PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value data)


	September 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
		(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,486	$	3,076	$	4,292	$	2,763
Contract receivables, net of allowance for doubtful accounts of $807 and $710
at September 30, 2020 and December 31, 2019, respectively		3,409		6,732
Contract receivables, net of allowance for doubtful accounts of $788 and $780
at March 31, 2021 and December 31, 2020, respectively						4,741		5,681
Unbilled work-in-progress		3,356		1,105		3,593		3,365
Prepaid and other current assets		1,849		1,594		1,608		1,828
Income taxes receivable		819		953		740		270
Total current assets		12,919		13,460		14,974		13,907
Property and equipment, net		531		482		512		532
Amortizable intangible assets, net		2,918		3,665		2,544		2,769
Operating leases — right-of-use assets		979		1,205
Operating leases — right-of-use assets, net						1,203		915
Deferred income taxes, net		631		1,000		960		953
Total assets	$	17,978	$	19,812	$	20,193	$	19,076

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Term loans - current portion, net	$	428	$	1,577
Term loan - current portion					$	—	$	142
Accounts payable and accrued liabilities		4,042		3,827		4,495		4,305
Lease obligations — operating leases		291		321		326		294
Unearned revenue		3,321		3,971		5,043		3,713
Total current liabilities		8,082		9,696		9,864		8,454
Long-term liabilities:
Term loan, net of current portion, net		319		122
Term loan, net of current portion						319		319
Lease obligations - operating leases, net of current portion		680		876		870		613
Total liabilities		9,081		10,694		11,053		9,386

Commitments and contingencies (Note 10)		—		—		—		—

Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding		—		—		—		—
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,374,329 shares issued and 12,195,440 shares outstanding as of September 30, 2020 and 12,342,723 shares issued and 12,163,834 shares outstanding as of December 31, 2019		12		12
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,405,466 shares issued and 12,226,577 shares outstanding as of March 31, 2021 and 12,374,798 shares issued and 12,195,909 shares outstanding as of December 31, 2020						12		12
Additional paid-in capital		99,714		99,555		99,973		99,776
Treasury stock, 178,889 shares as of September 30, 2020 and December 31, 2019, at cost		(1,253)		(1,253)
Treasury stock, 178,889 shares as of March 31, 2021 and December 31, 2020, at cost						(1,253)		(1,253)
Accumulated other comprehensive loss		(10,489)		(10,053)		(10,176)		(10,345)
Accumulated deficit		(79,087)		(79,143)		(79,416)		(78,500)
Total stockholders' equity		8,897		9,118		9,140		9,690
Total liabilities and stockholders' equity	$	17,978	$	19,812	$	20,193	$	19,076

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

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

[



	For the Three Months				For the Nine Months				For the Three Months
	Ended September 30,				Ended September 30,				Ended March 31,
		2020		2019		2020		2019		2021		2020
REVENUE
License fees	$	83	$	185	$	387	$	1,152	$	178	$	207
Services		6,691		5,928		19,001		17,914		6,282		6,078
Total revenue		6,774		6,113		19,388		19,066		6,460		6,285

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and amortization		2,132		2,144		6,456		6,249		2,240		2,136
Sales and marketing		1,511		1,815		4,516		5,574		1,341		1,561
General and administrative		1,352		979		3,875		3,985		1,445		1,414
Product development		1,094		1,183		3,168		3,676		1,304		1,063
Depreciation		58		61		158		150		62		50
Amortization		236		232		704		704		238		235
Goodwill impairment loss		—		—		—		6,687
Total costs of revenue and operating expenses		6,383		6,414		18,877		27,025		6,630		6,459

Income (loss) from operations		391		(301)		511		(7,959)
Loss from operations										(170)		(174)

Other income (expense)
Other (expense) income
Interest income		1		1		4		10		1		2
Interest expense		—		(71)		(65)		(255)		(1)		(47)
Other (loss) income, net		(1)		13		18		1
Other (expense) income, net										(291)		3
Foreign currency exchange (loss) income		(107)		250		240		183		(380)		383
Other (expense) income, net		(107)		193		197		(61)		(671)		341

Income (loss) from operations before income taxes		284		(108)		708		(8,020)
(Loss) income from operations before income taxes										(841)		167
Income tax expense		148		109		652		296		75		199
Net income (loss)	$	136	$	(217)	$	56	$	(8,316)
Net loss									$	(916)	$	(32)

Basic earnings (loss) per common share	$	0.01	$	(0.02)	$	0.00	$	(0.68)
Basic loss per common share									$	(0.08)	$	(0.00)

Diluted earnings (loss) per common share	$	0.01	$	(0.02)	$	0.00	$	(0.68)
Diluted loss per common share									$	(0.08)	$	(0.00)

Weighted average basic shares outstanding		12,195		12,163		12,185		12,154		12,206		12,164
Weighted average diluted shares outstanding		12,258		12,163		12,275		12,154		12,206		12,164

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

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

Nine Months Ended September 30, 2020

Accumulated

Additional

other

Total

Common stock

paid-in

Treasury

comprehensive

Accumulated

stockholders'

Shares

Amount

capital

stock

loss

deficit

equity
Balance at January 1, 2020
12,163,834

$
12

$
99,555

$
(1,253)

$
(10,053)

$
(79,143)

$
9,118
Restricted stock vested
31,606

—

—

—

—

—

—
Stock-based compensation
expense
—

—

159

—

—

—

159
Net income
—

—

—

—

—

56

56
Foreign currency translation
loss
—

—

—

—

(436)

—

(436)
Balance at September 30, 2020
12,195,440

$
12

$
99,714

$
(1,253)

$
(10,489)

$
(79,087)

$
8,897



Three Months Ended March 31, 2021

									Accumulated
					Additional				other				Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated		stockholders'
	Shares	Amount			capital		stock		loss		deficit		equity
Balance at January 1, 2021	12,195,909	$	12	$	99,776	$	(1,253)	$	(10,345)	$	(78,500)	$	9,690
Restricted stock vested	30,668		—		—		—		—		—		—
Stock-based compensation expense	—		—		197		—		—		—		197
Net loss	—		—		—		—		—		(916)		(916)
Foreign currency translation gain	—		—		—		—		169		—		169
Balance at March 31, 2021	12,226,577	$	12	$	99,973	$	(1,253)	$	(10,176)	$	(79,416)	$	9,140

							��

Nine Months Ended September 30, 2019
Three Months Ended March 31, 2020														Three Months Ended March 31, 2020

									Accumulated													Accumulated
					Additional				other			Total						Additional				other			Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated	stockholders'		Common stock				paid-in		Treasury		comprehensive		Accumulated	stockholders'
	Shares	Amount			capital		stock		loss		deficit	equity		Shares	Amount			capital		stock		loss		deficit	equity
Balance at January 1, 2019	12,126,708	$	12	$	99,224	$	(1,253)	$	(10,115)	$	(69,448)	$	18,420
Balance at January 1, 2020														12,163,834	$	12	$	99,555	$	(1,253)	$	(10,053)	$	(79,143)	$	9,118
Restricted stock vested	36,343		—		—		—		—		—		—	30,668		—		—		—		—		—		—
Stock-based compensation expense	—		—		263		—		—		—		263	—		—		58		—		—		—		58
Net loss	—		—		—		—		—		(8,316)		(8,316)	—		—		—		—		—		(32)		(32)
Foreign currency translation loss	—		—		—		—		(170)		—		(170)	—		—		—		—		(523)		—		(523)
Balance at September 30, 2019	12,163,051	$	12	$	99,487	$	(1,253)	$	(10,285)	$	(77,764)	$	10,197
Balance at March 31, 2020														12,194,502	$	12	$	99,613	$	(1,253)	$	(10,576)	$	(79,175)	$	8,621

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

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY~~CASH FLOWS

(in ~~thousands, except share data)~~thousands)

(unaudited)

Three Months Ended September 30, 2020

Accumulated

Additional

other

Total

Common stock

paid-in

Treasury

comprehensive

Accumulated

stockholders'

Shares

Amount

capital

stock

loss

deficit

equity
Balance at June 30, 2020
12,194,971

$
12

$
99,622

$
(1,253)

$
(10,675)

$
(79,223)

$
8,483
Restricted stock vested
469

—

—

—

—

—

—
Stock-based compensation
expense
—

—

92

—

—

—

92
Net income
—

—

—

—

—

136

136
Foreign currency translation
income
—

—

—

—

186

—

186
Balance at September 30, 2020
12,195,440

$
12

$
99,714

$
(1,253)

$
(10,489)

$
(79,087)

$
8,897



	For the Three Months Ended March 31,
		2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(916)	$	(32)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		62		50
Amortization of intangible assets		238		235
Amortization of debt issuance costs		—		1
Amortization of operating leases — right of use assets		85		76
Stock-based compensation expense		197		58
Foreign currency transaction loss (income), net		147		(408)
Provision for deferred income taxes		(3)		366
Change in operating assets and liabilities:
Contract receivables		933		1,283
Unbilled work-in-progress		(214)		(800)
Prepaid and other assets		213		(334)
Accounts payable and accrued liabilities		202		(80)
Income taxes receivable		(459)		(587)
Unearned revenue		1,279		(34)
Lease obligations — operating leases		(83)		(77)
Net cash provided by (used in) operating activities		1,681		(283)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(41)		(22)
Net cash used in investing activities		(41)		(22)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable		(142)		(394)
Net cash used in financing activities		(142)	��	(394)

Effect of exchange rate changes on cash and cash equivalents		31		229

Net increase (decrease) in cash and cash equivalents		1,529		(470)
Cash and cash equivalents at beginning of period		2,763		3,076
Cash and cash equivalents at end of period	$	4,292	$	2,606

Supplemental disclosure of cash and non-cash transactions:
Interest paid	$	4	$	61
Income taxes paid	$	271	$	253
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets	$	370	$	—

Three Months Ended September 30, 2019

Accumulated

Additional

other

Total

Common stock

paid-in

Treasury

comprehensive

Accumulated

stockholders'

Shares

Amount

capital

stock

loss

deficit

equity
Balance at June 30, 2019
12,162,270

$
12

$
99,417

$
(1,253)

$
(10,129)

$
(77,547)

$
10,500
Restricted stock vested
781

—

—

—

—

—

—
Stock-based compensation
expense
—

—

70

—

—

—

70
Net loss
—

—

—

—

—

(217)

(217)
Foreign currency translation
loss
—

—

—

—

(156)

—

(156)
Balance at September 30, 2019
12,163,051

$
12

$
99,487

$
(1,253)

$
(10,285)

$
(77,764)

$
10,197

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

~~EVOLVING SYSTEMS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

For the Nine Months Ended September 30,

2020

2019
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)
$
56

$
(8,316)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:

Depreciation

158

150
Amortization of intangible assets

704

704
Amortization of debt issuance costs

4

4
Amortization of operating leases — right of use assets

191

306
Stock-based compensation expense

159

263
Foreign currency transaction income, net

(98)

(183)
Bad debt (recoveries) expense, net

(11)

113
Provision for deferred income taxes

370

(49)
Goodwill impairment loss

—

6,687
Change in operating assets and liabilities:

Contract receivables

3,177

1,936
Unbilled work-in-progress

(2,244)

149
Prepaid and other assets

(274)

(510)
Accounts payable and accrued liabilities

252

(537)
Income taxes receivable

95

(508)
Unearned revenue

(563)

677
Lease obligations — operating leases

(191)

(316)
Net cash provided by operating activities

1,785

570

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(218)

(309)
Net cash used in investing activities

(218)

(309)

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

(1,182)

(2,684)
Proceeds from issuance of note

319

—
Net cash used in financing activities

(863)

(2,684)

Effect of exchange rate changes on cash and cash equivalents

(294)

(58)

Net increase (decrease) in cash and cash equivalents

410

(2,481)
Cash and cash equivalents at beginning of period

3,076

6,732
Cash and cash equivalents at end of period
$
3,486

$
4,251

Supplemental disclosure of cash and non-cash transactions:

Interest paid
$
63

$
246
Income taxes paid
$
173

$
159
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use
assets
$
41

$
1,609

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

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization — Evolving Systems, Inc. ~~(“we,” “us,” “our,” the “Company,” “Evolving” and “Evolving Systems”~~(the “Company”) is a provider of real-time digital engagement solutions and services of software solutions and services to the wireless carrier and consumer financial services markets. We maintain long-standing relationships with many of the largest wireless companies worldwide. The Company’s portfolio includes market-leading solutions and services for real-time analytics, customer acquisition and activation, customer value management and loyalty for the telecom industry promoting partnerships into retail and ~~their partners.~~financial services.

~~Our software solution platforms enable carriers’~~Acquisitions of BLS Limited (“EVOL BLS”), four Lumata Holdings subsidiaries, Lumata France SAS, Lumata Spain S.L., Lumata UK Ltd and Lumata Deutschland GmbH (collectively, “Lumata Entities”) in 2017, along with the acquisition of RateIntegration d/b/a Sixth Sense Media (“SSM”) in 2015, expanded our footprint in the digital marketing departments to innovate, execute and manage highly personalized and contextually relevant, interactive campaigns that engage consumers in real time and enhance customer retention through deploying loyalty programs. ~~In 2019,~~space. Each of these acquisitions had their own platform which we ~~introduced~~still maintain today. Through the extensive work of our product development team, we have launched the Evolution ~~this~~ platform supersedes our existing platforms and provides an upgrade path to our existing loyalty and customer value management “CVM” platforms. Evolution was built by combining, integrating, and improving uponfeaturing the best ~~components and features~~ of ~~our current~~these legacy platforms on cutting edge technology. Evolution is used to operate the most innovative large-scale loyalty programs, as well as ~~adding new enhancements.~~providing unique mechanics enabling gamification, optimization and personalization across a variety of channels. It enables our clients to engage with their customers at all stage of their lifecycle, providing interactive dialogue and smart recommendations through all available traditional and digital channels. The platform seamlessly integrates within the service provider’s IT infrastructure, either on-premise or on a private cloud. It can be operated or managed as a service depending on the market needs.

As a supplier of real-time digital engagement solutions and services, we drive growth in customer acquisition and activation, extend customer lifetime and increase customer value and revenue in the converging mobile, entertainment, financial and retail services eco-system. Our platforms, together with our team of experienced industry experts, help service ~~activation solution,~~ ~~Tertio®~~ providers increase their customer lifetime value (“~~TSA”~~CLV”) ~~is used to activate bundles of voice, video and data services for wireless, wireline and cable network operators; our SIM card activation solution,~~ ~~Dynamic SIM Allocation TM~~ ~~(“DSA”) is used to dynamically allocate and assign resources to Mobile Network Operators (“MNOs”) devices that rely on SIM cards; our~~ ~~Mobile Data Enablement TM~~ ~~(“MDE”) solution provides a data consumption and policy management solution for wireless carriers and Mobile Virtual Network Operators (“MVNOs”) that monitor~~over the ~~usage and consumption of data services; our~~ ~~Total Number Management~~™ (“TNM”) product is a scalable and fully automated database solution that enables operators to reliably and efficiently manage their telephone numbers as well as other communication identifiers (i.e. SIMs, MSISDNs IMSIs, ICCIDs, IPs). Our solutions can be deployed on premise or as a Software-as-a-Service (“SaaS”).course the customer lifecycle.

Evolving Systems provides software solutions and services throughout the world. The COVID-19 global outbreak has caused instability and volatility in multiple markets where our clients conduct business. We have leveraged our ability to provide support remotely resulting in limited effect on our ~~day to day~~day-to-day operations. The inability to travel has delayed interactions with our clients on projects and in the traditional modes of sales development. We continually work with existing and new clients exploring new ways of using our products and services to enhance their business. On-going travel restrictions has caused the business to interact with clients in new ways and reduced certain costs. The ~~financial covenants under our debt facilities (see Note 7) are related~~long-term effects on how we conduct business in the future is still undetermined but we continue to ~~cash balances and quarterly operational results which have been adversely affected by project delays related~~evolve to ~~customer interactions being postponed or our customers’ ability to make timely payments.~~ meet client needs.

We believe our current liquidity and funds from our ongoing operations will be sufficient to fund operations and meet the Company’s cash needs for ~~term loan payments through the full repayment of the loan on December 31, 2020, along with our~~future working capital and capital expenditure requirements for at least the next twelve months from the date of ~~filing~~issuance of these condensed consolidated financial statements. In making this assessment, we considered our ~~$3.5~~$4.3 million in cash and cash equivalents and our ~~$4.8~~$5.1 million in working capital at ~~September 30, 2020,~~March 31, 2021, along with our ability to ~~historically~~ generate positive cash flows from ~~operations.~~operations for the three months ended March 31, 2021 and year ended December 31, 2020.

Interim Condensed Consolidated Financial Statements — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these condensed consolidated financial statements are adequate to make the information presented not misleading. The condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with US GAAP and SEC regulations for interim financial statements. The results for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results that we will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, ~~2019~~2020 included in our Annual Report on Form 10-K as filed with the SEC on March ~~30, 2020.~~17, 2021.

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with ~~US GAAP~~accounting principles generally accepted in the United States of America (US GAAP), requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We made estimates with respect to revenue recognition for progress toward completion and direct profit or loss on contracts, allowance for doubtful accounts, ~~deferred taxes and~~ income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets and goodwill, useful

lives for property, equipment and intangible assets, business combinations, capitalization of internal software development costs and fair value of stock-based compensation amounts. Actual results could differ from these estimates.

Foreign Currency — Our reporting currency is the U.S. dollar. The functional currency of our foreign operations, generally, is the respective local currency for each foreign subsidiary. Assets and liabilities of foreign operations denominated in local currencies are translated at the spot rate in effect at the applicable reporting date. Our condensed consolidated statements of operations are translated at the weighted average rate of exchange during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive loss in stockholders’ equity. Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (expense) in the period in which they occur.

Principles of Consolidation — The unaudited condensed consolidated financial statements include the accounts of Evolving Systems, Inc. and subsidiaries, all of which are ~~wholly-owned.~~wholly owned. All significant intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition — The majority of our license fees and services revenue is generated from fixed-price contracts, this provides for licenses to our software products and services that customize such software to meet our customers’ needs. In most instances, customization services are determined to be essential to the functionality of the delivered software. Under Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”), revenue is recognized when our customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We measure revenue based on consideration specified in a contract with a customer and exclude any sales incentives. Furthermore, we recognize revenue when we satisfy a performance obligation by transferring control over the service to our customer.

A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. Losses on fixed-price projects are recorded when identified. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.

Nature of goods and services

The following is a description of our products and services from which we generate revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:

i. License Revenue

License ~~revenue~~fees represent the fees we receive from the licensing of our software products. In most instances, customization services are determined to be essential to the functionality of the delivered software. The license along with the customization services are transferred to our customers over time. In arrangements where the services are not essential to the functionality of the delivered software, we recognize license revenue when the license agreement has been approved and the software has been delivered. We can identify each party’s rights, payment terms, and commercial substance of the content. Where applicable, we identify multiple performance obligations and record as revenue as the performance obligations are fulfilled based on their estimated allocated standalone selling price. The selection of the method to measure progress towards completion requires judgment and is based on the extent of progress towards completion of the performance obligation. We recognize revenue using the input method of accounting based on labor hours.

ii. Customer Support Revenue

Customer support services includes annual support fees, recurring maintenance fees, and minor product upgrades generally as a single performance obligation. The ~~Company also offers a~~ warranty support ~~fee which represents~~fees represent a separate performance obligation that is provided for up to a year with initial license purchase. The Company allocates the contract transaction price related to warranty support fees based on pricing consistent with what we would offer to other market participants. Upon the conclusion of the warranty period, the customer can choose to continue to receive support and maintenance services via our customer support offerings. We recognize revenue from our support ratably over the service contract period.

iii. Services Revenue

We recognize revenue from fixed-price service contracts using the input method of accounting based on labor hours. These contracts generally include a single performance obligation. Under the input method, revenue is recognized on the basis of an entity’s efforts or inputs toward satisfying a performance obligation. We recognize revenue from professional services provided pursuant to

time-and-materials based contracts and training services as the services are performed, as that is when our performance obligation to our customers under such arrangements is fulfilled.

iv. Managed Services

We recognize revenue from our managed services contracts primarily over the service contract period generally as a single performance obligation. On occasion, our managed services contracts will contain a specified number of hours to work over the term of the ~~contract.~~contract or other services that would be separate performance obligations. Revenue for this type of managed service contract is recognized using the input method of accounting, as previously described.

Disaggregation of revenue

In the following table, revenue is disaggregated by primary geographical market, major products/service lines, and timing of revenue recognition (in thousands):


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	September 30,				September 30,				March 31,
	2020		2019		2020		2019		2021		2020
Primary geographical markets
United Kingdom	$	1,398	$	1,042	$	3,691	$	3,758	$	1,135	$	1,190
Other		5,376		5,071		15,697		15,308		5,325		5,095
	$	6,774	$	6,113	$	19,388	$	19,066	$	6,460	$	6,285

Major products/service lines
License revenue	$	83	$	185	$	387	$	1,152	$	178	$	207
Customer support, including warranty support fees		1,944		2,261		6,029		6,841		1,982		2,133
Services		2,388		1,700		5,747		4,896		2,056		1,567
Managed services		2,359		1,967		7,225		6,177		2,244		2,378
Total services		6,691		5,928		19,001		17,914		6,282		6,078
	$	6,774	$	6,113	$	19,388	$	19,066	$	6,460	$	6,285

Timing of revenue recognition
Products transferred at a point in time	$	61	$	39	$	289	$	560	$	169	$	135
Products and services transferred over time		6,713		6,074		19,099		18,506		6,291		6,150
	$	6,774	$	6,113	$	19,388	$	19,066	$	6,460	$	6,285

The following table provides information about receivables, assets, and liabilities from contracts with customers (in thousands):

Contract receivables are recorded at the invoiced amount and do not bear interest. Credit is extended based on the evaluation of a customer’s financial condition and collateral is not required. Unbilled work-in-progress is revenue which has been earned but not invoiced. The contract assets ~~(unbilled work-in-progress)~~ are transferred to the receivables when invoiced.

Management expects that incremental commission fees paid to employees and intermediaries as a result of obtaining contracts are recoverable and therefore the Company capitalized them as contract costs in the amount of $0.2 million at each of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

Capitalized commission fees are amortized based on the transfer of services to which the assets relate which may range from two to three years and are included in sales and marketing. In each of the three month periods ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the amount of amortization was less than $0.1 million and there was no impairment loss in relation to the costs capitalized. For the nine month periods ended September 30, 2020 and 2019, the amount of amortization was $0.2 million and less than $0.1 million, respectively, and there was no impairment loss in relation to the costs capitalized. Applying the practical expedient in ASC 606 paragraph 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in sales and marketing.

The contract liabilities primarily relate to unearned revenue. Amounts billed in advance of performance obligations being satisfied are recognized as unearned revenue.

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we recognized revenue of ~~$2.0~~$1.9 million and ~~$2.1~~$2.2 million, respectively, which was included in the corresponding contract liability balance at the beginning of the period. For the nine months ended September 30, 2020 and 2019, we recognized revenue of $3.1 million and $2.5 million, respectively, which was included in the corresponding contract liability balance at the beginning of the period.

Remaining performance obligations represent the transaction price of firm orders for which work has not been completed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity). As of ~~September 30, 2020,~~March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations with lives greater than one-year totaled ~~$10.1~~$16.9 million. The Company expects approximately ~~63%~~62% of remaining performance obligations to be recognized into revenue within the next twelve months, with ~~30% in 1-2 years and 7% in 3-4 years.~~the remaining 38% recognized thereafter.

We apply the practical expedient in paragraph ASC 606-10-50-14 and do not disclose information about remaining performance obligations that have original expected durations of one-year or less. We apply the transition practical expedient in paragraph ASC 606-10-65-1(f)(3) and do not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when we expect to recognize that amount as revenue.

Stock-based Compensation — We account for stock-based compensation by applying a fair-value-based measurement method to account for stock-based payment transactions with employees, non-employees and directors. We record compensation costs associated with the vesting of unvested ~~awards~~options on a straight-line basis over the vesting period. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock instead of settling such obligations with cash payments. We use the Black-Scholes model to estimate the fair value of each option grant on the date of grant. This model requires the use of estimates for expected term of the options and expected volatility of the price of our common stock. We recognize forfeitures as they occur rather than estimating them at the time of the grant.

Income Taxes — We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheets, as well as operating losses and tax credit ~~carryforwards.~~carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We reduce deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realized.

We use a recognition threshold and a measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

Segment Information — We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision-makers to evaluate performance and to make operating decisions. We have identified our Chief Executive Officer and Senior Vice President of Finance as our chief operating decision-makers. These chief operating decision makers review revenues by segment and review overall results of operations.

We currently operate our business as one operating segment which includes two revenue types: license fees revenue and services revenue (as shown on the condensed consolidated statements of operations). License fees revenue represents the fees received from the license of software products. Services revenue includes services directly related to the delivery of the licensed products, such as fees for custom development, integration services, SaaS services, managed services, annual support fees, recurring maintenance

fees, fees for maintenance upgrades and warranty services. Warranty services that are similar to software maintenance services are typically bundled with a license sale.

Recently Adopted Accounting Pronouncements — In ~~June 2016,~~December 2019, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to establish an allowance for credit losses for most financial assets. Prior US GAAP was based on an incurred loss methodology for recognizing credit losses on financial assets measured at amortized cost and available-for sale debt securities. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 31, 2018. The amendments in this ASU did not have a material impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820) — Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. ASU 2018-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The amendments in this ASU did not have a material impact on our condensed consolidated financial statements.

~~Recent Accounting Pronouncements~~ ~~— In December 2019, the FASB issued~~ ASU 2019-12, Income Taxes (ASC 740) — Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 ~~which~~ modifies ASC 740 to simplify the accounting for income ~~taxes.~~taxes and eliminates certain exceptions to the general principles in ASC 740. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing the incremental approach for intra-period allocation where there is a loss from continuing operations, and income or a gain from other items, and the general methodology for calculating income taxes in interim ~~periods.~~periods when a year-to-date loss exceeds the anticipated loss for the year. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill, reporting the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the first interim period that includes the enactment date, and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. WeThe amendments in this ASU did not have ~~not yet completed the full assessment of the~~a material impact on our condensed consolidated financial ~~statements or related disclosures.~~statements.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments – Issue 4: Cross-Reference to Line of-Credit or Revolving-Debt Arrangements Guidance in Subtopic 470-50. Stakeholders requested that paragraphs 470-50-40-17 through 40-18, which describe the accounting for fees between debtor and creditor and third-party costs directly related to exchanges or modifications of debt instruments, reference paragraph 470-50-40-21 for line-of-credit or revolving-debt arrangements. We have not yet completed the full assessment of the impact on our condensed consolidated financial statements or related disclosures.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our condensed consolidated financial statements and related disclosures.

We amortize identifiable intangible assets on a straight-line basis over their estimated useful lives. As of ~~September 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, identifiable intangibles were as follows (in thousands):

Amortization expense of identifiable intangible assets was $0.2 million for each of the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019 and $0.7 million for each of the nine months ended September 30, 2020 and 2019.~~respectively. Expected future amortization expense related to identifiable intangibles based on our carrying amount as of ~~September 30, 2020~~March 31, 2021 for the following five years is as follows (in thousands):

The components of accounts payable and accrued liabilities are as follows (in thousands):

Basic ~~earnings (loss)~~loss per share is computed by dividing loss or income available to common stockholders by the weighted average number of shares of common stock outstanding during the period, including common stock issuable under participating securities. Diluted ~~earnings (loss)~~loss per share is computed using the weighted average number of shares of common stock outstanding, plus all potentially dilutive common stock equivalents using the treasury stock method. Common stock equivalents consist of stock options and restricted stock.

The following is the reconciliation of the numerators and denominators of the basic and diluted ~~earnings (loss)~~loss per share computations (in thousands except per share data):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2020

2019

2020

2019
Basic earnings (loss) per common share:

Net income (loss)
$
136

$
(217)

$
56

$
(8,316)
Basic weighted average shares outstanding

12,195

12,163

12,185

12,154
Basic earnings (loss) per common share:
$
0.01

$
(0.02)

$
0.00

$
(0.68)

Diluted earnings (loss) per common share:

Net income (loss)
$
136

$
(217)

$
56

$
(8,316)
Weighted average shares outstanding

12,195

12,163

12,185

12,154
Effect of dilutive securities - options and restricted stock

63

—

90

—
Diluted weighted average shares outstanding

12,258

12,163

12,275

12,154
Diluted earnings (loss) per common share:
$
0.01

$
(0.02)

$
0.00

$
(0.68)




	For the Three Months Ended March 31,
		2021		2020
Basic loss per common share:
Net loss	$	(916)	$	(32)
Basic weighted average shares outstanding		12,206		12,164
Basic loss per common share:	$	(0.08)	$	(0.00)

Diluted loss per common share:
Net loss	$	(916)	$	(32)
Weighted average shares outstanding		12,206		12,164
Effect of dilutive securities - options and restricted stock		—		—
Diluted weighted average shares outstanding		12,206		12,164
Diluted loss per common share:	$	(0.08)	$	(0.00)

Weighted average options to purchase of approximately ~~0.4~~0.3 million shares ~~for the three~~ and ~~nine months ended September 30, 2020, and 0.6~~0.4 million shares of common stock equivalents ~~for the three and nine months ended September 30, 2019,~~ were excluded from the computation of diluted weighted average shares outstanding for the three months ended March 31, 2021, and 2020, respectively, because the effect would have been anti-dilutive since their exercise prices were greater than the average market value of our common stock for the ~~periods.~~period.

We recognized $0.2 million and less than $0.1 million of compensation expense in the condensed consolidated statements of operations, with respect to our stock-based compensation plans for each of the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, and $0.2 million and $0.3 million for the nine months ended September 30, 2020 and 2019,~~ respectively.

The following table summarizes stock-based compensation expenses recorded in the condensed consolidated statements of operations (in thousands):

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, no shares were available for grant under the 2007 Stock Plan, as amended. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 0.2 ~~million and 0.3~~ million options and restricted shares were issued and outstanding under the 2007 Stock Plan as amended, respectively.

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, there were approximately 0.5 ~~million shares and 0.4~~ million shares available for grant under the 2016 Stock Plan, respectively. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 0.2 ~~million and 0.3~~ million options and restricted shares were issued and outstanding under the 2016 Stock Plan, respectively.

The fair value of restricted shares for stock-based compensation expensing is equal to the closing price of our common stock on the date of grant. The restrictions for stock awards generally vest over four years for senior management and over one year for the board of directors.

The following is a summary of restricted stock activity under the plans for the ~~nine~~three months ended ~~September 30, 2020:~~Mach 31, 2021:

The following is a summary of stock option activity under the plans for the ~~nine~~three months ended ~~September 30, 2020:~~

Weighted-

Average

Weighted-

Remaining

Aggregate

Number of

Average

Contractual

Intrinsic

Shares

Exercise

Term

Value

(in thousands)

Price

(Years)

(in thousands)
Options outstanding at January 1, 2020
438

$
5.69

6.51

$
—
Less options forfeited/cancelled
(87)

5.46

Less options expired
(3)

2.86

Options outstanding at September 30, 2020
348

$
5.77

5.90

$
—

Options exercisable at September 30, 2020
280

$
6.10

5.59

$
—



				Weighted-
				Average
		Weighted-		Remaining	Aggregate
	Number of	Average		Contractual	Intrinsic
	Shares	Exercise		Term	Value
	(in thousands)	Price		(Years)	(in thousands)
Options outstanding at January 1, 2021	343	$	5.82	5.62	$	—
Less options forfeited/cancelled	(5)		2.25
Options outstanding at March 31, 2021	338	$	5.87	5.34	$	—

Options exercisable at March 31, 2021	301	$	6.04	5.18	$	—

There were no stock options granted during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 or ~~2019.~~2020. The total fair value of stock options and restricted stock vested during ~~the nine~~each of three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ was $0.2 ~~million and $0.3~~ million, respectively.

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~we did not have~~ ~~a significant customer (defined as contributing at least 10%). For the three months ended~~ ~~September 30, 2019,~~ we had one significant customer that accounted for 10% of revenue from operations, this significant customer is a large telecommunications operator in Europe.

For the nine months ended September 30, 2020 and 2019 one significant customer (defined as contributing at least 10%) accounted for 10% and 11% of revenue from operations, respectively. The significant customer is a large telecommunications operator in Europe.

As of March 31, 2021 and ~~ended~~ ~~September 30,~~December 31, 2020, ~~we did not have a significant customer~~no customers that accounted for ~~approximately~~ 10% of contract receivables and unbilled ~~work-in-progress. As of December 31, 2019, one customer accounted for 12% of contract receivables and unbilled work-in-progress.~~work-in-progress.

On August 16, 2017, we entered into a Term Loan Facility Agreement with East West Bank as lender in the amount of $4.7 million (the “Lumata Facility”). The Lumata Facility requires the Company to make monthly principal payments of approximately $0.1 million that commenced on July 31, 2018 and interest at the greater of (a) 3.5% or (b) the variable rate of interest that appears in the Wall Street Journal on a monthly measurement date plus in either case 1.5%. AsWe used the full amount of September 30, 2020, the U.S.A. Prime Rate was 3.25%. At September 30, 2020 the interest rate was 5.00%. In the event of a default, the interest rate increases by 5% per annum. Evolving Systems Inc. entered into the Lumata Facility asto fund the ~~parent guarantor; Evolving Systems BLS LTD and Evolving Systems Limited entered into~~acquisition of the Lumata ~~Facility as Original Guarantors (the “Original Guarantors”).~~companies. The Lumata Facility is secured by all of the assets of EVOL Holdings and the ~~original guarantors~~Original Guarantors in accordance with the terms of a Debenture entered into by ~~Evolving Systems~~EVOL Holdings and the Original Guarantors in favor of East West Bank. EVOL Holdings, ~~Evolving Systems~~EVOL Inc. and the Original Guarantors also entered into a Subordination Deed whereby each of the parties agreed to subordinate all loans by and among each other to East West Bank. Lumata France SAS and Lumata UK Ltd are also bound to adhere to the finance documents as additional obligors.

The Lumata Facility required the Company to pay an ~~arrangement fee~~Arrangement Fee (“Origination Fee”) of $23,650, payable in four equal installments, with the first payment due on the date of the Lumata Facility and the remaining three payments on the first, second and third anniversary thereof. The Company also agreed to pay East West Bank’s legal fees in connection with the transaction. The Company may prepay the Lumata Facility at any time, in a minimum amount of $250,000 and increments of $50,000, subject to a prepayment fee of 2% of the amount prepaid, on any prepayment made before the second anniversary date of the Agreement.

On February 29, 2016, we entered into the Fifth Amendment to the Loan and Security Agreement with East West Bank which provided for a Term Loan (the “Term Loan”) for $6.0 million. The $6.0 million Term Loan bore interest at a floating rate equal

to the U.S. Prime Rate plus 1.0%. In the event of a default, the interest rate was to increase 5% per annum. The Term Loan was secured by substantially all of the assets of Evolving Systems, including a pledge, subject to certain limitations with respect to stock of foreign subsidiaries, of the stock of the existing and future direct subsidiaries of Evolving Systems. Interest accrued from the date the Term Loan was made at the aforementioned rate and was payable monthly. The Term Loan was to be repaid in 36 equal monthly installments of principal, plus accrued but unpaid interest, commencing on January 1, 2017 and continuing on the first day of each month thereafter through and including January 1, 2020. The Term Loan required the Company to maintain a minimum current ratio, a specified ratio of Total Liabilities to EBITDA and a minimum fixed charge coverage ratio, as defined in the Term Loan. The Term Loan required us to pay two annual credit facility fees of $18,750 and legal fees equal to $1,000.

On September 24, 2019 the Company agreed in principle to the terms of a new amendment and on October 4, 2019, we entered into the First Amendment (“First Amendment”) to the Lumata Facility. The purpose of the First Amendment was to waive certain events of non-compliance with respect to covenants not achieved in prior periods and to amend future covenant requirements. The First Amendment also required Evolving Systems to make an advance payment of principal of $666,666.66. The remaining terms and conditions of the Lumata Facility and payment schedule remain unchanged. The Company also agreed to pay East West Bank’s legal fees in connection with the transaction. ~~The last payment was scheduled to be made January 31, 2021.~~

On September 24, 2019, the Company agreed in principle to the terms of a new amendment and on October 4, 2019, we entered into the Sixth Amendment to the Loan and Security Agreement (“Sixth Amendment”) with East West Bank to the Term Loan. The purpose of the Sixth Amendment was to waive certain events of non-compliance with respect to covenants not achieved in prior periods and to amend future covenant requirements. The Sixth Amendment also required Evolving Systems to make an advance payment of principal of $333,333.33. In addition, the Sixth Amendment added any default under the Lumata Facility discussed above as an Event of Default under the Term Loan. The remaining terms and conditions of the Term Loan and payment schedule remained unchanged. The Company also agreed to pay East West Bank’s legal fees in connection with the transaction. The last payment of principal and interest was made November 1, 2019.

Financial covenants previously included in the credit facilities ~~had been~~were amended and replaced by a minimum consolidated cash balance of no less than the total bank debt outstanding and a minimum trailing three month consolidated EBITDA fixed dollar amount mutually agreed to by the Company and East West Bank in the amendments.

On July 1, 2020, we entered into the Amendment and Waiver Letter (“Second Amendment”) to the Lumata Facility. The purpose of the Second Amendment was to waive certain events of non-compliance with respect to covenants not achieved in prior periods and to amend future covenant requirements. The Second Amendment adjusted the loan amortization to be paid in full no later than December 31, 2020 and fixed the interest rate at 5% on the remaining principal. Monthly payments will be $0.1 million with the last payment scheduled to be made December 31, 2020.The Company also made an advance payment of $44,000 on June 1, 2020.

Financial covenants previously included in the amended credit facilities ~~have~~had been replaced by a monthly minimum consolidated cash balance of no less than $1.5 million and a fiscal quarter consolidated EBITDA

fixed dollar amount mutually agreed to by the Company and East West Bank in the amendments. ~~Evolving Systems has transacted all loan payments as originally scheduled and was~~The Company also agreed to pay East West Bank’s legal fees in ~~compliance~~connection with the ~~new covenants as~~transaction. The Second Amendment adjusted the loan amortization accelerating the final payment date and fixed the interest rate at 5% on the remaining principal. The remaining terms and conditions of ~~September 30,~~the Lumata Facility unchanged. Monthly payments were $0.1 million, and the Company also made an advance payment of $44,000 on June 1, 2020. The last payment was transacted on January 11, 2021.

On April 15, 2020, the Company received loan proceeds in the amount of $318,900 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after a period of eight to twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments until the Small Business Association remits the loan forgiveness amount to the ~~lender. However~~lender, however if the borrower does not apply for forgiveness the deferral shall be 10 months after the end of the loan forgiveness covered period. The Company intends to use the proceeds for purposes consistent with the ~~PPP.~~PPP, Company wages. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part. We have applied for forgiveness, but at this time there has not been any determination. Any such portion not forgiven can be prepaid in whole or part without penalty. We have recorded the PPP loan as a long term loan payable on our Condensed Consolidated Balance Sheet and will reduce the balance at the time loan is forgiven or we begin to make payments. This loan is due in one payment of principal of any unforgiven amount up to the full amount of $0.3 million, and accrued interest at maturity date in April of 2022.

WeThe income tax provision for the fiscal year ending December 31, 2021 interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, primarily related to the effects of foreign currency exchange realized transaction gains or losses and foreign taxes withheld. At March 31, 2021 the Company is currently estimating an annual effective tax rate of approximately 9.2%. For the three months ended March 31, 2021 discrete items resulted in a net tax expense effect of approximately $0.1 million. The Company’s recorded effective income tax rate was (9.0%) including effect of discrete items for the three months ended March 31, 2021. The Company recorded an income tax expense of $0.1 million ~~for each of the three months ended September 30, 2020~~ and 2019, respectively. The net expense during the three months ended September 30, 2020 consisted of current income tax expense of $0.1 million. The current tax expense consists of income tax primarily from our U.K. and Indian based operations and foreign taxes withheld. The net expense during the ~~three months ended September 30, 2019 consisted of current income tax expense of $0.1 million. The current tax expense consists of income tax primarily from our Indian based operations.~~

~~We recorded income tax expense of $0.7~~$0.2 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively. The net expense during the nine months ended September 30, 2020 consisted of current income tax expense of $0.7 million. The current tax expense consists of income tax primarily from our U.K., Nigerian and Indian based operations and foreign taxes withheld. The net expense during the nine months ended September 30, 2019 consisted of current income tax expense of $0.3 million. The current tax expense consists of income tax primarily from our Indian and Nigerian based operations.

~~Our effective tax rate was 52% and (101%)~~ for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~The 2020~~Each quarter, the estimate of the annual effective tax rate ~~relates~~is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to ~~our net~~various factors.

The Company and its subsidiaries are subject to U.S. Federal income ~~coming from our U.K. and Indian based operations~~tax, as well as ~~foreign withholding tax and net losses from our other operations for which we did not recognize a net deferred tax benefit.~~

Our effective tax rate was 92% and (4%) for the nine months ended September 30, 2020 and 2019, respectively. The 2020 effective tax rate relates to our net income coming from our U.K., Indian and Nigerian based operations as well as foreign withholding tax and net losses from our other operations for which we did not recognize a net deferred tax benefit.

As of September 30, 2020 and December 31, 2019 we continued to maintain a valuation allowance on our domestic net deferred tax asset for foreign tax credit (“FTC”) carryforwards, certain state net operating loss (“NOLs”) carryforwards and research and development tax credits other than $0.5 million in FTC. We also have $0.3 million of foreign deferred tax assets, offset by foreign deferred tax liabilities of $0.2 million. Our deferred tax assets and liabilities as of September 30, 2020, and December 31, 2019, were comprised of the following (in thousands):

~~As of September 30, 2020 and December 31, 2019 we had no liability for unrecognized tax benefits.~~

~~We conduct business globally and, as a result, Evolving Systems or one or more of our subsidiaries file~~ income tax ~~returns in the U.S. federal jurisdiction and various~~of multiple state and foreign jurisdictions. InAs of March 31, 2021, the normal course of business, we are subject to examination by taxing authorities throughout the world, namely the U.S., U.K., France, and India. Although carryovers can always be subject to review by taxing authorities, we are no longerCompany is subject to U.S. ~~federal, state and local, or non-U.S.~~Federal income tax examinations for the years ~~before 2014.~~

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, net operating loss carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018,2017 through 2019 and ~~2020 taxable~~income tax examinations from various other jurisdictions for the years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of EBITDA. We are planning on accelerating our alternative minimum tax credit refund.2015 through 2019.

The Company’s tax positions include the Company’s intercompany transfer pricing policies and the associated taxable income and deductions arising from intercompany charges between subsidiaries within the consolidated group. During fiscal year 2018 and update each year subsequently, the Company finalized ~~an Advance Pricing Arrangement (“APA”)~~a transfer pricing plan with Evolving Systems and its subsidiaries. This ~~APA~~transfer pricing plan determined the amount of income which is taxable in each respective jurisdiction. The Company applied this methodology in accordance with the ~~APA~~transfer pricing plan and the adjustments necessary to reflect the reduction in U.S. pre-tax income resulted in an increase in domestic income before income tax expense of ~~$1.2 million and $3.4~~$1.1 million and a corresponding decrease in foreign income before income tax expense in the three ~~and nine~~ months ended ~~September 30, 2020, respectively.~~March 31, 2021.

We are headquartered in Englewood, a suburb of Denver, Colorado. We use customer locations as the basis for attributing revenue to individual countries. We provide products and services on a global basis through our ~~offices in North Carolina and our~~ U.K.-based subsidiaries. Additionally, personnel in Cluj ~~Romania,~~-Napoca, Romania; Grenoble, ~~France,~~France; and Bangalore and Kolkata, ~~India,~~India; provide software development services and support to our global operations. Financial information relating to ~~U.S.-based~~U.S. based companies and by international ~~geographical regions~~geographic region exceeding the threshold (defined as contributing at least 10%) of revenue from operations is as follows (in thousands):

Under ~~ASU 2016-02, Leases (“~~Topic ~~842”),~~842, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases primarily consisting of facilities with remaining lease terms of one year to ~~seven~~nine years. We lease office and operating facilities under non-cancelable operating leases. Current facility leases include our offices in Englewood, Colorado, New York, New York, London, England, Bangalore and Kolkata India, Johannesburg, South Africa, Kuala Lumpur, Malaysia, ~~Grenoble,~~Échirolles, France, Cluj-Napoca, Romania and Madrid, ~~Spain~~.Spain. The Company entered into one new nine year lease in ~~Kuala Lumpur, Malaysia in the nine months ended September 30, 2020, this~~Échirolles, France that contributed ~~less than $0.1~~$0.3 million to our right-of-use asset/operating lease ~~liability. Our lease for~~liability in the Kolkata facility provided us with the option to terminate the lease in August 2020. We did not exercise our termination option and have included costs through the July 2026 lease end date, since this was the plan from the onset there has been no change to the right of use assets.three months ended March 31, 2021. Total rent expense consisted of operating lease expense of $0.1 million and short-term lease expense of less than $0.1 million for each of the three months ended ~~September 30, 2020 versus operating lease expense of $0.1 million~~March 31, 2021 and short-term lease expense of less than $0.1 million for the three months ended September 30, 2019. Total rent expense consisted of operating lease expense of $0.3 million and short-term lease expense of $0.2 million for the nine months ended September 30, 2020 versus operating lease expense of $0.4 million and short-term lease expense of $0.1 million for the nine months ended September 30, 2019.2020. There was no sublease rental income for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. We paid ~~$0.2 million and $0.5~~$0.1 million against Lease obligations –— operating leases infor each of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, compared to $0.1 million and $0.4 million in the three and nine months ended September 30, 2019~~ respectively.

Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, we combine the lease and non-lease components in determining the lease liabilities and right-of-use (“ROU”) assets.

Our lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments.

ROU lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheet as follows (in thousands):

Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of ~~September 30, 2020,~~March 31, 2021, for the following five fiscal years and thereafter were as follows (in thousands):

As permitted under Delaware law, we have agreements with officers and directors under which we agree to indemnify them for certain events or occurrences while the officer or director is, or was, serving at our request in this capacity. The term of the indemnification period is indefinite. There is no limit on the amount of future payments we could be required to make under these indemnification agreements; however, we maintain Director and Officer insurance policies, as well as an Employment Practices Liability Insurance Policy, that may enable us to recover a portion of any amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

We enter into standard indemnification terms with customers and suppliers, in the ordinary course of business, for third party claims arising under our contracts. In addition, as we may subcontract the development of deliverables under customer contracts, we could be required to indemnify customers for work performed by subcontractors. Depending upon the nature of the indemnification, the potential amount of future payments we could be required to make under these indemnification agreements may be unlimited. We may be able to recover damages from a subcontractor or other supplier if the indemnification results from the subcontractor’s or supplier’s failure to perform. To the extent we are unable to recover damages from a subcontractor or other supplier, we could be required to reimburse the indemnified party for the full amount. We have never incurred costs to defend lawsuits or settle claims relating to an indemnification. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

Our standard license agreements contain product warranties that the software will be free of material defects and will operate in accordance with the stated requirements for a limited period of time. The product warranty provisions require us to cure any defects through any reasonable means. We believe the estimated fair value of the product warranty provisions in the license agreements in place with our customers is minimal. Accordingly, there were no liabilities recorded for these product warranty provisions as of ~~September~~March 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

Our software arrangements generally include a product indemnification provision whereby we will indemnify and defend a customer in actions brought against the customer for claims that our products infringe upon a copyright, trade secret, or valid patent of a third party. We have not historically incurred any significant costs related to product indemnification claims. Accordingly, there were no liabilities recorded for these indemnification provisions as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

From time to time, we are involved in various legal matters arising in the normal course of business. ~~The Company has been served a complaint from~~On October 15, 2019, the Company’s former Chief Executive Officer ~~claiming~~filed a lawsuit in the Superior Court of New Jersey against us. That suit seeks $3.5 million for claims of libel, harm of lost employment opportunities, severance payments and benefits that he ~~was not properly compensated upon termination along with additional allegations.~~would have been entitled to receive had he been terminated without cause. The Company has engaged legal counsel through ~~our~~its insurance carrier and has begun ~~discovery and~~discovery. While no settlement has ~~scheduled mediation with~~been finalized, ongoing discussions are progressing. As such, we have recorded a contingent liability in the amount of $0.3 million as of March 31, 2021, such amount is included in other ~~party. The Company intends to defend this matter rigorously and the ultimate outcome is not estimable or determinable at this time.~~expenses, in our unaudited statement of operations.

2219

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about Evolving Systems’ industry, management’s beliefs, and certain assumptions made by management. Forward-looking statements include our expectations regarding product, services, and maintenance revenue, annual savings associated with the organizational changes effected in prior years, and short- and long-term cash needs. In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements. In addition, statements about the potential effects of the COVID-19 pandemic on the Company’s businesses, results of operations and financial condition may constitute forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC on March ~~30, 2020,~~17, 2021, under “Item 1A. Risk Factors” as well as additional risks in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

OVERVIEW

Evolving Systems Inc. is a ~~provider~~supplier of real-time digital engagement solutions and ~~services to the wireless carrier and consumer financial services markets.~~services. We ~~operate a managed services business model through which we maintain long-standing relationships with many of the largest wireless companies worldwide. We have acquired multiple companies~~drive growth in ~~the past few years to expand our offerings. The Company’s portfolio includes market-leading solutions and services for real-time analytics,~~ customer acquisition and activation, extend customer lifetime and increase customer value ~~management~~and revenue through analytics and loyalty ~~for~~programs in the ~~telecom~~converging mobile, entertainment, financial and retail services eco-system. Our platforms, together with our team of experienced industry ~~promoting partnerships into retail and financial services. The Company has moved from selling technology to offering business solutions. The~~experts, help service providers increase their customer lifetime value ~~proposition likewise has moved away from cost savings to a focus on revenue increases for~~(“CLV”) over the ~~carrier and our business model has moved from classic capital expenditure license and services to operating expense models based on managed services.~~course the customer lifecycle.

In 2019, we ~~introduced~~released Evolution, the new platform that supersedes and provides an upgrade path to the former loyalty and ~~CVM~~CLV platforms from both Evolving and its acquired companies — BLS, Lumata and SSM. Evolution was built by combining, integrating, and improving upon the best components and features of those previous platforms. We believe that Evolution provides a unique capability, and we expect to continue our focus on selling and promoting this significant new product. Our experienced team and the new technology provide actionable insights and relevant offers based on customer data, all of which greatly complements our software portfolio and 25 years of expertise in customer acquisition, activation and retention. Enhancements to our technology further expands our managed services platform for delivering on-tap strategic and tactical solutions.

RECENT DEVELOPMENTS

COVID-19 ~~and Liquidity Update~~

Evolving Systems provides software solutions and services throughout the world. The COVID-19 global outbreak has caused instability and volatility in multiple markets where our clients conduct business. We have leveraged our ability to provide support remotely resulting in limited effect on our day to day operations. The inability to travel has delayed interactions with our clients on projects and in the traditional modes of sales development. We continue to work with existing and new clients exploring new ways of using our products and services to enhance their business. On-going travel restrictions has caused the business to interact with clients in new ways and reduced certain costs. The ~~financial covenants under our debt facilities (see Note 7) are related~~long-term effects on how we conduct business in the future is still undetermined but the company continues to ~~cash balances and quarterly operational results which have been adversely affected by project delays related~~evolve to ~~customer interactions being postponed or our customers’ ability to make timely payments.~~ meet client needs.

We believe our current liquidity and funds from our ongoing operations will be sufficient to fund operations and meet the Company’s cash needs for ~~term loan payments through the repayment of the loan on December 31, 2020, along with our~~future working capital and capital expenditure requirements for at least the next twelve months from the date of ~~filing~~issuance of these condensed consolidated financial statements. In making this assessment, we considered our ~~$3.5~~$4.3 million in cash and cash equivalents and our ~~$4.8~~$5.1 million in working capital at ~~September 30, 2020,~~March 31, 2021, along with our ability to ~~historically~~ generate positive cash flows from ~~operations.~~

~~On April 15, 2020,~~operations for the ~~Company received loan proceeds in the amount of $318,900 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief~~three months ended March 31, 2021 and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after a period of eight to twenty-four weeks as long as the borrower uses the loan proceeds for eligible

purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.year ended December 31, 2020.

Consolidated revenue was ~~$6.8~~$6.5 million and ~~$6.1~~$6.3 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $19.4 million for the nine months ended September 30, 2020 compared to $19.1 million for the same period in 2019.~~respectively. The increases are primarily related to new projects and upgrades to existing and new clients partially offset by a reduction in work hours as projects near or come to ~~completion and a lower number of incremental licenses sold to one customer as compared to the prior year.~~

~~EXCHANGE RATE FLUCTUATIONS~~

We have operations in foreign countries where the local currency is used to prepare the condensed consolidated financial statements which are translated into our reporting currency, U.S. dollars. Changes in the exchange rates between these currencies and our reporting currency are partially responsible for some of the changes from period to period in our financial statement amounts. The majority of the changes in 2020 and 2019 are a result of the Euro and the British Pound Sterling strengthening on average versus the U.S. dollar. The chart below summarizes what the effects on our revenue and expenses would be on a constant currency basis. The constant currency basis assumes that the exchange rate was constant for the periods presented (in thousands):

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

2020 vs. 2019

2020 vs. 2019
Changes in:

Revenue
$
171

$
(38)
Costs of revenue and operating expenses

351

74
Loss from operations
$
(180)

$
(112)

~~The net effect of our foreign currency translations for the three months ended September 30, 2020 was a $0.2 million increase in revenue~~ and an $0.4 million increase in operating expenses versus the three months ended September 30, 2019. The net effect of our foreign currency translations for the nine months ended September 30, 2020 was a less than $0.1 million decrease in revenue and a less than $0.1 million increase in operating expenses versus the nine months ended September 30, 2019.completion.

2420

RESULTS OF OPERATIONS

The following table presents the unaudited condensed consolidated statements of operations reflected as a percentage of total revenue:




	For the Three Months Ended September 30,		For the Nine Months Ended September 30,		For the Three Months Ended March 31,
	2020	2019	2020	2019	2021	2020
REVENUE
License fees	1%	3%	2%	6%	3%	3%
Services	99%	97%	98%	94%	97%	97%
Total revenue	100%	100%	100%	100%	100%	100%

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and amortization	31%	35%	33%	33%	35%	34%
Sales and marketing	22%	30%	23%	29%	21%	25%
General and administrative	20%	16%	20%	21%	22%	22%
Product development	16%	19%	16%	19%	20%	17%
Depreciation	1%	1%	1%	1%	1%	1%
Amortization	3%	4%	4%	4%	4%	4%
Goodwill impairment loss	—	—	—	35%
Total costs of revenue and operating expenses	93%	105%	97%	142%	103%	103%

Income (loss) from operations	7%	(5%)	3%	(42%)
Loss from operations					(3%)	(3%)

Other income (expense)
Other (expense) income
Interest income	—	—	—	—	—	—
Interest expense	—	(1%)	—	(1%)	—	(1%)
Other (loss) income, net	—	—	—	—
Other (expense) income, net					(5%)	-
Foreign currency exchange (loss) income	(2%)	4%	1%	1%	(6%)	6%
Other (expense) income, net	(2%)	3%	1%	—	(11%)	5%

Income (loss) from operations before income taxes	5%	(2%)	4%	(42%)
(Loss) income from operations before income taxes					(14%)	2%

Income tax expense	2%	2%	3%	2%	1%	3%

Net income (loss)	3%	(4%)	1%	(44%)
Net loss					(15%)	(1%)

2521

Revenue

Revenue is comprised of license fees and services. License fees represent the fees we receive from the licensing of our software products. Services revenue are directly related to the delivery of the licensed product as well as integration services, managed services, SaaS services, time and materials work and customer support services. Customer support services include annual support fees, recurring maintenance fees, minor product upgrades and warranty fees. Warranty fees are typically deferred and recognized over the warranty period.

License Fees

License fees revenue was ~~$0.1 million and~~ $0.2 million for each of the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The ~~decrease in~~ revenue ~~of $0.1 million is primarily related to lower number of incremental licenses sold to one customer~~remained consistent during this three month period ~~than the corresponding three month period in the prior year.~~

License fees revenue was $0.4 million and $1.2 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in revenue of $0.8 million is primarily related to lower number of incremental licenses sold to existing customers inclusive of one significant customer sale of $0.4 million during the corresponding nine month period in the prior year.

~~Services~~

Services revenue increased $0.8 million, or 13%, to $6.7 million for the three months ended September 30, 2020 from $5.9 million for the three months ended September 30, 2019. The increase is related to upgrades and new project revenues of $1.0 million and increase in hours worked on existing clients of $0.5 million partially offset by a reduction of orders from existing clients of $0.7 million as compared to the corresponding three month period in the prior ~~year.~~year as one time license fees from one client in the prior year was offset by new one time license fee with a different client.

Services

Services revenue increased ~~$1.1~~$0.2 million, or 6%3%, to ~~$19.0~~$6.3 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 from ~~$17.9~~$6.1 million for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The increase is related to upgrades and new project revenues with existing clients of ~~$2.3~~$0.4 million, new client project of $0.2 million, and increase in hours worked on existing clients of ~~$0.4~~$0.2 million partially offset by decease in hours as projects are completed or near completion $0.3 million, a reduction of orders from existing clients of ~~$1.6~~$0.2 million, and one client termination of $0.1 million as compared to the corresponding ~~nine~~three month period in the prior year.

Costs of Revenue, Excluding Depreciation and Amortization

Costs of revenue, excluding depreciation and amortization, consist primarily of personnel costs and other direct costs associated with these personnel, facilities costs, costs of third-party software and partner commissions. Costs of revenue includes product development expenses related to certain software features requested ~~in advance of their scheduled availability which~~for deployment by the customer and are funded by customers as part of a managed service ~~offering.~~offering. Costs of revenue, excluding depreciation and amortization was $2.2 million and $2.1 million for ~~each of~~ the three months ended ~~September 30,~~March 31, 2021 and 2020, respectively. The increase is related to additional resource costs of $0.2 million offset by a decrease in travel and ~~2019.~~entertainment costs of $0.1 million due to travel restrictions of the global pandemic. As a percentage of revenue, costs of revenue, excluding depreciation and amortization, ~~decreased~~increased 1% to ~~31% and~~ 35% for the three months ended ~~September 30,~~March 31, 2021 from 34% for the three months ended March 31, 2020, ~~and 2019, respectively,~~ as costs were approximately constant as revenue increased due to work on delivering the new projects and upgrades.

Costs of revenue, excluding depreciation and amortization, increased $0.3 million, or 3%, to $6.5 million for the nine months ended September 30, 2020 from $6.2 million for the nine months ended September 30, 2019. The increase is related to increase in project hour costs of $0.5 million as staff was reassigned from product development to customer work, increase in staff costs of $0.1 million and an increase $0.1 million in the employee time off accrual, partially offset by $0.4 million a reduction in third party contractor cost. As a percentage of revenue, costs of revenue, excluding depreciation and amortization, was 33% for each of the nine months ended September 30, 2020 and 2019.

Sales and Marketing

Sales and marketing expenses primarily consist of compensation costs, including incentive compensation and commissions, travel expenses, advertising, marketing and facilities expenses. Sales and marketing expenses decreased $0.3 million, or ~~17%~~14%, to ~~$1.5~~$1.3 million for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~$1.8~~$1.6 million for the three months ended ~~September 30, 2019.~~March 31, 2020. The decrease is related to the reduction of ~~$0.2~~$0.1 million in lower travel and entertainment costs due to travel restrictions during the global pandemic and reduced marketing efforts, as well as reduction of $0.1 million in resource costs. As a percentage of total revenue, sales and marketing expenses decreased 8%4% to ~~22%~~21% for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~30%~~25% for the three months ended ~~September 30, 2019, this is primarily due to the aforementioned decreased expenses.~~

~~million for the nine months ended September 30,~~March 31, 2020, from $5.6 million for the nine months ended September 30, 2019. The decrease is related to the reduction of $0.5 million in lower travel and entertainment and marketing costs due to travel restrictions during the global pandemic, a reduction of $0.3 million in incentive compensation costs that included revision to the incentive compensation structure, and also a reduction in resource costs assigned to sales and marketing activities of $0.3 million. As a percentage of total revenue, sales and marketing expenses decreased 6% to 23% for the nine months ended September 30, 2020 from 29% for the nine months ended September 30, 2019, this is primarily due to the aforementioned decreased expenses.

General and Administrative

General and administrative expenses consist principally of employee-related costs for the following departments: finance, human resources, and certain executive management; facilities costs; and professional and legal fees. General and administrative expenses increased ~~$0.4~~less than $0.1 million, or ~~38%~~2%, to remain constant at $1.4 million for each of the three months ended ~~September 30,~~March 31, 2021 and 2020, from $1.0 million for the three months ended September 30, 2019. The increase is related to $0.2 million increase in accounting fees for local audits and filing of R&D credits, increase of incentive compensation of $0.1 million, and increases in various expenses that in total increased $0.1 million.respectively. As a percentage of revenue, general and administrative expenses ~~increased 4% to 20%~~remained constant at 22% for each of the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~as compared to 16% for the three months ended September 30, 2019. The increase in general and administrative expense is primarily due to the aforementioned higher expenses.~~

General and administrative expenses decreased $0.1 million, or 3%, to $3.9 million for the nine months ended September 30, 2020 from $4.0 million for the nine months ended September 30, 2019. The decrease was primarily attributable a reduction in accounting services of $0.2 million, primarily due to the elimination of fees incurred related to the transition of audit firms in the prior year partially offset by the higher fees for local audits and R&D credits and a reduction in equity compensation of $0.1 million. These reductions were partially offset by an increase in incentive compensation of $0.2 million. As a percentage of revenue, general and administrative expenses decreased 1% to 20% for the nine months ended September 30, 2020 as compared to 21% for the nine months ended September 30, 2019. The decrease in general and administrative expense is primarily due to the aforementioned lower expenses.respectively.

Product Development

Product development expenses consist primarily of employee-related costs and subcontractor expenses. Product development expenses ~~decreased $0.1~~increased $0.2 million, or 8%23%, to $1.3 million for the three months ended March 31, 2021 from $1.1 million for the three months ended ~~September 30, 2020 from $1.2 million for the three months ended September 30, 2019.~~March 31, 2020. The ~~decrease~~increase is primarily related to the ~~decrease~~additional resource costs from additional resources and an increase in ~~travel and entertainment costs of $0.1 million due to a reduction in staff that traveled in the corresponding period of the prior year.~~hours worked on product development projects by delivery staff. As a percentage of revenue, product development

expenses ~~decreased~~increased 3% to ~~16%~~20% for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~19%~~17% for the three months ended ~~September 30, 2019.~~March 31, 2020. The ~~decrease~~increase in general and product development expense is primarily due to the aforementioned ~~lower expenses.~~

Product development expenses decreased $0.5 million, or 14%, to $3.2 million for the nine months ended September 30, 2020 from $3.7 million for the nine months ended September 30, 2019. The decrease is related to a net decrease in resource costs of $0.3 million related to a staff reduction and a change to product development hours worked by internal staff assigned to product development projects, the reduction in travel costs of $0.1 million due to the staff departures, and change in the allocation of hardware and software maintenance costs reduced costs by $0.1 million. As a percentage of revenue, product development expenses decreased 3% to 16% for the nine months ended September 30, 2020 from 19% for the nine months ended September 30, 2019. The decrease in general and product development expense is primarily due to the aforementioned lowerhigher expenses.

Depreciation

Depreciation expense consists of depreciation of long-lived property and equipment. Depreciation expense was less than $0.1 million for each of the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. As a percentage of total revenue, depreciation expense for each of the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019 was 1%.~~

Depreciation expense consists of depreciation of long-lived property and equipment. Depreciation expense was $0.2 million for each of the nine months ended September 30, 2020 and 2019. As a percentage of total revenue, depreciation expense for the nine months ended September 30, 2020 and 2019 was 1%.

Amortization

months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019. As a percentage of total revenue, amortization expense was 3% and 4% for three months ended September 30, 2020 and 2019,~~ respectively.

Amortization expense consists of amortization of identifiable intangibles related to our acquisitions of Evolving Systems Labs, Evolving Systems NC, EVOL BLS, and the Lumata Entities. Amortization expense was $0.7 million for each of the nine months ended September 30, 2020 and 2019. As a percentage of total revenue, amortization expense was 4% for each of ~~the nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019.~~respectively.

Interest Expense

Interest expense includes the amortization of debt issuance costs and interest expense from our term loans. Interest expense for each of the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ was less than $0.1 million. As a percentage of revenue, interest expense was less than 1% and 1% for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively.~~

Interest expense includes the amortization of debt issuance costs and interest expense from our term loans. Interest expense for the nine months ended September 30, 2020 and 2019, was less than $0.1 million and $0.3 million, respectively, due to the loan payable reaching maturity at the end of the prior year. As a percentage of revenue, interest expense was less than 1% and 1% for each of the nine months ended September 30, 2020 and 2019, respectively.

Foreign Currency Exchange (Loss) Income ~~(Loss)~~

Foreign currency exchange (loss) income ~~(loss)~~ resulted from transactions denominated in a currency other than the functional currency of the respective subsidiary and decreased ~~$0.4~~$0.8 million or ~~143%~~199% to a ($~~0.1) mill~~ion0.4) million loss for the three months ended ~~September 30, 2020~~March 31, 2021 from a foreign currency gain of ~~$0.3~~$0.4 million for the three months ended ~~September 30, 2019~~March 31, 2020. The decrease was a result of the re-measurement of certain non-functional currency denominated financial assets and liabilities of our foreign subsidiaries.

~~Foreign currency exchange income resulted from transactions denominated in a currency other than the functional currency of the respective subsidiary~~ ~~and~~ ~~increased less than $0.1 million or 31% to $0.2 million for the nine months ended~~ ~~September 30, 2020~~ ~~from a foreign currency gain of $0.2 million for the nine months ended~~ ~~September 30, 2019. The gains were generated primarily through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our foreign subsidiaries~~.

Interest Income and Total Other (Expense) Income, Net

~~For each of~~Other expense for the three ~~and nine~~ months ended ~~September 30, 2020 and 2019,~~March 31, 2021 was $0.3 million compared to other income ~~was~~of less than $0.1 ~~million.~~million for the three months ended March 31, 2020. The increase in other expense is primarily due to the estimated litigation settlement costs recorded as a contingent liability in relation to the lawsuit filed by a former CEO of the Company. See Note 10 to the financial statements for additional information.

Income Taxes

We recorded net income tax expense of $0.1 million and $0.2 million for ~~each of~~ the three months ended ~~September 30,~~March 31, 2021 and 2020, respectively. For interim periods during fiscal year ending December 31, 2021, the expense is determined using an estimate of the annual effective tax rate, adjusted for discrete items, primarily related to the effects of foreign currency exchange realized transaction gains or losses and ~~2019.~~foreign taxes withheld. For the three months ended March 31, 2021 discrete items resulted in a net tax expense effect of approximately $0.1 million. The net expense during the three months ended ~~September 30,~~March 31, 2020 consisted ~~of current income tax expense of $0.1 million. The current tax expense consists~~ of income tax primarily from our U.K. subsidiary and Indian based operations as well as foreign taxes withheld. ~~The net expense during the three months ended September 30, 2019 consisted of current income tax expense of $0.1 million of income tax from our Indian based operations.~~ Our effective tax rate was ~~52%~~(9%) and ~~(101%)~~119% for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Our 2020 effective tax rate relates to our net income coming from our UK and India based subsidiaries’ operations as well as foreign withholding tax and net losses from our other subsidiaries’ operations for which we did not recognize a net deferred tax benefit.

We recorded net income tax expense of $0.7 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively. The net expense during the nine months ended September 30, 2020 consisted of current income tax expense of $0.7 million. The current tax expense consists of income tax primarily from our U.K., Indian and Nigerian based operations as well as foreign taxes withheld. The net expense during the nine months ended September 30, 2019 consisted of current income tax expense of $0.3 million. The current tax expense consists of income tax from our Indian and Nigerian based operations. Our effective tax rate was 92% and (4%) for the nine months ended September 30, 2020 and 2019, respectively. Our 2020 effective tax rate relates to our net income coming from our UK, Nigeria, and India based subsidiaries’ operations as well as foreign withholding tax and net losses from our other subsidiaries’ operations for which we did not recognize a net deferred tax benefit.

~~interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We are planning on accelerating our alternative minimum tax credit refund.~~

As of September 30, 2020, and December 31, 2019 we continued to maintain a valuation allowance on our domestic net deferred tax asset for foreign tax credit (“FTC”) carryforwards, certain state NOL carryforwards and research and development tax credits other than $0.5 million in FTC. We also have $0.3 million of foreign deferred tax assets, offset by foreign deferred tax liabilities of $0.2 million. We assessed the realizability of our domestic deferred tax assets using all available evidence. In particular, we considered both historical results and projections of profitability for the reasonably foreseeable future periods. We are required to reassess our conclusions regarding the realization of our deferred tax assets at each financial reporting date. A future evaluation could result in a conclusion that all or a portion of the valuation allowance is no longer necessary which could have a material impact on our results of operations and financial position. See Note 8 to the financial statements for a summary of our deferred tax assets and liabilities.

FINANCIAL CONDITION

Our working capital position ~~increased $1.0~~decreased $0.4 million, or ~~29%~~6%, to ~~$4.8~~$5.1 million at ~~September 30, 2020,~~March 31, 2021, from ~~$3.8~~$5.5 million at December 31, ~~2019.~~2020. The ~~increase~~decrease in working capital is primarily related to ana decrease in contract receivable and increase in unearned

revenue partially offset by the increase in cash and cash equivalents and unbilled ~~work~~revenue in ~~progress along with decrease in current portion~~addition to the final payment of the current term loan and unearned revenue, an alternative minimum tax refund expected in the current year which was previously recorded in our deferred tax assets, offset by a decrease in accounts receivable and an increase in accounts payable and accrued liabilities.loan.

CONTRACTUAL OBLIGATIONS

There have been no material changes to the contractual obligations as disclosed in our ~~2019~~2020 Annual Report on Form 10-K, except that we entered into an new amendment with East West Bank on July 1, 2020 to resolve the non-compliance related to our trailing three-month EBITDA which we had failed to meet the minimum required in the amendment to our loan agreement with East West Bank in previous quarters. We have $0.4 million in outstanding debt recorded as a current liability as the Lumata Facility is due to be retired in December 2020. We are current on our loan payment obligations and we have made all scheduled loan payments to date.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed operations through cash flows from operations and bank borrowings. At ~~September 30, 2020,~~March 31, 2021, our principal source of liquidity was ~~$3.5~~$4.3 million in cash and cash equivalents and ~~$3.4~~$4.7 million in contract receivables, net of allowances. Our anticipated uses of cash in the future will be to ~~make term loan payments and~~ fund the growth of our business both organically and by expanding our customer base internationally. Other uses of cash will include product development, technology expansion, and capital expenditures.

Net cash ~~provided~~provided/used in operating activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$1.8~~$1.7 million and ~~$0.6~~$(0.3) million, respectively. Cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was primarily due to the ~~net income inclusive~~increase in unearned revenue of ~~noncash charges~~$1.3 million and an increase in accounts payable and accrued liabilities of ~~$1.2~~$0.2 million ~~and~~as well as a decrease in contract receivable of ~~$3.2~~$0.9 million, partially offset by the increase in unbilled ~~work-in-progress~~work in progress of ~~$2.2~~$0.2 million and income taxes receivable of $0.5 million. Cash used in operating activities for the three months ended March 31, 2020 was primarily due to an increase of $0.8 million in unbilled work in progress, taxes receivable of $0.6 million which included a refund of AMT previously recorded as a deferred tax asset, and prepaids and other assets of $0.3 million. Partially offset by the decrease in ~~unearned revenue~~accounts receivable of ~~$0.6~~$1.3 million.

Cash provided by operating activities for the nine months ended September 30, 2019 was primarily due to decreases of $2.1 million in accounts receivable and unbilled work-in-progress net of allowances and collection and an increase of $0.7 million to unearned revenues. This was partially offset by the net loss of $8.3 million (offset by noncash charges of $8.0 million), an increase in prepaid and other assets of $0.5 million, an increase in income tax receivable of $0.5 million, a decrease in current lease obligations of $0.3 million, and a decrease in accounts payables and accrued liabilities of $0.5 million.

Net cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 of ~~$0.2~~less than $0.1 million was due to thepurchase of property and equipment. Net cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 of ~~$0.3~~less than $0.1 million was due to the purchase of property and equipment.

Net cash used in financing activities was ~~$0.9~~$0.1 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was related to the final principal payments on our term ~~loan offset by the proceeds received with the Paycheck Protection Program.~~loan. Net cash used in financing activities ~~$2.7~~$0.4 million during the ~~nine~~three months ended ~~September 30, 2019~~March 21, 2020 was primarily ~~cash used for~~related to principal payments on our term loan.

As of September 30, 2020, we have $0.4 million in outstanding principal obligations on term loan payable to East West Bank (“EWB”) that require us to maintain specified financial requirements that are defined in the loan agreements. Evolving Systems provides software solutions and services throughout the world. The recent COVID-19 global outbreak has caused instability and volatility in multiple markets where our clients conduct ~~business.~~business, or we have employees working. The pandemic has delayed certain projects or the closing of new orders as customer interactions have been altered or postponed. At this time, we have seen only limited disruptions to our ability to continue delivery to our clients. The financial covenants under our debt facilities are related to cash balances and quarterly operational results which have been adversely affected by project delays or the closing of new deals related to customer interactions being postponed. The outbreak may also have affected our customers’ ability to make timely payments. As of September 30, 2020, we were compliant with our financial covenants, current on our loan payment obligations, and made all scheduled loan payments to date.

In January 2021, we made our last principal and interest payment on the term loan payable to East West Bank (“EWB”) that required us to maintain specified financial requirements that are defined in the loan agreements. We believe that our current cash and cash equivalents, together with anticipated cash flow from operations will be sufficient to meet ~~our term loan payments, along with~~ our working capital and capital expenditure requirements for at least the next twelve months from the date of issuance of this Quarterly Report on Form 10-Q. In making this assessment we considered the following:

Our cash and cash equivalents balance at ~~September 30, 2020~~March 31, 2021 of ~~$3.5~~$4.3 million;

Our working capital balance at ~~September 30, 2020~~March 31, 2021 of ~~$4.8~~$5.1 million; and

Our ability to ~~historically~~ generate positive cash flows from operations of ~~$1.8~~$1.7 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, and ~~$1.1~~$1.4 million and ~~$2.6~~$1.1 million for the full years ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

We are exposed to foreign currency rate risks which impact the carrying amount of our foreign subsidiaries and our consolidated equity, as well as our consolidated cash position due to translation adjustments. For the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the effect of exchange rate changes resulted in ~~decrease of $0.3 million and decreases~~an increase in cash of less than $0.1 million and an increase of $0.2

million, respectively. We do not currently hedge our foreign currency exposure, but we monitor rate changes and may hedge our exposures if we see significant negative trends in exchange rates.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Senior Vice President of Finance, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Senior Vice President of Finance, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Senior Vice President of Finance have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2020.~~March 31, 2021.

In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood

of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

During the three months ended ~~September 30, 2020,~~March 31, 2021, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Delaware		84-1010843
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9800 Pyramid Court, Suite 400 Englewood, Colorado		80112
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	EVOL	The Nasdaq Capital Market


Large Accelerated Filer ☐		Accelerated Filer ☐

Non-accelerated Filer ☒		Smaller Reporting Company ☒

Emerging Growth Company ☐


PART I — FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	87
	Notes to Unaudited Condensed Consolidated Financial Statements	98
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2320
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3025
Item 4	Controls and Procedures	3025

PART II — OTHER INFORMATION
Item 1	Legal Proceedings	3226
Item 1A	Risk Factors	3226
Item 6	Exhibits	3226

Signatures		3327



	September 30, 2020								March 31, 2021
		Gross Amount			Accumulated Amortization			Net Carrying Amount		Gross Amount			Accumulated Amortization			Net Carrying Amount
Purchased software	$	2,882		$	(1,786)		$	1,096	$	2,940		$	(2,008)		$	932
Trademarks and tradenames		304			(262)			42		312			(279)			33
Non-competition		39			(39)			—		40			(40)			—
Customer relationships		4,312			(2,532)			1,780		4,409			(2,830)			1,579
	$	7,537	(1)	$	(4,619)	(1)	$	2,918	$	7,701	(1)	$	(5,157)	(1)	$	2,544



Nine Months Ended September 30, 2020

									Accumulated
					Additional				other				Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated		stockholders'
	Shares	Amount			capital		stock		loss		deficit		equity
Balance at January 1, 2020	12,163,834	$	12	$	99,555	$	(1,253)	$	(10,053)	$	(79,143)	$	9,118
Restricted stock vested	31,606		—		—		—		—		—		—
Stock-based compensation expense	—		—		159		—		—		—		159
Net income	—		—		—		—		—		56		56
Foreign currency translation loss	—		—		—		—		(436)		—		(436)
Balance at September 30, 2020	12,195,440	$	12	$	99,714	$	(1,253)	$	(10,489)	$	(79,087)	$	8,897



Three Months Ended September 30, 2020

									Accumulated
					Additional				other				Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated		stockholders'
	Shares	Amount			capital		stock		loss		deficit		equity
Balance at June 30, 2020	12,194,971	$	12	$	99,622	$	(1,253)	$	(10,675)	$	(79,223)	$	8,483
Restricted stock vested	469		—		—		—		—		—		—
Stock-based compensation expense	—		—		92		—		—		—		92
Net income	—		—		—		—		—		136		136
Foreign currency translation income	—		—		—		—		186		—		186
Balance at September 30, 2020	12,195,440	$	12	$	99,714	$	(1,253)	$	(10,489)	$	(79,087)	$	8,897



Three Months Ended September 30, 2019

									Accumulated
					Additional				other			Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated	stockholders'
	Shares	Amount			capital		stock		loss		deficit	equity
Balance at June 30, 2019	12,162,270	$	12	$	99,417	$	(1,253)	$	(10,129)	$	(77,547)	$	10,500
Restricted stock vested	781		—		—		—		—		—		—
Stock-based compensation expense	—		—		70		—		—		—		70
Net loss	—		—		—		—		—		(217)		(217)
Foreign currency translation loss	—		—		—		—		(156)		—		(156)
Balance at September 30, 2019	12,163,051	$	12	$	99,487	$	(1,253)	$	(10,285)	$	(77,764)	$	10,197



For the Twelve Months ended September 30,
2020	$	939
2021		857
2022		414
2023		191
2024		87
Thereafter		430
	$	2,918



For the trailing twelve months ending March 31,
2022	$	923
2023		645
2024		324
2025		142
2026		94
Thereafter		416
	$	2,544



	Restricted
	Stock
	Number of
	Shares
	(in thousands)
Unvested restricted stock at January 1, ~~2020~~2021	~~159~~63
Less restricted stock vested	(31)
~~Less restricted stock forfeited/expired~~	~~(65)~~
Unvested restricted stock at ~~September 30, 2020~~March 31, 2021	6332



		September 30, 2020		December 31, 2019
Deferred tax assets:
Foreign tax credits carryforwards	$	4,618	$	4,650
Net operating loss carryforwards - Federal		—		—
Net operating loss carryforwards — State		947		753
Net operating loss carryforwards — Foreign		6,052		5,911
Alternative minimum tax credits		—		385
Stock compensation		483		552
Depreciable assets		36		54
Accrued liabilities and reserves		91		127
Total deferred tax assets		12,227		12,432

Deferred tax liabilities:
Intangibles		(25)		(180)
Accrued liabilities and reserves		(165)		(170)
Total deferred tax liability		(190)		(350)

Net deferred tax assets, before valuation allowance		12,037		12,082
Valuation allowance		(11,406)		(11,082)
Net deferred tax asset	$	631	$	1,000



		As of
		~~September 30, 2020~~March 31, 2021
Operating leases - right of use assets	$	~~979~~1,203

Operating lease current	$	~~291~~326
Lease obligations — operating leases, net of current portion		~~680~~870
Total lease liability	$	~~971~~1,196

Weighted average remaining lease term (in years)		~~3.8~~4.9
Weighted average discount rate		~~6.49%~~6.09%



		For the year ending		For the year ending
		December 31,		December 31,
2020 - Remaining	$	89
2021		327
2021 - Remaining			$	277
2022		302		354
2023		168		220
2024		71		122
2025				122
Thereafter		112		254
Total future minimum lease payments		1,069		1,349
Present value adjustment		98		153
Total	$	971	$	1,196


Exhibit No.		Description of Document
2.1		Asset Purchase Agreement, dated as of April 21, 2011, by and between Evolving Systems, Inc. and NeuStar, Inc., as filed as Exhibit 2.1 to the Registrant’s Form 8-K filed on April 21, 2011 and incorporated herein by reference.
2.2		Agreement and Plan of Merger by and among Evolving Systems, Inc., Topaz Merger Sub, Inc., Telespree Communications and Gill Cogan as the exclusive representative of the Effective Time Shareholders and Change in Control Payment Recipients, as filed as Exhibit 2.1 to the Registrant’s Form 8-K filed on October 25, 2013 and incorporated herein by reference.
2.3		Merger Agreement dated as of September 30, 2015, by and among Evolving Systems, Inc., Evolving Systems NC, Inc., a wholly owned subsidiary of Evolving Systems, RateIntegration, Inc. and a representative of the stockholders and change in control payment recipients of RateIntegration, Inc., as filed as Exhibit 2.1 to the Registrant’s Form 8-K filed September 30, 2015 and incorporated herein by reference.
3.1		Restated Certificate of Incorporation, as filed as an exhibit to the Registrant’s registration statement on Form S-1 filed January 9, 1998 and incorporated herein by reference.
3.2		Certificate of Designation for the Series B Convertible Preferred Stock, as filed as Exhibit 3.1 to the Registrant’s Form 8-K filed November 10, 2004 and incorporated herein by reference.
3.3		Certificate of Amendment to Certificate of Designation of Series B Convertible Preferred Stock filed as Exhibit 3.1(c) to the Registrant’s Form 8-K filed November 17, 2005 and incorporated herein by reference.
3.4		Certificate of Amendment to Certificate of Designation of Series B Convertible Preferred Stock filed as Exhibit 3.01 to the Registrant’s Form 8-K filed May 4, 2007 and incorporated herein by reference.
3.5		Certificate of Amendment to the Restated Certificate of Incorporation of Evolving Systems, Inc., as filed as Exhibit 3.1 to the Registrant’s Form 8-K filed on July 21, 2009 and incorporated herein by reference.
3.6		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Evolving Systems, Inc. as filed as Exhibit 3(i) to the Registrant’s Form 8-K filed on June 16, 2011 and incorporated herein by reference.
3.7		Amended and Restated Bylaws of Evolving Systems, Inc., as filed as Exhibit 3(ii) to the Registrant’s Form 8-K filed on July 31, 2014 and incorporated herein by reference.
10.1		Amendment and Waiver Letter to Term Loan Facility Agreement entered into by and among Evolving Systems, Inc. as Parent Guarantor, Evolving Systems Holdings Limited, as Original Borrower, Evolving Systems Limited and Evolving Systems BLS Limited, as further Original Guarantors, Evolving Systems Lumata Limited, and East West Bank as Lender, as filed as Exhibit 10.1 to the Registrant’s Form 8-K filed on July 7, 2020 and incorporated herein by reference.
31.1	*	Certification of Chief Executive Officer and Executive Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	*	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
32.1	**	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Securities Exchange Act, as amended, and 18 U.S.C. Section 1350.
32.2	**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(furnished herewith).
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.


Date: ~~November 12, 2020~~May 13, 2021		/s/ Mark P. Szynkowski
		Mark P. Szynkowski
		Senior Vice President of Finance and Secretary (Principal Financial and Accounting Officer)