Pareteum (TEUM) Stock Tumbles On Audit Problems

Pareteum Corp (NASDAQ: TEUM) investors were handed the short end of the stick this morning after the company announced that it will “restate its previously issued consolidated financial statements.” In lamens terms TEUM said that it messed up somewhere in its financial statements, but provided little information as to where.

As a result of the news, the stock is down dramatically, giving up nearly 50% of its value. Here’s what’s going on:

TEUM Stock Tanks On Financial Statement Mistakes

In a press release issued early this morning, Pareteum said that it will restate its previously announced financial statements for the 2018 year and the first and second quarter of the 2019. year.

In the release, the company said that the action is being taken at the recommendation of its Audit Committee. The Committee consulted with management as well as the company’s independent registered public accounting firm.

As a result of the coming restatement, TEUM said that investors should no longer rely on the financial information that was released for the periods above.

Reported Revenues Higher Than They Should Have Been

While TEUM wasn’t very clear as to exactly how widespread their accounting issues are, one thing that we do know is that some revenues in these periods should not have been recorded. In fact, the company said:

the Company may have prematurely or inaccurately recognized revenue.

The company said that aside from revenue, it expects cost of service, operating income, net loss, accounts receivable and other balance sheet line items to be effected.

TEUM said that its analysis is still underway. However, it estimates that the 2018 year restatement will include a reduction in revenue of around $9 million. For the first half of 2019, the reduction of revenue is expected to come in around $24 million.

This Is Where The Trouble Begins

In my view, the around 50% declines that we’re seeing in the value of Pareteum today are just the beginning of what’s ahead. Unfortunately, about $33 million of the company’s revenue is about to be wiped off of its balance sheet. As if this wasn’t painful ahead, there are other expenses that are likely to come of this.

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