Table of Contents

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

xQuarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended JuneSeptember 30, 2019

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

oTransition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______

000-30061

001-35360
(Commission file No.)


teum-20190930_g1.jpg

PARETEUM CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE95-4557538
Delaware95-4557538
(State or other jurisdiction of
incorporation or organization)		(I.R.S. employer identification no.)
incorporation or organization)

1185 Avenue of the Americas, 2nd Floor, New York, NY 10036

USA

(Address of principal executive offices) (Zip Code)

+ 1 (212) 984-1096

(646) 975-0400
(Registrant’s telephone number, including area code)

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

Title of Each ClassTrading Symbol(s)Name of each exchange on which
registered
Common StockTEUMNASDAQ

None
Securities registered pursuant to Section 12(g) of the Act: 
Common Stock, $0.00001 par value per share
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  ¨

ý

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  ¨

ý

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 filerxý
Non-Accelerated filer¨¨Smaller reporting companyxý
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

ý

As of August 8, 2019,July 1, 2021, there were 111,903,762141,778,392 shares of the Company’s common stock outstanding.


Table of Contents





PARETEUM CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q REPORT

June

For the Period Ended September 30, 2019

3
3
CondensedUnaudited Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018
3
CondensedUnaudited Condensed Consolidated Statements of Comprehensive (loss)/income for the three and six month periods ended June 30, 2019 and 2018 (unaudited)Loss
4
CondensedUnaudited Condensed Consolidated Statements of Changes in Stockholder’sStockholders' Equity for the three and six month periods ended June 30, 2019 and June 30, 2018 (unaudited)
5
CondensedUnaudited Condensed Consolidated Statements of Cash Flows for the six month period ended June 30, 2019 and 2018 (unaudited)
6
Notes to Unaudited Condensed Consolidated Financial Statements
7
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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PARETEUM CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

  June 30,  December 31, 
  2019  2018 
ASSETS        
         
CURRENT ASSETS        
         
Cash and cash equivalents $3,377,556  $6,051,709 
Restricted cash  1,104,757   430,655 
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  3,385,842   2,083,950 
Total current assets  53,953,416   23,927,908 
         
NON-CURRENT ASSETS        
         
OTHER ASSETS  956,810   45,336 
         
RIGHT OF USE LEASE ASSETS  2,493,352   - 
         
NOTES RECEIVABLE, NON-CURRENT  2,819,200   1,082,436 
         
PROPERTY AND EQUIPMENT, NET  4,896,503   4,553,250 
         
INTANGIBLE ASSETS, NET  60,262,420   39,658,325 
         
GOODWILL  121,486,562   91,773,911 
         
TOTAL ASSETS $246,868,263  $161,041,166 
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES        
Accounts payable and customer deposits $28,183,711  $10,337,629 
Net billings in excess of revenues  1,330,757   927,780 
Accrued expenses and other payables  14,036,645   7,952,380 
Promissory note  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 
Total current liabilities  45,999,178   20,005,976 
         
LONG TERM LIABILITIES        
Senior secured debt, net  22,077,767   - 
Lease liabilities, non-current  1,013,785   - 
Other long term liabilities  63,853   212,703 
Deferred tax liabilities  7,712,860   8,415,825 
Related party loan  342,000   341,998 
Total long term liabilities  31,210,265   8,970,526 
         
Total liabilities  77,209,443   28,976,502 
         
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  (6,224,649)  (6,300,780)
Accumulated deficit  (318,919,707)  (312,625,383)
Total equity  169,658,820   132,064,664 
         
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY $246,868,263  $161,041,166 

(Dollars in thousands, except par values)September 30,
2019
December 31,
2018
As revised
ASSETS
Current assets:
Cash and cash equivalents$5,247 $6,052 
Restricted cash1,105 431 
Accounts receivable, net of allowance for doubtful accounts of $787 and $514, as of
September 30, 2019 and December 31, 2018, respectively
8,742 3,338 
Current portion of notes receivable, net494 0 
Prepaid expenses and other current assets3,672 2,084 
Total current assets19,260 11,905 
Right-of-use assets, net2,721 0 
Notes receivable, net of current portion, net0 1,082 
Property, equipment, and software development, net5,414 5,444 
Intangible assets, net47,149 39,264 
Goodwill133,408 100,428 
Other assets927 45 
TOTAL ASSETS$208,879 $158,168 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and customer deposits$25,894 $10,338 
Net billings in excess of revenues1,971 227 
Accrued expenses and other payables9,602 7,741 
Promissory notes482 681 
Current portion of lease liabilities2,222 0 
Unsecured subordinated convertible promissory note, net0 107 
Total current liabilities40,171 19,094 
Lease liabilities, net of current portion833 0 
Related party loan423 342 
Deferred taxes, net7,574 8,386 
Other liabilities45 213 
TOTAL LIABILITIES49,046 28,035 
Commitments and contingencies00
Stockholders' equity:
Preferred stock, $0.00001 par value: 50,000,000 shares authorized, 4,283 shares issued, and 0 shares outstanding as of September 30, 2019 and December 31, 20180 0 
Common stock and additional paid-in capital, $0.00001 par value: 500,000,000 shares authorized, 133,924,905 and 98,292,530 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively546,243 453,995 
Accumulated other comprehensive loss(13,521)(6,716)
Accumulated deficit(372,889)(317,146)
TOTAL STOCKHOLDERS' EQUITY159,833 130,133 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$208,879 $158,168 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

3






PARETEUM CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

(UNAUDITED)

  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 

LOSS

Three Months Ended September 30,Nine Months Ended
September 30,
(Dollars in thousands, except per share data)2019201820192018
Revenues$16,083 $4,000 $46,028 $11,529 
Costs and operating expenses:
Cost of revenues, excluding depreciation and amortization12,334 2,279 33,024 5,315 
Product development3,139 705 9,316 2,237 
Sales and marketing2,297 692 8,329 2,205 
General and administrative8,190 6,711 24,489 10,794 
Restructuring charges and acquisition costs10 1,995 3,442 2,074 
Depreciation and amortization3,389 999 9,132 2,958 
Total costs and operating expenses29,359 13,381 87,732 25,583 
Operating loss(13,276)(9,381)(41,704)(14,054)
Nonoperating expense (income), net12,237 150 14,797 (1,620)
Loss before income taxes(25,513)(9,531)(56,501)(12,434)
Income tax expense (benefit)(394)20 (758)38 
Net loss(25,119)(9,551)(55,743)(12,472)
Other comprehensive loss:
Foreign currency translation loss(5,487)(37)(6,805)(207)
Comprehensive loss$(30,606)$(9,588)$(62,548)$(12,679)
LOSS PER SHARE:
Net loss per share - basic and diluted$(0.22)$(0.16)$(0.51)$(0.23)
Weighted average shares outstanding during the period - basic and diluted113,579,298 59,314,867 109,443,353 54,275,784 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

4

4






PARETEUM CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’SSTOCKHOLDERS' EQUITY

(UNAUDITED)

     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 

Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands)201920182019
As revised		2018
Common stock and additional paid-in capital
Balance, beginning of period$499,020 $331,512 $453,995 $321,024 
Warrant exercises— 2,463 2,188 5,533 
Warrants issued6,781 — 6,781 — 
Share-based compensation2,672 4,238 10,416 5,757 
Shares issued in equity financing30,899 — 30,899 5,467 
Services settled by issuance of shares4,702 0 7,529 0 
Shares issued for acquisitions— — 30,302 — 
Stock option exercises1 — 211 — 
Shares issued to senior secured lender2,168 205 3,775 323 
Conversion of notes— 1,000 147 1,314 
Balance, end of period546,243 339,418 546,243 339,418 
Accumulated other comprehensive loss
Balance, beginning of period(8,034)(5,359)(6,716)(5,189)
Foreign currency translation loss, net of tax(5,487)(37)(6,805)(207)
Balance, end of period(13,521)(5,396)(13,521)(5,396)
Accumulated deficit
Balance, beginning of period(347,770)(302,029)(317,146)(299,108)
Net loss(25,119)(9,551)(55,743)(12,472)
Balance, end of period(372,889)(311,580)(372,889)(311,580)
Total stockholders' equity$159,833 $22,442 $159,833 $22,442 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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5






PARETEUM CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  For the six months ended 
  June 30,  June 30, 
  2019  2018 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(6,294,324) $(477,641)
Adjustments to reconcile net loss to net cash (used in) operating activities:        
Depreciation and amortization  6,067,430   1,959,609 
Provision for doubtful accounts  285,892   - 
Stock-based compensation  5,722,447   1,771,580 
Change in fair value of warrant liability  -   (1,283,914)
Amortization of deferred financing costs  151,355   12,351 
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) 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  6,936,552   606,393 
(Decrease)/Increase in Net billings in excess of revenues and deferred revenue  (2,000,430)  22,627 
(Decrease) in accrued expenses and other payables  (1,644,320)  (1,508,005)
Net cash (used in) operating activities  (10,441,210)  (952,476)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
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  (1,562,636)  - 
Net cash (used in) investing activities  (5,973,438)  (1,877,477)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Exercise of warrants and options  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  -   (32,682)
Financing related fees  (623,555)  (653,000)
Gross proceeds from public offering  -   6,100,000 
Principal repayment Senior Secured Loan  (11,669,963)  - 
Net cash provided by financing activities  14,443,138   8,484,428 
         
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH  (28,541)  42,185 
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 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF THE PERIOD $4,482,313  $19,434,335 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
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 

Nine Months Ended
September 30,
(In thousands)20192018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(55,743)$(12,472)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization9,132 2,958 
Provision for doubtful accounts3,582 0 
Share-based compensation10,416 5,757 
Change in fair value of derivatives0 (1,284)
Amortization of debt discounts, deferred financing costs, and conversion feature746 196 
Shares issued for services1,711 324 
Loss on extinguishment of debt8,873 0 
Deferred tax(741)0 
Changes in operating assets and liabilities:
Accounts receivable, net(2,241)1,226 
Prepaid expenses and other current assets1,712 (28)
Accounts payable and customer deposits10,919 1,087 
Net billings in excess of revenues50 (250)
Accrued expenses and other payables(3,131)(1,414)
Net cash used in operating activities(14,715)(3,900)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment, and software development(4,765)(2,189)
Investment in notes receivable(2,700)0 
Business combinations, net of cash acquired(1,277)0 
Net cash used in investing activities(8,742)(2,189)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of warrants and options1,597 5,684 
Proceeds from issuance of senior secured debt27,400 0 
Repayment of senior secured debt(41,451)0 
Repayments of other loans0 (61)
Financing related fees(4,101)(633)
Gross proceeds from public offering39,961 6,100 
Net cash provided by financing activities23,406 11,090 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(80)126 
Increase (decrease) in cash, cash equivalents and restricted cash(131)5,127 
Cash, cash equivalents and restricted cash, beginning of period6,483 13,738 
Cash, cash equivalents and restricted cash, end of period$6,352 $18,865 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest$1,717 $13 
Cash paid during the period for income taxes251 0 
NONCASH FINANCING ACTIVITIES:
Acquisitions paid for with common shares30,302 0 
Conversions of convertible notes147 1,992 
Settlement of debt paid for with common shares7,529 324 
Amendment to warrants and convertible notes into common shares0 314 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

6

6

PARETEUM CORPORATION AND SUBSIDIARIES

NOTES TO THEUNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

(Amounts in thousands except share and per share data)


Note 1. Financial Condition

As reflected in the accompanying condensed consolidated financial statements, Business and Operations

Pareteum Corporation, (“Pareteum,” thea Delaware corporation ("Pareteum"), along with its wholly owned and majority-owned subsidiaries (the “Company,” “we,” “us,” or “our”) (NASDAQ: TEUM) reportedis an experienced provider of communications platform as a net loss of $6,294,324 forservice (“CPaaS”) solutions. The Company empowers enterprises, communications service providers, early-stage innovators, developers, Internet-of-things ("IoT"), and telecommunications infrastructure providers with the six months ended June 30, 2019,freedom and had an accumulated deficit of $318,919,707 as of June 30, 2019.

Note 2. Description of Business, Basis of Presentationcontrol to create, deliver, and Use of Estimates

Business overview 

Pareteum hasscale innovative communications experiences. Our CPaaS solutions connect people and devices around the world using secure, ubiquitous, and highly scalable solutions to deliver data, voice, video, SMS/text messaging, media, and content enablement.

We have developed a Communications Cloud Services Platform, providing (i) Mobility, (ii) Messaging,mobility, messaging, connectivity, and (iii) Securitysecurity services and applications, with a Single-Sign-On, API and software development suite. The Pareteumapplications. Our platform hosts integrated IT/Back Officeinformation technology/back office and Core Networkcore network functionality for mobile network operators and forother enterprises, which allows our customers to implement and leverage mobile communications solutions on a fully outsourced SaaS, PaaSsoftware as a service ("SaaS"), platform as a service ("PaaS"), and/or IaaSinfrastructure as a service basis: made available either as an on-premise solution or as a fully hosted service in the Cloudcloud, depending on the needs of our customers. Pareteum also delivers
We deliver an Operational Support Systemoperational support system (“OSS”) for channel partners, with Application Program Interfaces (“APIs”)application program interfaces for integration with third partythird-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.

Basis

Artilium plc (“Artilium”), a wholly owned subsidiary of PresentationPareteum since October 2018, is a software development company active in the enterprise communications and core telecommunications markets delivering software solutions, which layer over disparate fixed, mobile, and intellectual property networks to enable the deployment of Interim Periods

The unaudited interimconverged communication services and applications. iPass, Inc. ("iPass"), another wholly owned subsidiary of Pareteum since February 2019, is a cloud-based service provider of global mobile connectivity, offering Wi-Fi access on any mobile device through its SaaS platform.

Pareteum's common stock is quoted on the OTC Markets Group Inc.'s Pink Open Market and traded under the symbol "TEUM."
Liquidity
As reflected in the accompanying condensed consolidated financial statements, the Company reported net losses of $55,743 for the nine months ended September 30, 2019 and $18,024 for the year ended December 31, 2018, as reported in the Company's Amended Annual Report on Form 10-K/A, as filed with the SEC on December 20, 2020 (the "Amended 2018 Annual Report"), and had an accumulated deficit of $372,889 as of September 30, 2019. As of September 30, 2019, the Company's cash balance available for operations was $5,247.
On December 10, 2019, the Company’s Board of Directors designated 255 shares of preferred stock to be 8.0% Series C Redeemable Preferred Stock (the "Redeemable Preferred Stock") with a stated value of $100,000 per share. On various dates from December 24, 2019 through August 18, 2020, the Company issued 217.67 shares of Redeemable Preferred Stock in private placement transactions exempt from the registration requirements of the Securities Act of 1933, as amended ("the Securities Act"), with a stated value of $21,767 for an aggregate purchase price of $13,883, from which the Company received net proceeds of $13,057 after deducting legal fees of $826.
In May 2020, Pareteum received a $552 Payroll Protection Program ("PPP") loan (the "Pareteum PPP Loan") and iPass (as defined below) received an $819 PPP loan (the "iPass PPP Loan" and together with the Pareteum PPP Loan, the "PPP Loans") under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The PPP Loans provide for a balloon payment of the outstanding principal balance at maturity, which is five years from the funding date, and bear interest at 1.0%, however, under the CARES Act, all or a portion of the PPP Loans may be forgiven. In December 2020, the Pareteum PPP Loan was fully forgiven and in June 2021, the iPass PPP Loan was fully forgiven.
On June 8, 2020, the Company issued a $17,500 Senior Secured Convertible Note (the “Senior Convertible Note”) for $14,000, of which $10,000 was maintained in one or more blocked accounts. The terms of the Senior Convertible Note and related documents require the Company to meet certain specified conditions and covenants to release the proceeds in the blocked accounts, some of which have not been satisfied. In July 2020, $3,000 was released when the Company received additional funding through the sale of Redeemable Preferred Stock. On December 1, 2020, December 23, 2020, February 1, 2021, and March 1, 2021, we entered into various agreements (the “Forbearance Agreements”), under which: (i) we admitted that we were in default of several obligations under the Senior Convertible Note and related agreements, (ii) the lender acknowledged such defaults and agreed not to exercise any right or remedy under the Senior Convertible Note or the related securities purchase agreement, warrant or security documents, including its right to accelerate the aggregate amount outstanding under the Senior Convertible Note, until the earlier of March 31, 2021 and the date of any new event of default or initiation of any action by the Company to invalidate any of the representations and warranties made in the Forbearance Agreements. As a result of the defaults, the interest rate paid on the principal outstanding under the Senior
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

Convertible Note increased to 18.0% per annum. On December 23, 2020, $1,000 was released to the Company from the blocked account and on April 8, 2021, the remaining $6,000 in the blocked account was removed by the lender in partial satisfaction of the Senior Convertible Note.
On May 24, 2021, the Company entered into a new forbearance agreement (the “New Forbearance Agreement”) with the holder of the Senior Convertible Note under which (i) the Company again admitted it was in default under several obligations under the Senior Convertible Note and related agreements, and (ii) the lender acknowledged such defaults and agreed not to exercise any right or remedy under the Senior Convertible Note or the related securities purchase agreement, warrant or security documents, including its right to accelerate the aggregate amount outstanding under the Senior Convertible Note, until the earlier of May 31, 2021 or any later date to which such date may be extended (the “Outside Date”), and the date of any new event of default or initiation of any action by the Company to invalidate any of the representations and warranties made in the New Forbearance Agreement. The Outside Date automatically extends for successive two-week periods unless on or before the then-applicable Outside Date the lender provides notice that the Outside Date is not being extended.
As partial consideration for its agreement not to exercise any right or remedy under the Senior Convertible Note and related documents, the lender and the Company agreed to make certain changes to the documents.In this regard, the parties agreed to amend the “Event of Default Acceleration Amount” definition in the Senior Convertible Note so that the amount due and payable by the Company on account of an event of default would be an amount in cash equal to 125% of the then-outstanding principal and accrued and unpaid interest under the Senior Convertible Note. This represents an increase from 120% of the then-outstanding principal and accrued and unpaid interest, and removes the market-price-based alternative for such acceleration amount.
Additionally, the parties also agreed that the principal amount outstanding under the Senior Convertible Note would be increased by certain paid-in-kind amounts in full satisfaction of the Company’s obligation to make payments of interest to the lender on each of April 1, 2021 and May 1, 2021, which amounts were not paid by the Company in cash or common stock. In consideration of the lender’s agreement to enter into the New Forbearance Agreement and agree to the amendments to the Senior Convertible Note, the Company agreed to pay the lender a fee in the amount of $1,500. Accordingly, following these increases in the principal amount payable, but applying against the outstanding principal and such fee the $6,000 previously maintained in certain blocked account against that was foreclosed upon by the lender, the total amount of principal outstanding under the Senior Convertible Note as of the date of the New Forbearance Agreement was approximately $13,454.
On February 22, 2021, the Company issued a $2,400 Senior Second Lien Secured Convertible Note due April 1, 2025 (each such note, a “Junior Convertible Note”) to an institutional investor for $2,000.
On April 29, 2021, the Company entered into a securities purchase agreement, dated as of April 13, 2021, with two initial investors and other investors as may become party thereto from time to time (collectively, the “Second Lien Note Purchasers”) providing for the issuance and sale by the Company of up to $6,000 aggregate principal amount of Junior Convertible Notes and warrants (the “April 2021 Warrants”) to purchase up to 5,000,000 shares of its common stock. The Senior Second Lien Notes and accompanying April 2021 Warrants may be sold from time to time to one or more Second Lien Note Purchasers under the terms of the purchase agreement. On April 29, 2021, the Company closed on the initial sale of Senior Second Lien Notes in the aggregate principal amount of $1,788 and April 2021 Warrants to purchase 1,490,000 shares of common stock under the purchase agreement for an aggregate purchase price of $1,490.
On June 19, the Company entered the Second Omnibus Agreement, dated as of June 18, 2021 (the "Omnibus Agreement"), with holders of the previously outstanding Junior Convertible Notes, and sold $17,330 aggregate principal of Junior Convertible Notes for $5,000 and the surrender of 91.38 shares of Redeemable Preferred Stock. In connection with the sale of these Junior Convertible Notes, the Company issued a warrant for the purchase of 5,000,000 shares of its common stock at an exercise price of $0.37 per share.
Because of the limited nature of the relief provided under the New Forbearance Agreement, which does not lower the amounts payable in principal or interest, the Company believes that it will not have sufficient resources to fund its operations and meet the obligations specified in the Senior Convertible Note or to fund its operations for the next twelve months following the filing of this Quarterly Report on Form 10-Q (the "Report"). The Company’s software platforms require ongoing funding to continue the current development and operational plans and the Company has a history of net losses. The Company will continue to expend substantial resources for the foreseeable future in connection with the continued development of its software platforms. These expenditures will include costs associated with research and development activity, corporate administration, business development, and marketing and selling of the Company’s services. In addition, other unanticipated costs may arise. The Company believes that additional capital will be required to fund its operations and provide growth capital to meet the obligations under the Senior Convertible Note, the Junior Convertible Note, and the Redeemable Preferred Stock. Accordingly, the Company will have to raise additional capital in one or more debt and/or equity offerings and continue to work with its lenders to cure the defaults. However, there can be no assurance that the Company will be successful in raising the necessary capital or that any such offering will be available to the Company on terms acceptable to the Company, or at all. If the Company is unable to raise additional capital and with acceptable terms, this would have a material adverse effect on the Company. Furthermore, the recent decline in the market price of the Company’s common stock, coupled with the stock’s
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

delisting from the Nasdaq Stock Market, could make it more difficult to sell equity or equity-related securities in the future at a time and price that the Company deems appropriate. The factors discussed above raise substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued.
Revision of Previously Issued Financial Statements
In finalizing the financial reporting close process for the year ended December 31, 2020, the Company identified certain immaterial errors impacting prior reporting periods beginning as of and for the three months ended December 31, 2018. Specifically, the Company identified that it incorrectly translated the foreign currency impact on goodwill and intangible assets related to an acquisition completed in the fourth quarter of 2018.
The Company assessed the materiality of this correction to the prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and Accounting Standards Codification (“ASC”) 250, Presentation of Financial Statements (“ASC 250”). In accordance with ASC 250, the Company’s consolidated financial statements have been revised from the amounts previously reported to correct these immaterial errors as shown in the tables below and are reflected throughout the financial statements and related notes, as applicable.
The cumulative effect of adjustments required to correct the immaterial errors in the consolidated financial statements as of December 31, 2018 are reflected in the revised goodwill, intangible assets, net, accumulated other comprehensive income, and accumulated deficit balances as of December 31, 2018 as follows:
As of December 31, 2018
As reportedAdjustmentAs revised
Goodwill$101,375$(947)$100,428 
Intangible assets, net39,658(394)39,264 
Accumulated other comprehensive loss(5,389)(1,327)(6,716)
Accumulated deficit(317,132)(14)(317,146)
Note 2. Financial Statement Presentation and Recent Accounting Updates
The accompanying unaudited condensed consolidated financial statements comprise the accounts of Pareteum and its wholly owned and majority owned subsidiaries, and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP,”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. TheyAccordingly, 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, inIn the opinion of management, areall adjustments, consisting of normal recurring adjustments considered necessary to present fairly our results of operations and financial position for the interim periods. The results of operations for the three and six month periods ended June 30, 2019, are not necessarily indicative of the results to be expected for future quarters or the full year.a fair presentation, have been included. All intercompany transactions and account balances have been eliminated in consolidation. AsThe Company evaluates subsequent events through the date of Junefiling with the Securities and Exchange Commission (“SEC”). Operating results for the nine months ended September 30, 2019 may not necessarily be indicative of the results that may be expected for the full year ending December 31, 2019. These interim period unaudited condensed consolidated financial statements should be read in conjunction with 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
audited consolidated financial statements included in the Company’s Amended 2018 Annual Report.

·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 UK Ltd., Artilium Trustee Company Limited, Artilium BV, Pareteum NV, Interactive Digital Media GMBH and United Telecom 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, “Business2. Business and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Part I, Item 8 of our Amended 2018 Annual Report.

Use of Estimates

The preparation of the accompanying condensed 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 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.acquired. Actual results may differ from these estimates under different assumptions or conditions and those differences could be material.

Reclassification

Reclassifications
Certain reclassifications have been made to the Company’sprior period condensed consolidated financial statements for the prior period to conform to the current period presentation. Such reclassifications had no impact on net loss or net cash flows.

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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

Accounting Standards Adopted in the Current Year
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.
In July 2017, the FASB issued ASU 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 the basic EPS calculation. 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). 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. 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(Topic 842) (“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 twelve months. Leases are 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. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842)—Targeted Improvements, which provides an alternative transition method that allows entities to apply the new lease 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, the Company recorded ROU lease assets and corresponding lease liabilities of approximately $1,800. 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.
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 allows entities to reclassify certain “stranded tax effects” resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income (“AOCI”) to retained earnings. Under existing guidance in ASC 740, Income Taxes, adjustments to deferred tax assets and liabilities resulting from a change in tax laws or rates occur within the period that the enactment of these changes occur and any adjustments are included in income from continuing operations. Deferred income taxes originally recognized through other comprehensive income were initially measured at the previous income tax rate resulting in a disproportionate tax balance remaining in AOCI from recognizing the tax rate adjustments from the Tax Act in income from continuing operations (i.e., “stranded tax effects”). The Company adopted the requirements of ASU 2018-02 on January 1, 2019, the effects of the adoption were not material and no adjustments were made to AOCI and accumulated deficit.
Recent Accounting Standards Updates Issued - Not Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires measurement and recognition of expected versus incurred credit losses for financial assets held. ASU 2016-13 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment test. If the carrying amount of a
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, versus determining an implied fair value in Step 2 to measure the impairment loss. ASU 2017-04 is effective for annual periods beginning after December 15, 2019. The Company does not expect the provisions of ASU 2017-04 to have a material impact on the Company’s consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in any interim period. The guidance can be applied either prospectively to all implementation costs incurred after the date of adoption or retrospectively. The adoption of ASU 2018-15 is not expected to have a material impact on the Company’s financial condition, results of operations, cash flows, and financial statement disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), to modify the disclosure requirements for fair value measurements. The standard adds, modifies, and removes previous disclosure requirements. Eliminated disclosures include the valuation process for Level 3 measurements, policy for timing of transfers between levels of the fair value hierarchy, and changes in unrealized gains and losses included in earnings for recurring Level 3 measurements held at the reporting period. The guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2018-13 to have a material impact on the disclosures accompanying its consolidated financial statements.
In November 2019, the FASB issued ASU 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer ("ASU 2019-08"). Under ASU 2019-08, share-based payment awards granted to customers are recorded as a reduction of the transaction price measured at the grant-date fair value of the award. The award is measured and classified under ASC 718 for its entire term, unless the award is modified after it vests and the grantee is no longer a customer. The new guidance is effective in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of ASU 2019-08 is not expected to have a material impact on the Company’s financial condition, results of operations, cash flows, and financial statement disclosures.
In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-4"), which provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This would apply to companies meeting certain criteria that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This standard is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications made and hedging relationships entered into from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company is currently evaluating the impact of adoption of ASU 2020-4 on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-6, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-6”), which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. Upon adoption, a convertible debt instrument will be accounted for as a single liability at amortized cost unless (a) the convertible instrument contains features that require bifurcation as a derivative under ASC 815, Derivatives and Hedging, or (b) the convertible debt instrument was issued at a substantial premium. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. ASU 2020-6 also requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The new guidance is effective for public entities excluding smaller reporting companies in fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. For public business entities that meet the definition of a smaller reporting company, the amendments in ASU 2020-6 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. ASU 2020-6 is effective for us in the first quarter of fiscal 2024. The Company is currently evaluating the impact of adoption of ASU 2020-6 on its consolidated financial statements.
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in fiscal 2021. The Company is currently evaluating the impact of adoption of ASU 2019-12 on its consolidated financial statements.
Note 3. Acquisitions
Devicescape Asset Purchase
On April 22, 2019, the Pareteum, 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 certain assets of Devicescape and assumed certain liabilities of Devicescape, such that Holdco would continue as a surviving subsidiary of the Pareteum holding the acquired 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 Buyer paid cash consideration of $2,000 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 based on the $4.23 per share closing price of our common stock on April 22, 2019. Transaction costs were $137.
The Devicescape Purchase has been treated as an asset purchase, whereby assets are recognized based on their cost to the acquiring entity, which generally includes the transaction costs of the assets acquired and is allocated to the individual assets acquired and liabilities assumed based on their relative fair values and does not give rise to goodwill.
The allocation of the purchase price was as follows:
Purchase consideration:
Cash consideration and transaction costs$2,137 
Shares issued to stockholders1,692 
Total purchase consideration$3,829 
Purchase price allocation:
Assets:
Accounts receivable$71 
Escrow receivable200 
Intangible assets3,646 
Total assets3,917 
Liabilities:
Accounts payable and other liabilities88 
Total liabilities88 
Estimated fair value of net assets acquired$3,829 
The fair value of intangible assets was estimated as follows:
Estimated
Fair
Value		Useful
 Life
Developed technology$3,525 8 years
Customer relationships121 8 years
Intangible assets$3,646 
The value of the developed technology intangible asset was calculated using the relief-from-royalty method, an income approach. The relief-from-royalty method measures the fair value of an asset by identifying the avoided royalty costs of licensing an asset of similar utility from a third party. The value of the customer relationships intangible asset was calculated using the excess earnings method of the income approach. The excess earnings method calculates the present value of the residual after-tax cash flows, or excess earnings,
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

attributable to the subject intangible asset after certain deductions are applied for the use of the other assets that contribute to the generation of the cash flows.
iPass Business Combinations

Combination

On November 12, 2018, the CompanyPareteum entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Purchaser,Pareteum and iPass.TBR, Inc. ("Purchaser"), and iPass, Inc. ("iPass"). Pursuant to the Merger Agreement, Purchaser, a wholly-ownedwholly owned subsidiary of the Company,Pareteum, commenced thean offer for the “iPass Sharesoutstanding iPass common shares for the “Transaction Consideration,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 to Exchange 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 Sharescommon shares in accordance with the terms of the Offer.Offer to Exchange. The Company acquired 100% of the voting shares of iPass.

On February 12, 2019, Pareteum Corporation entered into a consent agreement (the "Consent") with iPass SPV, and Fortress Credit Corp. (together with its affiliates, “Fortress”). Also, on February 12, 2019 the Company entered into a Joinder to Security Agreement, a Joinder to Guarantee, and a Pledge Agreement, each for the benefit of or with Fortress, guaranteeing the indebtedness assumed in the iPass acquisition and granting a first-priority security interest in all of the assets of the Company to Fortress. Pursuant to the Consent, Fortress consented to the consummation of the Merger Agreement by and among the Company, iPass and TBR, Inc. The Company paid Fortress a cash fee of $200 and issued to Fortress warrants to purchase an aggregate of 325,000 shares of common stock.
On February 12, 2019, following acceptance and payment for the validly tendered iPass Sharescommon 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 PurchaserTBR, Inc. merged with and into iPass, with iPass surviving as a wholly owned subsidiary of the CompanyPareteum (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 Sharecommon share outstanding was converted into the right to receive 1.17 shares of the Transaction Consideration.Company's common stock in exchange for each share of iPass common stock. The iPass Sharescommon shares are no longer listed on the Nasdaq Capital Market.

As part The purchase consideration was comprised of 9,865,412 shares of the acquisition,Company's common stock. In accordance with ASC 805, the Company issued 9,865,412 common shares to shareholdersrecognized the settlement of a pre-existing relationship in the form of a software license that the Company purchased from iPass on May 8, 2018, which is included in consideration transferred.

13
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and 705,000 shares were granted to employees.

8
per share data)


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 

follows:

Purchase consideration:
Shares issued to stockholders$28,610 
Estimated fair value of software license1,531 
Total purchase consideration30,141 
Purchase price allocation:
Assets:
Cash and cash equivalents860 
Accounts receivable4,344 
Property, equipment, and software development873 
Other assets4,890 
Intangible assets11,106 
Total assets22,073 
Liabilities:
Accounts payable, accrued expenses and other current liabilities17,207 
Deferred revenue1,700 
Loans outstanding9,989 
Other liabilities857 
Total liabilities29,753 
Estimated fair value of net assets acquired(7,680)
Goodwill$37,821 
The fair value of intangible assets was estimated as follows:
Estimated
Fair
Value		Useful
 Life
Developed technology$2,585 8 years
Customer relationships8,378 5 years
Trade name143 2 years
Intangible assets$11,106 
The value of the developed technology intangible asset was calculated using the relief-from-royalty method. The value of the customer relationships intangible asset was calculated using the excess earnings method of the income approach. The value of the trade name intangible asset was calculated using the relief-from-royalty method. The weighted average useful life of the intangible assets acquired is estimated at 5.7 years.
For the period ended JuneSeptember 30, 2019, the condensed consolidated financial statements included iPass and its subsidiaries from the closing date of February 12, 2019 through JuneSeptember 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 Management expects that 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 forthgoodwill 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
this business combination will be deductible for income tax purposes.

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

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 June 30, 2019, consolidated financial statements included Devicescape and its subsidiaries from April 22, 2019, the acquisition date, through June 30, 2019 .

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

  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 June 30,  December 31, 
  2019  2018 
Prepaid expenses $2,960,148  $1,659,783 
VAT  425,694   424,167 
  $3,385,842  $2,083,950 

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 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 

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balance sheets as of September 30, 2019 and December 31, 2018:

14

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

9% Unsecured Subordinated Convertible Promissory Note

PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Matured between DecemberAmounts in thousands except share and per share data)

Prepaid expenses and other current assetsSeptember 30, 2019December 31, 2018
Prepaid insurance and legal fees$743$219
Prepaid software license and support691619
Prepaid corporate taxes1910
Prepaid expenses-other702290
Valued added tax578609
Other receivables610
Other assets706347
Prepaid expenses and other current assets$3,672 $2,084 

Notes receivable, netSeptember 30, 2019December 31, 2018
ValidSoft$494 $576 
Yonder Media Mobile3,355 506 
Notes receivable3,849 1,082 
Current portion of notes receivable3,849 0 
Reserve against current portion of notes receivable(3,355)0 
Current portion of notes receivable, net494 0 
Notes receivable, net of current portion$0 $1,082 
The ValidSoft note bears interest at 5% annually and matures on September 30, 2019. The Company extended a $500 promissory note receivable to Yonder Media Mobile ("Yonder Media") in 2018, bearing interest at 6.0% annually and matures on May 26, 2020. In the first quarter of 2019, the Company extended three additional promissory notes receivable to Yonder Media aggregating $2,700 with interest rates of 12.0% annually, with all principal and interest due on the maturity dates, which range from July 2020 to August 2020.
In July 2019, the Company and Yonder Media became involved in a legal dispute and the Company recorded a reserve of $3,355, representing the principal and accrued interest outstanding under the promissory notes as of June 2019)

  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)

During30, 2019.

Property, equipment, and software development, netSeptember 30, 2019December 31, 2018
Furniture and fixtures$167 $168 
Computer, communications, and network equipment16,936 21,009 
Software3,834 5,311 
Automobiles12 13 
Leasehold improvements1290
Software development6,208 1,735 
Property, equipment, and software development, at cost27,286 28,236 
Accumulated depreciation and amortization(21,872)(22,792)
Property, equipment, and software development, net$5,414 $5,444 

Property, equipment, and software development acquired in the sixiPass business combination totaled $873; expenditures for software development in the nine months ended JuneSeptember 30, 2019 was $4,070; and depreciation and amortization recognized on property, equipment, and software development was $4,061. See Note 3. Acquisitions for additional information about the conversion feature was exercised at a priceproperty, equipment, and software development acquired in the iPass business combination.
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

As of September 30, 2019
Intangible assets, netGross Carrying AmountAccumulated AmortizationForeign Currency Translation AdjustmentsIntangible Assets, Net
Developed technology$26,829 $(3,802)$(1,073)$21,954 
Consumer relationships25,300 (1,833)(930)22,537 
Trade names3,544 (712)(174)2,658 
Total$55,673 $(6,347)$(2,177)$47,149 
As of December 31, 2018
Intangible assets, netGross Carrying AmountAccumulated AmortizationForeign Currency Translation AdjustmentsIntangible Assets, Net
Developed technology$20,720 $(859)$(201)$19,660
Consumer relationships16,800 (233)(160)16,407
Trade names3,400 (170)(33)3,197
Total$40,920 $(1,262)$(394)$39,264 
Intangible assets acquired in the iPass and a totalDevicescape transactions totaled $14,753, and amortization of 84,220 shares were exercised.

Outstanding numbers of Dilutive Securities

The outstanding number of dilutive securities forintangible assets in the sixnine months ended JuneSeptember 30, 2019 can be seen below:

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

Cashwas $5,071. See Note 3. Acquisitions for additional information about the intangible assets acquired in the iPass and Restricted Cash

Devicescape transactions.

The following table provides the estimated future amortization expense related to intangible assets held as of September 30, 2019:
2019 (excluding the nine months ended September 30, 2019)$306 
20207,270 
20217,270 
20227,220 
20237,134 
Thereafter17,949 
Total$47,149 

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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

Goodwill
Balance at December 31, 2017$0
Business acquisition101,375 
Foreign currency translation adjustment(947)
Balance at December 31, 2018100,428 
Business acquisition37,821 
Foreign currency translation adjustment(4,841)
Balance at September 30, 2019$133,408 

Accrued expenses and other payablesSeptember 30, 2019December 31, 2018
Accrued selling, general and administrative expenses$2,715 $1,189 
Accrued salaries and bonuses862 1,596 
Accrued employees benefits161 0 
Accrued restructuring and acquisition related costs0 1,885 
Accrued cost of revenues2,036 813 
Accrued taxes (including VAT)3,010 1,834 
Accrued interest payable53 68 
Other accrued expenses765 356 
Accrued expenses and other payables$9,602 $7,741 

Unsecured subordinated convertible promissory note, netSeptember 30, 2019December 31, 2018
Principal balance$0 $116 
Debt discount and financing costs0 (9)
Unsecured subordinated convertible promissory note, net$0 $107 
Related Party Loan
The Company has a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheetsloan payable to that sumComsystems, a company owned by Gerard Derenbos. Prior to the Artilium acquisition, Mr. Derenbos held approximately 15.0% of the total amounts shown in the Condensed Consolidated Statementsoutstanding common shares of Cash Flows:

  June 30,  December 31, 
  2019  2018 
Cash and cash equivalents $3,377,556  $6,051,709 
Restricted Cash  1,104,757   430,655 
 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 JuneArtilium, and was an Artilium board member. As of September 30, 2019 and December 31, 2018, the Company had non-current notes receivable of $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 June 30, 2019, and December 31, 2018, the remaining outstanding principal amounts were $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 June 30, 2019 and December 31, 2018, the remaining outstanding principal amounts were $3,355,034 and $505,667, respectively.

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, 2019was $423 and December 31, 2018 was $342,000 and $341,998,$342, respectively. The loan carries an 8%bears interest rateat 8.0% and a maturity date ofmatures on December 31, 2021. All principal and interest are due on the maturity date.

Note 5.  Lease Commitments
The Company leases property under operating leases with varying expiration dates between 2020 and 2025. The Company also leases equipment and automobiles under operating leases with expiration dates between 2021 and 2024.The Company determines if an arrangement is a lease at inception. The Company presents operating leases in right-of-use assets and lease liabilities, while finance leases are presented in property, equipment, and software development, net, and accrued expenses and other current liabilities and other liabilities in the condensed consolidated balance sheet.
The following table presents information related to leases as of September 30, 2019:
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

Operating leases
Right-of-use assets, net$2,721
Current portion of lease liabilities$2,176
Lease liabilities, net of current portion740
Total operating lease liabilities$2,916
Finance leases
Property, equipment, and software development, at cost$142
Accumulated depreciation(2)
Property, equipment, and software development, net$140
Current portion of lease liabilities$46
Lease liabilities, net of current portion93
Total finance lease liabilities$139
Weighted average remaining lease term
Operating leases1.80 years
Finance leases2.92 years
Weighted average discount rate
Operating leases9.22 %
Finance leases5.00 %
The following table presents supplemental cash flow information related to leases for the nine months ended September 30, 2019:
Operating cash outflows from operating leases$1,086 
Operating cash outflows from finance leases (interest)1 
Financing cash outflows from finance leases4 
The following table presents maturities of lease liabilities as of September 30, 2019:
Operating LeasesFinance Leases
2019 (excluding the nine months ended September 30,2019)$271 $13 
20202,524 51 
2021196 51 
202254 34 
202345 0 
Thereafter67 0 
Total lease payments3,157 149 
Imputed interest(241)(10)
Total lease liabilities2,916 139 
Current portion of lease liabilities2,176 46 
Lease liabilities, net of current portion$740 $93 
Note 6. Stockholders' Equity

(A) Common

Preferred Stock

The Company is presently authorized to issue up to 50,000,000 shares of preferred stock. As of September 30, 2019 and December 31, 2018, there were 4,283 shares issued and 0 outstanding.
Common Stock
18
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

The Company is authorized to issue up to 500,000,000 shares of common stock. TheAs of September 30, 2019 and December 31, 2018, the issued and outstanding shares were 133,924,905 and 98,292,530, respectively.
In September 2019, the Company had 111,652,349entered into a securities purchase agreement (the “Securities Purchase Agreement”) with institutional and accredited investors and sold:
a.18,852,272 common stock units at a price of $1.76 per unit. Each common stock unit consists of one share of common stock (18,852,272 shares of common stock in the aggregate), one Series A Warrant (for the purchase of 18,852,272 shares of common stock in the aggregate), and one Series B Warrant (for the purchase of 9,426,136 shares of common stock in the aggregate); and
b.3,875,000 pre-funded warrants for the purchase of common stock units at price of $1.75 per unit. The exercise of each pre-funded warrant, at an exercise price of $0.01, entitles the investor to receive one common stock unit which consists of one share of common stock (3,875,000 shares of common stock in the aggregate), one Series A Warrant (for the purchase of 3,875,000 shares of common stock in the aggregate), and one Series B Warrant (for the purchase of 1,937,500 shares of common stock in the aggregate).
The Company received net proceeds of $37,680 after deducting expenses of approximately $2,281. In connection with the Securities Purchase Agreement, the Company issued warrants to a placement agent to purchase 909,091 shares of its common stock. These warrants have an exercise price of $3.00 per warrant and outstandingexpire in September 2024. All the warrants issued related to the Securities Purchase Agreement are classified as equity in accordance with ASC 480, Distinguishing Liabilities from Equity, and the Series A and Series B warrants are participating securities for purposes of calculating loss per share.
The Series A Warrants are exercisable at $2.25 per share beginning September 2020 and expire in September 2024. The Series B Warrants are exercisable at $1.84 per share beginning September 2019 and expire in March 2021, although the Company’s board of directors has since resolved to waive the Company’s enforcement of the expiration date until June 30, 2021 and permit the holders of the Series B Warrants to exercise the Series B Warrants, and otherwise continue to be entitled to all rights pertaining to holding the Series B Warrants, until June 30, 2021. The pre-funded warrants do not expire and are immediately exercisable, except that the pre-funded warrants cannot be exercised by the holder if, after giving effect thereto, the holder would beneficially own more than 9.99% of the Company’s common stock, subject to certain exceptions.
The following table summarizes common stock activity for the nine months ended September 30, 2019 an increase of 13,799,438 shares from December 31, 2018, were largely due to the iPass and Devicescape acquisitions (10,970,412), warrant exercises (858,344), shares issued to Senior Secured lender (425,000), and services settled by issuance of shares (653,796).

(B) 2018:

Nine Months Ended
September 30,
2019		September 30,
2018
Common stock outstanding, beginning of period98,292,530 46,617,093 
Shares issued for acquisition purchase consideration10,265,412 0 
Shares issued for warrants exercised858,344 10,428,047 
Shares issued in equity fundraises18,852,272 2,453,400 
Shares issued under share-based payment arrangements1,960,768 1,113,791 
Shares issued upon conversion of notes84,220 387,913 
Shares issued in connection with debt facility1,175,000 0 
Shares issued for settlement of accounts payable2,436,359 119,996 
Common stock outstanding, end of period133,924,905 61,120,240 
Warrants

Throughout the years, the

The Company has issued warrants with varying terms and conditions related to multiple financing rounds, acquisitions, and other transactions. The numberfollowing table summarizes warrant activity for the nine months ended September 30, 2019 and the year ended December 31, 2018:
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

Nine Months Ended
September 30, 2019		Year Ended
December 31, 2018
Warrants outstanding, beginning of period3,789,482 18,135,832 
Issued39,199,998 196,750 
Exercised(943,269)(14,463,097)
Expired(60,000)(80,003)
Warrants outstanding, end of period41,986,211 3,789,482 
As of September 30, 2019 and December 31, 2018, all of the outstanding warrants have been recorded and classified as equity is 3,173,713 and 3,789,482, respectively. Theequity. As of September 30, 2019, exercise prices for the outstanding warrants range from $1.05 to $5.375; the weighted average exercise price for the currentlywarrants outstanding is $2.21; and the outstanding warrants in the table below is $2.21. The table below summarizes the warrants outstanding as of June 30,expire from 2019 and as of December 31, 2018:

13
to 2026.

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 Incentive Compensation Plan, As Amended

The Company maintains the following Long Term Incentive Compensation Plans (collectively, the “Plans”):

·Amended and Restated 2008 Long-Term Incentive Compensation Plan (“2008 Plan”)
·2017 Long-Term Incentive Compensation Plan (“2017 Plan”)
·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 Plan which was previously ratified by our stockholders on September 12, 2018 at our annual 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.

Pursuant to the terms of the 2018 Plan, as amended, the number of shares available under the plan shall increase on the first day of each fiscal year in an amount equal to the lesser of (i) 15% of the total number of shares of common stock outstanding as of December 31st of the 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 Plan increased by 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 took effect upon the filing of 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 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.

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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 Plan200,000
Registered 2011 (S-8 dated October 6, 2011)2008 Plan720,000
Registered 2017 (S-8 dated June 14, 2017)2017 Plan3,500,000
Registered 2018 (S-8 dated April 13, 2018)2017 Plan3,000,000
Registered 2018 (S-8 dated October 10, 2018)2018 Plan8,000,000
Registered 2018 (S-8 dated June 28, 2019)2018 Plan7,500,000

  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

Taxes

The following table presents details of income tax expense (benefit)/expense:

  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 based upon an expected annual tax rate.

Note 8. Significant Customers and Geographical Information

During for the three and nine months ended JuneSeptember 30, 2019 and 2018, 19.7%2018:

Three Months Ended
September 30,		Nine Months Ended
September 30,
2019201820192018
Income tax expense (benefit)$(394)$20 $(758)$38 
Our effective tax rates were 1.5% and 75% of revenue, respectively, were made from two customers. For the three months ended June 30, 2019 and 2018, our largest customer represented 11.2% and 53.4% of revenues, respectively. Our second largest customer represented 8.5% and 21.6% of revenues(0.2)% for the three months ended JuneSeptember 30, 2019 and 2018, respectively.

Duringrespectively, and 1.3% and (0.3)% for the sixnine months ended JuneSeptember 30, 2019 and 2018, 20.4%respectively. Our effective tax rates were lower than the U.S. federal statutory rate primarily due to earnings in foreign jurisdictions.

The Company had 0 uncertain tax positions as of September 30, 2019 and 79.3%December 31, 2018.
Note 8. Segment and Geographic Information
Segment Information
Segment information is prepared on the same basis that our chief operating decision-makers (“CODMs”), who are our interim chief executive officer and interim chief financial officer, evaluate financial results, make key operating decisions, and for which discrete financial information is available. As of September 30, 2019, the Company has aggregated its 3 operating segments, which have similar economic characteristics and all provide their customers with communication connectivity services achieved through sales and marketing channels across all 3 operating segments through their CPaaS, into 1 reportable segment—Communication Connectivity Services. The measure of profitability our CODMs use to evaluate financial results for our reportable segment is operating income (loss).
The following table presents disaggregated revenues respectively, were made from two customers. Forexternal customers derived from Communication Connectivity Services for the sixthree and nine months ended JuneSeptember 30, 2019 and 2018:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2019201820192018
Monthly service$15,893 $3,483 $45,491 $9,799 
Installation and software development190 517 537 1,730 
Total revenues$16,083 $4,000 $46,028 $11,529 
Geographic Information
The following table provides information about our consolidated revenues for the three and nine months ended September 30, 2019 and 2018, our largestbased on customer represented 12.5%location:
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share 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  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%

per share data)


Three Months Ended
September 30,		Nine Months Ended
September 30,
2019201820192018
International$10,091 $3,875 $31,688 $11,214 
United States5,992 125 14,340 315 
Total revenues$16,083 $4,000 $46,028 $11,529 
Note 9. Revenues

Our revenues represent amounts earned for our mobile and security solutions. Our solutions take many forms, but our revenues generally 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
Debt

The following table presents our revenues disaggregated by revenue source:

  Three Months Ended  Six Months Ended 
  June 30,  June  30, 
  2019  2018  2019  2018 
Monthly service $31,627,289  $4,277,289  $53,237,189  $7,772,831 
Installation and software development  2,521,107   1,725,891   3,951,121   2,342,919 
Total revenues $34,148,396  $6,003,180  $57,188,310  $10,115,750 

Monthly services revenues are generally recognized over time and amounted to $31,627,289 and $53,237,189 for the three and six months ended June 30, 2019, respectively. Installation and software development revenues are recognized over time and amounted to $2,521,107 and $3,951,121 over for the three and six months ended June 30, 2019, respectively.

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

  Three Months Ended  Six Months Ended 
  June 30,  June  30, 
  2019  2018  2019  2018 
Europe $17,978,271  $3,563,089  $33,015,300  $7,772,831 
Other geographic areas  16,170,125   2,440,091   24,173,010   2,342,919 
Total revenues $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 subsidiariesthe Company 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 provideprovided the Company with a senior secured loan of up to $50,000,000$50,000 (the “Loan”“Senior Secured Facility”), with an. The initial loan of $25,000,000draw under the Senior Secured Facility was $25,000, funded on February 26, 2019,2019. The Credit Agreement had a maturity date of February 26, 2022 and additionalwas subject to prepayment upon the Company's receipt of proceeds in excess of $1,000 outside the ordinary course of business.

Outstanding 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 oweddue under the Credit Agreement shall be due on February 26, 2022.

The unpaid principal amount of the Loan shall bearaccrued interest from the relevant funding dates at a rate per year of Libor plus 8.5% in effect from time to time, provided, however, that upon an event of default or if certain of the Consents areconsents were not delivered to Post Road prior to May 1, 2019 or June 1, 2019, as applicable, the unpaid principal amount of the Loan shall bear interest would accrue at Libor plus 11.5% from the relevant funding dates at a rate per year of Libor plus 11.5% in effect from time to time until the Consents areconsents were 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 ofreceived net proceeds for the initial $25,000,000 of the Loan include approximately $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 paid $623,555 in transaction fees related to the Loan. Proceeds 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 assetsof $23,320 after payment of $813 of commitment fees and $867 of other issuance costs. The total debt discount was $3,286 including $1,607 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 respectCompany's common stock issued to operation of the business and properties ofPost Road.

In September 2019, 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 intopaid off the Credit Agreement from the existing loan and security agreement by and among iPass, iPass IP LLC and Fortress (the “Existing iPass Loan”) terminated. Credit facilitiesproceeds received from the sale of securities under the Existing iPass Loan includedSecurities Purchase Agreement. As a term loan A facilityresult, the Company recognized a $7,873 loss on extinguishment of debt, which is comprised of the unamortized debt discount and a term loan B facility maturing on February 27, 2019.

On February 26, 2019, pursuantissuance costs of $4,926 and an exit fee paid to the termslender 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 June 30, 2019, and December 31, 2018, the Company had outstanding senior secured debt of $22,077,767 and $0, respectively. For the three and six months ended June 30, 2019, the Company recorded interest expense of $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 June 30, 2019. A total of $101,664 and $151,355 was amortized during the three and six months ended June 30, 2019. The remaining capacity under the Loan was $25,000,000 at June 30, 2019.

As of June 30, 2019, the Company was in compliance with all covenants required by the Loan.

18
$2,947.

Note 11.10. Commitments and Contingencies

Lease

Commitments

We have operating leases

The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company entered into the Strategic Connectivity Agreement (the “Connectivity Agreement”) with Hutchison 3G UK Limited (“3UK”) on July 23, 2019. Under the Connectivity Agreement, the Company is obligated to pay 3UK $615 (the "Implementation Fee") for our office space. Our leases have remaining lease termsthe implementation of less than one yeara mobile virtual network operator ("MVNO" and specifically, the “3UK MVNO”), and for monthly services provided, based on usage, after the 3UK MVNO is launched, which management anticipates to 6 years,be in the third quarter of 2021. As of the date of the filing of this Report, management was negotiating with 3UK to amend the Connectivity Agreement to eliminate some of the invoicing functionality of the 3UK MVNO, which include optionswill reduce the Implementation Fee to indefinitely extend$430, however, that amendment has not been executed as of the leases monthly. For our month to month leases, we determineddate this Report was filed. The Implementation Fee is payable upon the numbersatisfactory completion of renewal periods we are reasonably certain to exercise and include these periods in our rightagreed upon milestones. As of use asset and lease liability calculations. Lease expense was $487,850 and $970,398September 30, 2019, none of those milestones had been achieved.
Concurrent with the execution of the Connectivity Agreement, the Company entered into the Agreement for the threeSale and six months ended JunePurchase of Credit Voucher (the “Credit Voucher Agreement”) with PCCW Global Limited (“PCCW”) under which the Company is obligated to purchase a credit voucher for $30,746. The credit voucher will be used to offset certain monthly service charges incurred under the Connectivity Agreement. As of September 30, 2019, respectively,$615 of the purchase price has been recorded in Accrued expenses and is included in general and administrative expenseother current liabilities in the condensed consolidated statementbalance sheet. The remaining $30,131 unconditional purchase obligation is due and payable following the launch date of comprehensive loss. Lease expense was $39,393 and $81,506the 3UK MVNO, whereafter the Company is required to remit the amount of the credit voucher used to offset monthly charges incurred under the Connectivity Agreement to PCCW each quarter.
Should the aggregate of the monthly charges offset with the credit voucher from the Connectivity Agreement launch date through June 30, 2022 be less than $7,994, the Company is obligated to remit a make-up payment (the “2022 Make-up Payment”) for the threedifference between $7,994 and six months endedthe aggregate monthly charges offset with the credit voucher. Should the aggregate of the monthly charges offset with the credit voucher from the Connectivity Agreement launch date through June 30, 2018.

Operating Leases: June 30, 2019 
    
Operating lease right-of-use assets $2,493,352 
Operating lease liabilities $2,790,685 
     
Weighted average remaining lease term    
Operating leases  1.9 years 
     
Incremental borrowing rate    
Operating leases  8.8%

2023, plus any 2022 Make-up Payment, if applicable, be less than $14,143, the Company is obligated to remit a make-up payment (the “2023 Make-up Payment”) for the difference between $14,143 and the aggregate monthly charges offset with the credit voucher, plus any 2022 Make-up Payment. Should the aggregate of the monthly charges offset with the credit voucher from the Connectivity Agreement launch date through June 30, 2024, plus any 2022 Make-up Payment and any 2023 Make-up Payment, if applicable, be less than $21,522, the Company is obligated to remit a make-up payment (the “2024 Make-up Payment”) for the difference between $21,522 and the aggregate monthly charges offset with the credit voucher, plus the 2022 Make-up Payment and the 2023 Make-up Payment. Should the aggregate of the monthly charges offset with the credit voucher from the Connectivity Agreement launch date through June 30, 2025, plus any 2022

21
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

Make-up Payment and any 2023 Make-up Payment and any 2024 Make-up Payment, if applicable, be less than $30,131, the Company is obligated to remit a final make-up payment for the difference between $30,131 and the aggregate monthly charges offset with the credit voucher, plus any 2022 Make-up Payment and any 2023 Make-up Payment and any 2024 Make-up Payment.
The following represents maturities of operating lease liabilitiestable presents the minimum amounts due under the Company’s unconditional purchase obligations as of JuneSeptember 30, 2019:

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

Connectivity AgreementCredit Voucher AgreementTotal
2019 (excluding the nine months ended September 30, 2019)$123$0 $123
20201230 123
20213690 369
202207,994 7,994
202306,150 6,150
Thereafter015,987 15,987
Total$615$30,131 $30,746
The following table presents management’s estimate of the timing of amounts due under the Company’s unconditional purchase obligations as of September 30, 2019:
Connectivity AgreementCredit Voucher AgreementTotal
2019 (excluding the nine months ended September 30, 2019)$123$0 $123
20201230 123
2021369336 705
202209,012 9,012
202307,363 7,363
Thereafter013,420 13,420
Total$615$30,131 $30,746
Legal Proceedings

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that period could be materially adversely affected.
The following actions were initiated or settled on or before September 30, 2019:
Ellenoff Grossman & Schole LLP, claimed legal fees.

LLP. 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$818 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$818 with agreed-upon monthly installment payments through August 31, 2019. As of JuneSeptember 30, 2019, this transactionthe amount outstanding on the settlement agreement is reflectedapproximately $100.

SEC Investigation. InAugust 2019 and February 2020, the SEC issued subpoenas requiring the Company to produce certain documents related to, among other things, the Company’s recognition of revenue, practices with certain customers, and internal accounting controls. The SEC staff has also interviewed and taken testimony from individuals previously employed by the Company in connection with the financial statements.

investigation. The Company is involvedcooperating with the SEC staff in various claimsthe SEC investigation and lawsuits incidental to our business.  Indiscussions with the opinion of management, the ultimateSEC staff regarding a potential resolution of suchthe investigation with respect to the Company are ongoing.

The following actions were initiated after September 30, 2019:
22
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

In re Pareteum Securities Litigation is the consolidation of various putative class actions that were filed in the United States District Court for the Southern District of New York. The cases were assigned to Judge Alvin Hellerstein, who consolidated the actions on January 10, 2020 and named the Pareteum Shareholder Investor Group as the Lead Plaintiff.The Lead Plaintiff is asserting claims on behalf of purported purchasers and/or acquirers of Company securities between December 14, 2017 and lawsuits willOctober 21, 2019. The defendants are the Company, Robert H. Turner, Edward O’Donnell, Victor Bozzo, Denis McCarthy, Dawson James Securities Inc., and Squar Milner LLP (“Defendants”).The Lead Plaintiff alleges that Defendants caused the Company to issue certain materially false or misleading statements in SEC filings and other public pronouncements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Sections 11, 12 and 15 of the Securities Act of 1933, as amended (the "Securities Act"). The Lead Plaintiff seeks to recover compensatory damages with interest for itself and the other class members for all damages sustained as a result of Defendants’ alleged wrongdoing and reasonable costs and attorney’s fees incurred in the case.
Douglas Loskot v. Pareteum Corporation, et al., is a putative class action pending in the Superior Court of California, County of San Mateo.It was filed on May 29, 2020 on behalf of all former stockholders of iPass Inc. who received shares of the Company’s common stock pursuant to a February 12, 2019 Offer to Exchange. The defendants are the Company, Robert H. Turner, Edward O’Donnell, Victor Bozzo, Yves van Sante, Robert Lippert and Luis Jimenez-Tunon.The complaint alleges that the defendants caused the Company to issue materially false or misleading statements in SEC filings submitted in connection with the Offer to Exchange in violation of Sections 11 and 15 of the Securities Act.
Miller ex rel. Pareteum Corporation v. Victor Bozzo, et al. was filed on February 28, 2021 in the Supreme Court for the State of New York, New York County. It is a stockholder derivative suit brought by Plaintiff William Miller (“Plaintiff Miller”), derivatively on behalf of Pareteum, the Nominal Defendant, against certain officers and directors of Pareteum, including Victor Bozzo, Laura Thomas, Yves van Sante, Luis Jimenez-Tunon, Robert Lippert, Robert H. Turner, Edward O’Donnell, and Denis McCarthy (the “Individual Defendants”). Plaintiff Miller alleges that the Individual Defendants caused the Company to issue false or misleading statements in SEC filings and other public pronouncements in violation of certain federal securities regulations. Plaintiff Miller alleges that as a result of their misconduct, the Individual Defendants are liable for violations of Section 14(a) of the Exchange Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. Plaintiff Miller seeks a judgment awarding Pareteum damages with interest sustained as a result of the Individual Defendants’ alleged misconduct, directing the Individual Defendants to take certain measures to reform and improve Pareteum’s corporate governance and internal procedures, awarding Pareteum restitution from the Individual Defendants, and awarding Plaintiff Miller all costs and expenses incurred in pursuing the claims.
Zhang ex rel. Pareteum Corporation v. Robert H. Turner, et al. was filed on May 26, 2020 in the Supreme Court for the State of New York, New York County. It is a stockholder derivative suit brought by Plaintiff Wei Zhang (“Plaintiff Zhang”), derivatively on behalf of Pareteum, the Nominal Defendant, against certain officers and directors of Pareteum, including Robert H. Turner, Edward O’Donnell, Denis McCarthy, Victor Bozzo, Rob Mumby, Luis Jimenez-Tunon, Robert Lippert, Laura Thomas, and Yves van Sante (the “Individual Defendants”). Plaintiff Zhang alleges that the Individual Defendants caused the Company to issue false or misleading statements in SEC filings and other public pronouncements in violation of certain federal securities regulations. Plaintiff Zhang alleges that as a result of their misconduct, the Individual Defendants are liable for violations of Section 14(a) of the Exchange Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. Plaintiff Zhang seeks a judgment awarding Pareteum damages with interest sustained as a result of the Individual Defendants’ alleged misconduct, directing the Individual Defendants to take certain measures to reform and improve Pareteum’s corporate governance and internal procedures, awarding Pareteum restitution from the Individual Defendants, and awarding Plaintiff Zhang all costs and expenses incurred in pursuing this claim.
Shaw ex. rel. Pareteum Corporation v. Luis Jimenez-Tunon, et al. was filed on July 10, 2020 in the Supreme Court for the State of New York, New York County. It is a stockholder derivative suit brought by Plaintiff Michael Shaw (“Plaintiff Shaw”), derivatively on behalf of Pareteum, the Nominal Defendant, against certain officers and directors of Pareteum, including Luis Jimenez-Tunon, Robert Lippert, Yves Van Sante, Robert H. Turner, Edward O’Donnell, Denis McCarthy, Victor Bozzo, and Laura Thomas (the “Individual Defendants”). Plaintiff Shaw alleges that the Individual Defendants caused the Company to issue false or misleading statements in SEC filings and other public pronouncements in violation of certain federal securities regulations. Plaintiff Shaw alleges that as a result of their misconduct, the Individual Defendants are liable for violations of Section 14(a) of the Exchange Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. Plaintiff Shaw seeks a judgment awarding Pareteum damages sustained as a result of the Individual Defendants’ alleged misconduct, directing the Individual Defendants to take certain measures to reform and improve Pareteum’s corporate governance and internal procedures, and awarding Plaintiff Shaw all costs and expenses incurred in pursuing this claim.
In re Pareteum Corporation Stockholder Derivative Litigation (the “Delaware Derivative Action”) is a consolidated action that was originally filed in the United States District Court for the District of Delaware (the “Delaware District Court”) and joins several related
23
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

derivative actions (the “Related Suits”). On April 3, 2020, the Delaware District Court consolidated the Related Suits brought by stockholders Edward Hayes, Juanita Silvera, and Brad Linton (“Plaintiffs”), derivatively on behalf of Pareteum, the Nominal Defendant, against certain officers and directors of Pareteum, including Robert H. Turner, Edward O’Donnell, Denis McCarthy, Laura Thomas, Victor Bozzo, Luis Jimenez-Tunon, Robert Lippert, Rob Mumby and Yves Van Sante (the “Individual Defendants”). Plaintiffs in the related actions have alleged that the Individual Defendants caused Pareteum to issue false or misleading statements in SEC filings and other public pronouncements in violation of certain federal securities regulations. Plaintiffs allege that as a result of the Individual Defendants’ misconduct, they are liable for violations of Section 14(a) of the Exchange Act, breach of fiduciary duty, unjust enrichment, and gross mismanagement. Plaintiffs seek a judgment (1) declaring that the Individual Defendants breached their fiduciary duties and/or aided and abetted the breach of their fiduciary duties; (2) awarding Pareteum damages sustained as a result of the Individual Defendants’ breaches of fiduciary duty and violations of federal securities laws; (3) ordering that the Individual Defendants disgorge any performance-based compensation that was received during, or as a result of, the Individual Defendants’ breaches of fiduciary duty; (4) directing the Individual Defendants to take certain measures to reform and improve Pareteum’s corporate governance and internal procedures; (5) granting appropriate equitable or injunctive relief to remedy the Individual Defendants’ breaches of fiduciary duties and other violations of laws; (6) awarding Pareteum restitution from the Individual Defendants; and (7) awarding Plaintiffs all costs and expenses incurred in the Related Suits and Delaware Derivative Action. On July 22, 2020, this action was transferred to the United States District Court for the Southern District of New York.
Sabby Volatility Warrant Master Fund, Ltd. v. Pareteum Corp., et al., No. 19-cv-10460 (S.D.N.Y.) (the “Section 11 Action”), is an action brought under Section 11 of the Securities Act by an investor, Sabby Volatility Master Fund, Ltd. (“Plaintiff Sabby”), against the Company, Robert H. Turner, Edward O’Donnell, Denis McCarthy, Victor Bozzo, Robert Lippert, Yves Van Sante, and Luis Jimenez Tunon (collectively, the “Defendants”), filed on November 11, 2019.Plaintiff Sabby alleges that the Defendants caused the Company to issue false or misleading statements in a Registration Statement filed with the SEC. Plaintiff Sabby claims that as a result of the alleged misconduct, the Defendants are liable for violations of Section 11 of the Securities Act, breaches of a securities purchase agreement (the “SPA”) entered into between Plaintiff Sabby and Pareteum, and contractual indemnification allegedly owed to Plaintiff Sabby under the SPA.Plaintiff Sabby seeks monetary damages and/or rescission of the SPA, and indemnification by Pareteum for any losses resulting from its alleged breach of the SPA, including costs and expenses incurred in connection with the Section 11 Action.
Artilium Africa, LLC et al. v. Artilium, PLC et al.; ICDR Case No. 01-19-0003-1680 and Artilium Africa, LLC and Tristar Africa Telecom, LLC v. Pareteum Corporation are related matters arising out of the same dispute. The former matter is an arbitration filed with the International Center for Dispute Resolution (“ICDR”) on October 1, 2019 alleging that Artilium Group Limited, a subsidiary of Pareteum Corporation formerly known as Artilium PLC (“Artilium”), breached an Operating Agreement relating to a joint venture called Artilium Africa formed by Artilium Green Globe Services LLC and Tristar Africa Telecom, LLC (“Tristar” and together with Artilium, the “Delaware Plaintiffs”) to provide mobile data, cloud, and telecommunications services throughout Africa. The Claimants in the ICDR arbitration are seeking $30,000. The latter matter is a civil case filed on October 10, 2019 in the Delaware District Court. The Delaware Plaintiffs allege that Pareteum tortuously interfered with Tristar’s contract with Artilium in order to enter into the same type of agreement with Artilium. The Plaintiffs are seeking $150 in damages. On December 17, 2020, the Delaware District Court stayed the action and compelled the Delaware Plaintiffs to pursue their claims against Pareteum in the ICDR arbitration.
Reuben Harmon, derivatively on behalf of Pareteum Corp. v. Robert H. Turner, et al. is a stockholder derivative lawsuit that was filed in the Supreme Court for the State of New York, New York County on January 27, 2021 by Reuben Harmon (“Plaintiff Harmon”).This case was brought derivatively on behalf of Pareteum, the Nominal Defendant, against certain current and former officers and directors of the Company, including Robert H. Turner, Edward O’Donnell, Denis McCarthy, Victor Bozzo, Rob Mumby, Luis Jimenez-Tunon, Robert Lippert, Laura Thomas and Yves Van Sante (the “Individual Defendants”). Plaintiff Harmon alleges that the Individual Defendants caused Pareteum to issue false or misleading statements in SEC filings and other public pronouncements in violation of certain federal securities statutes and regulations. Plaintiff Harmon alleges that as a result of their misconduct, the Individual Defendants are liable for breaches of their fiduciary duties as directors and/or officers of Pareteum, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.Plaintiff Harmon seeks a judgment awarding Pareteum damages with interest sustained as a result of the Individual Defendants’ alleged misconduct, directing the Individual Defendants to take certain measures to reform and improve Pareteum’s corporate governance and internal procedures, awarding Pareteum restitution from the Individual Defendants, and awarding Plaintiff Harmon all costs and expenses incurred in pursing the claim.
Gregory Lackey, derivatively on behalf of Pareteum Corp. v. Robert “Hal” Turner, et al., No. 1:21-mc-00070, is a shareholder derivative suit that was filed on January 25, 2021 in the United States District Court for the Southern District of New York. Plaintiff Gregory Lackey (“Plaintiff Lackey”) is a purported stockholder suing on behalf of Pareteum and alleging that certain officers and directors of Pareteum, including Robert H. Turner, Edward O’Donnell, Denis McCarthy, Victor Bozzo, Luis Jimenez-Tunon, Robert Lippert, Rob Mumby, Laura Thomas and Yves Van Sante (the “Individual Defendants”) caused Pareteum to issue false or misleading statements in SEC filings and other public pronouncements in violation of certain federal securities statutes and regulations. Plaintiff Lackey alleges that as a result of their misconduct, the Individual Defendants are liable for contribution and indemnification under
24
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

Section 21D of the Exchange Act, breach of fiduciary duty, and unjust enrichment. Plaintiff Lackey seeks a judgment (1) awarding Pareteum damages sustained as a result of the Individual Defendants’ breaches of fiduciary duty; (2) directing the Individual Defendants to take certain measures to reform and improve Pareteum’s corporate governance and internal procedures; (3) awarding Pareteum restitution from the Individual Defendants and disgorgement of all profits obtained by the Individual Defendants; and (4) awarding Plaintiff Lackey all costs and expenses incurred in the action.
Deutsche Telekom A.G. (“DTAG”) is both a supplier to, and customer of, the Company’s subsidiary, iPass. DTAG has initiated a lawsuit in Germany in the amount of approximately $790 for non-payment for supply of services to iPass and/or insufficient delivery of services to DTAG. iPass has reasonable grounds to set-off a significant proportion of the claimed sums and otherwise dispute the claims. iPass intends to vigorously defend and/or set-off the DTAG claim.
Stephen Brown v. Elephant Talk North America Corporation and Elephant Talk Communications Corp., Case No. 5:18-cv-902-R in the Western District of Oklahoma. A former consultant, Steve Brown (“Plaintiff Brown”) brought a lawsuit against Pareteum and its subsidiary claiming approximately five (5) years’ unpaid consulting fees in an amount equal to $780. The Company believes some or all of his claims are time-barred and/or frivolous. The Company’s position is that Plaintiff Brown was dismissed for cause in 2013/14, and intends to defend itself in this matter vigorously.
Unclaimed Property Compliance
The Company has received notices from several states stating that they have appointed an agent to conduct an examination of the books and records of the Company to determine whether it has complied with state unclaimed property laws. In addition to seeking the turnover of unclaimed property subject to escheat laws, the states may seek interest, penalties, costs of examinations, and other relief. If the potential loss from any payment claim is considered probable and the amount or the range of the loss can be estimated, the Company accrues a liability for the estimated loss. To date, the Company is not have a material effect on our financial position, liquidity, or resultsable to estimate the possible payment, if any, due to the early state of operations. 

this matter.

Note 12.11. Subsequent Events

None.

19

The Company has evaluated subsequent events through the filing of this Report and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements except for the transactions described below.
Impairment of Goodwill and Intangible Assets
During the fourth quarter ended December 31, 2019, the Company performed its annual impairment test for goodwill and intangible assets. As a result of the deteriorating business conditions, the Company recorded an impairment charge of $160,989 during the quarter ended December 31, 2019 related to goodwill and intangible assets associated with the Company’s acquisitions of iPass and Artilium.
Senior Convertible Note
On June 8, 2020, the Company issued the $17,500 Senior Convertible Note due April 1, 2025 to High Trail Investments SA LLC (“High Trail”) for $14,000 (the "Proceeds"). The Company received $4,000 of the Proceeds for working capital and the remaining $10,000 was deposited into a blocked bank account based on terms of a Control Agreement, and incurred approximately $469 of legal fees. Under the terms of the Control Agreement, the Company can access the funds from the blocked account as follows:
•$3,000 when the Company receives $4,000 in additional financing. The Company received the additional financing in July 2020 and the funds were released to the Company to be used for working capital purposes; and
•On or prior to October 31, 2020 (the “Specified Conditions Date”), $7,000 when the Company meets certain specified conditions (the “Specified Conditions”) as of any date and on each of the 20 previous trading days prior to such date as defined in the Senior Convertible Note as follows:
◦The Company can issue shares of its common stock upon conversion that are not subject to restrictions on resale;
◦Upon conversion, High Trail will not beneficially own in excess of 4.99% of the Company’s outstanding common stock;
◦At all times, the Company will have sufficient authorized and unissued shares of its common stock available for the issuance of common stock upon conversion of the outstanding principal amount of the Senior Convertible Note plus accrued interest;
◦The daily dollar trading volume of the Company’s common stock for at least 17 of the prior 20 trading days is not less than $750 (as reported on Bloomberg);
◦The Company has obtained the requisite stockholder approval required by the Nasdaq Capital Market for the issuance of the shares of its common stock upon conversion;
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PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

◦The average daily volume-weighted average price per share of the Company’s common stock is not less than $0.85; and
◦There are no defaults or events of a default that have occurred or are continuing.
The Secured Convertible Note contains customary events of default, as well as events of default if the Company fails to use reasonable efforts to obtain the approval of its stockholders for the issuance of the shares issuable upon conversion by October 31, 2020, the Company’s common stock ceases to be traded on the Nasdaq Capital Market, or the Company fails to restate its financial statements for the year ended December 31, 2018 and the quarters ended March 31, 2019 and June 30, 2019, in each case, prior to October 31, 2020 or fails to timely file its subsequent quarterly reports on Form 10-Q or its subsequent annual reports on Form 10-K with the SEC in the manner and within the time periods required by the Exchange Act. As a result of, among other things, the Company’s common stock no longer being traded on the Nasdaq Stock Market, the Company failing to restate its financial statements for the year ended December 31, 2018 and the quarters ended March 31, 2019 and June 30, 2019, in each case, prior to October 31, 2020, and its failure to timely file its subsequent quarterly reports on Form 10-Q or its subsequent annual reports on Form 10-K with the SEC in the manner and within the time periods required by the Exchange Act, the Company is currently in default.
The Senior Convertible Note is convertible into shares of the Company’s common stock, including any portion constituting an optional redemption payment amount, at High Trail’s election. The conversion rate is equal to 1,666.667 shares of the Company’s common stock for every $1,000 of Senior Convertible Note principal, or $0.60 per share.
The Senior Convertible Note is secured by a first lien on substantially all of the assets of the Company and substantially all of the assets of its material domestic subsidiaries and the assets of Pareteum Europe BV, a subsidiary organized in the Netherlands. In addition, the Senior Convertible Note contains customary affirmative and negative covenants, including restrictions on indebtedness, equity securities, liens, dividends, distributions, acquisitions, investments, sale or transfer of assets, transactions with affiliates and maintenance of certain financial ratios.
In connection with Senior Convertible Note, the Company granted a warrant to purchase 15,000,000 shares of its common stock to High Trail at an exercise price of $0.58 per share expiring on June 8, 2025. Under the Forbearance Agreements, the exercise price of the warrant was reduced to $0.37 per share.
On November 30, 2020, the Company and High Trail entered into the Forbearance Agreement. Under the terms of the Forbearance Agreement, High Trail agreed to forebear from exercising certain rights and remedies. High Trail agreed that it would not, directly or indirectly, exercise any right or remedy under any transaction document or take any other enforcement action in respect of the occurrence and continuance of any existing event of default (as explained above), or encourage any other person to take or initiate any such enforcement action or other action through the forbearance termination date as defined as: (a) December 31, 2020 (subsequently extended through March 31, 2021); (b) the occurrence of any event of default (other than an existing event of default); and (c) the initiation of any action by the Company or any other person to invalidate or limit the enforceability of any of the acknowledgments set forth in the Forbearance Agreement.
As a condition of the Forbearance Agreement, the Company and High Trail agreed that if the Company elects the option to pay either the optional redemption payment or the stated interest in shares of its common stock, the Market Stock Payment Price was amended to remove the floor price of $0.10, such that the price would be: an amount equal to 85% of the lowest daily volume-weighted average price per share of the Company’s common stock during the 10 trading days immediately prior to such interest payment date or optional redemption stock payment date.
In addition, the event of default conversion price was changed to the lesser of (A) the conversion price that would be in effect immediately after the close of business on the conversion date for such conversion as defined in the Senior Convertible Note, and (B) 75% of the lowest daily volume-weighted average price per share of the Company’s common stock during the 30 consecutive trading days ending on, and including, such conversion date (or, if such conversion date is not a trading day, the immediately preceding trading day).
On December 23, 2020, High Trail agreed to release to the Company for working capital purposes $1,000 of the $7,000 that was required to be held in the blocked bank account under the terms of a Control Agreement until the Specified Conditions were met by October 31, 2020 even though the Specified Conditions were not met. In consideration for High Trail agreeing to release the $1,000, the Company increased the initial conversion rate to 2,702.702 from 1,666.667 shares of common stock per $1,000 principal amount of the Senior Convertible Note, which resulted in a decrease to the conversion price to $0.37 from $0.60.
Subsequently, High Trail agreed to extend the forbearance termination date to March 31, 2021. On April 8, 2021, High Trail provided notice to the Company that it was causing $6,000 of the purchase price maintained in the blocked account to be transferred to High Trail in partial satisfaction of the amounts outstanding under the Senior Convertible Note.
On May 24, 2021, the Company entered into the New Forbearance Agreement with the holder of the Senior Convertible Note under which (i) the Company again admitted it was in default under several obligations under the Senior Convertible Note and related
26
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

agreements, and (ii) the lender acknowledged such defaults and agreed not to exercise any right or remedy under the Senior Convertible Note or the related securities purchase agreement, warrant or security documents, including its right to accelerate the aggregate amount outstanding under the Senior Convertible Note, until the Outside Date, as the same may be extended from time to time under the terms of the New Forbearance Agreement.
As partial consideration for its agreement not to exercise any right or remedy under the Senior Convertible Note and related documents, the lender and the Company agreed to make certain changes to the documents.In this regard, the parties agreed to amend the “Event of Default Acceleration Amount” definition in the Senior Convertible Note so that the amount due and payable by the Company on account of an event of default would be an amount in cash equal to 125% of the then-outstanding principal and accrued and unpaid interest under the Senior Convertible Note. This represents an increase from 120% of the then-outstanding principal and accrued and unpaid interest, and removes the market-price-based alternative for such acceleration amount.
Additionally, the parties also agreed that the principal amount outstanding under the Senior Convertible Note would be increased by certain paid-in-kind amounts in full satisfaction of the Company’s obligation to make payments of interest to the lender on each of April 1, 2021 and May 1, 2021, which amounts were not paid by the Company in cash or Common Stock. In consideration of the lender’s agreement to enter into the New Forbearance Agreement and agree to the amendments to the Senior Convertible Note, the Company agreed to pay the lender a fee in the amount of $1,500. Accordingly, following these increases in the principal amount payable, but applying against the outstanding principal and such fee the $6,000 previously maintained in certain blocked account against that was foreclosed upon by the lender, the total amount of principal outstanding under the Senior Convertible Note as of the date of the New Forbearance Agreement was approximately $13,454.
On June 19, 2021, the Company entered into an amendment to the Senior Convertible Note under which the Company will increase the number of shares of common stock reserved for issuance upon conversion of the Senior Convertible Notes, such that the Company is required to reserve the greater of i) 230,000,000 shares or ii) the quotient obtained by dividing (A) 200% of the principal amount outstanding, plus all accrued and unpaid interest by (B) 85% of the recent trading price of the Company's common stock.
Senior Second Lien Secured Convertible Note
On February 22, 2021, the Company issued the $2,400 Junior Convertible Note due April 1, 2025 for $2,000. The Junior Convertible Note is a senior, secured obligation of the Company, but ranks junior to the Secured Convertible Note. Interest is payable monthly beginning April 1, 2021 at a rate of 8.0% per annum. The Junior Convertible Note is secured by a second lien on substantially all of the Company's assets and substantially all of the assets of its material domestic subsidiaries. Interest may be paid, at the election of the Company, in cash or in shares of common stock of the Company; provided, that, so long as the Senior Convertible Note remains outstanding, such payments may only be made in shares. The number of shares of common stock to be issued to pay interest in shares of the Company’s common stock is determined by the application of a formula in which the amount of the interest due is divided by 85% of the lowest volume weighted average price of the Company’s common stock on the principal market for the Company’s common stock over the 10 days preceding the date of such payment.
Subject to an intercreditor agreement with the holder of the Senior Convertible Note, the Company may elect to redeem all or a portion of the then-outstanding principal amount outstanding under the Junior Convertible Note. The holder of such Junior Convertible Note or the Company may also elect for the Company to redeem the Junior Convertible Note at a 20% premium if the Company undergoes a fundamental change. The Junior Convertible Note is convertible into the Company's common stock, in part or in whole, from time to time, at the election of the Purchaser. The conversion rate is equal to 1,666.667 shares of the Company’s common stock for each $1,000 of principal amount of the Junior Convertible Note, or $0.60 per share. The conversion rate is subject to customary anti-dilution adjustments in the event the Company issues stock dividends or effects a split or reverse split of the Company’s common stock.
In connection with the Junior Convertible Note, certain Series B warrants previously issued to this institutional investor for the purchase of up to 258,523 shares of common stock at an exercise price of $1.84 per share were cancelled; such warrants had been issued on September 24, 2019 in connection with the financing described in Note 6 Stockholders' Equity, and the Company granted a warrant to purchase 2,750,000 shares of its common stock to the purchaser at an exercise price of $0.40 per share expiring on February 22, 2026. The warrants are exercisable any time after February 22, 2021.
On April 29, 2021, the Company entered into a securities purchase agreement, dated as of April 13, 2021 (the “Junior Convertible Notes Securities Purchase Agreement”), with two initial investors and other investors as may become party thereto from time to time (a "Note Purchaser" and collectively, the “Note Purchasers”) providing for the issuance and sale by the Company of up to $6,000 aggregate principal amount of additional Junior Convertible Notes and warrants (the “Warrants”) to purchase up to 5,000,000 shares of its common stock at an exercise price of $0.40. Under the Junior Convertible Notes Securities Purchase Agreement, a Note Purchaser will be issued Warrants equal to 83.33333333% of the principal amount of Junior Convertible Notes acquired. The additional Junior Convertible Notes and accompanying Warrants may be sold from time to time to one or more Note Purchasers under the terms of the Junior Convertible Notes Securities Purchase Agreement.On April 29, 2021, the Company closed on the sale of
27
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

additional Junior Convertible Notes in the aggregate principal amount of approximately $1,788 and Warrants to purchase 1,490,000 shares of common stock under the Junior Convertible Notes Securities Purchase Agreement for an aggregate purchase price of $1,490.
On June 19, 2021, the Company entered into the Omnibus Agreement, with holders of its previously outstanding Junior Convertible Notes; issued three new Junior Convertible Notes with an aggregate principal amount of $17,330 for a purchase price of $5,000 in cash and the surrender of 91.38 shares of Redeemable Preferred Stock; and issued a new warrant to one of the Junior Convertible Note purchasers for the purchase of 5,000,000 shares of the Company's common stock at an exercise price of $0.37 per share.
The Omnibus Agreement amended the Junior Convertible Notes Securities Purchase Agreement and previously outstanding Junior Convertible Notes and, among other changes:
•Increased the aggregate principal amount of Junior Convertible Notes issuable under the Junior Convertible Notes Securities Purchase Agreement from $6,000 to $24,018 (plus the accrued in-kind interest that is subsequently added to the principal amount outstanding from time to time);
•Increased the aggregate number of shares issuable upon the exercise of warrants to purchase common stock issuable under the Junior Convertible Notes Securities Purchase Agreement from 5,000,000 shares to 11,625,000 shares;
•Added additional negative covenants that restrict the Company from selling any additional securities under the Junior Convertible Notes Securities Purchase Agreement to any new investors and from redeeming all or any portion of any Junior Convertible Notes unless the holders receive the stated premium;
•Changed the conversion rate from 1,666,667 shares of common stock per $1,000 in principal amount of Junior Convertible Notes converted to 2,702.7027 shares of common stock per $1,000 in principal converted;
•Provides for accrued interest to be paid in-kind by adding such amounts to the outstanding principal balance, rather than paying such amounts in cash or the issuance of shares of common stock;
•Revised the interest rate to 18% until the first interest payment date following the date on which the Company has filed all required periodic reports under the Exchange Act; and
•Added a provision that at the request of holders of a majority of the outstanding Junior Convertible Notes and warrants issued under the Junior Convertible Notes Securities Purchase Agreement, the maturity date will be extended to October 1, 2027 from October 1, 2025.
8% Series C Redeemable Preferred Stock
On various dates from December 24, 2019 through August 18, 2020, the Company issued 217.67 shares of Redeemable Preferred Stock with a stated value of $21.8 million for an aggregate purchase price of $13.9 million, from which the Company received net proceeds of $13.1 million after deducting legal fees of $0.8 million. By their terms, those shares are not convertible into other securities of the Company. However, on various dates from July 17, 2020 through October 1, 2020, the Company entered into exchange agreements with the holders of those 217.67 shares, which allows either the Company or the holders to exchange such shares of Redeemable Preferred Stock for shares of the Company's common stock, with the exchange ratio determined by a formula set forth in such exchange agreements. In connection with the Company’s entry into the Omnibus Agreement, the holders of 91.38 shares of Redeemable Preferred Stock surrendered such shares to the Company as consideration for new Junior Convertible Notes.
Warrant Extension
On April 24, 2021, the Company effected a waiver of the expiration date of its then remaining outstanding Series B Warrants to purchase an aggregate of 11,105,113 shares of the Company’s common stock. The Company had originally issued the Series B Warrants on September 24, 2019 for the purchase of up to 11,363,636 shares of the Company’s common stock at an exercise price of $1.84 per share through March 24, 2021. On February 22, 2021, Series B Warrants to purchase an aggregate 258,523 shares of common stock were cancelled in connection with the February 22, 2021 issuance of Junior Convertible Notes described above. On March 22, 2021 and then on April 24, 2021, the Company extended the expiration dates of the remaining outstanding Series B Warrants to purchase an aggregate of 11,105,113 shares of the Company’s common stock that had the effect of extending the expiration date through June 30, 2021. The Series B Warrants subsequently expired on June 30, 2021.
PPP Loans
In May 2020, Pareteum received a $552 PPP loan and iPass received an $819 PPP loan under the CARES Act. In the fourth quarter of 2020, the Company was notified that the Pareteum PPP Loan was entirely forgiven and in June 2021, the Company was notified that the iPass PPP Loan was entirely forgiven.
Delisting of the Company’s Common Stock
28
PARETEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data)

On November 5, 2020, the Company notified the Nasdaq Hearings Panel (the "Hearings Panel") that it would not be able to file this Report, its amended Annual Report on Form 10-K/A for the year ended December 31, 2018, its Annual Report on Form 10-K for the year ended December 31, 2019 or its Quarterly Reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020 by November 9, 2020, the date by which the Hearings Panel had required the Company to make such filings in order for the Company’s common stock to remain listed on the Nasdaq Stock Market. In response to the Company’s notice to Hearings Panel that it would not satisfy the conditions to the exception to the listing requirements granted, Hearings Panel notified the Company by letter dated November 10, 2020 that the Company’s common stock would be delisted, and trading of its common stock on the Nasdaq Stock Market was suspended effective at the open of business on November 12, 2020. After the trading of the Company’s common stock was suspended by Nasdaq, prices for the Company’s common stock began to be quoted on the OTC Markets Group Inc.’s Pink Open Market.
Asset Disposition
In August 2020, the Company entered into an asset transfer agreement and a software license agreement with a data communications provider (the "Asset Purchaser"), pursuant to which the Asset Purchaser agreed to purchase certain property and equipment and a software license related to a Mobile Virtual Network Enabler solution for total cash consideration of $12,300. The Asset Purchaser paid $4,700 in August 2020 and the remainder in December 2020 upon the completion of the transfer to the Asset Purchaser. The Company recorded a gain on sale of assets of $10,753 for the difference between the consideration received and the carrying value of the property and equipment and the software license.
29
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report, including, without limitation, matters discussed in the section of this Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), should be read in conjunction with the unaudited condensed consolidated financial statements, related notes, and other detailed information included in Part I, Item 1 of this Report, with our audited consolidated financial statements, related notes thereto, and other detailed information included in Part II, Item 8 of our Amended 2018 Annual Report, and “Risk Factors” included in Part I, Item 1A of our Amended 2018 Annual Report and Part II, Item 1A in this Report and in our Annual Report on Form 10-K for the period ended December 31, 2019, which includes amended and restated quarterly information for the periods ended March 31, 2019 and June 30, 2019, filed with the SEC on March 12, 2021 (the "2019 Annual Report"). This Report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). With the exception of historical matters, the matters discussed in this Report are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Forward-looking statements are generally identified by words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project,” “should,” “will,” “would” and other similar expressions. In addition, any statements that refer to expectations or other characterizations of future events or circumstances are forward-looking statements. The statements that contain these or similar words should be read carefully because these statements discuss our future expectations, contain projections of our future results of operations or of our financial position, or state other “forward-looking” information. However, our actual results may differ materially from those contained in, or implied by, these forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to:
•risks and uncertainties associated with the integration of the assets and operations we have acquired and may acquire in the future;
•our possible inability to generate additional funds that will be necessary to expand our operations;
•the substantial doubt about our ability to continue as a going concern expressed in the most recent report on our audited financial statements;
•our potential lack of revenue growth;
•the length of our sales cycle;
•pending investigations by the SEC and other lawsuits;
•the outbreak and impact of COVID-19 on the global economy and our business;
•our potential inability to add new products and services that will be necessary to generate increased sales;
•our potential inability to develop and successfully market platforms or services or our inability to obtain adequate funding to implement or develop our business;
•our ability to successfully remediate the material weaknesses in our internal control over financial reporting disclosed in this report within the time periods and in the manner currently anticipated;
•the effectiveness of our internal control over financial reporting, including the identification of additional control deficiencies;
•risks related to restrictions and covenants in our convertible debt facility that may adversely affect our business;
•risks related to our current noncompliance with certain terms under our convertible debt facility;
•our potential loss of key personnel and our ability to find qualified personnel;
•international, national, regional and local economic political changes, political risks, and risks related to global tariffs and import/export regulations;
•fluctuations in foreign currency exchange rates;
•our potential inability to use and protect our intellectual property;
•risks related to our continued investment in research and development, product defects or software errors, or cybersecurity threats;
•general economic and market conditions;
•regulatory risks and the potential consequences of noncompliance with applicable laws and regulations;
•increases in operating expenses associated with the growth of our operations;
•risks related to our capital stock, including the potentially dilutive effect of issuing additional shares and the fact that shares eligible for future sale may adversely affect the market for our common stock;
•the possibility of telecommunications rate changes and technological changes;
•disruptions in our networks and infrastructure;
•the potential for increased competition and risks related to competing with major competitors who are larger than we are;
•our positioning in the marketplace as a smaller provider;
30
•risks resulting from the restatement of our financial statements for the year ended December 31, 2018, the interim periods contained therein and the interim periods ended March 31, 2019 and June 30, 2019; and
•those risks listed in the sections of this Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” those risks listed in the section of our Amended 2018 Annual Report titled “Risk Factors” and those risks listed in the section of our 2019 Annual Report titled “Risk Factors.”
The foregoing does not represent an exhaustive list of risks, new risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Report are based on information available to us on the date of this Report. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this Report.

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

Forward-Looking Statements

Any 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:(OTC: TEUM) is a rapidly growing cloud software communications platform company with a mission –- to connect every personConnect Every Person and every(thing)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 unleashesPareteum’s goal is to unleash the power of applications and mobile services, bringingwhich we believe will bring 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 stageearly-stage innovators, developers, IoT, and telecommunications infrastructure 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 according to ABI Research, a market research firm that specializes in global connectivity and emerging technology, the total available market is astoundingly large.vast. Service Providers, Brand Marketing Companies, Enterpriseproviders, brand marketing companies, and Internet of Thingsenterprise and IoT providers use Pareteum to energize their growth and profitability throughPareteum’s 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 thesea variety of disparate communications methods and services and bringsoffers them to life for customers and application developers, allowing communications to become value-added. Thisa value-added service. We believe that this is a major strategic targetgoal 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-developedinternally-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.going forward. We have approximately 40been granted more than 70 patents granted in relationrelated to techniques and processes whichthat support our cloud software and communications platform solutions. Our platform services partners (technologies(whose technologies are integrated into our cloud) include: HPE,Hewlett Packard Enterprise, IBM, AT&T, Amazon Web Services, Sonus, Veniam, Oracle, Microsoft, NetNumber, Affirmed Networks and other world class companies. world-class technology providers.
Pareteum is a mission-focused company that seeks to empower “Every Person and Every(Thing)” to be globally connected, hence our slogan – ANY DEVICE, ANY NETWORK, ANYWHERE™. The Pareteum cloud communications platform targets large and growing sectors from IoT, mobile virtual network operators, enablers and aggregators, Smart Cities, and application developer markets - each in need of mobile platforms, management, and connectivity. These sectors need CPaaS, which Pareteum delivers.
As of October 1, 2018, the Company now includes Artilium plc, which operates as a wholly-ownedwholly owned subsidiary of the Company. Artilium is a software development company active in the enterprise communications and core telecommunications markets delivering software solutions whichthat 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-ownedwholly 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 unaudited condensed consolidated financial statements and notes thereto and the other financial information included elsewhere in this report. 

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Report.

Critical Accounting Policies and Estimates

The preparation of

Our accounting and reporting policies conform to GAAP and are fundamental to understanding our unaudited condensed consolidated financial statements in accordance with accounting principles generally acceptedand this MD&A. Several of our policies are critical as they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and affect the reported amount of assets, liabilities, revenues and costs included in the United Statesunaudited condensed consolidated financial statements. Circumstances and events that differ significantly from those underlying our estimates, assumptions and judgments could cause the actual amounts reported to differ significantly from these estimates. Our critical accounting policies are described in Part II, Item 7 of America, or GAAP, requires us to makeour Amended 2018 Annual Report.
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On an ongoing basis, we evaluate the 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 expensesused 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, 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 assumptionsthese policies based on current facts, historical experience and various other factors that weand circumstances. We believe to beour estimates and assumptions are reasonable under the circumstances, thecircumstances; however, actual results ofmay differ significantly from these estimates and assumptions, which form the basis for making judgments aboutcould have a material impact on the carrying valuesvalue of assets and liabilities as of future balance sheet dates 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 ofin future reporting periods.
There were no material changes in our critical accounting policies and estimates, please refer toduring the “Critical Accounting Policies and Estimates” sectionnine months ended September 30, 2019 from those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of ourthe Amended 2018 Annual Report. There have been no material changes in any
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Results of Operations
Comparison of three months ended JuneSeptember 30, 2019 and June 30, 2018

Revenues

Revenues represent amounts earned from our mobile and CPaaS solutions. Our solutions take many forms, but our revenue generally consists 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 requested by our customers.
Revenues for the three months ended JuneSeptember 30, 2019 and 2018 were $34,148,396, a $28,145,216 or 469%$16.1 million and $4.0 million, respectively. The $12.1 million increase comparedis primarily due to $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 revenues were all factors in our revenue growth. Additionally, the three months ended June 30, 2019, includes revenues of $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 2018 and first quarter of 2019, respectively.

  Three months ended June 30,    
  2019  2018  Change 
Revenues $34,148,396  $6,003,180  $28,145,216 

iPass.

Cost of Service, excluding depreciation and amortization

Revenues

Cost of servicerevenues includes origination, termination, network and billing charges from telecommunications operators, costs of telecommunications service providers, network costs, data center costs, facility costcosts of hosting network and equipment, and costcosts in providing resale arrangements with long distance service providers, costcosts of leasing transmission facilities, international gateway switches for voice, and 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 costs of subcontractors and share-based compensation and the cost of subcontractors.compensation. Cost of servicerevenues excludes depreciation and amortization.

  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)  15,293,244   1,779,882   13,513,362 
Margin (excluding depreciation and amortization) $18,855,152  $4,223,298  $14,631,854 

Cost of servicerevenues for the three months ended JuneSeptember 30, 2019 and 2018 was $15,293,244, an$12.3 million and $2.3 million, respectively. The $10.1 million increase of $13,513,362 or 759%, comparedis primarily due to $1,779,882 for the comparable three months in 2018. Costour acquisitions of service for the three months ended June 30, 2019, includes costs for Artilium and iPass, which added a combined $7.7 million of $3,038,017 and $6,398,593, respectively due to their acquisitions. The remainder of the increase in cost of service is in line with the overall increase in revenue, which generates a corresponding increase in implementation costs for new clients.

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revenues.

Product Development

Product Developmentdevelopment 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 months ended JuneSeptember 30, 2019 and 2018 were $3,242,145$3.1 million and $753,931, respectively, an$0.7 million, respectively. The $2.4 million increase is primarily due to our acquisitions of $2,488,214 or 330%. The increase inArtilium and iPass, which added a combined $1.5 million of product development is due to acquisitions made by the company totaling $1,348,448. The remaining increases was due to continued development costs for legacy product lines.

costs.

Sales and Marketing

Sales and Marketingmarketing expenses consist primarily of salaries and related expenses including share-based compensation, forof our sales and marketing staff, including commissions, payments to partners, marketing programs, and marketing programs.share-based compensation. Marketing programs consist of advertising, events, corporate communications, and brand building.

Sales and marketing expenses for the three months ended JuneSeptember 30, 2019 and 2018 were $2,769,065$2.3 million and $652,442, respectively, an increase of $2,116,623 or 324%. Of this increase, $1,307,654 is attributable to the inclusion of iPass in the three month results.$0.7 million, respectively. The remaining$1.6 million increase is the result of allocating additional resourcesprimarily due to our growing business.

acquisitions of Artilium and iPass, which added a combined $0.7 million of sales and marketing expenses.

General and Administrative

General and administrative expenses are our largest cost and consist primarily of overhead relatedoverhead-related salaries and expenses, including share-based compensation, for non-employeenonemployee 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 months ended JuneSeptember 30, 2019 and 2018 were $9,033,690$8.2 million and $2,214,070, respectively, an$6.7 million, respectively. The $1.5 million increase of $6,819,620 or 308%. This is largely the resultprimarily due to our acquisitions of the inclusion of expenses totaling $2,505,129 and $1,087,345 for Artilium and iPass, respectively. The remaining increase is primarilywhich added a combined $2.7 million of general and administrative expenses.
Restructuring Charges and Acquisition Costs
Restructuring charges are costs associated with restructuring and reorganization activities in order to improve operating efficiencies and reduce operating costs, including the resultintegration, consolidation and rationalization of higher stock based compensation expense and increased travel, legal, accounting,product development, sales and marketing costs.

efforts and general and administrative activities. Acquisition costs represent incremental costs incurred in acquisitions.

Restructuring and Acquisition Charges

Restructuringcharges and acquisition chargescosts for the three months ended JuneSeptember 30, 2019 and 2018 were $427,586immaterial and $5,592, an increase$2.0 million, respectively. The $2.0 million of $421,994 or 7,546%, as a result ofacquisition costs relatedin 2018 was primarily due to the iPasscosts associated with the Company's acquisition and the Devicescape asset acquisition.

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 three months ended June 30, 2019 and 2018, we recognized stock-based compensation expense of $2,008,833 and $697,448, respectively, an increase of $1,311,385 or 188%.

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

  Three months ended June 30, 
  2019  2018 
Cost of service (excluding depreciation and amortization) $-  $(13,122)
Product development  128,336   (25,845)
Sales and marketing  227,426   (39,430)
General and administrative  1,653,071   775,845 
Total $2,008,833  $697,448 

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Artilium.

Depreciation and Amortization

33
Depreciation and amortization expensesexpense includes depreciation and amortization of property, equipment, and software development, and amortization of intangible assets.
Depreciation and amortization expense for the three months ended JuneSeptember 30, 2019 and 2018 was $3,224,027, an$3.4 million and $1.0 million, respectively. The $2.4 million increase is primarily due to our acquisitions of $2,229,709 or 224%, compared to $994,318Artilium and iPass, which added a combined $1.8 million of depreciation and amortization expense. Depreciation and amortization from our legacy operations increased $0.6 million as a result of higher amortization of capitalized software development. Depreciation and amortization of property, equipment, and software development for the three months ended June 30, 2018. This was primarily due to amortization of intangible assets totaling $2,031,895 resulting from the Artilium, iPass and Devicescape acquisitions that took place on October 1, 2018, February 12, 2019, and April 22, 2019, respectively.

Interest Income and Expense

Interest income for the three-months ended JuneSeptember 30, 2019 and 2018 was $149,298$1.6 million and $43,193,$1.0 million, respectively, an increaseand amortization of $106,105 or 246%. Interest income mainly consists of interest earned on promissory notes issued to ValidSoft and Yonder Media.

Interest expenseintangible assets for the three-monthsthree months ended JuneSeptember 30, 2019 and 2018 was $777,907$1.8 million and $99,708, respectively, an increasezero, respectively.

Nonoperating Expenses, Net
The following table provides details 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 Discountnonoperating expenses 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 JuneSeptember 30, 2019 and 2018:

Three Months Ended
September 30,
(In thousands)20192018
Nonoperating expense, net
Interest expense, net$1,042 $186 
Loss on extinguishment of debt7,873 — 
Other expense (income), net3,322 (36)
Total nonoperating expense, net$12,237 $150 
Interest Expense, Net
Interest expense, net for the three months ended September 30, 2019 and 2018 was ($194,354)$1.0 million and $567,710, respectively, a decrease of $762,064.$0.2 million, respectively. The other expense arises from foreign currency transaction losses incurred by iPass in the second quarter of 2019.

Amortization of Deferred Financing Costs

Amortization$0.9 million increase is primarily due to higher indebtedness and higher amortization of deferred financing costs and debt discounts. Noncash interest expense in the three months ended September 30, 2019 and 2018 was $0.3 million and $0.1 million, respectively.

Loss on Extinguishment of Debt
In September 2019, we prepaid, in full, the outstanding balance on the Senior Secured Facility with Post Road and recognized a $7.9 million loss on extinguishment of debt. The loss is comprised of $4.9 million of unamortized deferred financing costs and debt discount, and a cash prepayment penalty of $3.0 million.
Other Expense (Income), net
Other expense, net for the three months ended JuneSeptember 30, 2019 was $3.3 million and 2018, was $101,644 and $6,209, respectively, an increaseis primarily related to the $3.4 million reserve established against the Yonder Media notes receivable.
Income Tax Expense (Benefit)
At the end of $95,435 or 1,537%. This increase is mainlyeach reporting period, we estimate our annual effective consolidated income tax rate. The estimate used for the result of the Post Road Loan entered intoperiod ended September 30, 2019 may change in February 2019.

Income tax (benefit)/expense

subsequent periods. Income tax benefit for the three months ended JuneSeptember 30, 2019 was $449,403,$0.4 million, compared to an immaterial 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 JuneSeptember 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.

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Other Comprehensive Income/Income (Loss)

We recordedrecord foreign currency translation gains and losses related to the translation adjustments of accounts denominated in foreign currencies, primarily the Euro, 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 JuneSeptember 30, 2019 and 2018 were a $5.5 million loss and an immaterial loss, respectively. This change is primarily attributable to the translation effect resulting from the fluctuations in the USD/Euro exchange rates.

Comparison of sixnine months ended JuneSeptember 30, 2019 and June 30, 2018

Revenues

Revenues for the sixnine 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.

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  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 JuneSeptember 30, 2019 and 2018 were $46.0 million and $11.5 million, respectively. The $34.5 million increase is primarily due to our acquisitions of Artilium and iPass, which added a combined $32.4 million of revenues. Revenues from the legacy operations increased $2.1 million from additional deployments with new and existing customers.

Cost of Revenues
34
Cost of revenues for the nine months ended September 30, 2019 and 2018 was $33.0 million and $5.3 million, respectively. The $27.7 million increase is primarily due to our acquisitions of Artilium and iPass, which added a combined $23.1 million of 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.

revenues.

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 sixnine months ended JuneSeptember 30, 2019 and 2018 were $5,816,189$9.3 million and $1,480,776, respectively, an increase of $4,335,413 or 293%.$2.2 million, respectively. The $7.1 million increase is primarily due to the overall expansionour acquisitions of our lines of business year over yearArtilium and the inclusioniPass, which added a combined $5.0 million of product development costs of $1,131,869 for Artilium and iPass for the six months ended June 30, 2019.

costs.

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.

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Sales and marketing expenses for the sixnine months ended JuneSeptember 30, 2019 and 2018 were $5,709,747$8.3 million and $1,341,440, respectively, an increase of $4,368,307 or 326%. This$2.2 million, respectively. The $6.1 million increase is primarily a direct resultdue to our acquisitions of hiring new employees, the inclusion of the Artilium and iPass, which added a combined $3.2 million of sales and marketing expenses of $2,752,546, and other incremental costs incurred as the Company expands.

expenses.

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 sixnine months ended JuneSeptember 30, 2019 and 2018 were $15,896,619$24.5 million and $4,510,922, respectively, an$10.8 million, respectively. The $13.7 million increase is primarily due to our acquisitions of $11,385,697 or 252%.

Artilium and iPass, which added a combined $7.2 million to general and administrative expenses.

Restructuring Charges and Acquisition Charges

AcquisitionCosts

Restructuring charges and acquisition costs for the sixnine months ended JuneSeptember 30, 2019 and 2018 were $3,507,950$3.4 million and $79,193, an$2.1 million, respectively. The $1.3 million increase of $3,428,757 or 4,330%, asis due to a result of costs$0.1 million increase from our legacy operations, primarily related to acquiringour acquisitions of 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, 2019Devicescape, 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 

acquisition costs totaling $1.2 million at iPass.

Depreciation and Amortization

Depreciation and amortization expensesexpense for the sixnine 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.

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Interest Income and Expense

Interest income for the six months ended JuneSeptember 30, 2019 and 2018 was $250,844$9.1 million and $85,865, respectively, an$3.0 million, respectively. The $6.2 million increase is primarily due to our acquisitions of $164,979 or 192%. Interest income mainly consistsArtilium and iPass, which added a combined $5.3 million of interest accrueddepreciation and amortization expense. Depreciation and amortization from our legacy operations increased $0.9 million as a result of higher amortization of capitalized software development. Depreciation and amortization of property, equipment, and software development for the $503,000 and $3,200,000 promissory notes issued to ValidSoft and Yonder Media, respectively.

Interest expense for the sixnine months ended JuneSeptember 30, 2019 and 2018 was $1,326,767$4.1 million and $163,467,$3.0 million, respectively, an increaseand amortization of $1,163,300 or 712%. Interest expense increased mainly asintangible assets for the result of the Post Road Loan entered into in February 2019.

Interest Expense Related to Debt Discount Accretion and Conversion Feature

For the sixnine months ended JuneSeptember 30, 2019 and 2018 was $5.1 million and zero, respectively.

Nonoperating Expenses (Income), Net
The following table provides details of nonoperating expenses and income for the nine months ended September 30, 2019 and 2018:
Nine Months Ended
September 30,
(In thousands)20192018
Nonoperating expense (income), net
Interest expense, net$2,540 $335 
Change in fair value of derivatives— (1,284)
Loss on extinguishment of debt8,873 — 
Other expense (income), net3,384 (671)
Total nonoperating expense (income), net$14,797 $(1,620)
Interest Expense, Net
Interest expense, net for the nine months ended September 30, 2019 and 2018 was $2.5 million and $0.3 million, respectively. The $2.2 million increase is primarily due to higher indebtedness and higher amortization of deferred financing costs and debt discounts. Noncash interest expense relatedin the nine months ended September 30, 2019 and 2018 was $0.7 million and $0.2 million, respectively.
Change in Fair Value of Derivatives
In 2018, debt instruments containing embedded derivatives were renegotiated, eliminating the embedded derivative and the associated derivative liability.
Loss on Extinguishment of Debt
35
In February 2019, we prepaid, in full, the loans payable to Fortress Credit Corp. assumed in the iPass acquisition and recognized a $1.0 million loss on extinguishment of debt, comprised of a cash prepayment penalty. In September 2019, we prepaid, in full, the senior secured debt and recognized a $7.9 million loss on extinguishment of debt. The loss is comprised of $4.9 million of unamortized deferred financing costs and debt discount, accretion were $271,205 and $59,838, respectively, an increasea cash prepayment penalty of $211,367 or 353%. This increase is mainly the result of the Post Road Loan entered into in February 2019.

Changes in derivative liabilities 

Changes in derivative liabilities$3.0 million.

Other Expense (Income), net
Other expense, net for the six-month periodnine months ended JuneSeptember 30, 2019 was $0, a decrease of $1,283,914 or 100%, compared$3.4 million and is primarily related to a gain of $1,283,914the $3.4 million reserve established against the Yonder Media notes receivable. Other income, net for the same period in 2018. This decrease is due to the elimination of the derivative liability in 2018.

Other (Expense) Income, net

Other expense for the sixnine months ended June 30, 2019 was $241,485, as compared to other income of $637,255 for the six months ended JuneSeptember 30, 2018 a decrease of $878,740 or 138%. The 2018 amount represents thewas $0.7 million and is primarily related to unrealized exchange rate gains and an adjustment to liabilities for no longer deemed obligations.

Income Tax Expense (Benefit)
At the end of each reporting period, we estimate our annual effective consolidated income tax rate. The 2019 amount represents foreign currency transaction losses.

Amortization of Deferred Financing Costs

Amortization of deferred financing costsestimate used for the six-monthsperiod ended JuneSeptember 30, 2019 and 2018 was $151,355 and $12,351, respectively, an increase of $139,004 or 1,125%. This increase is mainly the result of the Post Road Loan entered intomay change in February 2019.

Income tax (benefit)/expense

subsequent periods. Income tax benefit for the sixnine months ended JuneSeptember 30, 2019 was $616,737,$0.8 million, compared to an immaterial income tax expense of $18,424, for the same period in 2018. The tax provision was calculated based upon an expected annual tax rate.  

Net Loss

Net loss for the sixnine months ended JuneSeptember 30, 2019, was $6,294,324 an increase of $5,816,683 or 1,218%, compared to the loss of $477,641 for the same period in 2018. The increase in net loss is due to lower margins and costs associated with acquiring new companies.

Other Comprehensive (Loss)/Income

Loss

We recordedrecord foreign currency translation gains and losses related to the translation adjustments of accounts denominated in foreign currencies, primarily the Euro, as other comprehensive income or loss, which amounted to a gain of $76,131 and $25,266 for the sixnine months ended JuneSeptember 30, 2019 and 2018 were losses of $6.8 million and $0.2 million, respectively. This change is primarily attributable to the translation effect resulting from the fluctuations in the USD/Euro exchange rates.


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Liquidity and Capital Resources

Our primary capital needs are for working capital obligations, capital expenditures, and other general corporate purposes. We assess liquidity in terms of our ability to generate cash to fund our operating activities. Factors that could materially impact our liquidity include cash flows generated from operating activities, and our ability to attract long-term capital with satisfactory terms, whether through debt or equity offerings.
Since September 30, 2019, we received net proceeds of $31.0 million as a result of the following debt offerings:
•Redeemable Preferred Stock – Net proceeds of $13.1 million from December 2019 to August 2020
•Payroll Protection Program loans - Net proceeds of $1.4 million in May 2020
•Senior Convertible Note – Net proceeds of $4.0 million in June 2020, $3.0 million in July 2020, and $1.0 million in December 2020
•Junior Convertible Note – Net proceeds of $2.0 million in February 2021, $1.5 million in April 2021, and $5.0 million in June 2021
As reflected in the accompanying condensed consolidated financial statements, the Companywe reported a net loss of $6,294,324$55.7 million for the sixnine months ended JuneSeptember 30, 2019, and had an accumulated deficit of $318,919,707$372.9 million as of JuneSeptember 30, 2019.

The As reflected in our Amended 2018 Annual Report, we reported a net loss of $18.0 million for the year ended December 31, 2018. As of September 30, 2019, our cash balancebalances, including $1.1 million of restricted cash, of the Company at June 30, 2019, was $4,482,313.

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were $6.4 million.

Operating activities

Net cash used in operating activities of $10,441,210We believe that we will not have sufficient resources to fund our operations and meet our obligations for the sixtwelve months ended June 30, 2019, duefollowing the filing of this Report. Our software platforms require ongoing funding to an increasecontinue the current development and operational plans and we will continue to expend substantial resources for the foreseeable future in accounts receivableconnection with the continued development of $25,190,857, offset by a decrease in accounts payableour software platforms. These expenditures will include costs associated with research and customer depositsdevelopment activity, corporate administration, business development, and marketing and selling of $6,936,552, a decrease in net billings in excess of revenues and deferred revenue of $2,000,430 and a decrease in accrued expenses andour services. In addition, other payables for $1,644,320.

unanticipated costs may arise.

As a result, we believe that additional capital will be required to fund our operations and provide growth capital to meet our obligations. Accordingly, we will have to raise additional capital in one or more debt and/or equity offerings. There can be no assurance, however, that we will be successful in raising the necessary capital or that any such offering will be available to us on terms acceptable to us, or at all. If we are unable to raise additional capital that may be needed, this would have a material adverse effect on the Company. Furthermore, the recent decline in the market price of our common stock, coupled with the stock’s delisting from the Nasdaq Stock Market, could make it more difficult to sell equity or equity-related securities in the future at a time and price that we deem appropriate. The factors discussed above raise substantial doubt as to our ability to continue as a going concern within one year after the date that this Report is issued.
Cash Flows
The following table summarizes net cash provided by (used in) operating, investing, and financing activities for the nine months ended September 30, 2019 and 2018:
Nine Months Ended
September 30,
(In thousands)20192018
Net cash used in operating activities$(14,715)$(3,900)
Net cash used in investing activities(8,742)(2,189)
Net cash provided by financing activities23,406 11,090 
Effect of exchange rate differences on cash, cash equivalents, and restricted cash(80)126 
Increase (decrease) in cash, cash equivalents, and restricted cash$(131)$5,127 
Cash flows from operating activities
Cash used in operating activities was $10,441,210$14.7 million for the sixnine months ended JuneSeptember 30, 2019, compared towhich was the result of a net loss of $55.7 million for the period, adjusted for noncash transactions, including depreciation and amortization of $9.1 million; allowance for doubtful accounts of $3.6 million; the amortization of deferred financing costs and debt discount accretion of $0.7 million; share-based compensation of $10.4 million; and shares issued for services of $1.7 million; and $7.3 million of cash provided by changes in operating assets and liabilities.
Cash used in operating activities of $952,476was $3.9 million for the sixnine months ended JuneSeptember 30, 2018, which was the result of a net loss of $12.5 million for an increasethe period, adjusted for noncash transactions, including depreciation and amortization of $9,488,734 or 996%.

Investing$3.0 million; the amortization of deferred financing costs and debt discount accretion of $0.2 million; share-based compensation of $5.8 million; and shares issued for services of $0.3 million; offset by the change in fair value of derivatives of $1.3 million; and $0.6 million of cash provided by changes in operating assets and liabilities.

Cash flows from investing activities

Net cash

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Cash used in investing activities was $8.7 million and $2.2 million for the sixnine months ended JuneSeptember 30, 2019 was $5,973,438, an increaseand 2018, respectively. Cash used in 2019 is primarily related to the purchase of $4,095,961, or 218% compared to $1,877,477 in the same period in 2018. This change was mainly the result of the purchase$4.8 million of property, equipment, and capitalized software of $1,650,013,development, $2.7 million used to fund the issuance ofYonder Media notes receivable, and $1.3 million used in business combinations. Cash used in 2018 is related to purchases of $2,700,000 to Yonder Mediaproperty, equipment, and effect of the business combinations of $1,562,636.  

Financingsoftware development.

Cash flows from financing activities

Net cash

Cash provided by financing activities was $23.4 million for the sixnine months ended JuneSeptember 30, 2019, primarily from the $35.9 million raised in the public offering, net of financing-related fee, and 2018, was $14,443,138 and $8,484,428, respectively, an increasethe $27.4 million of $5,958,710 or 70.2%. This increase was primarily the result of the receipt of $25,000,000 innet proceeds from the senior debt from Post Road Group,issuance of the Senior Secured Debt, partially offset by the repayment of $11,669,963the Senior Secured Debt, including prepayment penalties.
Cash provided by financing activities was $11.1 million for the nine months ended September 30, 2018, primarily from $5.7 million related to Fortressthe exercise of warrants and options and from $5.5 million of net proceeds from the issuance of common stock in connection with the iPass transaction in February 2019.

our public offering.

Effect of exchange ratesrate differences on cash, cash equivalents, and restricted cash

Effect of exchange rates on cash, cash equivalents, and restricted cash for the sixnine months ended JuneSeptember 30, 2019 was a loss of $28,541,$0.1 million, compared to a gain of $42,185$0.1 million for the same period innine months ended September 30, 2018.

Indebtedness
As of September 30, 2019, the Company's total indebtedness, excluding lease liabilities, was $0.9 million comprised of promissory notes of $0.5 million and a resultrelated party loan of $0.4 million.
Off-Balance Sheet Arrangements
The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company entered into the Connectivity Agreement with 3UK on July 23, 2019. Under the Connectivity Agreement, the Company is obligated to pay 3UK $0.6 million dollars for the implementation of the above activities,3UK MVNO, and for monthly services provided, based on usage, after the six months ended June3UK MVNO is launched, which management anticipates to be in the third quarter of 2021. Management is currently negotiating with 3UK to amend the Connectivity Agreement to eliminate some of the invoicing functionality of the 3UK MVNO, which will reduce the Implementation Fee to $0.4 million, however, that amendment has not been executed as of the date this Report was filed. The Implementation Fee is payable upon the satisfactory completion of certain agreed upon milestones. As of September 30, 2019, wenone of those milestones had cash, cash equivalentsbeen achieved.
Concurrent with the execution of the Connectivity Agreement, the Company entered into the Credit Voucher Agreement with PCCW under which the Company is obligated to purchase a credit voucher for $30.7 million. The credit voucher will be used to offset certain monthly service charges incurred under the Connectivity Agreement. As of September 30, 2019, $0.6 million of the purchase price has been recorded in accrued expenses and restricted cashother current liabilities in the condensed consolidated balance sheet. The remaining $30.1 million unconditional purchase obligation is due and payable following the launch date of $4,482,313 a net decrease in cash, cash equivalentsthe 3UK MVNO, where after the Company is required to remit the amount of the credit voucher used to offset monthly charges incurred under the Connectivity Agreement to PCCW each quarter.
See Note 10. Commitments and restricted cash of $2,000,051 since December 31, 2018.

Off- Balance Sheet Arrangements

We do not have anyContingencies for additional details about these 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.

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arrangements.

Item 3. Quantitative and Qualitative Disclosures aboutAbout 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 subjecta “smaller reporting company” as defined by regulation S-K and, as such, are not required to interest rate risk through our Credit Agreement with Post Road Group, which bears interest at a rate of LIBOR plus 8.5%.

provide the information contained in this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of JuneSeptember 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 Officerprincipal executive officer and Principal Financialprincipal financial and Accounting Officer,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.Act. Based on the evaluation, the Company’s Principal Executive Officerprincipal executive officer and Principal Accounting Officerprincipal financial and accounting officer have concluded that, in light of the previously disclosed material weaknesses described below, the Company’s disclosure controls and procedures were not effective as of JuneSeptember 30, 2019. In light of the previously issued material weakness described below, the Company has performed additional analysis and other remediation efforts, described below, to ensure the financial statements are prepared in accordance with GAAP.

Changes in Internal Control Over Financial Reporting

We previously identified and disclosed in our Amended 2018 Annual Report on Form 10-K formaterial weaknesses related to:
•Ineffective design, implementation and monitoring of information technology general controls pertaining to the fiscal year ended December 31, 2018, aCompany’s change management process;
•Inadequate and ineffective management assessment of internal control over financial reporting, including insufficient experienced resources to complete the documentation of internal control assessment; and
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•Entity level controls were not effective due to certain executive management “tone at the top” issues which contributed to an ineffective control environment and to deficiencies aggregating to 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.

weaknesses.

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 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;followed; and (iv) enhanced our quarterly reporting on the remediation measures to the Audit Committee of the Board of Directors. Management believes the Company has taken significant steps towards the remediation of the identified material weaknesses, as of JuneSeptember 30, 2019.

We also continue

To address management's assessment of inadequate and ineffective internal control over financial reporting, we are continuing to develop certainadditional remediation steps to address the material weakness discussed above to improve our assessment of internal control over financial reporting. As of June 30, 2019, these efforts are ongoing.

weakness.

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 reportingweaknesses described above 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.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not presently engaged

As of the date of the filing of this Report, Pareteum and its subsidiaries are currently defendants in any active materialvarious legal actions and asserted claims arising in the normal course of business. We anticipate that we will become involved in new litigation or regulatory proceedings and no such proceedings are contemplated. Nevertheless,matters from time to time the Company may be subject to legal actions and claims in the ordinary course of business.future. We have previously received,will incur legal and related costs concerning litigation and may, infrom time to time, determine to settle some or all of 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, andcases, regardless of the outcome,assessment of our legal position. The amount of legal defense costs and settlements in any period will depend on many factors, including the status of cases, the number of cases that are in trial or about to be brought to trial, and the opposing parties’ aggressiveness in pursuing their cases and their perception of their legal position. For information concerning material litigation can have an adverse impact on us becauseactions and proceedings against the Company, see Note 10. Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of defense and settlement costs, diversion of management resources, and other factors.

this Report, which is incorporated herein by reference.

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”“Risk Factors” of our Amended 2018 Annual Report; in our Annual Report on Form 10-K for the year ended December 31, 2018.2019 filed with the SEC on March 12, 2021; and in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on June 17, 2021. These Risk Factorsrisk 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

None. 

Other than as set forth below or as previously disclosed in our filings with the SEC, we did not sell any equity securities during the three months ended September 30, 2019 in transactions that were not registered under the Securities Act. The issuance of securities in the transactions described below were each exempt from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder.
During the Company’s third quarter ended September 30, 2019, the Company issued 10,000 shares of its common stock in an unregistered transaction in connection with the receipt of certain investor relations advisory services, 250,000 shares for technical-related consultancy services and 1,211,439 shares for acquisition related services.

Item 3. Defaults upon Senior Securities.

None.

Securities
As previously disclosed, upon its entry into each of the Forbearance Agreement on November 30, 2020 (as subsequently amended) and the New Forbearance Agreement on May 20, 2024, the Company admitted that it was in default of several obligations under the Senior Convertible Note and the related securities purchase agreement, including as a result of:
a.the Company’s failure to have caused either (i) the conversion or exchange of all shares of the Redeemable Preferred Stock into shares of the common stock or (ii) the extension of any mandatory redemption date, final maturity date or other applicable repurchase obligation with respect to such Redeemable Preferred Stock by the October 1, 2020 deadline required under the Senior Convertible Note;
b.the Company’s failure to have obtained the approval of its stockholders of the issuance of the shares of common stock underlying the Senior Convertible Note and the related warrant by October 31, 2020, as required by the Senior Convertible Note and the related securities purchase agreement;
c.the Company’s failure to have timely filed all reports required to be filed with the SEC pursuant to the Exchange Act, as required by the Senior Convertible Note and the related securities purchase agreement;
d.the suspension from trading and failure of the common stock to be listed for trading on an eligible national securities exchange for a period of three consecutive trading days, as prohibited by the Senior Convertible Note;
e.the Company’s failure to have filed restated financial statements with the SEC for (A) the fiscal year ended December 31, 2018, (B) the quarter ended March 31, 2019 and (C) the quarter ended June 30, 2019, in each case on or prior to the October 31, 2020 deadline under the Senior Convertible Note;
f.the Company’s failure to have provided notice of the above and other events of default under the Senior Convertible Note and the related warrant and securities purchase agreement; and
g.the Company’s failure to have maintained the minimum liquidity required by the Senior Convertible Note since the lender’s foreclosure on $6 million previously maintained in a blocked account.
In addition, the Company had not made required payments of interest under the Senior Convertible Note of (i) $0.3 million on April 1, 2021, or (ii) $0.2 million on May 1, 2021. Under the New Forbearance Agreement, the lender acknowledged such defaults and agreed not to exercise any right or remedy under the Senior Convertible Note or the related securities purchase agreement, warrant or security documents, including its right to accelerate the aggregate amount outstanding under the Senior Convertible Note, until the Outside Date, as the same is extended from time to time under the terms of the New Forbearance Agreement.
Additionally, the parties also agreed that the principal amount outstanding under the Senior Convertible Note would be increased by certain paid-in-kind amounts in full satisfaction of the Company’s obligation to make payments of interest to the lender on each of April 1, 2021 and May 1, 2021, which amounts were not paid by the Company in cash or common stock. In consideration of the lender’s agreement to enter into the New Forbearance Agreement and agree to certain amendments to the Senior Convertible Note, the
40
Company agreed to pay the lender a fee in the amount of $1.5 million. Accordingly, following these increases in the principal amount payable, but applying against the outstanding principal and such fee the $6.0 million previously maintained in certain blocked against that was foreclosed upon by the lender, the total amount of principal outstanding under the Senior Convertible Note as of the date of the New Forbearance Agreement was approximately $13.5 million. As of the date of this Report, the total amount of principal outstanding under the Senior Convertible Note is approximately $13.5 million

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

None.

30

None.
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Table of Contents

Item 6. Exhibits

(a)Exhibits
(a)Exhibits

Placement Agency Agreement between Pareteum Corporation and Dawson James Securities, Inc. (incorporated by reference to Exhibit 1.1 to Form 8-K filed on September 23, 2019).
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to Form 8-K filed on September 23, 2019).
Form of Warrant (incorporated by reference to Exhibit 4.2 to Form 8-K filed on September 23, 2019).
Form of Placement Agency Warrant (incorporated by reference to Exhibit 4.3 to Form 8-K filed on September 23, 2019).
Waiver and First Amendment to Credit Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K filed on August 23, 2019).
Form of Securities Purchase Agreement among Pareteum Corporation and certain investors (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 23, 2019).
Certification of the principal executive officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Certification of the principal financial and accounting officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
101.INS  XBRL Instance Document
101.SCH
101.SCHXBRL Taxonomy Extension Schema Document
101.CAL
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LAB
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PRE
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

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* Filed Herewith.
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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
PARETEUM CORPORATION
Date: August 9, 2019By  /s/ Robert H. Turner
Date: July 8, 2021ByRobert H. Turner/s/ Bart Weijermars
Executive ChairmanBart Weijermars
Interim Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 2019July 8, 2021By/s/ Edward O’DonnellLaura Thomas
Edward O’DonnellLaura Thomas
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)

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