UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~March 31,~~June 30, 2019

¨ Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

000-30061

(Commission file No.)

PARETEUM CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	95-4557538
(State or other jurisdiction of	(I.R.S. employer identification no.)
incorporation or organization)

1185 Avenue of the Americas, New York, NY 10036

USA

(Address of principal executive offices) (Zip Code)

+ 1 (212) 984-1096

(Registrant’s telephone number, including area code)

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

Title of Each Class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		TEUM		NASDAQ

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

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

	Large Accelerated filer ¨	Accelerated filer x
	Non-Accelerated filer ¨	Smaller reporting company x
		Emerging growth company ¨

If an emerging growth company, 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.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

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

~~Title of Each Class~~		~~Trading Symbol(s)~~		~~Name of each exchange on which~~ ~~registered~~
~~Common Stock~~		~~TEUM~~		~~NASDAQ~~

As of ~~May 9,~~August 8, 2019, there were ~~110,921,738~~111,903,762 shares of the Company’s common stock outstanding.

PARETEUM CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q REPORT

~~March 31,~~June 30, 2019

PART I - FINANCIAL INFORMATION	3

Item 1. Consolidated Financial Statements	3
Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2019 (unaudited) and December 31, 2018	3
Condensed Consolidated Statements of Comprehensive ~~Loss~~(loss)/income for the three and six month periods ended ~~March 31,~~June 30, 2019 and 2018 (unaudited)	4
Condensed Consolidated Statements of Changes in ~~Stockholders’~~Stockholder’s Equity for the three and six month periods ended ~~March 31,~~June 30, 2019 and ~~March 31,~~June 30, 2018 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the ~~three~~six month ~~periods~~period ended ~~March 31,~~June 30, 2019 and 2018 (unaudited)	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2429
Item 4. Controls and Procedures	2429

PART II - OTHER INFORMATION	2530

Item 1. Legal Proceedings	2530
Item 1A. Risk Factors	2530
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2530
Item 3. Defaults upon Senior Securities	2530
Item 4. Mine Safety ~~Disclosure~~Disclosures	2530
Item 5. Other Information	2530
Item 6. Exhibits	2631

SIGNATURES	2732

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PARETEUM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31,			December 31,			June 30,			December 31,
	2019			2018			2019			2018
ASSETS

CURRENT ASSETS

Cash and cash equivalents	$	10,699,061		$	6,051,709		$	3,377,556		$	6,051,709
Restricted cash		704,779			430,655			1,104,757			430,655
Accounts receivable, net of an allowance for doubtful accounts of $1,307,071 at March 31, 2019 and $1,021,179 at December 31, 2018		28,644,699			15,361,594
Accounts receivable, net of an allowance for doubtful accounts of $1,307,071 at June 30, 2019 and $1,021,179 at December 31, 2018, respectively								45,061,236			15,361,594
Notes receivable, current								1,024,025			-
Prepaid expenses and other current assets		3,633,668			2,083,950			3,385,842			2,083,950
Total current assets		43,682,207			23,927,908			53,953,416			23,927,908

NON-CURRENT ASSETS

OTHER ASSETS		575,790			45,336			956,810			45,336

RIGHT OF USE LEASE ASSETS		3,136,015			-			2,493,352			-

NOTE RECEIVABLE		3,763,103			1,082,436
NOTES RECEIVABLE, NON-CURRENT								2,819,200			1,082,436

PROPERTY AND EQUIPMENT, NET		5,184,312			4,553,250			4,896,503			4,553,250

INTANGIBLE ASSETS, NET		60,706,494			39,658,325			60,262,420			39,658,325

GOODWILL		119,898,741			91,773,911			121,486,562			91,773,911

TOTAL ASSETS	$	236,946,662		$	161,041,166		$	246,868,263		$	161,041,166

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable and customer deposits	$	25,079,940		$	10,337,629		$	28,183,711		$	10,337,629
Net billings in excess of revenues		1,615,976			927,780			1,330,757			927,780
Accrued expenses and other payables		12,566,851			7,952,380			14,036,645			7,952,380
Promissory note		516,205			681,220			671,165			681,220
Lease liabilities, current								1,776,900			-
9% Unsecured subordinate convertible promissory note (net of debt discount and debt issuance costs)		-			106,967			-			106,967
Total current liabilities		39,778,972			20,005,976			45,999,178			20,005,976

LONG TERM LIABILITIES
Senior secured debt		21,806,879			-
Lease liabilities		3,141,842			-
Senior secured debt, net								22,077,767			-
Lease liabilities, non-current								1,013,785			-
Other long term liabilities		80,491			212,703			63,853			212,703
Deferred tax liabilities		8,190,607			8,415,825			7,712,860			8,415,825
Related party loan		342,000			341,998			342,000			341,998
Total long term liabilities		33,561,819			8,970,526			31,210,265			8,970,526

Total liabilities		73,340,791			28,976,502			77,209,443			28,976,502

Commitments and Contingencies (See Notes)

STOCKHOLDERS’ EQUITY
Preferred Stock $0.00001 par value, 50,000,000 shares authorized, 0 issued and outstanding as of March 31, 2019 and December 31, 2018		-			-
Common Stock $0.00001 par value, 500,000,000 shares authorized, 109,765,015 issued and outstanding as of March 31, 2019 and 97,852,911 shares issued and outstanding as of December 31, 2018		488,670,353			450,990,827
STOCKHOLDER’S EQUITY
Preferred Stock $0.00001 par value, 50,000,000 shares authorized, none issued and outstanding as of June 30, 2019 and December 31, 2018, respectively								-			-
Common Stock $0.00001 par value, 500,000,000 shares authorized, 111,652,349 issued and outstanding as of June 30, 2019 and 97,852,911 shares issued and outstanding as of December 31, 2018, respectively								494,803,176			450,990,827
Accumulated other comprehensive loss		(6,660,584	)		(6,300,780	)		(6,224,649	)		(6,300,780	)
Accumulated deficit		(318,403,898	)		(312,625,383	)		(318,919,707	)		(312,625,383	)
Pareteum Corporation stockholders’ equity		163,605,871			132,064,664
Total equity								169,658,820			132,064,664

NON-CONTROLLING INTEREST		-			-
Total stockholders’ equity		163,605,871			132,064,664

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	236,946,662		$	161,041,166
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY							$	246,868,263		$	161,041,166

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

PARETEUM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~(LOSS)/INCOME

(UNAUDITED)

Three months ended
March 31, March 31,
2019 2018
REVENUES $ 23,039,913 $ 4,112,570

COST AND OPERATING EXPENSES
Cost of service (excluding depreciation and amortization) 10,068,283 1,194,523
Product development 2,198,324 726,845
Sales and marketing 2,564,912 688,998
General and administrative 7,614,359 2,296,852
Restructuring and acquisition charges 3,080,364 73,600
Depreciation and amortization of fixed and intangibles assets 2,843,403 965,290
Total cost and operating expenses 28,369,645 5,946,108

LOSS FROM OPERATIONS (5,329,732 ) (1,833,538 )

OTHER INCOME (EXPENSE)
Interest income 101,545 42,672
Interest expense (548,860 ) (63,758 )
Interest expense related to debt discount and conversion feature (71,981 ) (29,566 )
Amortization of deferred financing costs (49,691 ) (6,142 )
Changes in derivative liabilities - (313,733 )
Other (expense) income, net (47,130 ) 69,546
Total other expense (616,117 ) (300,981 )

LOSS BEFORE PROVISION FOR INCOME TAXES (5,945,849 ) (2,134,519 )
Income tax benefit (167,334 ) (418 )
NET LOSS (5,778,515 ) (2,134,101 )

OTHER COMPREHENSIVE LOSS
Foreign currency translation (loss) gain (359,804 ) 104,402

COMPREHENSIVE LOSS $ (6,138,319 ) $ (2,029,699 )

Net loss per common share and equivalents – basic $ (0.06 ) $ (0.04 )

Net loss per common share and equivalents – diluted $ (0.06 ) $ (0.04 )

Weighted average shares outstanding during the period – basic 103,565,745 50,062,434

Weighted average shares outstanding during the period – diluted 103,565,745 50,062,434
Three months Ended June 30, Six months Ended June 30,
2019 2018 2019 2018
REVENUES $ 34,148,396 $ 6,003,180 $ 57,188,310 $ 10,115,750

COST AND OPERATING EXPENSES
Cost of service, excluding depreciation and amortization 15,293,244 1,779,882 25,361,468 2,974,405
Product development 3,242,145 753,931 5,816,189 1,480,776
Sales and marketing 2,769,065 652,442 5,709,747 1,341,440
General and administrative 9,033,690 2,214,070 15,896,619 4,510,922
Restructuring and acquisition charges 427,586 5,592 3,507,950 79,193
Depreciation and amortization 3,224,027 994,318 6,067,430 1,959,609
Total cost and operating expenses 33,989,757 6,400,235 62,359,403 12,346,345

INCOME/(LOSS) FROM OPERATIONS 158,639 (397,055 ) (5,171,093) (2,230,595 )

OTHER INCOME/ (EXPENSE)
Interest income 149,298 43,193 250,844 85,865
Interest expense (777,907) (99,708 ) (1,326,767) (163,467 )
Interest expense related to debt discount accretion and conversion feature (199,224) (30,272 ) (271,205) (59,838 )
Changes in derivative liabilities - 1,597,647 - 1,283,914
Other (expense)/income (194,354) 567,710 (241,485) 637,255
Amortization of deferred financing costs (101,664) (6,209 ) (151,355) (12,351 )
Total other (expense)/income (1,123,851) 2,072,361 (1,739,968) 1,771,378

(LOSS)/INCOME BEFORE INCOME TAX (BENEFIT)/EXPENSE (965,212) 1,675,306 (6,911,061) (459,217 )
Income tax (benefit)/expense (449,403) 18,842 (616,737) 18,424
NET (LOSS)/INCOME (515,809) 1,656,464 (6,294,324) (477,641 )

OTHER COMPREHENSIVE (LOSS)/INCOME
Foreign currency translation gain/(loss) 435,935 (79,137) 76,131 25,266
COMPREHENSIVE (LOSS)/INCOME $ (79,874) $ 1,577,327 $ (6,218,193) $ (452,375 )

Net (loss)/income per common share and equivalents - basic $ (0.00) $ 0.03 $ (0.06) $ (0.01 )

Net (loss)/income per common share and equivalents - diluted $ (0.00) $ 0.03 $ (0.06) $ (0.01 )

Weighted average shares outstanding during the period – basic 111,074,977 53,348,376 107,341,105 51,714,482

Weighted average shares outstanding during the period – diluted 111,074,977 64,741,232 107,341,105 51,714,482

The accompanying notes are an integral part of the unaudited condensed consolidated financial ~~statements~~statements.

4


PARETEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN ~~STOCKHOLDERS’~~STOCKHOLDER’S EQUITY
(UNAUDITED)

Accumulated
other Total
Common Stock comprehensive Accumulated stockholders
Description Shares Amount loss deficit equity
Balance – January 1, 2018 46,617,093 $ 321,271,437 $ (6,306,691 ) $ (299,543,213 ) $ 15,421,533

Shares issued for warrant exercises 4,250,748 2,542,250 - - 2,542,250
Stock awards issued to management 100,000 283,000 - - 283,000
Shares issued to consultants 78,553 81,997 - - 81,997
Shares in transit - 526,749 - - 526,749
Amortization of stock options expense - 160,821 - - 160,821
Accumulated adjustment for accounting change - - 107,520 - 107,520
Other comprehensive loss due to foreign exchange rate translation net of tax - - (3,118 ) - (3,118 )
Net loss - - - (2,134,101 ) (2,134,101 )
Balance - March 31, 2018 51,046,394 $ 324,866,254 $ (6,202,289 ) $ (301,677,314 ) $ 16,986,651

Balance - January 1, 2019 97,852,911 $ 450,990,827 $ (6,300,780 ) $ (312,625,383 ) $ 132,064,664

Shares issued for acquisitions 9,865,412 29,253,287 - - 29,253,287
Warrant exercises 501,606 647,447 - - 647,447
Services settled by issuance of shares 420,514 1,522,636 - - 1,522,636
Shares issued to be cancelled 37,014 64,775 - - 64,775
Exercises of stock options 68,083 69,567 - - 69,567
Shares in transit - 1,451,700 - - 1,451,700
Stock based compensation expense 594,475 3,713,614 - - 3,713,614
Shares issued to senior secured lender 425,000 956,500 - - 956,500
Other comprehensive loss due to foreign exchange rate translation net of tax - - (359,804 ) - (359,804 )
Net Loss - - - (5,778,515 ) (5,778,515 )
Balance – March 31, 2019 109,765,015 $ 488,670,353 $ (6,660,584 ) $ (318,403,898 ) $ 163,605,871
Accumulated
other Total
Common Stock comprehensive Accumulated Stockholder’s
Description Shares Amount Loss Deficit equity
Balance – January 1, 2018 46,617,093 $ 321,271,437 $ (6,306,691 ) $ (299,543,213 ) $ 15,421,533

ASC 606 transition adjustment - - 107,520 - 107,520
Warrant exercises 4,250,748 2,542,250 - - 2,542,250
Stock-based compensation 178,553 1,052,567 - - 1,052,567
Other comprehensive loss due to foreign exchange translation, net of tax - - (3,118 ) - (3,118 )
Net loss - - - (2,134,102 ) (2,134,102 )
Balance – March 31, 2018 51,046,394 324,866,254 (6,202,289 ) (301,677,315 ) 16,986,651
ASC 606 transition adjustment - - (107,520 ) (107,520 )
Warrant exercises 1,663,522 841,720 - - 841,720
Shares issued in equity financing 2,453,400 5,467,100 - - 5,467,100
Stock-based compensation 447,970 697,448 - - 697,448
Services settled by issuance of shares 44,829 86,778 - - 86,778
Other comprehensive loss due to foreign exchange translation, net of tax - - 28,384 - 28,384
Net loss - - - 1,656,464 1,656,464
Balance – June 30, 2018 55,656,115 $ 331,959,299 $ (6,281,425 ) $ (300,020,851 ) $ 25,657,023

Balance - January 1, 2019 97,852,911 $ 450,990,827 $ (6,300,780 ) $ (312,625,383 ) $ 132,064,664

Shares issued for acquisitions 9,865,412 29,253,287 - - 29,253,287
Warrant exercises 501,606 647,447 - - 647,447
Services settled by issuance of shares 420,514 1,522,636 - - 1,522,636
Shares issued to be cancelled 37,014 64,775 - - 64,775
Stock option exercises 68,083 69,567 - - 69,567
Shares in transit - 1,451,700 - - 1,451,700
Stock-based compensation 594,475 3,713,614 - - 3,713,614
Shares issued to senior secured lender 425,000 956,500 - - 956,500
Other comprehensive loss due to foreign exchange rate translation, net of tax - - (359,804 ) - (359,804 )
Net loss - - - (5,778,515 ) (5,778,515 )
Balance - March 31, 2019 109,765,015 $ 488,670,353 $ (6,660,584 ) $ (318,403,898 ) $ 163,605,871
Shares issued for acquisitions 1,105,000 1,692,000 - - 1,692,000
Warrant exercises 356,738 737,993 - - 737,993
Conversion of notes 84,220 147,385 - - 147,385
Services settled by the issuance of shares 233,282 756,602 - - 756,602
Stock option exercises 107,955 140,010 - - 140,010
Shares issued to be cancelled 139 - - - -
Stock-based compensation - 2,008,833 - - 2,008,833
Shares issued to senior secured lender - 650,000 - - 650,000
Other comprehensive income due to foreign exchange rate translation, net of tax - - 435,935 - 435,935
Net loss - - - (515,809 ) (515,809 )
Balance – June 30, 2019 111,652,349 $ 494,803,176 $ (6,224,649 ) $ (318,919,707 ) $ 169,658,820

The accompanying notes are an integral part of the unaudited condensed consolidated financial ~~statements~~statements.

5


PARETEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended For the six months ended
March 31, March 31, June 30, June 30,
2019 2018 2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,778,515 ) $ (2,134,101 ) $ (6,294,324 ) $ (477,641 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization 2,843,403 965,290 6,067,430 1,959,609
Provision for doubtful accounts 285,892 - 285,892 -
Stock based compensation 3,713,614 1,077,625
Stock-based compensation 5,722,447 1,771,580
Change in fair value of warrant liability - 313,733 - (1,283,914 )
Amortization of deferred financing costs 49,690 6,142 151,355 12,351
Interest expense relating to debt discount and conversion feature 71,981 29,566
Services settled by issuance of shares 1,522,636 -
Interest expense related to debt discount accretion and conversion feature 271,205 59,838
Payables settled by issuance of shares 2,279,238 86,778
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (9,225,001 ) 110,684
Decrease (increase) in prepaid expenses and other assets 2,816,290 (319,733 )
(Increase) in accounts receivable (25,190,857 ) (1,851,046 )
Decrease/(Increase) in prepaid expenses, deposits and other assets 2,974,602 (351,046 )
Increase in accounts payable and customer deposits 3,421,002 307,619 6,936,552 606,393
(Decrease) increase in Net billings in excess of revenues (1,237,464 ) 54,885
(Decrease)/Increase in Net billings in excess of revenues and deferred revenue (2,000,430 ) 22,627
(Decrease) in accrued expenses and other payables (3,097,473 ) (383,139 ) (1,644,320 ) (1,508,005 )
Net cash (used in) provided by operating activities (4,613,945 ) 28,571
Net cash (used in) operating activities (10,441,210 ) (952,476 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (765,370 ) (433,749 )
Purchases of property and equipment, and capitalized software (1,650,013 ) (1,877,477 )
Issuance of notes receivable (2,760,789 ) -
Business combinations, net of cash acquired (284,023 ) - (1,562,636 ) -
Investment in notes receivable (2,700,000 ) -
Net cash (used in) investing activities (3,749,393 ) (433,749 ) (5,973,438 ) (1,877,477 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of warrants and options 717,014 2,489,329 1,595,017 3,070,110
Increase in short terms loans 141,639 -
Proceeds from senior secured debt issued 25,000,000 -
Repayments on other long term loans - (17,105 ) - (32,682 )
Increase in short term loans 287,566 52,813
Financing related fees (894,443 ) - (623,555 ) (653,000 )
Proceeds from senior secured debt issued 25,000,000 -
Gross proceeds from public offering - 6,100,000
Principal repayment Senior Secured Loan (11,669,963 ) - (11,669,963 ) -
Net cash provided by financing activities 13,440,174 2,525,037 14,443,138 8,484,428

EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH (155,360 ) 131,111 (28,541 ) 42,185
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 4,921,476 2,250,970
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (2,000,051 ) 5,696,660
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF THE PERIOD 6,482,364 13,737,675 6,482,364 13,737,675
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF THE PERIOD $ 11,403,840 $ 15,988,645 $ 4,482,313 $ 19,434,335

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for interest $ (33,057 ) $ (4,937 )
Cash received during the period for interest $ 41,606 $ -
Cash paid for income taxes $ (5,570 ) $ -

NON-CASH FINANCING ACTIVITIES
Shares issued for acquisitions $ (30,654,194 ) -
Shares issued for conversions of notes and interest $ (147,385 ) $ -
Shares issued for settlement of debt $ (544,793 ) $ -
Shares issued to Senior Secured Lender $ (1,606,500 ) $ -
Cash (paid)/received during the period for interest, net $ (840,562 ) $ 43,193
Cash paid during the period for taxes (56,201 ) -
NON-CASH FINANCING ACTIVITIES:
Acquisitions paid for in common shares (32,337,287 ) -
Conversions of convertible notes (147,385 ) (1,911,380 )
Settlement of debt paid for in common shares (2,279,238 ) -
Senior Secured Lender fees paid for in shares (1,606,500 ) -
Amendment to warrants and convertible notes into common shares - 313,733

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

6


PARETEUM CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Financial Condition

As reflected in the accompanying condensed consolidated financial statements, Pareteum Corporation (“Pareteum,” the “Company,” “we,” “us,” or “our”) (NASDAQ: TEUM) reported a net loss of ~~$5,778,515~~$6,294,324 for the ~~period~~six months ended ~~March 31,~~June 30, 2019, and had an accumulated deficit of ~~$318,403,898~~$318,919,707 as of ~~March 31,~~June 30, 2019.

Note 2. Description of Business, Basis of Presentation and Use of Estimates

Business overview

Pareteum has developed a Communications Cloud Services Platform, providing (i) Mobility, (ii) Messaging, and (iii) Security services and applications, with a Single-Sign-On, API and software development suite. The Pareteum platform hosts integrated IT/Back Office and Core Network functionality for mobile network operators, and for enterprises implement and leverage mobile communications solutions on a fully outsourced SaaS, PaaS and/or IaaS basis: made available either as an on-premise solution or as a fully hosted service in the Cloud depending on the needs of our customers. Pareteum also delivers an Operational Support System (“OSS”) for channel partners, with Application Program Interfaces (“APIs”) for integration with third party systems, workflows for complex application orchestration, customer support with branded portals and plug-ins for a multitude of other applications. These features facilitate and improve the ability of our channel partners to provide support and to drive sales.

On February 12, 2019, we completed our previously announced acquisition of all of the issued and to be issued and outstanding shares of iPass, Inc., a Delaware corporation (“iPass” and the acquisition of iPass, the “iPass Acquisition”). iPass is a cloud-based service provider of global mobile connectivity, offering Wi-Fi access on any mobile device through its SaaS platform and is now a wholly-owned subsidiary of the Company. See Note 3 to the Unaudited Condensed Consolidated Financial Statements.
Basis of Presentation of Interim Periods

The unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP,”) for interim financial information and in accordance with the instructions to Securities and Exchange Commission (“SEC”), Form 10-Q and Article 8 of SEC Regulation S-X. They do not include all the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2018, included in our 2018 Annual Report on Form 10-K filed with the SEC on March 18, 2019, referred to as our 2018 Annual Report.

The interim condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly our results of operations and financial position for the interim periods. The results of operations for the three ~~months~~and six month periods ended ~~March 31,~~June 30, 2019, are not necessarily indicative of the results to be expected for future quarters or the full year. All intercompany transactions and account balances have been eliminated in consolidation. As of ~~March 31,~~June 30, 2019, the Company’s subsidiaries are:

· its wholly owned subsidiary Pareteum North America Corp. with its wholly owned subsidiary, Pareteum UK Ltd.;
· its wholly owned subsidiary Pareteum Asia PTE. Ltd.;
· its wholly owned subsidiary TBR Inc. (special purpose vehicle for iPass acquisition);
· its wholly-owned subsidiary Pareteum Europe B.V. (fka Elephant Talk Europe Holding B.V.) and its wholly owned subsidiaries, Elephant Talk Mobile Services B.V., Elephant Talk PRS Netherlands BV, Elephant Talk Deutschland GmbH (dormant), Elephant Talk Middle East & Africa (Holding) W.L.L., Elephant Talk Luxembourg SA (dormant), Guangzhou Elephant Talk Information Technology Limited (dormant), Elephant Talk Communications Italy S.R.L. (dormant), Elephant Talk Business Services W.L.L., Elephant Talk Middle East & Africa (Holding) Jordan L.L.C. (dormant).;
· its wholly owned Elephant Talk Communications Holding AG and its wholly owned subsidiaries Pareteum Spain SLU and ETC Carrier Services GmbH.;
· Pareteum Europe B.V. majority-owned subsidiaries Elephant Talk Bahrain W.L.L. (99%), ET de Mexico S.A.P.I. de C.V. (99.998%), ET-UTS NV; (51%) and LLC Pareteum (Russia) (50%) Elephant Talk;
· Elephant Talk Telecomunicação do Brasil LTDA, is owned 90% by Pareteum Europe B.V. and 10% by Elephant Talk Communication Holding AG;

7

· its wholly-owned subsidiary Elephant Talk Limited (“ETL”) and its wholly owned ET Guangdong Ltd. And its majority owned (50.54%) subsidiary Elephant Talk Middle East & Africa FZ-LLC.;
· Asesores Profesionales ETAK S. de RL. De C.V. is owned 99% by Pareteum Europe B.V.;
· its wholly owned subsidiary Artilium Group Ltd. And its wholly owned subsidiaries, Artilium ~~NV, Speak UP BVBA, Ello Mobile BVBA, Artilium~~ UK Ltd., ~~Comsys Telecom & Media BV, Portalis BV, Comsys Connect GmbH, United Telecom N.V., Talking Sense BVBA, Wbase Comm. V,~~ Artilium Trustee Company Limited, ~~Comsys Connect~~Artilium BV, ~~Livecom International BV, Comsys Connect AG~~Pareteum NV, Interactive Digital Media GMBH and United Telecom ~~BV;~~NV, and United Telecom NV’s wholly-owned subsidiary, ELLO Mobile BVVA;
· its wholly owned subsidiary iPass, Inc. and its wholly owned subsidiaries iPass (U.K.) Limited, iPass France SAS, iPass Deutschland GmbH, iPass Holdings Pty Ltd., iPass Asia Pte Ltd., iPass Japan, Inc., iPass India Private Limited, iPass Ltd., GoRemote Internet Communications, Inc., GoRemote International Corporation, Axcelerant, Inc., Worldwide Axcelerant Group, Mobile Automation, Inc. and Safe3W, Inc.; and
· its wholly-owned subsidiary Devicescape Holdings, Inc.

For a complete summary of our significant accounting policies, please refer to Note 1, “Business and Summary of Significant Accounting Policies,” in Item 8 of our 2018 Annual Report.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and intangible assets acquired in our acquisitions of Artilium, iPass and ~~iPass.~~Devicescape. Significant estimates include the bad debt allowance, revenue recognition, impairment of long-lived assets, valuation of financial instruments, useful lives of long-lived assets and share-based compensation. Actual results may differ from these estimates under different assumptions or conditions and those differences could be material.

Reclassification

Certain reclassifications have been made to the Company’s consolidated financial statements for the prior ~~years~~period to conform to the current ~~year~~period presentation. Such reclassifications had no impact on net loss or net cash flows.
~~Leases~~
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and lease liabilities in our condensed consolidated balance sheets. As of adoption of ASC 842 and as of March 31, 2019, the Company was not party to finance lease arrangements.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
~~Under the available practical expedient, we account for the lease and non-lease components as a single lease component.~~
~~Recently Adopted Accounting Pronouncements~~
~~In June 2018, the FASB issued ASU 2018-07,~~~~Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 became effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
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~~In July 2017, the FASB issued ASU No. 2017-11,~~ ~~Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815)~~ (“ASU 2017-11”). ASU 2017-11 consists of two parts. The amendments in Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common stockholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this update re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this update do not require any transition guidance because those amendments do not have an accounting effect. ASU 2017-11 became effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
~~In February 2016, the FASB issued ASU 2016-02,~~~~Leases~~ (“ASU 2016-02”). This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11 which provides an alternative transition method that allows entities to apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has adopted the requirements of ASU 2016-02 on January 1, 2019, using the modified retrospective method. The Company took advantage of the practical expedient options, which allows an entity not to reassess whether any existing or expired contracts contain leases. Upon adoption of this standard on January 1, 2019, the Company recorded right of use assets and corresponding lease liabilities of $1.2 million. As of March 31, 2019, there was an increase in assets and liabilities to $3.1 million due to the recognition of the required right-of-use asset and corresponding liabilities for all lease obligations that are currently classified as operating leases, including those we acquired in our purchase of iPass. The standard did not have a material impact on our consolidated income statements. We elected to apply the practical expedient related to land easements, as well as the package of practical expedients permitted under the transition guidance in the new standard, which allowed us to carryforward our historical lease classification.
~~Recent Accounting Pronouncements~~
~~In January 2017, the FASB issued ASU 2017-04,~~~~Intangibles, Goodwill and Other (Topic 350) “Simplifying the Test for Goodwill Impairment~~.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit’s carrying value and its fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Note 3. Business Combinations

On November 12, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Purchaser, and iPass. Pursuant to the Merger Agreement, Purchaser, a wholly-owned subsidiary of the Company, commenced the offer for the “iPass Shares for the “Transaction Consideration, upon the terms and subject to the conditions set forth in the Prospectus/Offer to Exchange dated December 4, 2018 (together with any amendments and supplements thereto, the “Offer to Exchange”), and the related Letter of Transmittal. The Offer and withdrawal rights expired at 5:00 p.m. New York City time on February 12, 2019, and promptly following such time Purchaser accepted for payment and promptly paid for all validly tendered iPass Shares in accordance with the terms of the Offer. The Company acquired 100% of the voting shares of iPass.

On February 12, 2019, following acceptance and payment for the validly tendered iPass Shares and pursuant to the terms and conditions of the Merger Agreement, the Company completed its acquisition of iPass from the stockholders of iPass when Purchaser merged with and into iPass, with iPass surviving as a wholly owned subsidiary of the Company (the “Merger”). The Merger was governed by Section 251(h) of the Delaware General Corporation Law, as amended (the “DGCL”) with no stockholder vote required to consummate the Merger. At the effective time of the Merger, each iPass Share outstanding was converted into the right to receive the Transaction Consideration. The iPass Shares are no longer listed on the Nasdaq Capital Market.

As part of the acquisition, the Company issued 9,865,412 common shares to shareholders and 705,000 shares were granted to employees.
8
The allocation of the purchase price was as follows (in thousands):
Purchase consideration:
Shares issued to shareholders $ 29,253
Shares issued to employees 1,401
Total purchase consideration $ 30,654

Purchase price allocation:
Assets:
Cash and cash equivalents $ 284
Accounts receivable, net 4,344
Property, plant and equipment, net 1,092
Other assets 4,863
Intangible assets 22,700
Total assets 33,283

Liabilities:
Accounts payable 11,321
Deferred revenue 1,701
Loans outstanding 10,989
Other liabilities 6,743
Total liabilities 30,754
Estimated fair value of net assets acquired 2,529
Goodwill $ 28,125
The period ended June 30, 2019, consolidated financial statements included iPass and its subsidiaries from the closing date of February 12, 2019, through June 30, 2019.
The allocation of the purchase price for iPass’s intangible assets were as follows (in thousands):
Estimated
Fair
Value Useful
Life
(Years)
Developed Technology $ 5,500 8
Customer relationships 15,500 11
Tradename 1,700 3
Intangible assets $ 22,700
On April 22, 2019, the Company, together with Devicescape Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (the “Holdco” and together with the Company, the “Buyer”) entered into an asset purchase agreement (the “Purchase Agreement”) with Devicescape Software, Inc., a California corporation (“Devicescape”), whereby the Buyer acquired substantially all of the assets of Devicescape and assumed certain liabilities of Devicescape, such that Holdco shall continue as a surviving subsidiary of the Company holding all assets and assuming those certain liabilities of Devicescape (the “Devicescape Purchase”). In connection with the Devicescape Purchase, and pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, the Company paid cash consideration of $2,000,000 and issued to the stockholders of Devicescape an aggregate of 400,000 shares of the Company’s common stock at a value of $1,692,000 based on our closing price on April 22, 2019, of $4.23 per share.

9


The allocation of the purchase price was as follows (in thousands):

Purchase consideration:
  Shares issued to shareholders $ 29,253
  Shares issued to employees 1,401
Total purchase consideration $ 30,654

Purchase price allocation:
Assets:
Cash and cash equivalents $ 284
Accounts receivable, net 4,344
Property, plant and equipment, net 1,092
Other assets 4,863
Intangible assets 22,700
Total assets 33,283

Liabilities:
Accounts payable 11,321
Deferred revenue 1,701
Loans outstanding 10,989
Other liabilities 6,743
Total liabilities 30,754
Estimated fair value of net assets acquired 2,529
Goodwill $ 28,125
Purchase consideration:
  Cash consideration $ 2,000
  Shares issued to shareholders 1,692
Total purchase consideration $ 3,692

Purchase price allocation:
Assets:
Cash and cash equivalents $ 153
Accounts receivable, net 451
Intangible assets 1,588
Total assets 2,192

Liabilities:
Accounts payable & other liabilities 88
Total liabilities 88
Estimated fair value of net assets acquired 2,104
Goodwill $ 1,588

The ~~period ended March 31,~~June 30, 2019, consolidated financial statements included ~~iPass~~Devicescape and its subsidiaries from April 22, 2019, the ~~closing date of February 12, 2019,~~ acquisition date, through ~~March 31, 2019.~~June 30, 2019 .

The allocation of the purchase price for ~~iPass’s~~Devicescape’s intangible assets were as follows (in thousands):

Estimated
Fair
Value Useful
Life
(Years)
Developed Technology $ 5,500 8
Customer relationships 15,500 11
Tradename 1,700 3
Intangible assets $ 22,700
Estimated Useful
Fair Life
Value (Years)
Developed Technology $ 1,588 8
Intangible assets $ 1,588
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Note 4. Balance Sheet Information

The following tables present details of our unaudited condensed consolidated financial statements:

Prepaid expenses and other current assets March 31, December 31, June 30, December 31,
2019 2018 2019 2018
Prepaid expenses $ 3,136,043 $ 1,659,783 $ 2,960,148 $ 1,659,783
VAT 497,625 424,167 425,694 424,167
$ 3,633,668 $ 2,083,950 $ 3,385,842 $ 2,083,950

Property and equipment, net March 31, December 31,
2019 2018
Furniture and fixtures $ 566,726 $ 139,857
Computer, communications and network equipment 17,212,807 17,520,435
Software 4,836,881 4,716,816
Automobiles 324,534 10,744
Software development 2,816,237 1,656,739
Subtotal 25,757,185 24,044,591
Accumulated depreciation and amortization (20,572,873 ) (19,491,341 )
$ 5,184,312 $ 4,553,250
Property and equipment, net June 30, December 31,
2019 2018
Furniture and fixtures $ 561,858 $ 139,857
Computer, communications and network equipment 17,341,035 17,520,435
Software 4,911,585 4,716,816
Automobiles 324,534 10,744
Software development 3,589,731 1,656,739
Accumulated depreciation and amortization (21,832,240 ) (19,491,341 )
$ 4,896,503 $ 4,553,250

Intangible Assets, net March 31, December 31,
2019 2018
Intangible assets:
       Developed technology $ 26,100,000 $ 20,600,000
       Consumer relationships 32,300,000 16,800,000
       Tradename 5,100,000 3,400,000
Accumulated amortization (2,793,506 ) (1,141,675 )
$ 60,706,494 $ 39,658,325
Intangible Assets, net June 30, December 31,
2019 2018
Intangible assets:
Developed technology $ 27,687,821 $ 20,600,000
Consumer relationships 32,300,000 16,800,000
Tradename 5,100,000 3,400,000
Accumulated amortization (4,825,401 ) (1,141,675 )
$ 60,262,420 $ 39,658,325

1011


Accrued expenses and other payables March 31, December 31, June 30, December 31,
2019 2018 2019 2018
Accrued selling, general and administrative expenses $ 3,851,308 $ 2,396,941 $ 3,987,888 $ 2,396,941
Accrued restructuring & acquisition related costs 2,685,291 1,885,194 972,714 1,885,194
Accrued cost of service 2,552,964 1,070,099 5,765,483 1,070,099
Accrued taxes (including VAT) 2,698,297 2,283,999 2,980,801 2,283,999
Accrued interest payable 334,868 67,613 184,415 67,613
Other accrued expenses 444,123 248,534 145,344 248,534
$ 12,566,851 $ 7,952,380 $ 14,036,645 $ 7,952,380

9% Unsecured Subordinated Convertible Promissory Note
(~~Maturing~~Matured between December 2018 and ~~March~~June 2019)

Outstanding
March 31,
2019 Regular
Amortizations
(during 2019) Conversions
(during
2019)
including
accelerated
amortization 10% Early
Repayment
Short Term Outstanding
December 31,
2018
Convertible Note Principal Amount $                - $ - $ 105,000 $ 10,500 $ (115,500 )
Debt Discounts & Financing Costs - (8,533 ) - - 8,533
Total 9% Unsecured Note $ - $ (8,533 ) $ 105,000 $ 10,500 $ (106,967 )
Outstanding
June 30,
2019 Regular
Amortizations
(during 2019) Conversions
(during
2019)
including
accelerated
amortization 10% Early
Repayment
Short Term Outstanding
December 31,
2018
Convertible Note Principal Amount $ - $ - $ 105,000 $ 10,500 $ (115,500 )
Debt Discounts & Financing Costs - (8,533 ) - - 8,533
Total 9% Unsecured Note $ - $ (8,533 ) $ 105,000 $ 10,500 $ (106,967 )

During the ~~three~~six months ended ~~March 31,~~June 30, 2019, the conversion feature was exercised at a price of $1.75 per share, and a total of 84,220 shares were exercised.
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Outstanding numbers of Dilutive Securities

The outstanding number of dilutive securities for the ~~first quarter of~~six months ended June 30, 2019, can be seen below:

Number of underlying shares for
Warrants & Conversion Features Outstanding
March 31, 2019 Agreement
Amendments /
Interest effects Conversions Outstanding
December 31, 2018 Outstanding
June 30, 2019 Agreement
Amendments Conversions Outstanding
December 31, 2018
Fortress - iPass Loan Repayment Warrant 325,000 325,000 - - 325,000 325,000 - -
2017 Registered Public Offering 110,912 - (359,058 ) 469,970 110,912 - (359,058 ) 469,970
Investor Management Services 710,000 - - 710,000 610,000 - (100,000 ) 710,000
9% Convertible Note Warrants 501,306 - (19,067 ) 520,373 492,506 - (27,867 ) 520,373
2013 Convertible Notes 60,000 - - 60,000 60,000 - - 60,000
Other 9% Convertible Note Warrants 96,520 - - 96,520 96,520 - - 96,520
2017 Registered Public Offering Agent Warrants 39,000 - (23,334 ) 62,334 21,500 - (40,834 ) 62,334
9% Convertible Note 7% Agent Warrants 66,230 - - 66,230 66,230 - - 66,230
Nov-2017 Underwriter Agreement Investor Warrants - - -
Nov-2017 Underwriter Agreement Agent Warrants 821,677 - (88,910 ) 910,587 704,831 - (205,756 ) 910,587
Oct-2017 Shelf Take Down Agent Warrants 843 - - 843 843 - - 843
May-2018 Public Offering Agent Warrants 66,660 - (55,340 ) 122,000 6,700 - (115,300 ) 122,000
Preferred Share Conversion Warrants 731,798 - - 731,798 639,844 - (91,954 ) 731,798
Preferred Share issuance 8% Agent Warrants 38,827 - - 38,827 38,827 - - 38,827
Total Outstanding Warrants 3,568,773 325,000 (545,709 ) 3,789,482 3,173,713 325,000 (940,769 ) 3,789,482

Cash and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the ~~condensed~~Condensed Consolidated Balance Sheets to that sum to the total amounts shown in the Condensed Consolidated Statements of Cash Flows:

March 31, December 31, June 30, December 31,
2019 2018 2019 2018
Cash and cash equivalents $ 10,699,061 $ 6,051,709 $ 3,377,556 $ 6,051,709
Restricted Cash 704,779 430,655 1,104,757 430,655
Total cash, cash equivalents and restricted cash reported in the Statement of Cash Flows $ 11,403,840 $ 6,482,364
Total cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statement of Cash Flows $ 4,482,313 $ 6,482,364

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Notes Receivable

At ~~March 31,~~June 30, 2019, and December 31, 2018, the Company had non-current notes receivable of ~~$3,763,103~~$2,819,200 and $1,082,436, respectively, and the current portion amounted to $1,024,025 and $0 respectively.

The third quarter 2016 sale of ValidSoft for the price of $3,000,000 was completed and the Company received $2,000,000 in cash and a $1,000,000 promissory note, with an interest rate of 5% per annum. The maturity date of the note is September 30, 2019. At ~~March 31,~~June 30, 2019, and December 31, 2018, the remaining outstanding principal amounts were ~~$505,136~~$488,191 and $576,769, respectively.

On November 26, 2018, the Company executed a senior secured promissory note for $500,000 from Yonder Media Mobile (an unrelated entity), with interest accruing at a simple rate of 6% per annum with a maturity date of May 26, 2020. On January 9, 2019, February 12, 2019 and February 28, 2019, the Company issued additional notes of $500,000, $200,000, and $2,000,000, respectively (the “2019 Notes”). The 2019 Notes each bear an interest rate of 12% per annum and mature 18 months following the issuance date. All principal and interest are due on the maturity date. At ~~March 31,~~June 30, 2019 and December 31, 2018, the remaining outstanding principal amounts were ~~$3,257,967~~$3,355,034 and $505,667, respectively.

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Related Party Loan

As of June 30, 2019 and December 31, 2018, there remained an outstanding related party loan to Comsys, a wholly-owned subsidiary of Artilium BV, from Comsystems (a company owned by Gerard Derenbos). Prior to the acquisition by Pareteum, Gerard Derenbos was a shareholder of Artilium PLC, with approximately 15% of the total shares of Artilium PLC, and a board member of Artilium PLC.
The total outstanding balance as of June 30, 2019 and December 31, 2018 was $342,000 and $341,998, respectively. The loan carries an 8% interest rate and a maturity date of December 31, 2021. All principal and interest are due on the maturity date.

Note 5. ~~Stockholders’~~ Equity

(A) Common Stock

The Company is presently authorized to issue 500,000,000 shares of common stock. The Company had ~~109,765,015~~111,652,349 shares of common stock issued and outstanding as of ~~March 31,~~June 30, 2019, an increase of ~~11,912,104~~13,799,438 shares from December 31, 2018, were largely due to the iPass ~~acquisition (9,865,412)~~and Devicescape acquisitions (10,970,412), warrant exercises ~~(501,606)~~(858,344), shares issued to Senior Secured lender (425,000), and services settled by issuance of shares ~~(420,514), stock based compensation expense (594,475) shares issued for exercised employee stock options (68,083) and shares issued to be cancelled (37,014)~~(653,796).

(B) Warrants

~~The~~
Throughout the years, the Company has issued warrants with varying terms and conditions related to multiple financing rounds, acquisitions and other transactions. The number of warrants outstanding at ~~March 31,~~June 30, 2019 ~~(unaudited)~~ and December 31, 2018, have been recorded and classified as equity is ~~3,568,773~~3,173,713 and 3,789,482, respectively. The ~~Weighted Average Exercise Price~~weighted average exercise price for the currently outstanding warrants in the table below is ~~$2.43.~~$2.21. The table below summarizes the warrants outstanding as of ~~March 31,~~June 30, 2019 and as of December 31, 2018:

Outstanding Warrants Exercise/
Conversion
price(s) (range) Expiring March 31,
2019 December 31,
2018
Equity Warrants – Fundraising $1.05 - $5.375 2019 – 2026 3,568,773 3,789,482
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Outstanding Warrants Exercise/
Conversion
price(s)
(range) Expiring June 30,
2019 December 31, 2018
Equity Warrants – Fundraising $1.05 - $5.375 2019 - 2026 3,173,713 3,789,482
3,173,713 3,789,482

Note 6. Amended and Restated 2008 Long Term Incentive Compensation Plan, 2017 Long-Term Incentive Compensation Plan and 2018 ~~Long-Term~~Long Term Incentive Compensation Plan, As Amended

~~Amended and Restated 2008 Long-Term~~The Company maintains the following Long Term Incentive Compensation ~~Plan (“2008 Plan”)~~
~~Total authorized under the plan~~ ~~2,240,000~~
~~Shares issued in prior years~~ ~~(1,114,824~~ )
~~Outstanding options~~ ~~(194,268~~ )
~~Available for grant at March 31, 2019 (Registered and Unregistered)~~ ~~930,908~~
~~During~~Plans (collectively, the ~~first quarter of 2018 and 2019, no shares were issued, or options granted under the 2008 Plan.~~
~~Stock option activity is set forth below for the 2008 Plan:~~
Options: Number of
Options Weighted
Average
Exercise Price
Outstanding as of December 31, 2018 203,266 $ 10.74
Expirations (8,998 ) 19.83
Outstanding as of March 31, 2019 194,268 $ 6.51
~~At March 31, 2019 and December 31, 2018, the unrecognized expense portion of share-based awards granted to employees under the 2008 Plan was $0.~~
~~2017 Long-Term Incentive Compensation Plan (“2017 Plan”~~“Plans”):

~~Total authorized under the plan (Shareholders)~~ · Amended and Restated 2008 Long-Term Incentive Compensation Plan (“2008 Plan”) ~~6,500,000~~
·
~~Total registered under the plan (S-8 dated June 14,~~ 2017 ~~and April 13, 2018)~~ ~~6,500,000~~
~~Shares issued under the plan in prior years~~ ~~(3,207,700~~ Long-Term Incentive Compensation Plan (“2017 Plan”)
~~Outstanding options~~ ~~(3,317,940~~ )
~~Available for grant at March 31, 2019 (Registered & Unregistered)~~ ~~(25,640~~ )
~~During the first quarter of 2018 and 2019, no shares were issued and no options were granted under the 2017 Plan.~~
13· 2018 Long-Term Incentive Compensation Plan (“2018 Plan”)
~~Stock option activity is set forth below for the 2017 Plan:~~
Options: Number of
Options Weighted
Average
Exercise Price
Outstanding as of December 31, 2018 3,460,546 $ 1.81
Exercised in 2019 (68,083 ) 1.02
Forfeitures (60,358 ) 2.61
Expirations (14,165 ) 1.00
Outstanding as of March 31, 2019 3,317,940 $ 1.81
~~At March 31, 2019, the unrecognized expense portion of stock-based awards granted to employees under the 2017 Plan was $1,943,390 as compared to $2,448,790 at December 31, 2018.~~
Under the provisions of ASC 718, expensing takes place proportionally to the vesting associated with each stock-award, adjusted for cancellations, forfeitures and returns. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense.
~~2018 Long-Term Incentive Compensation Plan (“2018 Plan”)~~

On October 10, 2018, the Company filed an S-8 to register the remaining 8,000,000 shares of common stock of the 2018 ~~Long Term Incentive Compensation~~ Plan which was previously ratified by our stockholders on September 12, ~~2017~~2018 at our annual ~~meeting.~~meeting of stockholders. This incentive plan provides for awards of up to 8,000,000 shares of common stock, in the form of options, restricted stock awards, stock appreciation rights (“SAR’s”), performance units and performance bonuses to eligible employees and the grant of nonqualified stock options, restricted stock awards, SAR’s and performance units to consultants and eligible directors.

During 2018, 1,000,000 shares of common stock were issued to an officer under the 2018 Plan. This is included in the accompanying condensed consolidated statement of changes in stockholders’ equity under stock awards issued to management.
~~2018 Long-Term Incentive Compensation Plan~~
~~Total authorized under the plan (Shareholders)~~ ~~8,000,000~~
~~Total registered under the plan (S-8 dated October 10, 2018)~~ ~~8,000,000~~
~~Shares issued under the plan~~ ~~(1,669,371~~ )
~~Reserved for Time-conditioned share awards~~ ~~(1,579,175~~ )
~~Outstanding Options~~ ~~(5,469,400~~ )
~~Available for grant at March 31, 2019 (Registered & Unregistered)~~ ~~(717,946~~ )
Pursuant to the terms of the 2018 ~~Long-Term Incentive~~ Plan, as amended, the number of shares available under the plan shall increase on the first day of each fiscal year byin an amount equal to the lesser of (i) 15% of the ~~aggregate maximum~~total number of shares ~~available under~~of common stock outstanding as of December 31^st of the ~~plan~~preceding fiscal year or (ii) such number of shares of common stock determined by the Board of Directors (the “Evergreen Increase”). As a result of the 2019 Evergreen Increase, the number of shares available under the 2018 ~~Long-Term Incentive~~ Plan ~~shall increase~~increased by ~~1,200,000~~7,500,000 shares, such number determined by the Board of Directors being the lesser of (i) and (ii) as described herein (the “2018 Plan Increase”). The 2018 Plan Increase ~~shall take~~took effect upon the filing of ~~an effective~~the Registration Statement on Form S-8 on June 28, 2019.
Under the provisions of ASC 718, expensing takes place proportionally to the vesting associated with ~~the SEC. The Company intends to file a Registration Statement on Form S-8 reflecting the 2018 Plan Increase promptly following the filing~~each stock-award, adjusted for cancellations, forfeitures and returns. If there are any modifications or cancellations of the ~~report.~~
~~Stock option activity is set forth below for the 2018 Plan:~~
Options: Number of
Options Weighted
Average
Exercise Price
Outstanding as of December 31, 2018 - $ -
Granted in 2019 5,519,400 1.74
Forfeitures (50,000 ) 1.72
Outstanding as of March 31, 2019 5,469,400 $ 1.73
~~At March 31, 2019, the unrecognized expense portion of~~underlying unvested awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based ~~awards granted to employees under the 2018 Plan was $6,287,766.~~compensation expense.

14


As of June 30, 2019, the following shares were authorized under the Plans:
Reconciliation of registered and available shares
and/or options as of June 30, 2019: Total
Approved by the Shareholders (annually 15% of outstanding shares)
Registered 2008 (S-8 dated July 11, 2008) 2008 Plan 200,000
Registered 2011 (S-8 dated October 6, 2011) 2008 Plan 720,000
Registered 2017 (S-8 dated June 14, 2017) 2017 Plan 3,500,000
Registered 2018 (S-8 dated April 13, 2018) 2017 Plan 3,000,000
Registered 2018 (S-8 dated October 10, 2018) 2018 Plan 8,000,000
Registered 2018 (S-8 dated June 28, 2019) 2018 Plan 7,500,000
2019 Activities
Shares (issued to):
Consultants 177,744 1,011,165
Directors, Officers and staff 797,789 5,064,305
Options exercised 176,038 330,542
Total Shares issued: 6,406,012

Available for issuance at June 30, 2019 (under the S- 8 registration statements) 16,513,988

Outstanding rights (movements):
Options 5,082,211 8,746,023
Time Conditioned Share Awards / Other Awards 84,723 1,641,355
Available for grant at June 30, 2019: 6,126,610
The Company’s stockholders also approved an additional 920,000 shares and 400,000 shares under the 2008 Plan on December 17, 2013 and September 12, 2014, respectively. These approved shares have not been registered on Form S-8 as of June 30, 2019.
The following table summarizes the activities that occurred during the three months ended June 30, 2019:
Options: Number of
Options Weighted
Average
Exercise Price Initial Fair
Market Value
(Outstanding
Options)
Outstanding as of March 31, 2019 8,981,608 $ 2.26 $ 11,465,952
Granted in 2019 207,703 2.29 424,055
Exercised (with delivery of shares) (107,955 ) 1.30 (91,008 )
Forfeitures (Pre-vesting) (335,333 ) 2.28 (721,969 )
Outstanding as of June 30, 2019 8,746,023 $ 2.21 $ 11,077,030
The following table summarizes the activity that occurred during the six month period ended June 30, 2019:
Options: Number of Options Weighted Average Exercise Price Initial Fair Market Value (Outstanding Options)
Outstanding as of December 31, 2018 3,663,812 $ 2.26 $ 4,962,798
Granted in 2019 5,440,103 2.18 6,661,232
Exercised (with delivery of shares) (176,038 ) 1.19 (127,518 )
Forfeitures (Pre-vesting) (158,552 ) 2.20 (226,849 )
Expirations (Post-vesting) (23,302 ) 8.32 (192,633 )
Outstanding as of June 30, 2019 8,746,023 $ 2.21 $ 11,077,030
15
Stock-based compensation expense totaled $5,722,447 and $1,771,580 for the six months ended June 30, 2019 and 2018, respectively. Stock-based compensation expense totaled $2,008,833 and $697,448 for the three months ended June 30, 2019 and 2018, respectively. At June 30, 2019, there was $6,280,777 of unrecognized expense for share-based awards granted under the Plans.
Note 7.  Income taxes

The following table presents details of ~~the net provision for~~ income ~~taxes:~~tax (benefit)/expense:

Three months ended
March 31,
2019 2018
Income tax benefit $ (167,334 ) $ (418 )
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Income tax (benefit)/expense $ (449,403 ) $ 18,842 $ (616,737 ) $ 18,424

As a result of our cumulative tax losses in the U.S. and certain foreign jurisdictions, and the full utilization of our loss carryback opportunities, we have concluded that a full valuation allowance should be recorded in such jurisdictions. In certain other foreign jurisdictions where we do not have cumulative losses, we had net deferred tax ~~liabilities.~~liabilities based upon an expected annual tax rate.

Note 8. Significant ~~Customer~~Customers and Geographical Information

During the three ~~month period~~months ended ~~March 31,~~June 30, 2019 and 2018, ~~34.7%~~19.7% and ~~85.5%,~~75% of revenue, respectively, were made tofrom two customers. For the three months ended ~~March 31,~~June 30, 2019 and 2018, our largest customer represented ~~20.1%~~11.2% and ~~78.5%~~53.4% of revenues, respectively. Our second largest customer represented ~~14.6%~~8.5% and ~~7.0%~~21.6% of revenues for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively.
During the six months ended June 30, 2019 and 2018, 20.4% and 79.3% of revenues, respectively, were made from two customers. For the six months ended June 30, 2019 and 2018, our largest customer represented 12.5% and 63.5% of revenues, respectively. Our second largest customer represented 7.9% and 15.8% of revenues for the six months ended June 30, 2019 and 2018, respectively.

The geographical distribution of our revenue, as a percentage of revenues, was as follows:

Three months ended
March 31,
2019 2018
Europe 65.3 % 82.5 %
All other (non-European) countries 34.7 % 17.5
100.00 % 100.0 %
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Europe 52.7 % 59.4 % 57.7 % 76.8 %
All other (non-European) countries 47.3 % 40.6 % 42.3 % 23.2 %
100 % 100 % 100 % 100 %

Note 9. Revenues
~~Revenue Recognition~~

Our revenues represent amounts earned for our mobile and security solutions. Our solutions take many forms, but our ~~revenue~~revenues generally ~~consists~~consist of fixed and/or variable charges for services delivered monthly under a combined services and SaaS model. We also offer discrete (one-time) services for implementation and for development of specific functionality to properly service our customers.

16
The following table presents our revenues disaggregated by revenue source:

Three Months Ended Three Months Ended Six Months Ended
March 31, June 30, June  30,
2019 2018 2019 2018 2019 2018
Monthly service $ 21,609,900 $ 3,291,882 $ 31,627,289 $ 4,277,289 $ 53,237,189 $ 7,772,831
Installation and software development 1,430,013 820,688 2,521,107 1,725,891 3,951,121 2,342,919
Total revenues $ 23,039,913 $ 4,112,570 $ 34,148,396 $ 6,003,180 $ 57,188,310 $ 10,115,750

Monthly services revenues are generally recognized over time and amounted to ~~$21,609,900~~$31,627,289 and $53,237,189 for the ~~period~~three and six months ended ~~March 31, 2019.~~June 30, 2019, respectively. Installation and software development revenues are recognized over time and amounted to ~~$1,430,013~~$2,521,107 and $3,951,121 over for the ~~period~~three and six months ended ~~March 31, 2019.~~June 30, 2019, respectively.
15

The following table presents our revenues disaggregated by geography, based on the billing addresses of our ~~customers~~customers:

Three Months Ended Three Months Ended Six Months Ended
March 31, June 30, June  30,
2019 2018 2019 2018 2019 2018
Europe $ 15,037,029 $ 3,391,882 $ 17,978,271 $ 3,563,089 $ 33,015,300 $ 7,772,831
Other geographic areas 8,002,884 720,688 16,170,125 2,440,091 24,173,010 2,342,919
Total revenues $ 23,039,913 $ 4,112,570 $ 34,148,396 $ 6,003,180 $ 57,188,310 $ 10,115,750

Monthly Service Revenues

The Company’s performance obligations in a monthly SaaS and service offerings are simultaneously received and consumed by the customer and therefore, are generally recognized over time. For recognition purposes, we do not unbundle such services into separate performance obligations as their pattern of transfer does not differ. The Company typically bills its customer at the end of each month. The fees charged may include a combination of fixed and variable charges with the variable charges tied to the number of subscribers or some other measure of volume. Although the consideration may be variable, the volumes are easily estimable at the time of billing, with “true-up” adjustments occurring in the subsequent month. As such adjustments have not historically been material, no amounts of variable consideration are subject to constraint.

Installation and Software Development Revenues

The Company’s other revenues consist generally of installation and development projects.

Installation represents the activities necessary for a customer to obtain access and connectivity to the Company’s monthly SaaS and service offerings. While installation may require separate phases, it represents one performance obligation within the context of the contract.

Development consists of programming and other services to add new, additional or customized functionality to a customer’s existing service offerings. Each development activity is typically its own performance obligation.

Revenue is recognized over time if the installation and development activities create an asset that has no alternative use for which the Company is entitled to receive payment for performance completed to date. If not, then revenue is not recognized until the applicable performance obligation is satisfied.

Arrangements with Multiple Performance Obligations

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers.

Net Billings in Excess of Revenues

The Company records net billings in excess of revenues when payments are made or due in advance of our performance, including amounts which are refundable.

Payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, payment is required before the products or services are delivered to the customer.

17
Contract Assets

Given the nature of the Company’s services and contracts, it has no contract assets.

Note 10. Credit Agreement

On February 26, 2019, Pareteum Corporation and certain of its subsidiaries entered into a credit agreement (the “Credit Agreement”) with Post Road Administrative Finance, LLC and its affiliate Post Road Special Opportunity Fund I LLP (collectively, “Post Road”). Pursuant to the Credit Agreement, Post Road will provide the Company with a secured loan of up to $50,000,000 (the “Loan”), with an initial loan of $25,000,000 funded on February 26, 2019, and additional amounts in $5,000,000 increments as requested by the Company before the 18-month anniversary of the initial funding date. No additional loan shall be funded until the later of delivery of certain third-party consents (the “Consents”), the filing of Pareteum’s Quarterly Report on Form 10-Q for the first quarter of 2019, or June 1, 2019. All amounts owed under the Credit Agreement shall be due on February 26, 2022.

16
The unpaid principal amount of the Loan shall bear interest from the relevant funding dates at a rate per year of ~~8.5%~~Libor plus ~~Libor~~8.5% in effect from time to time, provided however, that upon an event of default or if certain of the Consents are not delivered prior to May 1, 2019 or June 1, 2019, as applicable, the unpaid principal amount of the Loan shall bear interest from the relevant funding dates at a rate per year of ~~11.5%~~Libor plus ~~Libor~~11.5% in effect from time to time until the Consents are delivered. The interest shall be due and payable monthly in cash in arrears, provided, however, that the Company may elect to pay any or all of the interest in the form of Payment-in-Kind (“PIK”) interest due and payable at maturity at a maximum percentage per year equal to (a) through and including the first anniversary of the initial funding date, 3%, (b) after the first anniversary of the initial funding date through and including the second anniversary of the initial funding date, 2%, and (c) after the second anniversary of the initial funding date, 1%.

Permitted use of proceeds for the initial $25,000,000 of the Loan include approximately ~~$11,000,000~~$11,700,000 for payment in full of outstanding secured debt owed to Fortress Credit Corp. (together with its affiliates, “Fortress”) incurred in connection with the Company’s previously disclosed acquisition of iPass Inc. (“iPass”) on February 12, 2019, as well as remaining amounts for permitted acquisitions and investments, for general working capital purposes and ~~to pay approximately $895,000~~paid $623,555 in transaction fees related to the Loan. Proceeds ~~if any,~~ are to be used for permitted acquisitions and to fund growth capital expenditures and other growth initiatives.

The Loan is subject to prepayment upon the receipt of proceeds outside the ordinary course of business in excess of $1,000,000 and the Company must pay a commitment fee of 1% per year for an unfunded commitment. The initial $25,000,000 loan is reduced by an original issue discount of (i) 0.75% of $25,000,000 and (ii) 1.25% of $50,000,000, and any additional amounts borrowed will be reduced by an original issue discount of 0.75% of the funded amounts.

The Company’s obligations under the Credit Agreement are secured by a first-priority security interest in all the assets of the Company and guaranteed by certain subsidiaries of the Company. The Credit Agreement contains customary representations, warranties and indemnification provisions. The Credit Agreement also contains affirmative and negative covenants with respect to operation of the business and properties of the Company as well as financial performance, including requirements to maintain a minimum of $2,000,000 of unrestricted cash, certain maximum total leverage ratios, a debt to asset ratio, maximum churn rate and minimum adjusted EBITDA. The Credit Agreement further provides customary events of default and cure periods for certain specified events of default, and in the event of uncured default, the acceleration of the maturity date, an increase in the applicable interest rate with respect to amounts outstanding under the Loan and payment of additional fees.

On February 26, 2019, concurrently with entering into the Credit Agreement, the existing loan and security agreement by and among iPass, iPass IP LLC and Fortress (the “Existing iPass Loan”) terminated. Credit facilities under the Existing iPass Loan included a term loan A facility and a term loan B facility maturing on February 27, 2019.

On February 26, 2019, pursuant to the terms of the Credit Agreement, the Company issued to Post Road 425,000 shares of common stock at $1,606,500 and will issue an additional 200,000 shares of common stock upon the next subsequent funding, if any, under the Loan.

As of ~~March 31,~~June 30, 2019, and December 31, 2018, the Company had outstanding senior secured debt of ~~$21,806,879~~$22,077,767 and $0, respectively. ~~The weighted average debt outstanding was for the three months ended March 31, 2019 was $9,444,444.~~ For the three and six months ended ~~March 31,~~June 30, 2019, the Company recorded interest expense of ~~$335,136~~$747,245 and $1,054,120, respectively, related to the Loan. The interest rate at June 30, 2019 was 11%. The Company recorded $1,655,112 in deferred financing costs and other fees as a reduction of the outstanding loan balance through ~~March 31,~~June 30, 2019. ~~Of this amount, $49,691~~A total of $101,664 and $151,355 was amortized induring the ~~first quarter~~three and six months ended ~~March 31,~~June 30, 2019. The remaining capacity under the Loan was $25,000,000 at ~~March 31,~~June 30, 2019.

~~At March 31,~~As of June 30, 2019, the Company was in compliance with all covenants required by the Loan.
18

Note 11. Commitments and Contingencies
Lease Commitments

We have operating leases for our office space. Our leases have remaining lease terms of less than one year to 6 years, some of which include options to indefinitely extend the leases monthly. For our month to month leases, we determined the number of renewal periods we are reasonably certain to exercise and include these periods in our right of use asset and lease liability calculations. Lease expense was ~~$482,548~~$487,850 and ~~$132,463~~$970,398 for the three and six months ended ~~March 31,~~June 30, 2019, ~~and 2018,~~ respectively, and is included in general and administrative expense in the condensed consolidated statement of comprehensive loss. Lease expense was $39,393 and $81,506 for the three and six months ended June 30, 2018.

17
Operating Leases: March 31, 2019 June 30, 2019
-
Operating lease right-of-use assets $ 3,136,015 $ 2,493,352
Operating lease liabilities $ 3,141,842 $ 2,790,685

Weighted average remaining lease term
Operating leases 2.2 years 1.9 years

Weighted average remaining discount rate
Incremental borrowing rate
Operating leases 2.5 % 8.8 %

The following represents maturities of operating lease liabilities as of ~~March 31,~~June 30, 2019:

Remainder of 2019 $ 1,463,299 $ 975,453
2020 1,716,284 1,716,284
2021 119,059 119,059
2022 62,387 62,387
2023 62,387 62,387
Thereafter 98,779 98,779
Total lease payments $ 3,522,195 $ 3,034,349
Less: imputed interest (380,353 ) (243,664 )
Lease liabilities, current 1,776,900
Lease liabilities, non-current 1,013,785
Total $ 3,141,842 $ 2,790,685
Legal Proceedings
Ellenoff Grossman & Schole LLP, claimed legal fees.
On May 5, 2017, the Company’s former legal counsel, Ellenoff Grossman & Schole LLP, commenced litigation proceedings in New York alleging breach of contract and claiming $817,822 in unpaid legal fees for January 2015 through November 2016. On June 29, 2017, the parties entered into a settlement agreement for the full $817,822 with agreed-upon monthly installment payments through August 31, 2019. As of June 30, 2019, this transaction is reflected in the financial statements.
The Company is involved in various claims and lawsuits incidental to our business. In the opinion of management, the ultimate resolution of such claims and lawsuits will not have a material effect on our financial position, liquidity, or results of operations.

Note 12. Subsequent Events

On April 22, 2019, the Company, together with Devicescape Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (the “Holdco” and together with the Company, the “Buyer”) entered into an asset purchase agreement (the “Purchase Agreement”) with Devicescape Software, Inc., a California corporation (“Devicescape”), whereby the Buyer acquired substantially all of the assets of Devicescape and assumed certain liabilities of Devicescape, such that Holdco shall continue as a surviving subsidiary of the Company holding all assets and assuming those certain liabilities of Devicescape (the “Devicescape Purchase”). The Devicescape Purchase was previously announced by the Company in a press release dated May 8, 2019. In connection with the Devicescape Purchase, and pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, the Company paid cash consideration of $1,500,000 and issued to the stockholders of Devicescape an aggregate of 400,000 shares of the Company’s common stock at a value of $1,692,000 based on our closing price on April 22, 2019, of $4.23 per share.
None.

1819


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Any ~~forward-looking~~forward looking statements made herein are based on current expectations of the Company, involve a number of risks and uncertainties and should not be considered as guarantees of future performance. The factors that could cause actual results to differ materially include: interruptions or cancellation of existing contracts, inability to integrate acquisitions, impact of competitive products and pricing, product demand and market acceptance risks, the presence of competitors with greater financial resources than the Company, product development and commercialization risks, changes in governmental regulations, and changing economic conditions in developing countries and an inability to arrange additional debt or equity financing.

Overview

Pareteum Corporation (Nasdaq: TEUM) is a cloud software communications platform company with a mission –to connect every person and every(thing) ™.

Millions of people and devices are connected around the world using Pareteum’s global cloud software communications platform, enhancing their mobile experience. Pareteum unleashes the power of applications and mobile services, bringing secure, ubiquitous, scalable, and seamlessly available voice, video, SMS/text messaging, and data services to our customers, making worldwide communications services easily and economically accessible to everyone. By harnessing the value of our cloud communications platform, Pareteum serves enterprises, communications service providers, early stage innovators, developers, IoT, and telecommunications infrastructure ~~providers~~providers. Pareteum envisions a new mobile communications experience imagining what will be and delivering now.

With estimates of up to 30 billion devices to be managed and connected the total available market is astoundingly large. Service Providers, Brand Marketing Companies, Enterprise and Internet of Things providers use Pareteum to energize their growth and profitability through cloud communication services and complete turnkey solutions featuring relevant content, applications, and connectivity worldwide. To achieve this, Pareteum has developed, and added through its acquisition of Artilium and iPass, patent pending software platforms which are connected to 59 mobile networks in 80 counties using multiple different communications channels including mobile telephony, data, SMS, VOIP, OTT services – all over the world. Pareteum integrates all these disparate communications methods and services and brings them to life for customers and application developers, allowing communications to become value-added. This is a major strategic target for many industries, from legacy telecommunications providers to the disruptive technology and data enterprises of today and the future.

The vast majority of our platform is comprised of our self-developed software and intellectual property, which provides our customers with a great deal of flexibility in how they use our products now and in the future and allows us to be market driven in our future. We have approximately 40 patents granted in relation to techniques and processes which support our cloud software and communications platform solutions. Our platform services partners (technologies integrated into our cloud) include: HPE, IBM, Sonus, Oracle, Microsoft, NetNumber, Affirmed and other world class companies. As of October 1, 2018, the Company now includes Artilium plc, which operates as a wholly-owned subsidiary of the Company. Artilium is a software development company active in the enterprise communications and core telecommunications markets delivering software solutions which layer over disparate fixed, mobile and IP networks to enable the deployment of converged communication services and application technology providers. As of February 12, 2019, the Company now includes iPass Inc., which operates as a wholly-owned subsidiary of the Company. iPass is a cloud-based service provider of global mobile connectivity, offering Wi-Fi access on any mobile device through its SaaS platform.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto and the other financial information included elsewhere in this report.

1920

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to revenue recognition, rebates, allowances for doubtful accounts, sales returns and allowances, warranty ~~reserves, inventory~~ reserves, stock-based compensation expense, intangible assets acquired in connection with our business combinations, long-lived asset valuations, strategic investments, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, self-insurance, restructuring costs, litigation and other loss contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected. For a description of our critical accounting policies and estimates, please refer to the “Critical Accounting Policies and Estimates” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2018 Annual Report. There have been no material changes in any of our critical accounting policies and estimates during the ~~three~~six months ended ~~March 31,~~June 30, 2019.
Comparison of three months ended ~~March 31,~~June 30, 2019 and ~~March 31, 2018.~~June 30, 2018

~~Revenue~~Revenues

~~Revenue~~Revenues for the three months ended ~~March 31,~~June 30, 2019, ~~was $23,039,913,~~were $34,148,396, a ~~$18,927,343~~$28,145,216 or ~~460%~~469% increase compared to ~~$4,112,570~~$6,003,180 for the comparable three months in 2018. Our deployments with existing customers continue to grow, new implementations are generating new revenues and new ~~cloud-based~~cloud based revenues were all factors in our revenue growth. Additionally, the three months ended ~~March 31,~~June 30, 2019, ~~revenues include Artilium~~includes revenues of ~~$5,147,852. It also includes~~$5,241,919 and $7,359,579 from our acquisitions of Artilium and iPass, respectively. The three months ended June 30, 2018, included no such corresponding revenues as these transactions were consummated in the fourth quarter of ~~$3,726,237 for the period from February 12,~~2018 and first quarter of 2019, ~~the date of its acquisition, through March 31, 2019.~~respectively.

Three months ended
2019 2018 Variance
Revenues $ 23,039,913 $ 4,112,570 $ 18,927,343
Three months ended June 30,
2019 2018 Change
Revenues $ 34,148,396 $ 6,003,180 $ 28,145,216

Cost of Service, excluding depreciation and amortization

Cost of service includes origination, termination, network and billing charges from telecommunications operators, costs of telecommunications service providers, network costs, data center costs, facility cost of hosting network and equipment and cost in providing resale arrangements with long distance service providers, cost of leasing transmission facilities, international gateway switches for voice, data transmission services, and the cost of professional services of staff directly related to the generation of revenues, consisting primarily of employee-related costs associated with these services, including share-based compensation and the cost of subcontractors. Cost of service excludes depreciation and amortization.

Three months ended Three months ended June 30,
2019 2018 Variance 2019 2018 Change
Revenues $ 23,039,913 $ 4,112,570 $ 18,927,343 $ 34,148,396 $ 6,003,180 $ 28,145,216
Cost of service (excluding depreciation and amortization) 10,068,283 1,194,523 8,873,760 15,293,244 1,779,882 13,513,362
Margin (excluding depreciation and amortization) $ 12,971,630 $ 2,918,047 $ 10,053,583 $ 18,855,152 $ 4,223,298 $ 14,631,854

Cost of service for the ~~three-month period~~three months ended ~~March 31,~~June 30, 2019, was ~~$10,068,283,~~$15,293,244, an increase of ~~$8,873,760~~$13,513,362 or ~~743%~~759%, compared to ~~$1,194,523~~$1,779,882 for the comparable ~~three-month period~~three months in 2018. ~~This includes Artilium cost~~Cost of service ~~of $2,991,410~~ for the three months ended ~~March 31,2019,~~June 30, 2019, includes costs for Artilium and iPass of $3,038,017 and $6,398,593, respectively due to their acquisitions. The remainder of the increase in cost of service ~~of $3,205,290~~is in line with the overall increase in revenue, which generates a corresponding increase in implementation costs for ~~the period from February 12, 2019 through March 31, 2019. Comparable costs were not reflected in the three months ended March 31, 2018, because these subsidiaries were acquired in subsequent periods.~~new clients.
21

Product Development

Product Development costs consist primarily of salaries and related expenses, including share-based compensation, of employees involved in the development of the Company’s services, which are expensed as incurred. Costs such as database architecture, and Pareteum business operating system network and intelligent network platform development and testing are also included in this function.

Product development costs for the ~~three-month periods~~three months ended ~~March 31,~~June 30, 2019 and 2018, were ~~$2,198,324~~$3,242,145 and ~~$726,845,~~$753,931, respectively, an increase of ~~$1,471,479~~$2,488,214 or ~~202.4%~~330%. The increase in product development is ~~primarily~~ due to acquisitions made by the ~~overall expansion of our lines of business year over year and the inclusion of product~~company totaling $1,348,448. The remaining increases was due to continued development costs ~~of $1,131,869~~ for ~~Artilium and iPass for the three months ended March 31, 2019.~~legacy product lines.

20

Sales and Marketing

Sales and Marketing expenses consist primarily of salaries and related expenses, including share-based compensation, for our sales and marketing staff, including commissions, payments to partners and marketing programs. Marketing programs consist of advertising, events, corporate communications and brand building.
Sales and marketing expenses for the ~~three-month periods~~three months ended ~~March 31,~~June 30, 2019 and 2018, were ~~$2,564,912~~$2,769,065 and ~~$688,998,~~$652,442, respectively, an increase of ~~$1,875,914~~$2,116,623 or ~~272.3%~~324%. ~~This~~Of this increase, $1,307,654 is ~~primarily a direct result of hiring new employees,~~attributable to the inclusion of iPass in the ~~Artilium and iPass sales and marketing expenses~~three month results. The remaining increase is the result of ~~$1,069,122, and other incremental costs incurred as the Company expands.~~allocating additional resources to our growing business.

General and Administrative

General and administrative expenses are our largest cost and consist primarily of overhead related salaries and expenses, including share-based compensation, for non-employee directors, finance and accounting, legal, internal audit and human resources personnel, legal costs, professional fees and other corporate expenses.

General and administrative expenses for the ~~three-month period~~three months ended ~~March 31,~~June 30, 2019 and 2018, were ~~$7,614,359~~$9,033,690 and ~~$2,296,852,~~$2,214,070, respectively, an increase of ~~$5,317,507~~$6,819,620 or ~~231.5%~~308%. ~~These increases were primarily due to~~This is largely the result of the inclusion of ~~general~~expenses totaling $2,505,129 and ~~administrative expenses~~$1,087,345 for Artilium and iPass, respectively. The remaining increase is primarily the result of ~~$1,920,219 and an increase in share~~higher stock based compensation expense ~~of $2,387,775.~~and increased travel, legal, accounting, and marketing costs.

Restructuring and Acquisition Charges

Restructuring and acquisition charges for the three months ended ~~March 31,~~June 30, 2019 and 2018, were ~~$3,080,364~~$427,586 and ~~$73,600,~~$5,592, an increase of ~~$3,006,764~~$421,994 or ~~4,085.3%. These~~7,546%, as a result of costs ~~were the result of~~related to the iPass acquisition ~~which was completed on February 12, 2019.~~and the Devicescape asset acquisition.

~~Share-based~~Stock-based compensation

~~Share-based~~Stock-based compensation is comprised of:

· the expensing of the options granted under the 2008, 2017 and 2018 Plans to staff and management;

· the expensing of the shares issued under the 2008, 2017 and 2018 Plans to contractors, directors and executive officers in lieu of cash compensation; and

· the expensing of restricted shares issued for consultancy services under the 2018 Plan.

For the ~~three-month period~~three months ended ~~March 31,~~June 30, 2019 and 2018, we recognized ~~share-based~~stock-based compensation expense of ~~$3,713,614~~$2,008,833 and ~~$1,077,625,~~$697,448, respectively, an increase of ~~$2,635,989~~$1,311,385 or ~~244.6%~~188%.

In the following table, we show the allocation of ~~share-based~~stock-based compensation according to functions in the Condensed Consolidated Statements of Comprehensive Loss:

Three Months Ended
March 31, March 31, Three months ended June 30,
2019 2018 2019 2018
Cost of service (excluding depreciation and amortization) $ 52,877 $ 24,377 $ - $ (13,122 )
Product development 94,331 42,432 128,336 (25,845 )
Sales and marketing 321,788 128,369 227,426 (39,430 )
General and administrative 3,244,618 856,543 1,653,071 775,845
Restructuring and acquisition charges - 25,904
Total $ 3,713,614 $ 1,077,625 $ 2,008,833 $ 697,448
22

Depreciation and Amortization

Depreciation and amortization expenses for the ~~three-month period~~three months ended ~~March 31,~~June 30, 2019, was ~~$2,843,403,~~$3,224,027, an increase of ~~$1,878,113~~$2,229,709 or ~~194.6%~~224%, compared to ~~$965,290~~$994,318 for the ~~same period in~~three months ended June 30, 2018. This was primarily due to amortization of intangible assets totaling ~~$1,651,831~~$2,031,895 resulting from the Artilium, iPass and ~~iPass~~Devicescape acquisitions that took place on October 1, 2018, ~~and~~ February 12, 2019, and April 22, 2019, respectively.

Interest Income and Expense

Interest income for the ~~three-month periods~~three-months ended ~~March 31,~~June 30, 2019 and 2018, was ~~$101,545~~$149,298 and ~~$42,672,~~$43,193, respectively, an increase of ~~$58,873~~$106,105 or ~~138%~~246%. Interest income mainly consists of interest earned on promissory notes issued to ValidSoft and Yonder Media.
Interest expense for the three-months ended June 30, 2019 and 2018, was $777,907 and $99,708, respectively, an increase of $678,199 or 680%. Interest expense increased mainly as the result of the Post Road Loan entered into in February 2019.
Interest Expense Related to Debt Discount and Conversion Feature
For the three months ended June 30, 2019 and 2018, interest expense related to debt discount accretion were $199,224 and $30,272, respectively, an increase of $168,952 or 558%. This increase is mainly the result of the Post Road Loan entered into in February 2019.
Changes in derivative liabilities
Changes in derivative liabilities for the three months ended June 30, 2019, was $0, a decrease of $1,597,647 or 100%, compared to a gain of $1,597,647 for the same period in 2018. This decrease is due to the elimination of the derivative liability in 2018.
Other Income, net
Other (expense)/income for the three months ended June 30, 2019 and 2018 was ($194,354) and $567,710, respectively, a decrease of $762,064. The other expense arises from foreign currency transaction losses incurred by iPass in the second quarter of 2019.
Amortization of Deferred Financing Costs
Amortization of deferred financing costs for the three months ended June 30, 2019 and 2018, was $101,644 and $6,209, respectively, an increase of $95,435 or 1,537%. This increase is mainly the result of the Post Road Loan entered into in February 2019.
Income tax (benefit)/expense
Income tax benefit for the three months ended June 30, 2019, was $449,403, compared to an income tax expense of $18,842 for the same period in 2018. The tax provision was calculated based upon an expected annual tax rate.
Net Income (Loss)
Net loss for the three months ended June 30, 2019, was $515,809, an increase of $2,172,273 or 131%, compared to income of $1,656,464 for the same period in 2018. The increase in net loss was primarily due to lower margins at our newly acquired subsidiaries Artilium and iPass.
23
Other Comprehensive Income/(Loss)
We recorded foreign currency translation gains and losses as other comprehensive income or loss, which amounted to a gain of $435,935 and a loss of $79,137 for the three months ended June 30, 2019 and 2018, respectively. This change is primarily attributable to the translation effect resulting from the fluctuations in the USD/Euro exchange rates.
Comparison of six months ended June 30, 2019 and June 30, 2018
Revenues
Revenues for the six months ended June 30, 2019, were $57,188,310 a $47,072,560 or 465% increase compared to $10,115,750 for the comparable six months in 2018. Our deployments with existing customers continue to grow, new implementations are generating new revenues and new cloud based revenues were all factors in our revenue growth. Additionally, the six months ended June 30, 2019, revenues include Artilium revenues of $10,389,771. It also includes iPass revenues of $11,085,817 for the period from February 12, 2019, the date of its acquisition, through June 30, 2019. The remainder of the increase is due to growth in the Company’s existing business lines.
24
Six months ended June 30,
2019 2018 Change
Revenues $ 57,188,310 $ 10,115,750 $ 47,072,560
Cost of Service
Cost of service includes origination, termination, network and billing charges from telecommunications operators, costs of telecommunications service providers, network costs, data center costs, facility cost of hosting network and equipment and cost in providing resale arrangements with long distance service providers, cost of leasing transmission facilities, international gateway switches for voice, data transmission services, and the cost of professional services of staff directly related to the generation of revenues, consisting primarily of employee-related costs associated with these services, including share-based compensation and the cost of subcontractors. Cost of service excludes depreciation and amortization.
Six months ended June 30,
2019 2018 Change
Revenues $ 57,188,310 $ 10,115,750 $ 47,072,560
Cost of service (excluding depreciation and amortization) 25,361,468 2,974,405 22,387,063
Margin (excluding depreciation and amortization) $ 31,826,842 $ 7,141,345 $ 24,685,497
Cost of service for the six months ended June 30, 2019, was $25,361,468, an increase of $22,387,063 or 753%, compared to $2,974,405 for the comparable six month period in 2018. This 753% increase in cost of service is in line with our increase in revenue, as margins and additional costs associated from implementations for new clients have stayed relatively constant. This includes Artilium cost of service of $6,029,427 for the six months ended June 30, 2019, and iPass cost of service of $9,603,882 for the period from February 12, 2019 through June 30, 2019. Comparable costs were not reflected in the six months ended June 30, 2018, because these subsidiaries were acquired in subsequent periods. The remaining increase in costs of service is due to the overall growth in the business.
Product Development
Product Development costs consist primarily of salaries and related expenses, including share-based compensation, of employees involved in the development of the Company’s services, which are expensed as incurred. Costs such as database architecture, and Pareteum business operating system network and intelligent network platform development and testing are also included in this function.
Product development costs for the six months ended June 30, 2019 and 2018, were $5,816,189 and $1,480,776, respectively, an increase of $4,335,413 or 293%. The increase is primarily due to the overall expansion of our lines of business year over year and the inclusion of product development costs of $1,131,869 for Artilium and iPass for the six months ended June 30, 2019.
Sales and Marketing
Sales and Marketing expenses consist primarily of salaries and related expenses, including stock-based compensation, for our sales and marketing staff, including commissions, payments to partners and marketing programs. Marketing programs consist of advertising, events, corporate communications and brand building.
25
Sales and marketing expenses for the six months ended June 30, 2019 and 2018 were $5,709,747 and $1,341,440, respectively, an increase of $4,368,307 or 326%. This increase is primarily a direct result of hiring new employees, the inclusion of the Artilium and iPass sales and marketing expenses of $2,752,546, and other incremental costs incurred as the Company expands.
General and Administrative
General and administrative expenses are our largest cost and consist primarily of overhead related salaries and expenses, including share-based compensation, for non-employee directors, finance and accounting, legal, internal audit and human resources personnel, legal costs, professional fees and other corporate expenses.
General and administrative expenses for the six months ended June 30, 2019 and 2018, were $15,896,619 and $4,510,922, respectively, an increase of $11,385,697 or 252%.
Restructuring and Acquisition Charges
Acquisition charges for the six months ended June 30, 2019 and 2018, were $3,507,950 and $79,193, an increase of $3,428,757 or 4,330%, as a result of costs related to acquiring iPass and Artilium.
Stock-based compensation
Stock-based compensation is comprised of:
· the expensing of the options granted under the 2008, 2017 and 2018 Plans to staff and management;
· the expensing of the shares issued under the 2008, 2017 and 2018 Plans to contractors, directors and executive officers in lieu of cash compensation; and
· the expensing of restricted shares issued for consultancy services under the 2018 Plan.
For the six months ended June 30, 2019 and 2018, we recognized stock-based compensation expense of $5,722,447 and $1,771,580, respectively, an increase of $3,950,867 or 223%.
In the following table, we show the allocation of stock-based compensation according to functions in the Condensed Consolidated Statements of Comprehensive Loss:
Six months ended June 30,
2019 2018
Cost of service (excluding depreciation and amortization) $ 52,877 $ 11,254
Product development 222,667 16,587
Sales and marketing 549,214 88,939
General and administrative 4,897,689 1,628,896
Restructuring - 25,904
Total $ 5,722,447 $ 1,771,580
Depreciation and Amortization
Depreciation and amortization expenses for the six months ended June 30, 2019, was $6,067,430, an increase of $4,107,821 or 210%, compared to $1,959,609 for the same period in 2018. This was increase was primarily due to amortization of intangible assets totaling $3,683,726 resulting from the Artilium, iPass and Devicescape acquisitions that took place on October 1, 2018, February 12, 2019 and April 22,2019, respectively.
26
Interest Income and Expense
Interest income for the six months ended June 30, 2019 and 2018, was $250,844 and $85,865, respectively, an increase of $164,979 or 192%. Interest income mainly consists of interest accrued for the $503,000 and $3,200,000 promissory notes issued to ValidSoft and Yonder Media, respectively.

21
Interest expense for the ~~three-month periods~~six months ended ~~March 31,~~June 30, 2019 and 2018, was ~~$548,860~~$1,326,767 and ~~$63,758,~~$163,467, respectively, an increase of ~~$485,102~~$1,163,300 or ~~760.8%~~712%. Interest expense increased mainly as the result of the Post Road Loan entered into in February 2019.

Interest Expense Related to Debt Discount Accretion and Conversion Feature

For the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, interest ~~expenses~~expense related to debt discount accretion were ~~$71,981~~$271,205 and ~~$29,566~~$59,838, respectively, an increase of ~~$42,415~~$211,367 or ~~143.5%~~353%. This increase ~~is mainly the result of the Post Road Loan entered into in February 2019.~~
~~Amortization of Deferred Financing Costs~~
~~Amortization of Deferred Financing Costs for the three-month periods ended March 31, 2019 and 2018, was $49,691and $6,142, respectively, an increase of $43,549 or 709% This decrease~~ is mainly the result of the Post Road Loan entered into in February 2019.

Changes in derivative liabilities

Changes in derivative liabilities for the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2019, was $0, a decrease of ~~$313,733~~$1,283,914 or 100%, compared to a ~~loss~~gain of ~~$313,733~~$1,283,914 for the same period in 2018. This decrease is due to the elimination of the derivative liability in ~~the third quarter of~~ 2018.

Other (Expense) Income, net

Other ~~(expense) income~~expense for the ~~three-month periods~~six months ended ~~March 31,~~June 30, 2019 was $241,485, as compared to other income of $637,255 for the six months ended June 30, 2018, a decrease of $878,740 or 138%. The 2018 amount represents the unrealized exchange rate gains and an adjustment to liabilities for no longer deemed obligations. The 2019 amount represents foreign currency transaction losses.
Amortization of Deferred Financing Costs
Amortization of deferred financing costs for the six-months ended June 30, 2019 and 2018 ~~were $(47,130)~~was $151,355 and ~~$69,546, respectively.~~$12,351, respectively, an increase of $139,004 or 1,125%. This increase is mainly the result of the Post Road Loan entered into in February 2019.

Income tax ~~benefit~~(benefit)/expense

Income tax benefit for the ~~three-month period~~six months ended ~~March 31,~~June 30, 2019, was ~~$167,334,~~$616,737, compared to an income tax ~~benefit~~expense of ~~$418~~$18,424, for the same period in 2018. The ~~increase of $166,916 is primarily due to the change in the deferred~~ tax ~~liability at Artilium.~~provision was calculated based upon an expected annual tax rate.

Net Loss

Net loss for the ~~three-month period~~six months ended ~~March 31,~~June 30, 2019, was ~~$5,778,515,~~$6,294,324 an increase of ~~$3,644,414~~$5,816,683 or ~~170.8%~~1,218%, compared to the loss of ~~$2,134,101~~$477,641 for the same period in 2018. The increase in net loss ~~was primarily~~is due to lower margins ~~at our newly acquired subsidiaries Artilium~~ and ~~iPass.~~costs associated with acquiring new companies.

Other Comprehensive ~~Loss~~(Loss)/Income

We recorded foreign currency translation gains ~~and losses~~ as other comprehensive income or loss, which amounted to a ~~loss of $359,804 and a~~ gain of ~~$104,402~~$76,131 and $25,266 for the ~~three-month periods~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively. This change is primarily attributable to the translation effect resulting from the fluctuations in the ~~USD and~~ USD/Euro exchange rates.

Liquidity and Capital Resources

As reflected in the accompanying condensed consolidated financial statements, the Company reported net loss of ~~$5,778,515~~$6,294,324 for the ~~period~~six months ended ~~March 31,~~June 30, 2019, and had an accumulated deficit of ~~$318,403,898~~$318,919,707 as of ~~March 31,~~June 30, 2019.

The cash balance including restricted cash of the Company at ~~March 31,~~June 30, 2019, was ~~$11,403,840.~~$4,482,313.
~~Operating activities~~
Three months ended
March 31,
2019 March 31,
2018

Net loss $ (5,788,515 ) $ (2,134,101 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: 8,487,216 2,392,356
2,708,701 258,255

Changes in operating assets and liabilities: (7,322,646 ) (229,684 )
Net cash provided (used in) provided by operating activities $ (4,613,945 ) $ 28,571

2227

Operating activities
Net cash used in operating activities of ~~$4,613,945~~$10,441,210 for ~~three~~the six months ended ~~March 31,~~June 30, 2019, ~~was primarily~~ due to an increase in accounts receivable of ~~$9,225,001,~~$25,190,857, offset by a ~~increase~~decrease in accounts payable and customer deposits of $6,936,552, a decrease in net billings in excess of revenues and deferred revenue of ~~$1,237,464,~~$2,000,430 and a ~~decrease in prepaid expenses, deposits and other assets of $2,816,290 and was partly offset by the increase in accounts payable and customer deposits of $3,421,002 and an~~ decrease in accrued expenses and other payables of $3,097,473. Adjustments to reconcile net loss to net cash used in operating activities primarily was comprised of $2,843,403 of depreciation and amortization, $3,713,614 of stock based compensation and $1,522,635 in services settled by the issuance of shares.for $1,644,320.

As a result of the above, cash used in operating activities was ~~$4,613,945~~$10,441,210 for the ~~three~~six months ended ~~March 31,~~June 30, 2019, compared to net cash ~~provided by~~used in operating activities of ~~$28,571~~$952,476 for the ~~three~~six months ended ~~March 31,~~June 30, 2018, for ~~a change~~an increase of ~~$4,642,516~~$9,488,734 or ~~162.5%~~996%.

Investing activities

Net cash used in investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2019, was ~~$3,749,393~~$5,973,438, an increase of ~~$3,315,644,~~$4,095,961, or ~~764.4%~~218% compared to ~~$433,749~~$1,877,477 in ~~for~~ the same period in 2018. ~~The increase is primarily driven by~~This change was mainly the result of the purchase of property, equipment and capitalized software of $1,650,013, the issuance of ~~an additional $2,700,000 in~~ notes receivable of $2,700,000 to ~~a third party during~~Yonder Media and effect of the ~~first quarter~~business combinations of ~~2019.~~$1,562,636.

Financing activities

Net cash provided by financing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, was ~~$13,440,174~~$14,443,138 and ~~$2,525,037,~~$8,484,428, respectively, an increase of ~~$10,915,137~~$5,958,710 or ~~432.3%~~70.2%. This increase was ~~due to~~primarily the result of the receipt of $25,000,000 in proceeds from the senior debt from Post Road ~~Loan,~~Group, offset by the repayment of $11,669,963 to Fortress in connection with the ~~Senior Secured Loan totaling $11,669,963, both occurring~~iPass transaction in February 2019.

Effect of exchange rates on cash, ~~and~~ cash equivalents and restricted cash

Effect of exchange rates on cash, ~~and~~ cash equivalents and restricted cash for the ~~three-month period~~six months ended ~~March 31,~~June 30, 2019, was a loss of ~~$155,360~~$28,541, compared to a gain of ~~$131,111~~$42,185 for the same period in 2018.

As a result of the above activities, for the ~~three~~six months ended ~~March 31,~~June 30, 2019, we had cash, cash equivalents and restricted cash of ~~$11,403,840,~~$4,482,313 a net ~~increase~~decrease in cash, cash equivalents and restricted cash of ~~$4,921,476~~$2,000,051 since December 31, 2018.

Off- Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have either a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors, nor we have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

2328


Item 3. Quantitative and Qualitative ~~Disclosure~~Disclosures about Market Risk

Foreign currency exchange rate

Although the majority of our business activities are carried out in Euros, we report our financial statements in USD. The conversion of Euros and USD leads to period-to-period fluctuations in our reported USD results arising from changes in the exchange rate between the USD and the Euro. Generally, when the USD strengthens relative to the Euro, it has an unfavorable impact on our reported revenue and income and a favorable impact on our reported expenses. Conversely, when the USD weakens relative to the Euro, it produces a favorable impact on our reported revenue and income, and an unfavorable impact on our reported expenses. The above fluctuations in the USD/Euro exchange rate therefore result in currency translation effects (not to be confused with real currency exchange effects), which impact our reported USD results and may make it difficult to determine actual increases and decreases in our revenue and expenses which are attributable to our actual operating activities. We carry out our business activities primarily in Euros, and we do not currently engage in hedging activities. As the clear majority of our business activities are carried out in Euros and we report our financial statements in USD, fluctuations in foreign currencies impact the total amount of assets and liabilities that we report for our foreign subsidiaries upon the translation of those amounts in USD. We are subject to interest rate risk through our Credit Agreement with Post Road Group, which bears interest at a rate of LIBOR plus 8.5%.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~March 31,~~June 30, 2019, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Principal Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on the evaluation, the Company’s Principal Executive Officer and Principal Accounting Officer have concluded that ~~due a previously reported material weakness in our internal control over financial reporting described below,~~ the Company’s disclosure controls and procedures were not effective as ~~March 31,~~of June 30, 2019. In light of the previously issued material weakness described below, wethe Company has performed additional analysis and other ~~post-closing procedures~~remediation efforts, described below, to ensure ~~our~~the financial statements are prepared in accordance with ~~generally accepted accounting principles.~~GAAP.

Changes in Internal Control Over Financial Reporting

We previously identified and disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, a material weakness related to:

· Ineffective design, implementation and monitoring of information technology general controls pertaining to the Company’s change management process; and
· Inadequate and ineffective management assessment of internal control over financial reporting, including insufficient experienced resources to complete the documentation of internal control assessment.

To address ineffective design, implementation and monitoring of information technology general controls pertaining to the Company’s change management process, the Company has (i) removed all live access to all developers, internal and external, from being able to make coding changes directly in our reporting system; (ii) has continued to monitor and document all changes made in our reporting system and add additional layers of documented review of these changes; (iii) instituted monitoring controls and sample testing ~~of changes made in~~needs to be completed on our reporting system to ensure the documented policies are being followed and report the results of these tests to senior management in regular appropriate intervals; and (iv) enhanced our quarterly reporting on the remediation measures to the Audit Committee of the Board of Directors. Management believes ~~this~~the Company has taken significant steps towards the remediation of the identified material ~~weakness has been remediated,~~weaknesses, as of ~~March 31, 2019, pending further testing. .~~June 30, 2019.

We also continue to develop certain remediation steps to address the material weakness discussed above to improve our assessment of internal control over financial reporting. As of ~~March 31,~~June 30, 2019, these efforts are ongoing.

We are committed to maintaining a strong internal control environment and believe that these remediation actions will represent significant improvements in our controls. However, the identified material weakness in internal control over financial reporting will not be considered remediated until controls have been designed and/or controls are in operation for a sufficient period of time for our management to conclude that the material weaknesses have been remediated. Additional remediation measures may be required, which may require additional implementation time. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting.

2429

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

WeThe Company is not presently engaged in any active material litigation or regulatory proceedings and no such proceedings are ~~involved~~contemplated. Nevertheless, from time to time, the Company may be subject to legal actions and claims in ~~various claims and lawsuits incidental to our~~the ordinary course of business. ~~In the opinion of management, the ultimate resolution of such claims and lawsuits will not have a material effect on our financial position, liquidity, or results of operations. In addition, we~~We have previously received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves or our customers or partners by determining the scope, enforceability and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the Risk Factors included in Part I, Item 1A. — “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2018, and the Risk Factors included in Part I, Item 1A. – “Risk Factors” of our Quarterly Report on Form 10-Q for the period ended September 30,~~ 2018. These Risk Factors could materially impact our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely impact our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Except as previously disclosed in Current Reports on Form 8-K, the Company has not issued unregistered securities during the quarter ended March 31, 2019.~~None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On April 22, 2019, the Company, together with Devicescape Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (the “Holdco” and together with the Company, the “Buyer”) entered into an asset purchase agreement (the “Purchase Agreement”) with Devicescape Software, Inc., a California corporation (“Devicescape”), whereby the Buyer acquired substantially all of the assets of Devicescape and assumed certain liabilities of Devicescape, such that Holdco shall continue as a surviving subsidiary of the Company holding all assets and assuming those certain liabilities of Devicescape (the “Devicescape Purchase”). The Devicescape Purchase was previously announced by the Company in a press release dated May 8, 2019. In connection with the Devicescape Purchase, and pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, the Company paid cash consideration of $1,500,000 issued to the stockholders of Devicescape an aggregate of 400,000 shares of the Company’s common stock at a value of $1,692,000, based on our closing price on April 22, 2019, of $4.23 per share.None.

2530


Item 6. Exhibits

(a) Exhibits

31.1 Certification of the principal executive officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

31.2 Certification of the principal financial and accounting officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

32.1 Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS   XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

2631


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PARETEUM CORPORATION

Date: ~~May 10,~~August 9, 2019 By   /s/ Robert H. Turner
Robert H. Turner
Executive Chairman
(Principal Executive Officer)

Date: ~~May 10,~~August 9, 2019 By   /s/ Edward O’Donnell
Edward O’Donnell
Chief Financial Officer
(Principal Financial and Accounting Officer)

2732

	Three months ended
	March 31,			March 31,
	2019			2018
REVENUES	$	23,039,913		$	4,112,570

COST AND OPERATING EXPENSES
Cost of service (excluding depreciation and amortization)		10,068,283			1,194,523
Product development		2,198,324			726,845
Sales and marketing		2,564,912			688,998
General and administrative		7,614,359			2,296,852
Restructuring and acquisition charges		3,080,364			73,600
Depreciation and amortization of fixed and intangibles assets		2,843,403			965,290
Total cost and operating expenses		28,369,645			5,946,108

LOSS FROM OPERATIONS		(5,329,732	)		(1,833,538	)

OTHER INCOME (EXPENSE)
Interest income		101,545			42,672
Interest expense		(548,860	)		(63,758	)
Interest expense related to debt discount and conversion feature		(71,981	)		(29,566	)
Amortization of deferred financing costs		(49,691	)		(6,142	)
Changes in derivative liabilities		-			(313,733	)
Other (expense) income, net		(47,130	)		69,546
Total other expense		(616,117	)		(300,981	)

LOSS BEFORE PROVISION FOR INCOME TAXES		(5,945,849	)		(2,134,519	)
Income tax benefit		(167,334	)		(418	)
NET LOSS		(5,778,515	)		(2,134,101	)

OTHER COMPREHENSIVE LOSS
Foreign currency translation (loss) gain		(359,804	)		104,402

COMPREHENSIVE LOSS	$	(6,138,319	)	$	(2,029,699	)

Net loss per common share and equivalents – basic	$	(0.06	)	$	(0.04	)

Net loss per common share and equivalents – diluted	$	(0.06	)	$	(0.04	)

Weighted average shares outstanding during the period – basic		103,565,745			50,062,434

Weighted average shares outstanding during the period – diluted		103,565,745			50,062,434

	Three months Ended June 30,					Six months Ended June 30,
	2019		2018			2019			2018
REVENUES	$	34,148,396	$	6,003,180		$	57,188,310		$	10,115,750

COST AND OPERATING EXPENSES
Cost of service, excluding depreciation and amortization		15,293,244		1,779,882			25,361,468			2,974,405
Product development		3,242,145		753,931			5,816,189			1,480,776
Sales and marketing		2,769,065		652,442			5,709,747			1,341,440
General and administrative		9,033,690		2,214,070			15,896,619			4,510,922
Restructuring and acquisition charges		427,586		5,592			3,507,950			79,193
Depreciation and amortization		3,224,027		994,318			6,067,430			1,959,609
Total cost and operating expenses		33,989,757		6,400,235			62,359,403			12,346,345

INCOME/(LOSS) FROM OPERATIONS		158,639		(397,055	)		(5,171,093)			(2,230,595	)

OTHER INCOME/ (EXPENSE)
Interest income		149,298		43,193			250,844			85,865
Interest expense		(777,907)		(99,708	)		(1,326,767)			(163,467	)
Interest expense related to debt discount accretion and conversion feature		(199,224)		(30,272	)		(271,205)			(59,838	)
Changes in derivative liabilities		-		1,597,647				-		1,283,914
Other (expense)/income		(194,354)		567,710			(241,485)			637,255
Amortization of deferred financing costs		(101,664)		(6,209	)		(151,355)			(12,351	)
Total other (expense)/income		(1,123,851)		2,072,361			(1,739,968)			1,771,378

(LOSS)/INCOME BEFORE INCOME TAX (BENEFIT)/EXPENSE		(965,212)		1,675,306			(6,911,061)			(459,217	)
Income tax (benefit)/expense		(449,403)		18,842			(616,737)			18,424
NET (LOSS)/INCOME		(515,809)		1,656,464			(6,294,324)			(477,641	)

OTHER COMPREHENSIVE (LOSS)/INCOME
Foreign currency translation gain/(loss)		435,935		(79,137)			76,131			25,266
COMPREHENSIVE (LOSS)/INCOME	$	(79,874)	$	1,577,327		$	(6,218,193)		$	(452,375	)

Net (loss)/income per common share and equivalents - basic	$	(0.00)	$	0.03		$	(0.06)		$	(0.01	)

Net (loss)/income per common share and equivalents - diluted	$	(0.00)	$	0.03		$	(0.06)		$	(0.01	)

Weighted average shares outstanding during the period – basic		111,074,977		53,348,376			107,341,105			51,714,482

Weighted average shares outstanding during the period – diluted		111,074,977		64,741,232			107,341,105			51,714,482

					Accumulated other						Total
	Common Stock				comprehensive			Accumulated			stockholders
Description	Shares		Amount		loss			deficit			equity
Balance – January 1, 2018		46,617,093	$	321,271,437	$	(6,306,691	)	$	(299,543,213	)	$	15,421,533

Shares issued for warrant exercises		4,250,748		2,542,250		-			-			2,542,250
Stock awards issued to management		100,000		283,000		-			-			283,000
Shares issued to consultants		78,553		81,997		-			-			81,997
Shares in transit		-		526,749		-			-			526,749
Amortization of stock options expense		-		160,821		-			-			160,821
Accumulated adjustment for accounting change		-		-		107,520			-			107,520
Other comprehensive loss due to foreign exchange rate translation net of tax		-		-		(3,118	)		-			(3,118	)
Net loss		-		-		-			(2,134,101	)		(2,134,101	)
Balance - March 31, 2018		51,046,394	$	324,866,254	$	(6,202,289	)	$	(301,677,314	)	$	16,986,651

Balance - January 1, 2019		97,852,911	$	450,990,827	$	(6,300,780	)	$	(312,625,383	)	$	132,064,664

Shares issued for acquisitions		9,865,412		29,253,287		-			-			29,253,287
Warrant exercises		501,606		647,447		-			-			647,447
Services settled by issuance of shares		420,514		1,522,636		-			-			1,522,636
Shares issued to be cancelled		37,014		64,775		-			-			64,775
Exercises of stock options		68,083		69,567		-			-			69,567
Shares in transit		-		1,451,700		-			-			1,451,700
Stock based compensation expense		594,475		3,713,614		-			-			3,713,614
Shares issued to senior secured lender		425,000		956,500		-			-			956,500
Other comprehensive loss due to foreign exchange rate translation net of tax		-		-		(359,804	)		-			(359,804	)
Net Loss		-		-		-			(5,778,515	)		(5,778,515	)
Balance – March 31, 2019		109,765,015	$	488,670,353	$	(6,660,584	)	$	(318,403,898	)	$	163,605,871

	Three Months Ended						For the six months ended
	March 31,			March 31,			June 30,			June 30,
	2019			2018			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,778,515	)	$	(2,134,101	)	$	(6,294,324	)	$	(477,641	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization		2,843,403			965,290			6,067,430			1,959,609
Provision for doubtful accounts		285,892			-			285,892			-
Stock based compensation		3,713,614			1,077,625
Stock-based compensation								5,722,447			1,771,580
Change in fair value of warrant liability		-			313,733			-			(1,283,914	)
Amortization of deferred financing costs		49,690			6,142			151,355			12,351
Interest expense relating to debt discount and conversion feature		71,981			29,566
Services settled by issuance of shares		1,522,636			-
Interest expense related to debt discount accretion and conversion feature								271,205			59,838
Payables settled by issuance of shares								2,279,238			86,778
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(9,225,001	)		110,684
Decrease (increase) in prepaid expenses and other assets		2,816,290			(319,733	)
(Increase) in accounts receivable								(25,190,857	)		(1,851,046	)
Decrease/(Increase) in prepaid expenses, deposits and other assets								2,974,602			(351,046	)
Increase in accounts payable and customer deposits		3,421,002			307,619			6,936,552			606,393
(Decrease) increase in Net billings in excess of revenues		(1,237,464	)		54,885
(Decrease)/Increase in Net billings in excess of revenues and deferred revenue								(2,000,430	)		22,627
(Decrease) in accrued expenses and other payables		(3,097,473	)		(383,139	)		(1,644,320	)		(1,508,005	)
Net cash (used in) provided by operating activities		(4,613,945	)		28,571
Net cash (used in) operating activities								(10,441,210	)		(952,476	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(765,370	)		(433,749	)
Purchases of property and equipment, and capitalized software								(1,650,013	)		(1,877,477	)
Issuance of notes receivable								(2,760,789	)		-
Business combinations, net of cash acquired		(284,023	)		-			(1,562,636	)		-
Investment in notes receivable		(2,700,000	)		-
Net cash (used in) investing activities		(3,749,393	)		(433,749	)		(5,973,438	)		(1,877,477	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of warrants and options		717,014			2,489,329			1,595,017			3,070,110
Increase in short terms loans								141,639			-
Proceeds from senior secured debt issued								25,000,000			-
Repayments on other long term loans		-			(17,105	)		-			(32,682	)
Increase in short term loans		287,566			52,813
Financing related fees		(894,443	)		-			(623,555	)		(653,000	)
Proceeds from senior secured debt issued		25,000,000			-
Gross proceeds from public offering								-			6,100,000
Principal repayment Senior Secured Loan		(11,669,963	)		-			(11,669,963	)		-
Net cash provided by financing activities		13,440,174			2,525,037			14,443,138			8,484,428

EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(155,360	)		131,111			(28,541	)		42,185
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		4,921,476			2,250,970
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH								(2,000,051	)		5,696,660
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF THE PERIOD		6,482,364			13,737,675			6,482,364			13,737,675
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF THE PERIOD	$	11,403,840		$	15,988,645		$	4,482,313		$	19,434,335

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for interest	$	(33,057	)	$	(4,937	)
Cash received during the period for interest	$	41,606		$	-
Cash paid for income taxes	$	(5,570	)	$	-

NON-CASH FINANCING ACTIVITIES
Shares issued for acquisitions	$	(30,654,194	)		-
Shares issued for conversions of notes and interest	$	(147,385	)	$	-
Shares issued for settlement of debt	$	(544,793	)	$	-
Shares issued to Senior Secured Lender	$	(1,606,500	)	$	-
Cash (paid)/received during the period for interest, net							$	(840,562	)	$	43,193
Cash paid during the period for taxes								(56,201	)		-
NON-CASH FINANCING ACTIVITIES:
Acquisitions paid for in common shares								(32,337,287	)		-
Conversions of convertible notes								(147,385	)		(1,911,380	)
Settlement of debt paid for in common shares								(2,279,238	)		-
Senior Secured Lender fees paid for in shares								(1,606,500	)		-
Amendment to warrants and convertible notes into common shares								-			313,733

	·	its wholly owned subsidiary iPass, Inc. and its wholly owned subsidiaries iPass (U.K.) Limited, iPass France SAS, iPass Deutschland GmbH, iPass Holdings Pty Ltd., iPass Asia Pte Ltd., iPass Japan, Inc., iPass India Private Limited, iPass Ltd., GoRemote Internet Communications, Inc., GoRemote International Corporation, Axcelerant, Inc., Worldwide Axcelerant Group, Mobile Automation, Inc. and Safe3W, Inc.; and
	·	its wholly-owned subsidiary Devicescape Holdings, Inc.

Purchase consideration:
Shares issued to shareholders	$	29,253
Shares issued to employees		1,401
Total purchase consideration	$	30,654


Purchase price allocation:
Assets:
Cash and cash equivalents	$	284
Accounts receivable, net		4,344
Property, plant and equipment, net		1,092
Other assets		4,863
Intangible assets		22,700
Total assets		33,283

Liabilities:
Accounts payable		11,321
Deferred revenue		1,701
Loans outstanding		10,989
Other liabilities		6,743
Total liabilities		30,754
Estimated fair value of net assets acquired		2,529
Goodwill	$	28,125

	Estimated Fair Value		Useful Life (Years)
Developed Technology	$	5,500		8
Customer relationships		15,500		11
Tradename		1,700		3
Intangible assets	$	22,700

Purchase consideration:
Cash consideration	$	2,000
Shares issued to shareholders		1,692
Total purchase consideration	$	3,692


Purchase price allocation:
Assets:
Cash and cash equivalents	$	153
Accounts receivable, net		451
Intangible assets		1,588
Total assets		2,192

Liabilities:
Accounts payable & other liabilities		88
Total liabilities		88
Estimated fair value of net assets acquired		2,104
Goodwill	$	1,588

	Estimated		Useful
	Fair		Life
	Value		(Years)
Developed Technology	$	1,588		8
Intangible assets	$	1,588

	Outstanding March 31, 2019		Regular Amortizations (during 2019)			Conversions (during 2019) including accelerated amortization		10% Early Repayment Short Term		Outstanding December 31, 2018
Convertible Note Principal Amount	$	-	$	-		$	105,000	$	10,500	$	(115,500	)
Debt Discounts & Financing Costs		-		(8,533	)		-		-		8,533
Total 9% Unsecured Note	$	-	$	(8,533	)	$	105,000	$	10,500	$	(106,967	)

	Outstanding June 30, 2019		Regular Amortizations (during 2019)			Conversions (during 2019) including accelerated amortization		10% Early Repayment Short Term		Outstanding December 31, 2018
Convertible Note Principal Amount	$	-	$	-		$	105,000	$	10,500	$	(115,500	)
Debt Discounts & Financing Costs		-		(8,533	)		-		-		8,533
Total 9% Unsecured Note	$	-	$	(8,533	)	$	105,000	$	10,500	$	(106,967	)

Number of underlying shares for Warrants & Conversion Features	Outstanding March 31, 2019		Agreement Amendments / Interest effects		Conversions			Outstanding December 31, 2018		Outstanding June 30, 2019		Agreement Amendments		Conversions			Outstanding December 31, 2018
Fortress - iPass Loan Repayment Warrant		325,000		325,000		-			-		325,000		325,000		-			-
2017 Registered Public Offering		110,912		-		(359,058	)		469,970		110,912		-		(359,058	)		469,970
Investor Management Services		710,000		-		-			710,000		610,000		-		(100,000	)		710,000
9% Convertible Note Warrants		501,306		-		(19,067	)		520,373		492,506		-		(27,867	)		520,373
2013 Convertible Notes		60,000		-		-			60,000		60,000		-		-			60,000
Other 9% Convertible Note Warrants		96,520		-		-			96,520		96,520		-		-			96,520
2017 Registered Public Offering Agent Warrants		39,000		-		(23,334	)		62,334		21,500		-		(40,834	)		62,334
9% Convertible Note 7% Agent Warrants		66,230		-		-			66,230		66,230		-		-			66,230
Nov-2017 Underwriter Agreement Investor Warrants		-		-					-
Nov-2017 Underwriter Agreement Agent Warrants		821,677		-		(88,910	)		910,587		704,831		-		(205,756	)		910,587
Oct-2017 Shelf Take Down Agent Warrants		843		-		-			843		843		-		-			843
May-2018 Public Offering Agent Warrants		66,660		-		(55,340	)		122,000		6,700		-		(115,300	)		122,000
Preferred Share Conversion Warrants		731,798		-		-			731,798		639,844		-		(91,954	)		731,798
Preferred Share issuance 8% Agent Warrants		38,827		-		-			38,827		38,827		-		-			38,827
Total Outstanding Warrants		3,568,773		325,000		(545,709	)		3,789,482		3,173,713		325,000		(940,769	)		3,789,482

Outstanding Warrants	Exercise/ Conversion price(s) (range)	Expiring	June 30, 2019		December 31, 2018
Equity Warrants – Fundraising	$1.05 - $5.375	2019 - 2026		3,173,713		3,789,482
				3,173,713		3,789,482

~~Total authorized under the plan~~	~~2,240,000~~
~~Shares issued in prior years~~	~~(1,114,824~~	)
~~Outstanding options~~	~~(194,268~~	)
~~Available for grant at March 31, 2019 (Registered and Unregistered)~~	~~930,908~~

Options:	Number of Options			Weighted Average Exercise Price
Outstanding as of December 31, 2018		203,266		$	10.74
Expirations		(8,998	)		19.83
Outstanding as of March 31, 2019		194,268		$	6.51

	·
~~Total registered under the plan (S-8 dated June 14,~~ 2017 ~~and April 13, 2018)~~		~~6,500,000~~
~~Shares issued under the plan in prior years~~		~~(3,207,700~~	Long-Term Incentive Compensation Plan (“2017 Plan”)
~~Outstanding options~~		~~(3,317,940~~	)
~~Available for grant at March 31, 2019 (Registered & Unregistered)~~		~~(25,640~~	)

~~Total authorized under the plan (Shareholders)~~	~~8,000,000~~
~~Total registered under the plan (S-8 dated October 10, 2018)~~	~~8,000,000~~
~~Shares issued under the plan~~	~~(1,669,371~~	)
~~Reserved for Time-conditioned share awards~~	~~(1,579,175~~	)
~~Outstanding Options~~	~~(5,469,400~~	)
~~Available for grant at March 31, 2019 (Registered & Unregistered)~~	~~(717,946~~	)

Reconciliation of registered and available shares and/or options as of June 30, 2019:		Total

Approved by the Shareholders (annually 15% of outstanding shares)

Registered 2008 (S-8 dated July 11, 2008)	2008 Plan		200,000
Registered 2011 (S-8 dated October 6, 2011)	2008 Plan		720,000
Registered 2017 (S-8 dated June 14, 2017)	2017 Plan		3,500,000
Registered 2018 (S-8 dated April 13, 2018)	2017 Plan		3,000,000
Registered 2018 (S-8 dated October 10, 2018)	2018 Plan		8,000,000
Registered 2018 (S-8 dated June 28, 2019)	2018 Plan		7,500,000

	2019 Activities
Shares (issued to):
Consultants		177,744	1,011,165
Directors, Officers and staff		797,789	5,064,305
Options exercised		176,038	330,542
Total Shares issued:			6,406,012

Available for issuance at June 30, 2019 (under the S- 8 registration statements)			16,513,988

Outstanding rights (movements):
Options		5,082,211	8,746,023
Time Conditioned Share Awards / Other Awards		84,723	1,641,355
Available for grant at June 30, 2019:			6,126,610

Options:	Number of Options			Weighted Average Exercise Price		Initial Fair Market Value (Outstanding Options)
Outstanding as of December 31, 2018		3,663,812		$	2.26	$	4,962,798
Granted in 2019		5,440,103			2.18		6,661,232
Exercised (with delivery of shares)		(176,038	)		1.19		(127,518	)
Forfeitures (Pre-vesting)		(158,552	)		2.20		(226,849	)
Expirations (Post-vesting)		(23,302	)		8.32		(192,633	)
Outstanding as of June 30, 2019		8,746,023		$	2.21	$	11,077,030

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2019			2018		2019			2018
Income tax (benefit)/expense	$	(449,403	)	$	18,842	$	(616,737	)	$	18,424

Operating Leases:	March 31, 2019			June 30, 2019
	-
Operating lease right-of-use assets	$	3,136,015		$	2,493,352
Operating lease liabilities	$	3,141,842		$	2,790,685

Weighted average remaining lease term
Operating leases		2.2 years			1.9 years

Weighted average remaining discount rate
Incremental borrowing rate
Operating leases		2.5	%		8.8	%

Remainder of 2019	$	1,463,299		$	975,453
2020		1,716,284			1,716,284
2021		119,059			119,059
2022		62,387			62,387
2023		62,387			62,387
Thereafter		98,779			98,779
Total lease payments	$	3,522,195		$	3,034,349
Less: imputed interest		(380,353	)		(243,664	)
Lease liabilities, current					1,776,900
Lease liabilities, non-current					1,013,785
Total	$	3,141,842		$	2,790,685

	Three months ended
	March 31, 2019			March 31, 2018

Net loss	$	(5,788,515	)	$	(2,134,101	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:		8,487,216			2,392,356
		2,708,701			258,255

Changes in operating assets and liabilities:		(7,322,646	)		(229,684	)
Net cash provided (used in) provided by operating activities	$	(4,613,945	)	$	28,571

31.1		Certification of the principal executive officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

31.2		Certification of the principal financial and accounting officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

32.1		Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	PARETEUM CORPORATION

Date: ~~May 10,~~August 9, 2019	By	/s/ Robert H. Turner
		Robert H. Turner
		Executive Chairman
		(Principal Executive Officer)

Date: ~~May 10,~~August 9, 2019	By	/s/ Edward O’Donnell
		Edward O’Donnell
		Chief Financial Officer
		(Principal Financial and Accounting Officer)