UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549






FORM 10-Q



Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the quarterly period ended March  31, 2020



OR



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: 001-34261



EVOLVING SYSTEMS, INC.

(Exact name of registrant as specified in its charter)





 

 

Delaware

 

84-1010843 

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)



 

 

9800 Pyramid Court,  Suite 400

Englewood,  Colorado 

 

80112 

(Address of principal executive offices)

 

(Zip Code)



(303)  802-1000

(Registrant’s telephone number, including area code)



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





 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

EVOL

Nasdaq Capital Market



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



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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No 



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 definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

Large Accelerated Filer

 

Accelerated Filer



 

 

Non-accelerated Filer 

 

Smaller Reporting Company 



 

 

 Emerging Growth Company 

 

 



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



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



As of May 12, 2020, there were  12,194,502 shares outstanding of Registrant’s Common Stock (par value $0.001 per share).





 

 


 

EVOLVING SYSTEMS, INC.





 

 

 

PART I — FINANCIAL INFORMATION

Item 1

Financial Statements (Unaudited)

 



Condensed Consolidated Balance Sheets

 



Condensed Consolidated Statements of Operations

 



Condensed Consolidated Statements of Comprehensive Loss

 



Condensed Consolidated Statements of Changes in Stockholders’ Equity

 



Condensed Consolidated Statements of Cash Flows

 



Notes to Unaudited Condensed Consolidated Financial Statements

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

28 

Item 4

Controls and Procedures

 

28 



 

 

 

PART II — OTHER INFORMATION

Item 1

Legal Proceedings

 

29 

Item 1A

Risk Factors

 

29 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

29 

Item 3

Defaults upon Senior Securities

 

29 

Item 4

Mine Safety Disclosures

 

29 

Item 5

Other Information

 

29 

Item 6

Exhibits

 

29 



 

 

 

Signatures

 

 

30 





 

2


 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 



 



 

 

 

 

 



 

 

 

 

 



March 31, 2020

 

December 31, 2019



 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

2,606 

 

$

3,076 

Contract receivables, net of allowance for doubtful accounts of $732 and $710

 

 

 

 

 

at March 31, 2020 and December 31, 2019, respectively

 

5,104 

 

 

6,732 

Unbilled work-in-progress

 

1,817 

 

 

1,105 

Prepaid and other current assets

 

1,842 

 

 

1,594 

Income taxes receivable

 

1,439 

 

 

953 

Total current assets

 

12,808 

 

 

13,460 

Property and equipment, net

 

429 

 

 

482 

Amortizable intangible assets, net

 

3,326 

 

 

3,665 

Operating leases - right of use assets

 

1,066 

 

 

1,205 

Deferred income taxes, net

 

630 

 

 

1,000 

Total assets

$

18,259 

 

$

19,812 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Term loan - current portion, net

$

1,304 

 

$

1,577 

Accounts payable and accrued liabilities

 

3,576 

 

 

3,827 

Lease obligations — operating leases

 

293 

 

 

321 

Unearned revenue

 

3,701 

 

 

3,971 

Total current liabilities

 

8,874 

 

 

9,696 

Long-term liabilities:

 

 

 

 

 

Term loan, net of current portion, net

 

 

 

122 

Lease obligations - operating leases, net of current portion

 

764 

 

 

876 

Total liabilities

 

9,638 

 

 

10,694 



 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 



 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock, $0.001 par value; 2,000,000 shares authorized;

 

 

 

 

 

no shares issued and outstanding

 

 

 

Common stock, $0.001 par value; 40,000,000 shares authorized;

 

 

 

 

 

12,373,391 shares issued and 12,194,502 shares outstanding as of March 31, 2020 and 12,342,723 shares issued and 12,163,834 shares outstanding as of December 31, 2019

 

12 

 

 

12 

Additional paid-in capital

 

99,613 

 

 

99,555 

Treasury Stock, 178,889 shares as of March 31, 2020 and December 31, 2019, at cost

 

(1,253)

 

 

(1,253)

Accumulated other comprehensive loss

 

(10,576)

 

 

(10,053)

Accumulated deficit

 

(79,175)

 

 

(79,143)

Total stockholders' equity

 

8,621 

 

 

9,118 

Total liabilities and stockholders' equity

$

18,259 

 

$

19,812 



 

 

 

 

 







 

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

 

3


 

 

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 



[

 







 

 

 

 

 



 

 

 

 

 



For the Three Months



Ended March 31,



 

2020

 

 

2019

REVENUE

 

 

 

 

 

License fees

$

207 

 

$

714 

Services

 

6,078 

 

 

5,983 

Total revenue

 

6,285 

 

 

6,697 



 

 

 

 

 

COSTS OF REVENUE AND OPERATING EXPENSES

 

 

 

 

 

Costs of revenue, excluding depreciation and
    amortization

 

2,136 

 

 

1,945 

Sales and marketing

 

1,561 

 

 

2,066 

General and administrative

 

1,414 

 

 

1,800 

Product development

 

1,063 

 

 

1,289 

Depreciation

 

50 

 

 

25 

Amortization

 

235 

 

 

237 

Total costs of revenue and operating expenses

 

6,459 

 

 

7,362 



 

 

 

 

 

Loss from operations

 

(174)

 

 

(665)



 

 

 

 

 

Other income (expense)

 

 

 

 

 

Interest income

 

 

 

Interest expense

 

(47)

 

 

(93)

Other income, net

 

 

 

(12)

Foreign currency exchange income (loss)

 

383 

 

 

(261)

Other income (expense), net

 

341 

 

 

(361)



 

 

 

 

 

Income (loss) from operations before income taxes

 

167 

 

 

(1,026)

Income tax expense

 

199 

 

 

91 

Net loss

$

(32)

 

$

(1,117)



 

 

 

 

 

Basic loss per common share

$

(0.00)

 

$

(0.09)



 

 

 

 

 

Diluted loss per common share

$

(0.00)

 

$

(0.09)



 

 

 

 

 

Weighted average basic shares outstanding

 

12,164 

 

 

12,138 

Weighted average diluted shares outstanding

 

12,164 

 

 

12,138 





 

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

 

4


 

 

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 







 



 

 

 

 

 



 

 

 

 

 



For the Three Months Ended



March 31,



 

2020

 

 

2019

Net Loss

$

(32)

 

$

(1,117)



 

 

 

 

 

Other comprehensive (loss) income

 

 

 

 

 

Foreign currency translation (loss) income

 

(523)

 

 

327 

Comprehensive loss

$

(555)

 

$

(790)

















 

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

 

5


 

 

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 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

30,668 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation
  expense

 

 

 

 

58 

 

 

 

 

 

 

 

 

58 

Net loss

 

 

 

 

 

 

 

 

 

 

(32)

 

 

(32)

Foreign currency translation
  loss

 

 

 

 

 

 

 

 

(523)

 

 

 

 

(523)

Balance at March 31, 2020

12,194,502 

 

$

12 

 

$

99,613 

 

$

(1,253)

 

$

(10,576)

 

$

(79,175)

 

$

8,621 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

 

 

 

 

 

Additional

 

 

 

 

 

other

 

 

 

 

Total



Common stock

 

 

paid-in

 

 

Treasury

 

 

comprehensive

 

 

Accumulated

 

stockholders'



Shares

 

Amount

 

 

capital

 

 

stock

 

 

loss

 

 

deficit

 

equity 

Balance at January 1, 2019

12,126,708 

 

$

12 

 

$

99,224 

 

$

(1,253)

 

$

(10,115)

 

$

(69,448)

 

$

18,420 

Restricted stock vested

34,781 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation
  expense

 

 

 

 

130 

 

 

 

 

 

 

 

 

130 

Net loss

 

 

 

 

 

 

 

 

 

 

(1,117)

 

 

(1,117)

Foreign currency translation
  gain

 

 

 

 

 

 

 

 

327 

 

 

 

 

327 

Balance at March 31, 2019

12,161,489 

 

$

12 

 

$

99,354 

 

$

(1,253)

 

$

(9,788)

 

$

(70,565)

 

$

17,760 

 



 

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

 

6


 

 

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 







 

 

 

 

 



 

 

 

 

 



For the Three Months Ended March 31,



 

2020

 

 

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net Loss

$

(32)

 

$

(1,117)

Adjustments to reconcile net loss to net cash used in 
operating activities:

 

 

 

 

 

Depreciation

 

50 

 

 

25 

Amortization of intangible assets

 

235 

 

 

237 

Amortization of debt issuance costs

 

 

 

Amortization of operating leases — right of use assets

 

76 

 

 

75 

Stock-based compensation expense

 

58 

 

 

130 

Foreign currency transaction (income) loss, net

 

(408)

 

 

261 

Bad debt expense, net of recoveries

 

 

 

63 

Provision for deferred income taxes

 

366 

 

 

31 

Change in operating assets and liabilities:

 

 

 

 

 

Contract receivables

 

1,283 

 

 

(5)

Unbilled work-in-progress

 

(800)

 

 

33 

Prepaid and other assets

 

(334)

 

 

(558)

Accounts payable and accrued liabilities

 

(80)

 

 

276 

Income taxes receivable

 

(587)

 

 

(42)

Unearned revenue

 

(34)

 

 

375 

Lease obligations — operating leases

 

(77)

 

 

(87)

Net cash used in operating activities

 

(283)

 

 

(297)



 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of property and equipment

 

(22)

 

 

(95)

Net cash used in investing activities

 

(22)

 

 

(95)



 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Principal payments on notes payable

 

(394)

 

 

(781)

Net cash used in financing activities

 

(394)

 

 

(781)



 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

229 

 

 



 

 

 

 

 

Net decrease in cash and cash equivalents

 

(470)

 

 

(1,170)

Cash and cash equivalents at beginning of period

 

3,076 

 

 

6,732 

Cash and cash equivalents at end of period

$

2,606 

 

$

5,562 



 

 

 

 

 

Supplemental disclosure of cash and non-cash transactions:

 

 

 

 

 

Interest paid

$

61 

 

$

74 

Income taxes paid

$

39 

 

$

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

$

 

$

1,609 















 

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

 

7


 

 

 



NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



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



Our software solution platforms enable carriers’ marketing departments to innovate, execute and manage highly personalized and contextually relevant, interactive campaigns that engage consumers in real time and enhance customer retention through deploying loyalty programs. In 2019, we announced Evolution, this platform supersedes our existing platforms and provides an upgrade path to our existing loyalty and customer value management “CVM” platforms. Evolution was built by combining, integrating, and improving upon the best components and features of our current platforms as well as adding new enhancements.



Our service activation solution, Tertio® (“TSA”) is used to activate bundles of voice, video and data services for wireless, wireline and cable network operators; our SIM card activation solution, Dynamic SIM Allocation TM (“DSA”) is used to dynamically allocate and assign resources to Mobile Network Operators (“MNOs”) devices that rely on SIM cards; our Mobile Data Enablement TM (“MDE”) solution provides a data consumption and policy management solution for wireless carriers and Mobile Virtual Network Operators (“MVNOs”) that monitor the usage and consumption of data services; our Total Number Management™ (“TNM”) product is a scalable and fully automated database solution that enables operators to reliably and efficiently manage their telephone numbers as well as other communication identifiers (i.e. SIMs, MSISDNs IMSIs, ICCIDs, IPs). Our solutions can be deployed on-premise or as a Software-as-a-Service (“SaaS”).



As disclosed in NOTE 7 — DEBT, as of March  31, 2020, we have $1.3 million in outstanding principal obligations on term loans payable to East West Bank (“EWB”) that require us to maintain specified financial requirements that are defined in the loan agreements, as amended.  Evolving Systems provides software solutions and services throughout the world. During the recent COVID-19 global outbreak we have leveraged our ability to provide support remotely resulting in limited effect on our day to day operations. The inability to travel has delayed interactions with our clients on projects and in the traditional modes of sales development. The financial covenants under our debt facilities are related to cash balances and trailing three month operational results which have been adversely affected by project delays or the closing of new orders related to customer interactions being postponed. The outbreak may also have an effect on our customers ability to make timely payments. We are current on our loan payment obligations and we have made all scheduled loan payments to date. However, we did not comply with the trailing three-month EBITDA covenant for the quarter ended March 31, 2020. We are currently negotiating with EWB to resolve the non-compliance.



EWB has the right to demand that we repay the loans sooner than scheduled upon the occurrence and continuance of certain events of default, including the breach of covenants beyond applicable grace periods. To date, EWB has not issued a notice of default or demanded accelerated payment. There can be no assurance that we will successfully renegotiate the loans’ terms, however we believe our current liquidity and funds from our ongoing operations will be sufficient to fund operations and meet the Company’s cash needs for future term loan payments, working capital and capital expenditure requirements for at least the next twelve months from the date of filing of these unaudited condensed consolidated financial statements. In making this assessment, we considered our $2.6 million in cash and cash equivalents and our $3.9 million in working capital at March 31, 2020, along with our ability to historically generate positive cash flows from operations for the years ended December 31, 2019 and 2018. There have been no adjustments made to our unaudited condensed consolidated financial statements since the loan balance is payable within the next 12 months. 



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

8

 


 

 

 

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with US GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We made estimates with respect to revenue recognition for progress toward completion and direct profit or loss on contracts, allowance for doubtful accounts, deferred taxes and income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets, useful lives for property, equipment and intangible assets, capitalization of internal software development costs and fair value of stock-based compensation amounts. Actual results could differ from these estimates.



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



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



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



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



Nature of goods and services



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



i. License Revenue



License 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.



9

 


 

 

 

ii. Customer Support Revenue



Customer support services includes annual support fees, recurring maintenance fees, and minor product upgrades generally as a single performance obligation. The Company also offers a warranty support fee which represents 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. 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 March 31,



2020

 

2019

Primary geographical markets

 

 

 

 

 

United Kingdom

$

1,190 

 

$

1,372 

Other

 

5,095 

 

 

5,325 



$

6,285 

 

$

6,697 



 

 

 

 

 

Major products/service lines

 

 

 

 

 

Licensing fees

$

207 

 

$

714 

Customer support, including warranty support fees

 

2,133 

 

 

2,232 

Services

 

1,567 

 

 

1,581 

Managed services

 

2,378 

 

 

2,170 

Total services

 

6,078 

 

 

5,983 



$

6,285 

 

$

6,697 



 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

Products transferred at a point in time

$

135 

 

$

487 

Products and services transferred over time

 

6,150 

 

 

6,210 



$

6,285 

 

$

6,697 



10

 


 

 

 

Contract balances



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







 

 

 

 

 

 



 

March 31, 2020

 

December 31, 2019

Assets

 

 

 

 

 

 

Contract receivables, net

 

$

5,104 

 

$

6,732 

Unbilled work-in-progress, net

 

$

1,817 

 

$

1,105 

Liabilities

 

 

 

 

 

 

Unearned revenue

 

$

3,701 

 

$

3,971 



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



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



Capitalized commission fees are amortized based on the transfer of services to which the assets relate which may range from two to three years, and are included in sales and marketing. In the three month periods ended March  31, 2020 and 2019, the amount of amortization was less than  $0.1 million and there was no impairment loss in relation to the costs capitalized. 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 March  31, 2020 and 2019, we recognized revenue of $2.2 million and $1.8 million, respectively, that 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 March  31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations with lives greater than one-year totals $14.8 million. The Company expects approximately 49% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 41% in 1-2 years and 10% in 3-4 years.



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.



Income Taxes — We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheets, as well as operating losses and tax credit carryforwards. 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

11

 


 

 

 

deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realized.



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



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



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



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



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



Recent Accounting PronouncementsIn December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740) — Simplifying the Accounting for Income Taxes. ASU 2019-12 which modifies ASC 740 to simplify the accounting for income taxes. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. We have not yet completed the full assessment of the impact on our condensed consolidated financial statements or related disclosures.



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



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







12

 


 

 

 

NOTE 2 — INTANGIBLE ASSETS



We amortize identifiable intangible assets on a straight-line basis over their estimated useful lives. As of March  31, 2020,

and December 31, 2019, identifiable intangibles were as follows (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



March 31, 2020



 

Gross Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

Purchased software

$

2,852 

 

$

(1,585)

 

$

1,267 

Trademarks and tradenames

 

299 

 

 

(249)

 

 

50 

Non-competition

 

39 

 

 

(39)

 

 

Customer relationships

 

4,261 

 

 

(2,252)

 

 

2,009 



$

7,451 

(1)

$

(4,125)

(1)

$

3,326 







 

 

 

 

 

 

 

 



December 31, 2019



 

Gross Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

Purchased software

$

2,903 

 

$

(1,508)

 

$

1,395 

Trademarks and tradenames

 

307 

 

 

(247)

 

 

60 

Non-competition

 

39 

 

 

(39)

 

 

 -

Customer relationships

 

4,346 

 

 

(2,136)

 

 

2,210 



$

7,595 

(1)

$

(3,930)

(1)

$

3,665 





(1)

Includes foreign currency translation adjustment of less than $0.1 million.



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









 

 



 

 

For the Twelve Months ended March 31,

 

 

2020

$

929 

2021

 

894 

2022

 

620 

2023

 

301 

2024

 

127 

Thereafter

 

455 



$

3,326 

 



13

 


 

 

 

NOTE 3 — BALANCE SHEET COMPONENTS



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









 

 

 

 

 



 

 

 

 

 



March 31, 2020

 

December 31, 2019

Accounts payable and accrued liabilities:

 

 

 

 

 

Accounts payable 

$

689 

 

$

889 

Accrued compensation and related expenses

 

1,583 

 

 

1,755 

Accrued liabilities

 

1,304 

 

 

1,183 



$

3,576 

 

$

3,827 

 



NOTE 4 — LOSS PER SHARE



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



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







 

 

 

 

 



 

 

 

 

 



 

 

 

 

 



For the Three Months Ended March 31,



 

2020

 

 

2019

Basic loss per common share:

 

 

 

 

 

Net loss

$

(32)

 

$

(1,117)

Basic weighted average shares outstanding

 

12,164 

 

 

12,138 

Basic loss per common share:

$

(0.00)

 

$

(0.09)



 

 

 

 

 

Diluted loss per common share:

 

 

 

 

 

Net loss

$

(32)

 

$

(1,117)

Weighted average shares outstanding

 

12,164 

 

 

12,138 

Effect of dilutive securities - options and restricted stock

 

 

 

Diluted weighted average shares outstanding

 

12,164 

 

 

12,138 

Diluted loss per common share:

$

(0.00)

 

$

(0.09)



Weighted average options to purchase approximately 0.4 million shares, and 0.6 million shares of common stock equivalents

were excluded from the computation of diluted weighted average shares outstanding for the years ended March 31, 2020, and 2019, 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.

14

 


 

 

 



NOTE 5 — STOCK-BASED COMPENSATION



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



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









 

 

 

 

 



 

 

 

 

 



For the Three Months Ended March 31,



 

2020

 

 

2019

Cost of revenue, excluding

 

 

 

 

 

depreciation and amortization

$

12 

 

$

Sales and marketing

 

 

 

General and administrative

 

46 

 

 

115 

Product development

 

(6)

 

 

Total stock-based compensation

$

58 

 

$

130 



Stock Incentive Plans



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



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



The fair value of restricted shares for stock-based compensation expensing is equal to the closing price of our common stock on the date of grant. The restrictions for stock awards generally vest over four years for senior management and over one year for the board of directors. The Company did not recognize any stock-based compensation expense in connection with its performance vesting conditions during the period.



The following is a summary of restricted stock activity under the plans for the three months ended March 31, 2020:









 



 



Restricted



Stock



Number of



Shares



(in thousands)

Unvested restricted stock at January 1, 2020

159 

Less restricted stock vested

(31)

Less restricted stock forfeited/expired

(34)

Unvested restricted stock at March 31, 2020

94 



15

 


 

 

 

The following is a summary of stock option activity under the plans for the three months ended March 31, 2020:









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

Weighted-

 

 

 



 

 

 

 

 

Average

 

 

 



 

 

Weighted-

 

Remaining

 

Aggregate



Number of

 

Average

 

Contractual

 

Intrinsic



Shares

 

Exercise

 

Term

 

Value



(in thousands)

 

Price

 

(Years)

 

(in thousands)

Options outstanding at January 1, 2020

438 

 

$

5.69 

 

6.51 

 

$

Less options forfeited/cancelled

(9)

 

 

2.39 

 

 

 

 

 

Less options expired

(3)

 

 

2.86 

 

 

 

 

 

Options outstanding at March 31, 2020

426 

 

$

5.78 

 

6.26 

 

$



 

 

 

 

 

 

 

 

 

Options exercisable at March 31, 2020

333 

 

$

6.17 

 

5.86 

 

$



There were no stock options granted during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, there was approximately $0.3 million of total unrecognized compensation costs related to unvested stock options and restricted stock. These costs are expected to be recognized over a weighted average period of 1.24 years. The total fair value of stock options and restricted stock vested during the three months ended March 31, 2020 and 2019 was $0.2 million and less than $0.1 million, respectively.

 



NOTE 6 — CONCENTRATION OF CREDIT RISK



For the three months ended March 31, 2020 and 2019 one significant customer (defined as contributing at least 10%) accounted for 10% and 11% of revenue from operations, respectively. The significant customer is a large telecommunications operator in Europe.



As of ended March 31, 2020, a significant customer, a telecommunication carrier in the Middle East, accounted for approximately 10% of contract receivables and unbilled work-in-progress. As of December 31, 2019, one customer accounted for 12% of contract receivables and unbilled work-in-progress.

 

NOTE 7 — LONG-TERM DEBT



On August 16, 2017, we entered into a Term Loan Facility Agreement with East West Bank as lender in the amount of $4.7 million (the “Lumata Facility”). The Lumata Facility requires the Company to make monthly principal payments of approximately $0.1 million that commenced on July 31, 2018 and interest at the greater of (a) 3.5% or (b) the variable rate of interest that appears in the Wall Street Journal on a monthly measurement date plus in either case 1.5%. As of March 31, 2020, the U.S.A. Prime Rate was 3.25%. At March 31, 2020 the interest rate was 4.75%. In the event of a default, the interest rate increases by 5% per annum. EVOL Inc. entered into the Lumata Facility as the Parent Guarantor; Evolving Systems BLS LTD and Evolving Systems Limited entered the Lumata Facility as Original Guarantors (the “Original Guarantors”). The Lumata Facility is secured by all of the assets of EVOL Holdings and the Original Guarantors in accordance with the terms of a Debenture entered into by EVOL Holdings and the Original Guarantors in favor of East West Bank. EVOL Holdings, EVOL Inc. and the Original Guarantors also entered into a Subordination Deed whereby each of the parties agreed to subordinate all loans by and among each other to East West Bank. Lumata France SAS and Lumata UK Ltd are also bound to adhere to the finance documents as additional obligors.



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



On February 29, 2016, we entered into the Fifth Amendment to the Loan and Security Agreement with East West Bank which provided for a Term Loan (the “Term Loan”) for $6.0 million. The $6.0 million Term Loan bore interest at a floating rate equal to the U.S. Prime Rate plus 1.0%. In the event of a default, the interest rate was to increase 5% per annum. The Term Loan was secured by substantially all of the assets of Evolving Systems, including a pledge, subject to certain limitations with respect to stock of foreign subsidiaries, of the stock of the existing and future direct subsidiaries of Evolving Systems. Interest accrued from the date the Term Loan was made at the aforementioned rate and was payable monthly. The Term Loan was to be repaid in 36 equal monthly installments of principal, plus accrued but unpaid interest, commencing on January 1, 2017 and continuing on the first day of each

16

 


 

 

 

month thereafter through and including January 1, 2020. The Term Loan required the Company to maintain a minimum current ratio, a specified ratio of Total Liabilities to EBITDA and a minimum fixed charge coverage ratio, as defined in the Term Loan. The Term Loan required us to pay two annual credit facility fees of $18,750 and legal fees equal to $1,000.



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



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



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



As of March 31, 2020, our trailing three-month EBITDA failed to meet the minimum required. We are negotiating with East West Bank to resolve the non-compliance. As of March 31, 2020, we have $1.3 million in outstanding debt recorded as a current liability as the Lumata Facility is due to be retired in January 2021.  The Company is current on our loan payment obligations and we have made all scheduled loan payments to date.

 

NOTE 8 — INCOME TAXES



We recorded income tax expense of $0.2 million and $0.1 million for the three months ended March  31, 2020 and 2019, respectively. The net expense during the three months ended March 31, 2020 consisted of current income tax expense of $0.2 million. The current tax expense consists of income tax primarily from our U.K. and Indian based operations and foreign taxes withheld. The net expense during the three months ended March 31, 2019 consisted of current income tax expense of $0.1 million. The current tax expense consists of income tax from our Indian and Nigerian based operations.



Our effective tax rate was 119% and (9%) for the three months ended March 31, 2020 and 2019, respectively. The 2020 effective tax rate relates to our net income coming from our U.K. subsidiaries as well as Indian and Nigerian operations and net losses from our other operations for which we did not recognize a net deferred tax benefit.



17

 


 

 

 

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











 

 

 

 

 



 

 

 

 

 



 

March 31, 2020

 

 

December 31, 2019

Deferred tax assets:

 

 

 

 

 

Foreign tax credits carryforwards

$

4,611 

 

$

4,650 

Net operating loss carryforwards - Federal

 

101 

 

 

Net operating loss carryforwards — State

 

961 

 

 

753 

Net operating loss carryforwards — Foreign

 

5,693 

 

 

5,911 

AMT credits

 

 

 

385 

Stock compensation

 

534 

 

 

552 

Depreciable assets

 

39 

 

 

54 

Accrued liabilities and reserves

 

77 

 

 

127 

Total deferred tax assets

 

12,016 

 

 

12,432 



 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

Intangibles

 

(184)

 

 

(180)

Accrued liabilities and reserves

 

(161)

 

 

(170)

Total deferred tax liability

 

(345)

 

 

(350)



 

 

 

 

 

Net deferred tax assets, before valuation allowance

 

11,671 

 

 

12,082 

Valuation allowance

 

(11,041)

 

 

(11,082)

Net deferred tax asset

$

630 

 

$

1,000 



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



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



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



Transfer Pricing Adjustments, net



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

18

 


 

 

 



NOTE 9 —GEOGRAPHICAL INFORMATION



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









 

 

 

 

 



 

 

 

 

 

 

 

March 31, 2020

 

 

December 31, 2019

Long-lived assets, net

 

 

 

 

 

United States

$

1,820 

 

$

2,063 

United Kingdom

 

1,607 

 

 

1,727 

Other

 

1,394 

 

 

1,562 



$

4,821 

 

$

5,352 







NOTE 10 — COMMITMENTS AND CONTINGENCIES



(a)Lease Commitments



Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases primarily consisting of facilities with remaining lease terms of one year to seven years. We lease office and operating facilities under non-cancelable operating leases. Current facility leases include our offices in Englewood, Colorado, New York, New York, Durham, North Carolina, London, England, Bangalore, Kolkata,  India, Johannesburg, South Africa, Kuala Lumpur, Malaysia, Grenoble, France, Cluj-Napoca, Romania and Madrid, Spain. The Company did not enter into any new leases in the three months ended March 31, 2020. Our lease for the Kolkata facility provides us with the option to terminate the lease in August 2020; however, we do not expect to exercise our termination option and have included costs through the July 2026 lease end date. Total rent expense consisted of operating lease expense of $0.1 million and short-term lease expense of less than $0.1 million for the three months ended March 31, 2020 and 2019, respectively. There was no sublease rental income for the three months ended March 31, 2020 and 2019. We paid $0.1 million against Lease obligations – operating leases in the three months ended March 31, 2020, compared to $0.2 million in the three months ended March 31, 2019.



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



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



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









 

 



 

 



 

As of



 

March 31, 2020

Operating leases - right of use assets

$

1,066 



 

 

Operating lease current

$

293 

Lease obligations — operating leases, net of current portion

 

764 

Total lease liability

$

1,057 



 

 

Weighted average remaining lease term (in years)

 

4.2 

Weighted average discount rate

 

6.75% 



19

 


 

 

 

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











 

 



 

 



 

For the year ending



 

December 31,

2020 - Remaining

$

274 

2021

 

318 

2022

 

294 

2023

 

166 

2024

 

70 

Thereafter

 

111 

Total future minimum lease payments

 

1,233 

Present value adjustment

 

176 

Total

$

1,057 



(b)Other Commitments



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



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



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



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



(c)Litigation



From time to time, we are involved in various legal matters arising in the normal course of business. The Company has been served a complaint from the Company’s former Chief Executive Officer claiming he was not properly compensated upon termination along with additional allegations. The Company has engaged legal counsel through our insurance carrier and intends to defend rigorously. The ultimate outcome of this matter is not estimable or determinable at this time.

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NOTE 11 –— SUBSEQUENT EVENTS



(a)Nasdaq Listing



Our common stock is currently listed on The Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other listing requirements. On January 3, 2020, the Nasdaq Listing Qualifications Department notified us that we no longer complied with Rule 5550(a)(2) (the “Minimum Bid Price Rule”), as the bid price of our shares of common stock closed below the minimum $1.00 per share for the 30 consecutive business days prior to the date of the letter. In accordance with Rule 5810(c) (3)(A), we have 180 calendar days, or until July 1, 2020, to regain compliance with the Minimum Bid Price Rule. If we were unable to demonstrate compliance with the Minimum Bid Price Rule during the applicable grace period, our common stock would be subject to delisting after that time.



On April 16, 2020 the NASDAQ determined to toll the compliance periods for the bid price and market value of publicly held shares requirements known as the Price-based Requirements through June 30, 2020, in light of market conditions resulting from the impact of COVID-19. As a result we will not be subject to delisting for these concerns.  Starting on July 1st, 2020 we will receive the balance of the pending compliance period in effect at the start of the tolling period to regain compliance.



Accordingly 76 calendar days have been added, such that we will have until September 14, 2020 to regain compliance with the Minimum Bid Price Rule. If  compliance with the Minimum Bid Price Rule cannot be demonstrated by July 1, 2020 and, except for the bid price requirement, the Company meets all other initial listing standards for The Nasdaq Capital Market set forth in Marketplace Rule 5505, then the Company may be granted an additional 180 calendar day period in which to demonstrate compliance with the Minimum Bid Price Rule. If the Company does not regain compliance with the Minimum Bid Price Rule prior to September  14, 2020 and is not eligible for the additional compliance period, then Nasdaq will notify the Company that the Common Stock will be subject to delisting. At such time, the Company may appeal Nasdaq’s delisting determination.



(b)PPP Loan



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



The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.



 

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS



This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about Evolving Systems’ industry, management’s beliefs, and certain assumptions made by management. Forward-looking statements include our expectations regarding product, services, and maintenance revenue, annual savings associated with the organizational changes effected in prior years, and short- and long-term cash needs. In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements. In addition, statements about the potential effects of the COVID-19 pandemic on the Company’s businesses, results of operations and financial condition may constitute forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 30, 2020, under “Item 1A. Risk Factors” as well as additional risks described in this Form 10-Q. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.



OVERVIEW



Evolving Systems, Inc. is a provider of real-time digital engagement solutions and services to the wireless carrier and consumer financial services markets. We operate a managed services business model through which we maintain long-standing relationships with many of the largest wireless companies worldwide. We have acquired multiple companies in the past few years to expand our offerings. The Company’s portfolio includes market-leading solutions and services for real-time analytics, customer acquisition and activation, customer value management and loyalty for the telecom industry promoting partnerships into retail and financial services. The Company has moved from selling technology to offering business solutions. The value proposition likewise has moved away from cost savings to a focus on revenue increases for the carrier and our business model has moved from classic capital expenditure license and services to operating expense models based on managed services.



RECENT DEVELOPMENTS



Evolution



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



COVID-19 and Liquidity Update



Evolving Systems provides software solutions and services throughout the world. The recent COVID-19 global outbreak has caused instability and volatility in multiple markets where our clients conduct business. We have leveraged our ability to provide support remotely resulting in limited effect on our day to day operations. The inability to travel has delayed interactions with our clients on projects and in the traditional modes of sales development. The financial covenants under our debt facilities (see Note 7) are related to cash balances and trailing three month operational results which have been adversely affected by project delays related to customer interactions being postponed or our customers ability to make timely payments. As of March 31, 2020, our trailing three-month EBITDA failed to meet the minimum required. We are negotiating with East West Bank “EWB” to resolve the non-compliance.  EWB has the right to demand that we repay the loans sooner than scheduled upon the occurrence and continuance of certain events of default, including the breach of covenants beyond applicable grace periods. To date, EWB has not issued a notice of default or demanded accelerated payment. There can be no assurance that we will successfully renegotiate the loans’ terms, however we believe our current liquidity and funds from our ongoing operations will be sufficient to fund operations and meet the Company’s cash needs for future term loan payments, working capital and capital expenditure requirements for at least the next twelve months from the date of filing of these consolidated financial statements. In making this assessment, we considered our $2.6 million in cash

22

 


 

 

and cash equivalents and our $3.9 million in working capital at March 31, 2020, along with our ability to historically generate positive cash flows from operations for the years ended December 31, 2019 and 2018.



Consolidated revenue was $6.3 million and $6.7 million for the three months ended March  31, 2020 and 2019, respectively. The decrease in revenues primarily related to lower number of incremental licenses sold to one customer during this three month period than the corresponding three month period in the prior year.



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





 

 



 

 



 

For the Three Months



 

Ended March 31,



 

2020 vs. 2019

Changes in:

 

 

Revenue

$

(16)

Costs of revenue and operating expenses

 

57 

Loss from operations

$

(73)



The net effect of our foreign currency translations for the three months ended March  31, 2020 was a less than $0.1 million decrease in revenue and a less than $0.1 million increase in operating expenses versus the three months ended March  31, 2019.

23

 


 

 

RESULTS OF OPERATIONS



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







 

 

 



 

 

 



 

 

 



For the Three Months Ended March 31,



2020

 

2019

REVENUE

 

 

 

License fees

3% 

 

11% 

Services

97% 

 

89% 

Total revenue

100% 

 

100% 



 

 

 

COSTS OF REVENUE AND OPERATING EXPENSES

 

 

 

Costs of revenue, excluding depreciation and amortization

34% 

 

29% 

Sales and marketing

25% 

 

31% 

General and administrative

22% 

 

27% 

Product development

17% 

 

19% 

Depreciation

1% 

 

Amortization

4% 

 

4% 

Total costs of revenue and operating expenses

103% 

 

110% 



 

 

 

Loss from operations

(3%)

 

(10%)



 

 

 

Other income (expense)

 

 

 

Interest income

-

 

Interest expense

(1%)

 

(1%)

Other income, net

0% 

 

Foreign currency exchange income (loss)

6% 

 

(4%)

Other income (expense), net

5% 

 

(5%)



 

 

 

Income (loss) from operations before income taxes

2% 

 

(15%)



 

 

 

Income tax expense

3% 

 

(1%)



 

 

 

Net loss

(1%)

 

(16%)

 

24

 


 

 

 

Revenue



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



License Fees



License fees revenue was $0.2 million and $0.7 million for the three months ended March  31, 2020 and 2019, respectively. The decrease in revenues of $0.5 million is primarily related to lower number of incremental licenses sold to one customer during this three month period than the corresponding three month period in the prior year.



Services



Services revenue increased $0.1 million, or 2%, to $6.1 million for the three months ended March  31, 2020 from $6.0 million for the three months ended March  31, 2019.  The increase is related new project revenues of $0.4 million partially offset by in reduction of orders from existing clients of $0.3 million as compared to the corresponding three month period in the prior year.



Costs of Revenue, Excluding Depreciation and Amortization



Costs of revenue, excluding depreciation and amortization, consist primarily of personnel costs and other direct costs associated with these personnel, facilities costs, costs of third-party software and partner commissions. Costs of revenue includes product development expenses related to software features requested in advance of their scheduled availability which are funded by customers as part of a managed service offering. Costs of revenue, excluding depreciation and amortization,  increased $0.2 million, or 10%, to $2.1 million for the three months ended March  31, 2020 from $1.9 million for the three months ended March  31, 2019.  The increase is related to increase in project hour costs of $0.3 million as staff was reassigned from product development to customer work partially offset by $0.1 million a reduction in resources. As a percentage of revenue, costs of revenue, excluding depreciation and amortization, increased 5% to 34% for the three months ended March  31, 2020 as compared to 29% for the three months ended March  31, 2019, this is primarily due to the aforementioned increase costs.  



Sales and Marketing



Sales and marketing expenses primarily consist of compensation costs, including incentive compensation and commissions, travel expenses, advertising, marketing and facilities expenses. Sales and marketing expenses decreased $0.5 million, or 24%, to $1.6 million for the three months ended March  31, 2020 from $2.1 million for the three months ended March  31, 2019. The decrease is related to the reduction of $0.3 million in commission costs that included revision to the incentive compensation structure and the reduction in revenues, and also a reduction in resource costs assigned to sales and marketing activities of $0.1 million and $0.1 million in lower travel and entertainment costs due to recent travel restrictions. As a percentage of total revenue, sales and marketing expenses decreased 6% to 25% for the three months ended March  31, 2020 from 31% for the three months ended March  31, 2019, This is primarily due to the aforementioned decreased costs.



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 decreased $0.4 million, or 21% to $1.4 million for the three months ended March  31, 2020 from $1.8 million for the three months ended March  31, 2019, respectively. The decrease was primarily attributable to accounting services and legal fees of $0.3 million, primarily due to the elimination of fees incurred related to audit and filing in the corresponding three month period of the prior year. Also, a net reduction of $0.1 million of equity compensation and outside director and contractor fees partially offset by an increase in incentive compensation. As a percentage of revenue, general and administrative expenses decreased to 22% for the three months ended March 31, 2020 as compared to 27% for the three months ended March  31, 2019. The decrease in general and administrative expense is primarily due to the aforementioned lower expenses.



Product Development



Product development expenses consist primarily of employee-related costs and subcontractor expenses. Product development expenses decreased $0.2 million, or 18%, to $1.1 million for the three months ended March  31, 2020 from $1.3 million for the three 

25

 


 

 

 

months ended March  31, 2019.  The decrease of $0.2 million is related to reduction in staff and in product development hours as internal staff was reassigned to client projects. As a percentage of revenue, product development expenses decreased 2% to 17% for the three months ended March  31, 2020 from 19% for the three months ended March  31, 2019. The decrease in general and product development expense is primarily due to the aforementioned lower expenses.



Depreciation



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



Amortization



Amortization expense consists of amortization of identifiable intangibles related to our acquisitions of Evolving Systems Labs, Evolving Systems NC, EVOL BLS, and the Lumata Entities. Amortization expense was $0.2 million for the three months ended March  31, 2020 and 2019. As a percentage of total revenue, amortization expense was 4% for the three months ended March 31, 2020 and 2019.



Interest Expense



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



Foreign Currency Exchange Income (Loss)



Foreign currency exchange income (loss) resulted from transactions denominated in a currency other than the functional currency of the respective subsidiary and increased $0.6 million or 247% to $0.4 million for the three months ended March  31, 2020 from a foreign currency loss of $0.3 million for the three months ended March  31, 2019. The gains were generated primarily through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our foreign subsidiaries.  



Interest Income and Total Other Income, Net



For the three months ended March  31, 2020 and 2019, other income was less than  $0.1 million.



Income Taxes



We recorded net income tax expense of $0.2 million and $0.1 million for the three months ended March  31, 2020 and 2019, respectively. The net expense during the three months ended March  31, 2020 consisted of current income tax expense of $0.2 million. The current tax expense consists of income tax primarily from our U.K. subsidiary and Indian based operations as well as foreign taxes withheld. The net expense during the three months ended March  31, 2019 consisted of current income tax expense of $0.1 million. The current tax expense primarily consists of income tax from our Indian and Nigerian based operations.  Our effective tax rate was 119% and (9%) for the three months ended March  31, 2020 and 2019, respectively. Our 2020 effective tax rate relates to our net income coming from our UK, Nigeria, and India based subsidiaries’ operations and net losses from our other subsidiaries’ operations for which we did not recognize a net deferred tax benefit.



On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We are planning on accelerating our alternative minimum tax credit refund and are analyzing the other aspects of the CARES Act to determine whether any additional specific provisions may impact us.



As of March 31, 2020, and December 31, 2019 we continued to maintain a valuation allowance on our domestic net deferred tax asset for foreign tax credit (“FTC”) carryforwards, certain state NOL carryforwards and research and development tax credits other than $0.5 million in FTC. We also have $0.3 million of foreign deferred tax assets, offset by foreign deferred tax liabilities of $0.2 million.  We assessed the realizability of our domestic deferred tax assets using all available evidence. In particular, we considered both historical results and projections of profitability for the reasonably foreseeable future periods. We are required to

26

 


 

 

 

reassess our conclusions regarding the realization of our deferred tax assets at each financial reporting date. A future evaluation could result in a conclusion that all or a portion of the valuation allowance is no longer necessary which could have a material impact on our results of operations and financial position. See Note 8 to the financial statements for a summary of our deferred tax assets and liabilities.



FINANCIAL CONDITION



Our working capital position increased $0.1 million, or 3% to $3.9 million from $3.8 million for the periods of March  31, 2020 and December 31, 2019, respectively.  The increase in working capital is related to an increase in unbilled work in progress, income tax receivable which included an AMT tax refund previously recorded in our deferred tax assets, and prepaids and other current assets along with decreases in current portion of the term loan, accounts payable and accrued liabilities, and unearned revenue, offset by a decrease in cash and cash equivalents and accounts receivable.



CONTRACTUAL OBLIGATIONS



There have been no material changes to the contractual obligations as disclosed in our 2019 Annual Report on Form 10-K, except that as of March 31, 2020, our trailing three-month EBITDA failed to meet the minimum required in the amendment to our loan agreement with East West Bank. We are negotiating with East West Bank to resolve the non-compliance. As of March 31, 2020, we have $1.3 million in outstanding debt recorded as a current liability as the Lumata Facility is due to be retired in January 2021.  The Company is current on our loan payment obligations and we have made all scheduled loan payments to date.



LIQUIDITY AND CAPITAL RESOURCES



We have historically financed operations through cash flows from operations and bank borrowings. At March  31, 2020, our principal source of liquidity was $2.6 million in cash and cash equivalents and $5.1 million in contract receivables, net of allowances. Our anticipated uses of cash in the future will be to make term loan payments and fund the growth of our business both organically and by expanding our customer base internationally. Other uses of cash will include product development, technology expansion, and capital expenditures.



Net cash used in operating activities for three months ended March 31, 2020 and 2019 was $(0.3) million and $(0.3) million, respectively. Cash used in operating activities for the three months ended March 31, 2020 was primarily due to an increase of $0.8 million in unbilled work in progress, taxes receivable of $0.6 million which included a refund of AMT previously recorded as a deferred tax asset, and prepaids and other assets of $0.3 million. Partially offset by the decrease in accounts receivable of $1.3 million. Cash used in operating activities for the three months ended March 31, 2019 was primarily due to the net loss of $1.1 million (offset by noncash charges of $0.8 million) and an increase in prepaid and other assets of $0.6 million. This was partially offset by increases of $0.4 million in unearned revenue and $0.3 million of accounts payable and accrued liabilities.



Net cash used in investing activities during the three months ended March 31, 2020 and 2019 of less than $0.1 million and $0.1 million, respectively, was primarily due to the purchase of property and equipment. 



Net cash used in financing activities was  $0.4 million compared to net cash used in financing activities of $0.8 million during the three months ended March 31, 2020 and 2019, respectively, and was primarily related to principal payments on our term loan.



As of March  31, 2020, we have $1.3 million in outstanding principal obligations on term loans payable to East West Bank (“EWB”) that require us to maintain specified financial requirements that are defined in the loan agreements. Evolving Systems provides software solutions and services throughout the world. The recent COVID-19 global outbreak has caused instability and volatility in multiple markets where our clients conduct business. At this time, we have seen only limited disruptions to our ability to continue delivery to our clients. However, the financial covenants under our debt facilities are related to cash balances and trailing three month operational results which have be adversely affected by project delays or the closing of new orders related to customer interactions being postponed. The outbreak may also have affected our customers ability to make timely payments. We are current on our loan payment obligations and we have made all scheduled loan payments to date. However, we did not comply with the trailing three-month EBITDA covenant for the quarter ended March 31, 2020. We are currently negotiating with EWB to resolve the non-compliance. EWB has the right to demand that we repay the loans sooner than scheduled upon the occurrence and continuance of certain events of default, including the breach of covenants beyond applicable grace periods. To date, EWB has not issued a notice of default or demanded accelerated payment.

27

 


 

 

 



We believe that our current cash and cash equivalents, together with anticipated cash flow from operations will be sufficient to meet our term loan payments, working capital and capital expenditure requirements for at least the next twelve months from the date of issuance of this Quarterly Report on Form 10-Q. In making this assessment we considered the following:



Our cash and cash equivalents balance at March  31, 2020 of $2.6 million;



Our working capital balance of $3.9 million; and



Our ability to historically generate positive cash flows from operations of $1.1 million and $2.6 million for full years ended 2019, and 2018, respectively.



We are exposed to foreign currency rate risks which impact the carrying amount of our foreign subsidiaries and our consolidated equity, as well as our consolidated cash position due to translation adjustments. For the three months ended March  31, 2020 and 2019, the effect of exchange rate changes resulted in increase of 0.2 million and increases in cash of less than $0.1 million, respectively. We do not currently hedge our foreign currency exposure, but we monitor rate changes and may hedge our exposures if we see significant negative trends in exchange rates.



OFF-BALANCE SHEET ARRANGEMENTS



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



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Not applicable



ITEM 4. 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 the end of March 31, 2020.



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

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PART II — OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



From time to time, we are involved in various legal matters arising in the normal course of business. We also receive letters from former employees claiming that upon exiting their final compensation was not properly calculated.  One such complaint from the Company’s former Chief Executive Officer has been lodged, claiming he was not properly compensated upon termination along with additional allegations.  The Company has engaged legal counsel through our insurance carrier and intends to defend rigorously. The ultimate outcome of this matter is not estimable or determinable at this time.



ITEM 1A. RISK FACTORS

There has been the no material change in the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 30, 2020.

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors defined in our Annual Report on Form 10-K for the year ended December 31, 2019 under “Item 1A. Risk Factors.”



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



None



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None



ITEM 4. MINE SAFETY DISCLOSURES



None



ITEM 5. OTHER INFORMATION



None



ITEM 6. EXHIBITS



(a)Exhibits





 



Exhibit 31.1 — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



Exhibit 31.2 — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



Exhibit 32.1 — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



Exhibit 32.2 — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



Exhibit 101 — The following financial information from the quarterly report on Form 10-Q of Evolving Systems, Inc. for the quarter ended March  31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.



 

29

 


 

 

 

 

SIGNATURE



Pursuant to the requirements 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.





 

 

Date: May  14, 2020

 

/s/ Mark P. Szynkowski



 

Mark P. Szynkowski



 

Senior Vice President of Finance and Secretary

(Principal Financial and Accounting Officer)

 

30

 


Exhibit 31.1

Exhibit 31.1

 

CERTIFICATION



I, Matthew Stecker, certify that:



1.I have reviewed this Quarterly Report on Form 10-Q of Evolving Systems, Inc.;



2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and



5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):



(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and,



(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.





 

Date: May  14, 2020

 



 

/s/ Matthew Stecker

 

Matthew Stecker

 

Chief Executive Officer and Chairman

 




Exhibit 31.2

Exhibit 31.2

 

CERTIFICATION



I, Mark P. Szynkowski, certify that:



1.I have reviewed this Quarterly Report on Form 10-Q of Evolving Systems, Inc.;



2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and



5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):



(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and,



(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.





 

Date: May  14, 2020

 



 

/s/ Mark P. Szynkowski

 

Mark P. Szynkowski

 

Senior Vice President of Finance and Secretary

(Principal Financial and Accounting Officer)

 




Exhibit 32.1

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



I, Matthew Stecker, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Evolving Systems, Inc. on Form 10-Q for the quarterly period ended March  31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Evolving Systems, Inc.





 

/s/ Matthew Stecker

 

Matthew Stecker

 

Chief Executive Officer and Chairman

 

May  14, 2020

 



This certification is furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.


Exhibit 32.2

Exhibit 32.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER



PURSUANT TO



18 U.S.C. SECTION 1350,



AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



I, Mark P. Szynkowski, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Evolving Systems, Inc. on Form 10-Q for the quarterly period ended March  31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Evolving Systems, Inc.





 

/s/ Mark P. Szynkowski

 

Mark P. Szynkowski

 

Senior Vice President of Finance and Secretary

(Principal Financial and Accounting Officer)

 

May  14, 2020

 



This certification is furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.




v3.20.1
Organization And Summary Of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Organization And Summary Of Significant Accounting Policies [Abstract]  
Organization And Summary Of Significant Accounting Policies

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



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



Our software solution platforms enable carriers’ marketing departments to innovate, execute and manage highly personalized and contextually relevant, interactive campaigns that engage consumers in real time and enhance customer retention through deploying loyalty programs. In 2019, we announced Evolution, this platform supersedes our existing platforms and provides an upgrade path to our existing loyalty and customer value management “CVM” platforms. Evolution was built by combining, integrating, and improving upon the best components and features of our current platforms as well as adding new enhancements.



Our service activation solution, Tertio® (“TSA”) is used to activate bundles of voice, video and data services for wireless, wireline and cable network operators; our SIM card activation solution, Dynamic SIM Allocation TM (“DSA”) is used to dynamically allocate and assign resources to Mobile Network Operators (“MNOs”) devices that rely on SIM cards; our Mobile Data Enablement TM (“MDE”) solution provides a data consumption and policy management solution for wireless carriers and Mobile Virtual Network Operators (“MVNOs”) that monitor the usage and consumption of data services; our Total Number Management™ (“TNM”) product is a scalable and fully automated database solution that enables operators to reliably and efficiently manage their telephone numbers as well as other communication identifiers (i.e. SIMs, MSISDNs IMSIs, ICCIDs, IPs). Our solutions can be deployed on-premise or as a Software-as-a-Service (“SaaS”).



As disclosed in NOTE 7 — DEBT, as of March 31, 2020, we have $1.3 million in outstanding principal obligations on term loans payable to East West Bank (“EWB”) that require us to maintain specified financial requirements that are defined in the loan agreements, as amended. Evolving Systems provides software solutions and services throughout the world. During the recent COVID-19 global outbreak we have leveraged our ability to provide support remotely resulting in limited effect on our day to day operations. The inability to travel has delayed interactions with our clients on projects and in the traditional modes of sales development. The financial covenants under our debt facilities are related to cash balances and trailing three month operational results which have been adversely affected by project delays or the closing of new orders related to customer interactions being postponed. The outbreak may also have an effect on our customers’ ability to make timely payments. We are current on our loan payment obligations and we have made all scheduled loan payments to date. However, we did not comply with the trailing three-month EBITDA covenant for the quarter ended March 31, 2020. We are currently negotiating with EWB to resolve the non-compliance.



EWB has the right to demand that we repay the loans sooner than scheduled upon the occurrence and continuance of certain events of default, including the breach of covenants beyond applicable grace periods. To date, EWB has not issued a notice of default or demanded accelerated payment. There can be no assurance that we will successfully renegotiate the loans’ terms, however we believe our current liquidity and funds from our ongoing operations will be sufficient to fund operations and meet the Company’s cash needs for future term loan payments, working capital and capital expenditure requirements for at least the next twelve months from the date of filing of these unaudited condensed consolidated financial statements. In making this assessment, we considered our $2.6 million in cash and cash equivalents and our $3.9 million in working capital at March 31, 2020, along with our ability to historically generate positive cash flows from operations for the years ended December 31, 2019 and 2018. There have been no adjustments made to our unaudited condensed consolidated financial statements since the loan balance is payable within the next 12 months. 



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

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with US GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We made estimates with respect to revenue recognition for progress toward completion and direct profit or loss on contracts, allowance for doubtful accounts, deferred taxes and income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets, useful lives for property, equipment and intangible assets, capitalization of internal software development costs and fair value of stock-based compensation amounts. Actual results could differ from these estimates.



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



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



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



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



Nature of goods and services



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



i. License Revenue



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



ii. Customer Support Revenue



Customer support services includes annual support fees, recurring maintenance fees, and minor product upgrades generally as a single performance obligation. The Company also offers a warranty support fee which represents 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. 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 March 31,



2020

 

2019

Primary geographical markets

 

 

 

 

 

United Kingdom

$

1,190 

 

$

1,372 

Other

 

5,095 

 

 

5,325 



$

6,285 

 

$

6,697 



 

 

 

 

 

Major products/service lines

 

 

 

 

 

Licensing fees

$

207 

 

$

714 

Customer support, including warranty support fees

 

2,133 

 

 

2,232 

Services

 

1,567 

 

 

1,581 

Managed services

 

2,378 

 

 

2,170 

Total services

 

6,078 

 

 

5,983 



$

6,285 

 

$

6,697 



 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

Products transferred at a point in time

$

135 

 

$

487 

Products and services transferred over time

 

6,150 

 

 

6,210 



$

6,285 

 

$

6,697 



Contract balances



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







 

 

 

 

 

 



 

March 31, 2020

 

December 31, 2019

Assets

 

 

 

 

 

 

Contract receivables, net

 

$

5,104 

 

$

6,732 

Unbilled work-in-progress, net

 

$

1,817 

 

$

1,105 

Liabilities

 

 

 

 

 

 

Unearned revenue

 

$

3,701 

 

$

3,971 



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



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



Capitalized commission fees are amortized based on the transfer of services to which the assets relate which may range from two to three years, and are included in sales and marketing. In the three month periods ended March 31, 2020 and 2019, the amount of amortization was less than $0.1 million and there was no impairment loss in relation to the costs capitalized. 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 March 31, 2020 and 2019, we recognized revenue of $2.2 million and $1.8 million, respectively, that 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 March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations with lives greater than one-year totals $14.8 million. The Company expects approximately 49% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 41% in 1-2 years and 10% in 3-4 years.



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.



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



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



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



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



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



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



Recent Accounting Pronouncements — In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740) — Simplifying the Accounting for Income Taxes. ASU 2019-12 which modifies ASC 740 to simplify the accounting for income taxes. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. We have not yet completed the full assessment of the impact on our condensed consolidated financial statements or related disclosures.



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



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



v3.20.1
Stock-Based Compensation (Summary Of Stock-Based Compensation Expenses) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]    
Total share-based compensation $ 58 $ 130
Cost Of Revenue, Excluding Depreciation And Amortization [Member]    
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]    
Total share-based compensation 12 4
Sales And Marketing [Member]    
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]    
Total share-based compensation 6 3
General And Administrative [Member]    
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]    
Total share-based compensation 46 115
Product Development [Member]    
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]    
Total share-based compensation $ (6) $ 8
v3.20.1
Condensed Consolidated Statements Of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
REVENUE    
Total revenue $ 6,285 $ 6,697
COSTS OF REVENUE AND OPERATING EXPENSES    
Costs of revenue, excluding depreciation and amortization 2,136 1,945
Sales and marketing 1,561 2,066
General and administrative 1,414 1,800
Product development 1,063 1,289
Depreciation 50 25
Amortization 235 237
Total costs of revenue and operating expenses 6,459 7,362
Loss from operations (174) (665)
Other income (expense)    
Interest income 2 5
Interest expense (47) (93)
Other income, net 3 (12)
Foreign currency exchange income (loss) 383 (261)
Other income (expense), net 341 (361)
Income (loss) from operations before income taxes 167 (1,026)
Income tax expense 199 91
Net loss $ (32) $ (1,117)
Basic loss per common share $ 0.00 $ (0.09)
Diluted loss per common share $ 0.00 $ (0.09)
Weighted average basic shares outstanding 12,164 12,138
Weighted average diluted shares outstanding 12,164 12,138
License Fees [Member]    
REVENUE    
Total revenue $ 207 $ 714
Services [Member]    
REVENUE    
Total revenue $ 6,078 $ 5,983
v3.20.1
Organization And Summary Of Significant Accounting Policies (Schedule Of Receivables, Assets And Liabilities From Contracts With Customers) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Assets    
Contract receivables, net $ 5,104 $ 6,732
Unbilled work-in-progress, net 1,817 1,105
Liabilities    
Unearned revenue $ 3,701 $ 3,971
v3.20.1
Balance Sheet Components (Accounts Payable And Accrued Liabilities) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Balance Sheet Components [Abstract]    
Accounts payable $ 689 $ 889
Accrued compensation and related expenses 1,583 1,755
Accrued liabilities 1,304 1,183
Total accounts payable and accrued liabilities $ 3,576 $ 3,827
v3.20.1
Commitments And Contingencies
3 Months Ended
Mar. 31, 2020
Commitments And Contingencies [Abstract]  
Commitments And Contingencies



NOTE 10 — COMMITMENTS AND CONTINGENCIES



(a)Lease Commitments



Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases primarily consisting of facilities with remaining lease terms of one year to seven years. We lease office and operating facilities under non-cancelable operating leases. Current facility leases include our offices in Englewood, Colorado, New York, New York, Durham, North Carolina, London, England, Bangalore, Kolkata, India, Johannesburg, South Africa, Kuala Lumpur, Malaysia, Grenoble, France, Cluj-Napoca, Romania and Madrid, Spain. The Company did not enter into any new leases in the three months ended March 31, 2020.  Our lease for the Kolkata facility provides us with the option to terminate the lease in August 2020; however, we do not expect to exercise our termination option and have included costs through the July 2026 lease end date. Total rent expense consisted of operating lease expense of $0.1 million and short-term lease expense of less than $0.1 million for the three months ended March 31, 2020 and 2019, respectively. There was no sublease rental income for the three months ended March 31, 2020 and 2019. We paid $0.1 million against Lease obligations – operating leases in the three months ended March 31, 2020, compared to $0.2 million in the three months ended March 31, 2019.



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



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



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









 

 



 

 



 

As of



 

March 31, 2020

Operating leases - right of use assets

$

1,066 



 

 

Operating lease current

$

293 

Lease obligations — operating leases, net of current portion

 

764 

Total lease liability

$

1,057 



 

 

Weighted average remaining lease term (in years)

 

4.2 

Weighted average discount rate

 

6.75% 



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











 

 



 

 



 

For the year ending



 

December 31,

2020 - Remaining

$

274 

2021

 

318 

2022

 

294 

2023

 

166 

2024

 

70 

Thereafter

 

111 

Total future minimum lease payments

 

1,233 

Present value adjustment

 

176 

Total

$

1,057 



(b)Other Commitments



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



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



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



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



(c)Litigation



From time to time, we are involved in various legal matters arising in the normal course of business. The Company has been served a complaint from the Company’s former Chief Executive Officer claiming he was not properly compensated upon termination along with additional allegations. The Company has engaged legal counsel through our insurance carrier and intends to defend rigorously. The ultimate outcome of this matter is not estimable or determinable at this time.

v3.20.1
Concentration Of Credit Risk
3 Months Ended
Mar. 31, 2020
Concentration Of Credit Risk [Abstract]  
Concentration Of Credit Risk

NOTE 6 — CONCENTRATION OF CREDIT RISK



For the three months ended March 31, 2020 and 2019 one significant customer (defined as contributing at least 10%) accounted for 10% and 11% of revenue from operations, respectively. The significant customer is a large telecommunications operator in Europe.



As of ended March 31, 2020, a significant customer, a telecommunication carrier in the Middle East, accounted for approximately 10% of contract receivables and unbilled work-in-progress. As of December 31, 2019, one customer accounted for 12% of contract receivables and unbilled work-in-progress.

 

v3.20.1
Commitments And Contingencies (Future Lease Payments) (Details)
$ in Thousands
Mar. 31, 2020
USD ($)
Commitments And Contingencies [Abstract]  
2020 - Remaining $ 274
2021 318
2022 294
2023 166
2024 70
Thereafter 111
Total future minimum lease payments 1,233
Present value adjustment 176
Total $ 1,057
v3.20.1
Stock-Based Compensation (Summary Of Stock Option Activity) (Details) - USD ($)
shares in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Stock-Based Compensation [Abstract]    
Number of Shares, Options outstanding at beginning 438  
Number of Shares, Less options forfeited/cancelled (9)  
Number of Shares, Less options expired (3)  
Number of Shares, Options outstanding at ending 426 438
Number of Shares, Options exercisable at March 31, 2020 333  
Weighted-Average Exercise Price, Options outstanding at beginning $ 5.69  
Weighted-Average Exercise Price, Less options forfeited/cancelled 2.39  
Weighted Average Exercise Price, Less options expired 2.86  
Weighted-Average Exercise Price, Options outstanding at ending 5.78 $ 5.69
Weighted-Average Exercise Price, Options exercisable at March 31, 2020 $ 6.17  
Weighted-Average Remaining Contractual Term (Years), Options outstanding 6 years 3 months 4 days 6 years 6 months 4 days
Weighted-Average Remaining Contractual Term (Years), Options exercisable at March 31, 2020 5 years 10 months 10 days  
Aggregate Intrinsic Value, Options outstanding at beginning  
Aggregate Intrinsic Value, Options outstanding at ending
Aggregate Intrinsic Value, Options exercisable at March 31, 2020  
v3.20.1
Income Taxes (Components Of Deferred Tax Assets And Liabilities) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Deferred tax assets:    
Foreign tax credits carryforwards $ 4,611 $ 4,650
Net operating loss carryforwards - Federal 101  
Net operating loss carryforwards - State 961 753
Net operating loss carryforwards - Foreign 5,693 5,911
AMT credit   385
Stock compensation 534 552
Depreciable assets 39 54
Accrued liabilities and reserves 77 127
Total deferred tax assets 12,016 12,432
Deferred tax liabilities:    
Intangibles (184) (180)
Accrued liabilities and reserves (161) (170)
Total deferred tax liability (345) (350)
Net deferred tax assets, before valuation allowance 11,671 12,082
Valuation allowance (11,041) (11,082)
Net deferred tax asset $ 630 $ 1,000
v3.20.1
Income Taxes (Tables)
3 Months Ended
Mar. 31, 2020
Income Taxes [Abstract]  
Components Of Deferred Tax Assets And Liabilities



 

 

 

 

 



 

 

 

 

 



 

March 31, 2020

 

 

December 31, 2019

Deferred tax assets:

 

 

 

 

 

Foreign tax credits carryforwards

$

4,611 

 

$

4,650 

Net operating loss carryforwards - Federal

 

101 

 

 

Net operating loss carryforwards — State

 

961 

 

 

753 

Net operating loss carryforwards — Foreign

 

5,693 

 

 

5,911 

AMT credits

 

 

 

385 

Stock compensation

 

534 

 

 

552 

Depreciable assets

 

39 

 

 

54 

Accrued liabilities and reserves

 

77 

 

 

127 

Total deferred tax assets

 

12,016 

 

 

12,432 



 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

Intangibles

 

(184)

 

 

(180)

Accrued liabilities and reserves

 

(161)

 

 

(170)

Total deferred tax liability

 

(345)

 

 

(350)



 

 

 

 

 

Net deferred tax assets, before valuation allowance

 

11,671 

 

 

12,082 

Valuation allowance

 

(11,041)

 

 

(11,082)

Net deferred tax asset

$

630 

 

$

1,000 



v3.20.1
Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2020
Intangible Assets [Abstract]  
Summary Of Identifiable Intangible Assets





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



March 31, 2020



 

Gross Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

Purchased software

$

2,852 

 

$

(1,585)

 

$

1,267 

Trademarks and tradenames

 

299 

 

 

(249)

 

 

50 

Non-competition

 

39 

 

 

(39)

 

 

Customer relationships

 

4,261 

 

 

(2,252)

 

 

2,009 



$

7,451 

(1)

$

(4,125)

(1)

$

3,326 







 

 

 

 

 

 

 

 



December 31, 2019



 

Gross Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

Purchased software

$

2,903 

 

$

(1,508)

 

$

1,395 

Trademarks and tradenames

 

307 

 

 

(247)

 

 

60 

Non-competition

 

39 

 

 

(39)

 

 

 -

Customer relationships

 

4,346 

 

 

(2,136)

 

 

2,210 



$

7,595 

(1)

$

(3,930)

(1)

$

3,665 





(1)

Includes foreign currency translation adjustment of less than $0.1 million.

Summary Of Expected Future Amortization Expense Related To Identifiable Intangibles



 

 



 

 

For the Twelve Months ended March 31,

 

 

2020

$

929 

2021

 

894 

2022

 

620 

2023

 

301 

2024

 

127 

Thereafter

 

455 



$

3,326 



v3.20.1
Organization And Summary Of Significant Accounting Policies (Schedule Of Disaggregation Of Revenue) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Disaggregation of Revenue [Line Items]    
Revenues $ 6,285 $ 6,697
Products Transferred At A Point In Time [Member]    
Disaggregation of Revenue [Line Items]    
Revenues 135 487
Products and Services Transferred Over Time [Member]    
Disaggregation of Revenue [Line Items]    
Revenues 6,150 6,210
License Fees [Member]    
Disaggregation of Revenue [Line Items]    
Revenues 207 714
Customer Support, Including Warranty Support Fees [Member]    
Disaggregation of Revenue [Line Items]    
Revenues 2,133 2,232
Services [Member]    
Disaggregation of Revenue [Line Items]    
Revenues 1,567 1,581
Managed Services [Member]    
Disaggregation of Revenue [Line Items]    
Revenues 2,378 2,170
Services [Member]    
Disaggregation of Revenue [Line Items]    
Revenues 6,078 5,983
United Kingdom [Member]    
Disaggregation of Revenue [Line Items]    
Revenues 1,190 1,372
Other [Member]    
Disaggregation of Revenue [Line Items]    
Revenues $ 5,095 $ 5,325
v3.20.1
Concentration Of Credit Risk (Narrative) (Details) - customer
3 Months Ended 12 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Revenue By Geographic Region [Member] | Customer One [Member] | Europe [Member]      
Concentration Risk [Line Items]      
Number of significant customers 1 1  
Concentration risk, percentage 10.00% 11.00%  
Revenue By Geographic Region [Member] | Customer One [Member] | Europe [Member] | Minimum [Member]      
Concentration Risk [Line Items]      
Concentration risk, percentage 10.00% 10.00%  
Contract Receivables And Unbilled Work-In-Progress [Member]      
Concentration Risk [Line Items]      
Number of significant customers     1
Concentration risk, percentage     12.00%
Contract Receivables And Unbilled Work-In-Progress [Member] | Customer One [Member] | Middle East [Member]      
Concentration Risk [Line Items]      
Number of significant customers 1    
Concentration risk, percentage 10.00%    
v3.20.1
Geographical Information (Long-Lived Assets, Net By Geographic Region) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Segment Reporting Information [Line Items]    
Long-lived assets, net $ 4,821 $ 5,352
United States [Member]    
Segment Reporting Information [Line Items]    
Long-lived assets, net 1,820 2,063
United Kingdom [Member]    
Segment Reporting Information [Line Items]    
Long-lived assets, net 1,607 1,727
Other [Member]    
Segment Reporting Information [Line Items]    
Long-lived assets, net $ 1,394 $ 1,562
v3.20.1
Subsequent Events (Narrative) (Details) - USD ($)
Apr. 16, 2020
Apr. 15, 2020
Jan. 03, 2020
Subsequent Event [Line Items]      
Minimum Bid Price Rule, Period     30 days
Minimum Bid Price Rule, Compliance period     180 days
Subsequent Event [Member]      
Subsequent Event [Line Items]      
Minimum Bid Price Rule, Period 76 days    
Minimum Bid Price Rule, Compliance period 180 days    
Minimum [Member]      
Subsequent Event [Line Items]      
Minimum Bid Price Rule, Price per share     $ 1.00
Paycheck Protection Program Loan [Member] | Subsequent Event [Member]      
Subsequent Event [Line Items]      
Proceeds from PPP loan   $ 318,900  
Loans and accrued interest, forgivable period   56 days  
Payable period, unforgiven portion   2 years  
Interest rate   1.00%  
Deferral payments period   6 months  
v3.20.1
Organization And Summary Of Significant Accounting Policies (Narrative) (Details)
3 Months Ended
Mar. 31, 2020
USD ($)
item
segment
Mar. 31, 2019
USD ($)
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Cash and cash equivalents $ 2,606,000 $ 5,562,000 $ 3,076,000 $ 6,732,000
Working capital $ 3,900,000      
Number of recognized sources for revenue | item 2      
Capitalized contract cost, impairment loss $ 0 0    
Revenue recognized in correponding to contract liability 2,200,000 1,800,000    
Remaining performance obligations $ 14,800,000      
Percentage of remaining performance obligations, next twelve months 49.00%      
Number of operating segments | segment 1      
Minimum [Member]        
Capitalized contract cost, amortization period 2 years      
Maximum [Member]        
Capitalized contract cost $ 200,000   $ 200,000  
Capitalized contract cost, amortization period 3 years      
Capitalized contract cost, amortization $ 100,000 $ 100,000    
Year 1 and 2 [Member]        
Percentage of remaining performance obligations, thereafter 41.00%      
Year 3 and 4 [Member]        
Percentage of remaining performance obligations, thereafter 10.00%      
Revolving Facility [Member] | Lumata Facility [Member] | East West Bank [Member]        
Outstanding amount $ 1,300,000      
v3.20.1
Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Summary Of Stock-Based Compensation Expenses



 

 

 

 

 



 

 

 

 

 



For the Three Months Ended March 31,



 

2020

 

 

2019

Cost of revenue, excluding

 

 

 

 

 

depreciation and amortization

$

12 

 

$

Sales and marketing

 

 

 

General and administrative

 

46 

 

 

115 

Product development

 

(6)

 

 

Total stock-based compensation

$

58 

 

$

130 



Summary Of Stock Option Activity



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

Weighted-

 

 

 



 

 

 

 

 

Average

 

 

 



 

 

Weighted-

 

Remaining

 

Aggregate



Number of

 

Average

 

Contractual

 

Intrinsic



Shares

 

Exercise

 

Term

 

Value



(in thousands)

 

Price

 

(Years)

 

(in thousands)

Options outstanding at January 1, 2020

438 

 

$

5.69 

 

6.51 

 

$

Less options forfeited/cancelled

(9)

 

 

2.39 

 

 

 

 

 

Less options expired

(3)

 

 

2.86 

 

 

 

 

 

Options outstanding at March 31, 2020

426 

 

$

5.78 

 

6.26 

 

$



 

 

 

 

 

 

 

 

 

Options exercisable at March 31, 2020

333 

 

$

6.17 

 

5.86 

 

$



Restricted Stock [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Summary Of Restricted Stock Activity



 



 



Restricted



Stock



Number of



Shares



(in thousands)

Unvested restricted stock at January 1, 2020

159 

Less restricted stock vested

(31)

Less restricted stock forfeited/expired

(34)

Unvested restricted stock at March 31, 2020

94 



v3.20.1
Organization And Summary Of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2020
Organization And Summary Of Significant Accounting Policies [Abstract]  
Schedule Of Disaggregation Of Revenue



 

 

 

 

 



 

 

 

 

 



For the Three Months ended March 31,



2020

 

2019

Primary geographical markets

 

 

 

 

 

United Kingdom

$

1,190 

 

$

1,372 

Other

 

5,095 

 

 

5,325 



$

6,285 

 

$

6,697 



 

 

 

 

 

Major products/service lines

 

 

 

 

 

Licensing fees

$

207 

 

$

714 

Customer support, including warranty support fees

 

2,133 

 

 

2,232 

Services

 

1,567 

 

 

1,581 

Managed services

 

2,378 

 

 

2,170 

Total services

 

6,078 

 

 

5,983 



$

6,285 

 

$

6,697 



 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

Products transferred at a point in time

$

135 

 

$

487 

Products and services transferred over time

 

6,150 

 

 

6,210 



$

6,285 

 

$

6,697 



Schedule Of Receivables, Assets And Liabilities From Contracts With Customers



 

 

 

 

 

 



 

March 31, 2020

 

December 31, 2019

Assets

 

 

 

 

 

 

Contract receivables, net

 

$

5,104 

 

$

6,732 

Unbilled work-in-progress, net

 

$

1,817 

 

$

1,105 

Liabilities

 

 

 

 

 

 

Unearned revenue

 

$

3,701 

 

$

3,971 



v3.20.1
Condensed Consolidated Statements Of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Condensed Consolidated Statements Of Comprehensive Loss [Abstract]    
Net loss $ (32) $ (1,117)
Other comprehensive (loss) income    
Foreign currency translation (loss) income (523) 327
Comprehensive loss $ (555) $ (790)
v3.20.1
Intangible Assets (Narrative) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Intangible Assets [Abstract]    
Amortization of intangible assets $ 235 $ 237
v3.20.1
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 12, 2020
Document And Entity Information [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Current Fiscal Year End Date --12-31  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Entity File Number 001-34261  
Entity Registrant Name EVOLVING SYSTEMS INC  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 84-1010843  
Entity Address, Address Line One 9800 Pyramid Court  
Entity Address, Address Line Two Suite 400  
Entity Address, City or Town Englewood  
Entity Address, State or Province CO  
Entity Address, Postal Zip Code 80112  
City Area Code 303  
Local Phone Number 802-1000  
Title of 12(b) Security Common Stock, par value $0.001 per share  
Trading Symbol evol  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   12,194,502
Entity Central Index Key 0001052054  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2020  
Amendment Flag false  
v3.20.1
Loss Per Share (Narrative) (Details) - shares
shares in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Loss Per Share [Abstract]    
Shares excluded from the dilutive stock calculation 0.4 0.6
v3.20.1
Intangible Assets
3 Months Ended
Mar. 31, 2020
Intangible Assets [Abstract]  
Intangible Assets

NOTE 2 — INTANGIBLE ASSETS



We amortize identifiable intangible assets on a straight-line basis over their estimated useful lives. As of March 31, 2020,

and December 31, 2019, identifiable intangibles were as follows (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



March 31, 2020



 

Gross Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

Purchased software

$

2,852 

 

$

(1,585)

 

$

1,267 

Trademarks and tradenames

 

299 

 

 

(249)

 

 

50 

Non-competition

 

39 

 

 

(39)

 

 

Customer relationships

 

4,261 

 

 

(2,252)

 

 

2,009 



$

7,451 

(1)

$

(4,125)

(1)

$

3,326 







 

 

 

 

 

 

 

 



December 31, 2019



 

Gross Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

Purchased software

$

2,903 

 

$

(1,508)

 

$

1,395 

Trademarks and tradenames

 

307 

 

 

(247)

 

 

60 

Non-competition

 

39 

 

 

(39)

 

 

 -

Customer relationships

 

4,346 

 

 

(2,136)

 

 

2,210 



$

7,595 

(1)

$

(3,930)

(1)

$

3,665 





(1)

Includes foreign currency translation adjustment of less than $0.1 million.



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









 

 



 

 

For the Twelve Months ended March 31,

 

 

2020

$

929 

2021

 

894 

2022

 

620 

2023

 

301 

2024

 

127 

Thereafter

 

455 



$

3,326 

 

v3.20.1
Stock-Based Compensation (Summary Of Restricted Stock Activity) (Details) - Restricted Stock [Member]
shares in Thousands
3 Months Ended
Mar. 31, 2020
shares
Unvested restricted stock, beginning 159
Less restricted stock vested (31)
Less restricted stock forfeited/expired (34)
Unvested restricted stock, ending 94
v3.20.1
Geographical Information
3 Months Ended
Mar. 31, 2020
Geographical Information [Abstract]  
Geographical Information

NOTE 9 —GEOGRAPHICAL INFORMATION



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









 

 

 

 

 



 

 

 

 

 

 

 

March 31, 2020

 

 

December 31, 2019

Long-lived assets, net

 

 

 

 

 

United States

$

1,820 

 

$

2,063 

United Kingdom

 

1,607 

 

 

1,727 

Other

 

1,394 

 

 

1,562 



$

4,821 

 

$

5,352 





v3.20.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2020
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

NOTE 5 — STOCK-BASED COMPENSATION



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



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









 

 

 

 

 



 

 

 

 

 



For the Three Months Ended March 31,



 

2020

 

 

2019

Cost of revenue, excluding

 

 

 

 

 

depreciation and amortization

$

12 

 

$

Sales and marketing

 

 

 

General and administrative

 

46 

 

 

115 

Product development

 

(6)

 

 

Total stock-based compensation

$

58 

 

$

130 



Stock Incentive Plans



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



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



The fair value of restricted shares for stock-based compensation expensing is equal to the closing price of our common stock on the date of grant. The restrictions for stock awards generally vest over four years for senior management and over one year for the board of directors. The Company did not recognize any stock-based compensation expense in connection with its performance vesting conditions during the period.



The following is a summary of restricted stock activity under the plans for the three months ended March 31, 2020:









 



 



Restricted



Stock



Number of



Shares



(in thousands)

Unvested restricted stock at January 1, 2020

159 

Less restricted stock vested

(31)

Less restricted stock forfeited/expired

(34)

Unvested restricted stock at March 31, 2020

94 



The following is a summary of stock option activity under the plans for the three months ended March 31, 2020:









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

Weighted-

 

 

 



 

 

 

 

 

Average

 

 

 



 

 

Weighted-

 

Remaining

 

Aggregate



Number of

 

Average

 

Contractual

 

Intrinsic



Shares

 

Exercise

 

Term

 

Value



(in thousands)

 

Price

 

(Years)

 

(in thousands)

Options outstanding at January 1, 2020

438 

 

$

5.69 

 

6.51 

 

$

Less options forfeited/cancelled

(9)

 

 

2.39 

 

 

 

 

 

Less options expired

(3)

 

 

2.86 

 

 

 

 

 

Options outstanding at March 31, 2020

426 

 

$

5.78 

 

6.26 

 

$



 

 

 

 

 

 

 

 

 

Options exercisable at March 31, 2020

333 

 

$

6.17 

 

5.86 

 

$



There were no stock options granted during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, there was approximately $0.3 million of total unrecognized compensation costs related to unvested stock options and restricted stock. These costs are expected to be recognized over a weighted average period of 1.24 years. The total fair value of stock options and restricted stock vested during the three months ended March 31, 2020 and 2019 was $0.2 million and less than $0.1 million, respectively.

 

v3.20.1
Income Taxes (Narrative) (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Income Taxes [Line Items]      
Net income tax expense $ 199,000 $ 91,000  
Effective tax rate 119.00% (9.00%)  
Deferred tax assets $ 630,000   $ 1,000,000
Unrecognized tax benefits 0   0
Income before income tax expense 1,100,000    
FTC Carryforwards [Member]      
Income Taxes [Line Items]      
Deferred tax assets 300,000   300,000
Deferred tax liability 200,000   200,000
Foreign tax credit 500,000   $ 500,000
U.K. and India Operations [Member]      
Income Taxes [Line Items]      
Current income tax expense $ 200,000    
Indian And Nigerian Based Operations [Member]      
Income Taxes [Line Items]      
Current income tax expense   $ 100,000  
v3.20.1
Commitments And Contingencies (Operating ROU Lease Assets And Lease Liabilities) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Commitments And Contingencies [Abstract]    
Operating leases - right of use assets $ 1,066 $ 1,205
Operating lease current 293 321
Lease obligations - operating leases, net of current portion 764 $ 876
Total lease liability $ 1,057  
Weighted average remaining lease term (in years) 4 years 2 months 12 days  
Weighted average discount rate 6.75%  
v3.20.1
Geographical Information (Tables)
3 Months Ended
Mar. 31, 2020
Geographical Information [Abstract]  
Long-Lived Assets, Net By Geographic Region



 

 

 

 

 



 

 

 

 

 

 

 

March 31, 2020

 

 

December 31, 2019

Long-lived assets, net

 

 

 

 

 

United States

$

1,820 

 

$

2,063 

United Kingdom

 

1,607 

 

 

1,727 

Other

 

1,394 

 

 

1,562 



$

4,821 

 

$

5,352 



v3.20.1
Balance Sheet Components (Tables)
3 Months Ended
Mar. 31, 2020
Balance Sheet Components [Abstract]  
Accounts Payable And Accrued Liabilities



 

 

 

 

 



 

 

 

 

 



March 31, 2020

 

December 31, 2019

Accounts payable and accrued liabilities:

 

 

 

 

 

Accounts payable 

$

689 

 

$

889 

Accrued compensation and related expenses

 

1,583 

 

 

1,755 

Accrued liabilities

 

1,304 

 

 

1,183 



$

3,576 

 

$

3,827 



v3.20.1
Long-Term Debt
3 Months Ended
Mar. 31, 2020
Long-Term Debt [Abstract]  
Long-Term Debt

NOTE 7 — LONG-TERM DEBT



On August 16, 2017, we entered into a Term Loan Facility Agreement with East West Bank as lender in the amount of $4.7 million (the “Lumata Facility”). The Lumata Facility requires the Company to make monthly principal payments of approximately $0.1 million that commenced on July 31, 2018 and interest at the greater of (a) 3.5% or (b) the variable rate of interest that appears in the Wall Street Journal on a monthly measurement date plus in either case 1.5%. As of March 31, 2020, the U.S.A. Prime Rate was 3.25%. At March 31, 2020 the interest rate was 4.75%. In the event of a default, the interest rate increases by 5% per annum. EVOL Inc. entered into the Lumata Facility as the Parent Guarantor; Evolving Systems BLS LTD and Evolving Systems Limited entered the Lumata Facility as Original Guarantors (the “Original Guarantors”). The Lumata Facility is secured by all of the assets of EVOL Holdings and the Original Guarantors in accordance with the terms of a Debenture entered into by EVOL Holdings and the Original Guarantors in favor of East West Bank. EVOL Holdings, EVOL Inc. and the Original Guarantors also entered into a Subordination Deed whereby each of the parties agreed to subordinate all loans by and among each other to East West Bank. Lumata France SAS and Lumata UK Ltd are also bound to adhere to the finance documents as additional obligors.



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



On February 29, 2016, we entered into the Fifth Amendment to the Loan and Security Agreement with East West Bank which provided for a Term Loan (the “Term Loan”) for $6.0 million. The $6.0 million Term Loan bore interest at a floating rate equal to the U.S. Prime Rate plus 1.0%. In the event of a default, the interest rate was to increase 5% per annum. The Term Loan was secured by substantially all of the assets of Evolving Systems, including a pledge, subject to certain limitations with respect to stock of foreign subsidiaries, of the stock of the existing and future direct subsidiaries of Evolving Systems. Interest accrued from the date the Term Loan was made at the aforementioned rate and was payable monthly. The Term Loan was to be repaid in 36 equal monthly installments of principal, plus accrued but unpaid interest, commencing on January 1, 2017 and continuing on the first day of each month thereafter through and including January 1, 2020. The Term Loan required the Company to maintain a minimum current ratio, a specified ratio of Total Liabilities to EBITDA and a minimum fixed charge coverage ratio, as defined in the Term Loan. The Term Loan required us to pay two annual credit facility fees of $18,750 and legal fees equal to $1,000.



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



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



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



As of March 31, 2020, our trailing three-month EBITDA failed to meet the minimum required. We are negotiating with East West Bank to resolve the non-compliance. As of March 31, 2020, we have $1.3 million in outstanding debt recorded as a current liability as the Lumata Facility is due to be retired in January 2021.  The Company is current on our loan payment obligations and we have made all scheduled loan payments to date.

 

v3.20.1
Balance Sheet Components
3 Months Ended
Mar. 31, 2020
Balance Sheet Components [Abstract]  
Balance Sheet Components

NOTE 3 — BALANCE SHEET COMPONENTS



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









 

 

 

 

 



 

 

 

 

 



March 31, 2020

 

December 31, 2019

Accounts payable and accrued liabilities:

 

 

 

 

 

Accounts payable 

$

689 

 

$

889 

Accrued compensation and related expenses

 

1,583 

 

 

1,755 

Accrued liabilities

 

1,304 

 

 

1,183 



$

3,576 

 

$

3,827 

 



v3.20.1
Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events

NOTE 11 –— SUBSEQUENT EVENTS



(a)Nasdaq Listing



Our common stock is currently listed on The Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other listing requirements. On January 3, 2020, the Nasdaq Listing Qualifications Department notified us that we no longer complied with Rule 5550(a)(2) (the “Minimum Bid Price Rule”), as the bid price of our shares of common stock closed below the minimum $1.00 per share for the 30 consecutive business days prior to the date of the letter. In accordance with Rule 5810(c) (3)(A), we have 180 calendar days, or until July 1, 2020, to regain compliance with the Minimum Bid Price Rule. If we were unable to demonstrate compliance with the Minimum Bid Price Rule during the applicable grace period, our common stock would be subject to delisting after that time.



On April 16, 2020 the NASDAQ determined to toll the compliance periods for the bid price and market value of publicly held shares requirements known as the Price-based Requirements through June 30, 2020, in light of market conditions resulting from the impact of COVID-19. As a result we will not be subject to delisting for these concerns.  Starting on July 1st, 2020 we will receive the balance of the pending compliance period in effect at the start of the tolling period to regain compliance.



Accordingly 76 calendar days have been added, such that we will have until September 14, 2020 to regain compliance with the Minimum Bid Price Rule. If compliance with the Minimum Bid Price Rule cannot be demonstrated by July 1, 2020 and, except for the bid price requirement, the Company meets all other initial listing standards for The Nasdaq Capital Market set forth in Marketplace Rule 5505, then the Company may be granted an additional 180 calendar day period in which to demonstrate compliance with the Minimum Bid Price Rule. If the Company does not regain compliance with the Minimum Bid Price Rule prior to September 14, 2020 and is not eligible for the additional compliance period, then Nasdaq will notify the Company that the Common Stock will be subject to delisting. At such time, the Company may appeal Nasdaq’s delisting determination.



(b)PPP Loan



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



The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

v3.20.1
Intangible Assets (Summary Of Expected Future Amortization Expense Related To Identifiable Intangibles) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Year ending December 31,    
2020 $ 929  
2021 894  
2022 620  
2023 301  
2024 127  
Thereafter 455  
Net Carrying Amount $ 3,326 $ 3,665
v3.20.1
Condensed Consolidated Statements Of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (32) $ (1,117)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation 50 25
Amortization of intangible assets 235 237
Amortization of debt issuance costs 1 6
Amortization of operating leases - right of use assets 76 75
Stock-based compensation expense 58 130
Foreign currency transaction (income) loss, net (408) 261
Bad debt expense, net of recoveries   63
Provision for deferred income taxes 366 31
Change in operating assets and liabilities:    
Contract receivables 1,283 (5)
Unbilled work-in-progress (800) 33
Prepaid and other assets (334) (558)
Accounts payable and accrued liabilities (80) 276
Income taxes receivable (587) (42)
Unearned revenue (34) 375
Lease obligations - operating leases (77) (87)
Net cash used in operating activities (283) (297)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property and equipment (22) (95)
Net cash used in investing activities (22) (95)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Principal payments on notes payable (394) (781)
Net cash used in financing activities (394) (781)
Effect of exchange rate changes on cash and cash equivalents 229 3
Net decrease in cash and cash equivalents (470) (1,170)
Cash and cash equivalents at beginning of period 3,076 6,732
Cash and cash equivalents at end of period 2,606 5,562
Supplemental disclosure of cash and non-cash transactions:    
Interest paid 61 74
Income taxes paid $ 39  
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets   $ 1,609
v3.20.1
Stock-Based Compensation (Narrative) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Share-based compensation expense $ 58 $ 130  
Stock options granted 0 0  
Total unrecognized compensation costs $ 300    
Weighted average recognition period 1 year 2 months 27 days    
Fair value of stock awards vested $ 200    
2007 Stock Plan [Member]      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Shares available for grant 0   0
Shares issued and outstanding 300,000   300,000
2016 Stock Plan [Member]      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Shares available for grant 500,000   400,000
Shares issued and outstanding 300,000   300,000
Maximum [Member]      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Fair value of stock awards vested   $ 100  
Senior Management [Member] | Minimum [Member]      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Vesting period 4 years    
Board Members [Member] | Minimum [Member]      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Vesting period 1 year    
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Condensed Consolidated Balance Sheets [Abstract]    
Allowance for doubtful accounts, contract receivables $ 732 $ 710
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 2,000,000 2,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 40,000,000 40,000,000
Common stock, shares issued 12,373,391 12,342,723
Common stock, shares outstanding 12,194,502 12,163,834
Treasury stock, shares 178,889 178,889
v3.20.1
Organization And Summary Of Significant Accounting Policies (Policy)
3 Months Ended
Mar. 31, 2020
Organization And Summary Of Significant Accounting Policies [Abstract]  
Organization

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



Our software solution platforms enable carriers’ marketing departments to innovate, execute and manage highly personalized and contextually relevant, interactive campaigns that engage consumers in real time and enhance customer retention through deploying loyalty programs. In 2019, we announced Evolution, this platform supersedes our existing platforms and provides an upgrade path to our existing loyalty and customer value management “CVM” platforms. Evolution was built by combining, integrating, and improving upon the best components and features of our current platforms as well as adding new enhancements.



Our service activation solution, Tertio® (“TSA”) is used to activate bundles of voice, video and data services for wireless, wireline and cable network operators; our SIM card activation solution, Dynamic SIM Allocation TM (“DSA”) is used to dynamically allocate and assign resources to Mobile Network Operators (“MNOs”) devices that rely on SIM cards; our Mobile Data Enablement TM (“MDE”) solution provides a data consumption and policy management solution for wireless carriers and Mobile Virtual Network Operators (“MVNOs”) that monitor the usage and consumption of data services; our Total Number Management™ (“TNM”) product is a scalable and fully automated database solution that enables operators to reliably and efficiently manage their telephone numbers as well as other communication identifiers (i.e. SIMs, MSISDNs IMSIs, ICCIDs, IPs). Our solutions can be deployed on-premise or as a Software-as-a-Service (“SaaS”).



As disclosed in NOTE 7 — DEBT, as of March 31, 2020, we have $1.3 million in outstanding principal obligations on term loans payable to East West Bank (“EWB”) that require us to maintain specified financial requirements that are defined in the loan agreements, as amended. Evolving Systems provides software solutions and services throughout the world. During the recent COVID-19 global outbreak we have leveraged our ability to provide support remotely resulting in limited effect on our day to day operations. The inability to travel has delayed interactions with our clients on projects and in the traditional modes of sales development. The financial covenants under our debt facilities are related to cash balances and trailing three month operational results which have been adversely affected by project delays or the closing of new orders related to customer interactions being postponed. The outbreak may also have an effect on our customers’ ability to make timely payments. We are current on our loan payment obligations and we have made all scheduled loan payments to date. However, we did not comply with the trailing three-month EBITDA covenant for the quarter ended March 31, 2020. We are currently negotiating with EWB to resolve the non-compliance.



EWB has the right to demand that we repay the loans sooner than scheduled upon the occurrence and continuance of certain events of default, including the breach of covenants beyond applicable grace periods. To date, EWB has not issued a notice of default or demanded accelerated payment. There can be no assurance that we will successfully renegotiate the loans’ terms, however we believe our current liquidity and funds from our ongoing operations will be sufficient to fund operations and meet the Company’s cash needs for future term loan payments, working capital and capital expenditure requirements for at least the next twelve months from the date of filing of these unaudited condensed consolidated financial statements. In making this assessment, we considered our $2.6 million in cash and cash equivalents and our $3.9 million in working capital at March 31, 2020, along with our ability to historically generate positive cash flows from operations for the years ended December 31, 2019 and 2018. There have been no adjustments made to our unaudited condensed consolidated financial statements since the loan balance is payable within the next 12 months. 

Interim Condensed Consolidated Financial Statements

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

Use Of Estimates

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with US GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We made estimates with respect to revenue recognition for progress toward completion and direct profit or loss on contracts, allowance for doubtful accounts, deferred taxes and income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets, useful lives for property, equipment and intangible assets, capitalization of internal software development costs and fair value of stock-based compensation amounts. Actual results could differ from these estimates.

Foreign Currency

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

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

Revenue Recognition

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



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



Nature of goods and services



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



i. License Revenue



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



ii. Customer Support Revenue



Customer support services includes annual support fees, recurring maintenance fees, and minor product upgrades generally as a single performance obligation. The Company also offers a warranty support fee which represents 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. 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 March 31,



2020

 

2019

Primary geographical markets

 

 

 

 

 

United Kingdom

$

1,190 

 

$

1,372 

Other

 

5,095 

 

 

5,325 



$

6,285 

 

$

6,697 



 

 

 

 

 

Major products/service lines

 

 

 

 

 

Licensing fees

$

207 

 

$

714 

Customer support, including warranty support fees

 

2,133 

 

 

2,232 

Services

 

1,567 

 

 

1,581 

Managed services

 

2,378 

 

 

2,170 

Total services

 

6,078 

 

 

5,983 



$

6,285 

 

$

6,697 



 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

Products transferred at a point in time

$

135 

 

$

487 

Products and services transferred over time

 

6,150 

 

 

6,210 



$

6,285 

 

$

6,697 



Contract balances



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







 

 

 

 

 

 



 

March 31, 2020

 

December 31, 2019

Assets

 

 

 

 

 

 

Contract receivables, net

 

$

5,104 

 

$

6,732 

Unbilled work-in-progress, net

 

$

1,817 

 

$

1,105 

Liabilities

 

 

 

 

 

 

Unearned revenue

 

$

3,701 

 

$

3,971 



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



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



Capitalized commission fees are amortized based on the transfer of services to which the assets relate which may range from two to three years, and are included in sales and marketing. In the three month periods ended March 31, 2020 and 2019, the amount of amortization was less than $0.1 million and there was no impairment loss in relation to the costs capitalized. 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 March 31, 2020 and 2019, we recognized revenue of $2.2 million and $1.8 million, respectively, that 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 March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations with lives greater than one-year totals $14.8 million. The Company expects approximately 49% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 41% in 1-2 years and 10% in 3-4 years.



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

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.

Income Taxes

Income Taxes — We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheets, as well as operating losses and tax credit carryforwards. 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

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



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

Recently Adopted Accounting Pronouncements And Recent Accounting Pronouncements

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



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



Recent Accounting Pronouncements — In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740) — Simplifying the Accounting for Income Taxes. ASU 2019-12 which modifies ASC 740 to simplify the accounting for income taxes. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. We have not yet completed the full assessment of the impact on our condensed consolidated financial statements or related disclosures.



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



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





v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Taxes [Abstract]  
Income Taxes

NOTE 8 — INCOME TAXES



We recorded income tax expense of $0.2 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively. The net expense during the three months ended March 31, 2020 consisted of current income tax expense of $0.2 million. The current tax expense consists of income tax primarily from our U.K. and Indian based operations and foreign taxes withheld. The net expense during the three months ended March 31, 2019 consisted of current income tax expense of $0.1 million. The current tax expense consists of income tax from our Indian and Nigerian based operations.



Our effective tax rate was 119% and (9%) for the three months ended March 31, 2020 and 2019, respectively. The 2020 effective tax rate relates to our net income coming from our U.K. subsidiaries as well as Indian and Nigerian operations and net losses from our other operations for which we did not recognize a net deferred tax benefit.



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











 

 

 

 

 



 

 

 

 

 



 

March 31, 2020

 

 

December 31, 2019

Deferred tax assets:

 

 

 

 

 

Foreign tax credits carryforwards

$

4,611 

 

$

4,650 

Net operating loss carryforwards - Federal

 

101 

 

 

Net operating loss carryforwards — State

 

961 

 

 

753 

Net operating loss carryforwards — Foreign

 

5,693 

 

 

5,911 

AMT credits

 

 

 

385 

Stock compensation

 

534 

 

 

552 

Depreciable assets

 

39 

 

 

54 

Accrued liabilities and reserves

 

77 

 

 

127 

Total deferred tax assets

 

12,016 

 

 

12,432 



 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

Intangibles

 

(184)

 

 

(180)

Accrued liabilities and reserves

 

(161)

 

 

(170)

Total deferred tax liability

 

(345)

 

 

(350)



 

 

 

 

 

Net deferred tax assets, before valuation allowance

 

11,671 

 

 

12,082 

Valuation allowance

 

(11,041)

 

 

(11,082)

Net deferred tax asset

$

630 

 

$

1,000 



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



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



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



Transfer Pricing Adjustments, net



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

v3.20.1
Loss Per Share
3 Months Ended
Mar. 31, 2020
Loss Per Share [Abstract]  
Loss Per Share

NOTE 4 — LOSS PER SHARE



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



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







 

 

 

 

 



 

 

 

 

 



 

 

 

 

 



For the Three Months Ended March 31,



 

2020

 

 

2019

Basic loss per common share:

 

 

 

 

 

Net loss

$

(32)

 

$

(1,117)

Basic weighted average shares outstanding

 

12,164 

 

 

12,138 

Basic loss per common share:

$

(0.00)

 

$

(0.09)



 

 

 

 

 

Diluted loss per common share:

 

 

 

 

 

Net loss

$

(32)

 

$

(1,117)

Weighted average shares outstanding

 

12,164 

 

 

12,138 

Effect of dilutive securities - options and restricted stock

 

 

 

Diluted weighted average shares outstanding

 

12,164 

 

 

12,138 

Diluted loss per common share:

$

(0.00)

 

$

(0.09)



Weighted average options to purchase approximately 0.4 million shares, and 0.6 million shares of common stock equivalents

were excluded from the computation of diluted weighted average shares outstanding for the years ended March 31, 2020, and 2019, 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.

v3.20.1
Intangible Assets (Summary Of Identifiable Intangible Assets) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]    
Gross Amount [1] $ 7,451 $ 7,595
Accumulated Amortization [1] (4,125) (3,930)
Net Carrying Amount 3,326 3,665
Functional currency adjustment 100 100
Purchased Software [Member]    
Finite-Lived Intangible Assets [Line Items]    
Gross Amount 2,852 2,903
Accumulated Amortization (1,585) (1,508)
Net Carrying Amount 1,267 1,395
Trademarks And Tradenames [Member]    
Finite-Lived Intangible Assets [Line Items]    
Gross Amount 299 307
Accumulated Amortization (249) (247)
Net Carrying Amount 50 60
Non-competition [Member]    
Finite-Lived Intangible Assets [Line Items]    
Gross Amount 39 39
Accumulated Amortization (39) (39)
Customer Relationships [Member]    
Finite-Lived Intangible Assets [Line Items]    
Gross Amount 4,261 4,346
Accumulated Amortization (2,252) (2,136)
Net Carrying Amount $ 2,009 $ 2,210
[1] Includes foreign currency translation adjustment of less than $0.1 million.
v3.20.1
Condensed Consolidated Statements Of Changes In Stockholders' Equity - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-In Capital [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Loss [Member]
Accumulated Deficit [Member]
Total
Balance at Dec. 31, 2018 $ 12 $ 99,224 $ (1,253) $ (10,115) $ (69,448) $ 18,420
Balance, shares at Dec. 31, 2018 12,126,708          
Restricted stock vested, shares 34,781          
Stock-based compensation expense   130       130
Net loss         (1,117) (1,117)
Foreign currency translation (loss) gain       327   327
Balance at Mar. 31, 2019 $ 12 99,354 (1,253) (9,788) (70,565) 17,760
Balance, shares at Mar. 31, 2019 12,161,489          
Balance at Dec. 31, 2019 $ 12 99,555 (1,253) (10,053) (79,143) $ 9,118
Balance, shares at Dec. 31, 2019 12,163,834         12,163,834
Restricted stock vested, shares 30,668          
Stock-based compensation expense   58       $ 58
Net loss         (32) (32)
Foreign currency translation (loss) gain       (523)   (523)
Balance at Mar. 31, 2020 $ 12 $ 99,613 $ (1,253) $ (10,576) $ (79,175) $ 8,621
Balance, shares at Mar. 31, 2020 12,194,502         12,194,502
v3.20.1
Loss Per Share (Summary Of Basic And Diluted Loss Per Share) (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Basic loss per common share:    
Net loss $ (32) $ (1,117)
Basic weighted average shares outstanding 12,164 12,138
Basic loss per common share: $ 0.00 $ (0.09)
Diluted loss per common share:    
Net loss $ (32) $ (1,117)
Weighted average shares outstanding 12,164 12,138
Effect of dilutive securities - options and restricted stock
Diluted weighted average shares outstanding 12,164 12,138
Diluted loss per common share: $ 0.00 $ (0.09)
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 2,606 $ 3,076
Contract receivables, net of allowance for doubtful accounts of $732 and $710 at March 31, 2020 and December 31, 2019, respectively 5,104 6,732
Unbilled work-in-progress 1,817 1,105
Prepaid and other current assets 1,842 1,594
Income taxes receivable 1,439 953
Total current assets 12,808 13,460
Property and equipment, net 429 482
Amortizable intangible assets, net 3,326 3,665
Operating leases - right of use assets 1,066 1,205
Deferred income taxes, net 630 1,000
Total assets 18,259 19,812
Current liabilities:    
Term loans - current portion, net 1,304 1,577
Accounts payable and accrued liabilities 3,576 3,827
Lease obligations - operating leases 293 321
Unearned revenue 3,701 3,971
Total current liabilities 8,874 9,696
Long-term liabilities:    
Term loans, net of current portion, net   122
Lease obligations - operating leases, net of current portion 764 876
Total liabilities 9,638 10,694
Commitments and contingencies (Note 10)
Stockholders' equity:    
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,342,723 shares issued and 12,163,834 shares outstanding as of March 31, 2020 and 12,342,723 shares issued and 12,163,834 shares outstanding as of December 31, 2019 12 12
Additional paid-in capital 99,613 99,555
Treasury stock, 178,889 shares as of March 31, 2020 and December 31, 2019, at cost (1,253) (1,253)
Accumulated other comprehensive loss (10,576) (10,053)
Accumulated deficit (79,175) (79,143)
Total stockholders' equity 8,621 9,118
Total liabilities and stockholders' equity $ 18,259 $ 19,812
v3.20.1
Long-Term Debt (Narrative) (Details)
3 Months Ended
Jul. 31, 2018
USD ($)
Aug. 16, 2017
USD ($)
item
Feb. 29, 2016
USD ($)
item
Mar. 31, 2020
USD ($)
Sep. 24, 2019
USD ($)
Lumata Facility [Member] | East West Bank [Member]          
Debt Instrument [Line Items]          
Monthly principal payment $ 100,000        
Interest rate 3.50%     4.75%  
Rate plus prime rate 1.50%        
Increase in interest rate, in event of a default       5.00%  
Number of monthly installments of principal | item   4      
Number of remaining payments | item   3      
Origination fee   $ 23,650      
Increment amount   $ 50,000      
Prepayment fee percentage   2.00%      
Lumata Facility [Member] | East West Bank [Member] | Lumata Entities [Member]          
Debt Instrument [Line Items]          
Loan amount   $ 4,700,000      
Lumata Facility [Member] | East West Bank [Member] | Prime Rate [Member]          
Debt Instrument [Line Items]          
Interest rate       3.25%  
Loan Facility - First Amendment [Member]          
Debt Instrument [Line Items]          
Advance payment of principal         $ 666,666.66
Term Loan [Member]          
Debt Instrument [Line Items]          
Loan amount     $ 6,000,000    
Rate plus prime rate     1.00%    
Increase in interest rate, in event of a default     5.00%    
Number of monthly installments of principal | item     36    
Number of payment for annual credit facility fees | item     2    
Credit facility fees     $ 18,750    
Legal fee     $ 1,000    
Term Loan - Sixth Amendment [Member]          
Debt Instrument [Line Items]          
Advance payment of principal         $ 333,333.33
Revolving Facility [Member] | Lumata Facility [Member] | East West Bank [Member]          
Debt Instrument [Line Items]          
Line of credit facility, amount outstanding       $ 1,300,000  
Minimum [Member] | Lumata Facility [Member] | East West Bank [Member]          
Debt Instrument [Line Items]          
Prepayment amount   $ 250,000      
v3.20.1
Commitments And Contingencies (Narrative) (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Other Commitments [Line Items]      
Operating lease expense $ 100,000 $ 100,000  
Sublease rental income 0 0  
Lease obligations - operating leases $ 100,000 200,000  
Minimum [Member]      
Other Commitments [Line Items]      
Remaining lease terms 1 year    
Maximum [Member]      
Other Commitments [Line Items]      
Remaining lease terms 7 years    
Short-term lease expense $ 100,000 $ 100,000  
Product Warranty [Member]      
Other Commitments [Line Items]      
Liabilities 0   $ 0
Indemnification Agreement [Member] | Insurance Policy Coverage [Member]      
Other Commitments [Line Items]      
Liabilities 0   0
Indemnification Agreement [Member] | Customers And Suppliers [Member]      
Other Commitments [Line Items]      
Liabilities 0   0
Indemnification Agreement [Member] | Software [Member]      
Other Commitments [Line Items]      
Liabilities $ 0   $ 0
v3.20.1
Commitments And Contingencies (Tables)
3 Months Ended
Mar. 31, 2020
Commitments And Contingencies [Abstract]  
Operating ROU Lease Assets And Lease Liabilities



 

 



 

 



 

As of



 

March 31, 2020

Operating leases - right of use assets

$

1,066 



 

 

Operating lease current

$

293 

Lease obligations — operating leases, net of current portion

 

764 

Total lease liability

$

1,057 



 

 

Weighted average remaining lease term (in years)

 

4.2 

Weighted average discount rate

 

6.75% 



Future Lease Payments



 

 



 

 



 

For the year ending



 

December 31,

2020 - Remaining

$

274 

2021

 

318 

2022

 

294 

2023

 

166 

2024

 

70 

Thereafter

 

111 

Total future minimum lease payments

 

1,233 

Present value adjustment

 

176 

Total

$

1,057 



v3.20.1
Loss Per Share (Tables)
3 Months Ended
Mar. 31, 2020
Loss Per Share [Abstract]  
Summary Of Basic And Diluted Loss Per Share



 

 

 

 

 



 

 

 

 

 



 

 

 

 

 



For the Three Months Ended March 31,



 

2020

 

 

2019

Basic loss per common share:

 

 

 

 

 

Net loss

$

(32)

 

$

(1,117)

Basic weighted average shares outstanding

 

12,164 

 

 

12,138 

Basic loss per common share:

$

(0.00)

 

$

(0.09)



 

 

 

 

 

Diluted loss per common share:

 

 

 

 

 

Net loss

$

(32)

 

$

(1,117)

Weighted average shares outstanding

 

12,164 

 

 

12,138 

Effect of dilutive securities - options and restricted stock

 

 

 

Diluted weighted average shares outstanding

 

12,164 

 

 

12,138 

Diluted loss per common share:

$

(0.00)

 

$

(0.09)