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: September 30, 2022

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

SYMBOLIC LOGIC, INC.

f/k/a Evolving Systems, Inc.

(Exact name of registrant as specified in its charter)

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

9800 Pyramid Court, Suite 400 Englewood, CO	80112
(Address of principal executive offices)	(Zip 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	NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 (Section 232.405 of this chapter) during the preceding 12 months (or 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 the definitions 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 November 7, 2022, there were 10,668,992 shares outstanding of Registrant’s Common Stock (par value $0.001 per share).

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
	Signatures	31

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SYMBOLIC LOGIC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value data)

	September 30, 2022		December 31, 2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	16,776	$	39,445
Prepaid and other current assets		467		106
Fixed maturity securities, available for sale, fair value		4,345		—
Equity securities, fair value		6,031		—
Debt securities, available for sale, fair value		1,575		—
Total current assets		29,194		39,551
Property and equipment, net		4		4
Investments, at cost		1,000		—
Total assets	$	30,198	$	39,555
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	703	$	1,252
Escrow liability		172		—
Income taxes payable		441		575
Other liabilities		33		—
Total current liabilities		1,349		1,827
Total liabilities		1,349		1,827
Commitments and contingencies (Note 8)
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; 11,110,881 shares issued and 10,668,992 shares outstanding as of September 30, 2022 and 12,437,073 shares issued and 12,258,184 shares outstanding as of December 31, 2021		11		12
Additional paid-in capital		97,920		100,024
Treasury stock, 441,889 shares as of September 30, 2022 and 178,889 shares December 31, 2021, at cost		(1,661)		(1,253)
Accumulated other comprehensive loss		(3,153)		—
Accumulated deficit		(64,268)		(61,055)
Total stockholders’ equity		28,849		37,728
Total liabilities and stockholders’ equity	$	30,198	$	39,555

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

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SYMBOLIC LOGIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	—	$	—	$	—	$	—
OPERATING EXPENSES
General and administrative		1,097		637		3,185		2,295
Depreciation		1		1		2		2
Total operating expenses		1,098		638		3,187		2,297
Loss from operations		(1,098)		(638)		(3,187)		(2,297)
Other income (expense)
Interest income		517		—		1,096		2
Interest expense		—		(2)		(2)		(2)
Other income (expense), net		93		—		2		(1)
Realized gain on investments, net		127		—		521		—
Unrealized loss on investments, net		(144)		—		(1,702)		—
Other income (expense), net		593		(2)		(85)		(1)
Loss from continuing operations before income taxes		(505)		(640)		(3,272)		(2,298)
Income tax expense (benefit)		55		15		(10)		23
Net loss from continuing operations		(560)		(655)		(3,262)		(2,321)
Income from discontinued operations before income taxes		—		1,009		—		2,925
Income tax expense (benefit) from discontinued operations		—		279		(49)		492
Net income from discontinued operations		—		730		49		2,433
Net (loss) income	$	(560)	$	75	$	(3,213)	$	112
Basic loss per common share from continuing operations	$	(0.05)	$	(0.05)	$	(0.28)	$	(0.19)
Basic earnings per common share from discontinued operations	$	—	$	0.06	$	—	$	0.20
Diluted loss per common share from continuing operations	$	(0.05)	$	(0.05)	$	(0.28)	$	(0.19)
Diluted earnings per common share from discontinued operations	$	—	$	0.06	$	—	$	0.20
Weighted average basic shares outstanding		10,803		12,258		11,801		12,240
Weighted average diluted shares outstanding		10,803		12,258		11,801		12,258

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

4

SYMBOLIC LOGIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Net (loss) income	$	(560)	$	75	$	(3,213)	$	112
Other comprehensive (loss)
Foreign currency translation (loss)		—		(36)		—		(14)
Unrealized loss on available-for-sale investments		(579)		—		(3,153)		—
Comprehensive (loss) income	$	(1,139)	$	39	$	(6,366)	$	98

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

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SYMBOLIC LOGIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

Nine Months Ended September 30, 2022

								Accumulated
				Additional				other				Total
	Common Stock			paid-in		Treasury		comprehensive		Accumulated		stockholders’
	Shares	Amount		capital		stock		loss		deficit		equity
Balance at January 1, 2022	12,258,184	$	12	$	100,024	$	(1,253)	$	—	$	(61,055)	$	37,728
Restricted stock vested	175,000		—		—		—		—		—		—
Stock-based compensation expense	—		—		365		—		—		—		365
Treasury stock acquired	(263,000)		—		—		(408)		—		—		(408)
Retirement of common stock	(1,501,192)		(1)		(2,469)		—		—		—		(2,470)
Net loss	—		—		—		—		—		(3,213)		(3,213)
Unrealized loss on available-for-sale investments	—		—		—		—		(3,153)		—		(3,153)
Balance at September 30, 2022	10,668,992	$	11	$	97,920	$	(1,661)	$	(3,153)	$	(64,268)	$	28,849

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

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

6

SYMBOLIC LOGIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

Three Months Ended September 30, 2022

								Accumulated
				Additional				other				Total
	Common Stock			paid-in		Treasury		comprehensive		Accumulated		stockholders’
	Shares	Amount		capital		stock		loss		deficit		equity
Balance at June 30, 2022	10,831,992	$	11	$	97,760	$	(1,253)	$	(2,574)	$	(63,708)	$	30,236
Restricted stock vested	100,000		—		—		—		—		—		—
Stock-based compensation expense	—		—		160		—		—		—		160
Treasury stock acquired	(263,000)		—		—		(408)		—		—		(408)
Net loss	—		—		—		—		—		(560)		(560)
Unrealized loss on available-for-sale investments	—		—		—		—		(579)		—		(579)
Balance at September 30, 2022	10,668,992	$	11	$	97,920	$	(1,661)	$	(3,153)	$	(64,268)	$	28,849

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

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

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SYMBOLIC LOGIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(3,213)	$	112
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation		2		308
Amortization of intangible assets		—		717
Amortization of operating leases — right of use assets		—		284
Stock-based compensation expense		365		242
Foreign currency transaction loss, net		—		148
Bad debt expense		—		14
Provision for deferred income taxes		—		(5)
Loan origination income		(14)		—
Gain on PPP Loan forgiveness		—		(319)
Realized gains on investments		(521)		—
Unrealized losses on investments		1,702		—
Change in operating assets and liabilities:
Contract receivables		—		462
Unbilled work-in-progress		—		(502)
Prepaid and other assets		(360)		(25)
Accounts payable and accrued liabilities		97		(153)
Escrow liability		172		—
Income taxes receivable		—		(417)
Income taxes payable		(134)		—
Unearned revenue		—		1,015
Long-term assets - other		—		(256)
Lease obligations — operating leases		—		(285)
Net cash (used in) provided by operating activities		(1,904)		1,340
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2)		(316)
Purchases of investments		(21,484)		—
Proceeds on sale of investments		4,245		—
Transaction fees related to prior period disposition		(646)		—
Net cash used in investing activities		(17,887)		(316)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable		—		(143)
Purchase of treasury stock		(408)		—
Retirement of common stock		(2,470)		—
Net cash used in financing activities		(2,878)		(143)
Effect of exchange rate changes on cash and cash equivalents		—		(63)
Net (decrease) increase in cash and cash equivalents		(22,669)		818
Cash and cash equivalents at beginning of period		39,445		2,763
Cash and cash equivalents at end of period	$	16,776	$	3,581
Supplemental disclosure of cash and non-cash transactions:
Interest paid	$	2	$	4
Income taxes paid, net of refunds	$	82	$	788
Deferred loan origination income	$	33	$	—
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets	$	—	$	370

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

8

SYMBOLIC LOGIC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization — On December 31, 2021, Symbolic Logic, Inc. (the “Company” or “Symbolic Logic”) f/k/a Evolving Systems, Inc. (“Evolving Systems”) closed on the terms of the Equity Purchase Agreement (the “Equity Purchase Agreement”) and two Software Purchase Agreements (the “Software Purchase Agreements” and, together with the Equity Purchase Agreement and the other transaction documents described therein, the “Purchase Agreements”) dated as of October 15, 2021, with subsidiaries and affiliates of PartnerOne Capital, Inc. (the “Purchasers”). The Purchase Agreements provided for the sale and transfer of substantially all of Evolving Systems’ operating subsidiaries and all of its assets to the Purchasers for an aggregate purchase price of $40 million (subject to adjustment as set forth in the Equity Purchase Agreement). The Purchase Agreements included customary terms and conditions, including an adjustment to the purchase price based on Evolving Systems’ cash and cash equivalents on hand as of the closing date and provisions that require Evolving Systems to indemnify the Purchasers for certain losses that it incurs as a result of a breach by Evolving Systems of its representations and warranties in the Purchase Agreements and certain other matters. Evolving Systems received cash proceeds of $36,032,899 and may receive up to an additional $2,500,000 in consideration pursuant to the terms of an escrow agreement entered into in connection with the Equity Purchase Agreement.

Results of the sold subsidiaries are retrospectively reported as discontinued operations in the accompanying condensed consolidated financial statements for all periods presented. Prior year information has been adjusted to conform to the current year presentation. Unless otherwise stated, the information disclosed in the footnotes accompanying the condensed consolidated financial statements refers to continuing operations. See Note 2 “Discontinued Operations” for more information regarding results from discontinued operations.

Simultaneously with the approval by the board of directors of the Company to execute the Purchase Agreements, the board formed a subcommittee of the board (the “Investment Committee”) to evaluate options to maximize the value of the Company’s assets, which, following the closing of the transactions contemplated under the Purchase Agreements, consists primarily of cash and cash equivalents. The board of directors has authorized the Investment Committee to retain such counsel, experts, consultants, or other professionals as the Investment Committee shall deem appropriate from time to time to aid the Investment Committee in the performance of its duties. The Company’s directors and executives have an extensive background in mergers and acquisitions (“M&A”) activity. The Company plans to use its cash assets and network of relationships to seek to acquire businesses and/or assets as well as to consider strategic partners.

Following the sale of its assets in December 2021, the Company began to evaluate two initial areas of product focus, each of which is in a research-oriented pre-release mode. The two areas of focus relate to the application of self-learning algorithms and the symbolic tagging and organizing of physical objects. The Company continues to selectively seek new opportunities through potential mergers, acquisitions, joint ventures, strategic partnerships, and future product development.

The COVID-19 global outbreak caused instability and volatility in multiple markets throughout the world. We have leveraged our ability to work remotely resulting in limited effect on our day-to-day operations.

On December 9, 2021, the Company received a letter from the Nasdaq Capital Market (“NASDAQ”) regarding the Equity Purchase Agreement and the two Software Purchase Agreements entered into by the Company pursuant to which we sold all of our assets. The NASDAQ staff requested certain information from the Company regarding its on-going business. We provided a response to the staff on January 7, 2022. We received a follow up request from the NASDAQ for additional information and we provided a response to the staff on February 15, 2022.

On April 12, 2022, Evolving Systems, Inc. filed with the Secretary of State of Delaware a Certificate of Amendment to amend its Certificate of Incorporation to change the Company’s name from “Evolving Systems, Inc.” to “Symbolic Logic, Inc.” effective as of April 12, 2022. The Company also amended and restated its Bylaws to change all Company references from “Evolving Systems, Inc.” to “Symbolic Logic, Inc.” No other amendments were made to the Certificate of Incorporation or Bylaws.

9

On April 13, 2022, Symbolic Logic, Inc. f/k/a Evolving Systems, Inc. notified the NASDAQ of its intention to voluntarily withdraw its common stock, par value $0.001 per share (the “Common Stock”), from listing on Nasdaq. The Company filed a Form 25 with the Securities and Exchange Commission (the “SEC”) on Monday, April 25, 2022, relating to delisting the Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to be effective ten days thereafter. After delisting, the Common Stock may be quoted on the OTC Pink Open Market.

On May 23, 2022, the Company announced a modified Dutch auction tender offer to purchase with cash up to $9.6 million of shares of its common stock which expired on June 23, 2022. Based on the final count by the depositary for the tender offer, a total of 1,501,192 shares of common stock were validly tendered and not validly withdrawn at or below the price of $1.55 per share. The Company accepted all of these shares of common stock for purchase at the purchase price of $1.55 per share, for a total cost of $2.5 million, including $0.2 million in fees and expenses. The total of 1,501,192 shares of common stock accepted for purchase represents approximately 12.2 % of the Company’s total shares of common stock outstanding.

During the month of September 2022, the Company through a direct purchase and an open market purchase which were not related to the tender offering conducted in May 2022, acquired an additional 263,000 shares at a purchase price of $1.55 per share, for a total cost of $0.4 million. These shares are currently being held as treasury stock.

On August 26, 2022, Matthew Stecker resigned as the Company’s Chief Executive Officer. In connection with the resignation, the Company and Mr. Stecker entered into an agreement that including a release of all claims and certain obligations under his employment agreement and Mr. Stecker received a payment of $0.35 million and accelerated vesting of his 0.1 million shares of unvested restricted stock awards. On the same day, the Company appointed Mr. Igor Volshteyn as its Chief Executive Officer.

On October 21, 2022 the Company’s board of directors determined that “going dark” is in the best interest of the Company and its stockholders as a result of the substantial cost savings from the elimination of accounting and other expense related to maintaining its status as a public reporting company, as well as the increased ability of management to focus on core business activities, among other things. The Company therefore plans to affect a suspension of its reporting obligation under the Securities Exchange Act of 1934, as amended, and expects to file a Form 15 with the Securities and Exchange Commission in early January 2023.

CCUR Holdings Inc. filed an amended schedule 13D on November 2, 2022, announcing that they have acquired in total 6,982,939 common shares of the Company. This represented 65% beneficial ownership of the outstanding shares of the Company as of the date of the announcement.

We believe our current liquidity from our investments and future operations will be sufficient to fund operations and meet the Company’s cash needs for future working capital and capital expenditure requirements for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. In making this assessment, we considered our $16.8 million in cash and cash equivalents and our $27.8 million in working capital at September 30, 2022.

Interim Condensed Consolidated Financial Statements — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these condensed consolidated financial statements are adequate to make the information presented not misleading. The condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with US GAAP and SEC regulations for interim financial statements. The results for the three and nine months ended September 30, 2022 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, 2021 included in our Annual Report on Form 10-K as filed with the SEC on April 11, 2022.

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP), requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial

10

statements, as well as the reported amounts of expenses during the reporting period. We made estimates with respect to income tax valuation and fair value of investments and stock-based compensation amounts. Actual results could differ from these estimates.

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

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 the 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.

Investments — Investments in entities where the Company owns less than twenty percent of the voting stock of the individual entity, does not exercise significant influence over operating and financial policies of the entity, and the investment does not have a readily determinable fair value, are accounted for using the cost method. Under the cost method of accounting, the investment is carried at cost less any impairment, adjusted for observable price changes of similar investments of the same issuer. Fair value is not estimated for these investments if there are no identified events or changes in circumstances that may have an effect on the fair value of the investment. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or consolidated statements of operations. As of September 30, 2022, the Company held one cost method investment for $1,000,000 (see Note 5, “Investments”).

Fair Value Measurements — Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, we consider the most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.

ASC Topic 820, Fair Value Measurements and Disclosures, requires certain disclosures around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

● Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities;

● Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

● Level 3 — Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which include the use of management estimates.

Our investment portfolio consists of money market funds, equity securities, and corporate debt. All highly liquid investments with original maturities of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost less any unamortized premium or discount, which approximates fair value. All investments with original maturities of more than three months when purchased are classified as available-for-sale, trading, or held-to-maturity investments.

Our fixed maturity securities and debt securities are classified as available-for-sale, and are reported at fair value, with unrealized gains and losses, net of tax, reported in the accompanying condensed consolidated balance sheets in stockholders’ equity as a component of accumulated other comprehensive income or loss. Realized gains or losses on available-for-sale investments are reclassified from other comprehensive income (loss) to net income (loss) in the condensed consolidated statements of operations. Investments in equity securities with readily determinable fair values (marketable) are measured at fair value, with changes in the fair value recognized as a component of unrealized gain on investments, net in the condensed consolidated statements of operations.

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Investments in equity investments that do not have readily determinable fair values (non-marketable) are accounted for at cost minus impairment, if any, and any changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer, also referred to as the measurement alternative. Any adjustments to the carrying value of these investments are recorded in unrealized gain on investments, net in the condensed consolidated statements of operations.

Interest on securities is reported in the accompanying condensed consolidated statements of operations in interest income. Dividends paid by securities are reported in the accompanying condensed consolidated statements of operations in other income. Realized gains or losses are reported in the accompanying condensed consolidated statements of operations in net realized gain on investments.

The following table presents the fair value hierarchy for those assets and liabilities the Company measured at fair value on a recurring basis:

	Fair value at September 30, 2022
	Total		Level 1		Level 2		Level 3
Money market funds	$	13,799	$	13,799	$	—	$	—
Cash and cash equivalents	$	13,799	$	13,799	$	—	$	—
Common stock and common stock options	$	6,031	$	6,031	$	—	$	—
Equity securities	$	6,031	$	6,031	$	—	$	—
Debt securities	$	1,575	$	—	$	1,575	$	—
Debt securities	$	1,575	$	—	$	1,575	$	—
Corporate bonds	$	4,345	$	—	$	4,345	$	—
Fixed maturity securities	$	4,345	$	—	$	4,345	$	—

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.

Recently Adopted Accounting Pronouncements — In May 2021, the FASB issued 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. The amendments in this ASU did not have a material impact on our condensed consolidated financial statements.

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Recently Issued Accounting Pronouncements — In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently in the process of assessing the impact of this new standard on its consolidated financial statements. The Company anticipates presenting amendments on a modified-retrospective basis through a cumulative effect adjustment to opening retained earnings as of the date of adoption.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (ASC 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The new standard clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring the fair value of the security. The new standard also requires certain disclosures related to equity securities with contractual sale restrictions. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied prospectively. The Company is currently in the process of assessing the impact of this new standard on its consolidated financial statements.

NOTE 2 — DISCONTINUED OPERATIONS

On December 31, 2021, Evolving Systems, Inc. and certain of its subsidiaries completed the Equity Purchase Agreement and two Software Purchase Agreements with subsidiaries and affiliates of PartnerOne Capital, Inc. The Purchase Agreements contemplate the sale and transfer of substantially all of the Company’s operating subsidiaries and all of its assets to the Purchasers for an aggregate purchase price of $40 million (subject to adjustment as set forth in the Equity Purchase Agreement). The Purchase Agreements include customary terms and conditions, including an adjustment to the purchase price based on the Company’s cash and cash equivalents on hand and other adjustments as of the closing date and provisions that require the Company to indemnify the Purchasers for certain losses that it incurs as a result of a breach by the Company of its representations and warranties in the Purchase Agreements and certain other matters.

Proceeds from the sale was payable to the Company as follows: (1) a $37.5 million payment to the Company in cash on the closing date of December 31, 2021 (adjusted as set forth in the Equity Purchase Agreement), and (2) $2.5 million placed in escrow on the closing date as security for the Company’s indemnification obligations to the Purchasers under the Purchase Agreements, which amount will be released to the Company on or before the date that is twelve months from the closing date (less any portion of the escrow used to make indemnification payments to the Purchasers). The Company received cash proceeds of $36.0 million and may receive up to an additional $2.5 million in consideration pursuant to the terms of an escrow agreement entered into in connection with the Equity Purchase Agreement and included in the cash and cash equivalents in our condensed consolidated balance sheets.

The Purchase Agreements contain customary representations and warranties of each of the parties. The Purchase Agreements contain indemnification rights in favor of the Company following closing for (i) breaches of any of the representations or warranties by the Purchasers including, but not limited to, breaches related to organization, authorization, and governmental authorization, and (ii) breaches of the covenants or agreements of the Purchasers in the Purchase Agreements. In addition, the Purchase Agreements contain indemnification rights in favor of the Purchasers following closing for (i) breaches of certain fundamental representations and warranties by the Company, including breaches related to organization, authorization, capitalization, title to purchased assets, and finders’ fees, (ii) breaches of any of the representations and warranties by the Company, and (iii) breaches of the covenants or agreements of the Company in the Purchase Agreements.

Accordingly, the operating results of its operations in the entities and related business operations sold for September 30, 2021 presented have been reclassified in the condensed consolidated statements of operations as “income from discontinued operations.” Interest expense that is specifically identifiable to debt related to the entities sold qualifies as discontinued operations and is allocated to interest expense from discontinued operations in the Company’s condensed consolidated financial statements. Additionally, the carrying amounts of the assets and liabilities for the entities sold as of December 31, 2021 presented have been reclassified in the condensed consolidated balance sheets.

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The following table presents the financial results of the discontinued operations:

	For the Three		For the Nine
	Months Ended		Months Ended
	September 30,		September 30,
	2021		2021
Revenue	$	6,974	$	20,428
Costs of revenue		(2,081)		(6,506)
Sales and marketing		(1,325)		(4,081)
General and administrative		(603)		(1,785)
Product development		(1,348)		(3,936)
Depreciation		(181)		(306)
Amortization		(239)		(717)
Restructuring		—		(61)
Interest expense		(1)		(4)
Interest income		3		7
Other income		—		288
Foreign currency exchange loss		(190)		(402)
Income tax expense		(279)		(492)
Net income from discontinued operations	$	730	$	2,433

Cash flow information relating to the discontinued operations for the nine months ended September 30, 2021 is as follows:

	For the Nine
	Months Ended
	September 30,
	2021
Operating cash flow data:
Depreciation	$	306
Amortization of intangible assets	$	717
Amortization of operating leases — right of use assets	$	284
Provision for deferred income taxes	$	(5)
Investing cash flow data:
Purchases of property and equipment	$	(316)

NOTE 3 — BALANCE SHEET COMPONENTS

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

	September 30,		December 31,
	2022		2021
Accounts payable and accrued liabilities:
Accounts payable	$	154	$	83
Accrued compensation and related expenses		20		538
Accrued liabilities		529		631
	$	703	$	1,252

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NOTE 4 — EARNINGS (LOSS) PER SHARE

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

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Basic earnings (loss) per common share:
Net loss from continuing operations	$	(560)	$	(655)	$	(3,262)	$	(2,321)
Net income from discontinued operations		—		730		49		2,433
Basic weighted average shares outstanding		10,803		12,258		11,801		12,240
Basic loss per common share from continuing operations	$	(0.05)	$	(0.05)	$	(0.28)	$	(0.19)
Basic earnings per common share from discontinued operations	$	—	$	0.06	$	—	$	0.20
Diluted earnings (loss) per common share:
Net loss from continuing operations	$	(560)	$	(655)	$	(3,262)	$	(2,321)
Net income from discontinued operations		—		730		49		2,433
Weighted average shares outstanding		10,803		12,258		11,801		12,240
Effect of dilutive securities		—		—		—		18
Diluted weighted average shares outstanding		10,803		12,258		11,801		12,258
Diluted loss per common share from continuing operations	$