
	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
		(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,292	$	2,763	$	3,581	$	2,763
Contract receivables, net of allowance for doubtful accounts of $788 and $780
at March 31, 2021 and December 31, 2020, respectively		4,741		5,681
Contract receivables, net of allowance for doubtful accounts of $794 and $780
at September 30, 2021 and December 31, 2020, respectively						5,100		5,681
Unbilled work-in-progress		3,593		3,365		3,799		3,365
Prepaid and other current assets		1,608		1,828		1,820		1,828
Income taxes receivable		740		270		666		270
Total current assets		14,974		13,907		14,966		13,907
Property and equipment, net		512		532		530		532
Amortizable intangible assets, net		2,544		2,769		2,037		2,769
Operating leases — right-of-use assets, net		1,203		915		1,033		915
Long-term assets – other						251		—
Deferred income taxes, net		960		953		953		953
Total assets	$	20,193	$	19,076	$	19,770	$	19,076

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Term loan - current portion	$	—	$	142	$	—	$	142
Accounts payable and accrued liabilities		4,495		4,305		4,067		4,305
Lease obligations — operating leases		326		294		330		294
Unearned revenue		5,043		3,713		4,647		3,713
Total current liabilities		9,864		8,454		9,044		8,454
Long-term liabilities:
Term loan, net of current portion		319		319		—		319
Lease obligations - operating leases, net of current portion		870		613		696		613
Total liabilities		11,053		9,386		9,740		9,386

Commitments and contingencies (Note 10)		—		—		—		—

Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,405,466 shares issued and 12,226,577 shares outstanding as of March 31, 2021 and 12,374,798 shares issued and 12,195,909 shares outstanding as of December 31, 2020		12		12
Preferred stock, $0.001 par value; 2,000,000 shares authorized; 0 shares issued and outstanding						—		—
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,436,604 shares issued and 12,257,715 shares outstanding as of September 30, 2021 and 12,374,798 shares issued and 12,195,909 shares outstanding as of December 31, 2020						12		12
Additional paid-in capital		99,973		99,776		100,018		99,776
Treasury stock, 178,889 shares as of March 31, 2021 and December 31, 2020, at cost		(1,253)		(1,253)
Treasury stock, 178,889 shares as of September 30, 2021 and December 31, 2020, ‎at cost						(1,253)		(1,253)
Accumulated other comprehensive loss		(10,176)		(10,345)		(10,359)		(10,345)
Accumulated deficit		(79,416)		(78,500)		(78,388)		(78,500)
Total stockholders' equity		9,140		9,690		10,030		9,690
Total liabilities and stockholders' equity	$	20,193	$	19,076	$	19,770	$	19,076

[



	For the Three Months				For the Three Months				For the Nine Months
	Ended March 31,				Ended September 30,				Ended September 30,
		2021		2020		2021		2020		2021		2020
REVENUE
License fees	$	178	$	207	$	28	$	83	$	214	$	387
Services		6,282		6,078		6,946		6,691		20,214		19,001
Total revenue		6,460		6,285		6,974		6,774		20,428		19,388

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and amortization		2,240		2,136
Costs of revenue, excluding depreciation and ‎ amortization						2,081		2,132		6,506		6,456
Sales and marketing		1,341		1,561		1,325		1,511		4,081		4,516
General and administrative		1,445		1,414		1,240		1,352		4,080		3,875
Product development		1,304		1,063		1,348		1,094		3,936		3,168
Depreciation		62		50		182		58		308		158
Amortization		238		235		239		236		717		704
Restructuring						—		—		61		—
Total costs of revenue and operating expenses		6,630		6,459		6,415		6,383		19,689		18,877

Loss from operations		(170)		(174)
Income from operations						559		391		739		511

Other (expense) income
Interest income		1		2		3		1		7		4
Interest expense		(1)		(47)		(3)		—		(4)		(65)
Other (expense) income, net		(291)		3		—		(1)		287		18
Foreign currency exchange (loss) income		(380)		383		(190)		(107)		(402)		240
Other (expense) income, net		(671)		341		(190)		(107)		(112)		197

(Loss) income from operations before income taxes		(841)		167
Income from operations before income taxes						369		284		627		708
Income tax expense		75		199		294		148		515		652
Net loss	$	(916)	$	(32)
Net income					$	75	$	136	$	112	$	56

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

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

Weighted average basic shares outstanding		12,206		12,164		12,258		12,195		12,240		12,185
Weighted average diluted shares outstanding		12,206		12,164		12,258		12,258		12,258		12,275

Three Months Ended March 31, 2021

Accumulated

Additional

other

Total

Common stock

paid-in

Treasury

comprehensive

Accumulated

stockholders'

Shares

Amount

capital

stock

loss

deficit

equity
Balance at January 1, 2021
12,195,909

$
12

$
99,776

$
(1,253)

$
(10,345)

$
(78,500)

$
9,690
Restricted stock vested
30,668

—

—

—

—

—

—
Stock-based compensation
expense
—

—

197

—

—

—

197
Net loss
—

—

—

—

—

(916)

(916)
Foreign currency translation
gain
—

—

—

—

169

—

169
Balance at March 31, 2021
12,226,577

$
12

$
99,973

$
(1,253)

$
(10,176)

$
(79,416)

$
9,140



Nine Months Ended September 30, 2021

									Accumulated
					Additional				other				Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated		stockholders'
	Shares	Amount			capital		stock		loss		deficit		equity
Balance at January 1, 2021	12,195,909	$	12	$	99,776	$	(1,253)	$	(10,345)	$	(78,500)	$	9,690
Restricted stock vested	61,806		—		—		—		—		—		—
Stock-based compensation ‎ expense	—		—		242		—		—		—		242
Net income	—		—		—		—		—		112		112
Foreign currency translation loss	—		—		—		—		(14)		—		(14)
Balance at September 30, 2021	12,257,715	$	12	$	100,018	$	(1,253)	$	(10,359)	$	(78,388)	$	10,030

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



Nine Months Ended September 30, 2020

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

‎



Three Months Ended September 30, 2021

									Accumulated
					Additional				other				Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated		stockholders'
	Shares	Amount			capital		stock		loss		deficit		equity
Balance at June 30, 2021	12,257,246	$	12	$	99,990	$	(1,253)	$	(10,323)	$	(78,463)	$	9,963
Restricted stock vested	469		—		—		—		—		—		—
Stock-based compensation ‎ expense	—		—		28		—		—		—		28
Net income	—		—		—		—		—		75		75
Foreign currency translation loss	—		—		—		—		(36)		—		(36)
Balance at September 30, 2021	12,257,715	$	12	$	100,018	$	(1,253)	$	(10,359)	$	(78,388)	$	10,030

For the Three Months Ended March 31,

2021

2020
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss
$
(916)

$
(32)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:

Depreciation

62

50
Amortization of intangible assets

238

235
Amortization of debt issuance costs

—

1
Amortization of operating leases — right of use assets

85

76
Stock-based compensation expense

197

58
Foreign currency transaction loss (income), net

147

(408)
Provision for deferred income taxes

(3)

366
Change in operating assets and liabilities:

Contract receivables

933

1,283
Unbilled work-in-progress

(214)

(800)
Prepaid and other assets

213

(334)
Accounts payable and accrued liabilities

202

(80)
Income taxes receivable

(459)

(587)
Unearned revenue

1,279

(34)
Lease obligations — operating leases

(83)

(77)
Net cash provided by (used in) operating activities

1,681

(283)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(41)

(22)
Net cash used in investing activities

(41)

(22)

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

(142)

(394)
Net cash used in financing activities

(142)

��
(394)

Effect of exchange rate changes on cash and cash equivalents

31

229

Net increase (decrease) in cash and cash equivalents

1,529

(470)
Cash and cash equivalents at beginning of period

2,763

3,076
Cash and cash equivalents at end of period
$
4,292

$
2,606

Supplemental disclosure of cash and non-cash transactions:

Interest paid
$
4

$
61
Income taxes paid
$
271

$
253
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use
assets
$
370

$
—



Three Months Ended September 30, 2020

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



	For the Nine Months Ended September 30,
		2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	112	$	56
Adjustments to reconcile net income to net cash provided by ‎operating activities:
Depreciation		308		158
Amortization of intangible assets		717		704
Amortization of debt issuance costs		—		4
Amortization of operating leases — right of use assets		284		191
Stock-based compensation expense		242		159
Foreign currency transaction loss (income), net		148		(98)
Bad debt expense (recoveries)		14		(11)
(Benefit) provision for deferred income taxes		(5)		370
Gain on PPP Loan forgiveness		(319)		—
Change in operating assets and liabilities:
Contract receivables		462		3,177
Unbilled work-in-progress		(502)		(2,244)
Prepaid and other assets		(25)		(274)
Accounts payable and accrued liabilities		(153)		252
Income taxes receivable		(417)		95
Unearned revenue		1,015		(563)
Lease obligations — operating leases		(285)		(191)
Long-term assets – other		(256)		—
Net cash provided by operating activities		1,340		1,785

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(316)		(218)
Net cash used in investing activities		(316)		(218)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable		(143)		(1,182)
Proceeds from loan		—		319
Net cash used in financing activities		(143)		(863)

Effect of exchange rate changes on cash and cash equivalents		(63)		(294)

Net increase in cash and cash equivalents		818		410
Cash and cash equivalents at beginning of period		2,763		3,076
Cash and cash equivalents at end of period	$	3,581	$	3,486

Supplemental disclosure of cash and non-cash transactions:
Interest paid	$	4	$	63
Income taxes paid, net of refunds	$	788	$	177
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use ‎ assets	$	370	$	41

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

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

Principles of Consolidation — The unaudited condensed consolidated financial statements include the accounts of Evolving Systems, Inc. and subsidiaries, all of which are wholly owned. 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~~the Company completes its performance obligations in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We measure revenue based on consideration specified in a contract with a customer and exclude any sales incentives. Furthermore, we recognize revenue when we satisfy a performance obligation by transferring control over the service to our customer.

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

Nature of goods and services

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

i. License Revenue

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

ii. Customer Support Revenue

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

iii. Services Revenue

We recognize revenue from fixed-price service contracts using the input method of accounting based on labor hours. These contracts generally include a single performance obligation. Under the input method, revenue is recognized on the basis of an entity’s efforts or inputs toward satisfying a performance obligation. We recognize revenue from professional services provided pursuant to time-and-materials based contracts and training services as the services are performed, as that is when our performance obligation to our customers under such arrangements is fulfilled.

iv. Managed Services

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

Disaggregation of revenue

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


	For the Three Months Ended				For the Three Months Ended				For the Nine Months Ended
	March 31,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020
Primary geographical markets
United Kingdom	$	1,135	$	1,190	$	1,691	$	1,398	$	4,217	$	3,691
Other		5,325		5,095		5,283		5,376		16,211		15,697
	$	6,460	$	6,285	$	6,974	$	6,774	$	20,428	$	19,388

Major products/service lines
License revenue	$	178	$	207	$	28	$	83	$	214	$	387
Customer support, including warranty support fees		1,982		2,133		1,993		1,944		5,921		6,029
Services		2,056		1,567		2,303		2,388		6,884		5,747
Managed services		2,244		2,378		2,650		2,359		7,409		7,225
Total services		6,282		6,078		6,946		6,691		20,214		19,001
	$	6,460	$	6,285	$	6,974	$	6,774	$	20,428	$	19,388

Timing of revenue recognition
Products transferred at a point in time	$	169	$	135	$	65	$	61	$	234	$	289
Products and services transferred over time		6,291		6,150		6,909		6,713		20,194		19,099
	$	6,460	$	6,285	$	6,974	$	6,774	$	20,428	$	19,388

Contract balances

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


	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Assets
Contract receivables, net	$	4,741	$	5,681	$	5,100	$	5,681
Unbilled work-in-progress, net	$	3,593	$	3,365	$	3,799	$	3,365
Liabilities
Unearned revenue	$	5,043	$	3,713	$	4,647	$	3,713

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

Management expects that incremental commission fees paid to employees and intermediaries as a result of obtaining contracts are recoverable and therefore the Company capitalized them as contract costs in the amount of $0.3million and $0.2 million at ~~each of March 31,~~September 30, 2021 and December 31, 2020.

Capitalized commission fees are amortized based on the transfer of services to which the assets relate which may range from ~~two~~2 to ~~three~~3 years and are included in sales and marketing. In each of the three month periods ended ~~March 31,~~September 30, 2021 and 2020, the amount of amortization was ~~less than~~ $0.1 million and there was 0 impairment loss in relation to the costs capitalized. In each of the nine month periods ended September 30, 2021 and 2020, the amount of amortization was $0.3 million and $0.2 million, respectively, and there was no impairment loss in relation to the costs capitalized. Applying the practical expedient in ASC 606 paragraph 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in sales and marketing.

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

For the three months ended ~~March 31,~~September 30, 2021 and 2020, we recognized revenue of ~~$1.9~~$2.8 million and ~~$2.2~~$2.0 million, respectively, which was included in the corresponding contract liability balance at the beginning of the period. For each of the nine months ended September 30, 2021 and 2020, we recognized revenue of $3.1 million, respectively, which was included in the corresponding contract liability balance at the beginning of the period.

Transaction price allocated to the remaining performance obligations

Remaining performance obligations represent the transaction price of firm orders for which work has not been completed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity). As of ~~March 31,~~September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations with lives greater than one-year totaled ~~$16.9~~$15.3 million. The Company expects approximately ~~62%~~60% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining ~~38%~~40% recognized thereafter.

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

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

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

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

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

We currently operate our business as ~~one~~1 operating segment which includes ~~two~~2 revenue types: license fees revenue and services revenue (as shown on the condensed consolidated statements of operations). License fees revenue represents the fees received from the license of software products. Services revenue includes services directly related to the delivery of the licensed products, such as fees for custom development, integration services, SaaS services, managed services, annual support fees, recurring maintenance

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

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

Recently Issued Accounting Pronouncements — In May 2021,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04 - Earnings Per Share (ASC 260), Debt—Modifications and Extinguishments (ASC 470-50), Compensation—Stock Compensation (ASC 718) and Derivatives and Hedging—Contracts in Entity’s Own Equity (ASC 815-40). The amendments in this update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in ASC 260, Earnings Per Share. The amendments in this update are effective for fiscal years beginning after December 15, 2021,including interim periods within those fiscal years. Management is currently evaluating the impact of this guidance, but does not expect this update to have a material impact on our condensed consolidated financial statements.

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.

NOTE 2 — INTANGIBLE ASSETS

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



	March 31, 2021								September 30, 2021
		Gross Amount			Accumulated Amortization			Net Carrying Amount		Gross Amount			Accumulated Amortization			Net Carrying Amount
Purchased software	$	2,940		$	(2,008)		$	932	$	2,920		$	(2,189)		$	731
Trademarks and tradenames		312			(279)			33		309			(288)			21
Non-competition		40			(40)			—		40			(40)			—
Customer relationships		4,409			(2,830)			1,579		4,376			(3,091)			1,285
	$	7,701	(1)	$	(5,157)	(1)	$	2,544	$	7,645	⁽¹⁾	$	(5,608)	⁽¹⁾	$	2,037


	December 31, 2020
		Gross Amount			Accumulated Amortization			Net Carrying Amount
Purchased software	$	2,932		$	(1,907)		$	1,025
Trademarks and tradenames		311			(272)			39
Non-competition		40			(40)			—
Customer relationships		4,396			(2,691)			1,705
	$	7,679	⁽¹⁾	$	(4,910)	⁽¹⁾	$	2,769

~~(1)~~

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

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

Basic ~~loss~~earnings 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~~earnings 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~~earnings per share computations (in thousands except per share data):

At ~~March 31,~~September 30, 2021 and December 31, 2020, no0 shares were available for grant under the 2007 Stock Plan, as amended. At ~~March 31,~~September 30, 2021 and December 31, 2020, 0.1 million options and restricted shares and 0.2 million options and restricted shares were issued and outstanding under the 2007 Stock Plan as amended, respectively.

At ~~March 31,~~September 30, 2021 and December 31, 2020, there were approximately 0.6 million and 0.5 million shares available for grant under the 2016 Stock Plan, respectively. At ~~March 31,~~September 30, 2021 and December 31, 2020, 0.2 million options and restricted shares were issued and outstanding under the 2016 Stock Plan ~~respectively.~~for each period.

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

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

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



				Weighted-						Weighted-
				Average						Average
		Weighted-		Remaining	Aggregate			Weighted-		Remaining	Aggregate
	Number of	Average		Contractual	Intrinsic		Number of	Average		Contractual	Intrinsic
	Shares	Exercise		Term	Value		Shares	Exercise		Term	Value
	(in thousands)	Price		(Years)	(in thousands)		(in thousands)	Price		(Years)	(in thousands)
Options outstanding at January 1, 2021	343	$	5.82	5.62	$	—	343	$	5.82	5.62	$	—
Less options forfeited/cancelled	(5)		2.25				(56)		4.31
Options outstanding at March 31, 2021	338	$	5.87	5.34	$	—
Options outstanding at September 30, 2021							287	$	6.11	4.62	$	—

Options exercisable at March 31, 2021	301	$	6.04	5.18	$	—
Options exercisable at September 30, 2021							278	$	6.16	4.58	$	—

There were no 0 stock options granted during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 or 2020. The total fair value of stock options and restricted stock vested ~~during each of three~~in the nine months ended ~~March 31,~~September 30, 2021 and 2020 was $0.4million and $0.2million, respectively.

NOTE 6 — CONCENTRATION OF CREDIT RISK

For the three months ended ~~March 31,~~September 30, 2021 ~~and 2020, we had one~~1 significant customer ~~that~~(defined as contributing at least 10%) accounted for 10% of revenue from ~~operations, this~~operations. The significant customer is a large telecommunications operator in Europe. There were 0 significant customers for the three months ended September 30, 2020.

For the nine months ended September 30, 2021 and 2020 1 significant customer (defined as contributing at least 10%) accounted for 10% and 10% of revenue from operations, respectively. The significant customer is a large telecommunications operator in Europe.

As of ~~March 31,~~September 30, 2021, 1 significant customer (defined as contributing at least 10%) accounted for 11% of contract receivables and ~~December 31, 2020, no customers~~unbilled work-in-progress. We did 0t have a significant customer that accounted for approximately 10% of contract receivables and unbilled work-in-progress. as of December 31, 2020.

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~~required 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%. We used the full amount of the Lumata Facility to fund the acquisition of the Lumata companies. 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~~4 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 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.~~$666,667. 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.

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 nine years. We lease office and operating facilities under non-cancelable operating leases. Current facility leases include our offices in Englewood, Colorado, New York, New York, London, England, Bangalore and Kolkata India, Johannesburg, South Africa, Kuala Lumpur, Malaysia, Échirolles, France, Cluj-Napoca, Romania and Madrid, Spain. The Company entered into ~~one~~1 new nine year lease in Échirolles, France that contributed $0.3 million to our right-of-use asset/operating lease liability in the ~~three~~nine months ended ~~March 31,~~September 30, 2021. Total rent expense consisted of operating lease expense of $0.1 million and short-term lease expense of less than $0.1 million for each of the three months ended ~~March 31,~~September 30, 2021 and 2020. Total rent expense consisted of operating lease expense of $0.3 million and short-term lease expense of $0.1 million for the nine months ended September 30, 2021 versus operating lease of $0.3 million and short term lease expense of $0.2 million for the nine months ended September 30, 2020. There was no0 sublease rental income for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020. We paid $0.1 million and $0.4 million against Lease obligations — operating leases ~~for~~in each of the three and nine months ended ~~March 31,~~September 30, 2021, respectively, compared to $0.2 million and ~~2020, respectively.~~$0.5 million in the three and nine months ended September 30, 2020.

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.

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 no0 liabilities recorded for these agreements as of ~~March 31,~~September 30, 2021 or December 31, 2020.

We enter into standard indemnification terms with customers and suppliers, in the ordinary course of business, for third party claims arising under our contracts. In addition, as we may subcontract the development of deliverables under customer contracts, we could be required to indemnify customers for work performed by subcontractors. Depending upon the nature of the indemnification, the potential amount of future payments we could be required to make under these indemnification agreements may be unlimited. We may be able to recover damages from a subcontractor or other supplier if the indemnification results from the subcontractor’s or supplier’s failure to perform. To the extent we are unable to recover damages from a subcontractor or other supplier, we could be required to reimburse the indemnified party for the full amount. We have never incurred costs to defend lawsuits or settle claims relating to an indemnification. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, there were no0 liabilities recorded for these agreements as of ~~March 31,~~September 30, 2021 or December 31, 2020.

Our standard license agreements contain product warranties that the software will be free of material defects and will operate in accordance with the stated requirements for a limited period of time. The product warranty provisions require us to cure any defects through any reasonable means. We believe the estimated fair value of the product warranty provisions in the license agreements in place with our customers is minimal. Accordingly, there were no0 liabilities recorded for these product warranty provisions as of ~~March~~September 30, 2021 or December 31, 2020.

Our software arrangements generally include a product indemnification provision whereby we will indemnify and defend a customer in actions brought against the customer for claims that our products infringe upon a copyright, trade secret, or valid patent of

The Equity Purchase Agreement prohibits the Company and its subsidiaries and representatives from soliciting, providing information or entering into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions. However, during the period from October 15, 2021 and continuing until 11:59 p.m. (EST) on November 15, 2021 (the “Go-Shop Period”), the Company is permitted to solicit, or initiate any acquisition proposal and engage in, enter into, continue or otherwise participate in any discussions or negotiations with respect to any acquisition proposal. At the end of the Go-Shop Period, the Company will cease such activities, and will be subject to customary restrictions on its ability to solicit third party proposals relating to alternative transactions or to provide information to and engage in discussions with a third party (other than any Excluded Party, as described below) in relation to an alternative transaction, subject to certain customary exceptions to permit the Company Board to comply with its fiduciary duties. However, the Company may continue to engage in the foregoing activities with any third party that made an acquisition proposal prior to the end of the Go-Shop Period (each, an “Excluded Party”), but only for so long as such third party’s acquisition proposal is available to the company. Upon the withdrawal or termination of an acquisition proposal from an Excluded Party, such party shall no longer be an Excluded Party.

The Purchase Agreements contain specified termination rights for the parties. The Company has the right to terminate the Purchase Agreements if it enters into a definitive agreement in respect of a Superior Proposal (as defined in the Equity Purchase Agreement), provided that the Company complies with certain notice and other requirements set forth in the Equity Purchase Agreement. In such event, the Company may be required to pay the Purchasers a termination fee equal to $2.0 million.

Simultaneously with the execution of the Purchase Agreements, Singer Children’s Management Trust (the “Stockholder”), which holds approximately 20.8% of the Company’s issued and outstanding common stock, entered into a Voting Agreement with the Purchasers (the “Voting Agreement”). The Voting Agreement requires the Stockholder, so long as the Voting Agreement has not terminated in accordance with its terms, to vote in favor of the Company’s consummation of the transactions contemplated by the Purchase Agreements. The Voting Agreement and the obligations of the Stockholder will terminate upon, among other things, the termination of the Purchase Agreements, the withdrawal by the board of directors of its recommendation that stockholders vote to approve the Purchase Agreements, or the entry by the Company, without the prior written consent of the Stockholder, of an amendment to the Purchase Agreements or a waiver of any term thereof which results in a material decrease in, or material change in the composition of, the purchase price payable under the Purchase Agreements. The Voting Agreement does not limit or affect any actions or omissions taken by any affiliate of the Stockholder in its capacity as a director or officer of the Company and (ii) may not be construed to prohibit, limit, or restrict any stockholder (whether or not affiliated with the Stockholder) from exercising its fiduciary duties as an officer or director of the Company or its remaining stockholders.

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

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

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

OVERVIEW

Evolving Systems Inc. is a supplier of real-time digital engagement solutions and services. We drive growth in customer acquisition and activation, extend customer lifetime and increase customer value and revenue through analytics and loyalty programs in the converging mobile, entertainment, financial and retail services eco-system. Our platforms, together with our team of experienced industry experts, help service providers increase their customer lifetime value (“CLV”) over the course the customer lifecycle.

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

RECENT DEVELOPMENTS

COVID-19

Evolving Systems provides software solutions and services throughout the world. The COVID-19 global outbreak has caused instability and volatility in multiple markets where our clients conduct business. We have leveraged our ability to provide support remotely resulting in limited effect on our day to day operations. The inability to travel has delayed interactions with our clients on projects and in the traditional modes of sales development. We continue to work with existing and new clients exploring new ways of using our products and services to enhance their business. On-going travel restrictions has caused the business to interact with clients in new ways and reduced certain costs. The long-term effects on how we conduct business in the future is still undetermined but the company continues to evolve to meet client needs.

We believe our current liquidity and funds from our ongoing operations will be sufficient to fund operations and meet the Company’s cash needs for future working capital and capital expenditure requirements for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. In making this assessment, we considered our ~~$4.3~~$3.6 million in cash and cash equivalents and our ~~$5.1~~$5.9 million in working capital at ~~March 31,~~September 30, 2021, along with our ability to generate positive cash flows from operations for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and year ended December 31, 2020.

Consolidated revenue was ~~$6.5~~$7.0 million and ~~$6.3~~$6.8 million for the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively and $20.4 million for the nine months ended September 30, 2021 compared to $19.4 million for the same period in 2020, respectively. The increases are primarily related to new projects and upgrades to existing and new clients partially offset by a reduction in work hours as projects near or come to completion.

‎

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

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and amortization	35%	34%	30%	31%	32%	33%
Sales and marketing	21%	25%	19%	22%	20%	23%
General and administrative	22%	22%	18%	20%	20%	20%
Product development	20%	17%	19%	16%	19%	16%
Depreciation	1%	1%	3%	1%	2%	1%
Amortization	4%	4%	3%	3%	4%	4%
Restructuring			—	—	—	—
Total costs of revenue and operating expenses	103%	103%	92%	93%	97%	97%

Loss from operations	(3%)	(3%)
Income from operations			8%	7%	3%	3%

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

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

Income tax expense	1%	3%	4%	2%	3%	3%

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

~~Revenue~~

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~~less than $0.1 million and $0.1 million for ~~each of~~ the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively. The ~~revenue remained consistent during this three month period as compared~~decrease of $0.1 million is attributable to ~~the corresponding three month period~~one time licensing fees from a client in the prior year asnot repeating this year.

License fees revenue was $0.2 million and $0.4 million for the nine months ended September 30, 2021 and 2020, respectively. The decrease of $0.2 million is attributable to one time license fees from one client in the prior year was offset by new one time license fee with a different client.

Services

Services revenue increased ~~$0.2~~$0.2 million, or 3%3%, to ~~$6.3~~$6.9 million for the three months ended ~~March 31,~~September 30, 2021 from ~~$6.1~~$6.7 million for the three months ended ~~March 31,~~September 30, 2020. The increase is related to new client projects of $0.5 million, upgrades and new project revenues with existing clients ~~of $0.4 million, new client project~~ of $0.2 million, and increase in hours worked on existing clients of ~~$0.2~~$0.3 million, partially offset by ~~decease~~decrease in hours as projects are completed or near completion ~~$0.3~~of $0.6 million, and a reduction of orders from existing clients of $0.2 ~~million, and one client termination of $0.1~~ million as compared to the corresponding three month period in the prior year.

Services revenue increased $1.2 million, or 6%, to $20.2 million for the nine months ended September 30, 2021 from $19.0 million for the nine months ended September 30, 2020. The increase is related to new client projects of $1.3 million, upgrades and new project revenues with existing clients of $1.2 million, and increase in hours worked on existing clients of $1.0 million, partially offset by decrease in hours as projects are completed or near completion of $1.5 million, a reduction of orders from existing clients of $0.5 million, and client terminations of $0.3 million as compared to the corresponding nine month period in the prior year.

Costs of Revenue, Excluding Depreciation and Amortization

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

Costs of revenue, excluding depreciation and amortization, consist primarily of personnel costs and other direct costs associated with these personnel, facilities costs, costs of third-party software and partner commissions. Costs of revenue includes product development expenses related to certain software features requested for deployment by the customer and are funded by customers as part of a managed service offering. Costs of revenue, excluding depreciation and amortization were consistent at $6.5 million for the nine months ended September 30, 2021 and 2020, respectively. Costs remained consistent as salary increases were offset by an increase in hours worked by delivery staff on product development projects and a reduction in travel and entertainment costs. As a percentage of revenue, costs of revenue, excluding depreciation and amortization, decreased 1% to 32% for the nine months ended September 30, 2021 from 33% for the nine months ended September 30, 2020, as costs were approximately constant as revenue increased due to delivering higher margin work on the new projects and upgrades.

Sales and Marketing

decreased 3% to 19% for the three months ended September 30, 2021 from 22% for the three months ended September 30, 2020. The decrease is primarily due to aforementioned lower expenses and the increase in revenues.

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 $0.4 million or 9% to $4.1 million for the nine months ended September 30, 2021 from $4.5 million for the nine months ended September 30, 2020. The decrease is related to the reduction of $0.3 million in resource costs as well as a reduction of $0.1 million in lower travel and entertainment costs due to travel restrictions during the global ~~pandemic and reduced marketing efforts, as well as reduction of $0.1 million in resource costs.~~pandemic. As a percentage of total revenue, sales and marketing expenses decreased 4%3% to ~~21%~~20% for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 from ~~25%~~23% for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, this is primarily due toaforementioned lower expenses and the ~~aforementioned decreased expenses.~~increase in revenues.

General and Administrative

General and administrative expenses consist principally of employee-related costs for the following departments: finance, human resources, and certain executive management; facilities costs; and professional and legal fees. General and administrative expenses ~~increased less than $0.1~~decreased $0.2 million, or ~~2%,~~14% to ~~remain constant at $1.4~~$1.2 million for ~~each of~~ the three months ended ~~March 31,~~September 30, 2021 from $1.4 million for the three months ended September 30, 2020. The decrease of $0.2 million related to a $0.1 million decrease in incentive compensation and ~~2020, respectively.~~a $0.1 million decrease in equity compensation. As a percentage of revenue, general and administrative expenses decreased 2% to 18% for the three months ended September 30, 2021 as compared to 20% for the three months ended September 30, 2020. The decrease is primarily due to the aforementioned lower expenses and the increase in revenues.

General and administrative expenses increased $0.2 million, or 5% to $4.1 million for the nine months ended September 30, 2021 from $3.9 million for the nine months ended September 30, 2020. Increase of $0.2 million related to increased professional fees of $0.1 million related to R&D tax credits along with local statutory audit costs, shelf registration, and legal work, increase in equity compensation of $0.1 million, staff cost increase of $0.1 million and increase costs related to third party software of $0.1 million. Partially offset by a decrease in incentive compensation of $0.2 million. As a percentage of revenue, general and administrative expenses remained ~~constant~~consistent at ~~22%~~20% for ~~each of~~ the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively. The increase in general and administrative expense is primarily due to the aforementioned higher expenses.

Product Development

Product development expenses consist primarily of employee-related costs and subcontractor expenses. Product development expenses increased ~~$0.2~~$0.2 million, or ~~23%~~18%, to ~~$1.3~~$1.3 million for the three months ended ~~March 31,~~September 30, 2021 from ~~$1.1~~$1.1 million for the three months ended ~~March 31,~~September 30, 2020. The increase is primarily related to the additional resource costs. As a percentage of revenue, product development expenses increased 3% to 19% for the three months ended September 30, 2021 from 16% for the three months ended September 30, 2020. The increase in general and product development expense is primarily due to the aforementioned higher expenses.

Product development expenses increased $0.7 million, or 22%, to $3.9 million for the nine months ended September 30, 2021 from $3.2 million for the nine months ended September 30, 2020. The increase is primarily related to the additional resource costs from additional resources and an increase in hours worked on product development projects by delivery staff. As a percentage of revenue, product development

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

Depreciation

Depreciation expense consists of depreciation of long-lived property and equipment. Depreciation expense ~~was~~increased $0.1 million, or 100%, to $0.2 million for the three months ended September 30, 2021 from less than $0.1 million for ~~each of~~ the three months ended ~~March 31, 2021 and~~September 30, 2020. The increase is due to a change in the estimated life of amortized software. As a percentage of total revenue, depreciation expense increased 2% to 3% for ~~each of~~ the three months ended ~~March 31,~~September 30, 2021 from 1% for the three months ended September 30, 2020.

Depreciation expense consists of depreciation of long-lived property and ~~2020 was~~equipment. Depreciation expense increased $0.1 million, or 50%, to $0.3 million for the nine months ended September 30, 2021 from $0.2 million for the nine months ended September 30, 2020. The increase is due to a change in the estimated life of amortized software. As a percentage of total revenue,

depreciation expense increased 1%. to 2% for the nine months ended September 30, 2021 from 1% for the nine months ended September 30, 2020.

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~~$0.2 million for each of the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively. As a percentage of total revenue, amortization expense was 4%3% for each of three months ended ~~March 31,~~September 30, 2021 and 2020, respectively.

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

Restructuring

Restructuring expense includes the costs associated with a reduction in workforce due to the consolidation of duplicative functions and alignment of staff with ongoing business activity. Restructuring expense was not incurred for the three months ended September 30, 2021. Restructuring expense for the nine months ended September 30, 2021 was less than $0.1 million. There was no restructuring expense for the three and nine months ended September 30, 2020. As a percentage of total revenue, restructuring expense was 0% for the nine months ended September 30, 2021.

Interest Expense

Interest expense includes the amortization of debt issuance costs and interest expense from our term loans. Interest expense for each of the three months ended ~~March 31,~~September 30, 2021 and 2020 was less than $0.1 ~~million.~~million, respectively. As a percentage of revenue, interest expense was 0% for the three months ended September 30, 2021.

Interest expense for the nine months ended September 30, 2021 and 2020 was less than $0.1 million and $0.1 million, respectively. As a percentage of revenue, interest expense was less than ~~1% and 1%~~1% for each of the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively.

Foreign Currency Exchange (Loss) Income

Foreign currency exchange (loss) income resulted from transactions denominated in a currency other than the functional currency of the respective subsidiary and decreased ~~$0.8~~less than $0.1 million ~~or 199%~~ to ~~a ($0.4)~~$0.2 million loss for the three months ended ~~March 31,~~September 30, 2021 from a foreign currency ~~gain~~exchange loss of ~~$0.4~~ $0.1 million for the three months ended ~~March 31,~~September 30, 2020. The decrease was a result of the ~~re-measurement~~remeasurement of certain non-functional currency denominated financial assets and liabilities of our foreign subsidiaries.

Foreign currency exchange (loss) income resulted from transactions denominated in a currency other than the functional currency of the respective subsidiary and decreased $0.6 million to a $0.4 million loss for the nine months ended September 30, 2021 from foreign currency income of $0.2 million for the nine months ended September 30, 2020. The decrease was a result of the remeasurement of certain non-functional currency denominated financial assets and liabilities of our foreign subsidiaries.

Interest Income and Total Other (Expense) Income, Net

~~Other expense~~There was interest income and other (expense) income of less than $0.1 million for each of the three months ended ~~March 31,~~September 30, 2021 and 2020.

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

Income Taxes

We recorded net income tax expense of ~~$0.1~~$0.3 million for three months ended September 30, 2021 and ~~$0.2~~ tax expense of $0.1 million for the three months ended ~~March~~September 30, 2020. For interim periods during fiscal year ending December 31, 2021, the expense

is determined using an estimate of the annual effective tax rate, adjusted for discrete items, primarily related to the effects of foreign currency exchange realized transaction gains or losses and foreign taxes withheld. For the three months ended September 30, 2021 the Company recorded an annual effective tax rate accrual inclusive of the impact of discrete items that resulted in a net tax expense effect of approximately $0.3 million. The net expense during the three months ended September 30, 2020 consisted of income tax primarily from our U.K. subsidiary and Indian based operations as well as foreign taxes withheld. Our effective tax rate was 80% and 52% for the three months ended September 30, 2021 and 2020, respectively.

We recorded net income tax expense of $0.5 million and net income tax expense $0.7 million for the nine months ended September 30, 2021 and 2020, respectively. For interim periods during fiscal year ending December 31, 2021, the expense is determined using an estimate of the annual effective tax rate, adjusted for discrete items, primarily related to the effects of foreign currency exchange realized transaction gains or losses and foreign taxes withheld. For the ~~three~~nine months ended ~~March 31,~~September 30, 2021 the Company recorded an annual effective tax rate accrual inclusive of the impact of discrete items that resulted in a net tax expense effect of approximately ~~$0.1~~ $0.5 million. The net expense during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 consisted of income tax primarily from our U.K. subsidiary, Nigerian and Indian based operations as well as foreign taxes withheld. Our effective tax rate was ~~(9%)~~82% and ~~119%~~92% for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively.

FINANCIAL CONDITION

Our working capital position ~~decreased $0.4~~increased by $0.4 million ~~or 6%,~~ to ~~$5.1~~ $5.9 million ~~at March 31,~~as of September 30, 2021 from $5.5 million atas of December 31, 2020. ~~The decrease in working capital is primarily related to a decrease in contract receivable and increase in unearned~~

~~revenue partially offset by the increase in cash and cash equivalents and unbilled revenue in addition to the final payment of the current term loan.~~

CONTRACTUAL OBLIGATIONS

There have been no material changes to the contractual obligations as disclosed in our 2020 Annual Report on Form ~~10-K,~~10-K.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed operations through cash flows from operations and bank borrowings. At ~~March 31,~~September 30, 2021, our principal source of liquidity was ~~$4.3~~$3.6 million in cash and cash equivalents and ~~$4.7~~ $5.1 million in contract receivables, net of allowances. Our anticipated uses of cash in the future will be to fund the growth of our business both organically and by expanding our customer base internationally. Other uses of cash will include product development, technology expansion, and capital expenditures.

Net cash ~~provided/used in~~provided by operating activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, and 2020 was ~~$1.7~~$1.3 million and ~~$(0.3)~~$1.8 million, respectively. Cash provided by operating activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 was primarily due to the net income of $0.1 million (plus noncash charges of $1.4 million), increase in unearned revenue of ~~$1.3~~$1.0 million and ~~an increase in accounts payable and accrued liabilities of $0.2 million as well as~~ a decrease in contract receivable of ~~$0.9~~$0.5 million, partially offset by the increase in unbilled work in progress of ~~$0.2~~$0.5 million and income taxes receivable of ~~$0.5~~$0.4 million and an increase in other assets long term of $0.3 million related to the foreign tax credit to be collected in a future period as well as a decrease in accounts payable and accrued liabilities of $0.2 million and a reduction in our lease obligations of $0.3 million.

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

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

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

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, or we have employees working. The pandemic has delayed certain projects or the closing of new orders as customer interactions have been altered or postponed. At this time, we have seen only limited disruptions to our ability to continue delivery to our clients.

In January 2021, we made our last principal and interest payment on the term loan payable to East West Bank (“EWB”) that required us to maintain specified financial requirements that are defined in the loan agreements. We believe that our current cash and cash equivalents, together with anticipated cash flow from operations will be sufficient to meet our 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,~~September 30, 2021 of ~~$4.3~~ $3.6 million;

Our working capital balance at ~~March 31,~~September 30, 2021 of ~~$5.1~~ $5.9 million; and

Our ability to generate positive cash flows from operations of ~~$1.7~~ $1.3 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, and $1.4 million and $1.1 million for the full years ended December 31, 2020 and 2019, respectively.

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

$0.3 million, respectively. We do not currently hedge our foreign currency exposure, but we monitor rate changes and may hedge our exposures if we see significant negative trends in exchange rates.

OFF-BALANCE SHEET ARRANGEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

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

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

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information regarding reportable legal proceedings is contained in Part I, Item 3, “Legal Proceedings,” in our Annual Report on Form 10-K for the year ended December 31, 2020. ~~There~~From time to time, we are involved in various legal matters arising in the normal course of business. On October 15, 2019, the Company’s former Chief Executive Officer filed a lawsuit in the Superior Court of New Jersey against us. That suit sought $3.5 million for claims of libel, harm of lost employment opportunities, severance payments and benefits that he would have been ~~no material changes~~entitled to receive had he been terminated without cause. The Company engaged legal counsel through its insurance carrier. The Company decided that it was prudent to avoid further legal fees and disruption to the ~~legal proceedings previously disclosed~~business caused by an on-going litigation claim. Therefore, to resolve amicably and discontinue disputes regarding all claims arising from the lawsuit and with the denial of every allegation of wrongdoing, in June 2021, a settlement and mutual general release was agreed to that included payment of $0.6 million by the ~~Annual Report on Form 10-K, which are incorporated by reference herein.~~Company. Our insurance carrier has agreed to contribute $0.3 million toward the settlement. Settlement was paid in full in July 2021.

ITEM 1A. RISK FACTORS

Not required under Regulation S-K for smaller reporting companies

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

ITEM 6. EXHIBITS


Exhibit No.		Description of Document
2.1		Asset Purchase Agreement, dated as of April 21, 2011, by and between Evolving Systems, Inc. and NeuStar, Inc., as filed as Exhibit 2.1 to the Registrant’s Form 8-K filed on April 21, 2011 and incorporated herein by reference.
2.2		Agreement and Plan of Merger by and among Evolving Systems, Inc., Topaz Merger Sub, Inc., Telespree Communications and Gill Cogan as the exclusive representative of the Effective Time Shareholders and Change in Control Payment Recipients, as filed as Exhibit 2.1 to the Registrant’s Form 8-K filed on October 25, 2013 and incorporated herein by reference.
2.3		Merger Agreement dated as of September 30, 2015, by and among Evolving Systems, Inc., Evolving Systems NC, Inc., a wholly owned subsidiary of Evolving Systems, RateIntegration, Inc. and a representative of the stockholders and change in control payment recipients of RateIntegration, Inc., as filed as Exhibit 2.1 to the Registrant’s Form 8-K filed September 30, 2015 and incorporated herein by reference.
~~3.1~~ 2.4		Evolving Systems, Inc., and Evolving Systems Holdings Ltd., ETI-NET Inc., Investissements Riv Europe Ltee, a Quebec corporation and Said Hini, as filed as Exhibit 2.1 to the Registrant’s Form 8-K filed October 18, 2021 and incorporated herein by reference.
2.5		Software Purchase Agreement, dated as of October 15, 2021, by and among Evolving Systems, Inc., Evolving Systems NC, Inc., and ETI-NET Inc., as filed as Exhibit 2.2 to the Registrant’s Form 8-K filed October 18, 2021 and incorporated herein by reference.
2.6		Software Purchase Agreement, dated as of October 15, 2021, by and among Evolving Systems, Inc., Evolving Systems Limited, and ETI-NET Inc. as filed as Exhibit 2.3 to the Registrant’s Form 8-K filed October 18, 2021 and incorporated herein by reference.
3.1		Restated Certificate of Incorporation, as filed as an exhibit to the Registrant’s registration statement on Form S-1 filed January 9, 1998 and incorporated herein by reference.
3.2		Certificate of Designation for the Series B Convertible Preferred Stock, as filed as Exhibit 3.1 to the Registrant’s Form 8-K filed November 10, 2004 and incorporated herein by reference.

3.3		Certificate of Amendment to Certificate of Designation of Series B Convertible Preferred Stock filed as Exhibit 3.1(c) to the Registrant’s Form 8-K filed November 17, 2005 and incorporated herein by reference.
3.4		Certificate of Amendment to Certificate of Designation of Series B Convertible Preferred Stock filed as Exhibit 3.01 to the Registrant’s Form 8-K filed May 4, 2007 and incorporated herein by reference.
3.5		Certificate of Amendment to the Restated Certificate of Incorporation of Evolving Systems, Inc., as filed as Exhibit 3.1 to the Registrant’s Form 8-K filed on July 21, 2009 and incorporated herein by reference.
3.6		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Evolving Systems, Inc. as filed as Exhibit 3(i) to the Registrant’s Form 8-K filed on June 16, 2011 and incorporated herein by reference.
3.7		Amended and Restated Bylaws of Evolving Systems, Inc., as filed as Exhibit 3(ii) to the Registrant’s Form 8-K filed on July 31, 2014 and incorporated herein by reference.
10.1		Amendment and Waiver Letter to Term Loan Facility Agreement entered into by and among Evolving Systems, Inc. as Parent Guarantor, Evolving Systems Holdings Limited, as Original Borrower, Evolving Systems Limited and Evolving Systems BLS Limited, as further Original Guarantors, Evolving Systems Lumata Limited, and East West Bank as Lender, as filed as Exhibit 10.1 to the Registrant’s Form 8-K filed on July 7, 2020 and incorporated herein by reference.
31.1	*	Certification of Chief Executive Officer and Executive Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	*	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
32.1	**	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Securities Exchange Act, as amended, and 18 U.S.C. Section 1350.
32.2	**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(furnished herewith).
101.INS*101.INS	*	101 XBRL Instance Document.
101.SCH*101.SCH	*	101 XBRL Taxonomy Extension Schema Document.
101.CAL*101.CAL	*	101 XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*101.DEF	*	101 XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*101.LAB	*	101 XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*101.PRE	*	101 XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101

*Filed herewith.

**Furnished herewith.

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 13,~~November 10, 2021		/s/ Mark P. Szynkowski
		Mark P. Szynkowski
		Senior Vice President of Finance and Secretary (Principal Financial and Accounting Officer)


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

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


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


Large Accelerated Filer ☐o		Accelerated Filer ☐o

Non-accelerated Filer ☒x		Smaller Reporting Company ☒x

Emerging Growth Company☐o


PART I — FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7 8
	Notes to Unaudited Condensed Consolidated Financial Statements	8 9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 22
Item 3	Quantitative and Qualitative Disclosures About Market Risk	25
~~Item 4~~	~~Controls and Procedures~~	25
		28
Item 4	Controls and Procedures	28

PART II — OTHER INFORMATION
Item 1	Legal Proceedings	26
~~Item 1A~~	~~Risk Factors~~	26
~~Item 6~~	~~Exhibits~~	26
		29
Item 1A	~~Signatures~~Risk Factors	29
Item 6	27 Exhibits	29

Signatures		31



For the Twelve Months Ended September 30,		Amount
2022	$	869
2023		424
2024		200
2025		92
2026		92
Thereafter		360
	$	2,037



Three Months Ended March 31, 2021

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



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



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



	Restricted
	Stock
	Number of
	Shares
	(in thousands)
Unvested restricted stock at January 1, 2021	63
Less restricted stock vested	~~(31)~~ (62)
Unvested restricted stock at ~~March 31,~~September 30, 2021	32 1



		September 30, 2021		December 31, 2020
Long-lived assets, net
United States	$	831	$	1,352
United Kingdom		1,316		1,578
Other		1,453		1,286
	$	3,600	$	4,216



		As of
		~~March 31,~~September 30, 2021
Operating leases - right of use assets	$	~~1,203~~
		1,033

Operating lease current	$	~~326~~ 330
Lease obligations — operating leases, net of current portion		~~870~~
~~Total lease liability~~	$	~~1,196~~
		696
Total lease liability	$	1,026

Weighted average remaining lease term (in years)		~~4.9~~ 5.2
Weighted average discount rate		~~6.09%~~ 6.10%



		For the year ending		For the year ending
		December 31,		December 31,
2021 - Remaining	$	277	$	93
2022		354		351
2023		220		218
2024		122		121
2025		122		121
Thereafter		254		252
Total future minimum lease payments		1,349		1,156
Present value adjustment		153		130
Total	$	1,196	$	1,026