UNITED STATES
‎SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

OR

oTransition 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 x No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See 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 o	Accelerated Filer o
Non-accelerated Filer x	Smaller Reporting Company x
Emerging Growth Company o

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 o

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

As of August 10, 2021, there were 12,257,246 shares outstanding of Registrant’s Common Stock (par value $0.001 per share).

EVOLVING SYSTEMS, INC.

PART I — FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)	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	21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4	Controls and Procedures	27
PART II — OTHER INFORMATION
Item 1	Legal Proceedings	28
Item 1A	Risk Factors	28
Item 6	Exhibits	28
Signatures		30

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value data)

	June 30, 2021		December 31, 2020
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,896	$	2,763
Contract receivables, net of allowance for doubtful accounts of $784 and $780
at June 30, 2021 and December 31, 2020, respectively		4,739		5,681
Unbilled work-in-progress		4,183		3,365
Prepaid and other current assets		1,550		1,828
Income taxes receivable		739		270
Total current assets		16,107		13,907
Property and equipment, net		510		532
Amortizable intangible assets, net		2,310		2,769
Operating leases — right-of-use assets, net		1,121		915
Long-term assets – other		257		—
Deferred income taxes, net		954		953
Total assets	$	21,259	$	19,076
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Term loan - current portion	$	—	$	142
Accounts payable and accrued liabilities		4,642		4,305
Lease obligations — operating leases		332		294
Unearned revenue		5,540		3,713
Total current liabilities		10,514		8,454
Long-term liabilities:
Term loan, net of current portion		—		319
Lease obligations - operating leases, net of current portion		782		613
Total liabilities		11,296		9,386
Commitments and contingencies (Note 10)		—		—
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,436,135 shares issued and 12,257,246 shares outstanding as of June 30, 2021 and 12,374,798 shares issued and 12,195,909 shares outstanding as of December 31, 2020		12		12
Additional paid-in capital		99,990		99,776
Treasury stock, 178,889 shares as of June 30, 2021 and December 31, 2020, ‎at cost		(1,253)		(1,253)
Accumulated other comprehensive loss		(10,323)		(10,345)
Accumulated deficit		(78,463)		(78,500)
Total stockholders' equity		9,963		9,690
Total liabilities and stockholders' equity	$	21,259	$	19,076

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 Six Months
	Ended June 30,				Ended June 30,
		2021		2020		2021		2020
REVENUE
License fees	$	8	$	97	$	186	$	304
Services		6,986		6,232		13,268		12,310
Total revenue		6,994		6,329		13,454		12,614
COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and ‎   amortization		2,185		2,188		4,425		4,324
Sales and marketing		1,415		1,444		2,756		3,005
General and administrative		1,395		1,109		2,840		2,523
Product development		1,284		1,011		2,588		2,074
Depreciation		64		50		126		100
Amortization		240		233		478		468
Restructuring		61		—		61		—
Total costs of revenue and operating expenses		6,644		6,035		13,274		12,494
Income from operations		350		294		180		120
Other income (expense)
Interest income		3		1		4		3
Interest expense		—		(18)		(1)		(65)
Other income, net		578		16		287		19
Foreign currency exchange income (loss)		168		(36)		(212)		347
Other income (expense), net		749		(37)		78		304
Income from operations before income taxes		1,099		257		258		424
Income tax expense		146		305		221		504
Net income (loss)	$	953	$	(48)	$	37	$	(80)
Basic earnings (loss) per common share	$	0.08	$	(0.00)	$	0.00	$	(0.01)
Diluted earnings (loss) per common share	$	0.08	$	(0.00)	$	0.00	$	(0.01)
Weighted average basic shares outstanding		12,257		12,179		12,232		12,179
Weighted average diluted shares outstanding		12,258		12,179		12,258		12,179

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 Six Months Ended
	June 30,				June 30,
		2021		2020		2021		2020
Net income (loss)	$	953	$	(48)	$	37	$	(80)
Other comprehensive (loss) income
Foreign currency translation (loss) income		(147)		(99)		22		(622)
Comprehensive income (loss)	$	806	$	(147)	$	59	$	(702)

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)

Six Months Ended June 30, 2021
									Accumulated
					Additional				other				Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated		stockholders'
	Shares	Amount			capital		stock		loss		deficit		equity
Balance at January 1, 2021	12,195,909	$	12	$	99,776	$	(1,253)	$	(10,345)	$	(78,500)	$	9,690
Restricted stock vested	61,337		—		—		—		—		—		—
Stock-based compensation ‎  expense	—		—		214		—		—		—		214
Net income	—		—		—		—		—		37		37
Foreign currency translation   income	—		—		—		—		22		—		22
Balance at June 30, 2021	12,257,246	$	12	$	99,990	$	(1,253)	$	(10,323)	$	(78,463)	$	9,963

Six Months Ended June 30, 2020
									Accumulated
					Additional				other			Total
	Common stock				paid-in		Treasury		comprehensive		Accumulated	stockholders'
	Shares	Amount			capital		stock		loss		deficit	equity
Balance at January 1, 2020	12,163,834	$	12	$	99,555	$	(1,253)	$	(10,053)	$	(79,143)	$	9,118
Restricted stock vested	31,137		—		—		—		—		—		—
Stock-based compensation ‎  expense	—		—		67		—		—		—		67
Net loss	—		—		—		—		—		(80)		(80)
Foreign currency translation ‎  loss	—		—		—		—		(622)		—		(622)
Balance at June 30, 2020	12,194,971	$	12	$	99,622	$	(1,253)