UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
FORM 10-Q
xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended ended: June 30, 20212022
OR
OR
o☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: Number 001-34261
SYMBOLIC LOGIC, INC.
f/k/a Evolving Systems, Inc.
EVOLVING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 84-1010843 | |
|
| |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
9800 Pyramid Court, Suite 400 Englewood, CO |
| 80112 | |
|
| ||
(Address of principal executive offices) | | (Zip |
(303) (303) 802-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act.Act:
| | | | |
Title of | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share |
|
| NONE |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§(Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitionthe definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Act:
Large accelerated filer ☐ | ||
|
| |
☐ | ||
Non-accelerated | | Smaller |
| | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange ActAct. o
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
As of August 10, 2021,9, 2022, there were 12,257,24610,831,992 shares outstanding of Registrant’s Common Stock (par value $0.001 per share).
EVOLVING SYSTEMS, INC.
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| Condensed Consolidated Statements of Comprehensive (Loss) Income | 5 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity | 6 | |
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| Notes to Unaudited Condensed Consolidated Financial Statements | 9 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I —- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMBOLIC LOGIC, INC.
EVOLVING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)
| | | | | | |
|
| June 30, 2022 |
| December 31, 2021 | ||
| | (unaudited) | | | | |
ASSETS |
| |
|
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 17,821 | | $ | 39,445 |
Prepaid and other current assets | |
| 881 | |
| 106 |
Fixed maturity securities, available for sale, fair value | |
| 3,828 | |
| — |
Equity securities, fair value | | | 5,363 | | | 0 |
Debt securities, available for sale, fair value | | | 2,575 | | | — |
Total current assets | |
| 30,468 | |
| 39,551 |
Property and equipment, net | |
| 5 | |
| 4 |
Investments, at cost | | | 1,000 | | | — |
Total assets | | $ | 31,473 | | $ | 39,555 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable and accrued liabilities | | $ | 634 | | $ | 1,252 |
Escrow liability | | | 172 | | | — |
Income taxes payable | |
| 386 | |
| 575 |
Other liabilities | |
| 45 | |
| — |
Total current liabilities | |
| 1,237 | |
| 1,827 |
Total liabilities | |
| 1,237 | |
| 1,827 |
| | | | | | |
Commitments and contingencies (Note 8) | |
| | |
| |
| | | | | | |
Stockholders’ equity: | |
|
| |
|
|
Preferred stock, $0.001 par value; 2,000,000 shares authorized; 0 shares issued and outstanding | |
| — | |
| — |
Common stock, $0.001 par value; 40,000,000 shares authorized; 11,010,881 shares issued and 10,831,992 shares outstanding as of June 30, 2022 and 12,437,073 shares issued and 12,258,184 shares outstanding as of December 31, 2021 | |
| 11 | |
| 12 |
Additional paid-in capital | |
| 97,760 | |
| 100,024 |
Treasury stock, 178,889 shares as of June 30, 2022 and December 31, 2021, at cost | |
| (1,253) | |
| (1,253) |
Accumulated other comprehensive loss | |
| (2,574) | |
| 0 |
Accumulated deficit | |
| (63,708) | |
| (61,055) |
Total stockholders’ equity | |
| 30,236 | |
| 37,728 |
Total liabilities and stockholders’ equity | | $ | 31,473 | | $ | 39,555 |
June 30, 2021 | December 31, 2020 | ||||
(unaudited) | |||||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 4,896 | $ | 2,763 | |
Contract receivables, net of allowance for doubtful accounts of $784 and $780 | |||||
at June 30, 2021 and December 31, 2020, respectively | 4,739 | 5,681 | |||
Unbilled work-in-progress | 4,183 | 3,365 | |||
Prepaid and other current assets | 1,550 | 1,828 | |||
Income taxes receivable | 739 | 270 | |||
Total current assets | 16,107 | 13,907 | |||
Property and equipment, net | 510 | 532 | |||
Amortizable intangible assets, net | 2,310 | 2,769 | |||
Operating leases — right-of-use assets, net | 1,121 | 915 | |||
Long-term assets – other | 257 | — | |||
Deferred income taxes, net | 954 | 953 | |||
Total assets | $ | 21,259 | $ | 19,076 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Current liabilities: | |||||
Term loan - current portion | $ | — | $ | 142 | |
Accounts payable and accrued liabilities | 4,642 | 4,305 | |||
Lease obligations — operating leases | 332 | 294 | |||
Unearned revenue | 5,540 | 3,713 | |||
Total current liabilities | 10,514 | 8,454 | |||
Long-term liabilities: | |||||
Term loan, net of current portion | — | 319 | |||
Lease obligations - operating leases, net of current portion | 782 | 613 | |||
Total liabilities | 11,296 | 9,386 | |||
Commitments and contingencies (Note 10) | — | — | |||
Stockholders' equity: | |||||
Preferred stock, $0.001 par value; 2,000,000 shares authorized; 0 shares issued and outstanding | — | — | |||
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,436,135 shares issued and 12,257,246 shares outstanding as of June 30, 2021 and 12,374,798 shares issued and 12,195,909 shares outstanding as of December 31, 2020 | 12 | 12 | |||
Additional paid-in capital | 99,990 | 99,776 | |||
Treasury stock, 178,889 shares as of June 30, 2021 and December 31, 2020, | (1,253) | (1,253) | |||
Accumulated other comprehensive loss | (10,323) | (10,345) | |||
Accumulated deficit | (78,463) | (78,500) | |||
Total stockholders' equity | 9,963 | 9,690 | |||
Total liabilities and stockholders' equity | $ | 21,259 | $ | 19,076 | |
3
EVOLVING SYSTEMS,SYMBOLIC LOGIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | |
|
| For the Three Months Ended June 30, |
| For the Six Months Ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
| | | | | | | | | | | | |
Revenue | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 |
| | | | | | | | | | | | |
OPERATING EXPENSES | |
| | |
|
| | | | | | |
General and administrative | |
| 936 | |
| 726 | | | 2,088 | | | 1,658 |
Depreciation | |
| 1 | |
| 0 | | | 1 | | | 1 |
Total operating expenses | |
| 937 | |
| 726 | | | 2,089 | | | 1,659 |
| | | | | | | | | | | | |
Loss from operations | |
| (937) | |
| (726) | | | (2,089) | | | (1,659) |
| | | | | | | | | | | | |
Other income (expense) | |
|
| |
|
| | | | | | |
Interest income | |
| 243 | |
| 2 | | | 579 | | | 2 |
Interest expense | |
| 0 | |
| 0 | | | (2) | | | 0 |
Other income (expense), net | |
| (105) | |
| 318 | | | (91) | | | (1) |
Realized gain on investments, net | |
| 291 | |
| 0 | | | 394 | | | 0 |
Unrealized loss on investments, net | |
| (1,660) | |
| 0 | | | (1,558) | | | 0 |
Other income (expense), net | |
| (1,231) | |
| 320 | | | (678) | | | 1 |
| | | | | | | | | | | | |
Loss from continuing operations before income taxes | |
| (2,168) | |
| (406) | | | (2,767) | | | (1,658) |
Income tax expense (benefit) | |
| (6) | |
| 24 | | | (65) | | | 8 |
Net loss from continuing operations | |
| (2,162) | |
| (430) | | | (2,702) | | | (1,666) |
| | | | | | | | | | | | |
Income from discontinued operations before income taxes | |
| 0 | |
| 1,505 | | | 0 | | | 1,916 |
Income tax expense (benefit) from discontinued operations | |
| 0 | |
| 122 | | | (49) | | | 213 |
Net income from discontinued operations | |
| 0 | |
| 1,383 | | | 49 | | | 1,703 |
| | | | | | | | | | | | |
Net (loss) income | | $ | (2,162) | | $ | 953 | | $ | (2,653) | | $ | 37 |
| | | | | | | | | | | | |
Basic loss per common share from continuing operations | | $ | (0.18) | | $ | (0.04) | | $ | (0.22) | | $ | (0.14) |
Basic earnings per common share from discontinued operations | | $ | 0 | | $ | 0.11 | | $ | 0 | | $ | 0.14 |
| | | | | | | | | | | | |
Diluted loss per common share from continuing operations | | $ | (0.18) | | $ | (0.04) | | $ | (0.22) | | $ | (0.14) |
Diluted earnings per common share from discontinued operations | | $ | 0 | | $ | 0.11 | | $ | 0 | | $ | 0.14 |
| | | | | | | | | | | | |
Weighted average basic shares outstanding | |
| 12,300 | |
| 12,257 | | | 12,308 | | | 12,232 |
Weighted average diluted shares outstanding | |
| 12,300 | |
| 12,257 | | | 12,308 | | | 12,232 |
(unaudited)
For the Three Months | For the Six Months | |||||||||||
Ended June 30, | Ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
REVENUE | ||||||||||||
License fees | $ | 8 | $ | 97 | $ | 186 | $ | 304 | ||||
Services | 6,986 | 6,232 | 13,268 | 12,310 | ||||||||
Total revenue | 6,994 | 6,329 | 13,454 | 12,614 | ||||||||
COSTS OF REVENUE AND OPERATING EXPENSES | ||||||||||||
Costs of revenue, excluding depreciation and | 2,185 | 2,188 | 4,425 | 4,324 | ||||||||
Sales and marketing | 1,415 | 1,444 | 2,756 | 3,005 | ||||||||
General and administrative | 1,395 | 1,109 | 2,840 | 2,523 | ||||||||
Product development | 1,284 | 1,011 | 2,588 | 2,074 | ||||||||
Depreciation | 64 | 50 | 126 | 100 | ||||||||
Amortization | 240 | 233 | 478 | 468 | ||||||||
Restructuring | 61 | — | 61 | — | ||||||||
Total costs of revenue and operating expenses | 6,644 | 6,035 | 13,274 | 12,494 | ||||||||
Income from operations | 350 | 294 | 180 | 120 | ||||||||
Other income (expense) | ||||||||||||
Interest income | 3 | 1 | 4 | 3 | ||||||||
Interest expense | — | (18) | (1) | (65) | ||||||||
Other income, net | 578 | 16 | 287 | 19 | ||||||||
Foreign currency exchange income (loss) | 168 | (36) | (212) | 347 | ||||||||
Other income (expense), net | 749 | (37) | 78 | 304 | ||||||||
Income from operations before income taxes | 1,099 | 257 | 258 | 424 | ||||||||
Income tax expense | 146 | 305 | 221 | 504 | ||||||||
Net income (loss) | $ | 953 | $ | (48) | $ | 37 | $ | (80) | ||||
Basic earnings (loss) per common share | $ | 0.08 | $ | (0.00) | $ | 0.00 | $ | (0.01) | ||||
Diluted earnings (loss) per common share | $ | 0.08 | $ | (0.00) | $ | 0.00 | $ | (0.01) | ||||
Weighted average basic shares outstanding | 12,257 | 12,179 | 12,232 | 12,179 | ||||||||
Weighted average diluted shares outstanding | 12,258 | 12,179 | 12,258 | 12,179 |
4
EVOLVING SYSTEMS,SYMBOLIC LOGIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
(in thousands)
(unaudited)
| | | | | | | | | | | | |
|
| For the Three Months Ended June 30, |
| For the Six Months Ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net (loss) income | | $ | (2,162) | | $ | 953 | | $ | (2,653) | | $ | 37 |
| | | | | | | | | | | | |
Other comprehensive (loss) income | |
|
| |
|
| |
|
| |
|
|
Foreign currency translation (loss) income | |
| 0 | |
| (147) | |
| 0 | |
| 22 |
Unrealized loss on available-for-sale investments | |
| (2,034) | |
| — | |
| (2,574) | |
| — |
Comprehensive (loss) income | | $ | (4,196) | | $ | 806 | | $ | (5,227) | | $ | 59 |
(unaudited)
For the Three Months Ended | For the Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||
Net income (loss) | $ | 953 | $ | (48) | $ | 37 | $ | (80) | |||
Other comprehensive (loss) income | |||||||||||
Foreign currency translation (loss) income | (147) | (99) | 22 | (622) | |||||||
Comprehensive income (loss) | $ | 806 | $ | (147) | $ | 59 | $ | (702) |
5
EVOLVING SYSTEMS,SYMBOLIC LOGIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
Six Months Ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | Additional | | | | | other | | | | | Total | |||
| | Common Stock | | paid-in | | Treasury | | comprehensive | | Accumulated | | stockholders’ | ||||||||
|
| Shares |
| Amount |
| capital |
| stock |
| loss |
| deficit |
| equity | ||||||
Balance at January 1, 2022 |
| 12,258,184 | | $ | 12 | | $ | 100,024 | | $ | (1,253) | | $ | 0 | | $ | (61,055) | | $ | 37,728 |
Restricted stock vested |
| 75,000 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Stock-based compensation expense |
| — | |
| — | |
| 205 | |
| — | |
| — | |
| — | |
| 205 |
Retirement of common stock | | (1,501,192) | | | (1) | | | (2,469) | | | — | | | — | | | — | | | (2,470) |
Net loss |
| — | |
| — | |
| — | |
| — | |
| — | |
| (2,653) | |
| (2,653) |
Unrealized loss on available-for-sale investments |
| — | |
| — | |
| — | |
| — | |
| (2,574) | |
| — | |
| (2,574) |
Balance at June 30, 2022 |
| 10,831,992 | | $ | 11 | | $ | 97,760 | | $ | (1,253) | | $ | (2,574) | | $ | (63,708) | | $ | 30,236 |
Six Months Ended June 30, 2021
(unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 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 |
| 61,337 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Stock-based compensation expense |
| — | |
| — | |
| 214 | |
| — | |
| — | |
| — | |
| 214 |
Net income |
| — | |
| — | |
| — | |
| — | |
| — | |
| 37 | |
| 37 |
Foreign currency translation gain |
| — | |
| — | |
| — | |
| — | |
| 22 | |
| — | |
| 22 |
Balance at June 30, 2021 |
| 12,257,246 | | $ | 12 | | $ | 99,990 | | $ | (1,253) | | $ | (10,323) | | $ | (78,463) | | $ | 9,963 |
Six Months Ended June 30, 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 | 61,337 | — | — | — | — | — | — | ||||||||||||
Stock-based compensation | — | — | 214 | — | — | — | 214 | ||||||||||||
Net income | — | — | — | — | — | 37 | 37 | ||||||||||||
Foreign currency translation income | — | — | — | — | 22 | — | 22 | ||||||||||||
Balance at June 30, 2021 | 12,257,246 | $ | 12 | $ | 99,990 | $ | (1,253) | $ | (10,323) | $ | (78,463) | $ | 9,963 |
Six Months Ended June 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 | 31,137 | — | — | — | — | — | — | ||||||||||||
Stock-based compensation | — | — | 67 | — | — | — | 67 | ||||||||||||
Net loss | — | — | — | — | — | (80) | (80) | ||||||||||||
Foreign currency translation | — | — | — | — | (622) | — | (622) | ||||||||||||
Balance at June 30, 2020 | 12,194,971 | $ | 12 | $ | 99,622 | $ | (1,253) | $ | (10,675) | $ | (79,223) | $ | 8,483 |
6
SYMBOLIC LOGIC, INC.
EVOLVING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
Three Months Ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | Additional | | | | | other | | | | | Total | |||
| | Common Stock | | paid-in | | Treasury | | comprehensive | | Accumulated | | stockholders’ | ||||||||
|
| Shares |
| Amount |
| capital |
| stock |
| loss |
| deficit |
| equity | ||||||
Balance at March 31, 2022 |
| 12,333,184 | | $ | 12 | | $ | 100,192 | | $ | (1,253) | | $ | (540) | | $ | (61,546) | | $ | 36,865 |
Stock-based compensation expense |
| — | |
| — | |
| 37 | |
| — | |
| — | |
| — | |
| 37 |
Retirement of common stock |
| (1,501,192) | |
| (1) | |
| (2,469) | |
| — | |
| — | |
| — | |
| (2,470) |
Net loss |
| — | |
| — | |
| — | |
| — | |
| — | |
| (2,162) | |
| (2,162) |
Unrealized loss on available-for-sale investments |
| — | |
| — | |
| — | |
| — | |
| (2,034) | |
| — | |
| (2,034) |
Balance at June 30, 2022 |
| 10,831,992 | | $ | 11 | | $ | 97,760 | | $ | (1,253) | | $ | (2,574) | | $ | (63,708) | | $ | 30,236 |
Three Months Ended June 30, 2021
(unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | Additional | | | | | other | | | | | Total | |||
| | Common Stock | | paid-in | | Treasury | | comprehensive | | Accumulated | | stockholders’ | ||||||||
|
| Shares |
| Amount |
| capital |
| stock |
| loss |
| deficit |
| equity | ||||||
Balance at March 31, 2021 |
| 12,226,577 | | $ | 12 | | $ | 99,973 | | $ | (1,253) | | $ | (10,176) | | $ | (79,416) | | $ | 9,140 |
Restricted stock vested |
| 30,669 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Stock-based compensation expense |
| — | |
| — | |
| 17 | |
| — | |
| — | |
| — | |
| 17 |
Net income |
| — | |
| — | |
| — | |
| — | |
| — | |
| 953 | |
| 953 |
Foreign currency translation loss |
| — | |
| — | |
| — | |
| — | |
| (147) | |
| — | |
| (147) |
Balance at June 30, 2021 |
| 12,257,246 | | $ | 12 | | $ | 99,990 | | $ | (1,253) | | $ | (10,323) | | $ | (78,463) | | $ | 9,963 |
Three Months Ended June 30, 2021 | |||||||||||||||||||
Accumulated | |||||||||||||||||||
Additional | other | Total | |||||||||||||||||
Common stock | paid-in | Treasury | comprehensive | Accumulated | stockholders' | ||||||||||||||
Shares | Amount | capital | stock | loss | deficit | equity | |||||||||||||
Balance at March 31, 2021 | 12,226,577 | $ | 12 | $ | 99,973 | $ | (1,253) | $ | (10,176) | $ | (79,416) | $ | 9,140 | ||||||
Restricted stock vested | 30,669 | — | — | — | — | — | — | ||||||||||||
Stock-based compensation | — | — | 17 | — | — | — | 17 | ||||||||||||
Net income | — | — | — | — | — | 953 | 953 | ||||||||||||
Foreign currency translation | — | — | — | — | (147) | — | (147) | ||||||||||||
Balance at June 30, 2021 | 12,257,246 | $ | 12 | $ | 99,990 | $ | (1,253) | $ | (10,323) | $ | (78,463) | $ | 9,963 |
Three Months Ended June 30, 2020 | |||||||||||||||||||
Accumulated | |||||||||||||||||||
Additional | other | Total | |||||||||||||||||
Common stock | paid-in | Treasury | comprehensive | Accumulated | stockholders' | ||||||||||||||
Shares | Amount | capital | stock | loss | deficit | equity | |||||||||||||
Balance at March 31, 2020 | 12,194,502 | $ | 12 | $ | 99,613 | $ | (1,253) | $ | (10,576) | $ | (79,175) | $ | 8,621 | ||||||
Restricted stock vested | 469 | — | — | — | — | — | — | ||||||||||||
Stock-based compensation | — | — | 9 | — | — | — | 9 | ||||||||||||
Net loss | — | — | — | — | — | (48) | (48) | ||||||||||||
Foreign currency translation | — | — | — | — | (99) | — | (99) | ||||||||||||
Balance at June 30, 2020 | 12,194,971 | $ | 12 | $ | 99,622 | $ | (1,253) | $ | (10,675) | $ | (79,223) | $ | 8,483 |
7
EVOLVING SYSTEMS,SYMBOLIC LOGIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | |
|
| For the Six Months Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net (loss) income | | $ | (2,653) | | $ | 37 |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |
|
| |
|
|
Depreciation | |
| 1 | |
| 126 |
Amortization of intangible assets | |
| 0 | |
| 478 |
Amortization of operating leases — right of use assets | |
| 0 | |
| 211 |
Stock-based compensation expense | |
| 205 | |
| 214 |
Foreign currency transaction loss, net | |
| 0 | |
| 88 |
Provision for deferred income taxes | |
| 0 | |
| 7 |
Loan origination income | | | (2) | | | — |
Gain on PPP Loan forgiveness | | | 0 | | | (319) |
Realized gains on investments | | | (394) | | | — |
Unrealized losses on investments | |
| 1,558 | |
| 0 |
Change in operating assets and liabilities: | |
|
| |
|
|
Contract receivables | |
| 0 | |
| 970 |
Unbilled work-in-progress | |
| 0 | |
| (789) |
Prepaid and other assets | |
| (743) | |
| 266 |
Accounts payable and accrued liabilities | |
| 28 | |
| 343 |
Escrow liability | | | 172 | | | — |
Income taxes receivable | |
| 0 | |
| (460) |
Income taxes payable | |
| (189) | |
| 0 |
Unearned revenue | |
| 0 | |
| 1,776 |
Long-term assets - other | |
| 0 | |
| (256) |
Lease obligations — operating leases | |
| 0 | |
| (213) |
Net cash (used in) provided by operating activities | |
| (2,017) | |
| 2,479 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Purchases of property and equipment | |
| (2) | |
| (108) |
Purchases of investments | |
| (18,445) | |
| 0 |
Proceeds on sale of investments | |
| 1,956 | |
| 0 |
Transaction fees related to prior period disposition | | | (646) | | | — |
Net cash used in investing activities | |
| (17,137) | |
| (108) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
|
| |
|
|
Principal payments on notes payable | |
| 0 | |
| (143) |
Retirement of common stock | |
| (2,470) | |
| — |
Net cash used in financing activities | |
| (2,470) | |
| (143) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| 0 | |
| (95) |
| | | | | | |
Net (decrease) increase in cash and cash equivalents | |
| (21,624) | |
| 2,133 |
Cash and cash equivalents at beginning of period | |
| 39,445 | |
| 2,763 |
Cash and cash equivalents at end of period | | $ | 17,821 | | $ | 4,896 |
| | | | | | |
Supplemental disclosure of cash and non-cash transactions: | |
|
| |
|
|
Interest paid | | $ | 2 | | $ | 4 |
Income taxes paid, net of refunds | | $ | 82 | | $ | 456 |
Deferred loan origination income | | $ | 45 | | $ | — |
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets | | $ | 0 | | $ | 370 |
(unaudited)
For the Six Months Ended June 30, | |||||
2021 | 2020 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
Net income (loss) | $ | 37 | $ | (80) | |
Adjustments to reconcile net income (loss) to net cash provided by | |||||
Depreciation | 126 | 100 | |||
Amortization of intangible assets | 478 | 468 | |||
Amortization of debt issuance costs | — | 3 | |||
Amortization of operating leases — right of use assets | 211 | 154 | |||
Stock-based compensation expense | 214 | 67 | |||
Foreign currency transaction loss (income), net | 88 | (347) | |||
Bad debt recoveries | — | (11) | |||
Provision for deferred income taxes | 7 | 366 | |||
PPP Loan forgiveness | (319) | — | |||
Change in operating assets and liabilities: | |||||
Contract receivables | 970 | 2,338 | |||
Unbilled work-in-progress | (789) | (1,868) | |||
Prepaid and other assets | 266 | (605) | |||
Accounts payable and accrued liabilities | 343 | 899 | |||
Income taxes receivable | (460) | 152 | |||
Unearned revenue | 1,776 | 397 | |||
Lease obligations — operating leases | (213) | (154) | |||
Long-term assets – other | (256) | — | |||
Net cash provided by operating activities | 2,479 | 1,879 | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
Purchases of property and equipment | (108) | (188) | |||
Net cash used in investing activities | (108) | (188) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
Principal payments on notes payable | (143) | (526) | |||
Proceeds from loan | — | 319 | |||
Net cash used in financing activities | (143) | (207) | |||
Effect of exchange rate changes on cash and cash equivalents | (95) | (289) | |||
Net increase in cash and cash equivalents | 2,133 | 1,195 | |||
Cash and cash equivalents at beginning of period | 2,763 | 3,076 | |||
Cash and cash equivalents at end of period | $ | 4,896 | $ | 4,271 | |
Supplemental disclosure of cash and non-cash transactions: | |||||
Interest paid | $ | 4 | $ | 51 | |
Income taxes paid | $ | 456 | $ | 101 | |
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use | $ | 370 | $ | — |
8
SYMBOLIC LOGIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization — On December 31, 2021, Symbolic Logic, Inc. (the “Company” or “Symbolic Logic”) f/k/a Evolving Systems, Inc. (“Evolving Systems”) closed on the terms of the Equity Purchase Agreement (the “Company”“Equity Purchase Agreement”) is a providerand 2 Software Purchase Agreements (the “Software Purchase Agreements” and, together with the Equity Purchase Agreement and the other transaction documents described therein, the “Purchase Agreements”) dated as of real-time digital engagement solutionsOctober 15, 2021, with subsidiaries and servicesaffiliates of software solutionsPartnerOne Capital, Inc. (the “Purchasers”). The Purchase Agreements provided for the sale and servicestransfer of substantially all of Evolving Systems’ operating subsidiaries and all of its assets to the wireless carrierPurchasers for an aggregate purchase price of $40 million (subject to adjustment as set forth in the Equity Purchase Agreement). The Purchase Agreements included customary terms and consumer financial services markets. We maintain long-standing relationships with manyconditions, including an adjustment to the purchase price based on Evolving Systems’ cash and cash equivalents on hand as of the largest wireless companies worldwide.closing date and provisions that require Evolving Systems to indemnify the Purchasers for certain losses that it incurs as a result of a breach by Evolving Systems of its representations and warranties in the Purchase Agreements and certain other matters. Evolving Systems received cash proceeds of $36,032,899 and may receive up to an additional $2,500,000 in consideration pursuant to the terms of an escrow agreement entered into in connection with the Equity Purchase Agreement.
Results of the sold subsidiaries are retrospectively reported as discontinued operations in the accompanying condensed consolidated financial statements for all periods presented. Prior year information has been adjusted to conform to the current year presentation. Unless otherwise stated, the information disclosed in the footnotes accompanying the condensed consolidated financial statements refers to continuing operations. See Note 2 “Discontinued Operations” for more information regarding results from discontinued operations.
Simultaneously with the approval by the board of directors of the Company to execute the Purchase Agreements, the board formed a subcommittee of the board (the “Investment Committee”) to evaluate options to maximize the value of the Company’s assets, which, following the closing of the transactions contemplated under the Purchase Agreements, consists primarily of cash and cash equivalents. The board of directors has authorized the Investment Committee to retain such counsel, experts, consultants or other professionals as the Investment Committee shall deem appropriate from time to time to aid the Investment Committee in the performance of its duties. The Company’s portfolio includes market-leading solutionsdirectors and services for real-time analytics, customer acquisitionexecutives have an extensive background in mergers and activation, customer value managementacquisitions (“M&A”) activity. The Company plans to use its cash assets and loyalty for the telecom industry promoting partnerships into retail and financial services.
Acquisitionsnetwork 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 space. Each of these acquisitions had their own platform which we still maintain today. Through the extensive work of our product development team, we have launched the Evolution platform featuring the best of these legacy platforms on cutting edge technology. Evolution is usedrelationships to operate the most innovative large-scale loyalty programs,seek to acquire businesses and/or assets as well as providing unique mechanics enabling gamification, optimizationconsider strategic partners.
Following the sale of its assets in December 2021, the Company began to evaluate two initial areas of product focus, each of which are in a research-oriented pre-release mode. The two areas of focus relate to the application of self-learning algorithms and personalization across a varietythe symbolic tagging and organizing of channels. It enables our clientsphysical objects. The Company continues to engage with their customers at all stage of their lifecycle, providing interactive dialogueselectively seek new opportunities whether through potential mergers, acquisitions, joint ventures, strategic partnerships, 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.future product development.
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 providers increase their customer lifetime value (“CLV”) over the 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.throughout the world. We have leveraged our ability to provide supportwork remotely resulting in limited effect on our day-to-dayday to day operations.
On December 9, 2021, the Company received a letter from the Nasdaq Capital Market (“NASDAQ”) regarding the Equity Purchase Agreement and the two Software Purchase Agreements entered into by the Company pursuant to which we sold all of our assets. The inabilityNASDAQ staff requested certain information from the Company regarding its on-going business. We provided a response to travel has delayed interactionsthe staff on January 7, 2022. We received a follow up request from the NASDAQ for additional information and we provided a response to the staff on February 15, 2022.
On April 12, 2022, Evolving Systems, Inc. filed with our clientsthe Secretary of State of Delaware Certificate of Amendment to amend its Certificate of Incorporation to change the Company’s name from “Evolving Systems, Inc.” to “Symbolic Logic, Inc.” effective as of April 12, 2022. The Company also amended and restated its Bylaws to change all Company references from “Evolving Systems, Inc.” to “Symbolic Logic, Inc.” No other amendments were made to the Certificate of Incorporation or Bylaws.
9
On April 13, 2022, Symbolic Logic, Inc. f/k/a Evolving Systems, Inc. notified the NASDAQ of its intention to voluntarily withdraw its common stock, par value $0.001 per share (the “Common Stock”), from listing on projectsNasdaq. The Company filed a Form 25 with the Securities and Exchange Commission (the “SEC”) on Monday, April 25, 2022, relating to delisting the Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to be effective ten days thereafter. After delisting, the Common Stock may be quoted on the OTC Pink Open Market.
On May 23, 2022, the Company announced a modified Dutch auction tender offer to purchase with cash up to $9.6 million of shares of its common stock which expired on June 23, 2022. Based on the final count by the depository for the tender offer, a total of 1,501,192 shares of common stock were validly tendered and not validly withdrawn at or below the price of $1.55 per share. The Company accepted all of these shares of common stock for purchase at the purchase price of $1.55 per share, for a total cost of $2.5 million, including $0.2 million in fees and expenses. The total of 1,501,192 shares of common stock accepted for purchase represents approximately 12.2 % of the traditional modesCompany’s total shares of sales development. We continually work with existing and new clients exploring new wayscommon stock outstanding.
CCUR Holdings Inc. filed a schedule 13D on August 1st, 2022, announcing that as of using our products and services to enhance their business. On-going travel restrictions has causedJuly 28, 2022, they have acquired in total 6,396,174 common shares of the business to interact with clients in new ways and reduced certain costs. The long-term effects on how we conduct business inCompany. This represents 59% beneficial ownership of the future is still undetermined but we continue to evolve to meet client needs.outstanding shares of the Company.
We believe our current liquidity and funds from our ongoinginvestments and future operations will be sufficient to fund operations and meet the Company’s cash needs for future working capital and capital expenditure requirements for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. In making this assessment, we considered our $4.9$17.8 million in cash and cash equivalents and our $5.6$29.2 million in working capital at June 30, 2021, along with our ability to generate positive cash flows from operations for the six months ended June 30, 2021 and year ended December 31, 2020.2022.
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”).Commission. 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 six months ended June 30, 20212022 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, 20202021 included in our Annual Report on Form 10-K as filed with the SEC on March 17, 2021.April 11, 2022.
Use of Estimates — The preparation of condensed consolidated financial statements in conformity with 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, 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 investments and 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.Symbolic Logic and subsidiaries, all of which are 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 the Company completes its performance obligations 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 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 warranty support 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 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 Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||
Primary geographical markets | |||||||||||
United Kingdom | $ | 1,391 | $ | 1,103 | $ | 2,526 | $ | 2,293 | |||
Other | 5,603 | 5,226 | 10,928 | 10,321 | |||||||
$ | 6,994 | $ | 6,329 | $ | 13,454 | $ | 12,614 | ||||
Major products/service lines | |||||||||||
License revenue | $ | 8 | $ | 97 | $ | 186 | $ | 304 | |||
Customer support, including warranty support fees | 1,946 | 1,952 | 3,928 | 4,085 | |||||||
Services | 2,525 | 1,792 | 4,581 | 3,359 | |||||||
Managed services | 2,515 | 2,488 | 4,759 | 4,866 | |||||||
Total services | 6,986 | 6,232 | 13,268 | 12,310 | |||||||
$ | 6,994 | $ | 6,329 | $ | 13,454 | $ | 12,614 | ||||
Timing of revenue recognition | |||||||||||
Products transferred at a point in time | $ | — | $ | 93 | $ | 169 | $ | 228 | |||
Products and services transferred over time | 6,994 | 6,236 | 13,285 | 12,386 | |||||||
$ | 6,994 | $ | 6,329 | $ | 13,454 | $ | 12,614 |
Contract balances
The following table provides information about receivables, assets, and liabilities from contracts with customers (in thousands):
June 30, 2021 | December 31, 2020 | ||||
Assets | |||||
Contract receivables, net | $ | 4,739 | $ | 5,681 | |
Unbilled work-in-progress, net | $ | 4,183 | $ | 3,365 | |
Liabilities | |||||
Unearned revenue | $ | 5,540 | $ | 3,713 |
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 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 $0.1 million and $0.2 million at June 30, 2021 and December 31, 2020, respectively.
Capitalized commission fees are amortized based on the transfer of services to which the assets relate which may range from 2 to 3 years and are included in sales and marketing. In each of the three month periods ended June 30, 2021 and 2020, the amount of amortization was less than $0.1 million and there was 0 impairment loss in relation to the costs capitalized. In each of the six month periods ended June 30, 2021 and 2020, the amount of amortization was $0.1 million and $0.2 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 June 30, 2021 and 2020, we recognized revenue of $1.5 million and $2.1 million, respectively, which was included in the corresponding contract liability balance at the beginning of the period. For the six months ended June 30, 2021 and 2020, we recognized revenue of $2.6 million and $2.9 million, respectively, which was included in the corresponding contract liability balance at the beginning of the period.
Transaction price allocated to the remaining performance obligations
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 June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations with lives greater than one-year totaled $14 million. The Company expects approximately 64% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 36% 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 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.
10
Investments — Investments in entities where the Company owns less than twenty percent of the voting stock of the individual entity, does not exercise significant influence over operating and financial policies of the entity, and the investment does not have a readily determinable fair value, are accounted for using the cost method. Under the cost method of accounting, the investment is carried at cost less any impairment, adjusted for observable price changes of similar investments of the same issuer. Fair value is not estimated for these investments if there are no identified events or changes in circumstances that may have an effect on the fair value of the investment. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or consolidated statements of operations. As of June 30, 2022, the Company held one cost method investment for $1,000,000 (see Note 5, "Investments").
Fair Value Measurements — Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, we consider the most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.
ASC Topic 820, Fair Value Measurements and Disclosures, requires certain disclosures around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
● | Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities; |
● | Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and |
● | Level 3 — Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which include the use of management estimates. |
Our investment portfolio consists of money market funds, equity securities, and corporate debt. All highly liquid investments with original maturities of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost less any unamortized premium or discount, which approximates fair value. All investments with original maturities of more than three months when purchased are classified as available-for-sale, trading, or held-to-maturity investments.
Our fixed maturity securities and debt securities are classified as available-for-sale, and are reported at fair value, with unrealized gains and losses, net of tax, reported in the accompanying condensed consolidated balance sheets in stockholders’ equity as a component of accumulated other comprehensive income or loss. Investments in equity securities with readily determinable fair values (marketable) are measured at fair value, with changes in the fair value recognized as a component of unrealized gain on investments, net in the condensed consolidated statements of operations. Realized gains or losses on available-for-sale investments are reclassified from other comprehensive income (loss) to net income (loss) in the condensed consolidated statements of operations.
Investments in equity investments that do not have readily determinable fair values (non-marketable) are accounted for at cost minus impairment, if any, and any changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer, also referred to as the measurement alternative. Any adjustments to the carrying value of these investments are recorded in unrealized gain on investments, net in the condensed consolidated statements of operations.
Interest on securities is reported in the accompanying condensed consolidated statements of operations in interest income. Dividends paid by securities are reported in the accompanying condensed consolidated statements of operations in other income. Realized gains or losses are reported in the accompanying condensed consolidated statements of operations in net realized gain on investments.
11
The following table presents the fair value hierarchy for those assets and liabilities the Company measured at fair value on a recurring basis:
| | | | | | | | | | | | |
|
| Fair value at June 30, 2022 | ||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Money market funds | | $ | 68 | | $ | 68 | | $ | 0 | | $ | 0 |
Cash and cash equivalents | | $ | 68 | | $ | 68 | | $ | 0 | | $ | 0 |
| | | | | | | | | | | | |
Common stock and common stock options |
| $ | 5,363 |
| $ | 5,363 |
| $ | 0 |
| $ | 0 |
Equity securities | | $ | 5,363 | | $ | 5,363 | | $ | 0 | | $ | 0 |
| | | | | | | | | | | | |
Debt securities | | $ | 2,575 | | $ | 0 | | $ | 2,575 | | $ | 0 |
Debt securities | | $ | 2,575 | | $ | 0 | | $ | 2,575 | | $ | 0 |
| | | | | | | | | | | | |
Corporate bonds | | $ | 3,828 | | $ | 0 | | $ | 3,828 | | $ | 0 |
Fixed maturity securities | | $ | 3,828 | | $ | 0 | | $ | 3,828 | | $ | 0 |
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 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 1 operating segment which includes 2 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 December 2019,May 2021, the FASB issued Accounting Standards Update (“ASU”) ASU 2019-12, Income Taxes2021-04—Earnings Per Share (ASC 740) — Simplifying260), Debt—Modifications and Extinguishments (ASC 470-50), Compensation—Stock Compensation (ASC 718) and Derivatives and Hedging—Contracts in Entity’s Own Equity (ASC 815-40). The amendments in this update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 modifies ASC 740 to simplifyamendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the accounting for income taxes and eliminates certain exceptionsmodification or exchange. The amendments that relate to the general principlesrecognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in ASC 740.260, Earnings Per Share. 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 taxesamendments in interim 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 isthis update are effective for annual periods,fiscal years beginning after December 15, 2021, including interim periods within those annual periods, beginning after December 15, 2020.fiscal years. The amendments in this ASU did not have a material impact on our condensed consolidated financial statements.
Management has evaluatedRecently Issued Accounting Pronouncements — In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other recently issued accounting pronouncementsinstruments. For receivables, loans and does not believeother instruments, entities will be required to use a new forward-looking “expected loss” model that anygenerally will result in the earlier recognition of these pronouncementsallowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently in the process of assessing the impact of this new standard on its consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (ASC 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The new standard clarifies that a significantcontractual restriction on the sale of an equity security should not be considered in measuring the fair value of the security. The new standard also requires certain disclosures related to equity securities with contractual sale restrictions. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied prospectively. The Company is currently in the process of assessing the impact of this new standard on its consolidated financial statements.
12
NOTE 2 — DISCONTINUED OPERATIONS
On December 31, 2021, Evolving Systems, Inc. and certain of its subsidiaries completed the Equity Purchase Agreement and 2 Software Purchase Agreements with subsidiaries and affiliates of PartnerOne Capital, Inc. The Purchase Agreements contemplate the sale and transfer of substantially all of the Company’s operating subsidiaries and all of its assets to the Purchasers for an aggregate purchase price of $40 million (subject to adjustment as set forth in the Equity Purchase Agreement). The Purchase Agreements include customary terms and conditions, including an adjustment to the purchase price based on the Company’s cash and cash equivalents on hand and other adjustments as of the closing date and provisions that require the Company to indemnify the Purchasers for certain losses that it incurs as a result of a breach by the Company of its representations and warranties in the Purchase Agreements and certain other matters.
Proceeds from the sale will be payable to the Company as follows: (1) a $37.5 million payment to the Company in cash on the closing date of December 31, 2021 (adjusted as set forth in the Equity Purchase Agreement), and (2) $2.5 million placed in escrow on the closing date as security for the Company’s indemnification obligations to the Purchasers under the Purchase Agreements, which amount will be released to the Company on or before the date that is twelve months from the closing date (less any portion of the escrow used to make indemnification payments to the Purchasers). The Company received cash proceeds of $36.0 million and may receive up to an additional $2.5 million in consideration pursuant to the terms of an escrow agreement entered into in connection with the Equity Purchase Agreement and included in the cash and cash equivalents in our condensed consolidated financial statementsbalance sheets.
The Purchase Agreements contain customary representations and warranties of each of the parties. The Purchase Agreements contain indemnification rights in favor of the Company following closing for (i) breaches of any of the representations or warranties by the Purchasers including, but not limited to, breaches related to organization, authorization, and governmental authorization, and (ii) breaches of the covenants or agreements of the Purchasers in the Purchase Agreements. In addition, the Purchase Agreements contain indemnification rights in favor of the Purchasers following closing for (i) breaches of certain fundamental representations and warranties by the Company, including breaches related to organization, authorization, capitalization, title to purchased assets, and finders’ fees, (ii) breaches of any of the representations and warranties by the Company, and (iii) breaches of the covenants or agreements of the Company in the Purchase Agreements.
Accordingly, the operating results of its operations in the entities and related disclosures.
NOTE 2 — INTANGIBLE ASSETS
We amortize identifiable intangible assets on a straight-line basis over their estimated useful lives. As ofbusiness operations sold for June 30, 2021 presented have been reclassified in the condensed consolidated statements of operations as “income from discontinued operations”. Interest expense that is specifically identifiable to debt related to the entities sold qualifies as discontinued operations and is allocated to interest expense from discontinued operations in the Company’s condensed consolidated financial statements. Additionally, the carrying amounts of the assets and liabilities for the entities sold as of December 31, 2020, identifiable intangibles were as follows (in thousands):2021 presented have been reclassified in the condensed consolidated balance sheets.
13
June 30, 2021 | ||||||||
Gross Amount | Accumulated Amortization | Net Carrying Amount | ||||||
Purchased software | $ | 2,943 | $ | (2,106) | $ | 837 | ||
Trademarks and tradenames | 313 | (285) | 28 | |||||
Non-competition | 40 | (40) | — | |||||
Customer relationships | 4,413 | (2,968) | 1,445 | |||||
$ | 7,709 | (1) | $ | (5,399) | (1) | $ | 2,310 |
December 31, 2020 | ||||||||
Gross Amount | Accumulated Amortization | Net Carrying Amount | ||||||
Purchased software | $ | 2,932 | $ | (1,907) | $ | 1,025 | ||
Trademarks and tradenames | 311 | (272) | 39 | |||||
Non-competition | 40 | (40) | — | |||||
Customer relationships | 4,396 | (2,691) | 1,705 | |||||
$ | 7,679 | (1) | $ | (4,910) | (1) | $ | 2,769 |
(1)Includes foreign currency translation adjustment of less than $0.1 million.
Amortization expense of identifiable intangible assets was $0.2 million for eachThe following table presents the financial results of the three months ended June 30, 2021 and 2020discontinued operations:
| | | | | | |
|
| For the Three | | For the Six | ||
| | Months Ended | | Months Ended | ||
| | June 30, | | June 30, | ||
|
| 2021 |
| 2021 | ||
Revenue | | $ | 6,994 | | $ | 13,454 |
Costs of revenue | | | (2,185) | |
| (4,425) |
Sales and marketing | | | (1,415) | |
| (2,756) |
General and administrative | | | (669) | |
| (1,182) |
Product development | | | (1,284) | |
| (2,588) |
Depreciation | | | (64) | |
| (125) |
Amortization | | | (240) | |
| (478) |
Restructuring | | | (61) | |
| (61) |
Interest expense | | | (2) | |
| (3) |
Interest income | | | 3 | |
| 4 |
Other income | | | 260 | |
| 288 |
Foreign currency exchange gain | | | 168 | |
| (212) |
Income tax expense | | | (122) | |
| (213) |
Net income from discontinued operations | | $ | 1,383 | | $ | 1,703 |
and $0.5 million
Cash flow information relating to the discontinued operations for each of the six months ended June 30, 2021 and 2020. Expected future amortization expense related to identifiable intangibles based on our carrying amount as of June 30, 2021 is as follows (in thousands):follows:
| | | |
|
| For the Six | |
| | Months Ended | |
| | June 30, | |
|
| 2021 | |
Operating cash flow data: |
|
|
|
Depreciation |
| $ | 125 |
Amortization of intangible assets |
| $ | 478 |
Amortization of operating leases — right of use assets |
| $ | 211 |
Provision for deferred income taxes |
| $ | 7 |
Investing cash flow data: |
|
|
|
Purchases of property and equipment |
| $ | (108) |
For the trailing twelve months ending June 30, | ||
2022 | $ | 903 |
2023 | 534 | |
2024 | 273 | |
2025 | 112 | |
2026 | 94 | |
Thereafter | 394 | |
$ | 2,310 |
NOTE 3 — BALANCE SHEET COMPONENTS
The components of accounts payable and accrued liabilities are as follows (in thousands):
| | | | | | |
|
| June 30, |
| December 31, | ||
|
| 2022 |
| 2021 | ||
Accounts payable and accrued liabilities: |
| |
|
| |
|
Accounts payable | | $ | 157 | | $ | 83 |
Accrued compensation and related expenses | |
| 12 | |
| 538 |
Accrued liabilities | |
| 465 | |
| 631 |
| | $ | 634 | | $ | 1,252 |
June 30, 2021 | December 31, 2020 | ||||
Accounts payable and accrued liabilities: | |||||
Accounts payable | $ | 730 | $ | 878 | |
Accrued compensation and related expenses | 2,147 | 2,180 | |||
Accrued liabilities | 1,765 | 1,247 | |||
$ | 4,642 | $ | 4,305 |
NOTE 4 — EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income or loss 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) 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.
14
The following is the reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations (in thousands except per share data):
| | | | | | | | | | | | |
|
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Basic earnings (loss) per common share: |
| | | | | | | |
|
| |
|
Net loss from continuing operations | | $ | (2,162) | | $ | (430) | | $ | (2,702) | | $ | (1,666) |
Net income from discontinued operations | |
| — | |
| 1,383 | |
| 49 | | | 1,703 |
Basic weighted average shares outstanding | |
| 12,300 | |
| 12,257 | |
| 12,308 | | | 12,232 |
Basic loss per common share from continuing operations | | $ | (0.18) | | $ | (0.04) | | $ | (0.22) | | $ | (0.14) |
Basic earnings per common share from discontinued operations | | $ | 0 | | $ | 0.11 | | $ | 0 | | $ | 0.14 |
| | | | | | | | | | | | |
Diluted earnings (loss) per common share: | |
| | |
| | |
|
| |
|
|
Net loss from continuing operations | | $ | (2,162) | | $ | (430) | | $ | (2,702) | | $ | (1,666) |
Net income from discontinued operations | | | — | | | 1,383 | | | 49 | | | 1,703 |
Weighted average shares outstanding | |
| 12,300 | |
| 12,257 | |
| 12,308 | | | 12,232 |
Effect of dilutive securities | |
| 0 | |
| 0 | |
| 0 | | | 0 |
Diluted weighted average shares outstanding | |
| 12,300 | |
| 12,257 | |
| 12,308 | | | 12,232 |
Diluted loss per common share from continuing operations | | $ | (0.18) | | $ | (0.04) | | $ | (0.22) | | $ | (0.14) |
Diluted earnings per common share from discontinued operations | | $ | 0 | | $ | 0.11 | | $ | 0 | | $ | 0.14 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||
Basic earnings (loss) per common share: | |||||||||||
Net income (loss) | $ | 953 | $ | (48) | $ | 37 | $ | (80) | |||
Basic weighted average shares outstanding | 12,257 | 12,179 | 12,232 | 12,179 | |||||||
Basic earnings (loss) per common share: | $ | 0.08 | $ | (0.00) | $ | 0.00 | $ | (0.01) | |||
Diluted earnings (loss) per common share: | |||||||||||
Net income (loss) | $ | 953 | $ | (48) | $ | 37 | $ | (80) | |||
Weighted average shares outstanding | 12,257 | 12,179 | 12,232 | 12,179 | |||||||
Effect of dilutive securities - options and restricted stock | 1 | — | 26 | — | |||||||
Diluted weighted average shares outstanding | 12,258 | 12,179 | 12,258 | 12,179 | |||||||
Diluted earnings (loss) per common share: | $ | 0.08 | $ | (0.00) | $ | 0.00 | $ | (0.01) |
Weighted average options to purchase of approximately 0.30.1 million shares and 0.40.3 million shares of common stock equivalents for the three and six months ended June 30, 2022 and 2021, respectively, were excluded from the computation of diluted weighted average shares outstanding for the three and six months ended June 30, 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 period. Earnings per share calculations use basic weighted average shares outstanding, when in a net loss position.
NOTE 5 — STOCK-BASED COMPENSATIONINVESTMENTS
Fixed-Maturity, Debt and Equity Securities Investments
On June 13, 2022, the Company entered into a line of credit to loan a counterparty 1,000,000 United States Dollar Coin (“USDC”) for a 30 day period. USDC is fully backed by the United States Dollar (“USD”) and is not subject to market fluctuations, and the Company plans to convert the USDC to USD immediately upon maturity. The loan bears interest at a rate of 4.0% per annum and had a term of one month. The entire principal balance of the loan was outstanding as of June 30, 2022.
On June 14, 2022, the Company purchased a promissory note with a second counterparty for $1,575,000 in conjunction with CCUR Holdings, Inc. The note bears interest at a rate of 15.0% per annum and has a term of one year and payment in full of the outstanding principal balance becomes due. The loan is collateralized by the counterparty’s and its subsidiaries’ assets including cash and intellectual property. If the counterparty incurs no event of default and has made all accrued interest payments, the counter party may extend the term by 2 additional six-month extension periods. The entire principal balance of the loan was outstanding as of June 30, 2022.
15
The difference between amortized cost or cost and estimated fair value and gross unrealized gains and losses, by major investment category, consisted of the following as of June 30, 2022. There were 0 investments as of December 31, 2021.
| | | | | | | | | | | | |
|
| | |
| Unrealized |
| Unrealized |
| | | ||
|
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Equity securities |
| |
|
| |
|
| |
|
| |
|
Common stock and common stock options | | $ | 6,921 | | $ | 46 | | $ | (1,604) | | $ | 5,363 |
Total equity securities | | $ | 6,921 | | $ | 46 | | $ | (1,604) | | $ | 5,363 |
| | | | | | | | | | | | |
|
| | |
| Unrealized |
| Unrealized |
| | | ||
| | Amortized Cost | | Gains | | Losses | | Fair Value | ||||
Debt securities | | | | | | | | | | | | |
Available for sale | | $ | 2,575 | | $ | 0 | | $ | 0 | | $ | 2,575 |
Total debt securities | | $ | 2,575 | | $ | 0 | | $ | 0 | | $ | 2,575 |
| | | | | | | | | | | | |
| | | | | Unrealized | | Unrealized | | | | ||
|
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
Fixed-maturity securities |
| |
|
| |
|
| |
|
| |
|
Corporate bonds | | $ | 6,402 | | $ | 0 | | $ | (2,574) | | $ | 3,828 |
Total fixed-maturity securities | | $ | 6,402 | | $ | 0 | | $ | (2,574) | | $ | 3,828 |
The Company sold equity securities investments for proceeds of $1.5 million, and $2.0 million for the three and six months ended June 30, 2022, respectively, resulting in realized gains on investments, net of $0.3 million and $0.4 million, respectively. The Company also had unrealized losses on equity securities, net of $1.7 million and $1.6 million for the three and six months ended June 30, 2022, respectively.
As of June 30, 2022, the Company did not consider any of the fixed-maturity securities to be other-than-temporarily impaired. The Company does not intend to sell, nor believe it is more likely than not that the Company will be required to sell, any of the securities in an unrealized loss position. When evaluating investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer, the ability and intent to hold the security to maturity and whether it is more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis.
Maturities of Debt Securities and Fixed-Maturity Securities Available-for-Sale
The amortized cost and fair values of debt securities and fixed-maturity securities available for sale as of June 30, 2022 are shown by contractual maturity in the table below. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| | | | | | |
|
| Amortized Cost |
| Fair Value | ||
Due within one year through three years | | $ | 2,575 | | $ | 2,575 |
Due after three years through five years | |
| 6,402 | |
| 3,828 |
Due after five years through ten years | |
| 0 | |
| 0 |
Total debt securities and fixed-maturity securities | | $ | 8,977 | | $ | 6,403 |
Cost Method Investment
In May 2022, the Company purchased a minority equity interest through a private placement in the amount of $1.0 million in BH3 Slate, LLC (“BH3”). As of June 30, 2022, the Company holds a 3.75% ownership interest. Distributions of available cash made by BH3 will first be made to us equal to our interest until the Internal Rate of Return is 8%, second to the manager until Internal Rate of Return of 5%, thereafter with 75% going to member and 25% to the manager. There were no indicators of impairment during the three and six months ended June 30, 2022.
16
NOTE 6 — STOCK-BASED COMPENSATION
We recognized less than $0.1 million of compensation expense within general and administrative expense in the condensed consolidated statements of operations, with respect to our stock-based compensation plans for the three months ended June 30, 2022 and 2021, and 2020, and $0.2 million and less than $0.1 million for the six months ended June 30, 20212022 and 2020, respectively.2021.
The following table summarizes stock-based compensation expenses recorded in the condensed consolidated statements of operations (in thousands):
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||
Cost of revenue, excluding | |||||||||||
depreciation and amortization | $ | 2 | $ | 11 | $ | 14 | $ | 23 | |||
Sales and marketing | 6 | 6 | 12 | 12 | |||||||
General and administrative | 9 | (8) | 186 | 38 | |||||||
Product development | — | — | 2 | (6) | |||||||
Total stock-based compensation | $ | 17 | $ | 9 | $ | 214 | $ | 67 |
Stock Incentive Plans
At June 30, 20212022 and December 31, 2020,2021, 0 shares were available for grant under the 2007 Stock Plan, as amended. At June 30, 20212022 and December 31, 2020,2021, 0.03 million options and 0 restricted shares, and 0.1 million options and restricted shares and 0.2 million options and0 restricted shares were issued and outstanding under the 2007 Stock Plan as amended, respectively.
At June 30, 20212022 and December 31, 2020,2021, there were approximately 0.50.4 million and 0.6 million shares available for grant under the 2016 Stock Plan, respectively. At June 30, 20212022 and December 31, 2020,2021, 0.1 million options and 0.2 million restricted shares and 0.1 million options and 0 restricted shares were issued and outstanding under the 2016 Stock Plan, respectively.
The fair value of restricted shares for stock-based compensation expensingexpense is equal to the closing price of our common stock on the date of grant. The restrictionsrestricted shares for stock awards generallyvest in three tranches: the first tranche vests immediately; and the second and third tranches vest over fourthe following two 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 six months ended June 30, 2021:2022:
The following is a summary of stock option activity under the plans for the six months ended June 30,
There were 225,000 restricted shares granted and 0 stock options granted during the six months ended June 30,
17 NOTE 7 —
The income tax provision for the fiscal year ending December 31, For the three months ended June 30, 2022, we recorded less than $0.1 million in net tax benefit from continuing operations. For the three months ended June 30, 2021, we recorded less than $0.1 million in net
Each quarter, the estimate of the annual effective tax rate 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 various factors. The Company and its subsidiaries are subject to U.S. Federal income tax, as well as income tax of multiple state
NOTE
(a)
Under Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet.
(b)
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 0 liabilities recorded for these agreements as of June 30, We enter into standard indemnification terms with 18 Management Agreement with CIDM II LLC On January 21, 2022, the Company entered into a Management Agreement (the “Management Agreement”) with CIDM II LLC (the “Manager”). Pursuant to the Management Agreement, the Manager will, subject to the Company’s Board of Directors (“Board”) and the Investment Committee of the Board, (i) provide the Company with advisory services with respect to the management and allocation of investments in equity and debt securities (“Assets”) of the Company and its subsidiaries and (ii) exercise discretionary management authority over the Company’s trading portfolio of publicly traded securities.
(c)Litigation
From time to time, we are involved in various legal matters arising in the normal course of business. We do not expect the outcome of such proceedings, either individually or in the aggregate, to have a material effect on our financial position, cash flows or results of operations. On October 15, 2019, the Company’s former Chief Executive Officer filed a lawsuit in the Superior Court of New Jersey against us. That suit (d)Paycheck Protection Program Loan On April 15, 2020, the Company received loan proceeds in the amount of $0.3 million 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. We have met the conditions of the PPP Loan forgiveness program. As authorized by section 1106 of the CARES Act, United States Small Business Administration (“SBA”) forgave the full amount of PPP loan on May 20, 2021. We recorded the forgiveness amount as other income. We had used the loan proceeds for purposes consistent with the PPP, including paying for Company wages. (e)Potential Claim on Escrow Account The Company has been served notice by the Purchasers making a claim for indemnification under the Equity Purchase Agreement related to a failure to file returns, make require remittances, and pay taxes to the Irish Revenue Service with respect to an employee for pre-closing periods. The Company has recorded a liability in the amount of
19 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 OVERVIEW
Simultaneously with the approval by the board of directors of the Company to execute the Purchase Agreements, the board formed a subcommittee of the board (the “Investment Committee”) to evaluate options to maximize the value of the Company’s assets, which, Following the sale of its assets in real-time digital engagement solutions and RECENT DEVELOPMENTS We reported a net loss from continuing operations of $2.2 million and $0.4 million for the three months ended June 30, 2022 and 2021, respectively and $2.7 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively. 20 COVID-19
NAME CHANGE On April 12, 2022, Evolving Systems, Inc. filed with the Secretary of State of Delaware Certificate of Amendment to amend its Certificate of Incorporation to change the Company’s name from “Evolving Systems, Inc.” to “Symbolic Logic, Inc.” effective as of April 12, 2022. The NASDAQ On December 9, 2021, we received a letter from the Nasdaq Capital Market (“NASDAQ”) regarding the Equity Purchase Agreement and the two Software Purchase Agreements entered into by the Company pursuant to which we sold all of our assets. The staff requested certain information from the Company regarding its on-going business. We provided a response to the staff on January 7, 2022. We received a follow up request from the NASDAQ for additional information and we provided a response to the staff on February 15, 2022. On April 13, 2022, Symbolic Logic Inc. f/k/a Evolving Systems, Inc. notified the NASDAQ of its intention to voluntarily withdraw its common stock, par value $0.001 per share (the “Common Stock”), from listing on Nasdaq. The Company filed a Form 25 with TENDER OFFERING On May 23, 2022, the Company announced a modified Dutch auction tender offer to purchase with cash up to $9.6 million of shares of its common stock which expired on June 23, 2022. Based on the final count by the depository for the tender offer, a total of 1,501,192 shares of common stock were validly tendered and GOING CONCERN We believe our current liquidity 21
RESULTS OF OPERATIONS The following table presents
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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 General and administrative expenses increased
Depreciation
Depreciation expense consists of depreciation of long-lived property and equipment. Depreciation expense
23 Non-Operating Income and Expenses Interest Expense Interest expense remained constant at less than $0.1 million in interest expense for the three and six months ended June 30, Interest Income and Total Other Income (Expense), net There was interest income and other income of 2022. Interest
For the six months ended June 30, 2022, there was interest income and Realized Gain on Investments, net Realized gain on investments, net consists of available for sale and equity securities. Realized gain on investments, net increased $0.3 million, or 100% for the three months ended June 30,
Income Taxes We recorded net income tax benefit from continuing operations of less than $0.1 million and net income tax expense from continuing operations less than $0.1 million for the three months ended June 30,
We use a recognition threshold and a measurement attribute for the
Discontinued Operations On December 31, 2021, the 24
FINANCIAL CONDITION Our working capital position
LIQUIDITY AND CAPITAL RESOURCES We have historically financed operations through cash flows from operations and bank borrowings. On December 31, 2021, the Company closed on the terms of the Purchase Agreements. Following the sale of its assets in December 2021, the Company researched two initial areas of product focus, each were in research-oriented pre-release mode. The two areas of focus were in the application of self-learning algorithms as well as the symbolic tagging and organizing of physical objects. At June 30, Net cash Net cash used in
Net cash used in investing activities Net cash used in common stock. Net cash used in financing activities was $0.1 million for the six months ended June 30, 2021 and was primarily related to the final principal payments on our term loan.
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:
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. 25 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 June 30, 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 June 30, 26 PART II ITEM 1. LEGAL PROCEEDINGS Information regarding reportable legal proceedings is contained in Part I, Item 3, “Legal Proceedings,” in our Annual Report on Form 10-K for the year ended December 31, ITEM 1A. RISK FACTORS Not required under Regulation S-K for smaller reporting ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Issuer Purchases of Equity Securities The following table provides information with respect to purchases of common stock made by the Company during the second quarter 2022:
*On May 23, 2022, the Company announced a modified Dutch auction tender offer to purchase with cash up to $9.6 million of shares of common stock, at a price per share of not less than $1.30 and not more of $1.55 per share. The tender offer expired one minute after 4:59 P.M. Eastern Daylight Time on June 23, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not ITEM 4. MINE SAFETY DISCLOSURES Not ITEM 5. OTHER INFORMATION Not applicable.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYMBOLIC LOGIC, INC.
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