UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

001-35360

(Commission file No.)

PARETEUM CORPORATION 

(Exact name of registrant as specified in its charter)

Delaware	95-4557538
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1185 Avenue of the Americas, New York, NY 10036 

USA

(Address of principal executive offices) (Zip Code)

+ 1 (646) 975-0400

(Registrant’s telephone number, including area code)

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

None

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

Common Stock, $0.00001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  ¨  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  ¨  No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ¨  No  x

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submit 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 such files). Yes ¨  No  x

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ¨   No x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨   No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2020, was approximately $82 million based on the closing sale price of the Company’s common stock on such date of $0.62 per share, as reported by the Nasdaq Capital Market.

As of June 8, 2021, there were 141,778,392 shares of common stock outstanding.

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Pareteum Corporation

Form 10-K

For the fiscal year ended December 31, 2020

TABLE OF CONTENTS

Note on Forward-Looking Statements

PART I		6
Item 1.	Business	6
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosure
PART II		28
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6.	Selected Financial Data	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Financial Statements and Supplementary Data	43
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	102
Item 9A.	Controls and Procedures	102
Item 9B.	Other Information	103
PART III		104
Item 10.	Directors, Executive Officers and Corporate Governance	104
Item 11.	Executive Compensation	111
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	115
Item 13.	Certain Relationships and Related Transactions, and Director Independence	116
Item 14.	Principal Accountant Fees and Services	117
PART IV		118
Item 15.	Exhibits and Financial Statement Schedules	118

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, including the documents incorporated by reference in this Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (this “Annual 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 Annual 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 Securities and Exchange Commission ("SEC") and other lawsuits;

•the outbreak and impact of the novel coronavirus ("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;

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•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;

•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 Annual Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report.

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 Annual Report are based on information available to us on the date of this Annual 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 Annual Report.

AVAILABLE INFORMATION

We maintain a corporate website with the address www.pareteum.com. We intend to use our website as a regular means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD promulgated by the SEC. Such disclosures will be included on the website under the heading “News– Press Releases” and “Investors – News.” Accordingly, investors should monitor such portions of the website, in addition to following the Company’s press releases, SEC filings, public conference calls and webcasts. We are not incorporating information contained in the website by reference into this Annual Report.

We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including us, at https://www.sec.gov. We make available, free of charge, through our website, our reports, proxy and information statements and other information, and any amendments to these reports, as soon as reasonably practicable after electronically filing such material with, or furnishing such material to, the SEC.

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PART I

In this Annual Report, references to “Pareteum,” the “Company,” “we,” “us” and “our” refer to Pareteum Corporation, a Delaware corporation, and its consolidated subsidiaries.

Item 1. Business

Overview

Pareteum Corporation (OTC: TEUM) is a cloud software communications platform company with a mission - to Connect Every Person and Every(Thing)™.

Millions of people and devices are connected around the world using Pareteum’s global cloud software communications platform, enhancing their mobile experience. Pareteum’s goal is to unleash the power of applications and mobile services, which 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-stage innovators, developers, Internet-of-Things (“IoT”), and telecommunications infrastructure providers.

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 vast. Service providers, brand marketing companies, and enterprise and IoT providers use Pareteum’s cloud communication services and turnkey solutions featuring relevant content, applications, and connectivity worldwide. Pareteum integrates a variety of disparate communications methods and services and offers them to customers and application developers, allowing communications to become a value-added service. We believe that this is a major strategic goal 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 internally-developed software and intellectual property, which provides our customers with flexibility in how they use our products and allows us to be market-driven going forward. We have been granted more than 70 patents related to techniques and processes that support our cloud software and communications platform solutions. Our platform services partners (whose technologies are integrated into our cloud) include: Hewlett Packard Enterprise, IBM, AT&T, Amazon Web Services, Sonus, Veniam, Oracle, Microsoft, NetNumber, Affirmed Networks and other 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 (“MVNO,” “MVNE” and “MVNA”), Smart Cities, and application developer markets, each in need of mobile platforms, management and connectivity. These sectors need Communications Platform-as-a-Service (“CPaaS”), which Pareteum delivers.

Coronavirus Pandemic

In March 2020, COVID-19 began spreading across the globe and was declared a pandemic by the World Health Organization; the President of the United States (“U.S.”) declared this a national emergency. The economic effects of the pandemic and resulting social changes are not predictable. There are a number of uncertainties arising from COVID-19 that have impacted and could continue to impact our operating results: the effectiveness of COVID-19 mitigation measures, the duration of the pandemic, the pace and effectiveness of vaccination efforts, and the effect on global economic conditions. Likewise, business operational changes, work from home, school from home and shop from home all impact consumer confidence and the availability of supply chains to support these activities. We expect our operating and financial results to continue to be impacted by COVID-19 for the duration of the pandemic.

We have seen an increase in usage consumption, particularly for messaging and consumer mobile services during the pandemic. However, our products and services for customers in the travel and hospitality industries have been and continue to be negatively impacted. We expect volatility in customer demand and consumption habits as the pandemic continues, and we may experience constrained supply or curtailed customer demand that could adversely impact our operations. Specifically, we have seen slowing sales cycles, including customers and prospective customers delaying contracts or renewals. Customers in the pipeline are uncertain and may minimize commitments related to the products and services we offer.

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Innovative Use Cases

Many sectors, from traditional network operators to disruptive technology and data-driven companies, have found many innovative use cases for our platforms. Beyond simply enabling communications between people and devices, the Company’s platforms are designed to enable any of the following, among others:

•Smart homes, including smart appliances, smart energy meters, wearables etc.

•Connected cars

•Smart cities

•Smart logistics and supply chains

•Smart healthcare applications

In addition to the foregoing, as a result of acquisitions completed in October 2018 and February 2019, the Company has acquired certain intellectual property portfolios (the “Acquired IP Rights”), which it now manages through various wholly owned direct and indirect subsidiaries. The Company utilizes patent, copyright, trademark, and trade secret laws in the U.S., Europe, and elsewhere to protect the Acquired IP Rights.

Business Model

At Pareteum, our mission is to “Empower Communications Service Providers (“CSPs”), Enterprises and Developers to simply create and control their own wireless communications products and experience through our powerful combination of software, services and global connectivity.” We believe that open software and interfaces for communications services will create more innovation, economic freedom, and opportunity equality worldwide, just like the internet did for information. Our value proposition intersects with numerous applications and industries. It is our strong belief that no other company in the CPaaS market offers similarly broad value in such a comprehensive way.

However, an easily accessible open mobility system for the world is challenging to scale because it requires a “network effect.” The network effect is the principle that a service yields increased value as it grows. The essence of this point is that our business and our services will grow in value as we grow and scale. We aim to achieve that growth by providing the marketplace exchange on which these communications and transactions take place, and in doing so we attract new users and more customers.

To achieve our desired growth, we use our managed services solutions as a launching pad from which to grow our Pareteum Experience Cloud Platform by offering mobility, engagement, intelligence and control products and services to our existing and prospective customers. This process is already well underway, including with our anchor customer Vodafone.

Go-to-Market and Growth Strategy

Pareteum is in growth mode, which we expect to achieve through a combination of organic growth as well as targeted mergers and acquisitions, such as the 2018 and 2019 Artilium, iPass and Devicescape acquisitions.

Pareteum seeks to continue winning new long-term contractual business. We expect this pace to increase throughout 2021 and beyond. Our focus is on selling and implementing new communications services and IoT opportunities as fast as reasonably possible, as the world of connected devices and people continues to rise on a daily basis.

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Our go-to-market strategy uses a four-phase approach:

Phase 1:	Continue to attract new subscribers across all verticals to all our platforms through direct sales, existing channel partnerships and new initiatives such as referral programs.
Phase 2:	Continue to on-board new communications services providers, multiplying our own growth, largely through business development and direct sales in each of our six defined sales regions (North America, Latin America, Europe, Middle East, Africa, and Asia Pacific).
Phase 3:	Drive adoption through a twin approach. First, we will be on-boarding more “things” (whether Subscriber Identification Module (“SIM”) cards, handsets, devices, vehicles etc.) to our Pareteum Experience Cloud Platform, as our initial user base. Second, we will be drawing in new and existing customers and end-users to add and consume more services into our existing Pareteum Experience Cloud Platform. These will be people with the greatest pain point, who are underserved by the current mobility networks and applications out in the market (including in developing markets).
Phase 4:	At this stage, our strategic Pareteum Experience Cloud Platform customers will have their own go-to-market strategy, creating shared value, ranging from traditional consumer strategies to sophisticated B2B and B2B2C strategies, driving and expanding our ecosystem to new heights.

The phases described above are already being implemented, in parallel as far as possible, for the fastest, most sustainable growth, highlighting our strategy for accelerating the world’s shift to an open mobility and application network. When we’re successful, we believe it may accelerate the pace of innovation in the world, create more economic freedom, and provide better mobility services to billions of underserved people.

We also follow an organic growth plan focused on three core areas:

•Exploring cross-sale and up-sale opportunities among Pareteum’s recent customer acquisitions – focused on offering new products and services that complement or supplement their existing or future needs so to accelerate their strategy;

•Platform evolution – enhance and expand existing products and services; and

•Geographic expansion—focusing on entering new markets, such as South East Asia and Latin America.

Employees

As of December 31, 2020, the Company had 200 total employees worldwide, of which 199 were full-time employees.

Research & Development

Pareteum’s research and development function attempts to ensure that its communications platforms grow in line with customer needs and technological advancement, and remain resilient, reliable and secure. Product development expenses for the years ended December 31, 2020 and 2019 were $10.3 million and $13.0 million, respectively.

Intellectual Property

Pareteum relies on a combination of patents, copyright, trademark, and trade secret laws in the U.S., Europe and elsewhere. The Company protects its brand and reputation through the exploitation of a number of registered and unregistered trademarks and service marks. Pareteum has a patent portfolio of over 70 granted patents. The current patent portfolio includes, but is not limited to, a set of developments embracing areas such as advanced network characterization and migration, automated configuration for network appliances, method and system for changing security information in a computer network, method and system for verifying and updating the configuration of an access device during authentication, service quality monitoring process, system and method for enabling wireless social networking, and system and method for network curation, all expiring through 2034, and subject to renewals.

Pareteum further protects its intellectual property rights by requiring all its employees and independent contractors involved in the development of intellectual property to assign those rights to the Company, to the greatest extent permitted by applicable law.

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Sales and Marketing

Pareteum’s sales and marketing teams work together to identify and establish relationships with prospective customers, acquire new ones and expand relationships with existing customers by encouraging their consumption of additional services and products existing in our Pareteum Experience Cloud Platform. Our marketing team generates leads through our website, online marketing campaigns, webinars, white papers, public relations and other outbound lead development efforts.

We engage with prospective and existing customers through an enterprise sales approach. Our sales executives directly engage C-Level executives and other senior business, product, and technical decision makers responsible for the end-user experience and financial results at their companies. Our sales executives work to educate these decision makers and their teams about the benefits of using the Pareteum Experience Cloud Platform to launch and scale robust communications experiences.

Customers

Our customers are tier 1 communications service providers that provide telecommunications services to end-users, Fortune 1,000 companies, mobile virtual network enablers of all sizes, software developers, banks, financial and online payment services companies, global consulting companies, mobile marketing platforms, telecommunications applications, and many others.

A customer advocate is assigned to each new contract, and a multi-step process of hand-off from sales to service is handled by this distinct team that is made up of experienced staff around the globe and supported by back office professionals throughout the U.S., United Kingdom ("U.K."), Europe, the Middle East, Africa, Asia Pacific and Latin America.

Pareteum provides multiple levels of customer support, including 24/7 support, to ensure service levels and network reliability to meet the expectations and requirements of Pareteum’s customers. We believe that customers that use the Pareteum Experience Cloud Platform value our network reliability and availability, responsive customer support, competitive pricing, and collaborative approach.

The Company has significant customers and the loss of these customers could have an adverse effect on our business, results of operations and financial condition. For the year ended December 31, 2020, two significant customers each individually accounted for 21% and 20% of our revenue and for the year ended December 31, 2019, one customer accounted for 20% of our revenue.

Competition

We compete with telecommunications solution providers, cloud software and service providers, communications’ platforms, and the in-house IT and network departments of communications companies as well as firms that provide IT services (including consulting, systems integration and managed services), software vendors that sell products for particular aspects of a total information system, software vendors that specialize in systems for particular communications services (such as Internet, land-line and mobile services, cable, satellite and service bureaus) and companies that offer software systems in combination with the sale of network equipment.

We believe that our ability to compete depends on several factors, including:

•the development of software products by others that are competitive with our products and services;

•the price at which others offer competitive software and services;

•the ability to make use of the networks of mobile network operators;

•the technological changes of telecommunication operators affecting our ability to run services over their networks;

•the ability of competitors to deliver projects at a level of quality that rivals our own;

•the responsiveness of our competitors to customer needs; and

•the ability of our competitors to hire, retain and motivate key personnel.

A number of our competitors have long operating histories, large customer bases, substantial financial, technical, sales, marketing and other resources, and strong name recognition. Current and potential competitors have established, and may establish in the future, cooperative relationships among themselves or with third parties.

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The CPaaS market is moving quickly. We believe that the key competitive differentiators for Pareteum in the near-term will be:

•Scale and international reach of connectivity;

•Comprehensiveness of platform offerings;

•Ease of deployment and implementation; and

•Scalability and reliability of service.

Pareteum considers itself well-placed to be judged on those criteria. The Company is confident that its network of global and international connectivity partners will enable it to access markets that currently are under-served and compete equally with larger competitors in mature markets. In addition, Pareteum is confident that few other players have the breadth of value-added services to complement the core connectivity platforms, resulting in competitive positioning for each of the areas where it competes:

•MVNE services for CSPs: In a fragmented market without large competitors, Pareteum is well-known in the industry for a wide range of platform functionalities and high-flexibility to adapt to customer needs and accommodate complex requirements at a competitive price. As a result, Pareteum is serving leading CSPs in Europe, Asia Pacific, North America, Latin American and Africa, untapping solid growth potential in each of these markets.

•Wi-Fi connectivity aggregation for enterprise customers: Pareteum has built an extensive Wi-Fi footprint with exclusive deals, covering more hotels, airports, business, leisure and outdoor areas. Pareteum offers a unified user experience with seamless access across Wi-Fi hotspots to blue chip customers, with a variety of successful business models.

•Short Message Service Application-To-Person (“SMS A2P”) messaging for Enterprise customers: Leveraging global connectivity agreements enabling competitive price points and a strong competitive position in Europe, Pareteum offers fully programmable business-to-consumer messaging across a wide range of mobile and social channels with simple Application Programming Interface (“API”) integration.

•IoT connectivity platform for IoT solution providers: Leveraging on the above capabilities, Pareteum is in an advantageous position to build a unique proposition for IoT solution providers that would benefit from the large growth potential in IoT. The foundations are in place and Pareteum has already received very positive commercial traction.

Nevertheless, some of our competitors have greater financial, technical and sales and marketing resources, as well as greater brand and market awareness, and consequently may be able to react more quickly to competitive pressures. As we execute on our growth strategies, and enter new markets, or disrupt markets and replace incumbents, we expect competition to become more intense.

One key tenet in our competitive strategy, however, is to actually lower the competitive barriers to market for new customers to create new mobility and communications applications and businesses. We intend to disrupt existing markets and have the advantage of quick time-to-market for those newly enabled business models and opportunities. These include, for example:

•Uniquely tailored data services such as unlimited social media, messaging apps or streaming music services.

•Global roaming connectivity without local infrastructure: e.g., business executives using a multi-SIM worldwide phone.

•Creation of personal, branded, mobile services.

•One-stop shop for bundles of IoT and machine-to-machine (“M2M”) services: through plug-ins to multiple vertical applications and specialized platforms. One-stop shop for current and next-gen Global System for Mobile (“GSM”) communications and Wi-Fi connectivity, deployed seamlessly through our CPaaS solutions.

Regulatory

Pareteum is subject to several U.S. federal, state and foreign laws and regulations that involve matters central to our business. These laws and regulations involve privacy, data protection, intellectual property, telecommunications, trade and export sanctions or other subjects. Many of the laws and regulations to which we are subject are still evolving and may be tested or varied in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving markets in which we operate. Because applicable international laws and regulations have continued to develop and evolve rapidly, it is possible that we, our products or our platform may not be, or may not have been, compliant with each such applicable law or regulation.

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Privacy and Data Protection

The regulatory framework for privacy, data protection and security issues worldwide is complex and rapidly evolving and as a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. These data privacy laws and regulations are especially relevant and applicable to us as a technology company because we process vast amounts of personal and non-personal data on behalf of our customers and we also host significant and increasing amounts of data in our cloud solutions. The application of existing laws to cloud-based solutions is particularly uncertain and cloud-based solutions may be subject to further regulation, the impact of which cannot be fully understood at this time. Moreover, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data processing and privacy practices. Complying with these various laws and regulations may cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

Because the interpretation and application of many privacy and data protection laws along with contractually imposed industry standards are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform capabilities. If so, in addition to the possibility of fines, lawsuits, regulatory investigations, imprisonment of company officials and public censure, other claims and penalties, significant costs for remediation and damage to our reputation, we could be required to fundamentally change our business activities and practices or modify our services and platform capabilities and/or implement additional organizational and technical measures, any of which could have an adverse effect on our business.

Any failure by us, our suppliers or other parties with whom we do business to comply with our contractual commitments or policies or with federal, state, local or international regulations could result in proceedings against us by governmental, regulatory and supervisory authorities or others. In many jurisdictions (especially the European Union ("EU")), enforcement actions and consequences for noncompliance are rising. In the U.S., these include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies, state attorneys general and legislatures and consumer protection agencies. In addition, security advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards with which we must legally comply or that contractually apply to us. If we fail to follow these security standards even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs.

Internationally, most jurisdictions in which we operate have established or strengthened their own data security and privacy legal framework with which we and our customers must comply, including but not limited to the EU, the U.K. and Switzerland. The EU and U.K. data protection landscape changed significantly in 2018, resulting in significant operational costs for internal compliance and risk to our business. The EU adopted the General Data Protection Regulation (“GDPR”), which went into effect in May 2018, and together with national legislation, regulations and guidelines of the EU, U.K. and Switzerland, ushered in a new and complex data protection regime including principles, rights and obligations with extraterritorial reach of the EU, U.K. and Swiss data protection authorities. The European data protection and security laws, including GDPR, provide for extensive data subject rights, robust obligations on data controllers and processors and additional requirements on businesses to put in place data protection and security compliance programs, systems and processes. Continued evolvement of, and varied implementation and interpretation of such European data protection and security laws has increased, and continues to extend, our obligations and potential liability for failing to meet these requirements and our obligations under such laws. Among other requirements, the GDPR (and its U.K. equivalent commonly referred to as the “U.K. GDPR”) regulates transfers of personal data (subject to such laws) from the European Economic Area (“EEA”) and the U.K. to the U.S. as well as other countries outside the EEA and the U.K. which are deemed not to provide adequate standards of data protection to the levels required by GDPR. The recent European Court of Justice judgement in July 2020 which nullified the EU-U.S. Privacy Shield, its critical remarks about lack of data protection safeguards for non-US nationals, and subsequent and consequent measures taken by European data protection regulators in response to this judgement, has increased uncertainty in respect of data transfers from the EEA, U.K. and Switzerland to the U.S., creating serious challenges, uncertainties and increased costs for businesses such as ours. The GDPR and U.K. GDPR also impose numerous privacy-related obligations and requirements for companies operating in the EU and the U.K. including requiring data controllers not to transfer personal data to U.S.-based processors unless they agree to certain legally binding processing obligations, greater control for data subjects (for example, the “right to be forgotten”), increased data portability for EU and U.K. consumers, data breach notification requirements and exposure to substantial fines for non-compliance. Under the GDPR and U.K. GDPR, fines of up to 20 million euros or 4% of the annual global revenue of the non-compliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s and U.K. GDPR’s requirements. Such penalties are in addition to any civil litigation claims by customers and data subjects. The frequency and quantum of fines imposed by EU and U.K. data protection regulators under GDPR and U.K. GDPR has been increasing since 2019. The GDPR and U.K. GDPR requirements apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries and affiliates, including employee personal data.

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On January 31, 2020, the U.K. ceased to be a member of the EU, an event generally referred to as “Brexit”. Following the end of the transition period on December 31, 2020, the U.K. left the EU Single Market and Customs Union, and is no longer subject to EU law or a party to the EU’s trade agreements. Effective from January 1, 2021, the free movement of persons, goods, services and capital between the U.K. and the EU, as it existed before December 31, 2020, ended and the EU and the U.K. now form two separate markets; two distinct regulatory and legal spaces. This will create barriers to trade in goods, services and to cross-border mobility and exchanges (including data) that did not exist prior to December 31, 2020.

Even though the U.K. reached an agreement with the EU on the terms of their future cooperation, as reflected in the EU-U.K. Trade and Cooperation Agreement ("TCA") and related documents, and the U.K. government has sought to reproduce the effects of the EU trading agreements and EU laws (including the implementation of U.K. GDPR) that previously applied to it, material changes took effect from January 1, 2021. It is unclear how the TCA will actually be implemented, how it will affect the nature of the U.K.’s relationship with the EU and how it will impact our business. It is also unclear how the U.K.’s new arrangements with other countries will actually be implemented and the coverage of those agreements. The effects of this uncertainty will continue to impact the political and economic environment in the U.K. and across other EU member states, and may impair our ability to transact business. This uncertainty could also continue to affect the U.K., the EU and worldwide economic or market conditions and contribute to instability in global financial markets, and the value of the pound sterling or other currencies, including the Euro.

Additionally, now that the U.K. and EU regulatory and legal spaces are distinct and separate, the regulatory frameworks of the U.K. and the EU may subsequently change and potentially divergent laws and regulations may develop, including those relating to data protection and security. This may have adverse practical and/or operational implications for our business that involves data processing and cross-border data transfers, including the potential disruption to data transfers, additional compliance and operational costs and necessary operational changes.

Although the current arrangements between the EU and U.K. permit flow of data between these two regions for a period of up to 6 months from January 1, 2021, the European Commission has not yet made any determination as to whether U.K. is a safe country for personal data transfer. Even if such finding is made, with the U.K. not required to follow EU laws, there is an increased risk of divergence in data protection and security laws (and related guidance) between the U.K. and the EU, with the possibility of EU restricting data flows to the U.K. and vice versa. This has the potential to cause disruption to data transfers and our operations and result in additional compliance and operational costs.

Non-compliance with relevant data privacy laws, directives and regulations, such as the GDPR and U.K. GDPR, could result in proceedings against us by governmental regulatory and supervisory authorities, customers, suppliers, data subjects and others. We may also experience difficulty retaining or obtaining new European or multi-national customers due to the legal requirements, concerns about U.S. data protection safeguards for non-U.S. nationals, compliance cost, potential risk exposure and uncertainty for these entities and businesses, and we may experience significantly increased liability with respect to these customers pursuant to the terms set forth in our engagements with them.

U.S. federal and state laws in this area are also complex and developing rapidly. Many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security and data breaches, and the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal information and data security. In addition, laws in all 50 states require businesses to provide notice to customers whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. States are also constantly amending existing laws, requiring attention to frequently changing regulatory requirements. Further, California recently enacted the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020 and imposes obligations on companies that process personal information of California residents. The CCPA was amended prior to going into effect, and it is possible that further amendments will be enacted, but even in its current form it remains unclear how various provisions of the CCPA will be interpreted and enforced. Among other things, the CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.

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Telecommunications Regulations

Currently, few existing laws or regulations specifically apply to the Internet, other than laws generally applicable to businesses. Many Internet-related laws and regulations, however, are pending and may be adopted in the U.S., in individual states and local jurisdictions and in other countries. These laws may relate to many areas that impact our business, including encryption, network and information security, and the convergence of traditional communication services, such as telephone services, with Internet communications, taxes and wireless networks. These types of regulations could differ between countries and other political and geographic divisions both inside and outside the U.S. Non-U.S. countries and political organizations may impose, or favor, more and different regulation than that which has been proposed in the U.S., thus furthering the complexity of regulation. Certain countries have implemented, or may implement, legislative and technological actions that either do or can effectively regulate access to the Internet, including the ability of Internet Service Providers to limit access to specific websites or content. In addition, state and local governments within the U.S. may impose regulations in addition to, inconsistent with, or stricter than federal regulations. The adoption of such laws or regulations, and uncertainties associated with their validity, interpretation, applicability and enforcement, may affect the available distribution channels for, and the costs associated with, our products and services. The adoption of such laws and regulations may harm our business.

Corporate Information

Pareteum Corporation, a Delaware corporation, was originally formed in 2001 as Elephant Talk Communications Corp. as a result of a merger between Staruni Corporation (USA, 1962) and Elephant Talk Limited (Hong Kong, 1994).

Following approval at the Company’s 2016 annual stockholders’ meeting, the Company was rebranded and formally renamed “Pareteum Corporation.” Since November 12, 2020, prices for the Company’s common stock have been quoted on the OTC Markets Group Inc.’s Pink Open Market under the symbol "TEUM."

Pareteum currently has offices in the U.S., Spain, Indonesia, Germany, Belgium, the Netherlands and India and maintains a minor presence in other locations.

Pareteum®, the Pareteum logo, the strapline to “Connect Every Person and Every(Thing)™” and other trademarks or service marks of Pareteum, as well as those trademarks or service marks of the Artilium and iPass group companies, which appear in this Annual Report are the property of Pareteum Corporation or its subsidiaries. Trade names, trademarks and service marks of other companies appearing in this Annual Report are the property of their respective holders.

Acquisitions

Devicescape Asset Purchase

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 certain assets of Devicescape and assumed certain liabilities of Devicescape, such that Holdco continued as a surviving subsidiary of the Company holding the acquired assets and assuming those certain liabilities of Devicescape (the “Devicescape Purchase”). The Company paid cash consideration of $2.0 million and issued to the stockholders of Devicescape an aggregate of 400,000 shares of the Company’s common stock at a value of $1.7 million based on the Company's closing stock price on April 22, 2019, of $4.23 per share. See Note 2, Acquisitions and Disposition - Devicescape Asset Purchase in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for additional information.

iPass, Inc. Acquisition

On November 12, 2018, the Company entered into an Agreement and Plan of Merger (the “iPass Merger Agreement”) by and among the Company, iPass Inc. (“iPass”), and TBR, Inc., a wholly owned subsidiary of the Company (“TBR”). In aggregate, the Company issued 9,865,412 shares of common stock to the iPass stockholders in February 2019. iPass is a leading provider of global mobile connectivity, offering simple, secure, always-on Wi-Fi access on any mobile device. See Note 2, Acquisitions and Disposition - iPass, Inc. Acquisition in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for additional information.

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Financial Information About Segments

The Company has three operating segments, Legacy Pareteum, Artilium and iPass, which have been aggregated into one reportable segment. Segment information is prepared on the same basis that our chief operating decision-maker (“CODM”) manages segments, evaluates financial results, and makes key operating decisions, and for which discrete financial information is available. The CODM assesses performance of the Company’s major lines of business, MVNO, MVNE, Messaging, and Enterprise (“Business Lines”), based on revenue, however the lowest level of discrete financial information, including revenue, cost of sales, gross margin and earnings, is at the primary business units, which represent the Company’s operating segments. The CODM makes resource allocation decisions, primarily regarding the number of employees allocated, based on revenue, gross margin, earnings and cash flows on a consolidated basis. The CODM is not provided and does not use asset information when making operating decisions, assessing performance, or allocating resources. For additional information regarding our reportable segment, see “Note 1, Business and Summary of Significant Accounting Policies – Segment Reporting” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for additional information.

Item 1A.  Risk Factors

An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included in this Annual Report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all of your investment.

Risks Related to Our Business

The restatement of our previously issued financial statements contained in Amendment No. 1 to our Annual Report for the year ended December 31, 2018 on Form 10-K/A and in our Annual Report on Form 10-K for the year ended December 31, 2019, may lead to additional risks and uncertainties, including regulatory, stockholder or other actions, loss of investor confidence and negative impacts on our stock price.

On October 21, 2019, our board of directors determined that the Company’s financial statements that were included in its annual report for the year ended December 31, 2018 and quarterly reports for the quarters ended March 31, 2019 and June 30, 2019 (collectively, the “Non-Reliance Periods”) should no longer be relied upon. Similarly, related press releases, earnings releases, and investor communications describing the Company’s financial statements for the Non-Reliance Periods should no longer be relied upon. The Company restated its financial statements for the Non-Reliance Periods in the previously filed amendment to our Annual Report for the year ended December 31, 2018 on Form 10-K/A and the previously filed Annual Report on Form 10-K for the year ended December 31, 2019.

As a result of these restatements and associated non-reliance on previously issued financial information, we have become subject to a number of additional costs and risks, including unanticipated costs for accounting and legal fees in connection with or related to the restatement and the remediation of our ineffective disclosure controls and procedures and material weaknesses in internal control over financial reporting. Likewise, the attention of our management team has been diverted by these efforts. In addition, we have become subject to, and could also be subject to additional, stockholder, governmental, regulatory, or other actions or demands in connection with the restatement or other matters. Any such proceedings will, regardless of the outcome, consume a significant amount of management’s time and attention and may result in additional legal, accounting, insurance and other costs. If we do not prevail in any such proceedings, we could be required to pay damages or settlement costs. In addition, the restatement and related matters could impair our reputation or could cause our customers, stockholders, or other counterparties to lose confidence in us. Any of these occurrences could have a material adverse effect on our business, results of operations, financial condition and stock price. In connection with the restatement of our financial statements for the Non-Reliance Periods, our management identified material weaknesses in our internal control over financial reporting, as described in Item 9A, “Controls and Procedures” of this report. A material weakness is a deficiency, or combination of deficiencies in internal controls over financial reporting that results in a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Further, management determined that control deficiencies existed with respect to certain aspects of our historical financial reporting and, accordingly, management has concluded that management’s reports related to the effectiveness of internal and disclosure controls may not have been correct. As a result, loss of investor confidence and negative impacts on our stock price are possible.

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Our business may be adversely impacted by risks, or the public perception of the risks, related to the COVID-19 pandemic.

The outbreak of COVID-19 and response to control its spread have adversely affected the economies and financial markets of many countries, resulting in a global economic downturn. As a response to the spread of COVID-19 many countries, including the U.S., Great Britain and other jurisdictions in Europe, South America, and the Middle East where we have employees, have taken measures designed to limit the spread of COVID-19, including the closure of workplaces, restricting travel, prohibiting assembling, closing international borders and quarantining populated areas. Governments around the world have required residents to remain in their homes along with limitations on which businesses are allowed to open and the number of workers allowed at each site. Although many of these orders have been partially or fully lifted in certain jurisdictions, the full impact of these indefinite travel restrictions and alternative working arrangements are unknown, may negatively impact the productivity of our employee base, and may have a negative effect on our sales and operations functions, which could have an adverse effect on our business, operating results, and financial condition.

The continued spread of COVID-19 has had an adverse impact on the business of some of our customers while other customers in certain industries have seen an increase in customer demand. COVID-19 could still have an adverse impact on our business partners and third-party business partners.

While the full impact of the COVID-19 outbreak is unknown at this time, we are closely monitoring the developments and continually assessing the potential impact on our business. Our business may be adversely affected by the COVID-19 outbreak due to the following risks, any of which may lead to an adverse effect on our financial condition and results of operations:

•a number of our employees may be infected and/or subject to quarantine periods and may be unable to perform their duties and our offices may be forced to operate with a reduced workforce and/or be forced to close under the temporary emergency regulations. This may lead to ineffective control over our business and a lower work efficiency, productivity and financial performance;

•a reduced workforce, lack of international travel, and few face-to-face meetings with customers and potential customers may adversely affect our operations;

•we may experience difficulties in collecting amounts due from customers, including major customers, due to a downturn in their financial condition; and

•due to the COVID-19 pandemic, a significant number of our employees have moved to work from their homes and remotely access our IT networks. Such remote working mode creates the risk of attacking the end-point user stations, connection channels and gateways. These potential breaches of our security measures may harm our business.

Historically, a significant portion of our sales were conducted in person. Currently, as a result of the work and travel restrictions related to the COVID-19 pandemic, substantially all of our sales and professional services activities are being conducted remotely. As of the date of this Annual Report, we do not yet know the extent of the negative impact on our ability to attract, serve or retain customers. Furthermore, as a result of uncertainty due to the COVID-19 pandemic, as well as general economic uncertainty and associated macroeconomic conditions, existing and potential customers may choose to reduce or delay technology spending in response to the COVID-19 pandemic, or attempt to renegotiate contracts and obtain concessions, which may materially and negatively impact our operating results, financial condition and prospects. This could result in reductions in sales of our platform and services, longer sales cycles, reductions in subscription duration and value, slower adoption of new technologies and increased price competition. Any of these events could harm our business and operating results. In addition, there can be no assurance that cloud-based collaborative work management and productivity spending levels will increase following any recovery, which could have an adverse effect on our business, operating results, and financial condition.

The number of companies whose employees are working remotely as a result of the COVID-19 pandemic and the resulting government-ordered shutdowns has caused use of our platform to increase. If our data centers are unable to keep up with this increased usage, customers may experience delays or interruptions in service, which could result in the loss of customers who use our communications platform because of its reliability and performance, which could have an adverse effect on our business, operating results, and financial condition.

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Our independent auditor’s report contains an explanatory paragraph that expresses a substantial doubt about our ability to continue as a going concern.

Our independent registered public accounting firm’s report on our financial statements for the year ended December 31, 2020 contains a paragraph expressing substantial doubt about our ability to continue as a going concern. Based on our current projection of revenue, expenses, capital expenditures and cash flows, we will not have sufficient resources to fund our operations and meet the obligations specified in the documents governing our convertible financing for the next twelve months following the filing of this Annual Report. Our software platforms require ongoing funding to continue the current development and operational plans and we have a history of net losses. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the continued development of our software platforms. These expenditures will include costs associated with research and development activity, corporate administration, business development, and marketing and selling of our services. In addition, other unanticipated costs may arise. As a result, we believe that additional capital will be required to fund our operations. To access capital to fund operations and provide growth capital to meet the obligations under our outstanding convertible note, we may need to restructure our convertible indebtedness and raise capital in one or more debt and/or equity offerings. However, there can be no assurance 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 on terms acceptable to us, it could have a material adverse effect on the Company. In particular, a decline in the market price of our common stock, coupled with the delisting of our common stock from the Nasdaq Stock Market, could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

The current economic climate, especially in Europe, may have an adverse effect in the markets in which we operate.

Much of our customers’ business is consumer driven, and to the extent there is a decline in consumer spending, our customers could experience a reduction in the demand for their services and consequently affect the demand for our services and a decrease in our revenue, net income and an increase in bad debts arising from non-payment of our trade receivables. The potential adverse effects of an economic downturn include:

•reduced demand for services, resulting in increased price competition or deferrals of purchases, with lower revenue not fully compensated through reduced costs;

•risk of financial difficulties or failures among our suppliers;

•increased demand for customer finance, difficulties in collection of accounts receivable and increased risk of counterparty default;

•risk of impairment losses related to our intangible assets as a result of lower forecasted sales of certain products;

•increased difficulties in forecasting sales and financial results as well as increased volatility in our reported results; and

•end-user demand could also be adversely affected by reduced consumer spending on technology, changed operator pricing, security breaches and trust issues.

Uncertainties and risks associated with international markets could adversely impact our international operations.

We have significant international operations in Europe, and to a lesser extent in the U.S., Middle East and elsewhere. There can be no assurance that we will be able to obtain the permits and operating licenses required for us to operate, obtain access to local transmission facilities on economically acceptable terms, or market services in international markets. In addition, operating in international markets generally involves additional risks, including unexpected changes in regulatory requirements, taxes, tariffs, customs, duties and other trade barriers, difficulties in staffing and managing foreign operations, problems in collecting accounts receivable, political risks, fluctuations in currency exchange rates, restrictions associated with the repatriation of funds, technology export and import restrictions, and seasonal reductions in business activity. Our ability to operate and grow our international operations successfully could be adversely impacted by these risks.

We operate in a complex regulatory environment, and failure to comply with applicable laws and regulations could adversely affect our business.

Our operations are subject to a broad range of complex and evolving laws and regulations. Because of our coverage in many countries, we must perform our services in compliance with the legal and regulatory requirements of multiple jurisdictions. Some of these laws and regulations may be difficult to ascertain or interpret and may change from time to time. Violation of such laws and regulations could subject us to fines and penalties, damage our reputation, constitute a breach of our client agreements, impair our ability to obtain and renew required licenses, and decrease our profitability or competitiveness. If any of these effects were to occur, our operating results and financial condition could be adversely affected. Additionally, to serve our international markets, we maintain business entities in various jurisdictions around the world. Accordingly, we must maintain and operate these business entities in compliance with the applicable corporate, tax, employment and other laws of

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these various jurisdictions, which adds complexity to our operations. Our failure to maintain compliance with such laws and regulations could give rise to liabilities that could materially adversely affect our financial condition, results of operations and cash flows.

We may not be able to integrate new technologies and provide new services in a cost-efficient manner.

The telecommunications industry is subject to rapid and significant changes in technology, frequent new service introductions and evolving industry standards. We cannot predict the effect of these changes on our competitive position, our profitability or the industry in general. Technological developments may reduce the competitiveness of our networks and our software solutions and require additional capital expenditures or the procurement of additional products that could be expensive and time consuming. In addition, new products and services arising out of technological developments may reduce the attractiveness of our services. If we fail to adapt successfully to technological advances or fail to obtain access to new technologies, we could lose customers and be limited in our ability to attract new customers and/or sell new services to our existing customers. In addition, delivery of new services in a cost-efficient manner depends upon many factors, and we may not generate anticipated revenue from such services.

We may not be able to develop and successfully market our mobile telecommunications platform and services as planned.

Pareteum operates in an exceptionally competitive environment where there is continuous innovation and new development. We are required to be a top performer in over a dozen highly specialized domains to effectively compete with our competitors. Ongoing investments are required to stay ahead of the competition. The sales process for our platform and the deployment process may be complicated and very slow. We are highly dependent on convincing mobile network operators and mobile virtual network operators to believe that outsourcing their requirements to us is the best way to go. We are exposed to business risks associated with turnkey projects and the scalability of our service and support organization. Although our policy is to avoid or minimize risks, it cannot be ruled out that in certain cases events occur that may seriously impact us and our performance.

Implementation and development of our software platform business depends on our ability to obtain adequate funding.

Our software platforms require ongoing funding to continue our current development and operational plans and we have a history of net losses. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the continued development of our software platforms. These expenditures will include costs associated with research and development activity, corporate administration, business development, and marketing and selling of our services. In addition, other unanticipated costs may arise. When our available cash and cash equivalents become insufficient to satisfy our liquidity requirements, or if and when we identify additional opportunities to do so, we will likely seek to sell additional equity or debt securities or obtain additional credit facilities.

Failure to obtain such adequate financing could substantially delay our development, slow down current operations, result in loss of customers and adversely impact our results of operations. Additionally, the funds we need may not be available when we need them, on terms that are acceptable to us, or at all. In particular, a decline in the market price of our common stock, coupled with the delisting of our common stock from the Nasdaq Stock Market, could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

Disruptions in our networks and infrastructure may result in customer dissatisfaction, customer loss or both, which could materially and adversely affect our reputation and business.

Our systems are an integral part of our customers’ business operations. It is critical for our customers that our systems provide a continued and uninterrupted performance. Customers may be dissatisfied by any system failure that interrupts our ability to provide services to them. Sustained or repeated system failures would reduce the attractiveness of our services significantly and could result in decreased demand for our services.

We face the following risks to our networks, infrastructure and software applications:

•significant weather events can physically damage access lines;

•power surges and outages, computer viruses or hacking, earthquakes, terrorism attacks, vandalism and software or hardware defects which are beyond our control; and

•unusual spikes in demand or capacity limitations in our or our suppliers’ networks.

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Disruptions may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers and/or incur expenses, and thereby adversely affect our business, revenue and cash flow.

Cybersecurity breaches and other disruptions could adversely affect our business, and could compromise our information and expose us to liability and reputational harm.

The size and complexity of our information systems make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from attacks by malicious third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent or quickly identify service interruptions or security breaches. Any such interruption or breach of our systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business and reputational harm to us. Similarly, we could be subject to liability or our reputation could be harmed if technologies integrated into our products fail to prevent cyberattacks, or if our customers fail to safeguard the systems with security policies that conform to industry best practices. In addition, any cyberattack or security breach that affects a competitor’s product could lead to the negative perception that our products are similarly vulnerable to attacks or breaches.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property and proprietary and/or personally identifiable information of customers, partners, employees, and other third parties. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures and precautions, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any hack or breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, disrupt our operations, lead to reputational harm or loss of confidence in our products and services, all of which could adversely affect our business.

Integration of acquisitions ultimately may not provide the benefits originally anticipated by management and may distract the attention of our personnel from the operation of our business.

We strive to broaden our solutions offerings as well as to increase the number of subscribers hosted on our platforms, volume of voice and data that we carry over our existing global network in order to reduce transmission costs and other operating costs as a percentage of net revenue, improve margins, improve service quality and enhance our ability to introduce new products and services. Strategic acquisitions in desired markets play a part of our growth strategy, and we may pursue additional acquisitions in the future to further strengthen our strategic objectives. Acquisitions of businesses and customer lists involve operational risks, including the possibility that an acquisition may not ultimately provide the benefits originally anticipated by management. Moreover, we may not be successful in identifying attractive acquisition candidates, completing and financing additional acquisitions on favorable terms, or integrating the acquired business or assets into our own. There may be difficulty in integrating technologies and solutions, in migrating customer bases and in integrating the service offerings, distribution channels and networks gained through acquisitions with our own. For example, our recent acquisitions have led to the unexpected addition of a significant amount of aged accounts payable to our balance sheet. Successful integration of operations and technologies requires the dedication of management and other personnel, which may distract their attention from the day-to-day business, the development or acquisition of new technologies, and the pursuit of other business acquisition opportunities. Therefore, successful integration may not occur in light of these factors.

Our revenue, earnings and profitability are affected by the length of our sales cycle, and a longer sales cycle could adversely affect our results of operations and financial condition.

Our business is directly affected by the length of our sales cycle and strategic mobile partnership cycles with mobile network operators and other large enterprises. Our software platforms, outsourced solutions and value-added communication services are relatively complex and their purchase may involve a significant commitment of mostly human capital, with attendant delays frequently associated with the allocation of substantial human resources and procurement procedures within an organization. The purchase of these types of products typically also requires coordination and agreement across many departments within a potential customer. Delays associated with such timing factors could have a material adverse effect on our results of operations and financial condition. In periods of economic slowdown in the communications industry, which may recur in the current economic climate, including as a result of the COVID-19 pandemic and the government shutdown orders that have been implemented in many jurisdictions around the world in an effort to slow the spread of the pandemic, our typical sales cycle may lengthen, which means that the average time between our initial contact with a prospective customer and the signing of a sales contract increases. The lengthening of our sales and strategic mobile partnership cycle could reduce growth in

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our revenue in the future, which could have a material adverse effect on our financial condition, results of operations and cash flows.

Because most of our business is conducted outside the U.S., fluctuations in foreign currency exchange rates versus the U.S. Dollar could adversely affect our results of operations.

Currently most of our net revenue, expenses, and capital expenditures are derived and incurred from sales and operations outside the U.S., whereas the reporting currency for our consolidated financial statements is the U.S. Dollar (“USD”). The local currency of each country is the functional currency for each of our respective entities operating in that country, making the Euro the predominant currency in which our business is conducted. Considering the fact that most income and expenses are not subject to relevant exchange rate differences, it is only at a reporting level that the translation needs to be made to the reporting unit of USD. In the future, we expect to continue to derive a significant portion of our net revenue and incur a significant portion of our operating costs outside the U.S., and changes in exchange rates have had and may continue to have a significant, and potentially distorting effect (either negative or positive) on the reported results of operations, not necessarily being the result of operations in real terms. Our primary risk of loss regarding foreign currency exchange rate risk is caused by fluctuations in the USD/Euro exchange rates.

We historically have not engaged in hedging transactions since we primarily operate in same-currency countries, currently being the Euro (“EUR”). However, the operations of affiliates and subsidiaries in non-US countries have been funded with investments and other advances denominated in foreign currencies and more recently in USD. Historically, such investments and advances have been long-term in nature, and we have accounted for any adjustments resulting from currency translation as a charge or credit to Accumulated other comprehensive loss within the Stockholders’ Deficit section of our Consolidated Balance Sheets. Although we have not engaged in hedging in the past, we continue to assess on a regular basis the possible need for hedging.

We are substantially smaller than our major competitors, whose marketing and pricing decisions, and relative size advantage, could adversely affect our ability to attract and retain customers and are likely to continue to cause significant pricing pressures that could adversely affect our net revenue, results of operations and financial condition.

Our services related to cloud-based communications software and information systems, outsourced solutions, and value-added communication services are subject to competitive pressure, and we expect competition to continue to increase. We compete with telecom solution providers, independent software and service providers, and the in-house IT and network departments of communications companies as well as firms that provide IT services (including consulting, systems integration and managed services), software vendors that sell products for particular aspects of a total information system, software vendors that specialize in systems for particular communications services (such as Internet, land-line and mobile services, cable, satellite and service bureaus) and companies that offer software systems in combination with the sale of network equipment. Also, in this more fragmented market, larger players exist with associated advantages described earlier with which we need to compete against.

We believe that our ability to compete depends on several factors, including:

•the development by others of software products that are competitive with our products and services;

•the price at which others offer competitive software and services;

•the ability to make use of the networks of mobile network operators;

•the technological changes of telecommunication operators affecting our ability to run services over their networks;

•the ability of competitors to deliver projects at a level of quality that rivals our own;

•the responsiveness of our competitors to customer needs; and

•the ability of our competitors to hire, retain and motivate key personnel.

A number of our competitors have long operating histories, large customer bases, substantial financial, technical, sales, marketing and other resources, and strong name recognition. Current and potential competitors have established, and may establish in the future, cooperative relationships among themselves or with third parties. Many of our competitors are also able to offer service at lower prices than we are, forcing us to match their prices in response. This negatively affects our gross margins and financial results of operations. If we fail to effectively compete, we may experience lower revenue and/or net income, which could materially and adversely affect our financial condition, results of operations and cash flows.

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Our positioning in the marketplace as a smaller provider places a significant strain on our resources, and if not managed effectively, could result in operational inefficiencies and other difficulties.

Our positioning in the marketplace may place a significant strain on our management, operational and financial resources, and increase demand on our systems and controls. To manage this position effectively, we must continue to implement and improve our operational and financial systems and controls, invest in development and engineering, critical systems and network infrastructure to maintain or improve our service quality levels, purchase and utilize other systems and solutions, and train and manage our employee base. As we proceed with our development, operational difficulties could arise from additional demand placed on customer provisioning and support, billing and management information systems, product delivery and fulfillment, sales and marketing and administrative resources.

For instance, we may encounter delays or cost overruns or suffer other adverse consequences in implementing new systems when required. In addition, our operating and financial control systems and infrastructure could be inadequate to ensure timely and accurate financial reporting, which could have a material adverse impact on our financial condition, results of operations, and cash flows.

We need to grow our business and revenue in order to achieve profitability.

We need to expand our network to maintain and grow our business and revenue. If we fail to expand and maintain an effective sales force or successfully develop our relationships with new customers, our business, prospects and brand may be materially and adversely affected. We cannot assure you that we will be able to successfully grow our client base or expand the number of services provided to them. If we fail to do so, our sales could fail to grow or could decline, and our ability to grow our business could be adversely affected, which could prevent our revenue from covering our fixed costs and deny the Company operating leverage, delaying the date at which we achieve profitability. Accordingly, if we do not grow our revenue and business, we will not achieve profitability in the near term, which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows and the trading price of our common stock.

We could suffer adverse tax and other financial consequences if U.S. or foreign taxing authorities do not agree with our interpretation of applicable tax laws.

Our corporate structure is based, in part, on assumptions about the various tax laws, including withholding tax, and other relevant laws of applicable non-U.S. jurisdictions. Foreign taxing authorities may not agree with our interpretations or reach different conclusions. Our interpretations are not binding on any taxing authority and, if these foreign jurisdictions were to change or to modify the relevant laws, we could suffer adverse tax and other financial consequences or have the anticipated benefits of our corporate structure materially impaired. This could have a material adverse effect on our financial condition, results of operations and cash flows.

Our management has identified material weaknesses in our internal control over financial reporting, that, if not remediated, or if we identify additional material weaknesses or other adverse findings in the future, may not allow us to be able to report our financial condition or results of operations accurately or timely, which may result in a loss of investor confidence in our financial reports, significant expenses to remediate any internal control deficiencies, and ultimately have an adverse effect on the market price of our common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, our management is required to report on, and our independent registered public accounting firm is required to attest to, the effectiveness of our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in Part II, Item 9A, "Controls and Procedures," of this Annual Report, our management identified material weaknesses in internal controls related to:

•Not applying appropriate foreign currency translations during prior years impacting the account valuation of Property, Plant & Equipment;

•Complying to identify and account for operating leases in accordance with ASC 842; and

•Proper capitalization of software identified during review of projects.

•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 weaknesses;

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•Inadequate and ineffective management assessment of internal control over financial reporting due to unremediated design weakness;

•Ineffective design, implementation and monitoring of information technology general controls pertaining to the Company’s change management and security processes;

•The Company not having sufficient finance and information technology department resources to effectively assess risk and design, operate and oversee effective internal controls over financial reporting while maintaining proper segregation of duties, which contributed to the failure in the effectiveness and adequate identification of certain controls including:

◦Inadequate retention of key documentation evidencing execution of internal controls;

◦Improper and untimely recognition of revenue for prior year end and interim periods for certain customers in accordance with ASC 606, leading to the 2018 Restatement (as defined below) and 2019 interim period restatements; and

◦Incorrect accounting of stock-based compensation for awards granted to employees and non-employees, and of extinguishment of preferred stock.

As a result, management concluded that our internal control over financial reporting was not effective as of December 31, 2020. As described in Part II, Item 9A, "Controls and Procedures," of this Annual Report, we are implementing remedial measures that we believe will effectively remedy the material weakness. If we are unable to remediate the material weakness timely and sufficiently, or are otherwise unable to maintain effective internal controls over financial reporting, we could suffer future material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could harm our operating results and lead to a decline in our stock price. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject regulatory investigations, civil or criminal sanctions and class action litigation.

We must attract and retain skilled personnel. If we are unable to hire and retain technical, technical sales and operational employees, our business could be harmed.

Our ability to manage our growth will be particularly dependent on our ability to develop and retain an effective sales force and qualified technical and managerial personnel. We need software development specialists with in-depth knowledge of a blend of IT and telecommunications or with a blend of security and telecommunications. We intend to hire additional necessary employees, including software engineers, communication engineers, project managers, sales consultants, employees and operational employees, on a permanent basis. The competition for qualified technical sales, technical, and managerial personnel in the communications and software industry is intense in the markets where we operate, and we may not be able to hire and retain sufficient qualified personnel. In addition, we may not be able to maintain the quality of our operations, control our costs, maintain compliance with all applicable regulations, and expand our internal management, technical, information and accounting systems in order to support our desired growth, which could have an adverse impact on our operations. Volatility in the stock market and other factors could diminish our use, and the value, of our equity awards as incentives to employees, putting us at a competitive disadvantage or forcing us to use more cash compensation. Accordingly, our failure to attract and retain skilled personnel may materially and adversely affect our financial condition, results of operations and cash flows.

If we are not able to use and protect our intellectual property domestically and internationally, it could have a material adverse effect on our business.

Our ability to compete depends, in part, on our ability to use intellectual property internationally. We rely on a combination of patents, copyright, trade secrets and confidentiality, trademarks and licenses to protect our intellectual property. There is limited protection under patent law to protect the source codes we developed or acquired on our platform. The copyright and know-how protection on which we rely may not be sufficient. Our granted patents and pending patent applications may be challenged. We are also subject to the risks of claims and litigation alleging infringement of the intellectual property rights of others. The telecommunications industry is subject to frequent litigation regarding patent and other intellectual property rights. We rely upon certain technology, including hardware and software, licensed from third parties. The technology licensed by us may not continue to provide competitive features and functionality. Licenses for technology currently used by us or other technology that we may seek to license in the future may not be available to us on commercially reasonable terms or at all, which could have an adverse impact on our business, results of operations and financial condition.

We depend on several significant customers for a substantial portion of our business and the loss of one or more of these customers could have an adverse effect on our business, results of operations and financial condition.

For the years ended December 31, 2020, we had two customers that each individually accounted for 21% and 20% of revenue. For the year ended December 31, 2019, the Company had one customer that accounted for 20% of revenue. Although

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no other customer accounted for greater than 10% of revenue during these periods, other customers may account for more than 10% of revenue in future periods. In addition, the concentration of customers in the industries in which we operate may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions.

Our success depends on our continued investment in research and development, the level and effectiveness of which could reduce our profitability.

We intend to continue to make investments in research and development and product development in seeking to sustain and improve our competitive position and meet our customers’ needs. These investments currently include streamlining our suite of software functionalities, including modularization and improving scalability of our integrated solutions. To maintain our competitive position, we may need to increase our research and development investment, which could reduce our profitability and cash flows, thereby causing a material and adverse effect on our financial condition and results of operations. In addition, we cannot assure you that we will achieve a return on these investments, nor can we assure you that these investments will improve our competitive position or meet our customers’ needs.

Product defects or software errors could adversely affect our business.

Design defects or software errors may cause delays in product introductions and project implementations, damage customer satisfaction and may have a material adverse effect on our business, results of operations and financial condition. Our software systems are highly complex and may, from time to time, contain design defects or software errors that may be difficult to detect and correct. Because our products are generally used by our customers to perform critical business functions, design defects, software errors, misuse of our products, incorrect data from external sources, or other potential problems within or outside of our control may arise during implementation or from the use of our products and may result in financial or other damages to our customers, for which we may be held responsible. Although we have license agreements with our customers that contain provisions designed to limit our exposure to potential claims and liabilities arising from customer problems, these provisions may not effectively protect us against such claims in all cases and in all jurisdictions. Our insurance coverage is not sufficient to protect against all possible liability for defects or software errors. In addition, as a result of business and other considerations, we may undertake to compensate our customers for damages caused to them arising from the use of our products, even if our liability is limited by a license or other agreement. Claims and liabilities arising from customer problems could also damage our reputation, adversely affecting our business, results of operations and financial condition.

Political risks, including changes to U.S. tariff and import/export regulations may have a negative effect on our business.

There have been recent changes to U.S. trade policies, treaties and tariffs, including determinations made by the U.S. to reinstate or impose new sanctions levied by the U.S. Department of the Treasury’s Office of Foreign Assets Control against certain nation states. The Company or its subsidiaries may engage in business with entities located in certain regions which may be impacted, directly or indirectly by such changes. If the Company is precluded as a result of changes to sanctions laws from doing business in certain jurisdictions or with certain entities, the loss of any related revenue could impact our business, results of operations and/or financial condition.

We, and certain of our directors and current and former officers, have been named as parties to various lawsuits and those lawsuits could adversely affect us, require significant management time and attention, result in significant legal expenses or damages, and cause our business, financial condition, results of operations and cash flows to suffer.

A number of lawsuits have been filed against us, including securities class action complaints. If these matters cannot be resolved expeditiously, management’s attention may be diverted to this matter and there can be no assurance that the litigation would be settled. If the current litigation proceeds or if additional claims are filed, the legal and other costs associated with the defense of these actions and their ultimate outcomes could have a material adverse effect on our business, financial condition and results of operations. While we expect insurance to cover many of the costs associated with defending such litigation, insurance coverage may be insufficient and could require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable.

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Although we have directors and officers liability insurance, such insurance may be insufficient to cover the liabilities incurred under all claims and any claims against us may result in our incurring substantial costs and a diversion of resources.

Although we have directors and officers liability insurance, the coverage under such policies may be insufficient to cover any claim, including the claims pending against us and certain of our directors and officers resulting from the restatement of our financial statements (see Item 3. “Legal Proceedings”). Because we also have obligations to indemnify our current and former officers and directors under our governing documents, liabilities in excess of the limits of our insurance policies that may be imposed in connection with actions against certain of the Company’s past and present directors and officers and certain current and former employees who are entitled to indemnification will be funded by the Company with its existing cash resources. Such expenses could have a material adverse impact on the Company’s financial condition, results of operations and cash flows.

Risks Related to Our Industry

Changes in the regulation of the telecommunications industry could adversely affect our business, revenue or cash flow.

We operate in a heavily regulated industry. As a provider of communications technology, we are directly and indirectly subject to varying degrees of regulation in each of the jurisdictions in which we provide our services. Local laws and regulations, and the interpretation of such laws and regulations, differ significantly among the jurisdictions in which we operate. Enforcement and interpretations of these laws and regulations can be unpredictable and are often subject to the informal views of government officials. Certain European, foreign, U.S. federal, and state regulations and local franchise requirements have been, are currently, and may in the future be, the subject of judicial proceedings, legislative hearings and administrative proposals. Such proceedings may relate to, among other things, the rates we may charge for our local, network access and other services, the manner in which we offer and bundle our services, the terms and conditions of interconnection, unbundled network elements and resale rates, and could change the manner in which telecommunications companies operate. We cannot predict the outcome of these proceedings or the impact they will have on our business, revenue and cash flow.

There can be no assurance that future regulatory changes will not have a material adverse effect on us, or that regulators or third parties will not raise material issues regarding our compliance or noncompliance with applicable regulations, any of which could have a material adverse effect upon us. Potential future regulatory, judicial, legislative, and government policy changes in jurisdictions where we operate could have a material adverse effect on us. Domestic or international regulators or third parties may raise material issues regarding our compliance or noncompliance with applicable regulations, and therefore may have a material adverse impact on our competitive position, growth and financial performance.

The telecommunications industry is rapidly changing, and if we are not able to adjust our strategy and resources effectively in the future to meet changing market conditions, we may not be able to compete effectively.

The telecommunications industry is changing rapidly due to deregulation, privatization, consolidation, technological improvements, availability of alternative services such as mobile, broadband, DSL, Internet, VoIP, and wireless DSL through use of the fixed wireless spectrum, and the globalization of the world’s economies. In addition, alternative services to traditional land-line services, such as mobile, broadband, Internet and VoIP services, have shown a competitive threat to our legacy land-line traffic business. If we do not continue to invest and exploit the contemplated plan of development of our communications information systems, outsourced solutions and value-added communication services to meet changing market conditions, or if we do not have adequate resources, we may not be able to compete effectively in providing technology solutions to our customers. The telecommunications industry is marked by the introduction of new product and service offerings and technological improvements. Achieving successful financial results will depend on our ability to anticipate, assess and adapt to rapid technological changes, and offer, on a timely and cost-effective basis, services including the bundling of multiple services into our technology platforms that meet evolving industry standards. If we do not anticipate, assess or adapt to such technological changes at a competitive price, maintain competitive services or obtain new technologies on a timely basis or on satisfactory terms, our financial results may be materially and adversely affected.

If we are not able to operate a cost-effective network, we may not be able to grow our business successfully.

Our long-term success depends on our ability to design, implement, operate, manage, and maintain a reliable and cost-effective network. In addition, we rely on third parties to enable us to expand and manage our global network and to provide local, broadband Internet and mobile services. If we are unable to grow and operate a cost-effective network for our customers, our business may fail to grow or decline, which would have a material adverse effect on our financial condition and results of operations.

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Risks Related to Our Capital Stock

Covenant restrictions in our debt instruments may limit our flexibility to operate and grow our business, and if we are not able to comply with such covenants, our lenders could accelerate our indebtedness, proceed against certain collateral or exercise other remedies, which could have a material adverse effect on us.

On June 8, 2020, we closed the issuance of $17.5 million aggregate principal amount of our Senior Secured Convertible Notes due 2025 (the “High Trail Note”) under the terms of a securities purchase agreement, also dated as of June 8, 2020 (together with the High Trail Note, the “Note Facility”). The covenants in the Note Facility documents contain a number of provisions that impose operating and financial restrictions which, subject to certain exceptions, limit our ability and the ability of our subsidiaries to, among other things: incur additional indebtedness, pay dividends or make distributions or redeem or repurchase our securities, make certain investments, grant liens on assets, sell or dispose of any material assets; and acquire the assets of, or merge or consolidate with, other companies. Additionally, the Note Facility documents contain affirmative covenants that require to us take, and have taken by certain dates, specific actions, some of which have not been satisfied by the dates required, including (i) us filing our restated Form 10-K for the year ended December 31, 2018 with the SEC on or prior to October 31, 2020, (ii) after October 31, 2020, our timely filing subsequent quarterly reports on Form 10-Q with the SEC and (iii) us maintaining the listing of our common stock on the Nasdaq Stock Market. As a result, on December 1, 2020, we entered into a forbearance agreement with the holder of the High Trail Note under which we admitted that we were in default of several obligations and such holder acknowledged such defaults and agreed not to exercise any right or remedy under the Note Facility documents, including its right to accelerate the aggregate amount outstanding under the High Trail Note, until the earlier of December 31, 2020 (subsequently extended to March 31, 2021), the date of any new event of default or the initiation of any action by the Company to invalidate any of the representations and warranties made in such forbearance agreement. On May 24, 2021, the Company entered into a new forbearance agreement with the holder of the High Trail Note under which (i) the Company again admitted it was in default under several obligations under the High Trail Note and related agreements, (ii) the holder acknowledged such defaults and agreed not to exercise any right or remedy under the High Trail Note or the related securities purchase agreement, warrant or security documents, including its right to accelerate the aggregate amount outstanding under the High Trail Note, until the earlier of May 31, 2020 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 this 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.

Complying with these covenants, as well as those that may be contained in any future debt agreements, may limit our ability to finance our future operations or working capital needs or to take advantage of future business opportunities. Our ability to comply with these covenants will depend on our future performance, which may be affected by events beyond our control. If we do not maintain and regain compliance with our continuing obligations or any covenants, terms and conditions of the Note Facility, after the expiration of the forbearance agreement, we could be in default and required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and other negative impacts on our business, results of operations and financial condition. In the case of an event of default, we may not have sufficient funds available to make the required payments under the Note Facility. If we are unable to repay amounts owed under the terms of our Note Facility, the lenders thereunder may choose to exercise their remedies in respect to the collateral, including a foreclosure of their lien which may result in a sale of certain of our assets to satisfy our obligations under the Note Facility.

We could issue additional common stock, which might dilute the book value of our capital stock.

Our Board of Directors has authority, without action or vote of our stockholders, to issue all or a part of our authorized but unissued shares of common stock. Any such stock issuance could be made at a price that reflects a discount or a premium to the then-current trading price of our common stock. In addition, in order to raise future capital, we may need to issue securities that are convertible into or exchangeable for a significant amount of our common stock. These issuances, if any, would dilute your percentage ownership interest in the Company, thereby having the effect of reducing your influence on matters on which stockholders vote. You may incur additional dilution if holders of stock options, whether currently outstanding or subsequently granted, exercise their options, or if warrant holders exercise their warrants to purchase shares of our common stock. As a result, any such issuances or exercises would dilute your interest in the Company and the per share book value of the common stock that you owned, either of which could negatively affect the trading price of our common stock and the value of your investment.

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Shares eligible for future sale may adversely affect the market for our common stock.

As of December 31, 2020, there are (i) 6,704,803 shares of common stock that may be issued upon the exercise of outstanding options, 37,298,850 shares of common stock that may be issued upon the exercise of outstanding warrants and 29,166,667 shares of common stock that may be issued upon the conversion of outstanding convertible indebtedness. Options are exercisable at exercise prices between $0.36 and $62.50 and the warrants are exercisable at exercise prices between $0.37 and $5.38. Accrued interest owed on the High Trail Note may also be paid in the form of shares of our common stock from time to time. If and when these securities are exercised or converted into shares of our common stock, the number of our shares of common stock outstanding will increase. Such increase in our outstanding shares, and any subsequent sales of such shares, could have a material adverse effect on the market for our common stock and the market price of our common stock.

In addition, from time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, after satisfying a six month holding period: (i) affiliated stockholders (or stockholders whose shares are aggregated) may, under certain circumstances, sell within any three-month period a number of securities that does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale and (ii) non-affiliated stockholders may sell without such limitations, provided that we are current in our public reporting obligations. Rule 144 also permits the sale of securities by non-affiliates that have satisfied a one year holding period without any limitation or restriction. Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of our securities.

Our common stock is quoted on the OTC Markets Group Inc.’s Pink Open Market which may have an unfavorable impact on our stock price and liquidity.

On November 10, 2020, The Nasdaq Stock Market LLC (“Nasdaq”) notified the Company that, because of the Company’s failure to satisfy the conditions to the exception to Nasdaq’s listing standards granted by the Nasdaq Hearings Panel, our common stock would be delisted, and trading of our common stock on Nasdaq’s Capital Market was suspended effective at the open of business on November 12, 2020. After trading of the Company’s common stock was suspended by Nasdaq, prices for our common stock began being quoted on the OTC Markets Group Inc.’s Pink Open Market (the “Pink Sheets”). The delisting became effective on February 12, 2021. The Pink Sheets is a significantly more limited market than Nasdaq or the New York Stock Exchange. The quotation of our shares on the Pink Sheets may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future on favorable terms, or at all.

Because our common stock is no longer listed on a registered national securities exchange, we are subject to certain “blue sky” laws of the various states that impose restrictions on our ability to offer and sell our securities. These “blue sky” laws may make it more difficult for us to raise capital or to issue our common stock for equity compensation or other strategic purposes, which could adversely affect our ability to fund our operations or to attract and retain employees.

In addition, our common stock may be classified as a “penny stock” under Rule 3a51-1 under the Exchange Act. “Penny stocks” are subject to Rule 15g-9, which imposes additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Consequently, the rule may affect the ability of broker-dealers to sell our common stock and affect the ability of holders to sell their shares of our common stock in the secondary market. To the extent our common stock is subject to the penny stock regulations, the market liquidity for the shares will be adversely affected and could have a long-term adverse impact on our ability to raise capital in the future on favorable terms, or at all.

We have no dividend history and have no intention to pay dividends in the foreseeable future.

We have never paid dividends on or in connection with our common stock and do not intend to pay any dividends to common stockholders for the foreseeable future.

Item 1B.  Unresolved Staff Comments

None.

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Item 2.   Properties

Our headquarters are located in New York City, NY. In addition, we lease office/building space around the world, primarily in Europe, the U.S., and Asia. We do not own any properties but lease data center colocations for housing our equipment, applications, and network interconnections to our customers and telecommunication network providers in Europe, the U.S., South America, and Asia.

We intend to procure additional space in the future as we continue to add employees and expand geographically. We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations and headquarters.

Item 3.   Legal Proceedings

The Company is currently a defendant in various legal actions and asserted claims arising in the normal course of business. We anticipate that we will become involved in new litigation matters from time to time in the future. We will incur legal and related costs concerning litigation and may, from time to time, determine to settle some or all of the cases, regardless of the 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. The following sets forth a description of material pending legal proceedings to which the Company is a party.

SEC Investigation. In August 2019 and February 2020, the SEC issued the Company subpoenas requiring the production of 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 investigation. The Company is cooperating with the SEC staff in the SEC investigation and discussions with the SEC staff regarding a potential resolution of the investigation with respect to the Company are ongoing.

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 “Southern District Court”). 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 October 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 Exchange Act, and Sections 11, 12 and 15 of 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 shareholders of iPass Inc. who received shares of the Company’s common stock pursuant to a February 12, 2019 exchange tender offer. The defendants are the Company, Robert H. Turner, Edward O’Donnell, Victor Bozzo, Yves van Sante, Robert Lippert and Luis Jimenez-Tuñon (the “Loskot Defendants”). The Complaint alleges that the Loskot Defendants caused the Company to issue materially false or misleading statements in SEC filings submitted in connection with the tender offer 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, 2020 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”), 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-Tuñon, Robert Lippert, Robert H. Turner, Edward O’Donnell, and Denis McCarthy (the “Individual Defendants”). Plaintiff alleges that the Individual Defendants caused the company to issue false or misleading statements in Securities Exchange Commission filings and other public pronouncements in violation of certain federal securities regulations. Plaintiff 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 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 all costs and expenses incurred in pursuing the claims.

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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”), 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-Tuñon, Robert Lippert, Laura Thomas, and Yves van Sante (the “Individual Defendants”). Plaintiff alleges that the Individual Defendants caused the company to issue false or misleading statements in Securities Exchange Commission filings and other public pronouncements in violation of certain federal securities regulations. Plaintiff 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 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 all costs and expenses incurred in pursuing the claim.

Shaw ex. rel. Pareteum Corporation v. Luis Jimenez-Tuñon, 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”), derivatively on behalf of Pareteum, the Nominal Defendant, against certain officers and directors of Pareteum, including Luis Jimenez-Tuñon, Robert Lippert, Yves van Sante, Robert H. Turner, Edward O’Donnell, Denis McCarthy, Victor Bozzo, and Laura Thomas (the “Individual Defendants”). Plaintiff alleges that the Individual Defendants caused the company to issue false or misleading statements in Securities Exchange Commission filings and other public pronouncements in violation of certain federal securities regulations. Plaintiff 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 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 all costs and expenses incurred in the Shaw Action.

In re Pareteum Corporation Stockholder Derivative Litigation (the “Delaware Derivative Action”) is a consolidated action that was originally filed in the U.S. District Court for the District of Delaware and joins several related derivative actions. On April 3, 2020, the District Court consolidated 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-Tuñon, 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 Securities Exchange Commission 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 Plaintiff all costs and expenses incurred in pursuing various actions against the Company and the Individual Defendants. On July 22, 2020, this action was transferred to the U.S. 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 Tuñon (collectively, the “Defendants”). It was 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

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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 Africa, the “Delaware Plaintiffs”) to provide mobile data, cloud, and telecommunications services throughout Africa. The Claimants in the ICDR arbitration are seeking $30 million. The latter matter is a civil case filed on October 10, 2019 in the Delaware District Court. The Delaware Plaintiffs allege that Pareteum Corporation tortiously interfered with Tristar’s contract with Artilium in order to enter into the same type of agreement with Artilium. The Plaintiffs are seeking $150,000 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-Tuñon, 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 further 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 pursuing 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 shareholder 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-Tuñon, 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 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 USD $790,000 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-00902-R in the Western District of Oklahoma. A former consultant, Steve Brown (“Brown”) brought a lawsuit against Pareteum and its subsidiary claiming approximately five (5) years’ unpaid consulting fees in an amount equal to $780,000. The Company believes some or all of his claims are time-barred and/or frivolous. The Company’s position is that Brown was dismissed for cause in 2013/14, and intends to defend itself in this matter vigorously.

Item 4.  Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Our common stock was previously listed on the Nasdaq Capital Market, and traded under the symbol “TEUM.” On November 10, 2020, Nasdaq notified us by letter that our common stock would be delisted and, accordingly, trading of our

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common stock on the Nasdaq Capital Market was suspended effective at the open of business on November 12, 2020 and prices for our common stock have since been quoted on the Pink Sheets. The formal delisting of our common stock from Nasdaq became effective on February 12, 2021. Investors should be advised that any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of June 8, 2021, we had approximately 3,812 recorded holders of our common stock.

We have not declared any cash dividends since inception and do not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. Additionally, the terms of our Note Facility prohibit us from paying dividends, making distributions on our securities, or redeeming or repurchasing our securities.

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes Pareteum's equity compensation plan information as of December 31, 2020.

Securities Authorized for Issuance under Equity Compensation Plans

Plan Category	Number of securities  to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise prices of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under the equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
2008 Plan (1):	96,448	$	10.57	—
2017 Plan (2):	1,371,569	$	1.59	1,689,504
2018 Plan (3):	10,603,594	$	0.98	1,368,962
Equity compensation plans not approved by security holders	—	—		—
Total	12,071,611			3,058,466

(1)Relates to the 2008 Pareteum Corp. Long-Term Incentive Compensation Plan (the “2008 Plan”). The Company filed a registration statement on Form S-8 with the SEC on July 11, 2008 to register the offering and sale of the shares of common stock underlying the awards issued under the 2008 Plan. The stockholders approved an increase of the total number of shares of authorized to be issued under the 2008 Plan from 200,000 to 920,000, during 2013 the stockholders approved an increase of the total number of shares authorized to be issued under the 2008 Plan from 920,000 to 1,840,000, and during 2014 the stockholders approved an increase of the total number of shares available under the 2008 Plan from 1,840,000 to 2,240,000. The Plan is no longer active and therefore there are no future shares available for issuance thereunder. 

(2)Relates to the 2017 Pareteum Corp. Long-Term Incentive Compensation Plan (the “2017 Plan”). The stockholders approved 6,500,000 shares to be issued under the 2017 Plan, the offer and sale of 3,500,000 of which shares were registered under a registration statement on Form S-8 filed by the Company with the SEC on June 14, 2017 and the offer and sale of 3,000,000 of which shares were registered under a registration statement on Form S-8 filed by the Company with the SEC on April 13, 2018.

(3)Relates to the 2018 Pareteum Corp. Long-Term Incentive Compensation Plan (the “2018 Plan”). The Company filed a registration statement on Form S-8 with the SEC on October 10, 2018 to register the offering and sale of the shares of common stock underlying the awards issued under the 2008 Plan. The stockholders approved 8,000,000 common shares to be issued under the 2018 Plan, the offering and sale of all 8,000,000 of which were registered under the Form S-8. On June 28, 2019, the Company filed a subsequent registration statement on Form S-8 to register the offer and sale of an additional 7,500,000 shares of common stock for issuance under the 2018 Plan.

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Recent Sales of Unregistered Securities

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 year ended December 31, 2020 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 first quarter ended March 31, 2020, 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. The Company determined the issuance of these shares to be exempt from registration pursuant to Section 4(a)(2) of the Securities Act as a transaction not involving a public offering. The shares are deemed to be restricted securities for purposes of the Securities Act.

Item 6.  Selected Financial Data

We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes that appear elsewhere in this Annual Report. In addition to historical consolidated financial statements, the following discussion contains forward-looking statements that involve risk and uncertainties. Our actual results could differ materially from those discussed or implied by the forward-looking statements. See “Risk Factors” in Part I, Item 1A of this Annual Report and “Cautionary Statement Regarding Forward-Looking Statements” in the forepart of this Annual Report.

Business Overview 

Pareteum Corporation (OTC: TEUM) is a growth-oriented cloud software communications platform company with a mission – to Connect Every Person and Every(Thing)™. Pareteum’s goal is to unleash the power of applications and mobile services, bringing secure, ubiquitous, scalable, and seamlessly available voice, video, SMS/text messaging, and data services to its customers, making worldwide communications services easily and economically accessible to everyone. By harnessing the value of our cloud communications platform, Pareteum serves enterprises, communications service providers, early-stage innovators, developers, IoT and telecommunications infrastructure providers.

Pareteum integrates a variety of disparate communications methods and services and offers them to customers and application developers, allowing communications to become a value-added service. The vast majority of our platform is comprised of our internally-developed software and intellectual property, which provides our customers with flexibility in how they use our products and allows us to be market driven going forward. We have been granted over 70 patents related to techniques and processes which support our cloud software and communications platform solutions. Our platform services partners (whose technologies are integrated into our cloud) include Hewlett Packard, IBM, Sonus, Oracle, Microsoft, NetNumber, Affirmed and other world-class technology providers.

The Pareteum cloud communications platform targets large and growing sectors from IoT, MVNO, Smart Cities, and application developer markets – each in need of mobile platforms, management and connectivity. These sectors need Communications Platform-as-a-Service (CPaaS), which Pareteum delivers. Our vision is to empower Communication Service Providers, Enterprises and Developers to simply create and control their own wireless communications products and experiences through our powerful combination of software, services and global connectivity.

Pareteum Corporation, a Delaware corporation, was originally formed in 2001 as Elephant Talk Communications Corp. as a result of a merger between Staruni Corporation (USA, 1962) and Elephant Talk Limited (Hong Kong, 1994). Since 2016, our name has been Pareteum Corporation, and from November 12, 2019 until November 12, 2020, our common stock was traded on the Nasdaq Capital Market under the ticker symbol “TEUM.” Prices for our common stock are now quoted on the Pink Sheets under the same symbol.

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Recent Developments

Asset Disposition

In August 2020, the Company entered into an asset transfer agreement and a software license agreement with a data communications provider (the "Purchaser"), pursuant to which Purchaser agreed to purchase certain property and equipment and software licenses related to an MVNE solution for total cash consideration of $12.3 million. The Purchaser paid $4.7 million in August 2020 and the remainder in December 2020 upon the completion of the transfer to the Purchaser. The Company recorded a gain on sale of assets of $10.8 million for the difference between the consideration received and the book value of the property and equipment and the software license (see Note 2, Acquisitions and Disposition - Asset Disposition).

Delisting of the Company’s Common Stock

On November 5, 2020, the Company notified the Nasdaq Hearings Panel that it would not be able to file its Quarterly Report on Form 10-Q for the period ended September 30, 2019, 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 Nasdaq Hearings Panel had required the Company to make such filings in order for the Company’s common stock to remain listed on the Nasdaq Capital Market.

In response to the Company’s notice to the Nasdaq Stock Market that it would not satisfy the conditions to the exception to the listing requirements granted by the Hearing Panel, the Nasdaq Stock Market notified the Company by letter dated November 10, 2020 that the Company’s common stock would be delisted, and trading of the Company’s common stock on the Nasdaq Capital Market was suspended effective at the open of business on November 12, 2020. Since the trading of the Company’s common stock was suspended, prices for our common stock have been quoted on Pink Sheets. The formal delisting of the Company’s common stock from the Nasdaq became effective on February 12, 2021.

Senior Secured Convertible Note

On June 8, 2020, the Company issued an $17.5 million in principal amount of an 8% Senior Secured Convertible Note due April 1, 2025 (the “High Trail Note”) to High Trail Investments SA LLC for $14.0 million. On June 8, 2020, the Company received $4.0 million. The remaining $10.0 million balance was deposited into a blocked bank account that will be released to the Company upon the satisfaction of certain conditions. The Company is currently default under the High Trail Note, and High Trail has caused $6.0 million of the purchase price maintained in such blocked account to be transferred to High Trail in partial satisfaction of the amounts outstanding under the High Trail Note. (see Note 5, Debt and Series C Redeemable Preferred Stock - Senior Secured Convertible Note)

Series C Redeemable Preferred Stock

On various dates from February 21, 2020 through August 18, 2020, the Company issued shares of Series C Redeemable Preferred Stock and on various dates from July 17, 2020 through October 1, 2020, the Company entered into agreements with those holders that allow either the Company or the holders to exchange outstanding shares of Series C Redeemable Preferred Stock for shares of the Company’s common stock. Such exchanges are subject to the satisfaction of certain conditions, including approval of the Company’s stockholders of the issuance of such common stock and the Company’s ability to issue shares of common stock not subject to restrictions on resale. The number of shares of common stock issuable upon exchange of the Series C Redeemable Preferred Stock under the Series C Exchange Agreements will determined by the application of a formula in which (i) the stated value of the shares of Series C Redeemable Preferred Stock being converted plus the value of any accrued and unpaid dividends plus, with respect to certain agreed upon shares of the Series C Redeemable Preferred Stock, a premium of 12.5% on the stated value is divided by (ii) the conversion price. The conversion price for certain holders of Series C Redeemable Preferred Stock in the aggregate is $0.70, while the conversion price for certain other holders of shares of Series C Redeemable Preferred Stock is the lower of (i) $0.60 and (ii) the greater of (x) the average daily volume-weighted average price per share of Common Stock during the five trading days before the closing of the exchange and (y) $0.40. (see Note 5, Debt and Series C Redeemable Preferred Stock - Series C Redeemable Preferred Stock).

Senior Secured Second Lien Notes

As previously disclosed and discussed below under the heading “Liquidity and Capital Resources,” during the first quarter of 2021, the Company issued Senior Second Lien Secured Convertible Notes due 2025 in the aggregate principal amount of $1.79 million.

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Components of Results of Operations

Revenue

We generate revenue primarily through providing CPaaS solutions to enterprises, communications service providers, early-stage innovators, developers, IoT, and telecommunications infrastructure providers. Our solutions are hosted software solutions that generate hosting and subscription revenue. We also offer customer support and professional services related to implementing and supporting our suite of applications. We offer managed services and bundled services for our mobile solutions services. Revenue from managed services is recognized monthly based on an average number of end-users managed and is calculated based on a predetermined service fee per user. For bundled services, we provide both network administration and mobile airtime management services. Bundled service revenue is recognized monthly based on an average number of end-users of managed and mobile airtime usage, calculated based on a predetermined service fee. We also earn revenue from communications services we offer, which revenue is based on a predetermined rate and volumes that we manage in a given month. We also earn revenue from professional services, including consulting services to support business process mapping, configuration, data migration, integration and training.

Cost of Revenue (excluding depreciation and amortization)

Cost of revenue includes origination, termination, network and billing charges from communications operators, costs of communications service providers, network costs, data center costs, facility cost of hosting network and equipment and cost in providing resale arrangements with communication 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 revenue, consisting primarily of employee-related costs associated with these services, including share-based compensation and the cost of subcontractors. Cost of revenue excludes depreciation and amortization.

Product Development

Product development expenses consist primarily of salaries and related expenses, including share-based compensation, of employees involved in the development of the Company’s services, that are expensed as incurred. Costs such as database architecture, and Pareteum proprietary platform development and testing are included in this function.

Sales and Marketing

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

General and Administrative

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

Acquisition Costs

Acquisition costs is comprised of costs to acquire iPass in 2019.

Impairment of goodwill and intangible assets

Impairment of goodwill and intangible assets consist of impairment charges recognized during the fourth quarter of 2019.

Depreciation and Amortization

Depreciation and amortization is comprised of depreciation on property and equipment and amortization of software development and acquired intangible assets.

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Costs incurred during the application development stage of internal-use software projects, such as those used in the Company’s operations, are capitalized in accordance with the accounting guidance for costs of computer software developed for internal use. Capitalized costs are amortized on a straight-line basis to depreciation and amortization. When assigning useful lives to internal-use software, the Company considers the effects of obsolescence, competition, technology, and other economic factors.

Interest Expense, net

Interest expense, net is comprised of interest expense accrued or paid on our indebtedness and the amortization of debt discount and deferred financing costs, net of interest income earned on cash balances.

Gain on sale of assets

Gain on sale of assets consists of the gain recorded for the sale of certain assets, the transfer of which was completed in December 2020, measured as the difference between the consideration received and the book value of the property and equipment and the software licenses (see Note 2, Acquisitions and Disposition - Asset Disposition).

Change in fair value of derivative and warrant liabilities

Change in fair value of embedded derivatives and warrant liabilities consist of the change in the fair value of the embedded derivatives and warrant liabilities related to the Company's Senior Secured Convertible Note issued in June 2020 (see Note 5, Debt and Series C Redeemable Preferred Stock - Senior Secured Convertible Note - Derivative liability / Warrant liability).

Loss on Extinguishment of Debt 

Loss on extinguishment of debt during 2020 consists of the loss recognized as a result of the modification of certain provisions of the Series C redeemable preferred stock that was accounted for as an extinguishment (see Note 5, Debt and Series C Redeemable Preferred Stock - Series C redeemable preferred stock). Loss on extinguishment of debt during 2019 consists of the losses incurred in February 2019 and September 2019 to extinguish debt related to the Fortress Credit Agreement and Post Road Loan, respectively (see Note 2, Acquisitions and Disposition - iPass, Inc. Acquisition and Note 5, Debt and Series C Redeemable Preferred Stock - Former Post Road Group Debt Facility).

Other Income (Expense), net

Other income (expense), net, is comprised of gains and losses generated from non-operating activities and includes foreign currency transaction gains and losses.

Income Tax Benefit

Income tax benefit consists of income taxes in foreign jurisdictions and the U.S. and states in which we conduct business. Earnings from our non-U.S. business activities are subject to local country income tax and may be subject to current U.S. income tax. Due to cumulative losses, we maintain a full valuation allowance for deferred tax assets and expect to maintain this full valuation allowance for the foreseeable future.

Accretion and dividends of series C redeemable preferred stock

Accretion and dividends of series C redeemable preferred stock consists of the accretion of redemption premium and accrual of dividends associated with the Company's Series C redeemable preferred stock subsequent to its modification and classification to temporary equity during 2020.

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Results of Operations

Comparison of Years Ended December 31, 2020 and 2019

	For the years ended December 31,				Change Increase / (Decrease)
($ in thousands)	2020		2019		$		%
Revenue	$	69,637	$	62,049	$	7,588	12.2	%
Cost and operating expenses:
Cost of revenue (excluding depreciation and amortization)	48,954		47,134		1,820		3.9	%
Product development	10,334		12,956		(2,622)		(20.2)	%
Sales and marketing	6,147		10,345		(4,198)		(40.6)	%
General and administrative	29,809		34,583		(4,774)		(13.8)	%
Acquisition costs	—		3,457		(3,457)		nm
Impairment of goodwill and intangible assets	—		156,765		(156,765)		nm
Depreciation and amortization	10,795		12,739		(1,944)		(15.3)	%
Total cost and operating expenses	106,039		277,979		(171,940)		(61.9)	%
Loss from operations	(36,402)		(215,930)		179,528		(83.1)	%
Other income (expense):
Interest expense, net	(9,141)		(2,618)		(6,523)		249.2	%
Gain on sale of assets	10,753		—		10,753		nm
Change in fair value of derivative and warrant liabilities	6,993		—		6,993		nm
Loss on extinguishment of debt	(16,996)		(8,873)		(8,123)		91.5	%
Other income (expense), net	80		(3,221)		3,301		(102.5)	%
Total other expense	(8,311)		(14,712)		6,401		(43.5)	%
Loss before (benefit) provision for income tax	(44,713)		(230,642)		185,929		(80.6)	%
Income tax benefit	(52)		(8,295)		8,243		(99.4)	%
Net loss	$	(44,661)	$	(222,347)	$	177,686	(79.9)	%
Accretion and dividends of series C redeemable preferred stock	(816)		—		(816)		nm
Net loss attributable to common equity	$	(45,477)	$	(222,347)	$	176,870	(79.5)	%

__________

nm - Not meaningful

Although the majority of our business activity is carried out in Euros, we report our financial statements in U.S. dollars (“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. These 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 that 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.

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The following table shows the average USD equivalent of the major currencies used to translate our financial results for the years ended December 31, 2020 and 2019:

	USD Equivalent
	2020		2019
Euro	$	1.13958	$	1.14460
British Pound	$	1.28235	$	1.27369

Revenue

Revenue for the year ended December 31, 2020 was $69.6 million, an increase of $7.6 million, or 12.2%, compared to $62.0 million for the year ended December 31, 2019. This increase was primarily due to strong demand for services in our mobility business, partially offset by a decrease in connectivity services, which includes travel-related communications. We attribute the net increase in demand to the overall impact that the COVID-related restrictions have had on demand for our various services, especially for messaging and consumer mobile services.

Cost of Revenue

Cost of revenue for the year ended December 31, 2020 was $49.0 million, an increase of $1.8 million, or 3.9%, compared to $47.1 million for the year ended December 31, 2019. The increase was primarily due to the increase in revenue and, to a lesser extent, an unfavorable service mix.

Product Development

During the years ended December 31, 2020 and 2019, the Company capitalized $6.5 million and $6.4 million, respectively, of internal-use software.

Product development expenses for the years ended December 31, 2020 and 2019 were $10.3 million and $13.0 million, respectively, a decrease of $2.6 million, or 20.2%. This decrease was mainly due to a decline in personnel and related costs in 2020 in part due to restraints on the Company's access to capital.

Sales and Marketing

Sales and marketing expenses for the years ended December 31, 2020 and 2019 were $6.1 million and $10.3 million, respectively, a decrease of $4.2 million, or 40.6%. Sales and marketing expenses declined mainly due to a decrease in personnel and related costs and a reduction in sales costs due to COVID-related restrictions.

General and Administrative

General and administrative expenses for the years ended December 31, 2020 and 2019 were $29.8 million and $34.6 million, respectively, a decrease of $4.8 million, or 13.8%. This decrease is primarily due to an absence in 2020 of iPass acquisition-related costs and reduction in 2020 of personnel costs, partially offset by an increase in costs associated with the restatement of the Company's historical financial statements.

Acquisition Costs

There were no acquisition costs for the year ended December 31, 2020. The acquisition costs for the year ended December 31, 2019 were $3.5 million related to our acquisition of iPass.

Impairment of goodwill and intangible assets

There was no impairment of goodwill and intangible assets for the year ended December 31, 2020. During the year ended December 31, 2019, the Company recognized a non-cash impairment charge of $156.8 million, consisting of a $125.9 million impairment of goodwill and a $30.8 million impairment of intangible assets (see Note 4, Goodwill and Intangible Assets)

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Depreciation and Amortization

Depreciation and amortization for the years ended December 31, 2020 and 2019 was $10.8 million and $12.7 million, a decrease of $1.9 million, or 15.3%. The decrease is primarily due to the impairment of finite-lived intangible assets in 2019.

Interest Expense, net

Interest expense, net for the years ended December 31, 2020 and 2019 was $9.1 million and $2.6 million, respectively, an increase of $6.5 million due to increases in borrowings and the Company's effective borrowing rate, including borrowings under the High Trail Note and the Senior Second Lien Note.

Gain on sale of assets

For the year ended December 31, 2020, we recognized a $10.8 million gain on the sale of certain assets, the transfer of which was completed in December 2020 (see Note 2, Acquisitions and Disposition - Asset Disposition).

Change in fair value of derivative and warrant liabilities

For the year ended December 31, 2020, we recognized, in aggregate, a favorable $7.0 million change in fair value based on the fair value changes of embedded derivatives and warrant liability related to the Company's Senior Secured Convertible Note issued in June 2020 and Series C Redeemable Preferred Stock (see Note 5, Debt and Series C Redeemable Preferred Stock - Senior Secured Convertible Note - Derivative liability / Warrant liability and Series C Redeemable Preferred Stock - Derivative liability / Warrant liability).

Loss on Extinguishment of Debt 

For the year ended December 31, 2020, we recognized a loss on extinguishment of debt of $17.0 million related to the modification of certain provisions of the Series C redeemable preferred stock that was accounted for as an extinguishment (see Note 5, Debt and Series C Redeemable Preferred Stock - Series C redeemable preferred stock). For the year ended December 31, 2019, we recognized a loss on extinguishment of debt of $8.9 million related to the extinguishment of debt previously outstanding under that certain Fortress Credit Agreement, under which we had borrowed funds from Fortress Credit Corp., and under that certain credit agreement with Post Road Special Opportunity Fund I LLP in February 2019 and September 2019 (see Note 2, Acquisitions and Disposition - iPass, Inc. Acquisition and Note 5, Debt and Series C Redeemable Preferred Stock - Former Post Road Group Debt Facility).

Other Income (Expense), net

Other income (expense) net, is generated from non-operating activities and includes foreign currency transaction gains and losses. For the year ended December 31, 2020, we recorded other income, net of $0.1 million compared to other expense, net of $3.2 million for the year ended December 31, 2019. The favorable change of $3.3 million was primarily due to a reserve recorded in 2019 on a note receivable and the favorable impact in 2020 for the forgiveness of a Paycheck Protection Program ("PPP") loan in the amount of $0.6 million on our results in 2020 as compared to 2019.

Income Tax Benefit

Income tax benefit for the years ended December 31, 2020 and 2019 was $0.1 million and $8.3 million, respectively. This change was primarily due to the full valuation of the deferred tax liability from the Artilium acquisition, which was a discrete item in 2019.

Accretion and dividends of series C redeemable preferred stock

Accretion and dividends of series C redeemable preferred stock for the years ended December 31, 2020 was $0.8 million. There were no amounts recorded to accretion and dividends of series C redeemable preferred stock in 2019 since the modification and classification to temporary equity of the series C redeemable preferred stock occurred during 2020.

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Liquidity and Capital Resources

As reflected in the accompanying consolidated financial statements, the Company had accumulated deficits of $584.6 million and $539.5 million and reported net losses of $44.7 million and $222.3 million as of and for the years ended December 31, 2020 and 2019, respectively. During 2019, the Company recognized a non-cash impairment charge of $156.8 million, consisting of a $125.9 million impairment of goodwill and a $30.8 million intangible assets impairment.

The Company's cash balance, including restricted cash, was $14.8 million and $5.9 million at December 31, 2020 and 2019, respectively.

On June 8, 2020, we issued the High Trail Note with a principal amount of $17.5 million to High Trail Investments SA LLC (“High Trail”) due April 1, 2025 for an aggregate purchase price of $14.0 million, of which $6.0 million was previously maintained in one or more blocked accounts. The terms of the High Trail Note require the Company to meet certain specified conditions and covenants, some of which have not been satisfied by the dates required, including (i) the Company filing its 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 October 31, 2020, (ii) after October 31, 2020, the Company timely filing its subsequent quarterly reports on Form 10-Q and its subsequent annual reports on Form 10-K with the SEC in the manner and within the time periods required under the Exchange Act, and (iii) the Company maintaining the listing of its common stock on the Nasdaq Capital Market. As a result, we have been in default under the terms of the High Trail Note since October 31, 2020 and at High Trail’s option, High Trail can demand payment for the outstanding principal amount. In addition, the interest rate increased to 18% per annum. On April 8, 2021, High Trail provided notice to the Company that it was causing $6.0 million of the purchase price maintained in such blocked account to be transferred to High Trail in partial satisfaction of the amounts outstanding under the High Trail Note.

On November 30, 2020, we entered into a Forbearance Agreement (the “Forbearance Agreement”) with High Trail. 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 events of default, 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 (or any later date agreed to in writing by High Trail; (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. Subsequently, High Trail agreed to extend the forbearance termination date to March 31, 2021. The forbearance period under the Forbearance Agreement has not been subsequently extended.

On May 24, 2020, the Company entered into a new forbearance agreement (the “New Forbearance Agreement”) with High Trail under which (i) the Company again admitted it was in default under several obligations under the High Trail Note and related agreements, (ii) High Trail acknowledged such defaults and agreed not to exercise any right or remedy under the High Trail Note or the related securities purchase agreement, warrant or security documents, including its right to accelerate the aggregate amount outstanding under the High Trail Note, until the earlier of May 31, 2020 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 High Trail Note and related documents, High Trail 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 High Trail 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 High Trail 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 High Trail Note would be increased by certain paid-in-kind amounts in full satisfaction of the Company’s obligation to make payments of interest to High Trail 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 High Trail’s agreement to enter into the New Forbearance Agreement and agree to the amendments to the High Trail Note, the Company agreed to pay High Trail 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

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maintained in a certain blocked account against that was foreclosed upon by High Trail, the total amount of principal outstanding under the High Trail Note as of the date of the New Forbearance Agreement was approximately $13.5 million.

On February 22, 2021, we issued a $2.4 million 8% Senior Second Lien Secured Convertible Note due 2025 (the “Senior Second Lien Note”) to an institutional investor and received $2.0 million. The aggregate purchase price for the Senior Second Lien Note was $2.0 million. The Senior Second Lien Notes are senior, secured obligations of the Company, but rank junior to the High Trail Note. Interest is payable monthly beginning April 1, 2021 The Senior Second Lien Note is secured by a second lien on substantially all assets of the Company and substantially all assets of its material U.S.-organized subsidiaries.

On April 29, 2021, we entered into a securities purchase agreement 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 $6.0 million aggregate principal amount of its Senior Second Lien Secured Convertible Notes due 2025 (the “Notes”) and warrants to purchase up to 5,000,000 shares of its common stock (the “April 2021 Warrants”) to purchase up to 5,000,000 shares of our 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, we closed on the sale of Senior Second Lien Notes in the aggregate principal amount of approximately $1.79 million and April 2021 Warrants to purchase 1,490,000 shares of common stock under the purchase agreement for an aggregate purchase price of $1.49 million.

Because of the limited nature of the relief provided under the Forbearance Agreement, which does not lower the amounts payable in principal or interest, the limited amount of additional capital we have raised and can raise by selling the Senior Second Lien Notes and the foreclosure by High Trail on $6.0 million of the High Trail Note purchase price, we believe that we will not have sufficient resources to fund our operations and meet the obligations specified in the Senior Second Lien Note and any obligations under the High Trail Note for the next twelve months following the filing of this Annual Report. Our software platforms require ongoing funding to continue the current development and operational plans and we have a history of net losses. We will continue to expend substantial resources for the foreseeable future in connection with the continued development of our software platforms. These expenditures include costs associated with research and development activity, corporate administration, business development, and marketing and selling of our services. In addition, other 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 the obligations under the High Trail Note and the Senior Second Lien Notes. Accordingly, we will have to raise additional capital in one or more debt and/or equity offerings and continue to work with High Trail to enter into a new forbearance arrangement or agree to restructure the indebtedness owed to High Trail. Accordingly, our management has been actively exploring these and other options for addressing our liquidity issues. However, there can be no assurance 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, or that High Trail will agree to forbear or restructure our indebtedness. If we are unable to raise additional capital that may be needed, this would have a material adverse effect on the Company. In particular, a decline in the market price of our common stock, coupled with the stock’s delisting from the Nasdaq Capital 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 these consolidated financial statements are issued.

Operating Activities

We reported net cash used in operating activities of $18.4 million for the year ended December 31, 2020, compared to net cash used in operating activities of $17.8 million in 2019, an increase in cash used of $0.7 million. Net cash used in operating activities increased primarily as a result of the timing of payments to fund operations.

($ in thousands)	2020		2019
Net loss	$	(44,661)	$	(222,347)
Adjustments to reconcile net loss to net cash used in operating activities:	22,534		188,194
	(22,127)		(34,153)
Changes in operating assets and liabilities:	3,686		16,392
Net cash used in operating activities	$	(18,441)	$	(17,761)

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Investing Activities

Net cash provided by investing activities for the year ended December 31, 2020, was $4.3 million, an increase of $15.4 million or 139%, compared to $11.1 million net cash used in investing activities in 2019. This increase in cash provided during 2020 as compared to 2019 was primarily the result of proceeds received during 2020 for the sale of assets.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2020, was $23.3 million, compared to $28.3 million for the year ended December 31, 2019. Net cash provided by financing activities decreased as a result of a reduction in net cash proceeds during 2020 from the issuance of loans and redeemable preferred stock.

Off-Balance Sheet Arrangements

Purchase Commitment

During 2019, the Company entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”) (see Note 12, Commitments and Contingencies).

Application of Critical Accounting Policies and Estimates

Revenue Recognition and Net billings in Excess of Revenue

Revenue represents amounts earned for (non-software) arrangements consisting of hosting subscriptions for our CPaaS solutions. We also offer customer support and professional services related to implementing and supporting our suite of applications. Revenue is generally recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

Monthly Service Revenue:

The Company’s performance obligations in monthly Software as a Service (SaaS) and service offerings are simultaneously received and consumed by the customer and therefore are recognized over time. For recognition purposes, we do not unbundle such services into separate performance obligations. The Company typically bills its customer at the end of each month, with payment to be received shortly thereafter. 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 estimable at the time of billing, with “true-up” adjustments occurring in the subsequent month. Such amounts have not been historically significant.

Installation and Software Development Revenue:

The Company’s other revenue consist generally of installation and software 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 promise within the context of the contract.

Software development consists of programming and other services which adds new functionality to a customer’s existing or new service offerings. Each development project defines its milestones and will have its own performance obligation.

Revenue is recognized over time if the installation and software 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.

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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.

Contract assets and liabilities:

Given the nature of the Company’s services and contracts, it has no contract assets. The Company records net billings in excess of revenue when payments are made 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 control is transferred or services are delivered to the customer.

Allowance for Doubtful Accounts

We record an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Accounts receivable are periodically evaluated for collectability based on past credit history with customers. An allowance is recorded on the basis of loss experience, known and inherent risk in the account balance and current economic conditions. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful.

Income Taxes

We estimate our income taxes separately for each tax jurisdiction in which we conduct operations. The provision for federal, state, foreign and local income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In determining the net deferred tax assets and valuation allowances, we are required to make judgments and estimates in assessing the realizability of the deferred tax assets. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. If we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount or would no longer be able to realize our deferred income tax assets in the future as currently recorded, we would make an adjustment to the valuation allowance which would decrease or increase the provision for income taxes.

Share-based Compensation

The Company follows the provisions of ASC 718, Compensation-Stock Compensation, (“ASC 718”). ASC 718 requires all stock-based payments to employees, directors and non-employees to be recognized in the statements of operations and comprehensive loss by measuring the fair value of the award on the date of grant and recognizing this fair value as expense using a straight-line method over the requisite service period, generally the vesting period. The Company estimates forfeitures at the time of grant and, if necessary, revises those estimates in subsequent periods if actual forfeitures differ from those estimates.

The Company estimates the grant date fair value of stock-based payments that vest over time using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make certain assumptions and estimates that impact the valuation of stock-based payments.

Warrant and Embedded Derivative Liabilities

Warrant and embedded derivative liabilities are remeasured at fair value each reporting period in accordance with the provisions of ASC 820, Fair Value Measurement. The Company utilizes the Monte Carlo valuation model to determine the value of the outstanding warrants and the conversion feature in the convertible notes. Since the Monte Carlo valuation model requires special software and expertise to model the assumptions to be used, the Company uses a third-party valuation expert to fair value these liabilities.

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Business Combinations

We generally recognize the identifiable assets acquired, the liabilities assumed, and any non-controlling interests in an acquiree at their fair values as of the date of acquisition, under the acquisition method of accounting. We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to exercise judgment and make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities related to uncertain tax positions, and contingencies. This method also requires us to refine these estimates over a one-year measurement period to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to retroactively adjust provisional amounts that we have recorded for the fair value of assets and liabilities in connection with acquisitions, these adjustments could materially change our operating income and net income and result in different asset values on our balance sheet.

Significant estimates and assumptions that we must make in estimating the fair value of acquired technology, customer lists, and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.

Goodwill and Intangible Assets Impairment

Goodwill is not amortized but is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment. We operate in one reportable segment.

We test for an indication of goodwill impairment in the fourth quarter of each year, or sooner, when indicators of impairment exist, by comparing the fair value of our reporting unit to its carrying value. If there is an indication of impairment, we perform a “step two” test to measure the impairment. Impairments, if any, are recorded to the statement of operations in the period the impairment is recognized.

A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators include a sustained and significant decline in our stock price and market capitalization, a decline in our expected future cash flows, a significant adverse change in legal factors or in the business climate and unanticipated competition.

In accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), finite-lived intangible assets are carried at cost less accumulated amortization and impairment charges. Finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets, between three and ten years. Finite-lived intangible assets are reviewed for impairment in accordance with ASC 360, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of any impairment loss is based on the amount of the carrying value that exceeds the fair value of the asset.

Contingent Losses

From time to time, during the normal course of operations, we are party to litigation and regulatory matters, claims and other contingent matters. Litigation and regulatory reviews can be expensive and disruptive to normal business operations. Moreover, the results of complex proceedings and reviews are difficult to predict and our view of these matters may change in the future as events related thereto unfold. We expense legal fees as incurred. We record a provision for contingent losses when it is both probable that a liability will be incurred and the amount or range of the loss can be reasonably estimated. An unfavorable outcome to any legal or regulatory matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations.

Impact of Recent Accounting Pronouncements

See Note 1, Business and Summary of Significant Accounting Policies for a discussion of the impact of recent accounting pronouncements.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are a “smaller reporting company” as defined by regulation S-K and as such, are not required to provide the information contained in this item pursuant to regulation S-K.

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Item 8.Financial Statements and Supplementary Data

Pareteum Corporation and Subsidiaries

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

	PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	44
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2020 AND 2019	48
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019	49
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019	50
CONSOLIDATED STATEMENTS OF CHANGES IN SERIES C REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019	51
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019	52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	53

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Pareteum Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Pareteum Corporation and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in series C redeemable preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, negative cash flows from operations, and had a negative working capital of $37.2 million and an accumulated deficit of $584.6 million as of December 31, 2020. This raises substantial doubt about the Company’s ability to continue as a going concern. In addition, with respect to the ongoing and evolving coronavirus (“COVID-19”) outbreak, which was designated as a pandemic by the World Health Organization on March 12, 2020, the outbreak has cause substantial disruption in international and U.S. economies and markets and if repercussions of the outbreak are prolonged, could have a significant adverse impact on the Company’s business. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current year audit of the financial statements that were communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Senior Secured Convertible Note Agreement (Including Embedded Derivatives)

Critical Audit Matter Description

As disclosed in Note 5 to the financial statements, On June 8, 2020, the Company issued $17.5 million in principal amount of an 8% Senior Secured Convertible Note due April 1, 2025 (the High Trail Note) to High Trail Investments SA LLC for $14 million. In addition, 15,000,000 warrants were issued in connection with the issuance of the High Trail Note.

The High Trail Note contained embedded features which were required to be bifurcated upon issuance and recorded at fair value and remeasured with the changes in fair value recognized in other income (expense), net in the Company’s consolidated statements of operations and comprehensive loss. These embedded features include conversion features that allow for a change in the conversion rate in connection with certain equity issuances, payments based on a fundamental change and certain events of defaults.

We identified the High Trail Note as a critical audit matter. Auditing the embedded features involved complex accounting for derivatives which required specialized skills and knowledge to assess the fair value and reasonableness of the inputs used to value the derivatives.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

•Obtaining an understanding of the Company’s process to account for the issuance of the convertible note and warrants.

•Reviewing the convertible note and warrant agreement.

•Evaluating management's memorandum for accounting treatment and management specialist’s valuation on the embedded derivatives.

•Testing the underlying data and estimates used as inputs in the valuation model.

•With the assistance of our valuation specialist, evaluating the valuation methodology used by the Company and significant assumptions used in the valuation model by evaluating individual assumptions used by management.

Settlement Agreement with High Trail

Critical Audit Matter Description

As disclosed in Note 5 to the financial statements, on September 13, 2019, the Company and High Trail entered into the Term Sheet for a Common Stock and Senior Secured Convertible Note Financing, setting forth the terms of a proposed transaction between the Company and High Trail. Subsequently, the Company and High Trail Investments SA LLC (High Trail) entered into a settlement agreement dated March 17, 2020 (Settlement Agreement) whereby the Company agreed to grant High Trail a warrant to purchase 2,000,000 shares of its common stock and exercise price of $0.70 per share.

We identified the Settlement Agreement with High Trail as a critical audit matter. Auditing the multiple elements of the transaction involved complex accounting for the notes and warrant which required specialized skills and auditor judgement to assess the fair value and reasonableness of the inputs used in the Company’s fair value measurement.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

•Obtaining an understanding of the Company’s process to account for the issuance of the warrant.

•Reviewing the settlement agreement and warrant agreement.

•Evaluating management's memorandum for accounting treatment and valuation of the warrant.

•Testing the completeness and accuracy of the underlying data used in the valuation models by tracing to terms contained in the settlement and warrant agreement and outside third-party data.

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Asset Transfer Agreement & Software Licensing Agreement

Critical Audit Matter Description

As disclosed in Note 2 of the financial statements, in August 2020, the Company entered into an asset transfer agreement and a software license agreement with a data communications provider (the Purchaser), pursuant to which the Purchaser agreed to purchase various property and equipment and a software license related to a Mobile Virtual Network Enabler solution for total cash consideration of $12.3 million. The Purchaser paid $4.7 million in August 2020 and the remainder in December 2020 upon the completion of the transfer to the Purchaser. The Company recorded a gain on sale of assets of $10.7 million for the difference between the book value of the property and equipment and the software license.

We identified the Asset Transfer Agreement & Software Licensing Agreement as a critical audit matter. Auditing the elements of this transaction involved especially challenging due to the nature and extent of audit effort required, the interaction of contracts that constituted the collective agreement and the level of auditor judgment involved to determine the appropriate accounting treatment.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

•Obtaining an understanding of the Company’s process to account for the asset transfer and software license agreements.

•Reviewing the terms of the agreements including payments, terminations, and obligation fulfillments and testing the components.

•Evaluating management's memorandum for accounting treatment of the asset transfer and software license agreements under the applicable accounting guidance.

•Testing the appropriateness of the resultant journal entries.

Series C Redeemable Preferred Stock Financing (Including Embedded Derivatives and Exchange Agreements)

Critical Audit Matter Description

As disclosed in Note 5 to the financial statements, On December 24, 2019, the Company issued 105 shares of 8% Series C Redeemable Preferred Stock. In a series of transactions from February 21, 2020 through August 18, 2020, the Company issued an additional 112 shares of Series C Redeemable Preferred Stock. The Series C Redeemable Preferred Stock requires mandatory redemption one year after issuance at the stated value together with the 8% dividend and a 12.5% premium. Such redemption dates ranged from December 24, 2020 through August 18, 2021. Redemption terms were subsequently modified by the Series C Exchange Agreements on various dates from July 17, 2020 through October 29, 2020 (Exchange Agreements) which extended the mandatory redemption date and added an exchange feature.

As a result of modifying certain provisions of the Series C Redeemable Preferred Stock, which was classified as a liability prior to the dates of the Exchange Agreements, the Company accounted for the modification as an extinguishment since the exchange feature is substantive. Due to the changes in the terms of the Exchange Agreements, the Company has reclassified the Series C Redeemable Preferred Stock from a liability to temporary equity outside of permanent equity in its Consolidated Balance Sheet as of December 31, 2020.

We identified the Series C Redeemable Preferred Stock as a critical audit matter. Auditing the valuation of the embedded features involved complex accounting for derivatives which required specialized skills and knowledge to assess the fair value and reasonableness of the inputs used to value the derivatives. Additionally, accounting for the modification as an extinguishment that was classified as temporary equity which required specialized skills and knowledge to assess the fair value and reasonableness of the inputs used to value the derivatives and determine the balance sheet classification.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

•Obtaining an understanding of the Company’s process to account for the issuance of the Series C Redeemable Preferred Stock.

•Reviewing the Series C Redeemable Preferred Stock agreements.

•Evaluating management's memorandum for accounting treatment and management specialist’s valuation on the embedded derivatives.

45

•Testing the completeness and accuracy of the underlying data used in the valuation models by tracing to terms contained in the initial Series C Redeemable Preferred Stock agreements and the Exchange Agreements.

•With the assistance of our valuation specialist, evaluating the valuation methodology used by the Company and significant assumptions used in the valuation model by evaluating individual assumptions used by management.

/s/ Baker Tilly US, LLP

We have served as the Company’s auditor since 2014.

Los Angeles, California

June 17, 2021

46

Pareteum Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS 

(in thousands, except share and per share amounts)

	As of December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	8,275	$	4,447
Restricted cash	6,479		1,455
Accounts receivable, net of an allowance for doubtful accounts of $2,077 and $1,546 at December 31, 2020 and 2019, respectively	11,608		8,307
Notes receivable, current	300		—
Prepaid expenses and other current assets	3,672		4,453
Total current assets	30,334		18,662
Right-of-use assets, net	1,044		2,241
Notes receivable	—		512
Property and equipment, net	5,090		6,262
Intangible assets, net	12,998		15,500
Goodwill	11,043		10,099
Other assets	749		752
Total assets	$	61,258	$	54,028
LIABILITIES, SERIES C REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and customer deposits	$	36,034	$	30,374
Net billings in excess of revenue	3,634		2,529
Accrued expenses and other payables	13,286		13,616
Promissory notes	934		993
Related party loan, current	337		—
Lease liabilities, current	524		2,422
Derivative liability	6,163		—
Senior secured convertible note, net	6,655		—
Total current liabilities	67,567		49,934
Series C redeemable preferred stock	—		4,798
Lease liabilities	601		415
Warrant liability	7,768		—
Paycheck protection program loan	824		—
Related party loan	—		420
Other long-term liabilities	—		23
Total liabilities	76,760		55,590
Commitments and Contingencies (See Notes)
Series C redeemable preferred stock: Redemption amount of $21,767 and $0 as of December 31, 2020 and 2019, respectively	24,899		—
Stockholders' deficit:
Preferred Stock $0.00001 par value, 50,000,000 shares authorized; 218 and 105 issued and outstanding as of December 31, 2020 and 2019, respectively	—		—
Common Stock $0.00001 par value, 500,000,000 shares authorized, 140,268,725 and 139,060,180 issued and outstanding as of December 31, 2020 and 2019, respectively	552,852		547,948
Accumulated deficit	(584,593)		(539,493)
Accumulated other comprehensive loss	(8,660)		(10,017)
Total stockholders' deficit	(40,401)		(1,562)
Total liabilities, series C redeemable preferred stock and stockholders' deficit	$	61,258	$	54,028

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

47

Pareteum Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	For the years ended December 31,
	2020		2019
Revenue	$	69,637	$	62,049
Cost and operating expenses:
Cost of revenue (excluding depreciation and amortization)	48,954		47,134
Product development	10,334		12,956
Sales and marketing	6,147		10,345
General and administrative	29,809		34,583
Acquisition costs	—		3,457
Impairment of goodwill and intangible assets	—		156,765
Depreciation and amortization	10,795		12,739
Total cost and operating expenses	106,039		277,979
Loss from operations	(36,402)		(215,930)
Other income (expense):
Interest expense, net	(9,141)		(2,618)
Gain on sale of assets	10,753		—
Change in fair value of derivative and warrant liabilities	6,993		—
Loss on extinguishment of debt	(16,996)		(8,873)
Other income (expense), net	80		(3,221)
Total other expense	(8,311)		(14,712)
Loss before (benefit) provision for income tax	(44,713)		(230,642)
Income tax benefit	(52)		(8,295)
Net loss	(44,661)		(222,347)
Accretion and dividends of series C redeemable preferred stock	(816)		—
Net loss attributable to common equity	$	(45,477)	$	(222,347)
Loss per common share:
Basic and diluted	$	(0.33)	$	(1.91)
Weighted average number of common shares outstanding:
Basic and diluted	138,739		116,182

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

48

Pareteum Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

	For the years ended December 31,
	2020		2019
Net loss	$	(44,661)	$	(222,347)
Other comprehensive income (loss):
Foreign currency translation gain (loss)	1,357		(3,301)
Comprehensive loss	$	(43,304)	$	(225,648)

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

49

Pareteum Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN SERIES C REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) 

(in thousands, except share amounts)

	Series C Redeemable Preferred Stock			Common Stock			Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stock- holders Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance - December 31, 2018	—	$	—	98,292,530	$	453,995	$	(317,132)	$	(5,389)	$	131,474
Cumulative impact of accounting errors in previously reported consolidated financial statements	—	—		—	—		(14)		(1,327)		(1,341)
Balance - January 1, 2019	—	—		98,292,530	453,995		(317,146)		(6,716)		130,133
Shares issued for acquisition-iPass	—	—		9,865,412	28,610		—		—		28,610
Shares issued for acquisition-Devicescape	—	—		400,000	1,692		—		—		1,692
Shares issued for warrant exercises	—	—		4,703,537	1,385		—		—		1,385
Shares issued for conversion of note	—	—		84,220	147		—		—		147
Shares issued for equity fundraises (Sept. financing)	—	—		18,852,272	33,180		—		—		33,180
Warrants issued in September financing-prefunded	—	—		—	6,781		—		—		6,781
Expenses attributable to September financing	—	—		—	(2,281)		—		—		(2,281)
Fortress warrants issued in iPass acquisition	—	—		—	803		—		—		803
Common stock issued in connection with debt facility	—	—		1,175,000	3,775		—		—		3,775
Shares issued for settlement of accounts payable/debt	—	—		3,110,882	8,414		—		—		8,414
Share-based compensation	—	—		—	11,236		—		—		11,236
Shares issued for exercised stock options	—	—		177,678	211		—		—		211
Vesting of restricted and common stock awards	—	—		2,398,649	—		—		—		—
Other comprehensive loss due to foreign exchange rate translation net of tax	—	—		—	—		—		(3,301)		(3,301)
Net loss	—	—		—	—		(222,347)		—		(222,347)
Balance - December 31, 2019	—	—		139,060,180	547,948		(539,493)		(10,017)		(1,562)
Warrants issued for settlement of debt	—	—		—	653		—		—		653
Forbearance warrant repricing	—	—		—	44		—		—		44
Share repurchase - Non-cash swap	—	—		—	439		(439)		—		—
Share-based compensation	—	—		—	4,321		—		—		4,321
Vesting of restricted and common stock awards	—	—		114,795	—		—		—		—
Shares issued for Senior Secured Convertible Note interest	—	—		1,093,750	263		—		—		263
Modification of Series C Redeemable Preferred Stock terms	218	24,083		—	—		—		—		—
Other comprehensive income due to foreign exchange rate translation net of tax	—	—		—	—		—		1,357		1,357
Net loss	—	—		—	—		(44,661)		—		(44,661)
Accretion of dividends of series C redeemable preferred stock	—	816		—	(816)		—		—		(816)
Balance - December 31, 2020	218	$	24,899	140,268,725	$	552,852	$	(584,593)	$	(8,660)	$	(40,401)

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

50

Pareteum Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(in thousands)

	For the years ended December 31,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(44,661)	$	(222,347)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization	10,795		12,739
Impairment of goodwill and intangible assets	—		156,765
Provision for doubtful accounts and reserve for note receivables	1,412		4,531
Share-based compensation	4,321		11,236
Change in fair value of derivative and warrant liabilities	(