UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31,
2018
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________
to __________
001-35360
(Commission file No.)
PARETEUM CORPORATION
(Exact name of registrant as specified
in its charter)
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DELAWARE
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95-4557538
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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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:
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Title of each class
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Trading
Symbol(s)
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Name of each exchange on which registered
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Common Stock, $0.00001 par value per share
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TEUM
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N/A
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Securities registered pursuant to Section
12(g) of the Act:
None
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.
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Large accelerated filer ¨
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Accelerated filer x
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Non-accelerated filer ¨
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Smaller reporting company x
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Emerging growth company ¨
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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 x No ¨
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, 2018, was approximately $139 million based
on the closing sale price of the Company’s common stock on such date of $2.50 per share, as reported by the NYSE American
LLC.
As of February 24,
2021, there were 161,994,943 shares of common stock outstanding.
Explanatory
Note
Pareteum
Corporation (together with subsidiaries, the “Company”) is filing this Amendment No. 2 on Form 10-K/A
(“Amendment No. 2”) to its Annual Report on Form 10-K for the year ended December 31, 2018, filed with the
Securities and Exchange Commission (“SEC”) on March 18, 2019 (as previously amended by Amendment No. 1 on
Form 10-K/A filed with the SEC on December 14, 2020, the “Original Form 10-K”), for the primary purposes
of updating each of (i) the audit opinion of Baker Tilly US, LLP found at pages 48-49 of the Original Form 10-K and (ii) the report of Baker Tilly US, LLP on the effectiveness of internal control over financial reporting as of December 31, 2018 found
at pages 113-114 of the Original Form 10-K and
adding a new consent of Baker Tilly US, LLP as Exhibit 23.2.
This Amendment also amends the cover page of the Original Form 10-K to update the number of shares of common stock
outstanding. In addition, Item 15(a)(3) of Part IV is amended to add as Exhibits 31.4 and 31.5 the certifications
required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Except
as described above, no other changes have been made to the Original Form 10-K. This Amendment does not reflect events
occurring after the filing of the Original Form 10-K, nor does it modify or update disclosures therein in any way other than as
expressly stated herein. Among other things, forward-looking statements made in the Original Form 10-K have not been
revised to reflect any events that may have occurred or facts that may have become known after the filing of the Original Form
10-K. Consequently, this Amendment should be read in conjunction with the Original Form 10-K and the Company’s filings
with the SEC subsequent to the filing of the Original Form 10-K.
Capitalized
terms used herein without definition have the meaning set forth in the Original Form 10-K.
PART IV
ITEM 15. Exhibit
and Financial Statement Schedules
The following exhibits are filed with
this Report.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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Pareteum Corporation
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By:
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/s/ Bart Weijermars
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Name:
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Bart Weijermars
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Title:
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Interim Chief Executive Officer
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Date:
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March 8, 2021
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Pareteum Corporation
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
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PAGE
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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33
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CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 (Restated) AND 2017
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34
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2018 (Restated) AND 2017
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35
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2018 (Restated) AND 2017
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36
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CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 (Restated) AND 2017
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37
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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38
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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, 2018 and 2017,
the related consolidated statements of comprehensive loss, changes in 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, 2018 and 2017, 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.
We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board (Untied States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control
– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our
report dated March 8, 2021 expressed an opinion that the Company had not maintained effective internal control over financial
reporting as of December 31, 2018 based on criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Going Concern Uncertainty
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements,
the Company has suffered recurring losses from operations, negative cash flows from operations and had an accumulated deficit of
$317.1 million as of December 31, 2018. 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 11, 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 2. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Restatement
As discussed in Note 1 to the financial
statements, the 2018 financial statements have been restated to correct misstatements related to revenue recognition, stock-based
compensation, business combinations, foreign currency translation and settlement of payables.
Change in Accounting Principle Related
to Revenue Recognition
As discussed in Note 2 to the financial
statements, the Company has changed its method of accounting for revenue during the year ended December 31, 2018 due to the
adoption of the Accounting Standards Codification 606, “Revenue from Contracts with Customers.”
Emphasis of Matter
As discussed in Note 28 to the financial
statements, in the fourth quarter of 2019 the Company expects to record an impairment charge estimated at approximately $123,168,000
related to goodwill and finite-lived intangible assets acquired in connection with the acquisition of Artilium plc.
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 audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the 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.
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/s/ Baker Tilly US, LLP (formerly Squar Milner LLP)
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We have served as the Company’s
auditor since 2014.
Los Angeles, California
March 8, 2021
Report of Independent
Registered Public Accounting Firm
To the Stockholders and the Board
of Directors of Pareteum Corporation
Opinion on the Internal Control
Over Financial Reporting
We have audited the internal control
over financial reporting of Pareteum Corporation and its subsidiaries (the “Company”) as of December 31, 2018,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the material weaknesses described below
on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial
reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (“COSO”).
As indicated in the accompanying Management’s
Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal
control over financial reporting did not include the internal controls of Artilium PLC., which is included in the December 31,
2018 consolidated financial statements of the Company and constituted 20% and 13% of total and net assets, respectively, as of
December 31, 2018 and 26% and 4% of revenues and net loss, respectively, for the year then ended. Our audit of internal control
over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of
Artilium PLC.
We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of
the Company as of December 31, 2018 and 2017 and the related consolidated statements of comprehensive loss, changes in stockholders’
equity (deficit) and cash flows for the years then ended (collectively, the “financial statements”) and our report
dated March 8, 2021 expressed an unqualified opinion on those financial statements and included explanatory paragraphs relating
to the Company’s ability to continue as a going concern, the restatement of its 2018 financial statements and the change
in accounting principle related to revenue recognition.
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 the company's annual or interim financial statements will not be prevented or detected on a timely basis.
The following material weaknesses have been identified and included in management’s assessment:
The Company’s entity
level controls were not effective due to certain “tone at the top” issues which contributed to an ineffective control
environment and to deficiencies aggregating to material weaknesses.
The Company conducted an
inadequate and ineffective management assessment of internal control over financial reporting, including insufficient experienced
resources to complete the documentation of internal control assessment and ineffective design, implementation and monitoring of
information technology general controls pertaining to the Company’s change management process.
The Company did not have
sufficient accounting and finance department resources to effectively assess risk, and design, operate and oversee effective internal
controls over financial reporting, which contributed to the failure in the effectiveness of certain controls. In addition, the
Company’s controls related to revenue recognition, stock-based compensation, business combination, foreign currency translation
and settlement of payables were not effective.
These material weaknesses were considered
in determining the nature, timing and extent of audit tests applied in our audit of the 2018 financial statements, and this report
does not affect our report dated March 8, 2021 on those financial statements.
Basis for Opinion
The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We
are a public accounting firm registered with the 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 audit in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal
Control Over Financial Reporting
A company's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
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/s/ Baker Tilly US, LLP (formerly Squar Milner LLP)
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We have served as the Company’s
auditor since 2014.
Los Angeles, California
March 8, 2021
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