0001104659-15-083855.txt : 20151209 0001104659-15-083855.hdr.sgml : 20151209 20151209172559 ACCESSION NUMBER: 0001104659-15-083855 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20150928 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20151209 DATE AS OF CHANGE: 20151209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVOLVING SYSTEMS INC CENTRAL INDEX KEY: 0001052054 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 841010843 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-34261 FILM NUMBER: 151279115 BUSINESS ADDRESS: STREET 1: 9777 PYRAMID COURT, SUITE 100 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3038021000 MAIL ADDRESS: STREET 1: 9777 PYRAMID COURT, SUITE 100 CITY: ENGLEWOOD STATE: CO ZIP: 80112 8-K/A 1 a15-24724_18ka.htm 8-K/A

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported)
September 28, 2015

Evolving Systems, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation)

001-34261
(Commission File Number)

84-1010843
(I.R.S. Employer
Identification No.)

9777 Pyramid Court, Suite 100, Englewood, Colorado 80112

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (303) 802-1000

Not applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note: This Form 8-K/A amends the Form 8-K that Evolving Systems, Inc. (“Evolving Systems”) filed on September 30, 2015 with regard to the acquisition of RateIntegration, Inc. d/b/a Sixth Sense Media (“RateIntegration”). In response to parts (a) and (b) of Item 9.01 of such Form 8-K, Evolving Systems stated that it would file the required financial information by amendment, as permitted by Item 9.01(a)(4) and 9.01(b)(2) to Form 8-K. This Form 8-K/A is being filed to provide the required financial information. Except for the filing of such financial information, this Form 8-K/A does not modify or update the original Form 8-K.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements of Business Acquired.

The required audited financial information of RateIntegration for the year ended December 31, 2014 is included as Exhibit 99.1 and is hereby incorporated by reference.

The required unaudited financial information of RateIntegration for the six months ended June 30, 2014 and 2015 is included as Exhibit 99.2 and is hereby incorporated by reference.

(b) Unaudited Pro Forma Financial Information.

The required unaudited pro forma financial information of RateIntegration and Evolving Systems is included as Exhibit 99.3 and is hereby incorporated by reference.

(d) Exhibits. The following exhibits are filed with this report.

Exhibit No.		Description
23.1		Consent of Friedman LLP, Independent Registered Public Accounting Firm
99.1		Audited financial information of RateIntegration for the year ended December 31, 2014
99.2		Unaudited financial information of RateIntegration for the six months ended June 30, 2014 and June 30, 2015
99.3		Unaudited pro forma financial information of RateIntegration and Evolving Systems

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 hereunto duly authorized.

Dated: December 9, 2015

	Evolving Systems, Inc.

	By:	/s/ DANIEL J. MOORHEAD
		Daniel J. Moorhead
		Vice President, Finance & Administration

Exhibit Index

Exhibit No.		Description
23.1		Consent of Friedman LLP, Independent Registered Public Accounting Firm
99.1		Audited financial information of RateIntegration for the year ended December 31, 2014
99.2		Unaudited financial information of RateIntegration for the six months ended June 30, 2014 and June 30, 2015
99.3		Unaudited pro forma financial information of RateIntegration and Evolving Systems

EX-23.1 2 a15-24724_1ex23d1.htm EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (File No. 333-205795, effective July 22, 2015, File No. 333-191046, effective September 6, 2013, File No. 333-167858, effective June 29, 2010, File No. 333-144852, effective July 25, 2007 and File No. 333-116085, effective June 2, 2004) of Evolving Systems, Inc. of our report dated December 9, 2015 relating to the financial statements of RateIntegration, Inc. which appears in this Current Report on Form 8-K/A of Evolving Systems, Inc.

/s/ FRIEDMAN LLP

East Hanover, New Jersey

December 9, 2015

EX-99.1 3 a15-24724_1ex99d1.htm EX-99.1

Exhibit 99.1

RATEINTEGRATION, INC.

Consolidated Financial Statements

Year Ended December 31, 2014

Table of Contents

	Page(s)
Consolidated Financial Statements
Report of Independent Auditor	2
Balance Sheet	3
Statement of Income	4
Statement of Changes in Stockholders’ Equity	5
Statement of Cash Flows	6
Notes to Financial Statements	7-14

Independent Auditor’s Report

To the Board of Directors and Stockholders of RateIntegration, Inc.:

We have audited the accompanying consolidated financial statements of RateIntegration, Inc. and subsidiaries, which comprise the consolidated balance sheet as of December 31, 2014, and the related consolidated statements of income, changes in stockholders’ equity and cash flows, for the year then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RateIntegration, Inc. and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ FRIEDMAN LLP

East Hanover, New Jersey

December 9, 2015

RATEINTEGRATION, INC.

CONSOLIDATED BALANCE SHEET

(in thousands except share data)

	December 31,
	2014
ASSETS
Current assets:
Cash and cash equivalents	$	4,255
Contract receivables, net of allowance for doubtful accounts of $172	1,022
Unbilled work-in-progress	150
Prepaid and other current assets	66
Total current assets	5,493
Property and equipment, net	8
Amortizable intangible assets, net	220
Total assets	$	5,721

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	623
Line of credit	754
Unearned revenue	826
Total current liabilities	2,203

Stockholders’ equity:
Preferred stock (Series A-1), $0.001 par value; 1,217,330 shares authorized, issued and outstanding as of December 31, 2014	1
Liquidation preference of $9,018,785 including dividends accruable at a rate of 8% per annum of $839,924
Preferred stock (Series B-1), $0.001 par value; 6,315,045 shares authorized; 2,563,909 issued and outstanding as of December 31, 2014	3
Liquidation preference of $18,762,102 including dividends accruable at a rate of 8% per annum of $1,722,420
Common stock, $0.001 par value; 10,000,000 shares authorized;
354,043 shares issued and outstanding as of December 31, 2014	0
Additional paid-in capital	19,336
Accumulated deficit	(15,822		)
Total stockholders’ equity	3,518
Total liabilities and stockholders’ equity	$	5,721

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

RATEINTEGRATION, INC.

CONSOLIDATED STATEMENT OF INCOME

(in thousands except per share data)

	For the Year Ended
	December 31,
	2014
REVENUE
License fees and services	$	5,071
Customer support	1,158
Total revenue	6,229

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of license fees and services, excluding depreciation and amortization	1,448
Costs of customer support, excluding depreciation and amortization	546
Sales and marketing	586
General and administrative	1,324
Product development	956
Depreciation	4
Amortization	39
Total costs of revenue and operating expenses	4,903

Income from operations	1,326

Other income (expense)
Interest income	8
Interest expense	(14		)
Foreign currency exchange gain (loss)	(112		)
Other income (expense), net	(118		)

Income from operations before income taxes	1,208
Income tax expense	—
Net income	$	1,208

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

RATEINTEGRATION, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

	Series A-1			Series B-1						Additional					Total
	Preferred Stock			Preferred Stock			Common Stock			Paid-in		Accumulated			Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		(Deficit)			Equity
Balance at December 31, 2013	1,217,330	$	1	2,563,909	$	3	354,043	$	0	$	19,336	$	(17,030	)	$	2,310

Net income	—	—		—	—		—	—		—		1,208			1,208
Balance at December 31, 2014	1,217,330	$	1	2,563,909	$	3	354,043	$	0	$	19,336	$	(15,822	)	$	3,518

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

RATEINTEGRATION, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

	For the Year Ended
	December 31,
	2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,208
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4
Amortization of intangible assets	39
Provision for bad debt	173
Change in operating assets and liabilities:
Contract receivables	(540		)
Unbilled work-in-progress	1,295
Prepaid and other assets	(50		)
Accounts payable and accrued liabilities	(122		)
Unearned revenue	(25		)
Net cash provided by operating activities	1,982

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(8		)
Net cash used in investing activities	(8		)

Net increase in cash and cash equivalents	1,974
Cash and cash equivalents at beginning of period	2,281
Cash and cash equivalents at end of period	$	4,255

Supplemental disclosure of cash and non-cash transactions:
Interest paid	$	14

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

RATEINTEGRATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization — RateIntegration, Inc., d/b/a/ Sixth Sense Media (“RateIntegration”), based in Durham, North Carolina, is a software technology company, serving more than 15 carriers around the world, including tier 1 operators in India, Asia, Africa and Europe. We have two wholly owned subsidiaries; RateIntegration Technologies PVT LTD and RateIntegration Software Technologies PVT LTD in Kolkata, India.

RateIntegration’s software solution platform, Real-time Lifecycle Marketing™, or RLM, enables carrier marketing departments to innovate, execute and manage highly-personalized and contextually-relevant, interactive campaigns that engage consumers in real time.

Business Combination — On August 26, 2013 we acquired certain assets of the Next Generation Loyalty Management (“NGLM”) Business Unit of privately held Sicap AG (“Sicap”) for a payment of approximately $0.7 million. Shortly thereafter, we created a wholly-owned Indian subsidiary to support, develop and create new business solutions with Sicap.

The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following a business combination. We generally use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.

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

Use of Estimates — We use estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could differ from those estimates.

Foreign Currency — Our functional 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 consolidated balance sheets are translated at the spot rate of exchange during the applicable period. Our consolidated statements of operations are translated at the weighted average rate of exchange during the applicable period. 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 (loss) in the period in which they occur.

Intangible Assets – Amortizable intangible assets consist primarily of customer contracts from the certain acquired assets of the NGLM Business Unit of privately held Sicap. These assets are amortized using the straight-line method over their estimated lives.

We assess the impairment of identifiable intangibles if events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

If we determine that the carrying value of intangibles and/or long-lived assets may not be recoverable, we compare the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition to the asset’s carrying amount. If an amortizable intangible or long-lived asset is not deemed to be recoverable, we recognize an impairment loss representing the excess of the asset’s carrying value over its estimated fair value.

Fair Value Measurements – Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Cash and Cash Equivalents - All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.

Revenue Recognition – We recognize revenue when an agreement is signed, the fee is fixed or determinable and collectability is reasonably assured. We recognize revenue from two primary sources: license fees and services, and customer support. The majority of our license fees and services revenue is generated from fixed-price contracts, which provide for licenses to our software products and services to customize such software to meet our customers’ use. When the customization services are determined to be essential to the functionality of the delivered software, we recognize revenue using the percentage-of-completion method of accounting. We estimate the percentage-of-completion for each contract based on the ratio of direct labor hours incurred to total estimated direct labor hours and recognize revenue based on the percent complete multiplied by the contract amount allocated to the license fee/services. Since estimated direct labor hours, and changes thereto, can have a significant impact on revenue recognition, these estimates are critical and we review them regularly. We record amounts billed in advance of services being performed as unearned revenue. Unbilled work-in-progress represents revenue earned but not yet billable under the terms of the fixed-price contracts. All such amounts are expected to be billed and collected within 12 months.

We may encounter budget and schedule overruns on fixed-price contracts caused by increased labor or overhead costs. We make adjustments to cost estimates in the period in which the facts requiring such revisions become known. We record estimated losses, if any, in the period in which current estimates of total contract revenue and contract costs indicate a loss. If revisions to cost estimates are obtained after the balance sheet date but before the issuance of the interim or annual financial statements, we make adjustments to the interim or annual financial statements accordingly.

In arrangements where the services are not essential to the functionality of the delivered software, we recognize license revenue when a license agreement has been signed, delivery and acceptance have occurred, the fee is fixed or determinable and collectability is reasonably assured.

We recognize revenue from fixed-price service contracts using the proportional performance method of accounting, which is similar to the percentage-of-completion method described above. 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 obligation to our customers under such arrangements is fulfilled.

We recognize customer support, including maintenance revenue, ratably over the service contract period. When maintenance is bundled with the original license fee arrangement, its fair value, based upon VSOE, is deferred and recognized during the periods when services are provided.

Contract Receivables, Unbilled Work-in-Progress and Allowance for Doubtful Accounts — 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. An allowance is placed against accounts receivable or unbilled work in progress for our best estimate of the amount of probable credit losses. We determine the allowance based on historical write-off experience and information received during collection efforts. We review our allowances monthly and past due balances over 90 days are reviewed individually for collectability. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers.

Concentration of Credit Risk — Financial instruments that potentially subject us to concentrations of credit risk consist primarily of contract receivables and unbilled work-in-progress. We perform on-going evaluations of customers’ financial condition and, generally, require no collateral from customers.

A substantial portion of our revenue is from a limited number of customers, all in the telecommunications industry.

For the year ended December 31, 2014, two significant customers (defined as contributing at least 10%) accounted for 36% (23% and 13%) of revenue from continuing operations. These customers are telecommunications operators in Asia and Africa.

As of December 31, 2014, four significant customers accounted for approximately 72% (28%, 16%, 14% and 14%) of contract receivables and unbilled work-in-progress. These customers are telecommunications operators in Asia, Africa, Asia and Europe.

Sales, Use and Other Value Added Tax — Revenue is recorded net of applicable state, use and other value added taxes.

Property and Equipment and Long-Lived Assets — Property and equipment are stated at cost or estimated fair value if acquired in an acquisition, less accumulated depreciation, and are depreciated over their estimated useful lives, or the lease term, if shorter, using the straight-line method. Leasehold improvements are stated at cost, less accumulated amortization, and are amortized over the shorter of the lease term or estimated useful life of the asset. Maintenance and repair costs are expensed as incurred.

We review our long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. We evaluate the recoverability of an asset or asset group by comparing its carrying amount to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, we recognize an impairment charge as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

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 consolidated balance sheets, as well as operating loss 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 the 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.

NOTE 2 — ACQUISITION

On August 26, 2013 we acquired certain assets of NGLM Business Unit of privately held Sicap for a payment of approximately $0.7 million. Shortly thereafter, we created a wholly-owned Indian subsidiary to support, develop and create new business solutions with Sicap.

Total purchase price is summarized as follows (in thousands):

	August 26, 2013
Cash Consideration
Initial Cash Purchase Price	$	729

The following table summarizes the preliminary estimated fair values of the assets and liabilities assumed at the acquisition date (in thousands):

	August 26, 2013
Unbilled work-in-progress	$	457
Intangible assets	272

Net assets acquired	$	729

We recorded $0.3 million in intangible assets as of the acquisition date with a weighted-average amortization period of approximately seven years and are amortizing the value of the customer relationships over an estimated useful life of 7 years. Amortization expense of $39,000 related to the acquired intangible assets was recorded during the period ended December 31, 2014.

NOTE 3 —INTANGIBLE ASSETS

We amortized identifiable intangible assets for RateIntegration on a straight-line basis over their estimated lives of seven years. As of December 31, 2014, identifiable intangibles were as follows (in thousands):

	December 31, 2014					Weighted- Average
	Gross Amount		Accumulated Amortization	Net Carrying Amount		Amortization Period
Customer relationships	$	272	52	$	220	7.0 yrs

Amortization expense of identifiable intangible assets was $39,000 for the year ended December 31, 2014. Expected future amortization expense related to identifiable intangibles based on our carrying amount as of December 31, 2014 was as follows (in thousands):

Twelve months ending December 31,
2015	$	39
2016	39
2017	39
2018	39
2019	39
Thereafter	25
	$	220

NOTE 4 — BALANCE SHEET COMPONENTS

The components of certain balance sheet line items are as follows (in thousands):

	December 31,
	2014
Property and equipment:
Computer equipment and purchased software	$	1,072
Less accumulated depreciation	(1,064		)
	$	8

Depreciation expense was $4,000 for the year ended December 31, 2014.

	December 31,
	2014
Accounts payable and accrued liabilities:
Accounts payable	$	191
Accrued liabilities	432
	$	623

NOTE 5 – INCOME TAXES

As of December 31, 2014, we had federal Net Operating Loss (“NOL”) carryforwards of approximately $14.4 million related to U.S. federal and state jurisdictions. A deferred tax asset in this amount has been established but has a full valuation allowance as of December 31, 2014. The Internal Revenue Code places certain limitations on the annual amount of NOL’s which can be utilized if certain changes in ownership occur. We do not believe changes in our ownership have occurred which would limit our NOL’s as of December 31, 2014.

NOTE 6 – STOCKHOLDERS’ EQUITY

Capital Stock

We have three classes of stock, Series B-1 Preferred Stock, Series A-1 Preferred Stock and Common Stock. As provided in the Fourth Amended and Restated Certificate of Incorporation dated as of February 11, 2004, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the company, the holders of shares of Series B-1 Preferred Stock (the “Senior Preferred Stock”) had a liquidation preference and are entitled to be paid first out of the assets of the company available for distribution to its stockholders, prior to any distribution to other stockholders. When declared, dividends are accruable on Series A-1 and B-1 Preferred Stock at a rate of 8% of the price per share of $0.79176.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Lease Commitments

We lease office and operating facilities and equipment under non-cancelable operating leases. Current facility leases include our headquarters in Durham, North Carolina, Kolkata, India, Kuala Lumpur, Malaysia and Bucuresti, Romania. Rent expense was $0.1 million for the year ended December 31, 2014.

We account for the effect of escalating lease payments as if the lease rate were consistent over the lease term. Future minimum commitments under non-cancelable operating leases and capital leases as of December 31, 2014 are as follows (in thousands):

	Operating Leases
2015	$	128
2016	45
2017	32
2018	32
2019	32
Thereafter	10
Total minimum lease payments	$	279

NOTE 8 — 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 Corporate Controller as our chief operating decision-makers (“CODM”). These chief operating decision makers review revenue by segment and review overall results of operations.

We currently operate our business as two operating segments based on revenue type: license fees and services revenue and customer support revenue (as shown on the consolidated statements of operations). License fees and services (“L&S”) revenue represents the fees received from the license of software products and those services directly related to the delivery of the licensed products, such as fees for custom development, integration services and SaaS service. Customer support (“CS”) revenue includes 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. Total assets by segment have not been disclosed as the information is not available to the chief operating decision-makers.

Geographic Regions

We are headquartered in Durham, North Carolina. We use customer locations as the basis for attributing revenue to individual geographic regions. We provide products and services on a global basis through our office in North Carolina. Additionally, personnel in Kolkata, India, provide software development services to our global operations. Financial information relating to operations by geographic region for customers with revenue greater than 10% of total revenue is as follows (in thousands):

	For the Year Ended December 31, 2014
	L&S		CS		Total
Revenue
Asia	$	1,642	$	278	$	1,920
Africa	754		48		802
Europe	535		147		682
Other	2,140		685		2,825
Total revenues	$	5,071	$	1,158	$	6,229

NOTE 9 — REVOLVING LINE OF CREDIT

On September 16, 2014, we entered into the Loan and Security Agreement with Bank of America, N.A. to obtain a revolving credit facility (the “Revolving Facility”). The Revolving Facility bears interest at a floating rate equal to the LIBOR Rate plus a spread of 1.75%. The LIBOR rate is adjusted weekly on Monday. There is no mandated borrowing required against the Revolving Facility. To take an advance under the Revolving Facility, the Company designated eligible investment accounts to pledge as collateral. These collateral accounts are pledged to the Bank, but they remain available to us for investment or other activity, subject to certain restrictions. We are required to maintain an amount of collateral that is sufficient to support the loan balance or the securities in the account may be sold without notice.

The Revolving Facility allows us two options to access the available credit. Variable rate advance allows us to draw on the Revolving Facility and allows us to repay the Revolving Facility subject to terms of the loan agreement. Fixed rate advances are one to 12 month fixed rate advances, $100,000 minimum, require full repayment of principal and all accrued finance charges when the contract matures. Fixed rate advances bear finance charges at a fixed rate of interest equal to the Fixed Rate Advance Index plus the spread. If for any reason a Fixed Rate Advance is repaid on a date prior to the end of the applicable fixed rate period, the Bank of America, N.A. may assess a breakage fee. Outstanding amounts under the Revolving Facility may be accelerated by notice from Bank of America, N.A. upon the occurrence and continuance of certain events of default, including without limitation: payment defaults, breach of representations and warranties, bankruptcy and insolvency defaults, and the occurrence of a material adverse effect (as defined). Acceleration is automatic upon the occurrence of certain bankruptcy and insolvency defaults.

As of December 31, 2014, we had $0.8 million outstanding against our Revolving Facility.

On September 18, 2013, we entered into the Loan and Security Agreement with JPMorgan Chase Bank, N.A. to obtain a Grid Time Promissory Note (the “Promissory Note”). The Promissory Note bore interest at a fixed rate per annum equal to the Adjusted LIBOR Rate applicable to such Loan plus 1.80%. The Promissory Note expired on September 30, 2014.

NOTE 10 — SUBSEQUENT EVENTS

On March 26, 2015, our Board of Directors declared a cash dividend of $2.2 million to the holders of the RateIntegration’s capital stock in accordance with the respective rights, preferences and privileges of the series and classes of the capital stock of RateIntegration as set forth in the corporation’s current certificate of incorporation.

year anniversary of the transaction of $0.3 million, with such payment being available to secure RateIntegration’s representations and warranties in the agreement. Upon the acquisition, the Senior Preferred Stockholders were entitled to be paid first out of the assets of the company available for distribution to stockholders, prior to any distribution to other stockholders.

EX-99.2 4 a15-24724_1ex99d2.htm EX-99.2

Exhibit 99.2

RATEINTEGRATION, INC.

Consolidated Financial Statements (Unaudited)

Six Months Ended June 30, 2015 and 2014

Table of Contents

		Page(s)

Consolidated Financial Statements (Unaudited)

Balance Sheets		2

Statements of Income		3

Combined Statement of Changes in Stockholders’ Equity		4

Statements of Cash Flows		5

Notes to Financial Statements		6-13

RATEINTEGRATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

(unaudited)

	June 30,			December 31,
	2015			2014
ASSETS
Current assets:
Cash and cash equivalents	$	1,732		$	4,255
Contract receivables, net of allowance for doubtful accounts of $172 at June 30, 2015 and December 31, 2014	1,368			1,022
Unbilled work-in-progress	279			150
Prepaid and other current assets	68			66
Total current assets	3,447			5,493
Property and equipment, net	10			8
Amortizable intangible assets, net	201			220
Total assets	$	3,658		$	5,721

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	420		$	623
Line of credit	283			754
Unearned revenue	734			826
Total current liabilities	1,437			2,203

Stockholders' equity:
Preferred stock (Series A-1), $0.001 par value; 1,217,330 shares authorized, issued and outstanding as of June 30, 2015 and December 31, 2014	1			1
Liquidation preference of $7,448,228 including dividends accruable at a rate of 8% per annum of $525,812 as of June 30, 2015
Liquidation preference of $9,018,785 including dividends accruable at a rate of 8% per annum of $839,924 as of December 31, 2014
Preferred stock (Series B-1), $0.001 par value; 6,315,045 shares authorized; 2,563,909 issued and outstanding as of June 30, 2015 and December 31, 2014	3			3
Liquidation preference of $10,361,345 including dividends accruable at a rate of 8% per annum of $42,269 as of June 30, 2015
Liquidation preference of $18,762,102 including dividends accruable at a rate of 8% per annum of $1,722,420 as of December 31, 2014
Common stock, $0.001 par value; 10,000,000 shares authorized; 354,043 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively	0			0
Additional paid-in capital	19,336			19,336
Accumulated deficit	(17,119		)	(15,822		)
Total stockholders' equity	2,221			3,518
Total liabilities and stockholders' equity	$	3,658		$	5,721

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

RATEINTEGRATION, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands except per share data)

	For the Six Months Ended June 30,
	2015			2014
REVENUE
License fees and services	$	2,321		$	2,584
Customer support	647			788
Total revenue	2,968			3,372

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of license fees and services, excluding depreciation and amortization	660			697
Costs of customer support, excluding depreciation and amortization	212			315
Sales and marketing	390			234
General and administrative	392			591
Product development	416			500
Depreciation	2			1
Amortization	19			19
Total costs of revenue and operating expenses	2,091			2,357

Income from operations	877			1,015

Other income (expense)
Interest income	5			13
Interest expense	(3		)	(1		)
Foreign currency exchange gain (loss)	(26		)	55
Other income (expense), net	(24		)	67

Income from operations before income taxes	853			1,082
Income tax expense	—			—
Net income	$	853		$	1,082

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

RATEINTEGRATION, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

	Series A-1			Series B-1						Additional					Total
	Preferred Stock			Preferred Stock			Common Stock			Paid-in		Accumulated			Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		(Deficit)			Equity
Balance at December 31, 2014	1,217,330	$	1	2,563,909	$	3	354,043	$	0	$	19,336	$	(15,822	)	$	3,518
Dividends paid	—	—		—	—		—	—		—		(2,150		)	(2,150		)
Net income	—	—		—	—		—	—		—		853			853
Balance at June 30, 2015	1,217,330	$	1	2,563,909	$	3	354,043	$	0	$	19,336	$	(17,119	)	$	2,221

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

RATEINTEGRATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	853		$	1,082
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2			1
Amortization of intangible assets	19			19
Provision for bad debt	—			173
Change in operating assets and liabilities:
Contract receivables	(346		)	(677		)
Unbilled work-in-progress	(129		)	857
Prepaid and other assets	(1		)	(9		)
Accounts payable and accrued liabilities	(203		)	(510		)
Unearned revenue	(92		)	(548		)
Net cash provided by operating activities	103			388

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(5		)	—
Net cash used in investing activities	(5		)	—

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on revolving line of credit	(471		)	—
Common stock cash dividends	(2,150		)	—
Net cash (used in) provided by financing activities	(2,621		)	—

Net (decrease) increase in cash and cash equivalents	(2,523		)	388
Cash and cash equivalents at beginning of period	4,255			2,281
Cash and cash equivalents at end of period	$	1,732		$	2,669

Supplemental disclosure of cash and non-cash transactions:
Interest paid	$	6		$	6

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

RATEINTEGRATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Intangible Assets - Amortizable intangible assets consist primarily of purchased software and licenses, customer contracts and relationships, trademarks and tradenames, and business partnerships acquired in conjunction

with our purchase of RateIntegration Software Technologies PVT LTD. These assets are amortized using the straight-line method over their estimated lives.

We assess the impairment of identifiable intangibles if events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

Fair Value Measurements - Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Cash and Cash Equivalents - All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.

Revenue Recognition - We recognize revenue when an agreement is signed, the fee is fixed or determinable and collectability is reasonably assured. We recognize revenue from two primary sources: license fees and services, and customer support. The majority of our license fees and services revenue is generated from fixed-price contracts, which provide for licenses to our software products and services to customize such software to meet our customers’ use. When the customization services are determined to be essential to the functionality of the delivered software, we recognize revenue using the percentage-of-completion method of accounting. We estimate the percentage-of-completion for each contract based on the ratio of direct labor hours incurred to total estimated direct labor hours and recognize revenue based on the percent complete multiplied by the contract amount allocated to the license fee/services. Since estimated direct labor hours, and changes thereto, can have a significant impact on revenue recognition, these estimates are critical and we review them regularly. We record amounts billed in advance of services being performed as unearned revenue. Unbilled work-in-progress represents revenue earned but not yet billable under the terms of the fixed-price contracts. All such amounts are expected to be billed and collected within 12 months.

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

A substantial portion of our revenue is from a limited number of customers, all in the telecommunications industry.

For the six months ended June 30, 2015, four significant customers (defined as contributing at least 10%) accounted for 62% (18%, 17%, 16% and 11%) of revenue from continuing operations. These customers are telecommunications operators in Asia, Europe, Asia and the Middle East. For the six months ended June 30, 2014, two significant customers accounted for 36% (23% and 13%) of revenue from continuing operations. These customers are telecommunications operators in Asia and Europe.

As of June 30, 2015, three significant customers accounted for approximately 79% (29%, 27% and 23%) of contract receivables and unbilled work-in-progress. These customers are telecommunications operators in Asia, Africa and Europe. As of December 31, 2014, four significant customers accounted for approximately 72% (28%, 16%, 14% and 14%) of contract receivables and unbilled work-in-progress. These customers are telecommunications operators in Asia, Africa, Asia and Europe.

Sales, Use and Other Value Added Tax — Revenue is recorded net of applicable state, use and other value added taxes.

consolidated balance sheets, as well as operating loss 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.

NOTE 2 — ACQUISITION

We accounted for this business combination by applying the acquisition method, and accordingly, the purchase price was allocated to the assets and liabilities assumed based upon their fair values at the acquisition date. The excess of the purchase price over the net assets and liabilities, approximately $0.3 million, was recorded as an intangible asset. The results of acquiring the assets of the NGLM Business Unit’s operations have been included in the consolidated financial statements since the acquisition date.

Total purchase price is summarized as follows (in thousands):

	August 26, 2013
Cash Consideration
Initial Cash Purchase Price	$	729

The following table summarizes the preliminary estimated fair values of the assets and liabilities assumed at the acquisition date (in thousands):

	August 26, 2013
Unbilled work-in-progress	$	457
Intangible assets	272

Net assets acquired	$	729

We recorded $0.3 million in intangible assets as of the acquisition date with a weighted-average amortization period of approximately seven years and are amortizing the value of the customer relationships over an estimated useful life of 7 years. Amortization expense of $19,000 related to the acquired intangible assets was recorded during the periods ended June 30, 2015 and 2014.

NOTE 3 —INTANGIBLE ASSETS

We amortized identifiable intangible assets for RateIntegration Software Technologies PVT LTD on a straight-line basis over their estimated lives of seven years. As of June 30, 2015, identifiable intangibles were as follows (in thousands):

June 30, 2015

December 31, 2014

Net

Gross

Accumulated

Carrying

Gross

Accumulated

Carrying

Amount

Amortization

Amount

Amortization

Amount

Customer relationships

272

201

272

220

Amortization expense of identifiable intangible assets was $19,000 for the six months ended June 30, 2015 and twelve months ended December 31, 2014. Expected future amortization expense related to identifiable intangibles based on our carrying amount as of June 30, 2015 was as follows (in thousands):

Twelve months ending June 30,
2016	$	39
2017	39
2018	39
2019	39
2020	39
Thereafter	6
	$	201

NOTE 4 — BALANCE SHEET COMPONENTS

The components of certain balance sheet line items are as follows (in thousands):

	June 30,			December 31,
	2015			2014
Property and equipment:
Computer equipment and purchased software	$	1,076		$	1,072
Less accumulated depreciation	(1,066		)	(1,064		)
	$	10		$	8

Depreciation expense was $2,000 and $1,000 for the six months ended June 30, 2015 and 2014.

	June 30,		December 31,
	2015		2014
Accounts payable and accrued liabilities:
Accounts payable	$	67	$	191
Accrued liabilities	353		432
	$	420	$	623

NOTE 5 — INCOME TAXES

As of December 31, 2014, we had federal Net Operating Loss (“NOL”) carryforwards of approximately $14.4 million related to U.S. federal and state jurisdictions. A deferred tax asset in this amount has been established but has a full valuation allowance as of June 30, 2015. The Internal Revenue Code places certain limitations on the annual amount of NOL’s which can be utilized if certain changes in ownership occur. We do not believe changes in our ownership have occurred, and our NOL’s are not limited as of June 30, 2015.

NOTE 6 — STOCKHOLDERS’ EQUITY

Capital Stock

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Lease Commitments

	Operating Leases
2016	$	95
2017	82
2018	61
2019	32
Thereafter	10
Total minimum lease payments	$	280

NOTE 8 — SEGMENT INFORMATION

fees, fees for maintenance upgrades and warranty services. Warranty services that are similar to software maintenance services are typically bundled with a license sale. Total assets by segment have not been disclosed as the information is not available to the chief operating decision-makers.

Geographic Regions

We are headquartered in Durham, North Carolina. We use customer locations as the basis for attributing revenue to individual countries. We provide products and services on a global basis through our office in North Carolina. Additionally, personnel in Kolkata, India, provide software development services to our global operations. Financial information relating to operations by geographic region for customers with revenue greater than 10% of total revenue is as follows (in thousands):

	For the Six Months Ended June 30,
	2015						2014
	L&S		CS		Total		L&S		CS		Total
Revenue
Asia	$	446	$	226	$	672	$	874	$	103	$	977
Europe	569		70		639		271		70		341
Asia	374		98		472		—		98		98
Middle East	336		34		370		277		34		311
Europe	58		17		75		448		—		448
Africa	193		21		214		304		24		328
Other	345		181		526		410		459		869
Total revenues	$	2,321	$	647	$	2,968	$	2,584	$	788	$	3,372

NOTE 9 — REVOLVING LINE OF CREDIT

As of June 30, 2015 and December 31, 2014, there was $0.3 million and $0.8 million outstanding, respectively, against our Revolving Facility.

NOTE 10 — SUBSEQUENT EVENTS

On September 30, 2015 we were acquired by Evolving Systems for an initial payment of approximately $9.75 million and a $0.5 million working capital adjustment. We also agreed to an additional payment on the one year anniversary of the transaction of $0.3 million, with such payment being available to secure RateIntegration’s representations and warranties in the agreement. Upon the acquisition, the Senior Preferred Stockholders were entitled to be paid first out of the assets of the company available for distribution to stockholders, prior to any distribution to other stockholders.

EX-99.3 5 a15-24724_1ex99d3.htm EX-99.3

Exhibit 99.3

EVOLVING SYSTEMS, INC.

Pro Forma Condensed Combined Financial Statements (Unaudited)

Year Ended December 31, 2014 and Six Months Ended June 30, 2015

Table of Contents

	Page(s)

Condensed Combined Financial Statements (Unaudited)

Condensed Combined Balance Sheets	3

Condensed Combined Statements of Income for the year ending December 31, 2014	4

Condensed Combined Statements of Income for the six months ending June 30, 2015	5

Notes to Condensed Combined Financial Statements	6-8

Basis of Presentation

The following unaudited pro forma condensed combined financial information and related notes present the historical financial statements of Evolving Systems, Inc. (“Evolving Systems”) and its subsidiaries and RateIntegration, Inc. (“RateIntegration”) after giving effect to our acquisition of RateIntegration that was completed on September 30, 2015 as well as the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma financial statements.

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2015 and for the year ended December 31, 2014 assume that the acquisition occurred as of January 1, 2014. The unaudited pro forma condensed combined balance sheet as of June 30, 2015 is presented as if the acquisition had occurred as of June 30, 2015.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not purport to represent what the results of operations or financial position would actually have been had the acquisition occurred on the dates noted above, or to project the results of operations or financial position for any future periods. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. Unless otherwise indicated, the pro forma adjustments are directly attributable to the acquisition and are expected to have a continuing impact on the results of operations. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed consolidation financial information have been made.

The accompanying unaudited pro forma condensed combined financial information should be read in conjunction with the notes thereto and Evolving Systems’ consolidated financial statements and notes thereto included in our Annual Report on Form 10-K as of and for the year ended December 31, 2014, and our Quarterly Report on Form 10-Q as of and for the six months ended June 30, 2015, the historical financial statements of RateIntegration as of and for the year ended December 31, 2014 included herein and the historical unaudited condensed consolidated interim financial statements of RateIntegration as of and for the six months ended June 30, 2015 included herein.

EVOLVING SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS

June 30, 2015

(in thousands)

	As Reported		RateIntegration, Inc.		Pro Forma Adjustments			Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	10,254	$	1,732	$	(9,750	)(a)
					10,000		(b)
					(535		)(d)
					(1,662		)(e)	$	10,039
Contract receivables, net	6,460		1,368		—			7,828
Unbilled work-in-progress	4,775		279		—			5,054
Deferred income taxes	95		—		—			95
Prepaid and other current assets	1,524		68		—			1,592
Total current assets	23,108		3,447		(1,947		)	24,608
Property and equipment, net	640		10					650
Amortizable intangible assets, net	560		201		4,642		(f)
					(201		)(g)	5,202
Goodwill	17,157		—		6,949		(f)	24,106
Long-term deferred income taxes	601		—		—			601
Total assets	$	42,066	$	3,658	$	9,443		$	55,167

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligations	$	5	$	—	$	—		$	5
Line of credit	—		283		—			283
Accounts payable and accrued liabilities	4,046		420		238		(h)	4,704
Income taxes payable	552		—		—			552
Unearned revenue	3,695		734		—			4,429
Total current liabilities	8,298		1,437		238			9,973
Long-term liabilities:
Capital lease obligations, net of current portion	4		—		—			4
Other long-term obligations	178		—					178
Long-term debt, net of current portion	—		—		10,000		(b)	10,000
Seller financed notes payable					250		(c)	250
Deferred income taxes	—		—		1,760		(f)	1,760
Unearned revenue - Long term	120		—		—			120
Total liabilities	8,600		1,437		12,248			22,285

Stockholders’ equity:	33,466		2,221		(1,662		)(e)
					(201		)(g)
					(238		)(h)
					(704		)(i)	32,882
Total liabilities and stockholders’ equity	$	42,066	$	3,658	$	9,443		$	55,167

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

EVOLVING SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

For the Year Ended December 31, 2014

(in thousands except per share data)

(unaudited)

	As Reported			RateIntegration,Inc.			Pro Forma Adjustments			Pro Forma
REVENUE
License fees and services	$	19,738		$	5,071		$	—		$	24,809
Customer support	9,942			1,158			—			11,100
Total revenue	29,680			6,229			—			35,909

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of license fees and services, excluding depreciation and amortization	5,782			1,448			—			7,230
Costs of customer support, excluding depreciation and amortization	1,866			546			—			2,412
Sales and marketing	5,734			586			—			6,320
General and administrative	3,639			1,324			—			4,963
Product development	3,643			956			—			4,599
Depreciation	246			4			—			250
Amortization	95			39			663		(j)
							(39		)(m)	758
Restructuring and other recovery	237			—			—			237
Total costs of revenue and operating expenses	21,242			4,903			624			26,769

Income from operations	8,438			1,326			(624		)	9,140

Other income (expense)
Interest income	19			8			—			27
Interest expense	(17		)	(14		)	(413		)(k)	(444		)
Other income	(27		)	—			—			(27		)
Gain (loss) on extinguishment of debt	—			—			—			—
Foreign currency exchange gain (loss)	(9		)	(112		)	—			(121		)
Other income (expense), net	(34		)	(118		)	(413		)	(565		)

Income before income taxes	8,404			1,208			(1,037		)	8,575
Income tax expense	2,797			—			265		(l)	3,062
Net income	$	5,607		$	1,208		$	(1,302	)	$	5,513

Basic income per common share	$	0.48								$	0.47

Diluted income per common share	$	0.47								$	0.46

Weighted average basic shares outstanding	11,642									11,642
Weighted average diluted shares outstanding	11,926									11,926

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

EVOLVING SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

For the Six Months Ended June 30, 2015

(in thousands except per share data)

(unaudited)

	As Reported			RateIntegration, Inc.			Pro Forma Adjustments			Pro Forma
REVENUE
License fees and services	$	7,949		$	2,321		$	—		$	10,270
Customer support	4,782			647			—			5,429
Total revenue	12,731			2,968			—			15,699

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of license fees and services, excluding depreciation and amortization	2,415			660			—			3,075
Costs of customer support, excluding depreciation and amortization	720			212			—			932
Sales and marketing	3,099			390			—			3,489
General and administrative	1,933			392			—			2,325
Product development	1,974			416			—			2,390
Depreciation	180			2			—			182
Amortization	47			19			332		(j)
							(19		)(m)	379
Total costs of revenue and operating expenses	10,368			2,091			313			12,772

Income from operations	2,363			877			(313		)	2,927

Other income (expense)
Interest income	9			5			—			14
Interest expense	(6		)	(3		)	(206		)(k)	(215		)
Foreign currency exchange gain (loss)	26			(26		)	—			0
Other income (expense), net	29			(24		)	(206		)	(201		)

Income before income taxes	2,392			853			(519		)	2,726
Income tax benefit	752			—			203		(l)	955
Net income	$	1,640		$	853		$	(722	)	$	1,771

Basic income per common share	$	0.14								$	0.15

Diluted income per common share	$	0.14								$	0.15

Weighted average basic shares outstanding	11,672									11,672
Weighted average diluted shares outstanding	11,943									11,943

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

EVOLVING SYSTEMS, INC.

Notes to Unaudited Pro Forma Condensed Combined Financial Information

NOTE 1 — BASIS OF PRO FORMA PRESENTATION

The unaudited pro forma balance sheet as of June 30, 2015 combines Evolving Systems’ historical condensed balance sheet derived from the unaudited condensed consolidated financial statements from its Quarterly Report on Form 10-Q as of and for the six months ended June 30, 2015 with the historical unaudited condensed consolidated interim balance sheet of RateIntegration, Inc. for the same period and has been prepared as if Evolving Systems’ acquisition of RateIntegration had occurred on June 30, 2015. The unaudited pro forma statements of operations for the six months ended June 30, 2015 and for the year ended December 31, 2014 were derived from the unaudited condensed consolidated financial statements from Evolving Systems’ Quarterly Report on Form 10-Q for the six months ended June 30, 2015 and the audited consolidated financial statements from Evolving Systems’ Annual Report on Form 10-K for the year ended December 31, 2014, respectively, with the historical consolidated statements of operations for RateIntegration for the same periods and has been prepared as if our acquisition had occurred on January 1, 2014.

RateIntegration’s audited historical consolidated financial statements for the year ended December 31, 2014 and unaudited condensed consolidated financial statements for the six months ended June 30, 2015 are included in this Current Report on Form 8-K/A. These statements should be read in conjunction with such historical financial statements. The historical financial information is adjusted in the unaudited pro forma financial statements to give effect to pro forma adjustments that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the pro forma statements of operations, expected to have a continuing impact on the combined results.

We have accounted for the acquisition of RateIntegration under the acquisition method of accounting in accordance with the authoritative guidance on business combinations. The accounting for the acquisition of RateIntegration was based on a preliminary valuation of the assets acquired and liabilities assumed and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed become available. The final allocation may include changes to the amount of intangible assets, goodwill, deferred taxes, accounts receivable and other current liabilities as well as other items. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material. Additionally, the differences, if any, could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and our future results of operation and financial position.

The unaudited pro forma financial statements are presented solely for informational purposes and are not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company.

The unaudited pro forma financial statements do not reflect any cost savings from future operating synergies or integration activities, or any revenue, tax, or other synergies that could result from the acquisition.

NOTE 2 — ACQUISITION

On September 30, 2015 we acquired privately held RateIntegration, Inc. d/b/a Sixth Sense Media (“RateIntegration”), now known as Evolving Systems NC, Inc. for an initial payment of approximately $9.75 million and a $0.5 million working capital adjustment. We also agreed to make a payment on the one year anniversary of the transaction of $0.3 million, with such payment being available to secure RateIntegration’s representations and warranties in the agreement.

We accounted for this business combination by applying the acquisition method, and accordingly, the purchase price was allocated to the assets and liabilities assumed based upon their fair values at the acquisition date. The excess of the purchase price over the net assets and liabilities, approximately $6.9 million, was recorded as goodwill. The Company is in the process of finalizing the purchase allocation, thus the provisional measures of deferred income taxes, intangibles and goodwill are subject to change. The Company expects the purchase price allocation will be finalized in 2016. The results of RateIntegration’s operations have been included in the consolidated financial statements since the acquisition date.

We believe this acquisition complements our activation and SIM management products. Combining RateIntegration’s real-time analytics and campaign capabilities with our DSA and MDE solutions will allow the company to offer global wireless carriers solutions that utilize the highly valuable contextual data captured from the subscribers’ initial welcome experience via DSA, their network usage via RLM and their on-device app usage via MDE. The combined solutions will create a highly personalized experience that engages subscribers in real time from the first time subscribers power on their new devices right through their day-to-day usage.

Our strategic focus is primarily on the wireless markets in the areas of subscriber activation, SIM card management and activation, self—service mobile applications, data enablement solutions, connected device activation, mobile marketing campaigns, advertising and analytics and management of services.

Total purchase price is summarized as follows (in thousands):

	September 30, 2015
Cash Consideration
Initial Cash Purchase Price	$	9,750
Cash/Working Capital Adjustment	535
Total Cash Consideration	$	10,285

Assumed Liabilities	250
Total purchase price	$	10,535

The following table summarizes the preliminary estimated fair values of the assets and liabilities assumed at the acquisition date (in thousands):

	September 30, 2015
Cash and cash equivalents	$	1,521
Contract receivables	1,057
Unbilled work-in-progress	89
Intangible assets	4,642
Prepaid and other current assets	68
Other assets, non-current	32
Total identifiable assets acquired	$	7,409

Accounts payable and accrued liabilities	$	1,506
Deferred tax liability	1,760
Deferred revenue	557
Total identifiable liabilities acquired	$	3,823

Net identifiable assets acquired	3,586

Goodwill	6,949
Net assets acquired	$	10,535

We recorded $4.6 million in intangible assets as of the acquisition date with a weighted-average amortization period of approximately seven years and are amortizing the value of the trade name, technology, non-competition and customer relationships over an estimated useful life of 2, 8, 2 and 7 years, respectively. No amortization expense related to the acquired intangible assets was recorded during the period ended September 30, 2015.

The $5.4 million of goodwill was assigned to the license and service segment and $1.5 million was assigned to the customer support segment. The goodwill recognized is attributed primarily to expected synergies and the assembled workforce of RateIntegration. As of the date of this report there were no changes in the recognized amounts of goodwill resulting from the acquisition of RateIntegration.

Intangible assets related to the acquisition as of September 30, 2015 (in thousands):

	September 30, 2015
	Gross Amount		Accumulated Amortization		Net Carrying Amount		Weighted- Average Amortization Period
Purchased software	$	1,679	$	—	$	1,679	8 yrs
Trademarks and tradenames	122		—		122		2 yrs
Non-competition	33				33		2 yrs
Customer relationships	2,808		—		2,808		7 yrs
	$	4,642	$	—	$	4,642	7.19 yrs

NOTE 3 — PRO FORMA ADJUSTMENTS

The following is a description of the pro forma adjustments to the unaudited pro forma condensed combined balance sheets and statements of operations. These adjustments are based on preliminary estimates which are subject to change as management finalizes its valuations or obtains additional information.

(a)	-	To record cash paid related to the acquisition
(b)	-	To record borrowing on revolving line of credit
(c)	-	To record seller financed note payable
(d)	-	To record the contractual purchase price adjustment based on the working capital
(e)	-	To record the estimated cash dividend paid subsequent to the balance sheet date
(f)	-	To record goodwill, intangible assets and deferred income taxes associated with RateIntegration
(g)	-	To remove prior intangible assets
(h)	-	To accrue for estimated professional fees related to the acquisition
(i)	-	To record working capital acquired in the transaction
(j)	-	To record estimated amortization expense related to identifiable intangible assets
(k)	-	To record interest expense on the revolver which was borrowed in conjunction with the acquisition
(l)	-	To reflect a standard rate of corporation tax on RateIntegration’s earnings
(m)	-	To reverse amortization of prior intangible assets