financial Statements



We
have audited the accompanying consolidated statement of financial position of StoneCo LTD (the “Company”), formerly
known as DLP Payments Holdings Ltd. as of December 31, 2018 and 2017, the related consolidated statement of profit or loss and
other comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows, for each of
the three years in the period ended December 31, 2018, and the related notes (collectively referred to as 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 three years in the period ended December 31, 2018, in conformity with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board - IASB.



Adoption
of New Accounting Standard – IFRS 9 – Financial Instruments



As
discussed in Note 3.19 to the consolidated financial statements, the Company changed its method of accounting for accounts receivable
from card issuers at fair value through other comprehensive income (“FVOCI”) in 2018 due to adoption of IFRS 9 –
Financial Instruments.



Basis
for Opinion



These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United Stated) (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.



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 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.



Our
audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements.We
believe that our audits provide a reasonable basis for our opinion.



/s/
ERNST & YOUNG Auditores Independentes S.S.



We
have served as the Company’s auditor since 2016.



São
Paulo, Brazil,

March
15, 2019



F-2


Table of Contents


StoneCo Ltd.



Consolidated statement of financial position

As of December 31, 2018 and 2017

(In thousands of Brazilian Reais)



|                                             |  | Notes |    | 2018 |  | 2017
|-------------------------------------------- |  | ----- | -- | ---- |  | ----
|Assets                                       |  |       |    |      |  |     
|Current assets                               |  |       |    |      |  |     
|Cash and cash equivalents                    |  |       | 6  |      |  |     
|Short-term investments                       |  |       | 7  |      |  |     
|Accounts receivable from card issuers        |  |       | 8  |      |  |     
|Trade accounts receivable                    |  |       | 9  |      |  |     
|Recoverable taxes                            |  |       | 10 |      |  |     
|Prepaid expenses                             |  |       |    |      |  |     
|Derivative financial instruments assets      |  |       |    |      |  |     
|Other accounts receivable                    |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|Non-current assets                           |  |       |    |      |  |     
|Receivables from related parties             |  |       | 19 |      |  |     
|Deferred tax assets                          |  |       | 11 |      |  |     
|Other accounts receivable                    |  |       |    |      |  |     
|Investment in associate                      |  |       |    |      |  |     
|Property and equipment                       |  |       | 12 |      |  |     
|Intangible assets                            |  |       | 13 |      |  |     
|                                             |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|Total assets                                 |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|Liabilities and equity                       |  |       |    |      |  |     
|Current liabilities                          |  |       |    |      |  |     
|Accounts payable to clients                  |  |       | 14 |      |  |     
|Trade accounts payable                       |  |       | 15 |      |  |     
|Loans and financing                          |  |       | 18 |      |  |     
|Obligations to FIDC senior quota holders     |  |       | 18 |      |  |     
|Labor and social security liabilities        |  |       | 16 |      |  |     
|Taxes payable                                |  |       | 17 |      |  |     
|Derivative financial instruments liabilities |  |       |    |      |  |     
|Other accounts payable                       |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|Non-current liabilities                      |  |       |    |      |  |     
|Loans and financing                          |  |       | 18 |      |  |     
|Obligations to FIDC senior quota holders     |  |       | 18 |      |  |     
|Share-based payments                         |  |       | 26 |      |  |     
|Deferred tax liabilities                     |  |       | 11 |      |  |     
|Provision for contingencies                  |  |       | 20 |      |  |     
|Other accounts payable                       |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|Total liabilities                            |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|Equity                                       |  |       | 21 |      |  |     
|Issued capital                               |  |       |    |      |  |     
|Capital reserve                              |  |       |    |      |  |     
|Other comprehensive income                   |  |       |    |      |  |     
|Accumulated losses                           |  |       |    |      |  |     
|Equity attributable to owners of the parent  |  |       |    |      |  |     
|Non-controlling interests                    |  |       |    |      |  |     
|Total equity                                 |  |       |    |      |  |     
|                                             |  |       |    |      |  |     
|Total liabilities and equity                 |  |       |    |      |  |     



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





F-3


Table of Contents




StoneCo Ltd.



Consolidated statement of profit or loss
and other comprehensive income

Years ended December 31, 2018, 2017
and 2016

(In thousands of Brazilian Reais, unless
otherwise stated)



|                                                                                                               |  | Notes |    | 2018 |  | 2017 |            | 2016
|-------------------------------------------------------------------------------------------------------------- |  | ----- | -- | ---- |  | ---- | ---------- | ----
|                                                                                                               |  |       |    |      |  |      |            |     
|Net revenue from transaction activities and other services                                                     |  |       | 23 |      |  |      | 514,602    |     
|Net revenue from subscription services and equipment rental                                                    |  |       | 23 |      |  |      | 213,679    |     
|Financial income                                                                                               |  |       | 23 |      |  |      | 801,322    |     
|Other financial income                                                                                         |  |       | 23 |      |  |      | 49,578     |     
|                                                                                                               |  |       |    |      |  |      |            |     
|Total revenue and income                                                                                       |  |       |    |      |  |      | 1,579,181  |     
|                                                                                                               |  |       |    |      |  |      |            |     
|Cost of services                                                                                               |  |       |    |      |  |      | (323,039   | )   
|Administrative expenses                                                                                        |  |       |    |      |  |      | (252,852   | )   
|Selling expenses                                                                                               |  |       |    |      |  |      | (190,177   | )   
|Financial expenses, net                                                                                        |  |       |    |      |  |      | (301,065   | )   
|Other operating expenses, net                                                                                  |  |       |    |      |  |      | (69,264    | )   
|                                                                                                               |  |       | 24 |      |  |      | (1,136,397 | )   
|                                                                                                               |  |       |    |      |  |      |            |     
|                                                                                                               |  |       |    |      |  |      |            |     
|Gain (loss) on investment in associates                                                                        |  |       |    |      |  |      | (445       | )   
|Profit (loss) before income taxes                                                                              |  |       |    |      |  |      | 442,339    |     
|                                                                                                               |  |       |    |      |  |      |            |     
|Current income tax and social contribution                                                                     |  |       | 11 |      |  |      | (154,882   | )   
|Deferred income tax and social contribution                                                                    |  |       | 11 |      |  |      | 17,770     |     
|Net income (loss) for the year                                                                                 |  |       |    |      |  |      | 305,227    |     
|                                                                                                               |  |       |    |      |  |      |            |     
|Other comprehensive income                                                                                     |  |       |    |      |  |      |            |     
|Other comprehensive income that may be reclassified to profit or loss in subsequent periods (net of tax):      |  |       |    |      |  |      |            |     
|Accounts receivable from card issuers at fair value through other comprehensive income                         |  |       |    |      |  |      | (13,969    | )   
|Gain on available-for-sale financial assets                                                                    |  |       |    |      |  |      | -          |     
|Other comprehensive income that will not be reclassified to profit or loss in subsequent periods (net of tax): |  |       |    |      |  |      |            |     
|Net gain on equity instruments designated at fair value through other comprehensive income                     |  |       | 7  |      |  |      | 954        |     
|Other comprehensive income (loss) for the year, net of tax                                                     |  |       |    |      |  |      | (13,015    | )   
|                                                                                                               |  |       |    |      |  |      |            |     
|Total comprehensive income (loss) for the year, net of tax                                                     |  |       |    |      |  |      | 292,212    |     
|                                                                                                               |  |       |    |      |  |      |            |     
|Net income (loss) attributable to:                                                                             |  |       |    |      |  |      |            |     
|Owners of the parent                                                                                           |  |       |    |      |  |      | 301,232    |     
|Non-controlling interests                                                                                      |  |       |    |      |  |      | 3,995      |     
|                                                                                                               |  |       |    |      |  |      | 305,227    |     
|                                                                                                               |  |       |    |      |  |      |            |     
|Total comprehensive income (loss) attributable to:                                                             |  |       |    |      |  |      |            |     
|Owners of the parent                                                                                           |  |       |    |      |  |      | 287,961    |     
|Non-controlling interests                                                                                      |  |       |    |      |  |      | 4,251      |     
|                                                                                                               |  |       |    |      |  |      | 292,212    |     
|Earnings (loss) per share                                                                                      |  |       |    |      |  |      |            |     
|Basic earnings (loss) per share for the year attributable to owners of the parent (in Brazilian Reais)         |  |       | 22 |      |  |      | R$ 1.30    |     
|Diluted earnings (loss) per share for the year attributable to owners of the parent (in Brazilian Reais)       |  |       | 22 |      |  |      | R$ 1.29    |     





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



F-4


Table of Contents


StoneCo Ltd.



Consolidated statement of changes in equity

Years ended December 31, 2018, 2017
and 2016

(In thousands of Brazilian Reais)



|                                                             |  |       |       | Attributable to owners of the parent |  |                            |    |                                
|------------------------------------------------------------ |  | ----- | ----- | ------------------------------------ |  | -------------------------- | -- | -------------------------------
|                                                             |  |       |       |                                      |  | Capital reserve            |    |                                
|                                                             |  | Notes |       | Issued capital                       |  | Additional paid-in capital |    | Transactions among shareholders
|Balance as of January 1, 2016                                |  |       |       |                                      |  |                            | 30 |                                
|                                                             |  |       |       |                                      |  |                            |    |                                
|Capital increase                                             |  |       | 21/29 |                                      |  |                            | 11 |                                
|Share-based payments – Class C                               |  |       | 21    |                                      |  |                            |    |                                
|Acquisition of non-controlling interest                      |  |       | 29    |                                      |  |                            | —  |                                
|Dilution of non-controlling  interest                        |  |       | 29    |                                      |  |                            | —  |                                
|Loss for the year                                            |  |       |       |                                      |  |                            | —  |                                
|Balance as of December 31, 2016                              |  |       |       |                                      |  |                            | 41 |                                
|                                                             |  |       |       |                                      |  |                            |    |                                
|Capital increase                                             |  |       | 21/29 |                                      |  |                            | 8  |                                
|Repurchase of shares                                         |  |       | 21    |                                      |  |                            | (3 | )                              
|Acquisition of non-controlling interest                      |  |       | 29    |                                      |  |                            | —  |                                
|Dilution of non-controlling  interest                        |  |       | 29    |                                      |  |                            | —  |                                
|Loss for the year                                            |  |       |       |                                      |  |                            | —  |                                
|Other comprehensive income for the year                      |  |       |       |                                      |  |                            | —  |                                
|                                                             |  |       |       |                                      |  |                            |    |                                
|Balance as of December 31, 2017                              |  |       |       |                                      |  |                            | 46 |                                
|Adoption of new accounting standard (IFRS 9)                 |  |       | 3.19  |                                      |  |                            | —  |                                
|                                                             |  |       |       |                                      |  |                            |    |                                
|Balance as of January 1, 2018                                |  |       |       |                                      |  |                            | 46 |                                
|Capital increase                                             |  |       | 21/29 |                                      |  |                            | 16 |                                
|Transaction costs                                            |  |       | 1.1   |                                      |  |                            | —  |                                
|Repurchase and cancelation of shares                         |  |       | 21    |                                      |  |                            | —  |                                
|Issuance of shares for business acquisition                  |  |       | 5.2   |                                      |  |                            | —  |                                
|Reclassification of share-based payments liability to equity |  |       | 26    |                                      |  |                            | —  |                                
|Grant of share-based payments                                |  |       | 26    |                                      |  |                            | —  |                                
|Acquisition of non-controlling interest                      |  |       | 29    |                                      |  |                            | —  |                                
|Net income for the year                                      |  |       |       |                                      |  |                            | —  |                                
|Other comprehensive income for the year                      |  |       |       |                                      |  |                            | —  |                                
|                                                             |  |       |       |                                      |  |                            |    |                                
|Balance as of December 31, 2018                              |  |       |       |                                      |  |                            | 62 |                                







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



F-5


Table of Contents


StoneCo Ltd.



Consolidated statement of cash flows

Years ended December 31, 2018, 2017
and 2016

(In thousands of Brazilian Reais)

|                                                                           |  | Notes |       | 2018 |  | 2017 |            | 2016
|-------------------------------------------------------------------------- |  | ----- | ----- | ---- |  | ---- | ---------- | ----
|Operating activities                                                       |  |       |       |      |  |      |            |     
|Net income (loss) for the year                                             |  |       |       |      |  |      | 305,227    |     
|                                                                           |  |       |       |      |  |      |            |     
|Adjustments to reconcile net income (loss) for the year to net cash flows: |  |       |       |      |  |      |            |     
|Depreciation and amortization                                              |  |       | 12/13 |      |  |      | 92,333     |     
|Deferred income tax expenses                                               |  |       | 11    |      |  |      | (17,770    | )   
|Loss (gain) on investment in associates                                    |  |       |       |      |  |      | 445        |     
|Other financial costs and foreign exchange, net                            |  |       |       |      |  |      | 126,756    |     
|Provision for contingencies                                                |  |       | 20    |      |  |      | 778        |     
|Share-based payments expense                                               |  |       | 26    |      |  |      | 46,091     |     
|Allowance for doubtful accounts                                            |  |       | 8/9   |      |  |      | 14,271     |     
|Impairment of intangible assets                                            |  |       | 13    |      |  |      | 4,764      |     
|Loss on disposal of property, equipment and intangible assets              |  |       | 30    |      |  |      | 10,712     |     
|Onerous contract                                                           |  |       |       |      |  |      | (415       | )   
|Fair value adjustment to derivatives                                       |  |       |       |      |  |      | (609       | )   
|Remeasurement of previously held interest in subsidiary acquired           |  |       | 5     |      |  |      | (21,441    | )   
|Others                                                                     |  |       |       |      |  |      | -          |     
|                                                                           |  |       |       |      |  |      |            |     
|Working capital adjustments:                                               |  |       |       |      |  |      |            |     
|Accounts receivable from card issuers                                      |  |       |       |      |  |      | (3,990,395 | )   
|Receivables from related parties                                           |  |       |       |      |  |      | 3,986      |     
|Recoverable taxes                                                          |  |       |       |      |  |      | (98,695    | )   
|Prepaid expenses                                                           |  |       |       |      |  |      | (4,675     | )   
|Trade and other accounts receivable                                        |  |       |       |      |  |      | (36,855    | )   
|Accounts payable to clients                                                |  |       |       |      |  |      | 570,132    |     
|Taxes payable                                                              |  |       |       |      |  |      | 183,921    |     
|Labor and social security liabilities                                      |  |       |       |      |  |      | 59,069     |     
|Accounts payable to related parties                                        |  |       |       |      |  |      | -          |     
|Provision for contingencies                                                |  |       |       |      |  |      | (22        | )   
|Trade and other accounts payable                                           |  |       |       |      |  |      | 50,910     |     
|Interest paid                                                              |  |       |       |      |  |      | (141,447   | )   
|Interest income received, net of costs                                     |  |       |       |      |  |      | 514,788    |     
|Income tax paid                                                            |  |       |       |      |  |      | (87,442    | )   
|                                                                           |  |       |       |      |  |      |            |     
|Net cash used in operating activities                                      |  |       |       |      |  |      | (2,415,583 | )   
|                                                                           |  |       |       |      |  |      |            |     
|Investing activities                                                       |  |       |       |      |  |      |            |     
|Purchases of property and equipment                                        |  |       | 30    |      |  |      | (140,887   | )   
|Purchases and development of intangible assets                             |  |       | 13    |      |  |      | (44,838    | )   
|Acquisition of subsidiary, net of cash acquired                            |  |       | 5     |      |  |      | (2,940     | )   
|Proceeds from (acquisition of) short-term investments, net                 |  |       |       |      |  |      | (2,557,312 | )   
|Proceeds from the disposal of non-current assets                           |  |       |       |      |  |      | 13,421     |     
|Acquisition of interest in associates                                      |  |       |       |      |  |      | (4,549     | )   
|Proceeds from the disposal of assets held for sale                         |  |       |       |      |  |      | -          |     
|                                                                           |  |       |       |      |  |      |            |     
|Net cash used in investing activities                                      |  |       |       |      |  |      | (2,737,105 | )   
|                                                                           |  |       |       |      |  |      |            |     
|Financing activities                                                       |  |       |       |      |  |      |            |     
|Proceeds from borrowings                                                   |  |       | 18    |      |  |      | 746,909    |     
|Payment of borrowings                                                      |  |       |       |      |  |      | (3,665     | )   
|Proceeds from FIDC senior quota holders                                    |  |       | 18    |      |  |      | 10,000     |     
|Payment of finance leases                                                  |  |       | 18    |      |  |      | (14,296    | )   
|Capital increase, net of transaction costs                                 |  |       | 21/29 |      |  |      | 4,229,153  |     
|Repurchase of shares                                                       |  |       | 21    |      |  |      | (142,440   | )   
|Acquisition of non-controlling interests                                   |  |       |       |      |  |      | (30,773    | )   
|                                                                           |  |       |       |      |  |      |            |     
|Net cash provided by financing activities                                  |  |       |       |      |  |      | 4,794,888  |     
|                                                                           |  |       |       |      |  |      |            |     
|Effect of foreign exchange on cash and cash equivalents                    |  |       |       |      |  |      | 13,777     |     
|Change in cash and cash equivalents                                        |  |       |       |      |  |      | (344,023   | )   
|Cash and cash equivalents at beginning of year                             |  |       | 6     |      |  |      | 641,952    |     
|                                                                           |  |       |       |      |  |      |            |     
|Cash and cash equivalents at end of year                                   |  |       | 6     |      |  |      | 297,929    |     



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



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StoneCo Ltd.



Notes to consolidated financial statements

December 31, 2018, 2017 and 2016

(In thousands of Brazilian Reais, unless
otherwise stated)



| | 1. | Operations
| | -- | ----------



StoneCo Ltd. (the “Company”),
formerly known as DLP Payments Holdings Ltd., is a Cayman Islands exempted company with limited liability, incorporated on March 11,
2014. The registered office of the Company is Harbour Place, 103 South Church Street in George Town, Grand Cayman. The Company’s
principal executive office is located in the city of São Paulo, Brazil.



The Company is controlled by
HR Holdings, LLC, which owns 54.5% of Class B common shares, whose ultimate parent is an investment fund owned by the co-founder
individuals, VCK Investment Fund Limited SAC.



The Company and its subsidiaries
(collectively, the “Group”) are principally engaged in providing financial technology solutions to clients and integrated
partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels, which include integration to cloud-based
technology platforms, offering services for acceptance of various forms of electronic payment, automation of business processes
at the point-of-sale and working capital solutions.



In December 2016, the Group
launched an investment fund known as Fundo de Investimento em Direitos Creditórios (“FIDC”), TAPSO FIDC (“FIDC
TAPSO”) in order to provide working capital solution to clients. In addition, in June 2017 and November 2017, the Group launched
two additional FIDCs, FIDC Bancos Emissores de Cartão de Crédito—Stone (“FIDC AR 1”) and FIDC Bancos
Emissores de Cartão de Crédito—Stone II (“FIDC AR 2”) in order to raise capital. A FIDC is legally
an investment fund authorized by the Brazilian Monetary Council, and specifically designed as investment vehicle for investing
in Brazilian credit receivables, such as credit card receivable.



On September 4, 2018,
the Group acquired control of Equals S.A. (“Equals”), a subsidiary that provides reconciliation services of payment
transactions to clients, in which the Group previously held significant influence through its interest of 30%. Information on the
acquisition is provided in Note 5.



On October 14, 2018, the Company
carried out a share split of 126:1 (one hundred twenty-six for one). As a result, the share capital represented by 1,757,558 shares
was increased to 221,452,308 shares. The share split has been applied retrospectively to all figures in the historical financial
statements regarding number of shares (Note 21) and per share data (Note 22) as if the share split had been in effect for all periods
presented.



| | 1.1. | Initial Public Offering and resulting transactions
| | ---- | --------------------------------------------------



On October 25, 2018, the Company
completed its Initial Public Offering (“IPO”), offering 58,333,333 of its Class A common shares, of which 45,818,182
new shares were offered by the Company and the remaining 12,515,151 shares were offered by the selling shareholders, including
the full exercise of the underwriters’ option to purchase 7,608,695 additional shares from the selling shareholders.



The initial offering price
was US$ 24.00 per Class A common share, resulting in gross proceeds of US$ 1,103,822 thousand. The Company received net proceeds
of US$ 1,060,544 thousand (or R$3,923,785), after deducting US$ 43,278 thousand in underwriting discounts and commissions. Additionally,
the Company incurred in US$ 20,471 thousand (or R$ 75,774) regarding other offering expenses.



The shares offered and sold
in the IPO were registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement
on Form F-1 (Registration No.333-227634), which was declared effective by the Securities and Exchange Commission on October 24,
2018. The common shares began trading on the Nasdaq Global Select Market (“NASDAQ-GS”) on October 25, 2018 under the
symbol “STNE”.



Simultaneously with the IPO,
the Company entered into an agreement to sell additional 4,166,666 new Class A common shares to a wholly-owned subsidiary of Ant
Small and Micro Financial Services Group Co., Ltd., a company organized under the laws of the People’s Republic of China
(“Ant Financial”), in a placement exempt from registration under the U.S. Securities Act of 1933, as amended. The price
per share sold in this placement was the price per share to the public in the IPO, resulting in proceeds of US$ 100 million (or
R$ 375,910).



In connection with the consummation
of the IPO, the Co-Investment Shares granted to certain employees and represented by common shares in DLP Par Participações
S.A. (“DLP Par”) were exchanged for Class A common shares through the execution of a contribution agreement entered
into between the Company and each holder of awards under such plans, totaling 5,333,202 shares of the Company after the share split
described above.



The Consolidated Financial
Statements were approved at the Board of Directors’ meeting on March 15, 2019.





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| | 2. | Group information
| | -- | -----------------



| | 2.1. | Subsidiaries
| | ---- | ------------



The consolidated financial
statements of the Group include the following subsidiaries and structured entities:



|                                                         |  |                         |  |                               |  | % Group’s equity interest
|-------------------------------------------------------- |  | ----------------------- |  | ----------------------------- |  | -------------------------
|Entity name                                              |  | Country ofincorporation |  | Principal activities          |  | 2018                     
|                                                         |  |                         |  |                               |  |                          
|DLP Capital LLC (“DLP Capital”)                          |  | USA                     |  | Holding company               |  | 100.00                   
|DLP Par Participações S.A. (“DLP Par”)                   |  | Brazil                  |  | Employee trust                |  | 100.00                   
|MPB Capital LLC (“MPB Capital”)                          |  | USA                     |  | Investment company            |  | 100.00                   
|StoneCo Brasil Participações S.A. (“StoneCo Brasil”) (*) |  | Brazil                  |  | Holding company               |  | 100.00                   
|Stone Pagamentos S.A. (“Stone”)                          |  | Brazil                  |  | Merchant acquiring            |  | 100.00                   
|MNLT Soluções de Pagamentos S.A. (“MNLT”)                |  | Brazil                  |  | Merchant acquiring            |  | 100.00                   
|Pagar.me Pagamentos S.A. (“Pagar.me”)                    |  | Brazil                  |  | Merchant acquiring            |  | 100.00                   
|Buy4 Processamento de Pagamentos S.A. (“Buy4”)           |  | Brazil                  |  | Processing card transactions  |  | 99.99                    
|Buy4 Sub LLC (“Buy4 LLC”)                                |  | USA                     |  | Cloud store card transactions |  | 99.99                    
|Cappta S.A. (“Cappta”)                                   |  | Brazil                  |  | Electronic fund transfer      |  | 61.79                    
|Mundipagg Tecnologia em Pagamento S.A. (“Mundipagg”)     |  | Brazil                  |  | Technology services           |  | 99.70                    
|Equals S.A. (“Equals”)                                   |  | Brazil                  |  | Reconciliation services       |  | 100.00                   
|Stone Franchising Ltda. (“Stone Franchising”)            |  | Brazil                  |  | Franchising management        |  | 99.99                    
|TAG Tecnologia para o Sistema Financeiro S.A. (“TAG”)    |  | Brazil                  |  | Financial assets register     |  | 99.98                    
|TAPSO FIDC  (“TAPSO”) (Note 3.2)                         |  | Brazil                  |  | Receivables investment fund   |  | 100.00                   
|FIDC AR1 (Note 3.2 / Note 19(a))                         |  | Brazil                  |  | Receivables investment fund   |  | 100.00                   
|FIDC AR2 (Note 3.2 / Note 19(a))                         |  | Brazil                  |  | Receivables investment fund   |  | 100.00                   



(*) Formerly known as DLP Brasil
Participações S.A.



On February 7, 2018, the Group
established Stone Franchising, an unlisted company based in São Paulo, Brazil, to manage activities related to franchises,
royalties and rights to use trademarks and image.



On July 17, 2018, the Group
established TAG, an unlisted company based in São Paulo, Brazil, with the purpose of managing an electronic platform to
register financial assets.



In connection with the consummation
of the IPO, the Co-Investment Shares granted to certain employees and represented by common shares in DLP Par, equivalent to 47,996
shares of StoneCo Brasil, were exchanged for Class A common shares through the execution of a contribution agreement entered into
between the Company and each holder of awards under such plans, totaling 5,333,202 shares of the Company after the share split
described in Note 1 above. This resulted in the increase of Group’s interest in DLP Par, and consequently in StoneCo Brasil,
to 100.00%.



| | 2.2. | Associates
| | ---- | ----------



On June 21, 2018, the
Group acquired a 27.06% interest in Linked Gourmet Soluções para Restaurantes S.A. (“Linked”) for R$ 2,366
fully paid by December 2018. Linked is an unlisted company based in São Paulo, Brazil, that develops software and services
for the food service market. The Group also holds an option to acquire an additional interest, exercisable in the period from 2
to 3 years from the date of the initial acquisition, which would allow the Group to obtain control of Linked. Through this acquisition,
the Group expects to obtain synergies in servicing its clients.





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Table of Contents




| | 3. | Significant accounting policies
| | -- | -------------------------------



| | 3.1. | Basis of preparation
| | ---- | --------------------



The consolidated financial
statements of the Group have been prepared in accordance with the International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”).



The consolidated financial
statements have been prepared on a historical cost basis, except for investments in equity instruments and accounts receivable
from card issuers that have been measured at fair value. The consolidated financial statements are presented in Brazilian reais
(“R$”), and all values are rounded to the nearest thousand (R$ 000), except when otherwise indicated.



| | 3.2. | Basis of consolidation
| | ---- | ----------------------



The consolidated financial
statements comprise the financial statements of the Company and its subsidiaries. Control is achieved when the Group:



| | • | has power over the investee (i.e., existing rights that give it the current ability to direct the
relevant activities of the investee);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | • | is exposed, or has rights, to variable returns from its involvement with the investee; and
| | - | ------------------------------------------------------------------------------------------



| | • | has the ability to use its power to affect its returns.
| | - | -------------------------------------------------------



Generally, there is a presumption
that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of
the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has
power over an investee, including:



| | • | the contractual arrangement(s) with the other vote holders of the investee;
| | - | ---------------------------------------------------------------------------



| | • | rights arising from other contractual arrangements; and
| | - | -------------------------------------------------------



| | • | the Group’s voting rights and potential voting rights.
| | - | ------------------------------------------------------



Consolidation of a subsidiary
begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities,
income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements
from the date the Group gains control until the date the Group ceases to control the subsidiary.



Profit or loss and each component
of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests,
even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group
assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated
in full on consolidation.



A change in the ownership interest
of a subsidiary, without a loss of control, is accounted for as an equity transaction, in the reserve for “Transactions among
shareholders.”



Consolidation of a structured
entity



A structured entity is an entity
that has been designed such that voting or similar rights are not the dominant factor in deciding who controls the entity, such
as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual
arrangements.



In December 2016, the Group
launched FIDC TAPSO to provide working capital solutions to clients. In June 2017 and November 2017, the Group launched FIDC AR1
and FIDC AR2, respectively, to raise funds through the issuance of quotas in order to fund the Group’s operations and prepayment
activities.



Based on the contractual terms,
the Group assessed that the FIDCs are structured entities under IFRS 10 and that the Group controls them. See Note 4(g) for further
details.





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Table of Contents




| | 3.3. | Segment information
| | ---- | -------------------



In reviewing the operational
performance of the Group and allocating resources, the chief operating decision maker of the Group (“CODM”), who is
the Group’s Chief Executive Officer (“CEO”) and the Board of Directors (“BoD”), reviews selected
items of the statement of profit or loss and other comprehensive income.



The CODM considers the whole
Group as a single operating and reportable segment, monitoring operations, making decisions on fund allocation and evaluating performance
based on a single operating segment. The CODM reviews relevant financial data on a combined basis for all subsidiaries and associates.



The Group’s revenue,
results and assets for this one reportable segment can be determined by reference to the consolidated statement of profit or loss
and other comprehensive income and consolidated statement of financial position.



| | 3.4. | Foreign currency translation
| | ---- | ----------------------------



The Group’s consolidated
financial statements are presented in Brazilian reais (“R$”), which is the Company’s functional currency.



For each entity, the Group
determines the functional currency and items included in the financial statements of each entity are measured using that functional
currency. The functional currency for all of the Company’s subsidiaries is also the Brazilian reais.



Transactions in foreign currencies
are initially recorded by the Group’s entities in Brazilian reais at the spot rate at the date the transaction first qualifies
for recognition.



Monetary assets and liabilities
denominated in foreign currencies are translated into Brazilian reais using the exchange rates prevailing at the reporting date.
Exchange gains and losses arising from the settlement of transactions and from the translation of monetary assets and liabilities
denominated in foreign currency are recognized in profit or loss for the year. These mostly arise from transactions carried out
by clients with credit and debit cards issued by foreign card issuers, from the translation of the Group’s financial instruments
denominated in foreign currencies and acquisition of POS equipment.



| | 3.5. | Financial instruments
| | ---- | ---------------------



A financial instrument is any
contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.



| | i) | Financial assets
| | -- | ----------------



Initial recognition and
measurement



Financial assets are classified
at initial recognition, and subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”),
or fair value through profit or loss (“FVPL”).



The classification of financial
assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s
business model for managing them. Except for trade receivables that do not contain a significant financing component or for which
the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus transactions
costs, in the case of a financial asset not at FVPL. Trade receivables that do not contain a significant financing component or
for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.



For a financial asset to be
classified and measured at amortized cost or FVOCI, it needs to give rise to cash flows that are ‘solely payments of principal
and interest (“SPPI”)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and
is performed at an instrument level.



The Group’s business
model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business
model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.



Purchases or sales of financial
assets that require delivery of assets within a time frame set by regulation or market practice (regular way trades) are recognized
on the trade date, i.e., the date that the Group commits to purchase or sell the asset.





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Table of Contents




Subsequent measurement



For purposes of subsequent
measurement, financial assets are classified in four categories:



| | • | Financial assets at amortized cost (debt instruments);
| | - | ------------------------------------------------------



| | • | Financial assets at FVOCI with recycling of cumulative gains and losses (debt instruments);
| | - | -------------------------------------------------------------------------------------------



| | • | Financial assets at FVOCI with no recycling of cumulative gains and losses upon derecognition (equity
instruments); or
| | - | ----------------------------------------------------------------------------------------------------------------------



| | • | Financial assets at FVPL.
| | - | -------------------------



Financial assets at amortized
cost (debt instruments)



This category is the most relevant
to the Group. The Group measures financial assets at amortized cost if both of the following conditions are met:



| | • | The financial asset is held within a business model with the objective to hold the financial asset
in order to collect contractual cash flows; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Financial assets at amortized
cost are subsequently measured using the effective interest rate (“EIR”) method and are subject to impairment. Gains
and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.



The Group’s financial
assets at amortized cost includes trade accounts receivable, other accounts receivable and loans to directors included under receivables
from related parties.



Financial assets at FVOCI
(debt instruments)



The Group measures debt instruments
at FVOCI if both of the following conditions are met:



| | • | The financial asset is held within a business model with the objective of both holding to collect
contractual cash flows and to sell; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | • | The contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For debt instruments at FVOCI,
interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the statement of profit or loss
and similarly to financial assets measured at amortized cost. The remaining fair value changes are recognized in OCI. Upon derecognition,
the cumulative fair value change recognized in OCI is recycled to profit or loss.



The Group’s debt instruments
at FVOCI includes accounts receivable from card issuers.



Financial assets designated
at FVOCI (equity instruments)



Upon initial recognition, the
Group can elect to classify irrevocably its equity investments as equity instruments designated at FVOCI when they meet the definition
of equity under IAS 32 – Financial Instruments: Presentation and are not held for trading. The classification is determined
on an instrument-by-instrument basis.



Gains and losses on these financial
assets are never recycled to profit or loss. Dividends are recognized as other income in the statement of profit or loss when the
right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the
financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at FVOCI are not subject to impairment
assessment.



The Group elected to classify
irrevocably its non-listed equity investments under this category, included in short-term investments.





F-11


Table of Contents




Financial assets at FVPL



Financial assets at FVPL include
financial assets held for trading, financial assets designated upon initial recognition at FVPL, or financial assets mandatorily
required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose
of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held
for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments
of principal and interest are classified and measured at FVPL, irrespective of the business model. Notwithstanding the criteria
for debt instruments to be classified at amortized cost or at FVOCI, as described above, debt instruments may be designated at
FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.



Financial assets at FVPL are
carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit
or loss.



This category includes listed
equity investments under short—term investments, which the Group had not irrevocably elected to classify at FVOCI. Dividends
on listed equity investments are also recognized as other income in the statement of profit or loss when the right of payment has
been established.



A derivative embedded in a
hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative
if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the
embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at FVPL. Embedded derivatives
are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either
a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification
of a financial asset out of the FVPL category.



A derivative embedded within
a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the
embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.



Derecognition



A financial asset (or, where
applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed
from the Group’s consolidated statement of financial position) when:



| | • | The contractual rights to receive cash flows from the asset have expired; or
| | - | ----------------------------------------------------------------------------



| | • | The Group has transferred its contractual rights to receive cash flows from the asset or has assumed
a contractual obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’
arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the
Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of
the asset.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



When the Group has transferred
its contractual rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and
to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially
all the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred
asset to the extent of its continuing involvement. In that case, the Group also recognizes an associated liability. The transferred
asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.



Continuing involvement that
takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset
and the maximum amount of consideration that the Group could be required to repay.



Impairment of financial
assets



The Group recognizes an allowance
for expected credit losses (“ECLs”) for all debt instruments not held at FVPL. ECLs are based on the difference between
the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted
at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral
held or other credit enhancements that are integral to the contractual terms.



ECLs are recognized in two
stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For
those credit exposures for which there has been a significant increase in credit risk since





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initial recognition or those already
defaulted, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the
timing of the default (a lifetime ECL).



For trade receivables and contract
assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk,
but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix
that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic
environment.



For debt instruments at FVOCI,
the Group applies the low credit risk simplification. At every reporting date, the Group evaluates whether the debt instrument
is considered to have low credit risk using all reasonable and supportable information that is available without undue cost or
effort. In making that evaluation, the Group reassesses the internal credit rating of the debt instrument. In addition, the Group
considers that there has been a significant increase in credit risk when contractual payments are more than 30 days past due.



The Group’s debt instruments
at FVOCI comprise solely of accounts receivable from card issuers that are graded in the top investment category (Very Good and
Good) by major rating agencies and, therefore, are considered to be low credit risk investments. It is the Group’s policy
to measure ECLs on such instruments on a 12-month basis. However, when there has been a significant increase in credit risk since
origination, the allowance will be based on the lifetime ECL. The Group uses the ratings from at least one major rating agency
both to determine whether the debt instrument has significantly increased in credit risk and to estimate ECLs.



The Group considers a financial
asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial
asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual
amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there
is no reasonable expectation of recovering the contractual cash flows.



ii) Financial liabilities



Initial recognition and
measurement



Financial liabilities are classified,
at initial recognition, as financial liabilities at FVPL, amortized cost or as derivatives designated as hedging instruments in
an effective hedge, as appropriate.



All financial liabilities are
recognized initially at fair value and, in the case of amortized cost, net of directly attributable transaction costs.



The Group’s financial
liabilities include accounts payable to clients, trade and other accounts payables, loans and financing including bank overdrafts,
and derivative financial instruments.



Subsequent measurement



The measurement of financial
liabilities depends on their classification, as described below:



Financial liabilities at
FVPL



Financial liabilities at FVPL
include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL.



Financial liabilities are classified
as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative
financial instruments entered by the Group that are not designated as hedging instruments in hedge relationships as defined by
IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging
instruments.



Gains or losses on liabilities
held for trading are recognized in the statement of profit or loss.



Financial liabilities designated
upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied.
The Group has designated its financial liability related to share-based payments as at FVPL.



Amortized cost



After initial recognition,
interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized
in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.





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Amortized cost is calculated
by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization
is included as finance costs in the statement of profit or loss.



This category generally applies
to interest-bearing loans and borrowings, including loans and financing and obligations to FIDC senior quota holders.



Derecognition



A financial liability is derecognized
when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced
by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified,
such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability.
The difference in the respective carrying amounts is recognized in the statement of profit or loss.



Discount fee charged for the
prepayment to clients of their installment receivables from us is measured by the difference between the original amount payable
to the client, net of commissions and fees charged, and the prepaid amount. Financial income is recognized once the client has
elected for the receivable to be prepaid.



Fair value of financial
instruments



The fair value of financial
instruments actively traded in organized financial markets is determined based on purchase prices quoted in the market at the close
of business at the reporting date, without deducting transaction costs.



The fair value of financial
instruments for which there is no active market is determined by using measurement techniques. These techniques may include the
use of recent market transactions (on an arm’s length basis); reference to the current fair value of another similar instrument;
analysis of discounted cash flows or other measurement models. See Note 27.



iii) Offsetting of financial
instruments



Financial assets and financial
liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently
enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets
and settle the liabilities simultaneously.



iv) Derivative financial
instruments



From time to time, the Group
uses derivative financial instruments, such as non-deliverable forward currency contracts to hedge its foreign currency risks.
Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered and
are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial
liabilities when the fair value is negative.



Any gains or losses arising
from changes in the fair value of derivatives are taken directly to profit or loss.



The Group does not apply hedge
accounting for its derivative financial instruments.



| | 3.6. | Leases
| | ---- | ------



The determination of whether
an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. In the event that fulfillment
of the arrangement is dependent on the use of specific assets or the arrangement transfers a right to use the asset, such assets
are defined as a lease transaction.



Group as lessee



A lease is classified at the
inception date as a finance lease or an operating lease. Leases that transfer substantially all risks and benefits of ownership
of the leased item to the lessee are classified as finance leases.



Finance leases are capitalized
at the commencement of the lease at the lower of the inception date fair value of the leased asset and the present value of the
minimum lease payments. The discount rate used in calculating the present value of the minimum lease payments is the interest rate
implicit in the lease, if this is practicable to determine, if not, the lessee’s incremental borrowing rate shall be vised.
Lease payments are apportioned between finance charges and reduction of the





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lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. A leased asset is depreciated over the shorter of the estimated useful life
of the asset or the lease term.



An operating lease is a lease
other than a finance lease. Operating lease payments are recognized as an operating expense in the statement of profit or loss
on a straight-line basis over the lease term.



Group as lessor



Leases in which the Group does
not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Initial direct
costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized
over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they
are earned.



The Group has cancelable month-to-month
lease contracts related to electronic transaction capture equipment to third parties (clients). The leased assets are included
in “Property and equipment” in the consolidated statement of financial position and are depreciated over their expected
useful lives. Income from operating leases (net of any incentives given to the lessee) is recognized on a straight-line basis over
the lease term in net revenue from subscription services and equipment rental.



| | 3.7. | Property and equipment
| | ---- | ----------------------



All property and equipment
are stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditures that are directly
attributable to the acquisition of the items and, if applicable, net of tax credits. Subsequent costs are included in the asset’s
carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item is material and can be measured reliably. All other repairs and maintenance
expenditures are charged to profit or loss during the period in which they are incurred. Depreciation is calculated on a straight-line
basis over the estimated useful lives of the assets, as follows:



|                            | Estimated useful lives (years)
|--------------------------- | ------------------------------
|Pin Pads & POS              | 3                             
|IT equipment and facilities | 5-10                          
|Leasehold improvements      | 3-5                           
|Furniture and fixtures      | 10                            
|Telephony equipment         | 5                             
|Vehicles                    | 5                             



Leasehold improvements are
amortized using the straight-line method, over the shorter of the estimated useful life of the improvement or the remaining term
of the lease.



Assets’ residual values,
useful lives and methods of depreciation are reviewed, at each reporting date and adjusted prospectively, if appropriate. An asset’s
carrying amount is written down immediately to its recoverable amount, which is the higher of its fair value less costs of disposal
and its value in use, if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on
disposals or derecognition are determined by comparing the disposal proceeds (if any) with the carrying amount and are recognized
in profit or loss.



| | 3.8. | Intangible assets, other than goodwill
| | ---- | --------------------------------------



| | i) | Software and development costs
| | -- | ------------------------------



Certain direct development
costs associated with internally developed software and software enhancements of the Group’s technology platform is capitalized.
Capitalized costs, which occur post determination by management of technical feasibility, include external services and internal
payroll costs. These costs are recorded as intangible assets when development is complete and the asset is ready for use, and are
amortized on a straight-line basis, generally over a period of five years. Research and pre-feasibility development costs, as well
as maintenance and training costs, are expensed as incurred. In certain circumstances, management may determine that previously
developed software and its related expense no longer meets management’s definition of feasible, which could then result in
the impairment of such asset.





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| | ii) | Other intangible assets
| | --- | -----------------------



Separately acquired intangible
assets are measured at cost on initial recognition. The cost of intangible assets acquired in a business combination corresponds
to their fair value at the acquisition date. After initial recognition, intangible assets are stated at cost, less any accumulated
amortization and accumulated impairment losses. Internally generated intangible assets other than (i) above, are not capitalized
and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.



The useful life of intangible
assets is assessed as finite or indefinite. As of December 31, 2018 and 2017, the Group does not hold indefinite life intangible
assets, except for goodwill.



Intangible assets with finite
useful lives are amortized over their estimated useful lives and tested for impairment whenever there is an indication that their
carrying amount may be not be recovered. The period and method of amortization for intangible assets with finite lives are reviewed
at least at the end of each fiscal year or when there are indicators of impairment. Changes in estimated useful lives or expected
consumption of future economic benefits embodied in the assets are considered to modify the amortization period or method, as appropriate,
and treated as changes in accounting estimates.



The
amortization of intangible assets with definite lives is recognized in profit or loss in the expense category consistent with the
use of intangible assets. The useful lives of the intangible assets are shown below:



|                       | Estimate usefullife (years)
|---------------------- | ---------------------------
|Software               | 5                          
|Customer relationships | 10                         
|Trademarks and patents | 1-2                        



Gains and losses resulting
from the disposal or derecognition of intangible assets are measured as the difference between the net disposal proceeds (if any)
and their carrying amount and are recognized in profit or loss.



| | 3.9. | Impairment of non-financial assets
| | ---- | ----------------------------------



The Group assesses, at each
reporting date, whether there is any indication that an asset may be impaired. If any indication exists, or when annual impairment
testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount
is the higher of an asset’s or Cash Generating Unit’s (CGU’s) fair value less costs of disposal and its value
in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is considered impaired and is written down to its recoverable amount.



In determining fair value less
costs of disposal, recent market transactions are considered. If no such transactions can be identified, an appropriate valuation
model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or
other available fair value indicators.



In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.



Impairment losses of continuing
operations are recognized in the statement of profit or loss in expense categories consistent with the function of the impaired
asset.



| | i) | Goodwill
| | -- | --------



Goodwill is monitored by management
at the level of the cash-generating units (CGU). Given the interdependency of cash flows and the merger of business practices,
all Group’s entities are considered a single CGU and, therefore, goodwill impairment test is performed at the single operating
segment level.



The Group tests whether goodwill
has suffered any impairment on an annual basis at December 31 and when circumstances indicate that the value may be impaired.
See Note 13 for a discussion of the model and key assumptions.





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| | ii) | Other non-financial assets
| | --- | --------------------------



For assets excluding goodwill,
an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment
losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable
amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine
the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying
amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net
of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement
of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.



| | 3.10. | Provisions
| | ----- | ----------



Provisions for legal claims
(labor, civil and tax) are recognized when (i) the Group has a present obligation (legal or constructive) as a result of a
past event; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) the
amount has been reliably estimated.



If there are a number of similar
obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations
as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class
of obligations may be small.



Provisions are measured at
the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the
passage of time is recognized as financial expenses, net.



Where the Group expects some
or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate
asset, but only when the reimbursement is virtually certain.



| | 3.11. | Prepaid expenses
| | ----- | ----------------



Prepaid expenses are recognized
as an asset in the statement of financial position. These expenditures includes prepaid software licenses, certain consulting services
and insurance premiums.



| | 3.12. | Taxes
| | ----- | -----



Current income and social
contribution taxes



Income taxes are comprised
of Corporate Income Tax (IRPJ) and Social Contribution (CSLL) on income on the Group’s Brazilian entities. According to Brazilian
tax law, income taxes and social contribution are assessed and paid by each legal entity and not on a consolidated basis.



Current tax assets and liabilities
are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates
and generates taxable income. The Brazilian entities of the Group record a monthly provision for income tax (25%) and Social Contribution
(9%), on an accrual basis, paying taxes based on the monthly estimate.



Management periodically evaluates
positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.



Cayman Islands laws currently
levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the
nature of inheritance tax or estate duty or withholding tax applicable to the Company or to any holder of ordinary shares.



Deferred income and social
contribution taxes



Deferred income tax and social
contribution are recognized, using the liability method, on temporary differences between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. However, deferred taxes are not accounted for if they arise from initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss.





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Deferred tax assets are recognized
only to the extent it is probable that future taxable profit will be available against which the temporary differences and/or tax
losses can be utilized. In accordance with the Brazilian tax legislation, loss carryforwards can be used to offset up to 30% of
taxable profit for the year and do not expire.



Deferred tax is provided on
temporary differences arising on investments in subsidiaries, except for a deferred tax liability where the timing of the reversal
of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the
foreseeable future.



Deferred tax assets and liabilities
are presented net in the statement of financial position when there is a legally enforceable right and the intention to offset
them upon the calculation of current taxes, generally when related to the same legal entity and the same jurisdiction. Accordingly,
deferred tax assets and liabilities in different entities or in different countries are generally presented separately, and not
on a net basis.



Sales taxes



Revenues, expenses and assets
are recognized net of sales tax, except:



| | • | When the sales taxes incurred on the purchase of goods or services are not recoverable from tax
authorities, in which case the sales tax is recognized as part of the cost of acquiring the asset or expense item, as applicable;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | When the amounts receivable or payable are stated with the amount of sales taxes included.
| | - | ------------------------------------------------------------------------------------------



The net amount of sales taxes,
recoverable or payable to the tax authority, is included as part of receivables or payables in the statement of financial position,
and net of corresponding revenue or cost / expense, in the statement of profit or loss.



Sales
revenues in Brazil are subject to taxes and contributions, at the following statutory rates:



|                                                                         | Rate                                  
|------------------------------------------------------------------------ | --------------------------------------
|                                                                         | Transactionactivitiesand otherservices
|Contribution on gross revenue for social integration program (PIS) (a)   | 1.65	%                                
|Contribution on gross revenue for social security financing (COFINS) (a) | 7.60	%                                
|Taxes on service (ISS) (b)                                               | 2.00	%                                
|Social security levied on gross revenue (INSS) (c)                       | 4.50	%                                



| | (a) | PIS and COFINS are contributions levied by the Brazilian Federal government on gross revenues.
These amounts are invoiced to and collected from the Group’s customers and recognized as deductions to gross revenue (Note
23) against tax liabilities, as we are acting as tax withholding agents on behalf of the tax authorities. PIS and COFINS paid on
certain purchases may be claimed back as tax credits to offset PIS and COFINS payable. These amounts are recognized as Recoverable
taxes (Note 10) and are offset on a monthly basis against Taxes payable and presented net, as the amounts are due to the same tax
authority.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | ISS is a tax levied by municipalities on revenues from the provision of services. ISS tax is added
to amounts invoiced to the Group’s customers for the services the Group renders. These are recognized as deductions to gross
revenue (Note 23) against tax liabilities, as the Group acts as agent collecting these taxes on behalf of municipal governments.
The rates may vary from 2.00% to 5.00%. The ISS stated in the table is applicable to the city of São Paulo and refers to
the rate most commonly levied on the Group’s operations.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | INSS is a social security charge levied on wages paid to employees. The subsidiaries Buy4, Equals
and Mundipagg pay INSS at a rate of 4.50% on gross revenue due to the benefits this regime offers compared with social security
tax on payroll.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, please see Note
10 for information in relation to contribution over revenue (PIS/COFINS) paid in the prior periods and recovered subsequently.





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Tax on purchases



Taxes paid on purchase of goods
and services can normally be recovered as tax credits, at the following statutory rates:



|                                                                     | Rate  
|-------------------------------------------------------------------- | ------
|Contribution on gross revenue for social integration program (PIS)   | 1.65	%
|Contribution on gross revenue for social security financing (COFINS) | 7.60	%



| | 3.13. | Revenue and income
| | ----- | ------------------



Revenue is recognized when
the Group has transferred control of the goods or services to the clients, in an amount that reflects the consideration the Group
expects to collect in exchange for those goods or services. The Group applies the following five steps:



1. Identification of the contract
with a client



2. Identification of the performance
obligations in the contract



3. Determination of the transaction
price



4. Allocation of the transaction
price to the performance obligations in the contract



5. Recognition of revenue when
or as the entity satisfies a performance obligation



Revenue is recognized net of
taxes collected from clients, which are subsequently remitted to governmental authorities.



The Group
recognizes revenues from:



| | (a) | Transaction activities and other services
| | --- | -----------------------------------------



The Group’s core performance
obligations are to provide electronic payment processing services including the capture, transmission, processing and settlement
of transactions carried out using credit, debit and meal cards, as well as fees for other services. The Group’s promise to
its clients is to perform an unknown or unspecified quantity of tasks and the consideration received is contingent upon the clients’
use (i.e., number of payment transactions processed, number of cards on file, etc.); as such, the total transaction price is variable.
The Group allocates the variable fees charged to the day in which it has the contractual right to bill its clients.



Revenue from transaction activities
is recognized net of interchange fees retained by card issuers and assessment fees paid to payment scheme networks, which are pass-through
charges collected on their behalf, as the Group does not bear the significant risks and rewards of the authorization, processing
and settlement services provided by the payment scheme networks and card issuers.



The Group is an agent in the
authorization, processing and settlement of payment transactions as it does not bear the significant risks and rewards of those
services as follows:



| | • | The Group facilitates the acquisition of payment information and management of the client relationship,
it is not primarily responsible for the authorization, processing and settlement services performed by payment schemes networks
and card issuers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The Group has no latitude to establish the assessment and interchange fees, which are set by the
payment scheme networks. The Group generally has the right to increase its client discount rate to protect its net commission when
interchange and assessment fees are increased by payment schemes networks;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The Group does not collect the interchange fee that is retained by the card issuer and effectively
acts as a clearing house in collecting and remitting assessment fees and payment settlements on behalf of payment scheme networks
and clients; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The Group does not bear credit risk of the cardholder (i.e., the client’s customer). It does
bear credit risk from the card issuer for the payment settlement and assessment fees. Card issuers are qualified by the payment
scheme networks and are generally high credit quality financial institutions. Receivables can be considered to be collateralized
by the cardholder’s invoice settlement proceeds. As such, the Group’s exposure to credit risk is generally low.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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| | (b) | Subscription services and Equipment rental
| | --- | ------------------------------------------



The Group provides (i) subscription
services, such as reconciliation solutions and business automatization solutions, and (ii) operating leases of electronic
capture equipment to clients, net of withholding taxes.



The Group’s subscription
services generally consist of services sold as part of a new or existing agreement or sold as a separate service. The Group’s
subscription services may or may not be considered distinct based on the nature of the services being provided. Subscription service
fees are charged as a fixed monthly fee, and the related revenue is recognized over time as control is transferred to the client,
either as the subscription services are performed or as the services from a combined performance obligation are transferred to
the client (over the term of the related transaction and processing agreement).



The Group accounts for equipment
rental as a separate performance obligation and recognizes the revenue at its standalone selling price, considering that rental
is charged as a fixed monthly fee. Revenue is recognized within net revenue on a straight-line basis over the contractual lease
term, beginning when the client obtains control of the equipment lease. The Group does not manufacture equipment, but purchases
equipment from third-party vendors and holds the hardware in property & equipment until leased to a customer.



Contracts
with Multiple Performance Obligations



The Group’s contracts
with its clients can consist of multiple performance obligations and the Group accounts for individual performance obligations
separately if they are distinct. When equipment or services are bundled in an agreement with a client, the components are separated
using the relative stand-alone selling price of the components which is based on the Group’s customary pricing for each element
in separate transactions or expected cost plus a margin. In limited situations, the relative stand-alone selling price for an element
that cannot be assessed on one of the previous basis, revenue is first allocated to the element where relative stand-alone selling
price has been established and the residual amount would be allocated to the element with no relative stand-alone selling price.



| | (c) | Financial income
| | --- | ----------------



Comprised of discount fees
charged for the prepayment to clients of their installment receivables from us. The discount is measured by the difference between
the original amount payable to the client, net of commissions and fees charged, and the prepaid amount. Revenue is recognized once
the client has elected for the receivable to be prepaid.



| | (d) | Other financial income
| | --- | ----------------------



Mainly comprised of interest
generated by bank savings accounts and by deposits with Brazilian courts for judicial deposits.



| | 3.14. | Financial expenses, net
| | ----- | -----------------------



Financial expenses, net, includes
costs on the sale of receivables to banks and interest expense on borrowings, interest to fund senior quota holders, foreign currency
gains and losses on cash balances denominated in foreign currencies, bank service fees and gains and losses on derivative foreign
currency swaps.



| | 3.15. | Employee benefits
| | ----- | -----------------



| | i) | Short-term obligations
| | -- | ----------------------



Liabilities in connection with
short-term employee benefits are measured on a non-discounted basis and are expensed as the related service is provided.



The liability is recognized
for the expected amount to be paid under the plans of cash bonus or short-term profit sharing if the Group has a legal or constructive
obligation of paying this amount due to past service provided by employees and the obligation may be reliably estimated.



| | ii) | Share-based payments
| | --- | --------------------



The Group has equity settled
and cash settled share-based payment plans, under which the management commits shares or optional cash amounts based on the price
or value of shares to employees and non-employees in exchange for services.





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Equity settled transactions



The cost of equity-settled
transactions with employees is measured using their fair value at the date they are granted. The cost is expensed together with
a corresponding increase in equity over the service period or on the grant date when the grant relates to past services.



Cash settled transactions



The Group classifies cash settled
share-based payment transactions with employees and non-employees within liabilities and initially measures the cost of the services
received based on the fair value of the liability. This liability is remeasured at the end of each reporting period up to the date
of settlement, such that the liability ultimately is measured at the fair value of the liability on the date of settlement.



The significant judgments,
estimates and assumptions regarding share-based payments are described further in Note 4(b). Activity relating to share-based payments
is discussed further in Note 26.



| | iii) | Profit-sharing and bonus plans
| | ---- | ------------------------------



The Group recognizes a liability
and an expense for bonuses and profit-sharing based on a formula that takes into consideration the profit attributable to the company’s
shareholders after certain adjustments. The Group recognizes a provision where contractually obliged or where there is a past practice
that has created a constructive obligation.



| | 3.16. | Current and non-current classification
| | ----- | --------------------------------------



The Group presents assets and
liabilities in the statement of financial position based on a current / non-current classification. An asset is current when it
is expected to be realized or intended to be sold or consumed in the normal operating cycle:



| | • | held primarily for the purpose of trading;
| | - | ------------------------------------------



| | • | expected to be realized within twelve months after the reporting period; or
| | - | ---------------------------------------------------------------------------



| | • | is a cash or cash equivalent unless restricted from being exchanged or used to settle a liability
for at least twelve months after the reporting period.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



All other assets are classified
as non-current.



A liability is current when
it is:



| | • | expected to be settled in the normal operating cycle;
| | - | -----------------------------------------------------



| | • | held primarily for the purpose of trading;
| | - | ------------------------------------------



| | • | due to be settled within twelve months after the reporting period; or
| | - | ---------------------------------------------------------------------



| | • | there is no unconditional right to defer the settlement of the liability for at least twelve months
after the reporting period.
| | - | -------------------------------------------------------------------------------------------------------------------------------



The Group classifies all other
liabilities as non-current.



Deferred tax assets and liabilities
are classified as non-current assets and liabilities.



| | 3.17. | Business combinations and goodwill
| | ----- | ----------------------------------



Business combinations are accounted
for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, including
assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects
whether to measure non-controlling interests in the acquiree at fair value or on the basis of its proportionate share in the identifiable
net assets of the acquiree. Costs directly attributable to the acquisition are expensed as incurred.



The assets acquired and liabilities
assumed are measured at fair value, classified and allocated according to the contractual terms, economic circumstances and relevant
conditions as at the acquisition date.





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Any contingent consideration
to be transferred by the acquirer will be recognized at fair value on acquisition date. Subsequent changes in the fair value of
the contingent consideration treated as an asset or liability should be recognized in profit or loss.



Goodwill is measured as the
excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests and any previous
interest held over the fair value of net assets acquired. If the fair value of net assets acquired is in excess of the aggregate
consideration transferred, the Group re-assesses whether it has correctly identified all assets acquired and all liabilities assumed
and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results
in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized
in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is
tested for impairment at least annually at December 31 or whenever there is an indication that it may be impaired.



Impairment losses relating
to goodwill are not reversed in future periods.



| | 3.18. | Investment in associates
| | ----- | ------------------------



An associate is an entity over
which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy
decisions of the investee, but is not control or joint control over those policies.



The considerations made in
determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s
investments in its associate and joint venture are accounted for using the equity method.



Under the equity method, the
investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted
to recognize changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to
the associate is included in the carrying amount of the investment and is not tested for impairment separately.



None of the investments in
associates presented significant restrictions on transferring resources in the form of cash dividends or repayment of obligations,
during the periods reported.



| | 3.19. | New and amended standards and interpretations
| | ----- | ---------------------------------------------



| | i) | New and amended standards and interpretations adopted
| | -- | -----------------------------------------------------



The Group applied IFRS 15 –
Revenue from Contracts with Customers and IFRS 9 – Financial Instruments for the first time on January 1,
2018. The nature and effect of the changes as a result of adoption of these new standards are described below.



Some other amendments and interpretations
apply for the first time in 2018, but do not have an impact on the consolidated financial statements of the Group. The Group decided
not to early adopt any other standard, interpretation or amendments that had been issued but are not yet effective.



IFRS 15 – Revenue
from Contracts with Customers



IFRS 15 establishes a five-step
model to account for revenues 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. IFRS 15 supersedes
IAS 11 – Construction Contracts, IAS 18 – Revenue and related interpretations, and it applies
to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards.



The Group adopted IFRS 15 on
its effective date, January 1, 2018, using the modified retrospective approach, and there was no impact on the Group’s
consolidated financial statements, except for the required additional disclosures.





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IFRS 9 – Financial
Instruments



In July 2014, the IASB issued
the final version of IFRS 9 – Financial Instruments, which supersedes IAS 39 – Financial Instruments: Recognition
and Measurement. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification
and measurement, impairment and hedge accounting.



The Group applied IFRS 9 prospectively
on January 1, 2018. The Group has not restated comparative information, which continues to be reported under IAS 39. The effects
of adopting IFRS 9 have been recognized directly in retained earnings and in other comprehensive income in equity.



| | a) | Classification and measurement
| | -- | ------------------------------



Under IFRS 9, the Group classifies
its accounts receivable from card issuers at FVOCI given the fact that they are held to collect contractual cash flows and to sell.
Such receivables were previously measured at amortized cost under IAS 39. Accordingly, changes in fair value are recognized
in other comprehensive income, except for the recognition of impairment gains or losses, interest income, gains and losses on de-recognition,
and foreign exchange gains and losses, which are recognized in profit or loss.



Trade accounts receivable are
held to collect contractual cash flows and give rise to cash flows that are solely payments of principal and interest. As such,
the Group’s trade accounts receivable continue to be measured at amortized cost.



The effect of applying the
classification and measurement principles of IFRS 9 to the opening balance resulted in a reduction of R$ 70,896 in accounts receivable
from card issuers as a result of re-measurement to fair value at January 1, 2018, with a corresponding adjustment of R$ 46,791
to equity, net of deferred income taxes of R$ 24,105.



The table below shows financial
instruments under their previous classification in accordance with IAS 39 and their new measurement categories in accordance with
IFRS 9.



|                                         |  |  |                      |  |  | At January 1, 2018
|---------------------------------------- |  |  | -------------------- |  |  | ------------------
|                                         |  |  |                      |  |  |                   
|IAS 39 measurement category              |  |  | At December 31, 2017 |  |  |                   
|Loans and receivables                    |  |  |                      |  |  |                   
|Accounts receivable from card issuers    |  |  | 5,078,430            |  |  |                   
|Trade accounts receivable                |  |  | 23,120               |  |  |                   
|Other accounts receivable                |  |  | 8,168                |  |  |                   
|Fair value through profit or loss        |  |  |                      |  |  |                   
|Short-term investments                   |  |  | 157,238              |  |  |                   
|Available-for-sale                       |  |  |                      |  |  |                   
|Short-term investments                   |  |  | 44,524               |  |  |                   
|                                         |  |  |                      |  |  |                   
|Total financial assets                   |  |  | 5,311,480            |  |  |                   
|Amortized cost                           |  |  |                      |  |  |                   
|Accounts payable to clients              |  |  | 3,637,510            |  |  |                   
|Trade accounts payable                   |  |  | 53,238               |  |  |                   
|Loans and financing                      |  |  | 16,871               |  |  |                   
|Obligations to FIDC senior quota holders |  |  | 2,065,026            |  |  |                   
|Other accounts payable                   |  |  | 38,417               |  |  |                   
|                                         |  |  |                      |  |  |                   
|Total financial liabilities              |  |  | 5,811,062            |  |  |                   





| | b) | Impairment
| | -- | ----------



IFRS 9 requires the Group to
record expected credit losses on debt securities, loans and trade accounts receivable, for 12 months or on a lifetime basis. The
Group has undertaken an analysis of the impact of adopting the expected credit loss model. Based on the history of defaults as
well as the expected nature and level of risk associated with loans and receivables, at December 31, 2017, an increase of
R$ 760 to the provision for losses on trade accounts receivable was recorded, with a corresponding adjustment of R$ 502 to the
opening equity, net of deferred income tax asset of R$ 257.





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| | c) | Effects of changes from initial adoption
| | -- | ----------------------------------------



The effect of the
initial adoption of IFRS 9 is as follows:



|                                                         |  | Attributable
to owners of the parent |         |                          |  |                  
|-------------------------------------------------------- |  | ------------------------------------ | ------- | ------------------------ |  | -----------------
|                                                         |  | Other components of equity           |         | Othercomprehensiveincome |  | Accumulatedlosses
|Balance as of December 31, 2017                          |  |                                      | 967,795 |                          |  |                  
|Re-measurement of assets categorized at FVOCI (a)        |  |                                      | -       |                          |  |                  
|Provision for losses in trade accounts receivable (b)    |  |                                      | -       |                          |  |                  
|Deferred tax asset                                       |  |                                      | -       |                          |  |                  
|Net effect of adjustments for initial adoption           |  |                                      | -       |                          |  |                  
|                                                         |  |                                      |         |                          |  |                  
|Balance
    as of January 1, 2018 after initial adoption |  |                                      | 967,795 |                          |  |                  







IFRS 2 Classification and
Measurement of Share-based Payment Transactions—Amendments to IFRS 2



The IASB issued amendments
to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled
share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding
tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its
classification from cash settled to equity settled. The adoption date of these amendments is January 1, 2018. On adoption,
entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected
for all three amendments and other criteria are met. The Group’s accounting policy for cash-settled share based payments
is consistent with the approach clarified in the amendments. In addition, the Group has no share-based payment transaction with
net settlement features for withholding tax obligations and had not made any modifications to the terms and conditions of its share-based
payment transaction. Therefore, these amendments did not affect the previous plans and was adopted at inception of the share-based
payments transactions of the period.



| | ii) | New accounting standards not yet adopted
| | --- | ----------------------------------------



The new and amended standards
and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements
are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become
effective.



IFRS 16 – Leases



IFRS 16 was issued in January
2016 and 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. IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases and
requires lessees to account for all leases under a single model in the statement of financial position, similar to the recognition
of finance leases under IAS 17. On the commencement date of the lease agreement, the lessee will recognize a lease payment liability
(i.e. a lease liability) and an asset that represents the right to use the underlying asset during the lease term. The lessee will
be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use
asset.



The standard includes two recognition
exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e.,
leases with a lease term of 12 months or less).



Lessees will be also required
to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease
payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the
amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.



Lessor accounting under IFRS
16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the
same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.





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The Group will apply the standard
from its mandatory adoption date of January 1, 2019. The Group intends to apply the simplified transition approach and will not
restate comparative amounts for the year prior to first adoption. Right-of-use assets will be measured at the amount of the lease
liability on adoption (adjusted for any prepaid or accrued lease expenses).



The Group will elect to use
the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial
application, and lease contracts for which the underlying asset is of below US$ 5,000.



As at the reporting date, the
Group has non-cancellable operating lease commitments of R$ 44, 414. See Note 28.



The Group expects to recognize
lease liabilities of approximately R$ 40,000 on January 1, 2019 and right-of-use assets in the same amount.



IFRIC 23 – Uncertainty
over Income tax treatments



On June 7, 2017, the IFRS Interpretations
Committee (“IFRS IC”) issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12 ‘Income
taxes’, are applied where there is uncertainty over income tax treatments.



The IFRS IC had clarified previously
that IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies to accounting for uncertain
income tax treatments. IFRIC 23 explains how to recognize and measure deferred and current income tax assets and liabilities where
there is uncertainty over a tax treatment.



The Group will adopt IFRIC
23 on its effective date, January 1, 2019, using the simplified retrospective approach, and do not expect to have any impact
on the Group’s consolidated financial statements.



Amendments to IFRS 9: Prepayment
Features with Negative Compensation



The IASB (‘Board’)
has issued a narrow-scope amendment to IFRS 9 to enable companies to measure at amortized cost some prepayable financial assets
with negative compensation. The assets affected, that include some loans and debt securities, would otherwise have been measured
at FVPL.



Negative compensation arises
where the contractual terms permit the borrower to prepay the instrument before its contractual maturity, but the prepayment amount
could be less than unpaid amounts of principal and interest. However, to qualify for amortized cost measurement, the negative compensation
must be “reasonable compensation for early termination of the contract”. The Group concluded there was no impact of
this amendment to IFRS 9 on the Group’s consolidated financial statements.



| | 4. | Significant judgments, estimates and assumptions
| | -- | ------------------------------------------------



The preparation of the financial
statements of the Company and its subsidiaries requires management to make judgments and estimates and to adopt assumptions that
affect the amounts presented referring to revenues, expenses, assets and liabilities at the financial statement date.



Significant assumptions about
sources of uncertainty in future estimates and other significant sources at the reporting date that pose a significant risk of
causing a material adjustment to the book value of assets and liabilities in the next fiscal year are described below:



| | (a) | Provision for expected credit losses of accounts receivable from card issuers and trade accounts
receivable
| | --- | -----------------------------------------------------------------------------------------------------------



The Group uses a provision matrix
to calculate ECLs for accounts receivable from card issuers and trade accounts receivable. The provision rates are based on days
past due for groupings of various clients segments that have similar loss patterns (i.e., by geography, product type, customer
type and rating, and coverage by letters of credit and other forms of credit insurance).



The provision matrix is initially
based on the Group’s historical observed default rates. The Group calibrates the matrix to adjust the historical credit loss
experience with forward-looking information every year. For instance, if forecast economic conditions (i.e., gross domestic product)
are expected to deteriorate over the next year which can lead to an increased number of defaults, the historical default rates
are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates
are analyzed.



The assessment of the correlation
between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs
is sensitive to changes in circumstances and of forecast economic conditions.





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The Group’s
historical credit loss experience and forecast of economic conditions may also not be representative of client’s actual
default in the future. The information about the ECLs on the Group’s accounts receivable from card issuers and trade
accounts receivable are disclosed in Notes 8 and 9 respectively.



| | (b) | Property and equipment and intangible assets useful lives
| | --- | ---------------------------------------------------------



Property and equipment and intangible
assets include the preparation of estimates to determine the useful life for depreciation and amortization purposes. Useful life
determination requires estimates in relation to the expected technological advances and alternative uses of assets. There is a
significant element of judgment involved in making technological development assumptions, since the timing and nature of future
technological advances are difficult to predict.



In December 2018, the Group reviewed
the useful lives of its Property and Equipment and verified that due to technology improvements and use, Pin Pads and POSs should
depreciate faster than initially established. Therefore, the Group adjusted the useful life of this group of assets from 5 to 3
years. There is no evidence that indicated that other useful lives should be revised.



Based on past events and future
expectations, the Group identified that Pin Pads and POSs have a residual value at the end of their estimated useful life of 30%
of the initial cost. The Group identified that there is an active market and therefore, deducted the residual value of the initial
cost of this group of assets to determine its depreciable cost.



The Group concluded that no additional
change on the straight-line depreciation method or estimates was deemed necessary.



The effect of the change in the
useful life mentioned above were treated in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
as required by IAS 16 Property, Plant and Equipment which resulted in an increase of R$ 4,602 in the depreciation expense
in the current year.



| | (c) | Share-based payments
| | --- | --------------------



Estimating fair value for share-based
payment transactions requires determination of the most appropriate valuation model and underlying assumptions, which depends on
the terms and conditions of the grant and the information available at the grant date.



The Group uses certain methodologies
to estimate fair value which include the following:



| | · | estimation of fair value based on equity transactions with third parties close to the grant date;
| | - | -------------------------------------------------------------------------------------------------



| | · | other valuation techniques including option pricing models such as Black-Scholes.
| | - | ---------------------------------------------------------------------------------



These estimates also require
determination of the most appropriate inputs to the valuation models including assumptions regarding the expected life of a share
option or appreciation right, expected volatility of the price of the Group’s shares and expected dividend yield.



| | (d) | Impairment of non-financial assets
| | --- | ----------------------------------



The Group assesses, at each reporting
date, whether there is an indication that an asset may be impaired. Intangible assets with indefinite useful lives and goodwill
are tested for impairment annually at the level of the CGU, as appropriate, and when circumstances indicate that the carrying value
may be impaired. Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount,
which is the higher of its fair value less costs to sell and its value in use.



Technological obsolescence, suspension
of certain services and other changes in circumstances that demonstrate the need for recording a possible impairment are also regarded
in estimates.





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| | (e) | Deferred income tax and social contribution
| | --- | -------------------------------------------



Deferred tax assets are recognized
for all unused tax losses to the extent that sufficient taxable profit will likely be available to allow the use of such losses.
Significant judgment from management is required to determine the amount of deferred tax assets that can be recognized, based on
the likely timing and level of future taxable profits, together with future tax planning strategies.



| | (f) | Provisions for contingencies
| | --- | ----------------------------



Provisions for the judicial and
administrative proceedings are recorded when the risk of loss of administrative or judicial proceeding is considered probable and
the amounts can be reliably measured, based on the nature, complexity and history of lawsuits and the opinion of legal counsel
internal and external.



Provisions are made when the
risk of loss of judicial or administrative proceedings is assessed as probable and the amounts involved can be measured with sufficient
accuracy, based on best available information. They are fully or partially reversed when the obligations cease to exist or are
reduced. Given the uncertainties arising from the proceedings, it is not practicable to determine the timing of any outflow (cash
disbursement).



| | (g) | Provision for antifraud losses
| | --- | ------------------------------



A provision is recorded based
on the estimated losses related to warranties provided by the Group in relation to the antifraud product sold to clients, under
which the Group assumes the risk of losses related to any chargeback occurring within 120 days following the transaction date.



Management estimates the related
provision for future losses based on historical losses information, as well as recent trends that might suggest that past cost
information may differ from future losses. The assumptions made in relation to the current year are consistent with those in the
prior year. Factors that could impact the estimated loss information include the success of the Group’s fraud prevention
initiatives. As of December 31, 2018, this provision had a carrying amount of R$ 2,861 (2017—R$ 1,317).



| | (h) | Consolidation of structured entities
| | --- | ------------------------------------



The Group considers the FIDC
AR1, FIDC AR2 and TAPSO to be structured entities as defined by IFRS 10. The Group holds all subordinated quotas issued by the
FIDCs AR, representing approximately 10% of the total outstanding quotas and TAPSO representing approximately 99%, while third-party
partners hold all senior quotas, representing approximately 90% of the total outstanding quotas of FIDCs AR and 1% of TAPSO.



The bylaws of these FIDCs were
established by us at their inception, and grant us significant decision-making authority over these entities, such as the right
to determine which credits rights are eligible to be acquired by these FIDCs. In addition, senior quota holders receive a remuneration
every six months and the senior quotas must be fully redeemed by us at the end of the third annual period. As sole holders of the
subordinated quotas, the Group is entitled to the full residual value of the entities, if any, and thus the Group has the rights
to their variable returns.



In accordance with IFRS 10, the
Group concluded it controls FIDC AR1, FIDC AR2 and TAPSO and, therefore, they are consolidated in the Group’s financial statements.
The senior quotas are accounted for as a financial liability under “Obligations to FIDC senior quota holders” and the
remuneration paid to senior quota holders is recorded as interest expense. See Note 18(a) for further details.





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Table of Contents




| | 5. | Business combinations
| | -- | ---------------------



| | 5.1. | Acquisition of MNLT Soluções de Pagamentos S.A. (“MNLT”) formerly
known as Elavon do Brasil S.A. (“EdB”)
| | ---- | --------------------------------------------------------------------------------------------------------



On April 22, 2016, Stone acquired
100% of the shares of MNLT. MNLT is a payment solution company formed in 2011 as a joint venture among Elavon Inc., USB Americas
Holding Company and Banco Citibank S.A.



MNLT’s activities are
to accredit clients, which includes the provision of capture, routing, processing and settlement services for credit and debit
card transactions, as well as related services. The objective of the acquisition was to enable the Group to expand in the Brazilian
payments market and increase access to clients and business partners in the industry.



| | (i) | Fair value measurement
| | --- | ----------------------



The fair value of identifiable
assets and liabilities of MNLT on the acquisition date was as follows:



|                                                  |  | Fair value recognized onacquisition
|------------------------------------------------- |  | -----------------------------------
|Assets                                            |  |                                    
|Cash and cash equivalents                         |  |                                    
|Accounts receivable                               |  |                                    
|Other receivables                                 |  |                                    
|Property and equipment (Note 12)                  |  |                                    
|Intangible assets—Customer relationship (Note 13) |  |                                    
|Intangible assets—Trademark use right (Note 13)   |  |                                    
|Other intangible assets (Note 13)                 |  |                                    
|Deferred tax asset                                |  |                                    
|                                                  |  |                                    
|                                                  |  |                                    
|Liabilities                                       |  |                                    
|Accounts payable                                  |  |                                    
|Loans and financing (Note 18)                     |  |                                    
|Onerous contracts                                 |  |                                    
|Other liabilities                                 |  |                                    
|Deferred tax liability                            |  |                                    
|                                                  |  |                                    
|                                                  |  |                                    
|                                                  |  |                                    
|Net identifiable liabilities acquired             |  |                                    
|                                                  |  |                                    
|Goodwill on acquisition (Note 13)                 |  |                                    
|                                                  |  |                                    
|Total consideration transferred                   |  |                                    







The fair value and gross contractual
amount of trade accounts receivable was the same—R$ 1,210,373.



Goodwill comprises the value
of expected synergies arising in the business combination.



Intangible assets acquired



The
following intangible assets met the criteria in IAS 38—Intangible Assets for recognition:



|Assets                | Amount | Method                                   | Expected
        
        amortization
        
        period
|--------------------- | ------ | ---------------------------------------- | --------------------------------------------------------------
|Customer relationship | 93,442 | Multi-period Excess Earnings Method—MEEM | 10 years                                                      
|Trademark use right   | 12,491 | Relief from royalty                      | 1 year                                                        





(ii)       Revenue
and profit contribution



From the acquisition date, MNLT
contributed total revenue and income of R$ 167,362 and a pretax income of R$ 4,718 to the Group’s consolidated statement
of profit and loss for the year ended December 31, 2016.





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Had the business combination
occurred at the beginning of 2016, MNLT would have contributed total revenue and income of R$ 228,690 and pretax loss of R$ 67,502,
therefore, the Group’s consolidated total revenue and income would have been R$ 501,248 and the pretax loss would have totaled
R$221,230 for the year ended December 31, 2016.



b.       Purchase
consideration—cash outflow



|Consideration paid in cash       | —    
|-------------------------------- | -----
|Net cash acquired                | 7,377
|Net cash flow on acquisition (a) | 7,377









(a)       Included
in the cash flow from investing activities



Acquisition-related costs



Acquisition-related transaction
costs totaling R$ 1,727 were recognized in other expenses in the statement of profit or loss.



| | 5.2. | Acquisition of Equals S.A.
| | ---- | --------------------------



On April 25, 2016, the
Company’s subsidiary StoneCo Brasil acquired a 30% interest in Equals S.A. (“Equals”) and an option to acquire
up to an additional 20% interest for R$ 2,000 adjusted by inflation, exercisable in full or partially at any moment until April 24,
2019.



On September 4, 2018,
the Group acquired control of Equals through the exercise of the option and the acquisition of an additional 6% interest of the
outstanding equity interest in Equals. In addition, the Group acquired the remaining 44% interest through the issuance of the Company’s
shares upon consummation of the Company’s IPO. As a result, the Group obtained the whole ownership of Equals.



Equals’ activities are
to provide financial reporting and reconciliation solutions to enable clients to monitor all payment flow data from their providers.
The objective of the acquisition was to enable the Group to expand in the Brazilian payments market and to offer additional services
and value added to its clients and business partners in the industry.



The consolidated financial
statements include the results of Equals for the period from the acquisition date.



| | i) | Consideration transferred
| | -- | -------------------------



The fair value of the consideration
transferred was as follows:



|At September 4, 2018                                                  |       
|--------------------------------------------------------------------- | ------
|Cash consideration paid to the selling shareholders (a)               | 3,000 
|Shares of the Company issued to selling shareholders (b)              | 22,000
|Total fair value of consideration transferred to selling shareholders | 25,000
|Capital contribution related to option exercised (c)                  | 2,184 
|Fair value of previously held interest in Equals                      | 22,816
|Total fair value of consideration                                     | 50,000
|                                                                      |       

| | (a) | consideration paid in cash for the acquisition of additional 6% interest, representing 3,600 outstanding
shares held by the selling shareholders.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | consideration price for the acquisition of the remaining 44% interest in Equals at fair value of
R$ 22,000, through the issuance of 1,856 (after share split 233,856) shares of the Company, transferred to the selling shareholders
after completion of the Company’s IPO.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | exercise of the option for, whereby 17,142 new shares of Equals were issued, representing an increase
of 20% to the previously held interest.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------





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As a result, the Group recognized
a gain of approximately R$ 21,441 for the difference between the previously held 50% interest in Equals, after option exercise,
at fair value, in the amount of R$ 25,000, and its carrying amount, in the amount of R$ 3,559, including the capital contribution
at option exercise. The gain was included in other operating income in the statement of profit and or loss.



| | ii) | Fair value measurement
| | --- | ----------------------



The fair value of identifiable
assets acquired and liabilities assumed of Equals on the acquisition date was as follows:



|                                                  | Fair value recognized
        on acquisition
|------------------------------------------------- | --------------------------------------------
|Assets                                            |                                             
|Cash and cash equivalents                         | 60                                          
|Trade accounts receivable                         | 798                                         
|Other current assets                              | 312                                         
|Receivables to related parties                    | 1,057                                       
|Property and equipment                            | 428                                         
|Intangible assets—Software (internally developed) | 34,539                                      
|Intangible assets—Customer relationship           | 2,103                                       
|Intangible assets—Non-compete agreement           | 1,659                                       
|Deferred tax assets                               | 108                                         
|                                                  | 41,064                                      
|Liabilities                                       |                                             
|Trade accounts payable                            | (419)                                       
|Labor and social security liabilities             | (1,704)                                     
|Taxes payable                                     | (225)                                       
|Payables to related parties                       | (244)                                       
|Deferred tax liabilities                          | (12,960)                                    
|                                                  | (15,552)                                    
|                                                  |                                             
|Net identifiable assets acquired                  | 25,512                                      
|Goodwill on acquisition                           | 24,488                                      
|Total consideration transferred                   | 50,000                                      
|                                                  |                                             

Goodwill comprises the value of expected synergies
and other benefits from combining the assets and activities of Equals with those of the Group and is entirely allocated to the
single Cash Generating Unit (“CGU”) of the Group. None of the goodwill recognized is expected to be deductible for
income tax purposes.



Intangible assets acquired





The
following intangible assets met the criteria in IAS 38—Intangible Assets for preliminary recognition:









|Assets                          | Amount | Method                                   | Expected
        amortization
        period
|------------------------------- | ------ | ---------------------------------------- | --------------------------------------------
|Software (internally developed) | 34,355 | Multi-period Excess Earnings Method—MEEM | 10 years                                    
|Customer relationship           | 2,103  | Cost approach                            | 3 years                                     
|Non-compete agreement           | 1,659  | With and without method                  | 5 years                                     





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| | iii) | Revenue and profit contribution
| | ---- | -------------------------------



From the acquisition date,
Equals contributed total revenue and income of R$ 5,389 and pretax income of R$669 to the Group’s consolidated statement
of profit and loss for the year ended December 31, 2018.



Had the business combination
occurred at the beginning of 2018, Equals would have contributed total revenue and income of R$ 14,370 and pretax loss of R$ 385.
Therefore, the Group’s consolidated total revenue and income would have been R$ 1,588,161 and the pretax income would have
totaled R$ 441,071 for the year ended December 31, 2018.



| | iv) | Purchase consideration—cash outflow
| | --- | -----------------------------------



|Consideration paid in cash       | (3,000)
|-------------------------------- | -------
|Net cash acquired                | 60     
|Net cash flow on acquisition (a) | (2,940)









| | (a) | Included in the cash flow from investing activities.
| | --- | ----------------------------------------------------



| | v) | Acquisition-related costs
| | -- | -------------------------



Acquisition-related transaction
costs totaling R$ 100 were recognized in other expenses in the statement of profit or loss.



| | 6. | Cash and cash equivalents
| | -- | -------------------------



|                                            |  | 2018    |  | 2017   
|------------------------------------------- |  | ------- |  | -------
|                                            |  |         |  |        
|Short-term bank deposits—denominated in R$  |  | 235,488 |  | 611,254
|Short-term bank deposits—denominated in US$ |  | 62,441  |  | 30,698 
|                                            |  | 297,929 |  | 641,952



Cash and cash equivalents in
the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months
or less, which are subject to an insignificant risk of changes in value, readily convertible into cash.



Cash and cash equivalents are
measured at fair value and classified as Level 1 under the fair value level hierarchy. See Note 27 for further details.



| | 7. | Short-term investments
| | -- | ----------------------



|                        |  | 2018 |           | 2017
|----------------------- |  | ---- | --------- | ----
|Listed securities (a)   |  |      |           |     
|Bonds                   |  |      | 2,752,743 |     
|Unlisted securities (b) |  |      |           |     
|Investment funds        |  |      | 9,328     |     
|Equity securities       |  |      | 8,518     |     
|                        |  |      | 2,770,589 |     



| | (a) | Listed securities are comprised of public and private bonds with maturities greater than three
months, indexed to fixed and floating rates. As of December 31, 2018, listed securities are mainly indexed to 95% CDI rate (2017
– 3.95% per year in US Dollars). Liquidity risk is minimal.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Unlisted securities are comprised of foreign investment fund shares, and ordinary shares in entities
that are not traded in an active market and whose fair value is determined using valuation techniques. The Group uses its judgment
to select a method and makes assumptions that are mainly based on market conditions existing at the end of each reporting period.
The Group elected to recognize the changes in fair value of the existing equity instruments through OCI. The change in fair value
in 2018 of R$ 954 (2017 - R$ 2,595) was recognized in other comprehensive income.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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Short-term investments are
classified as financial assets measured at fair value through profit or loss, unless otherwise elected and indicated, and as Level 1
and 2 under the fair value level hierarchy, as described in Note 27. Short-term investments are denominated in Brazilian reais,
U.S. dollars and EURO.



| | 8. | Accounts receivable from card issuers
| | -- | -------------------------------------



|                                             |  | 2018 |           | 2017
|-------------------------------------------- |  | ---- | --------- | ----
|Accounts receivable from card issuers (a)    |  |      | 9,195,466 |     
|Accounts receivable from other acquirers (b) |  |      | 54,968    |     
|Allowance for expected credit losses         |  |      | (5,826    | )   
|                                             |  |      | 9,244,608 |     





(a)       Accounts
receivable from card issuers, net of interchange fees, as a result of processing transactions with clients.



(b)       Accounts
receivable from other acquirers related to PSP (Payment Service Provider) transactions.



As of December 31, 2018,
R$ 2,166,132 of the total Accounts receivable from card issuers are held by FIDC AR 1 and AR 2 (2017 - R$ 2,244,576). Accounts
receivable held by FIDCs guarantee the obligations to FIDC senior quota holders.



The movement in the allowance
for expected credit losses of accounts receivable from card issuers:



|                                             |  | 2018 |       | 2017
|-------------------------------------------- |  | ---- | ----- | ----
|Adoption of new accounting standard (IFRS 9) |  |      | 760   |     
|Charge for the year                          |  |      | 5,066 |     
|At December 31                               |  |      | 5,826 |     



| | i) | Classification as accounts receivable
| | -- | -------------------------------------



Accounts receivable are amounts
due from card issuers regarding the transactions of clients with card holders, performed in the ordinary course of business. Accounts
receivable are generally due within 12 months, therefore are all classified as current.



| | ii) | Impairment and risk exposure
| | --- | ----------------------------



In addition to complying with
the criteria and policies of card associations for accreditation, the Group has a specific policy setting guidelines and procedures
for the accreditation and maintenance process of the clients. The Group records an allowance for expected credit losses of accounts
receivable from card issuers based on an expected credit loss model covering history of defaults and the expected nature and level
of risk associated with receivables. See Note 3.5 (i) for further details.



Information about the credit
quality of accounts receivable and the Group’s exposure to credit risk, foreign currency risk and interest rate risk can
be found in Note 27.



| | 9. | Trade accounts receivable
| | -- | -------------------------



|                                     |  | 2018 |        | 2017
|------------------------------------ |  | ---- | ------ | ----
|Accounts receivable from clients     |  |      | 32,823 |     
|Other trade accounts receivable      |  |      | 19,538 |     
|Allowance for expected credit losses |  |      | (7,745 | )   
|                                     |  |      | 44,616 |     





Trade accounts receivables
are amounts due from clients mainly related to equipment rental and other services and Pin Pads & POS sales to other customers.
Trade accounts receivable are generally due between 30 and 60 days, therefore are all classified as current.





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The Group records an allowance
for expected credit losses of trade receivables from the lease of equipment to clients based on an expected credit loss model covering
history of defaults and the expected nature and level of risk associated with receivables. See Note 3.5 (i) for further details.



The movement in the allowance
for expected credit losses of trade receivables:



|                    |  | 2018 |        | 2017
|------------------- |  | ---- | ------ | ----
|At January 1        |  |      | 5,048  |     
|Charge for the year |  |      | 12,257 |     
|Reversal            |  |      | (3,051 | )   
|Write-off           |  |      | (6,509 | )   
|At December 31      |  |      | 7,745  |     



| | 10. | Recoverable taxes
| | --- | -----------------



|                                             |  | 2018 |        | 2017
|-------------------------------------------- |  | ---- | ------ | ----
|Prepayments of income taxes (IRPJ and CSLL)  |  |      | 243    |     
|Withholding income tax on finance income (a) |  |      | 52,836 |     
|Contributions over revenue (b)               |  |      | 3,053  |     
|Withholding taxes on sales (c)               |  |      | 327    |     
|Other taxes                                  |  |      | 459    |     
|                                             |  |      | 56,918 |     





| | (a) | This refers to income taxes withheld on financial income which will be offset against future income
tax payable.
| | --- | ----------------------------------------------------------------------------------------------------------------



| | (b) | Refers to credits taken on contributions on gross revenue for social integration program (PIS)
and social security (COFINS) to be offset in the following period against tax payables.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Taxes withheld by customers on invoices from services rendered in Brazil, including PIS and COFINS.
Refer to Note 3.12 for further information about the nature of these taxes.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11. | Income taxes
| | --- | ------------



Income taxes are comprised of
taxation over operations in Brazil, related to Corporate Income Tax (“IRPJ”) and Social Contribution on Net Profit
(“CSLL”). According to Brazilian tax law, income taxes and social contribution are assessed and paid by legal entity
and not on a consolidated basis. See current income tax positions in recoverable taxes (Note 10) and taxes payable (Note 17).



Reconciliation of income
tax expense



The following is a reconciliation
of income tax expense to profit (loss) for the year, calculated by applying the combined Brazilian statutory rates at 34% for the
year ended December 31, 2018 and 2017:



|                                                                     |  | 2018 |          | 2017 |  | 2016
|-------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ----
|Profit (loss) before taxes                                           |  |      | 442,339  |      |  |     
|Brazilian statutory rate                                             |  |      | 34       | %    |  |     
|Tax (expense) benefit at the statutory rate                          |  |      | (150,395 | )    |  |     
|                                                                     |  |      |          |      |  |     
|Additions (exclusions):                                              |  |      |          |      |  |     
|Gain from entities not subject to the payment of income taxes        |  |      | (3,283   | )    |  |     
|Other permanent differences                                          |  |      | (2,871   | )    |  |     
|Equity pickup on associates                                          |  |      | 169      |      |  |     
|Unrecorded deferred taxes                                            |  |      | (652     | )    |  |     
|Use of tax losses previously unrecorded                              |  |      | 2,689    |      |  |     
|Previously unrecognized deferred income tax on unused tax losses     |  |      | —        |      |  |     
|Previously unrecognized deferred income tax on temporary differences |  |      | —        |      |  |     
|Unrealized gain on previously held interest on acquisition           |  |      | 7,290    |      |  |     
|Tax incentives for cultural sponsorship                              |  |      | 3,300    |      |  |     
|Research and development tax benefit                                 |  |      | 4,026    |      |  |     
|Other tax incentives                                                 |  |      | 2,616    |      |  |     
|Total income tax and social contribution (expense) gain              |  |      | (137,112 | )    |  |     
|Effective tax rate                                                   |  |      | (31      | %)   |  |     
|                                                                     |  |      |          |      |  |     
|Current income tax and social contribution                           |  |      | (154,882 | )    |  |     
|Deferred income tax and social contribution                          |  |      | 17,770   |      |  |     
|Total income tax and social contribution (expense) gain              |  |      | (137,112 | )    |  |     





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Table of Contents




Deferred income taxes



Net changes in deferred income
taxes relate to the following:



|                                                                    |  | 2018 |         | 2017
|------------------------------------------------------------------- |  | ---- | ------- | ----
|                                                                    |  |      |         |     
|At January 1                                                        |  |      | 145,966 |     
|Adoption of new accounting standard                                 |  |      | 24,362  |     
|At January 1                                                        |  |      | 170,328 |     
|Losses available for offsetting against future taxable income       |  |      | (8,328  | )   
|Tax credit carryforward                                             |  |      | 18,762  |     
|Temporary differences under FIDC                                    |  |      | (16,095 | )   
|Share-based payments                                                |  |      | 16,103  |     
|Deferred income taxes arising from business combinations            |  |      | (12,852 | )   
|Amortization of intangible assets acquired in business combinations |  |      | 4,180   |     
|Changes in FVOCI                                                    |  |      | 7,198   |     
|Others                                                              |  |      | 3,149   |     
|At December 31                                                      |  |      | 182,445 |     
|                                                                    |  |      |         |     
|Deferred tax assets on tax losses                                   |  |      | 174,380 |     
|Deferred tax assets on temporary differences (a)                    |  |      | 88,288  |     
|Deferred tax liabilities (b)                                        |  |      | (80,223 | )   
|Deferred tax, net                                                   |  |      | 182,445 |     



| | (a) | The mainly temporary differences are the tax credit on assets measured at FVOCI and under expenses
carryforward.
| | --- | ----------------------------------------------------------------------------------------------------------------



| | (b) | The mainly deferred tax liabilities are under intangible assets acquired in business combination
and FIDC.
| | --- | ----------------------------------------------------------------------------------------------------------



Under Brazilian tax law, temporary
differences and tax losses can be carried forward indefinitely, however the loss carryforward can only be used to offset up to
30% of taxable profit for the year.



Unrecognized deferred taxes



The Group has accumulated tax
loss carryforwards in StoneCo Brasil of R$ 3,397 (2017 – R$ 4,511) for which a deferred tax asset was not recognized,
and for the Group’s other subsidiaries of R$ 2,042 (2017 – R$ 848) that are available indefinitely for offsetting against
future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognized with respect of
these losses as they cannot be used to offset taxable profits between subsidiaries of the Group, and there is no other evidence
of recoverability in the near future.



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Table of Contents


| | 12. | Property and equipment
| | --- | ----------------------



|                            | Balance at 12/31/2016 |  | Additions |  | Disposals |  | Transfers |  | Balance at 12/31/2017 |  | Business combination |  | Additions |  | Disposals |  | Transfers |  | Balance at 12/31/2018
|--------------------------- | --------------------- |  | --------- |  | --------- |  | --------- |  | --------------------- |  | -------------------- |  | --------- |  | --------- |  | --------- |  | ---------------------
|Cost                        |                       |  |           |  |           |  |           |  |                      
|                            |                       |  |           |  |           |  |           |  |                       |  |                      |  |           |  |           |  |           |  |                      
|Pin Pads & POS              | 85,039                |  | 75,442    |  | (16,644)  |  | -         |  | 143,837               |  | -                    |  | 136,819   |  | (25,180)  |  | (515)     |  | 254,961              
|IT equipment                | 14,947                |  | 43,713    |  | (58)      |  | (2,603)   |  | 55,999                |  | 576                  |  | 18,542    |  | (124)     |  | 361       |  | 75,354               
|Facilities                  | 415                   |  | 1,445     |  | -         |  | 2         |  | 1,862                 |  | -                    |  | 117       |  | (457)     |  | 459       |  | 1,981                
|Leasehold improvements      | 8,467                 |  | 7,881     |  | -         |  | 22        |  | 16,370                |  | -                    |  | 349       |  | (3,692)   |  | 6,117     |  | 19,144               
|Machinery and equipment     | 6,936                 |  | 2,786     |  | (247)     |  | 2,518     |  | 11,993                |  | 2                    |  | 1,587     |  | (50)      |  | 515       |  | 14,047               
|Furniture and fixtures      | 2,461                 |  | 2,738     |  | -         |  | 62        |  | 5,261                 |  | 6                    |  | 1,633     |  | (245)     |  | 194       |  | 6,849                
|Telephony equipment         | 175                   |  | 1         |  | -         |  | (1)       |  | 175                   |  | -                    |  | -         |  | -         |  | -         |  | 175                  
|Vehicles                    | 415                   |  | 2         |  | (3)       |  | -         |  | 414                   |  | -                    |  | -         |  | (324)     |  | -         |  | 90                   
|Construction in progress    | 1,149                 |  | 6,974     |  | (992)     |  | -         |  | 7,131                 |  | -                    |  | -         |  | -         |  | (7,131)   |  | -                    
|                            | 120,004               |  | 140,982   |  | (17,944)  |  | -         |  | 243,042               |  | 584                  |  | 159,047   |  | (30,072)  |  | -         |  | 372,601              
|Depreciation                |                       |  |           |  |           |  |           |  |                       |  |                      |  |           |  |           |  |           |  |                      
|                            |                       |  |           |  |           |  |           |  |                       |  |                      |  |           |  |           |  |           |  |                      
|Pin Pads & POS              | (20,473)              |  | (23,158)  |  | 5,874     |  | -         |  | (37,757)              |  | -                    |  | (44,698)  |  | 12,290    |  | 421       |  | (69,744)             
|IT equipment                | (3,432)               |  | (4,879)   |  | 7         |  | 644       |  | (7,660)               |  | (152)                |  | (13,971)  |  | -         |  | -         |  | (21,783)             
|Facilities                  | (60)                  |  | (240)     |  | -         |  | -         |  | (300)                 |  | -                    |  | (504)     |  | 95        |  | -         |  | (709)                
|Leasehold improvements      | (1,424)               |  | (2,460)   |  | -         |  | -         |  | (3,884)               |  | -                    |  | (4,207)   |  | 1,241     |  | -         |  | (6,850)              
|Machinery and equipment     | (882)                 |  | (1,596)   |  | 126       |  | (626)     |  | (2,978)               |  | (1)                  |  | (2,383)   |  | 50        |  | (421)     |  | (5,733)              
|Furniture and fixtures      | (225)                 |  | (448)     |  | -         |  | (18)      |  | (691)                 |  | (3)                  |  | (690)     |  | 30        |  | -         |  | (1,354)              
|Telephony equipment         | (45)                  |  | (36)      |  | -         |  | -         |  | (81)                  |  | -                    |  | (30)      |  | -         |  | -         |  | (111)                
|Vehicles                    | (41)                  |  | (19)      |  | -         |  | -         |  | (60)                  |  | -                    |  | (18)      |  | 34        |  | -         |  | (44)                 
|                            | (26,582)              |  | (32,836)  |  | 6,007     |  | -         |  | (53,411)              |  | (156)                |  | (66,501)  |  | 13,740    |  | -         |  | (106,328)            
|                            |                       |  |           |  |           |  |           |  |                       |  |                      |  |           |  |           |  |           |  |                      
|Property and equipment, net | 93,422                |  | 108,146   |  | (11,937)  |  | -         |  | 189,631               |  | 428                  |  | 92,546    |  | (16,332)  |  | -         |  | 266,273              



F-35


Table of Contents


| | i) | Depreciation and amortization charges
| | -- | -------------------------------------



Depreciation and amortization
expense has been charged in the following line items of the consolidated statement of profit or loss:



|                                      |  | 2018 |        | 2017 |  | 2016
|------------------------------------- |  | ---- | ------ | ---- |  | ----
|Cost of services                      |  |      | 54,203 |      |  |     
|General and administrative expenses   |  |      | 38,130 |      |  |     
|Depreciation and Amortization charges |  |      | 92,333 |      |  |     
|Depreciation charge                   |  |      | 66,501 |      |  |     
|Amortization charge (Note 13)         |  |      | 25,832 |      |  |     
|                                      |  |      | 92,333 |      |  |     



| | ii) | Impairment loss and compensation
| | --- | --------------------------------



As of December 31, 2018,
2017 and 2016, there were no indicators of impairment of property and equipment.



| | iii) | Leased assets
| | ---- | -------------



The Group holds equipment under
non-cancelable finance lease agreements. The lease terms are between 3 and 15 years, after which the ownership of the assets is
transferred to the Group.



Assets under finance lease
agreements included in “Pin Pad & POS” and “Machinery and Equipment” are as follows:



|                                  |  | 2018 |        | 2017 |  | 2016
|--------------------------------- |  | ---- | ------ | ---- |  | ----
|Cost - capitalized finance leases |  |      | 7,643  |      |  |     
|Accumulated depreciation          |  |      | (6,470 | )    |  |     
|Net book value                    |  |      | 1,173  |      |  |     



| | iv) | Property and equipment pledged as collateral
| | --- | --------------------------------------------



Finance leases and bank borrowings
are collateralized by the Group’s assets with acquisition cost amounts as follows:



|                        |  | 2018 |       | 2017 |  | 2016
|----------------------- |  | ---- | ----- | ---- |  | ----
|Furniture and fixtures  |  |      | 748   |      |  |     
|IT equipment            |  |      | 6,380 |      |  |     
|Leasehold improvements  |  |      | -     |      |  |     
|Machinery and equipment |  |      | 515   |      |  |     
|Total                   |  |      | 7,643 |      |  |     



F-36


Table of Contents


| | 13. | Intangible assets
| | --- | -----------------



|                                        | Balance at 12/31/2016 |  | Additions |  | Disposals |  | Transfers |  | Balance at 12/31/2017 |  | Business combination |  | Additions |  | Disposals |  | Impairment |  | Balance at 12/31/2018
|--------------------------------------- | --------------------- |  | --------- |  | --------- |  | --------- |  | --------------------- |  | -------------------- |  | --------- |  | --------- |  | ---------- |  | ---------------------
|Cost                                    |                       |  |           |  |           |  |           |  |                      
|                                        |                       |  |           |  |           |  |           |  |                       |  |                      |  |           |  |           |  |            |  |                      
|Goodwill - acquisition of subsidiaries  | 118,706               |  | -         |  | -         |  | -         |  | 118,706               |  | 24,488               |  | -         |  | -         |  | -          |  | 143,194              
|Customer relationship                   | 97,355                |  | -         |  | -         |  | -         |  | 97,355                |  | 2,103                |  | -         |  | (30)      |  | -          |  | 99,428               
|Trademark use right                     | 12,491                |  | -         |  | -         |  | -         |  | 12,491                |  | -                    |  | -         |  | -         |  | -          |  | 12,491               
|Trademarks and patents                  | 45                    |  | -         |  | -         |  | -         |  | 45                    |  | 1,659                |  | -         |  | -         |  | -          |  | 1,704                
|Software                                | 30,394                |  | 16,514    |  | (2,550)   |  | (1,295)   |  | 43,063                |  | 34,544               |  | 22,840    |  | -         |  | (4,764)    |  | 95,683               
|Licenses for use - payment arrangements | 4,039                 |  | 1,488     |  | -         |  | -         |  | 5,527                 |  | -                    |  | 5,910     |  | -         |  | -          |  | 11,437               
|Software in progress                    | -                     |  | 3,281     |  | (90)      |  | 1,295     |  | 4,486                 |  | -                    |  | 19,701    |  | (7,071)   |  | -          |  | 17,116               
|Others                                  | 876                   |  | -         |  | (176)     |  | -         |  | 700                   |  | -                    |  | 726       |  | (700)     |  | -          |  | 726                  
|                                        | 263,906               |  | 21,283    |  | (2,816)   |  | -         |  | 282,373               |  | 62,794               |  | 49,177    |  | (7,801)   |  | (4,764)    |  | 381,779              
|Amortization                            |                       |  |           |  |           |  |           |  |                       |  |                      |  |           |  |           |  |            |  |                      
|                                        |                       |  |           |  |           |  |           |  |                       |  |                      |  |           |  |           |  |            |  |                      
|Customer relationship                   | (7,477)               |  | (9,344)   |  | 10        |  | -         |  | (16,811)              |  | -                    |  | (9,760)   |  | -         |  | -          |  | (26,571)             
|Trademark use right                     | (8,658)               |  | (3,833)   |  | -         |  | -         |  | (12,491)              |  | -                    |  | -         |  | -         |  | -          |  | (12,491)             
|Trademarks and patents                  | -                     |  | -         |  | -         |  | -         |  | -                     |  | -                    |  | (113)     |  | -         |  | -          |  | (113)                
|Software                                | (6,940)               |  | (10,169)  |  | 255       |  | (176)     |  | (17,030)              |  | (5)                  |  | (13,311)  |  | -         |  | -          |  | (30,346)             
|Licenses for use - payment arrangements | (801)                 |  | (611)     |  | -         |  | 176       |  | (1,236)               |  | -                    |  | (2,278)   |  | -         |  | -          |  | (3,514)              
|Others                                  | (302)                 |  | (415)     |  | -         |  | -         |  | (717)                 |  | -                    |  | (370)     |  | -         |  | -          |  | (1,087)              
|                                        | (24,178)              |  | (24,372)  |  | 265       |  | -         |  | (48,285)              |  | (5)                  |  | (25,832)  |  | -         |  | -          |  | (74,122)             
|                                        |                       |  |           |  |           |  |           |  |                       |  |                      |  |           |  |           |  |            |  |                      
|Intangible assets, net                  | 239,728               |  | (3,089)   |  | (2,551)   |  | -         |  | 234,088               |  | 62,789               |  | 23,345    |  | (7,801)   |  | (4,764)    |  | 307,657              





F-37


Table of Contents


Impairment of
intangible assets



As of December 31, 2018
the Group has recognized an impairment loss on software, in the amount of R$ 4,764. As of December 31, 2017 there were no indicators
of impairment of finite-life intangible assets.



The Group performs its goodwill
impairment testing at the Group’s single CGU level, which is also a single operating and reportable segment.



The Group performed its annual
impairment test as of December 31, 2018 and 2017 which did not result in the need to recognize impairment losses on the carrying
value of goodwill.



The recoverable amount of the
Group’s single CGU is determined based on a value in use calculation using cash flow projections from financial budgets approved
by senior management covering a five-year period. The pre-tax discount rate applied to cash flow projections is 11.8% and the growth
rate applied to perpetuity cash-flow is 6.0% that considers long-term local inflation and long-term real growth.



The key assumptions used in
value in use calculation and sensitivity to changes in assumptions are as follows:



| | · | Average free cash flow to equity over the five-year forecast period; based on past performance
and management’s expectations of market development and on current industry trends and including long-term inflation forecasts
for each territory.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Average annual growth rate over the five-year forecast period; based on past performance and management’s
expectations of market development and on current industry trends and including long-term inflation forecasts for each territory.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Considered a pre-tax discount rate applied to cash flow of 11.8%, based on long-term interest rate,
equity risk premium, industry beta and other variables.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Considered a perpetuity growth rate of 6.0%, based on long-term local inflation and real growth.
| | - | ------------------------------------------------------------------------------------------------



Therefore, the goodwill impairment
testing considered, at once: a decrease of 10.0% of the free cash flow to equity in the first year, a decrease of 10.0% in the
growth rate for the second until fifth year, a decrease of 3.0 basis points in perpetuity rate after the fifth year and an increase
of 5.0 basis points in pre-tax discount rate, and it did not resulted in the impairment of the goodwill.



| | 14. | Accounts payable to clients
| | --- | ---------------------------



Accounts payable to clients
represents amounts due to accredited clients related to credit and debit card transactions, net of interchange fees retained by
card issuers and assessment fees paid to payment scheme networks as well as the Group’s net merchant discount rate fees which
are collected by the Group as an agent.



As of December 31, 2018,
accounts payable to clients was R$ 4,996,102 (2017 – R$ 3,637,510).



| | 15. | Trade accounts payable
| | --- | ----------------------



|                                |  | 2018 |         | 2017
|------------------------------- |  | ---- | ------- | ----
|Domestic trade accounts payable |  |      | 115,672 |     
|Foreign suppliers               |  |      | 1,736   |     
|Other                           |  |      | 428     |     
|                                |  |      | 117,836 |     



Accounts payable are unsecured
and the average payment term is 45 days. The carrying amount of accounts payable approximate their fair value, due to their short-term
nature.





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| | 16. | Labor, social security and share-based payment liabilities
| | --- | ----------------------------------------------------------



|                                                   |  | 2018 |        | 2017
|-------------------------------------------------- |  | ---- | ------ | ----
|Labor liabilities and related social charges       |  |      | 26,669 |     
|Accrued annual payments and related social charges |  |      | 70,063 |     
|Total labor and social security liabilities        |  |      | 96,732 |     
|Share-based payments (Note 26)                     |  |      | -      |     
|Total share-based payments                         |  |      | -      |     





The carrying amount of Labor
and social security liabilities approximate fair value, due to their short-term nature. See further details on Share-based payments
in Note 26.



| | 17. | Taxes payable
| | --- | -------------



|                                                   |  | 2018 |        | 2017
|-------------------------------------------------- |  | ---- | ------ | ----
|Contributions over revenue (PIS and COFINS) (a)    |  |      | 22,212 |     
|Taxes on services (ISS) (b)                        |  |      | 9,504  |     
|Withholding taxes from services taken (c)          |  |      | 4,838  |     
|Social security levied on gross revenue (INSS) (d) |  |      | 123    |     
|Withholding income tax (e)                         |  |      | 8,527  |     
|Income tax (IRPJ and CSLL) (f)                     |  |      | 5,944  |     
|Other taxes and contributions                      |  |      | 421    |     
|                                                   |  |      | 51,569 |     



| | (a) | PIS and COFINS are invoiced to and collected from the Group’s customers and recognized as
deductions to gross revenue against Tax liabilities, as the Group acts as agent collecting these taxes on behalf of the Brazilian
federal government.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | ISS is recognized as deductions to gross revenue against Tax liabilities, as the Group acts as
agent collecting these taxes on behalf of municipal governments.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Amount relative to PIS, COFINS and CSLL, withheld from suppliers and paid by the Group on their
behalf. These amounts are recognized as a tax liability, with no impact to the statement of profit or loss.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | The entities Buy4, Equals and Mundipagg pay an INSS rate of 4.50% on gross revenue due to the benefits
this regime offers to technology companies compared with social security tax on payroll.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | For some entities in the Group, advances for the payment of income tax are paid during the tax
year and are recognized as an asset under Recoverable taxes (Note 10).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | The expense for current income tax is recognized in the statement of profit or loss under “Income
tax and social contribution” against tax payable. However, for some entities in the Group, advances for the payment of income
tax are paid during the tax year and are recognized as an asset under Recoverable taxes (Note 10).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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| | 18. | Loans and financing
| | --- | -------------------



As of December 31, 2018
and 2017, loans and financing are as follows:



|                                                   |  | Average annual interest rate % |  | Maturity       |  | 2018 |           | 2017
|-------------------------------------------------- |  | ------------------------------ |  | -------------- |  | ---- | --------- | ----
|Obligations to FIDC AR senior quota holders (a)    |  | 106.8% of CDI Rate*            |  | Jun/20, Dec/20 |  |      | 6,408     |     
|Obligations to FIDC TAPSO senior quota holders (b) |  | 118.0% of CDI Rate*            |  | Sep/19         |  |      | 10,238    |     
|Leasing (c)                                        |  | CDI Rate* + 2.1% per year      |  | Feb/19         |  |      | 783       |     
|Leasing (c)                                        |  | 7.1% per year                  |  | Jul/20         |  |      | 1,496     |     
|Finame (d)                                         |  | UMBNDES** + 4.0% per year      |  | Jul/19         |  |      | 750       |     
|Loans with private entities (e)                    |  | 103.0% of CDI Rate*            |  | Oct/19         |  |      | 758,027   |     
|Current portion of debt                            |  |                                |  |                |  |      | 777,702   |     
|                                                   |  |                                |  |                |  |      |           |     
|Obligations to FIDC AR senior quota holders (a)    |  | 106.8% of CDI Rate*            |  | Jun/20, Dec/20 |  |      | 2,057,925 |     
|Leasing (c)                                        |  | CDI Rate* + 2.1% per year      |  | Feb/19         |  |      | -         |     
|Leasing (c)                                        |  | 7,1% per year                  |  | Jul/20         |  |      | 1,395     |     
|Finame (d)                                         |  | UMBNDES** + 4.0% per year      |  | Jul/19         |  |      | -         |     
|Non-current portion of debt                        |  |                                |  |                |  |      | 2,059,320 |     
|Total debt                                         |  |                                |  |                |  |      | 2,837,022 |     



| | * | “CDI Rate” means the Brazilian interbank deposit (Certificado de Depósito
Interbancário) rate, which is an average of interbank overnight rates in Brazil.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | ** | “UMBNDES rate” means a floating exchange rate based on a monetary unit of the BNDES,
which is based on a basket of currencies including the U.S. dollar, the Euro and other currencies.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Obligations to FIDC AR senior quota holders
| | --- | -------------------------------------------



The FIDC AR1 and FIDC AR2 were
launched in June 2017 and November 2017, respectively, and issued senior quotas through a public offering to qualified institutional
investors. The purpose of these FIDCs is to acquire receivables arising from credit card transactions and fund the Group’s
operations. The Group holds 100% of the subordinated quotas in these entities. Residual returns from these FIDCs, if any, are paid
to subordinated quotas. Senior quotas of FIDC AR1 and FIDC AR2 bear interest at 106.8% of the CDI rate and receive interest payments
every six months. At the end of the third annual period, the senior quotas must be fully redeemed.



| | (b) | Obligations to FIDC TAPSO senior quota holders
| | --- | ----------------------------------------------



In August 2018, the Group raised
a total of R$ 10,000, by issuing one-year senior quotas of the FIDC TAPSO to a pool of institutional investors. The senior quotas
have a benchmark return rate of 118% of the CDI rate per year and receive interest payments every six months. At the end of the
first year, the senior quotas must be fully redeemed. Accordingly, these senior quotas mature in September 2019.



| |  | 
| |  | 

| | (c) | Finance lease liabilities
| | --- | -------------------------



The Group has lease agreements
in order to finance the acquisition of POS and Pin Pads to be leased to the clients, as well as other fixed assets. The lease agreements
provide a purchase option of the financed equipment and fixed assets by the Group.



The Group’s obligations
under finance leases are effectively secured by the lessor’s title to the leased assets. Future minimum lease payments under
finance leases, together with the present value of the net minimum lease payments, are as follows:



|                                         |  | 2018 |       | 2017
|---------------------------------------- |  | ---- | ----- | ----
|Within one year                          |  |      | 2,341 |     
|After one year but no more than 5 years  |  |      | 1,556 |     
|Total minimum lease payments             |  |      | 3,897 |     
|Future finance charges on finance leases |  |      | (223  | )   
|Present value of minimum lease payments  |  |      | 3,674 |     





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| | (d) | Finame
| | --- | ------



Bank
borrowings mature through 2019 and bear average interest of UMBNDES Rate + 4.0% per year. The maturity dates are as follows:



|                    |  | 2018 |     | 2017
|------------------- |  | ---- | --- | ----
|Less than 12 months |  |      | 750 |     
|1-5 years           |  |      | -   |     
|                    |  |      | 750 |     



| | (e) | Loans with private entities
| | --- | ---------------------------



On October 1, 2018, the Group
entered into an agreement with SRC Companhia Securitizadora de Créditos Financeiros (“SRC”). The transaction
is a revolving loan, at a discount rate equivalent to 103.0% of the CDI Rate, and has a maturity of 12 months. Accounts receivables
from card issuers are used as collateral, in the equivalent amount of 106% of loan balance.



| | (f) | Changes in loans and financing
| | --- | ------------------------------



|                                               |  | Balance at 12/31/2017 |           | Funding |  | Payment |         | Interest |  | Balance at12/31/2018
|---------------------------------------------- |  | --------------------- | --------- | ------- |  | ------- | ------- | -------- |  | --------------------
|Obligations to FIDC AR senior quota holders    |  |                       | 2,065,026 |         |  |         | -       |          |  |                     
|Obligations to FIDC TAPSO senior quota holders |  |                       | -         |         |  |         | 10,000  |          |  |                     
|Finance lease                                  |  |                       | 12,517    |         |  |         | 4,339   |          |  |                     
|Bank borrowings                                |  |                       | 4,354     |         |  |         | -       |          |  |                     
|Loans with private entities                    |  |                       | -         |         |  |         | 746,909 |          |  |                     
|Total                                          |  |                       | 2,081,897 |         |  |         | 761,248 |          |  |                     
|                                               |  |                       |           |         |  |         |         |          |  |                     
|Current                                        |  |                       | 22,534    |         |  |         |         |          |  |                     
|Noncurrent                                     |  |                       | 2,059,363 |         |  |         |         |          |  |                     



|                                            |  | Balance at 12/31/2016 |        | Funding |  | Payment |           | Interest |  | Balance at 12/31/2017
|------------------------------------------- |  | --------------------- | ------ | ------- |  | ------- | --------- | -------- |  | ---------------------
|Obligations to FIDC AR senior quota holders |  |                       | —      |         |  |         | 2,054,256 |          |  |                      
|Finance lease                               |  |                       | 22,311 |         |  |         | —         |          |  |                      
|Bank borrowings                             |  |                       | 18,516 |         |  |         | —         |          |  |                      
|Total                                       |  |                       | 40,827 |         |  |         | 2,054,256 |          |  |                      
|                                            |  |                       |        |         |  |         |           |          |  |                      
|Current                                     |  |                       | 22,802 |         |  |         |           |          |  |                      
|Noncurrent                                  |  |                       | 18,025 |         |  |         |           |          |  |                      



| | 19. | Transactions with related parties
| | --- | ---------------------------------



Related parties comprise the
Group’s parent companies, shareholders, key management personnel and any businesses which are controlled, directly or indirectly
by the shareholders and directors over which they exercise significant management influence. Related party transactions are entered
in the normal course of business at prices and terms approved by the Group’s management.



| | (a) | Transactions with related parties
| | --- | ---------------------------------



The following transactions
were carried out with related parties:



|                                                 |  | 2018 |        | 2017
|------------------------------------------------ |  | ---- | ------ | ----
|Sales of services                                |  |      |        |     
|Associates (legal and administration services) * |  |      | 159    |     
|                                                 |  |      | 159    |     
|Purchases of goods and services                  |  |      |        |     
|Entity controlled management personnel**         |  |      | (7,730 | )   
|Associates (transaction services) *              |  |      | (397   | )   
|                                                 |  |      | (8,127 | )   





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| | * | Related to cost-sharing and checking account agreements with Equals S.A. incurred until the acquisition
date.
| | - | -------------------------------------------------------------------------------------------------------------



| | ** | Related to consulting and management services with Genova Consultoria e Participações
Ltda., and travel services provided by Zurich Consultoria e Participações Ltda.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



Services provided to related
parties include legal and administrative services provided under normal trade terms and reimbursement of other expenses incurred
in their respect.



The Group acquired under normal
trade terms the following goods and services from entities that are controlled by members of the Group’s management personnel:



| | • | management and consulting services;
| | - | -----------------------------------



| | • | travel services; and
| | - | --------------------



| | • | services related to card transactions.
| | - | --------------------------------------



| | (b) | Year-end balances
| | --- | -----------------



The following balances are
outstanding at the end of the reporting period in relation to transactions with related parties:



|                                  |  | 2018 |       | 2017
|--------------------------------- |  | ---- | ----- | ----
|Receivables from related parties  |  |      |       |     
|Associates                        |  |      | 13    |     
|Loans to key management personnel |  |      | 8,082 |     
|                                  |  |      | 8,095 |     



As of December 31, 2018,
there is no allowance for expected credit losses on related parties’ receivables. No guarantees were provided or received
in relation to any accounts receivable or payable involving related parties.



The Group has outstanding loans
with certain management personnel. The loans are payable in three to seven years from the date of issuance and accrue interest
according to the National Consumer Price Index, the Brazilian Inter-Bank Rate or Libor plus an additional spread.



| | (c) | Key management personnel compensation
| | --- | -------------------------------------



Management includes the legal
directors of StoneCo plus key executives of the Group and compensation consists of fixed compensation, profit sharing and benefits
plus any correlating social or labor charges and or provisions for such charges. Compensation expenses are recognized in profit
or loss of the Group. For the year ended December 31, 2018 and 2017, compensation expense was as follows:



|                               |  | 2018 |        | 2017
|------------------------------ |  | ---- | ------ | ----
|Short-term benefits            |  |      | 5,330  |     
|Share-based payments (note 26) |  |      | 19,941 |     
|                               |  |      | 25,271 |     

| | 20. | Provision for contingencies
| | --- | ---------------------------



The Group companies are party
to tax, labor and civil litigation in progress, which are being addressed at the administrative and judicial levels. For certain
contingencies, the Group has made judicial deposits, which are legal reserves the Group is required to make by the Brazilian courts
as security for any damages or settlements the Group may be required to pay as a result of litigation.



Probable losses, provided
for in the statement of financial position



The provisions for probable
losses arising from these matters are estimated and periodically adjusted by management, supported by the opinion of its external
legal advisors. The amount and nature of the liabilities is summarized as follows:



|      |  | 2018 |       | 2017
|----- |  | ---- | ----- | ----
|Civil |  |      | 991   |     
|Labor |  |      | 251   |     
|Total |  |      | 1,242 |     





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| | • | MNLT, Stone, Pagar.me, Cappta and Mundipagg are parties to legal suits and administrative proceedings
filed with several courts and governmental agencies, in theordinary course of their operations, involving civil
and labor claims.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Possible losses, not provided
for in the statement of financial position



The Group has the following
civil and labor litigation involving risks of loss assessed by management as possible, based on the evaluation of the legal advisors,
for which no provision for estimated possible losses was recognized:



|      |  | 2018 |        | 2017
|----- |  | ---- | ------ | ----
|Civil |  |      | 50,473 |     
|Labor |  |      | 4,348  |     
|Total |  |      | 54,821 |     



The nature of the liabilities
is summarized as follows:



| | • | Stone is party to an injunction filed by a financial institution against an accredited client in
which Stone was called as a defendant, demanding Stone to refrain from prepayment of receivables related to any credits of the
accredited client resulting from credit and debit cards, in addition to requesting that the amounts arising out of the transactions
be paid at the bank account maintained at the financial institution that filed such lawsuit. The amount of the lawsuit as of December 31,
2018 is R$ 44,776 (2017 - R$ 44,786).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Stone, MNLT, Cappta, Mundipagg and Pagar.me are parties to legal suits filed in several Brazilian
courts, in the ordinary course of their operations. These claims are related to: (i) chargeback related claims, which sums
R$ 2,205 (2017 - R$ 2,471); (ii) issues related to the bank slip product, totaling R$ 446 (2017 – R$ 3); and (iii) disputes
related to merchants of credit card receivables, totaling R$ 555 (2017 – R$ 4,687).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 21. | Equity
| | --- | ------



| | i. | Authorized capital
| | -- | ------------------



The
Company has an authorized share capital of USD 50 thousand, corresponding to 630,000,000 authorized shares with a par value
of USD 0.000079365 each. Therefore, the Company is authorized to increase capital up to this limit, subject to approval of the
Board of Directors. The liability of each member is limited to the amount from time to time unpaid on such member’s shares.



| | ii. | Subscribed and paid-in capital and capital reserve
| | --- | --------------------------------------------------



In October 2018, immediately
prior the completion of the IPO, each of the ordinary voting shares and Class C shares (5,881,050 shares) were converted into Class
B common shares, and each of the outstanding ordinary non-voting shares, as Class A common shares. Therefore, the Company has two
share classes, Class A and Class B common shares, with the following rights:



| | • | each holder of Class A common shares is entitled to one vote per share on all matters to be voted
on by shareholders generally, including the election of directors;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | each holder of Class B common shares is entitled to 10 votes per share on all matters to be voted
on by shareholders generally, including the election of directors;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the holders of our Class A common shares and Class B common shares are entitled to dividends and
other distributions as may be recommended and declared from time to time by our board of directors out of funds legally available
for that purpose, if any; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | upon our liquidation, dissolution or winding up, each holder of Class A common shares and Class
B common shares will be entitled to share equally on a pro rata basis in the distribution of all of our assets remaining available
for distribution after satisfaction of all our liabilities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Articles of Association
provide that at any time when there are Class A common shares in issue, Class B common shares may only be issued pursuant to: (a)
a share split, subdivision or similar transaction or as contemplated in the Articles of Association; or (b) a business combination
involving the issuance of Class B common shares as full or partial





F-43


Table of Contents




consideration. A business combination, as defined in the Articles
of Association, would include, amongst other things, a statutory amalgamation, merger, consolidation, arrangement or other reorganization.



At the Extraordinary General
Meeting of Shareholders held on October 11, 2018, the Company’s shareholders approved a capital stock share split with a
ratio to be determined by the Board of Directors. On October 14, 2018, the Board of Directors of the Company approved the 126:1
(one hundred twenty-six for one) share split ratio. As a result of the share split, the Company’s historical financial statements
have been revised to reflect number of shares and per share data as if the share split had been in effect for all periods presented.



Below are the issuances and
repurchases of shares during 2016, 2017 and 2018 (after giving effect to the share split and conversion mentioned above):



|                            |  | Number of shares                    
|--------------------------- |  | ------------------------------------
|                            |  | Class A (former Ordinary non-voting)
|                            |  |                                     
|At January 1, 2016          |  |                                     
|Issuance                    |  |                                     
|At December 31, 2016        |  |                                     
|                            |  |                                     
|Issuance                    |  |                                     
|Repurchase and cancellation |  |                                     
|At December 31, 2017        |  |                                     
|                            |  |                                     
|Issuance                    |  |                                     
|Initial public offering     |  |                                     
|Vested awards               |  |                                     
|Repurchase and cancellation |  |                                     
|Reclassification            |  |                                     
|At December 31, 2018        |  |                                     



During 2016, the Company received
capital contributions in which 110 ordinary voting shares (or 13,860 Class B common shares after split and reclassification) and
313,440 ordinary non-voting shares (or 39,493,440 Class A common shares after split and reclassification) were issued for an amount
of R$ 472,401 to owners of the parent, and for an amount of R$ 12,857 to non-controlling interest.



In 2017, the Company had capital
contributions in which 173,882 ordinary non-voting shares (or 21,909,132 Class A common shares after split and reclassification)
were issued for an amount of R$527,531 to owners of the parent, and for an amount of R$ 1,483 to non-controlling interest.



In addition, during 2017, the
Company repurchased 95,194 shares (or 11,994,444 shares after share split) which were cancelled. Total consideration paid for these
shares was R$ 280,825.



In January 2018, the Company
received capital contributions for an amount of R$ 3,240 for the issuance of 875 ordinary non-voting shares (or 110,250 Class A
common shares after share split and reclassification).



In July 2018, 14,397 Class C
shares (or 1,814,022 Class B common shares after split and reclassification) were repurchased by the Group for an initial consideration
of R$ 63,230, which was subject to an additional payment upon the occurrence of certain events including the completion of an IPO,
sale or private placement (“Capital Event”). Given the consummation of the IPO, such additional payment has been determined
in R$ 79,210, calculated by multiplying the number of shares that have been redeemed by 90% of the share price in the Capital Event
minus the initial consideration, paid on October 29, 2018, totalizing R$ 142,440.



As mentioned in Note 26, the
Group granted 45,249 (after share split 5,701,374) new awards of restricted share units (“RSUs”), stock options and
incentive shares. Approximately 9,000 (after share split 1,134,000) awards were reserved as anti-dilutive shares to be issued to
the Company’s controlling shareholders pro-rata upon vesting of the granted RSUs and stock option awards described in Note
19.



As a result of the completion
of the IPO described in Note 1, new shares were issued in October 2018 as follows:



| | (i) | 45,818,182 new Class A common shares sold by the Company in the IPO;
| | --- | --------------------------------------------------------------------



| | (ii) | 4,906,456 new Class A common shares sold by the selling shareholders in the IPO (and the related
conversion of Class B common shares in connection with such sale);
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------





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(iii) 5,543,090
new Class A common shares as a result of the exercise of the underwriters’ option to purchase additional shares from the
selling shareholders (and the related conversion of Class B common shares in connection with such sale);



| | (iv) | 4,166,666 new Class A common shares sold by the Company in the placement exempt from registration;
| | ---- | --------------------------------------------------------------------------------------------------



| | (v) | 5,333,202 new Class A common shares issued to certain employees upon consummation of the IPO in
exchange for equity awards that they hold in subsidiaries;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | 146,806 new Class A common shares underlying outstanding RSUs that vested in connection with the
IPO plus 28,979 new Class A common shares granted to the founder shareholders as anti-dilutive shares pro rata upon the vesting
of such RSUs, both including additional RSU awards vested in connection with the exercise of the underwriters’ option to
purchase additional shares from the selling shareholders (Note 26);
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) | 233,856 new Class A common shares as part of the purchase price consideration for the acquisition
of the remaining 44.0% interest in Equals, effective upon the consummation of the IPO (Note 5);
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During 2018,
the Company received total capital contributions of R$ 4,229,153.



As of December 31, 2018
and 2017, all issued shares were paid in full.



The additional paid-in capital
refers to the difference between the purchase price that the shareholders pay for the shares and their par value. Under Cayman
Law, the amount in this type of account may be applied by the Company to pay distributions or dividends to members, pay up unissued
shares to be issued as fully paid, for redemptions and repurchases of own shares, for writing off preliminary expenses, recognized
expenses, commissions or for other reasons. All distributions are subject to the Cayman Solvency Test which addresses the Company’s
ability to pay debts as they fall due in the natural course of business.



| | 22. | Earnings (loss) per share
| | --- | -------------------------



Basic earnings (loss) per share
is calculated by dividing net income (loss) for the year attributed to the owners of the parent by the weighted average number
of ordinary shares outstanding during the year.



During 2018 and 2017, the Group
had outstanding grants and subsidiary preferred shares, which participated in profit or loss as follows:



| | • | Liability and equity classified Class C Shares (prior to share reclassification) granted to
founders and executives on multiple dates from 2015 through 2017 were issued on July 7, 2017. Upon grant and prior to the
issuance of those shares, the founders and executives held a right to participate evenly in dividends when declared on ordinary
shares.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | A subsidiary of the Group has outstanding liability classified preferred shares to certain employees
and business partners. These preferred shares participate evenly with ordinary shareholders of the subsidiary in dividends of the
subsidiary when declared.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As these awards participate
in dividends, the numerator of the Earnings per Share (“EPS”) calculation is adjusted to allocate undistributed earnings
(losses) as if all earnings (losses) for the year had been distributed. In determining the numerator of basic EPS, earnings (loss)
attributable to the Group is allocated as follows:



|                                                                      |  | 2018 |         | 2017 |  | 2016
|--------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ----
|Net income (loss) attributable to Owners of the Parent                |  |      | 301,232 |      |  |     
|Less: Net loss allocated to participating share grants of the Company |  |      | -       |      |  |     
|Less: Net loss allocated to participating shares of Group companies   |  |      | (126    | )    |  |     
|Numerator of basic and diluted EPS                                    |  |      | 301,358 |      |  |     



As of December 31, 2018, the
shares issued in connection with the acquisition of Equals (Note 5) were adjusted to basic and diluted EPS calculation since the
acquisition date. On September 1, 2018, the Group granted RSU and stock options (Note 26), which are included in diluted EPS calculation
for the year then ended.





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As of December 31, 2017, the
Group had no outstanding and unexercised options to purchase shares and, as such, basic and diluted EPS are the same for the year
then ended.



As of December 31, 2016, the
Group had outstanding and unexercised options to purchase 187,236 shares, all of which were anti-dilutive. As such, were not included
in the calculation of diluted earnings per share for the year then ended.



The following table contains
the earnings (loss) per share of the Group for the years ended December 31, 2018, 2017 and 2016 (in thousands except share
and per share amounts):



|                                              |  | 2018 |             | 2017 |  | 2016
|--------------------------------------------- |  | ---- | ----------- | ---- |  | ----
|Numerator of basic EPS                        |  |      | 301,358     |      |  |     
|                                              |  |      |             |      |  |     
|Equals’ acquisition                           |  |      | 33,316      |      |  |     
|Weighted average number of outstanding shares |  |      | 232,499,264 |      |  |     
|Denominator of basic EPS                      |  |      | 232,532,580 |      |  |     
|                                              |  |      |             |      |  |     
|Basic earnings (loss) per share - R$          |  |      | 1.30        |      |  |     



|                                              |  | 2018 |             | 2017 |  | 2016
|--------------------------------------------- |  | ---- | ----------- | ---- |  | ----
|Numerator of diluted EPS                      |  |      | 301,358     |      |  |     
|                                              |  |      |             |      |  |     
|Equals’ acquisition                           |  |      | 33,316      |      |  |     
|Share-based payments                          |  |      | 1,748,001   |      |  |     
|Weighted average number of outstanding shares |  |      | 232,499,264 |      |  |     
|Denominator of diluted EPS                    |  |      | 234,280,581 |      |  |     
|                                              |  |      |             |      |  |     
|Diluted earnings (loss) per share - R$        |  |      | 1.29        |      |  |     



In accordance with the requirements
of IAS 33 – Earnings per share, the denominator at each year was retrospectively adjusted to reflect the share split approved
on October 14, 2018 (Note 1).



| | 23. | Total revenue and income
| | --- | ------------------------



|                                                            |  | 2018 |           | 2017 |  | 2016
|----------------------------------------------------------- |  | ---- | --------- | ---- |  | ----
|Transaction activities and other services                   |  |      | 587,299   |      |  |     
|(-) Taxes and contributions on revenue                      |  |      | (72,687   | )    |  |     
|(-) Other deductions                                        |  |      | (10       | )    |  |     
|Net revenue from transaction activities and other services  |  |      | 514,602   |      |  |     
|Equipment rental and subscription services                  |  |      | 235,682   |      |  |     
|(-) Taxes and contributions on revenue                      |  |      | (21,062   | )    |  |     
|(-) Other deductions                                        |  |      | (941      | )    |  |     
|Net revenue from subscription services and equipment rental |  |      | 213,679   |      |  |     
|Financial income                                            |  |      | 842,025   |      |  |     
|(-) Taxes and contributions on financial income             |  |      | (40,703   | )    |  |     
|Financial income                                            |  |      | 801,322   |      |  |     
|Other financial income (a)                                  |  |      | 49,578    |      |  |     
|Total revenue and income                                    |  |      | 1,579,181 |      |  |     
|                                                            |  |      |           |      |  |     
|Timing of revenue recognition                               |  |      |           |      |  |     
|Recognized at a point in time                               |  |      | 514,602   |      |  |     
|Recognized over time                                        |  |      | 1,064,579 |      |  |     
|Total revenue and income                                    |  |      | 1,579,181 |      |  |     



| | (a) | Other financial income mainly includes interest accrued in bank saving accounts and judicial deposits
held by Brazilian courts for judicial disputes.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------





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| | 24. | Expenses by nature
| | --- | ------------------



|                                             |  | 2018 |           | 2017 |  | 2016
|-------------------------------------------- |  | ---- | --------- | ---- |  | ----
|                                             |  |      |           |      |  |     
|Personnel expenses (Note 25)                 |  |      | 421,240   |      |  |     
|Financial expenses (a)                       |  |      | 301,065   |      |  |     
|Transaction and client services costs (b)    |  |      | 163,561   |      |  |     
|Depreciation and amortization                |  |      | 92,333    |      |  |     
|Third parties services                       |  |      | 42,875    |      |  |     
|Marketing expenses and sales commissions (c) |  |      | 40,890    |      |  |     
|Facilities expenses                          |  |      | 34,095    |      |  |     
|Travel expenses                              |  |      | 19,414    |      |  |     
|Other                                        |  |      | 20,924    |      |  |     
|Total expenses                               |  |      | 1,136,397 |      |  |     



| | (a) | Financial expenses include discounts on the sale of receivables to banks, interest expense on borrowings,
foreign currency exchange variances, net and the cost of derivatives covering interest and foreign exchange exposure.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Transaction and client services costs include card transaction capturing services, card transaction
and settlement processing services, logistics costs, payment scheme fees and other costs.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Marketing expenses and sales commissions relate to marketing and advertising expenses, and commissions
paid to sales related partnerships.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



| | 25. | Employee benefits
| | --- | -----------------



|                                  |  | 2018 |         | 2017 |  | 2016
|--------------------------------- |  | ---- | ------- | ---- |  | ----
|Wages and salaries                |  |      | 242,147 |      |  |     
|Social security costs             |  |      | 70,988  |      |  |     
|Profit sharing and annual bonuses |  |      | 47,262  |      |  |     
|Share-based payments              |  |      | 60,843  |      |  |     
|                                  |  |      | 421,240 |      |  |     



The Group provides a standard
benefit package to all employees, consisting primarily of health care plans, group life insurance, meal and food vouchers and transportation
vouchers. All related amounts are recorded in profit or loss for each year.



| | 26. | Share-based payment
| | --- | -------------------



The Group provides benefits
to employees (including executive directors) of the Group through share-based incentives. The following table outlines the key
share-based awards expense and their respective equity or liability balances as of December 31, 2018, 2017 and 2016.



|                        | Equity | Liability |            |    
|----------------------- | ------ | --------- | ---------- | ---
|                        |        | Class C   |            | RSU
|                        |        |           |            |    
|Number of shares        |        |           |            |    
|                        |        |           |            |    
|As of December 31, 2015 |        |           | 519,246    |    
|Granted                 |        |           | 924,966    |    
|As of December 31, 2016 |        |           | 1,444,212  |    
|                        |        |           |            |    
|Granted                 |        |           | -          |    
|Repurchased             |        |           | (339,948   | )  
|As of December 31, 2017 |        |           | 1,104,264  |    
|                        |        |           |            |    
|Granted                 |        |           | -          |    
|Issued                  |        |           | -          |    
|Reclassified            |        |           | 6,590,808  |    
|Repurchased             |        |           | (1,814,022 | )  
|Converted               |        |           | (5,881,050 | )  
|As of December 31, 2018 |        |           | -          |    





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Class C ordinary shares



The Group granted fully vested
share awards from January 2015 to January 2017 entitling key founders and senior executives the issuance of Class C ordinary
shares in the Group.



In July 2017, Class C
Shares were issued to a holding vehicle in which the key founders and senior executives are shareholders.



The Class C Shares are
subject to a 10-year lock-up period, however transfer of the Class C Shares during the lock-up period is permitted subject
to approval by the Board of Directors of the Group.



Two of the key founders of
the Group who received Class C Shares are two of the three board members of the holding vehicle and the Group. As board members
of the Group, these key founders had the ability to approve a redemption of their Class C Shares pursuant to the terms of
the articles of association at their discretion, thus creating an in-substance put option. As such, the grants to these key founders
are liability classified. This liability was measured at fair value on the grant dates and remeasured subsequently every reporting
date. The change in the fair value of the liability was recognized through profit and loss at each reporting date. For the year
ended December 31, 2017 the Group recognized R$ 121,219 in compensation expense relating to Class C Shares granted to
founders.



Effective January 1, 2018,
the articles of association were modified to create an independent committee to approve any share redemptions of founders within
the holding vehicle (including redemption of interests in the Group), which removed the mechanism that had allowed the founders
to be able to put the shares to the Group. Therefore, the Class C Shares held by the founders were reclassified to equity.



The other key executives who
were granted Class C Shares do not have control of the Group and therefore do not have the ability to control the redemption
of their shares. Therefore, such awards were classified as equity. These equity grants were measured at fair value with an associated
compensation expense fully recognized on the grant date.



In July 2018, 14,397 Class C
shares (or 1,814,022 Class B common shares after share split and reclassification) were repurchased by the Group for an initial
consideration of R$ 63,230, which was subject to an additional payment upon the occurrence of certain events including the completion
of an IPO, sale or private placement (“Capital Event”). Given the consummation of the IPO, such additional payment
has been determined in R$ 79,210, calculated by multiplying the number of shares that have been redeemed by 90% of the share price
in the Capital Event minus the initial consideration, paid on October 29, 2018, totalizing R$ 142,440.



Incentive Shares



In 2017, certain key employees
have been granted incentive shares, or the Co-Investment Shares, that entitle participants to receive a cash bonus which they,
at their option, may use to purchase a specified number of preferred shares in StoneCo Brasil which are then exchanged for common
shares in DLP Par. Incentive shares are subject to a lock-up period and a discounted buy-back feature retained by the Group if
the employee leaves prior to lockup expiration.



Incentive Shares are subject
to a 10 year lock-up period after which participants have the right to sell their shares to a third-party buyer for the then-current
fair market value of StoneCo Brasil (determined as the current share price in a public market or the latest private funding round
valuation if still private plus applicable accumulated interest subject to approval from DLP Capital and DLP Par and a preemptive
right of DLP Capital and DLP Par to purchase the shares at the same price offered by a third-party buyer). If a participant ceases
employment for any reason before the end of the 10 years lock-up period, DLP Par and DLP Capital each have the right to acquire
the shares for the price originally paid by the participant, less an applicable discount as below.



|Time remaining to the end of the Lock-up period |  | Discount |    | Monthly Installments
|----------------------------------------------- |  | -------- | -- | --------------------
|7-10 years                                      |  |          | 25 | %                   
|3-7 years                                       |  |          | 20 | %                   
|0-3 years                                       |  |          | 15 | %                   



The Repurchase Right can be
exercised at any time up to two years from the participant’s termination date. Once the lock-up period expires and if the
participant terminates employment, the Company has a 90-day option to repurchase the shares at the then-current share price.



Based on the repurchase discount
schedule the largest payout is 85% of the award’s grant date fair value should a participant leave before the 10-year lock-up
period expires. The vesting tranches are broken into three separate tranches, which reflects the terms of the repurchase right
and constitutes graded vesting features.





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The first tranche represents
75% of the grant date fair value, recognized in full on the grant date. That is, if an employee voluntarily terminates employment
up to 3 years from the grant date and the Company exercises its repurchase feature, the participant will receive a cash payment
equal to 75% of the grant date fair value.



The second tranche represents
5% of the grant date fair value, recognized from grant date to the end of year 3. This represents the additional 5% potential
repurchase payment if the employee satisfies 3 to 7 years of the lock-up period.



The third tranche represents
5% of the grant date fair value, recognized from grant date to the end of year 7. This represents the additional 5% potential repurchase
payment if the employee satisfies at least 7 years of the lock-up period, but leaves prior to the expiration of the lock-up period.



As mentioned in Note 21, in
2018, 5,333,202 new Class A common shares were issued to certain employees upon consummation of the IPO. This Class A shares were
granted as Incentive shares plan, and were reclassified to equity.



Phantom Share plan



Under the Phantom Share plan
granted on December 1, 2017 participants have the right to receive compensation in cash for the appreciation of StoneCo Brasil
share price equivalent to the difference between the price per share at the date of grant and the price per share upon a qualifying
settlement event. The participant must remain actively employed until the settlement event occurs in order to become vested in
the award. A settlement event is defined as the entrance of a new shareholder into the Group who takes possession of more than
50% of voting rights. If the value of the incentive is negative, no amount will be owed to the participant. Therefore, the plan
is accounted for as a cash settled award with a liability for the actual cash paid to the employees, which will be the fair value
at settlement date. However, as of December 31, 2017, Management did not consider a settlement event probable. As such, no
compensation expense has been recognized for this plan in the year ended December 31, 2017. In September 2018, these shares
were converted to RSU awards and recognized in equity over the vesting period.



Share Options



In consideration of a nonemployee’s
services as an advisor, on December 15, 2014 the Group granted this individual the right to subscribe for 1,486 non-voting shares
of StoneCo at an aggregate purchase price of US$ 400 thousand. The Options are exercisable immediately upon grant date for
up to 3 years (“Option Period”). The Options were never exercised and expired on December 15, 2017. The plan is accounted
for as an equity settled award with fair value estimated using a Black Scholes option pricing model and the related compensation
expense was recognized in full on grant date as the arrangement did not require any vesting or performance condition after the
date of grant.



Restricted share units and
stock options



In September 2018, the Group
granted new awards of restricted share units (“RSUs”) and stock options. In addition, all outstanding Phantom Shares,
which were originally granted on December 1, 2017, were converted to RSU awards. These awards are equity classified, the majority
of the awards are subject to performance conditions, and the related compensation expense will be recognized over the vesting period.
The Company issued 42,911 (after share split 5,406,786) awards (including Phantom Shares converted to RSUs), of which approximately
6% are vested until the IPO, 9% vest in 4 years, 18% vest in 5 years, 21% vest in 7 years, and 46% vest in 10 years. The total
expense, including taxes and social charges, recognized for the programs for the year was R$ 60,843.



Cappta share plan



In addition to the plans for
share-based payments described above, the Group has a legacy plan from the subsidiary Cappta which has liability-classified shares
that are measured at fair value. The liability as of December 31, 2018 is R$ 0 (R$ 53 as of December 31, 2017).



| | 27. | Financial instruments
| | --- | ---------------------



| | (i) | Risk management
| | --- | ---------------



The Group’s activities
expose it to a variety of financial risks: credit risk, market risk (including foreign exchange risk, cash flow or fair value interest
rate risk, and price risk), liquidity risk and fraud risk. The Group’s overall risk management program focuses on the unpredictability
of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses
derivative financial instruments to mitigate certain risk exposures. It is the Group’s policy that no trading in derivatives
for speculative purposes may be undertaken.





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Table of Contents




Risk management is carried
out by a central treasury department (“Group treasury”) under policies approved by the Board of Directors. Group treasury
identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board provides
written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk,
interest rate risk, credit risk, anti-fraud, use of derivative financial instruments and non-derivative financial instruments,
and investment of surplus liquidity.



| | a) | Credit risk
| | -- | -----------



Credit risk is the risk that
a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit
risk arises from the groups exposures to third parties, including cash and cash equivalents, derivative financial instruments and
deposits with banks and other financial institutions, as well as from its operating activities, primarily related to accounts receivable
from financial institutions licensed by card companies, including outstanding receivables and commitments.



The carrying amount of financial
assets represents the maximum credit exposure.



Financial instruments and
cash deposits



Credit risk from balances with
banks and financial institutions is managed by the Group’s treasury department in accordance with the Group’s policy.
Investments of surplus funds and use of derivative instruments are only conducted with carefully selected financial institutions.



Accounts receivable from
card issuers



The Group, in accordance with
the rules established by payment scheme networks, have instruments to mitigate the risks of accounts receivable from financial
institutions licensed by card companies. The Group’s receivables from card issuers are backed by requirements on card issuers
to maintain guarantees—collateral or bank—considering the credit risk of the issuer, sales volume and the residual
risk of default of cardholders. This requirement is mandatory for all issuers determined to have credit risk and the amounts are
reviewed periodically by the card companies and the Group. To-date, the Group has not incurred losses from card issuer receivables.



| | b) | Market risk
| | -- | -----------



Market risk is the risk that
the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises
mainly two types of risk: interest rate risk and currency risk. Financial instruments affected by market risk include loans and
borrowings, deposits and derivative financial instruments.



Interest rate risk



This risk arises from the possibility
of the Group incurring losses due to fluctuations in interest rates in respect of fair value of future cash flows of a financial
instrument.



The Group’s interest
rate risk arises mainly from short-term investments and long-term borrowings. Short-term investments contracted in Brazilian reais
are mainly exposed to changes in the CDI rate. Borrowings are mainly exposed to interest rate fluctuations in the CDI and rates
that are determined by Brazilian Central Bank.



Interest rate sensitivity



Interest rate risk is the risk
that the fair value of future cash flows of a financial instrument fluctuates due to changes in market interest rates. The Group’s
exposure to the risk of changes in market interest rates arises primarily from short-term investments and long-term borrowings
subject in each case to variable interest rates, principally the CDI rate.



The Group conducted a sensitivity
analysis of the interest rate risks to which the financial instruments are exposed as of December 31, 2018. For this analysis,
the Group adopted as a probable scenario for the future interest rates of 6.50% for the CDI rate. As a result, financial income
(with respect to short-term investments) and financial expense, net (with respect to long-term borrowings) would be impacted as
follows:





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Table of Contents




|Transactions                             |  | Interest rate risk |  | Book value  |  | Reasonably possible change in basis points |  | Impact on profit or loss before tax |        | Impact on pre-tax equity
|---------------------------------------- |  | ------------------ |  | ----------- |  | ------------------------------------------ |  | ----------------------------------- | ------ | ------------------------
|                                         |  |                    |  |             |  |                                            |  |                                     |        |                         
|Short-term investments                   |  | CDI variation      |  | 2,434,089   |  | 10                                         |  |                                     | 2,456  |                         
|Loans and financing                      |  | CDI variation      |  | (758,810)   |  | 10                                         |  |                                     | (782   | )                       
|Obligations to FIDC senior quota holders |  | CDI variation      |  | (2,074,571) |  | 10                                         |  |                                     | (2,217 | )                       
|                                         |  |                    |  |             |  |                                            |  |                                     | (543   | )                       



Foreign currency risk



The Group’s assets and
liabilities that are exposed to foreign currency exchange rate risk are primarily denominated in U.S. dollars and Euros. To partially
offset the Group’s risk of any depreciation of the Brazilian real against the U.S. dollar and Euro, from time to time the
Group may enter into derivative contracts. The Group’s foreign currency exposure gives rise to minimum market risks associated
with exchange rate movements.



As the Group’s borrowings
are denominated in Brazilian reais, there is no significant exposure to currency risk. Other liabilities denominated in U.S. dollars
are related to other accounts payable by subsidiaries located in the United States.



The Group has accounts receivable
denominated in U.S. dollars derived from transactions with credit cards issued abroad and captured at accredited establishments
in Brazil, which are settled at issuing banks abroad through card companies, but without significant exchange risk.



The Group also has certain
investments in foreign operations, denominated in currencies other than Group’s functional currency, and whose net assets
are exposed to foreign currency translation risk.



As of December 31, 2018
there were foreign currency non-deliverable forwards, accounted for as derivative financial instruments and measure at fair value
through profit or loss.



Foreign currency sensitivity



The following tables demonstrate
the sensitivity to a reasonably possible change in U.S. dollar and Euro exchange rates, with all other variables held constant.
The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities including
non-designated foreign currency derivatives. The impact on the Group’s pre-tax equity is due to changes in the fair value
of forward exchange contracts (NDFs).



|Exposed financial position               |  | Denominationcurrency |  | Bookvalue |  | Reasonablypossiblechange |  | Impact on profitor loss beforetax |        | Impact onpre-taxequity
|---------------------------------------- |  | -------------------- |  | --------- |  | ------------------------ |  | --------------------------------- | ------ | ----------------------
|Cash and cash equivalents—Deposits       |  | U.S. dollar          |  | 62,441    |  | 5.0%                     |  |                                   | 3,122  |                       
|Short-term investments—Equity securities |  | U.S. dollar          |  | 240       |  | 5.0%                     |  |                                   | -      |                       
|Short-term investments—Equity securities |  | Euro                 |  | 8,278     |  | 5.0%                     |  |                                   | -      |                       
|Short-term investments—Others            |  | U.S. dollar          |  | 183,937   |  | 5.0%                     |  |                                   | 9,197  |                       
|Accounts receivable from card issuers    |  | U.S. dollar          |  | 3,861     |  | 5.0%                     |  |                                   | -      |                       
|Other accounts receivable                |  | U.S. dollar          |  | 423       |  | 5.0%                     |  |                                   | 21     |                       
|Trade accounts payable                   |  | U.S. dollar          |  | (41,788)  |  | 5.0%                     |  |                                   | (2,089 | )                     
|Other accounts payable                   |  | U.S. dollar          |  | (5,022)   |  | 5.0%                     |  |                                   | (251   | )                     
|                                         |  |                      |  |           |  |                          |  |                                   | 10,000 |                       



The Group’s exposure
to foreign currency changes for all other currencies is not material.



| | c) | Liquidity risk
| | -- | --------------



Cash flow forecasting is performed
in the operating entities of the Group and aggregated by the Group’s finance team. Group Finance monitors rolling forecasts
of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient
headroom on its undrawn committed borrowing facilities at all times so that





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the Group does not breach borrowing limits or covenants
(where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing
plans, covenant compliance, compliance with internal balance sheet ratio targets and, if applicable, external regulatory or legal
requirements—for example, currency restrictions.



Surplus cash held by the operating
entities over and above the balance required for working capital management is transferred to the Group’s treasury department.
Group treasury department invests surplus cash in interest-earning bank accounts, time deposits, money market deposits and marketable
securities, choosing instruments with appropriate maturities or sufficient liquidity to provide adequate margin as determined by
the above-mentioned forecasts. At the balance sheet date, the Group held short term investments of R$ 201,762 that are expected
to readily generate cash inflows for managing liquidity risk.



The table below analyzes the
Group’s non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings
based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are
included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The
amounts disclosed in the table are the contractual undiscounted cash flows.



|                                        |  | Less than one year |           | Between 1and 2 years |  | Between 2and 5 years |           | Over 5years
|--------------------------------------- |  | ------------------ | --------- | -------------------- |  | -------------------- | --------- | -----------
|At December 31, 2018                    |  |                    |           |                      |  |                      |           |            
|Accounts payable to clients             |  |                    | 4,996,102 |                      |  |                      | —         |            
|Trade accounts payable                  |  |                    | 117,836   |                      |  |                      | —         |            
|Loans and financing                     |  |                    | 761,056   |                      |  |                      | 1,395     |            
|Obligation to FIDC senior quota holders |  |                    | 16,646    |                      |  |                      | 2,057,925 |            
|Other accounts payable                  |  |                    | 14,248    |                      |  |                      | 4,667     |            
|                                        |  |                    |           |                      |  |                      |           |            
|At December 31, 2017                    |  |                    |           |                      |  |                      |           |            
|Accounts payable to clients             |  |                    | 3,637,510 |                      |  |                      | —         |            
|Trade accounts payable                  |  |                    | 53,238    |                      |  |                      | —         |            
|Loans and Financing                     |  |                    | 13,839    |                      |  |                      | 3,032     |            
|Obligation to FIDC senior quota holders |  |                    | 8,695     |                      |  |                      | —         |            
|Other accounts payable                  |  |                    | 38,417    |                      |  |                      | —         |            



| | d) | Fraud risk
| | -- | ----------



The Group’s exposure
to operational risk from fraud is the risk that a misuse, or a wrongful or criminal deception will lead to a financial loss for
one of the parties involved on a bankcard transaction. Fraud involving bankcards includes unauthorized use of lost or stolen cards,
fraudulent applications, counterfeit or altered cards, and the fraudulent use of a cardholder’s bankcard number for card-not-present
transactions.



While the costs of most fraud
involving bankcards remain with either the issuing financial institution or the client, the Group is occasionally required to cover
fraudulent transactions in the following situations:



| | · | Where clients also contract anti-fraud services rendered by the Group entities; or
| | - | ----------------------------------------------------------------------------------



| | · | Through the chargeback process if the Group does not follow the minimum procedures, including the
timely communication to all involved parties about the occurrence of a fraudulent transaction.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | Collateral
| | -- | ----------



The Group has pledged part
of its accounts receivable from card issuers in order to fulfil the collateral requirements for the loan contract with private
entity (Note 18 (e)).



(ii)       Financial
instruments by category



| | a) | Assets as per statement of financial position
| | -- | ---------------------------------------------



|                                      |  | Amortized cost |        | FVPL |  | FVOCI |           | Total
|------------------------------------- |  | -------------- | ------ | ---- |  | ----- | --------- | -----
|At December 31, 2018                  |  |                |        |      |  |       |           |      
|Short-term investments                |  |                | -      |      |  |       | 2,762,071 |      
|Accounts receivable from card issuers |  |                | -      |      |  |       | -         |      
|Trade accounts receivable             |  |                | 44,616 |      |  |       | -         |      
|Derivative financial instruments      |  |                | -      |      |  |       | 1,195     |      
|Other accounts receivable             |  |                | 15,366 |      |  |       | -         |      
|                                      |  |                | 59,982 |      |  |       | 2,763,266 |      

| |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  | 



F-52


Table of Contents




|                                      |  |                       |           |                                          |  |                          |         |      
|------------------------------------- |  | --------------------- | --------- | ---------------------------------------- |  | ------------------------ | ------- | -----
|                                      |  | Loans and receivables |           | Assets at fairvaluethroughprofit or loss |  | Assetsavailable-for-sale |         | Total
|At December 31, 2017                  |  |                       |           |                                          |  |                          |         |      
|Short-term investments                |  |                       | —         |                                          |  |                          | 157,238 |      
|Accounts receivable from card issuers |  |                       | 5,078,430 |                                          |  |                          | —       |      
|Trade accounts receivable             |  |                       | 23,120    |                                          |  |                          | —       |      
|Assets held for sale                  |  |                       | 8,168     |                                          |  |                          | —       |      
|                                      |  |                       | 5,109,718 |                                          |  |                          | 157,238 |      



| | b) | Liabilities as per statement of financial position
| | -- | --------------------------------------------------



|                                         |  | Amortized cost |           | FVPL |  | Total
|---------------------------------------- |  | -------------- | --------- | ---- |  | -----
|At December 31, 2018                     |  |                |           |      |  |      
|Accounts payable to clients              |  |                | 4,996,102 |      |  |      
|Trade accounts payable                   |  |                | 117,836   |      |  |      
|Loans and financing                      |  |                | 762,451   |      |  |      
|Obligations to FIDC senior quota holders |  |                | 2,074,571 |      |  |      
|Derivative financial instruments         |  |                | -         |      |  |      
|Other accounts payable                   |  |                | 14,248    |      |  |      
|                                         |  |                | 7,965,208 |      |  |      



|                                         |  | Liabilities at amortized cost |           | Liabilities at fair valuethrough profit orloss |  | Total
|---------------------------------------- |  | ----------------------------- | --------- | ---------------------------------------------- |  | -----
|At December 31, 2017                     |  |                               |           |                                                |  |      
|Accounts payable to clients              |  |                               | 3,637,510 |                                                |  |      
|Trade accounts payable                   |  |                               | 53,238    |                                                |  |      
|Loans and financing                      |  |                               | 16,871    |                                                |  |      
|Obligations to FIDC senior quota holders |  |                               | 2,065,026 |                                                |  |      
|Other accounts payable                   |  |                               | 38,417    |                                                |  |      
|                                         |  |                               | 5,811,062 |                                                |  |      



| | (iii) | Fair value estimation
| | ----- | ---------------------



| | a) | Fair value hierarchy
| | -- | --------------------



The Group uses the following
hierarchy to determine and disclose the fair value of financial instruments through measurement technique:



| | • | Level I—quoted prices in active markets for identical assets or liabilities;
| | - | ----------------------------------------------------------------------------



| | • | Level II—other techniques for which all inputs that have a significant effect on the recorded
fair value are observable, either directly or indirectly; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Level III—techniques using inputs that have a significant effect on the recorded fair value
that are not based on observable market data.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



For the years ended December 31,
2018 and 2017, there were no transfers between Level I and Level II fair value measurements and between Level II and Level III
fair value measurements.



| | b) | Fair value measurement
| | -- | ----------------------



The table below presents a
comparison by class between book value and fair value of the financial instruments of the Group:





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|                                             |  | 2018       |            | 2017      
|-------------------------------------------- |  | ---------- | ---------- | ----------
|                                             |  | Book value |            | Fair value
|Financial assets                             |  |            |            |           
|Cash and cash equivalents (1)                |  |            | 297,929    |           
|Short-term investments (1)                   |  |            | 2,770,589  |           
|Accounts receivable from card issuers (2)    |  |            | 9,244,608  |           
|Trade accounts receivable (3)                |  |            | 44,616     |           
|Derivative financial instruments (4)         |  |            | 1,195      |           
|Other accounts receivable (3)                |  |            | 15,367     |           
|                                             |  |            | 12,374,304 |           
|Financial liabilities                        |  |            |            |           
|Accounts payable to clients (4)              |  |            | 4,996,102  |           
|Trade accounts payable (3)                   |  |            | 117,836    |           
|Loans and financing (5)                      |  |            | 762,451    |           
|Obligations to FIDC senior quota holders (5) |  |            | 2,074,571  |           
|Derivative financial instruments (4)         |  |            | 586        |           
|Other accounts payable (3)                   |  |            | 18,916     |           
|                                             |  |            | 7,970,462  |           



| | (1) | The carrying values of cash equivalents and short-term investments approximate their fair values
due to their short-term nature.
| | --- | --------------------------------------------------------------------------------------------------------------------------------



| | (2) | Accounts receivable from card issuers are measured at FVOCI as they are held to collect contractual
cash flows and can sell the receivable. Fair value is estimated by discounting future cash flows using market rates for similar
items.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The carrying values of trade accounts receivable, other accounts receivable, trade accounts payable
and other accounts payable are measured at amortized cost and are recorded at their original amount, less the provision for impairment
and adjustment to present value, when applicable. The carrying values is assumed to approximate their fair values, taking into
consideration the realization of these balances, and settlement terms do not exceed 60 days.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The Group enters into derivative financial instruments with financial institutions with investment
grade credit ratings. Non-deliverable forward contracts are valued using valuation techniques, which employ the use of market observable
inputs.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Accounts payable to clients, loans and financing, and obligations to FIDC senior quota holders
are measured at amortized cost. Fair values are estimated by discounting future cash flows using weighted average cost of capital
rate.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For disclosure purposes, the
fair value of financial liabilities is estimated by discounting future contractual cash flows at the interest rates available in
the market that are available to the Group for similar financial instruments. The effective interest rates at the balance sheet
dates are usual market rates and their fair value does not significantly differ from the balances in the accounting records.



| | (iv) | Offsetting of financial instruments
| | ---- | -----------------------------------



Financial asset and liability
balances are offset (i.e. reported in the consolidated statement of financial position at their net amount) only if the Company
and its subsidiaries currently have a legally enforceable right to set off the recognized amounts and intend either to settle on
a net basis, or to realize the asset and settle the liability simultaneously.



As of December 31, 2018
and 2017, the Group has no financial instruments that meet the conditions for recognition on a net basis.



| | (v) | Capital management
| | --- | ------------------



The Group’s objectives
when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders
and benefits for other stakeholders, to maintain an optimal capital structure to reduce the cost of capital, and to have resources
available for optimistic opportunities.





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In order to maintain or adjust
the capital structure of the Group, management can make, or may propose to the shareholders when their approval is required, adjustments
to the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce, for
example, debt.



The Group monitors capital
on the basis of the adjusted net cash / net debt. Adjusted net cash / net debt is calculated as adjusted cash (including cash and
cash equivalents, short-term investments and accounts receivable from card issuers as shown in the consolidated statement of financial
position), net of adjusted debt (including accounts payable to clients, current and non-current loans and financing and obligations
to FIDC senior quota holders as shown in the consolidated statement of financial position).



The Group’s strategy
is to keep a positive adjusted net cash. The adjusted net cash as of December 31, 2018 and 2017 was as follows:



|                                         |  | 2018 |            | 2017
|---------------------------------------- |  | ---- | ---------- | ----
|Cash and cash equivalents                |  |      | 297,929    |     
|Short-term investments                   |  |      | 2,770,589  |     
|Accounts receivable from card issuers    |  |      | 9,244,608  |     
|Adjusted cash                            |  |      | 12,313,126 |     
|                                         |  |      |            |     
|Accounts payable to clients              |  |      | (4,996,102 | )   
|Loans and financing                      |  |      | (762,451   | )   
|Obligations to FIDC senior quota holders |  |      | (2,074,571 | )   
|Adjusted debt                            |  |      | (7,833,124 | )   
|                                         |  |      |            |     
|(=) Adjusted Net Cash                    |  |      | 4,480,002  |     



Although capital is managed
considering the consolidated position, the subsidiaries Stone and MNLT maintain a minimum equity, within the working capital requirements
for Accrediting Payment Institutions under the Brazilian Central Bank (“BACEN”) regulations, corresponding to at least
2% of the monthly average of the payment transactions in past 12 months. There is no requirement for compliance with a minimum
equity for the other Group companies.



| | 28. | Commitments
| | --- | -----------



Operating lease commitments—Group
as lessee



The Group has a number of non-cancelable
operating lease agreements related to office buildings, other plants and vehicles. The lease terms are one or three years, and
the majority of lease agreements is renewable at the end of the lease period at market rate.



The aggregate minimum lease
payments under operating leases are as follows:



|                                             |  | 2018 |        | 2017 |  | 2016
|-------------------------------------------- |  | ---- | ------ | ---- |  | ----
|Less than one year                           |  |      | 18,893 |      |  |     
|More than one year and no later than 5 years |  |      | 25,521 |      |  |     
|                                             |  |      | 44,414 |      |  |     







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| | 29. | Transactions with non-controlling interests
| | --- | -------------------------------------------



The effects of transactions
with non-controlling interests on the equity attributable to the owners of the parent are comprised of:





|                                                                                      |  |  | Changes in non-controllinginterest                               |  |  |  |                                            |   |  |  |                                                        |  
|------------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------- |  |  |  | ------------------------------------------ | - |  |  | ------------------------------------------------------ | -
|                                                                                      |  |  | Capital contributions (deductions) by non- controlling interests |  |  |  | Transfersto (from)non-controllinginterests |   |  |  | Changes in equity attributable to owners of the parent |  
|For the year ended December 31, 2016                                                  |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Transactions between subsidiaries and shareholders:                                   |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Capital contribution to subsidiary and dilution of NCI in Stone (a)                   |  |  | 12,359                                                           |  |  |  | 24,612                                     |   |  |  | (24,612                                                | )
|Capital contribution to subsidiary and dilution of NCI in DLP Brasil (b)              |  |  | 498                                                              |  |  |  | 6,283                                      |   |  |  | (6,283                                                 | )
|Non-controlling share of changes in equity at indirect subsidiaries (e)               |  |  | —                                                                |  |  |  | (613                                       | ) |  |  | 613                                                    |  
|Dilution of non-controlling interest                                                  |  |  | 12,857                                                           |  |  |  | 30,282                                     |   |  |  | (30,282                                                | )
|                                                                                      |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Transactions between parent and non-controlling interests:                            |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Acquisition of additional interest in Pagar.me (d)                                    |  |  | —                                                                |  |  |  | 116                                        |   |  |  | (4,913                                                 | )
|Acquisition of non-controlling interest                                               |  |  | —                                                                |  |  |  | 116                                        |   |  |  | (4,913                                                 | )
|                                                                                      |  |  | 12,857                                                           |  |  |  | 30,398                                     |   |  |  | (35,195                                                | )
|For the year ended December 31, 2017                                                  |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Transactions between parent and non-controlling interests:                            |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Acquisition of additional interest in Stone (a)                                       |  |  | —                                                                |  |  |  | (49,677                                    | ) |  |  | (179,323                                               | )
|Acquisition of additional interest in StoneCo Brasil (b)                              |  |  | —                                                                |  |  |  | (2,790                                     | ) |  |  | (18,690                                                | )
|Acquisition of non-controlling interest                                               |  |  | —                                                                |  |  |  | (52,467                                    | ) |  |  | (198,013                                               | )
|                                                                                      |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Transactions between subsidiaries and shareholders:                                   |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Capital contribution to subsidiary and increase of NCI in StoneCo Brasil (b)          |  |  | 1,483                                                            |  |  |  | 8,184                                      |   |  |  | (8,184                                                 | )
|Non-controlling share of changes in equity at indirect subsidiaries (e)               |  |  | —                                                                |  |  |  | (3,875                                     | ) |  |  | 3,875                                                  |  
|Dilution of non-controlling interest                                                  |  |  | 1,483                                                            |  |  |  | 4,309                                      |   |  |  | (4,309                                                 | )
|                                                                                      |  |  | 1,483                                                            |  |  |  | (48,158                                    | ) |  |  | (202,322                                               | )
|                                                                                      |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|For the year ended December 31, 2018                                                  |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Transactions between parent and non-controlling interests:                            |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Acquisition of additional interest in StoneCo Brasil (b)                              |  |  | —                                                                |  |  |  | (989                                       | ) |  |  | (5,701                                                 | )
|Capital contribution to subsidiary                                                    |  |  | 1,992                                                            |  |  |  | -                                          |   |  |  | -                                                      |  
|Exchange of shares with non-controlling interests in StoneCo Brasil (b)               |  |  | —                                                                |  |  |  | (19,594                                    | ) |  |  | 19,594                                                 |  
|Acquisition of non-controlling interest                                               |  |  | 1,992                                                            |  |  |  | (20,583                                    | ) |  |  | 13,893                                                 |  
|                                                                                      |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Transactions between subsidiaries and shareholders:                                   |  |  |                                                                  |  |  |  |                                            |   |  |  |                                                        |  
|Repurchase of shares in treasury by subsidiary and dilution of interest in Cappta (c) |  |  | —                                                                |  |  |  | (54                                        | ) |  |  | (51                                                    | )
|Non-controlling share of changes in equity at indirect subsidiaries (e)               |  |  | —                                                                |  |  |  | 1                                          |   |  |  | (1                                                     | )
|Dilution of non-controlling interest                                                  |  |  | —                                                                |  |  |  | (53                                        | ) |  |  | (52                                                    | )
|                                                                                      |  |  | 1,992                                                            |  |  |  | (20,636                                    | ) |  |  | 13,841                                                 |  





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| | (a) | Transactions with non-controlling interest of Stone
| | --- | ---------------------------------------------------



In April 2016, the subsidiary
Stone issued 1,482 new shares, disproportionally subscribed by its shareholders, in the total amount of R$ 390,690. The Group contributed
R$ 378,331 for the purchase of 1,436 new shares while the non-controlling interest contributed R$ 12,359 for the remaining shares.
This resulted in an increase in the Group’s share of Stone from 86.8% to 89.9% and a corresponding capital contributions
to subsidiaries. Along with the non-controlling interest’s share of the increase in net assets of Stone due to capital infusions,
this resulted in a net transfer of R$ 24,612 from equity of the parent to non-controlling interests.



On October 31, 2017, the
Group acquired the remaining 10.1% of the outstanding shares of Stone for a purchase consideration of R$ 229,000 and now holds
100% of the equity share capital of Stone. The carrying amount of the non-controlling interests in Stone on the date of acquisition
was R$ 49,677. The excess of consideration of R$ 179,323 was recognized as a decrease to equity of the parent. As of December 31,
2018, the amount of the total consideration was fully paid (2017 - R$ 29,000 outstanding, recorded in other accounts payable).



| | (b) | Transactions with non-controlling interest of StoneCo Brasil
| | --- | ------------------------------------------------------------



During 2016, the subsidiary
StoneCo Brasil issued 1,674,921 new shares, disproportionally subscribed by its shareholders, in the total amount of R$ 414,827.
The Group contributed R$ 414,351 for the purchase of 1,673,484 new shares while the non-controlling parties contributed R$ 498
for the remaining shares. This resulted in an increase of the Group’s share of StoneCo Brasil from 97.5% to 97.9% and a corresponding
capital contributions to subsidiaries. Along with the non-controlling interest’s share of the increase in net assets of StoneCo
Brasil due to capital infusions, this resulted in a net transfer of R$ 6,283 from equity of the parent to non-controlling interests.



In the course of 2017, the
subsidiary StoneCo Brasil issued 1,161,375 new shares, disproportionally subscribed by its shareholders, in the total amount of
R$ 202,830. The Group contributed R$ 201,347 for the purchase of 1,113,083 new shares while the non-controlling parties contributed
R$ 1,483 for the remaining shares. This resulted in dilution of the Group’s interest in StoneCo Brasil from 97.9% to 97.2%
and a corresponding increase in the non-controlling interest’s share.



Additionally, in 2017, the
Group acquired 0.4% of the outstanding shares of StoneCo Brasil for consideration of R$ 21,480 and now holds 97.6% of StoneCo Brasil.
The carrying amount of the non-controlling interests in StoneCo Brasil on the date of acquisition was R$ 2,790. The excess consideration
of R$ 18,690 was recognized as a decrease to equity of the parent.



The resulting effect of these
events in 2017 was an increase of R$ 8,184 in non-controlling interest with a corresponding decrease of equity of owners of the
parent.



During 2018, the Group acquired
from non-controlling parties 0.1% of the outstanding shares of StoneCo Brasil (via DLP Par) for a consideration of R$ 6,690, increasing
the Group’s share of StoneCo Brasil from 97.6% to 97.7%. The carrying amount of the non-controlling interests in StoneCo
Brasil on the date of acquisition was R$ 989. The excess consideration of R$ 5,701 was recognized as a decrease to equity of the
parent. As of December 31, 2018, the outstanding amount of the total consideration not paid was R$ 5,022, recorded in other accounts
payable.



In October 2018, in connection
with the consummation of the IPO, the Co-Investment Shares, thereon represented by common shares in DLP Par, were exchanged for
Company’s Class A common shares through the execution of a contribution agreement entered into between the Company and each
holder of awards under such plans, totaling 5,333,202 shares of the Company. This resulted in an increase of the Group’s
share of StoneCo Brasil from 97.7% to 100.0%. By derecognizing the remaining non-controlling interests, a net increase of R$ 19,594
was recorded in equity attributable to owners of the parent.



| | (c) | Transactions with non-controlling interest of Cappta
| | --- | ----------------------------------------------------



In 2018, the subsidiary Cappta
acquired from its minority shareholder 64,177 of its own shares. This resulted in an increase of the Group’s interest in
Cappta from 53.3% to 61.8%. Such shares are currently held in treasury. The transaction was recorded as a decrease in equity attributable
to owners of the parent and to NCI.



| | (d) | Acquisition of additional interest in Pagar.me
| | --- | ----------------------------------------------



On August 24, 2016, the
Group acquired the remaining 40% of the outstanding shares of Pagar.me for consideration of R$ 4,797 and now holds 100% of Pagar.me.
The carrying amount of the non-controlling interests in Pagar.me on the date of acquisition was (R$ 116), representing the non-controlling
interests share of the net liabilities of Pagar.me which were assumed by the Group. By derecognizing the remaining non-controlling
interests, a total decrease of R$ 4,913 was recorded in equity attributable to owners of the parent. As of December 31, 2018,
the amount of the total consideration was fully paid (2017 - R$ 480 outstanding not paid, recorded in other accounts payable).





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| | (e) | Allocation of changes in equity in indirect subsidiaries to non-controlling interests
| | --- | -------------------------------------------------------------------------------------



Due to changes in StoneCo Brasil’s
share of Stone and Pagar.me as shown in the table above, in 2016 non-controlling interest decreased by R$ 613. Due to the acquisition
of additional interest of Stone in 2017, non-controlling interest decreased by R$ 3,875. Due to changes in StoneCo Brasil’s
share of Cappta in 2018 as shown in the table above, non-controlling interest increased by R$ 1.



| | (f) | Summarized financial information of material partly-owned subsidiaries
| | --- | ----------------------------------------------------------------------



|                                                     |  | Cappta
|---------------------------------------------------- |  | ------
|                                                     |  | 2018  
|Financial position                                   |  |       
|Current assets                                       |  |       
|Non-current assets                                   |  |       
|Current liabilities                                  |  |       
|Non-current liabilities                              |  |       
|Net assets                                           |  |       
|Accumulated NCI                                      |  |       
|                                                     |  |       
|Comprehensive income                                 |  |       
|Revenue                                              |  |       
|Net income (loss) for the year                       |  |       
|Total comprehensive income                           |  |       
|Net income (loss) allocated to NCI                   |  |       
|                                                     |  |       
|Cash flows                                           |  |       
|Operating activities                                 |  |       
|Investing activities                                 |  |       
|Financing activities                                 |  |       
|Net increase/(decrease) in cash and cash equivalents |  |       



| | 30. | Other disclosures on cash flows
| | --- | -------------------------------



| | (a) | Non-cash operating activities
| | --- | -----------------------------



|                                                               | 2018   |  | 2017 |  | 2016
|-------------------------------------------------------------- | ------ |  | ---- |  | ----
|                                                               |        |  |      |  |     
|Fair value adjustment on accounts receivable from card issuers | 92,063 |  | -    |  | -   



| | (b) | Non-cash investing activities
| | --- | -----------------------------



|                                                                            | 2018  |  | 2017 |  | 2016
|--------------------------------------------------------------------------- | ----- |  | ---- |  | ----
|Property and equipment and intangible assets acquired through finance lease | 4,339 |  | -    |  | -   



| | (c) | Non-cash financing activities
| | --- | -----------------------------



|                                                                         | 2018  |  | 2017   |  | 2016 
|------------------------------------------------------------------------ | ----- |  | ------ |  | -----
|                                                                         |       |  |        |  |      
|Unpaid consideration for acquisition of non-controlling shares (Note 29) | 5,022 |  | 29,480 |  | 2,398



| | (d) | Property and equipment, and intangible assets
| | --- | ---------------------------------------------



|                                                                       |  | 2018 |          | 2017 |  | 2016
|---------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ----
|Additions (Note 12)                                                    |  |      | (159,047 | )    |  |     
|Purchases not paid at year end                                         |  |      | 18,160   |      |  |     
|Purchases of property and equipment                                    |  |      | (140,887 | )    |  |     
|                                                                       |  |      |          |      |  |     
|Net book value (Note 12 / Note 13)                                     |  |      | 24,133   |      |  |     
|Loss on disposal of property and equipment and intangible assets       |  |      | (10,712  | )    |  |     
|Proceeds from disposal of property and equipment and intangible assets |  |      | 13,421   |      |  |     





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In addition, the issue of shares as consideration
for the acquisition of Equals (Note 5.2) and the options and shares issued to employees (Note 26) also had no cash consideration.



| | 31. | Subsequent events
| | --- | -----------------



Acquisition of interest in
associates



On February 6, 2019, the Group
acquired a 25.0% interest in Collact Serviços Digitais Ltda. (“Collact”), a private company based in São
Paulo, Brazil, that develops customer relationship management (CRM) software for customer engagement, focused mainly in the food
service segment, with which the Company expects to obtain synergies in its services to clients. The Group will pay R$ 1,667 until
April 2020 for the acquisition of such interest.



The Group also holds an option
to acquire an additional interest in the period from 2 to 3 years from the date of the initial acquisition, which will allow the
Group to acquire an additional 25% interest in Collact.





F-59