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, 2020

OR

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

For the transition period from               to               

Commission File Number: 001-34261

EVOLVING SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	84-1010843
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
9800 Pyramid Court,  Suite 400 Englewood,  Colorado	80112
(Address of principal executive offices)	(Zip Code)

(303)  802-1000

(Registrant’s telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-accelerated Filer☒	Smaller ReportingCompany  ☒
Emerging GrowthCompany☐

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 November9, 2020, there were  12,195,440shares outstanding of Registrant’s Common Stock (par value $0.001 per share).

EVOLVING SYSTEMS, INC.

PART I — FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	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	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4	Controls and Procedures	30
PART II — OTHER INFORMATION
Item 1	Legal Proceedings	32
Item 1A	Risk Factors	32
Item 6	Exhibits	32
Signatures		33

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value data)

	September 30, 2020		December 31, 2019
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,486	$	3,076
Contract receivables, net of allowance for doubtful accounts of $807 and $710
at September 30, 2020 and December 31, 2019, respectively		3,409		6,732
Unbilled work-in-progress		3,356		1,105
Prepaid and other current assets		1,849		1,594
Income taxes receivable		819		953
Total current assets		12,919		13,460
Property and equipment, net		531		482
Amortizable intangible assets, net		2,918		3,665
Operating leases — right-of-use assets		979		1,205
Deferred income taxes, net		631		1,000
Total assets	$	17,978	$	19,812
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Term loans - current portion, net	$	428	$	1,577
Accounts payable and accrued liabilities		4,042		3,827
Lease obligations — operating leases		291		321
Unearned revenue		3,321		3,971
Total current liabilities		8,082		9,696
Long-term liabilities:
Term loan, net of current portion, net		319		122
Lease obligations - operating leases, net of current portion		680		876
Total liabilities		9,081		10,694
Commitments and contingencies (Note 10)		—		—
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,374,329 shares issued and 12,195,440 shares outstanding as of September 30, 2020 and 12,342,723 shares issued and 12,163,834 shares outstanding as of December 31, 2019		12		12
Additional paid-in capital		99,714		99,555
Treasury stock, 178,889 shares as of September 30, 2020 and December 31, 2019,    at cost		(1,253)		(1,253)
Accumulated other comprehensive loss		(10,489)		(10,053)
Accumulated deficit		(79,087)		(79,143)
Total stockholders' equity		8,897		9,118
Total liabilities and stockholders' equity	$	17,978	$	19,812

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

3

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

[

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
		2020		2019		2020		2019
REVENUE
License fees	$	83	$	185	$	387	$	1,152
Services		6,691		5,928		19,001		17,914
Total revenue		6,774		6,113		19,388		19,066
COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and     amortization		2,132		2,144		6,456		6,249
Sales and marketing		1,511		1,815		4,516		5,574
General and administrative		1,352		979		3,875		3,985
Product development		1,094		1,183		3,168		3,676
Depreciation		58		61		158		150
Amortization		236		232		704		704
Goodwill impairment loss		—		—		—		6,687
Total costs of revenue and operating expenses		6,383		6,414		18,877		27,025
Income (loss) from operations		391		(301)		511		(7,959)
Other income (expense)
Interest income		1		1		4		10
Interest expense		—		(71)		(65)		(255)
Other (loss) income, net		(1)		13		18		1
Foreign currency exchange (loss) income		(107)		250		240		183
Other (expense) income, net		(107)		193		197		(61)
Income (loss) from operations before income taxes		284		(108)		708		(8,020)
Income tax expense		148		109		652		296
Net income (loss)	$	136	$	(217)	$	56	$	(8,316)
Basic earnings (loss) per common share	$	0.01	$	(0.02)	$	0.00	$	(0.68)
Diluted earnings (loss) per common share	$	0.01	$	(0.02)	$	0.00	$	(0.68)
Weighted average basic shares outstanding		12,195		12,163		12,185		12,154
Weighted average diluted shares outstanding		12,258		12,163		12,275		12,154

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

4

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
		2020		2019		2020		2019
Net income (loss)	$	136	$	(217)	$	56	$	(8,316)
Other comprehensive income (loss)
Foreign currency translation income (loss)		186		(156)		(436)		(170)
Comprehensive income (loss)	$	322	$	(373)	$	(380)	$	(8,486)

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

5

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

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

Nine Months Ended September 30, 2019
									Accumulated
					Additional				other			Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated	stockholders'
	Shares	Amount			capital		stock		loss		deficit	equity
Balance at January 1, 2019	12,126,708	$	12	$	99,224	$	(1,253)	$	(10,115)	$	(69,448)	$	18,420
Restricted stock vested	36,343		—		—		—		—		—		—
Stock-based compensation   expense	—		—		263		—		—		—		263
Net loss	—		—		—		—		—		(8,316)		(8,316)
Foreign currency translation   loss	—		—		—		—		(170)		—		(170)
Balance at September 30, 2019	12,163,051	$	12	$	99,487	$	(1,253)	$	(10,285)	$	(77,764)	$	10,197

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

6

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

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

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

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

7

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Nine Months Ended September 30,
		2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	56	$	(8,316)
Adjustments to reconcile net income (loss) to net cash provided by  operating activities:
Depreciation		158		150
Amortization of intangible assets		704		704
Amortization of debt issuance costs		4		4
Amortization of operating leases — right of use assets		191		306
Stock-based compensation expense		159		263
Foreign currency transaction income, net		(98)		(183)
Bad debt (recoveries) expense, net		(11)		113
Provision for deferred income taxes		370		(49)
Goodwill impairment loss		—		6,687
Change in operating assets and liabilities:
Contract receivables		3,177		1,936
Unbilled work-in-progress		(2,244)		149
Prepaid and other assets		(274)		(510)
Accounts payable and accrued liabilities		252		(537)
Income taxes receivable		95		(508)
Unearned revenue		(563)		677
Lease obligations — operating leases		(191)		(316)
Net cash provided by operating activities		1,785		570
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(218)		(309)
Net cash used in investing activities		(218)		(309)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable		(1,182)		(2,684)
Proceeds from issuance of note		319		—
Net cash used in financing activities		(863)		(2,684)
Effect of exchange rate changes on cash and cash equivalents		(294)		(58)
Net increase (decrease) in cash and cash equivalents		410		(2,481)
Cash and cash equivalents at beginning of period		3,076		6,732
Cash and cash equivalents at end of period	$	3,486	$	4,251
Supplemental disclosure of cash and non-cash transactions:
Interest paid	$	63	$	246
Income taxes paid	$	173	$	159
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use   assets	$	41	$	1,609

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

8

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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. The financial covenants under our debt facilities (see Note 7) are related to cash balances and quarterly operational results which have been adversely affected by project delays related to customer interactions being postponed or our customers’ ability to make timely payments. We believe our current liquidity and funds from our ongoing operations will be sufficient to fund operations and meet the Company’s cash needs for term loan payments through the full repayment of the loan on December 31, 2020,  along with our working capital and capital expenditure requirements for at least the next twelve months from the date of filing of these condensed consolidated financial statements. In making this assessment, we considered our $3.5 million in cash and cash equivalents and our $4.8 million in working capital at September 30, 2020, along with our ability to historically generate positive cash flows from operations.

Interim Condensed Consolidated Financial Statements — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these condensed consolidated financial statements are adequate to make the information presented not misleading. The condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with US GAAP and SEC regulations for interim financial statements. The results for the three and ninemonths endedSeptember30, 2020 are not necessarily indicative of the results that we will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K as filed with the SEC on March30, 2020.

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

9

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, thisprovides 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 whenour customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive inexchange for those goods or services. We measure revenue based on consideration specified in a contract with a customer and excludeany sales incentives. Furthermore, we recognize revenue when we satisfy a performance obligation by transferring control over theservice to our customer.

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

Nature of goods and services

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

i. License Revenue

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

ii. Customer Support Revenue

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

iii. Services Revenue

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

10

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

iv. Managed Services

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

Disaggregation of revenue

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

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Primary geographical markets
United Kingdom	$	1,398	$	1,042	$	3,691	$	3,758
Other		5,376		5,071		15,697		15,308
	$	6,774	$	6,113	$	19,388	$	19,066
Major products/service lines
License revenue	$	83	$	185	$	387	$	1,152
Customer support, including warranty support fees		1,944		2,261		6,029		6,841
Services		2,388		1,700		5,747		4,896
Managed services		2,359		1,967		7,225		6,177
Total services		6,691		5,928		19,001		17,914
	$	6,774	$	6,113	$	19,388	$	19,066
Timing of revenue recognition
Products transferred at a point in time	$	61	$	39	$	289	$	560
Products and services transferred over time		6,713		6,074		19,099		18,506
	$	6,774	$	6,113	$	19,388	$	19,066

Contract balances

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

	September 30, 2020		December 31, 2019
Assets
Contract receivables, net	$	3,409	$	6,732
Unbilled work-in-progress, net	$	3,356	$	1,105
Liabilities
Unearned revenue	$	3,321	$	3,971

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

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

11

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

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

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

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 ofSeptember  30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations with lives greater than one-year totaled$10.1 million. The Company expects approximately 63% of remaining performance obligations to be recognized into revenue within the next twelve months, with 30% in 1-2 years and 7% in 3-4 years.

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 inparagraph ASC 606-10-65-1(f)(3) and do not disclose the amount of the transaction price allocated to the remaining performanceobligations and an explanation of when we expect to recognize that amount as revenue.

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

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

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

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

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

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

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

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

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

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

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

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NOTE 2 — INTANGIBLE ASSETS

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

	September 30, 2020
		Gross Amount			Accumulated Amortization			Net Carrying Amount
Purchased software	$	2,882		$	(1,786)		$	1,096
Trademarks and tradenames		304			(262)			42
Non-competition		39			(39)			—
Customer relationships		4,312			(2,532)			1,780
	$	7,537	(1)	$	(4,619)	(1)	$	2,918

	December 31, 2019
		Gross Amount			Accumulated Amortization			Net Carrying Amount
Purchased software	$	2,903		$	(1,508)		$	1,395
Trademarks and tradenames		307			(247)			60
Non-competition		39			(39)			—
Customer relationships		4,346			(2,136)			2,210
	$	7,595	(1)	$	(3,930)	(1)	$	3,665

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

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

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

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NOTE 3 — BALANCE SHEET COMPONENTS

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

	September 30, 2020		December 31, 2019
Accounts payable and accrued liabilities:
Accounts payable	$	805	$	889
Accrued compensation and related expenses		1,930		1,755
Accrued liabilities		1,307		1,183
	$	4,042	$	3,827

NOTE 4 — EARNINGS (LOSS)PER SHARE

Basic earnings (loss) per share is computed by dividing loss or income available to common stockholders by the weighted average number of shares of common stock outstanding during the period, including common stock issuable under participating securities. Diluted earnings (loss) 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,
		2020		2019		2020		2019
Basic earnings (loss) per common share:
Net income (loss)	$	136	$	(217)	$	56	$	(8,316)
Basic weighted average shares outstanding		12,195		12,163		12,185		12,154
Basic earnings (loss) per common share:	$	0.01	$	(0.02)	$	0.00	$	(0.68)
Diluted earnings (loss) per common share:
Net income (loss)	$	136	$	(217)	$	56	$	(8,316)
Weighted average shares outstanding		12,195		12,163		12,185		12,154
Effect of dilutive securities - options and restricted stock		63		—		90		—
Diluted weighted average shares outstanding		12,258		12,163		12,275		12,154
Diluted earnings (loss) per common share:	$	0.01	$	(0.02)	$	0.00	$	(0.68)

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

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NOTE 5 — STOCK-BASED COMPENSATION

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

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