10-Q

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 March 31, 2017

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.)
9777 Pyramid Court, Suite 100 Englewood, Colorado	80112
(Address of principal executive offices)	(Zip Code)

(303) 802-1000

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting companyx Emerging growth companyo

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 May 5, 2017 there were 12,475,265 shares outstanding of Registrant’s Common Stock (par value $0.001 per share).

EVOLVING SYSTEMS, INC.

Quarterly Report on Form 10-Q

March 31, 2017

Table of Contents

PART I — FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016 (Unaudited)	3
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	5
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2017 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4	Controls and Procedures	26
PART II — OTHER INFORMATION
Item 1	Legal Proceedings	26
Item 1A	Risk Factors	26
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3	Defaults upon Senior Securities	26
Item 4	Mine Safety Disclosures	26
Item 5	Other Information	26
Item 6	Exhibits	27
Signatures		28

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PART I — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 31,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	7,512		$	7,614
Contract receivables, net of allowance for doubtful accounts of $222 at March 31, 2017 and $221 at December 31, 2016	4,693			5,867
Unbilled work-in-progress	4,767			3,376
Prepaid and other current assets	1,945			1,553
Total current assets	18,917			18,410
Property and equipment, net	504			546
Amortizable intangible assets, net	4,004			4,200
Goodwill	20,718			20,599
Long-term deferred income taxes	67			—
Total assets	$	44,210		$	43,755
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligations	$	—		$	1
Term loan - current	1,982			1,997
Accounts payable and accrued liabilities	4,310			4,274
Income taxes payable	661			617
Unearned revenue	3,008			3,532
Total current liabilities	9,961			10,421
Long-term liabilities:
Term loan, net of current portion	3,500			4,000
Total liabilities	13,461			14,421
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2017 and December 31, 2016	—			—
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,101,629 shares issued and 11,922,740 outstanding as of March 31, 2017 and 12,086,280 shares issued and 11,907,391 outstanding as of December 31, 2016	12			12
Additional paid-in capital	97,832			97,744
Treasury stock 178,889 shares as of March 31, 2017 and December 31, 2016, at cost	(1,253		)	(1,253		)
Accumulated other comprehensive loss	(9,638		)	(9,992		)
Accumulated deficit	(56,204		)	(57,177		)
Total stockholders’ equity	30,749			29,334
Total liabilities and stockholders’ equity	$	44,210		$	43,755

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

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EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

	For the Three Months Ended March 31,
	2017			2016
REVENUE
License fees	$	343		$	813
Services	5,532			5,667
Total revenue	5,875			6,480
COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and amortization	1,545			1,449
Sales and marketing	1,068			1,380
General and administrative	973			968
Product development	474			955
Depreciation	51			77
Amortization	196			196
Restructuring	—			941
Total costs of revenue and operating expenses	4,307			5,966
Income from operations	1,568			514
Other income (expense)
Interest income	1			2
Interest expense	(73		)	(118		)
Foreign currency exchange gain (loss)	(173		)	199
Other income (expense), net	(245		)	83
Income from operations before income taxes	1,323			597
Income tax expense	350			170
Net income	$	973		$	427
Basic income per common share	$	0.08		$	0.04
Diluted income per common share	$	0.08		$	0.04
Cash dividend declared per common share	$	—		$	0.11
Weighted average basic shares outstanding	11,921			11,795
Weighted average diluted shares outstanding	11,944			11,957

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

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EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	For the Three Months Ended March 31,
	2017		2016
Net income	$	973	$	427
Other comprehensive loss:
Foreign currency translation gain (loss)	354		(593		)
Comprehensive income (loss)	$	1,327	$	(166	)

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

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EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

									Accumulated
				Additional					Other						Total
	Common Stock			Paid-in		Treasury			Comprehensive			Accumulated			Stockholders’
	Shares	Amount		Capital		Stock			Loss			Deficit			Equity
Balance at December 31, 2016	11,907,391	$	12	$	97,744	$	(1,253	)	$	(9,992	)	$	(57,177	)	$	29,334
Stock option exercises	15,160	—		7		—			—			—			7
Common stock issued pursuant to the Employee Stock Purchase Plan	189	—		—		—			—			—			—
Stock-based compensation expense	—	—		81		—			—			—			81
Net income	—	—		—		—			—			973			973
Foreign currency translation adjustment	—	—		—		—			354			—			354
Balance at March 31, 2017	11,922,740	$	12	$	97,832	$	(1,253	)	$	(9,638	)	$	(56,204	)	$	30,749

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

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EVOLVING SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Three Months Ended March 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	973		$	427
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	51			77
Amortization of intangible assets	196			196
Amortization of debt issuance costs	5			17
Stock based compensation	81			76
Unrealized foreign currency transaction loss, net	173			(199		)
Provision for deferred income taxes	(70		)	(4		)
Change in operating assets and liabilities:
Contract receivables	1,128			(798		)
Unbilled work-in-progress	(1,343		)	(978		)
Prepaid and other assets	(341		)	(37		)
Accounts payable and accrued liabilities	29			(10		)
Unearned revenue	(554		)	578
Net cash provided by (used in) operating activities	328			(655		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(3		)	—
Net cash used in investing activities	(3		)	—
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease payments	(1		)	(1		)
Payments of the revolving line of credit	—			(10,000		)
Proceeds from the term loan	—			6,000
Principal payments on the term loan	(500		)	—
Payments for debt issuance costs	(19		)	(18		)
Proceeds from the issuance of stock	7			23
Net cash used in financing activities	(513		)	(3,996		)
Effect of exchange rate changes on cash	86			(85		)
Net decrease in cash and cash equivalents	(102		)	(4,736		)
Cash and cash equivalents at beginning of period	7,614			8,400
Cash and cash equivalents at end of period	$	7,512		$	3,664
Supplemental disclosure of cash and non-cash transactions:
Income taxes paid	$	583		$	222
Common stock dividend declared, not yet paid	—			1,298

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

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EVOLVING SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

Organization — We are a provider of software solutions and services to the wireless, wireline and cable markets. We maintain long-standing relationships with many of the largest wireless, wireline and cable companies worldwide. Our customers rely on us to develop, deploy, enhance and maintain software solutions that provide a variety of service activation and provisioning functions.  In 2016, we began a shift from selling technology to offering business solutions. The value proposition has moved from cost savings to revenue increases for the carrier and our business model has moved from classic capex license and services to opex models based on recurring managed services with performance fees.  Our software solution platform, Real-time Lifecycle Marketing™ (“RLM”), enables carriers’ marketing departments to innovate, execute and manage highly-personalized and contextually-relevant, interactive campaigns that engage consumers in real time.  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 on premise or as a Software-as-a-Service (“SaaS”).

Interim 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 (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 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 GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these consolidated financial statements are adequate to make the information presented not misleading. The unaudited 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 GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2017 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, 2016 included in our Annual Report on Form 10-K.

Reclassifications - Certain reclassifications have been made to the 2016 financial statements to conform to the consolidated 2017 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

Use of Estimates — The preparation of consolidated financial statements in conformity with 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 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 estimated hours to complete projects accounted for using the percentage-of-completion method, allowance for doubtful accounts, income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets and goodwill, useful lives for property, equipment and intangible assets, business combinations, capitalization of internal software development costs and fair value of stock-based compensation amounts.  Actual results could differ from these estimates.

Foreign Currency — Our functional currency is the U.S. dollar.  The functional currency of our foreign operations 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 statements of income 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 consolidated statements of operations 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.

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Goodwill — Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired.  Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to the reporting unit, and determination of the fair value of the reporting unit.

Intangible Assets — Amortizable intangible assets consist primarily of purchased software and licenses, customer contracts and relationships, trademarks and tradenames, non-competition and business partnerships acquired in conjunction with our purchase of Telespree Communications (“Evolving Systems Labs, Inc.”) and RateIntegration, Inc. d/b/a Sixth Sense Media (“Evolving Systems NC, Inc.”).  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.   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. In these types of arrangements, we do not typically have vendor specific objective evidence (“VSOE”) of fair value on the license fee/services portion (services are related to customizing the software) of the arrangement due to the large amount of customization required by our customers; however, we do have VSOE for the warranty/maintenance services based on the renewal rate of the first year of maintenance in the arrangement. The license/services portion is recognized using the percentage-of-completion method of accounting and the warranty/maintenance services are separated based on the renewal rate in the contract and recognized ratably over the warranty or maintenance period. 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. If the arrangement includes a customer acceptance provision, the hours to complete the acceptance testing are included in the total estimated direct labor hours; therefore, the related revenue is recognized as the acceptance testing is performed. Revenue is not recognized in full until the customer has provided proof of acceptance on the arrangement.  Generally, our contracts are accounted for individually. However, when certain criteria are met, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts. 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.

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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. Where applicable, we unbundle and record as revenue fees from multiple element arrangements as the elements are delivered to the extent that VSOE of fair value of the undelivered elements exist. If VSOE for the undelivered elements does not exist, we defer fees from such arrangements until the earlier of the date that VSOE does exist on the undelivered elements or all of the elements have been delivered.

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 revenue from our managed services contracts primarily ratably over the service contract period.  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 proportional performance method of accounting.

We recognize revenue from our MDE contracts based on the number of transactions per month multiplied by a factor based on a unique table for transaction volumes relating to each account.

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.

We review and update our contract-related estimates regularly. The impact of an adjustment in estimate is recognized prospectively over the remaining contract term. No adjustment on any one contract was material to our unaudited Consolidated Financial Statements in the three months ended March 31, 2017 and 2016.

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

The fair market value of restricted shares for share-based compensation expensing is equal to the closing price of our common stock on the date of grant.  Of the restrictions on the stock awards granted during the three months ended March 31, 2017, 20% will be released in January 2018, and 10% annually beginning on the one year anniversary of their offering thereafter for four years.  The remaining 40%, will be released evenly over four years beginning in 2018 contingent upon the attainment of annual performance goals established by our Board of Directors.

Comprehensive Income (Loss) — Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

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

We use a recognition threshold and a measurement attribute for 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.

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 Chief Financial Officer as our chief operating decision-makers (“CODM”). 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 income).  License fees revenue represents the fees received

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

Recent Accounting Pronouncements — In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” Topic 606.  This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers,” Topic 606: “Identifying Performance Obligations and Licensing”.  This Update clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard.  The Update includes targeted improvements based on input the Board received from the Transition Resource Group for Revenue Recognition and other stakeholders.  The update seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis.  In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” Topic 606: “Narrow-Scope Improvements and Practical Expedients”.  The amendments in this Update address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. This ASU is the final version of Proposed Accounting Standards Update 2015-320, “Revenue from Contracts with Customers,” (Topic 606): “Narrow-Scope Improvements and Practical Expedients,” which has been deleted.  In December 2016, the FASB issued ASU No. 2016-20, “Revenue from Contracts with Customers,” Topic 606: “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”.  The amendments in this Update address narrow-scope improvements to the guidance on loan guarantee fees, contract cost-impairment testing, contract costs-interaction of impairment testing with guidance in other topics, provision for losses on construction-type and production-type contracts, scope of topic 606 to exclude all contracts that are within the scope of Topic 944, disclosure of remaining performance obligations, disclosure of prior-period performance obligations, contract modifications, contract asset versus receivable, refund liability, advertising costs, fixed-odds wagering contracts in the casino industry and cost capitalization for advisors to private funds and public funds. The Board decided to issue a separate Update for technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to Update 2014-09.  This ASU is effective retrospectively for fiscal years, and interim periods within those years beginning after December 15, 2017 for public companies and 2018 for non-public entities. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to put most leases on their balance sheets by recognizing a lessee’s rights and obligations, while expenses will continue to be recognized in a similar manner to today’s legacy lease accounting guidance. This ASU could also significantly affect the financial ratios used for external reporting and other purposes, such as debt covenant compliance. This ASU will be effective for us on January 1, 2019, with early adoption permitted. We are currently in the process of assessing the impact of this ASU on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation (Topic 718), which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The standard is effective for annual periods beginning after December 15, 2016. We have adopted this ASU during the first quarter 2017.  The key effects of the adoption on our financial statements include that the Company will now recognize windfall tax benefits as deferred tax assets instead of tracking the windfall pool and recording such benefits in equity. Additionally, we have elected to recognize forfeitures as they occur rather than estimating them at the time of grant.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions intended to simplify the test for goodwill impairment. The standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

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NOTE 2 — GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by reporting unit were as follows (in thousands):

	Total
	Goodwill
Balance at December 31, 2016	$	20,599
Effects of changes in foreign currency exchange rates (1)	119
Balance at March 31, 2017	$	20,718

(1)Represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income.

We performed our annual goodwill impairment test as of July 31, 2016, at which time we had $21.5 million of goodwill included in the following reporting units, License and Services (“L&S”) - U.S. of $6.3 million, U.K. of $6.1 million, India of $0.2 million and Customer Support (“CS”) — U.S. of $1.5 million and U.K. of $7.4 million. The fair value of each reporting unit was estimated using both market and income based approaches. Specifically, we incorporated observed market multiple data from selected guideline public companies and values arrived at through the application of discounted cash flow analyses, which in turn were based upon our financial projections as of the valuation date. We believe that a market participant would weigh both possibilities without a bias to one or the other. Consequently, we gave equal consideration to both. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. If the carrying value of a reporting unit were to exceed its fair value, we would then compare the fair value of the reporting unit’s goodwill to its carrying amount, and any excess of the carrying amount over the fair value would be charged to operations as an impairment loss. If the projected future performance of our segment as estimated in the income valuation approach is adjusted downward or is lower than expected in the future, we could be required to record a goodwill impairment charge.  As a result of the first step of the 2016 goodwill impairment analysis, the fair value of each reporting unit exceeded its carrying value.  Therefore the second step was not necessary.  Due to our transition of packaging our products and services into a managed service offering, we have determined we have one reporting unit.  We do not believe the aggregation of our reporting units impacts the value of our goodwill nor are there any events through the date this Form 10-Q was filed which impacts our assumptions on the determination of the fair value of our goodwill.

We amortized identifiable intangible assets for Evolving Systems Labs, Inc. and Evolving Systems NC, Inc. on a straight-line basis over their estimated lives ranging from one to eight years.  As of March 31, 2017 and December 31, 2016, identifiable intangibles were as follows (in thousands):

	March 31, 2017						December 31, 2016
	Gross Amount		Accumulated Amortization		Net Carrying Amount		Gross Amount		Accumulated Amortization		Net Carrying Amount		Weighted- Average Amortization Period
Purchased software	$	2,118	$	502	$	1,616	$	2,118	$	436	$	1,682	7.3 yrs
Trademarks and tradenames	185		135		50		185		116		69		2.6 yrs
Non-competition	33		25		8		33		21		12		2.0 yrs
Customer relationships	3,024		694		2,330		3,024		587		2,437		6.8 yrs
	$	5,360	$	1,356	$	4,004	$	5,360	$	1,160	$	4,200	6.8 yrs

Amortization expense of identifiable intangible assets was $0.2 million for the three months March 31, 2017 and 2016.  Expected future amortization expense related to identifiable intangibles based on our carrying amount as of March 31, 2017 was as follows (in thousands):

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Twelve months ending March 31,
2018	$	744
2019	700
2020	693
2021	693
2022	659
Thereafter	515
	$	4,004

NOTE 3 — EARNINGS PER COMMON SHARE

We compute basic earnings per share (“EPS”) by dividing net income or loss available to common stockholders by the weighted average number of shares outstanding during the period, including common stock issuable under participating securities. We compute diluted EPS using the weighted average number of shares outstanding, including participating securities, plus all potentially dilutive common stock equivalents. Common stock equivalents consist of stock options and restricted stock.

Our policy is to treat unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, as participating securities, included in the computation of both basic and diluted earnings per share.  We exclude unvested restricted stock from our basic earnings per share.  Our restricted stock, which vests based on the passage of time are included in dilutive earnings per share.  Our restricted stock which vests contingent upon the attainment of annual performance goals are included in dilutive earnings per share as the performance goals are achieved.  The following is the reconciliation of the denominator of the basic and diluted EPS computations (in thousands, except per share data):

	For the Three Months Ended March 31,
	2017		2016
Basic income per share:
Net income available to common stockholders	$	973	$	427
Basic weighted average shares outstanding	11,921		11,795
Basic income per share:	$	0.08	$	0.04
Diluted income per share:
Net income available to common stockholders	$	973	$	427
Weighted average shares outstanding	11,921		11,795
Effect of dilutive securities - options and restricted stock	23		162
Diluted weighted average shares outstanding	11,944		11,957
Diluted income per share:	$	0.08	$	0.04

For the three months ended March 31, 2017 and 2016, 0.5 million and 0.2 million shares, respectively, of common stock were excluded from the dilutive stock calculation because their exercise prices were greater than the average fair value of our common stock for the period.  For the three months ended March 31, 2017, 0.5 million and 0.2 million shares of restricted stock were excluded from basic earnings per share and dilutive earnings per share, respectively.  No shares of restricted stock were excluded from basic or dilutive earnings per share for the three months ended March 31, 2016.

NOTE 4 — SHARE-BASED COMPENSATION

We account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions with employees and directors, and record compensation cost for all stock awards granted after January 1, 2006 and awards modified, repurchased, or cancelled after that date, using the modified prospective method. We record compensation costs associated with the vesting of unvested options on a straight-line basis over the vesting period. We recognized $0.1 million of compensation expense in the consolidated statements of operations, with respect to our stock-based compensation plans for the three months ended March 31, 2017 and 2016.

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

	For the Three Months Ended March 31,
	2017		2016
Cost of revenue, excluding depreciation and amortization	$	7	$	12
Sales and marketing	8		8
General and administrative	51		35
Product development	15		21
Total share based compensation	$	81	$	76

Stock Incentive Plans

In June 2007, our stockholders approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) with a maximum of 1,000,000 shares reserved for issuance. In June 2010, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 1,250,000. In June 2013, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 1,502,209.  In June 2015, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 2,002,209.  Awards permitted under the 2007 Stock Plan include:  Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards and Other Stock-Based Awards.  Awards issued under the 2007 Stock Plan are at the discretion of the Board of Directors.  As applicable, awards are granted with an exercise price equal to the closing price of our common stock on the date of grant, generally vest over four years for employees and three years for an initial grant and one year for subsequent grants for directors and expire no more than ten years from the date of grant.  At March 31, 2017, no shares were available for grant under the 2007 Stock Plan, as amended.  At March 31, 2017 and December 31, 2016, 0.6 million and 0.7 million were issued and outstanding under the 2007 Stock Plan as amended, respectively.

In June 2016, our stockholders approved the 2016 Stock Incentive Plan (the “2016 Stock Plan”) with a maximum of 250,000 shares reserved for issuance.  Awards permitted under the 2016 Stock Plan include: Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards and Other Stock-Based Awards.  Awards issued under the 2016 Stock Plan are at the discretion of the Board of Directors.  As applicable, awards are granted with an exercise price equal to the closing price of our common stock on the date of grant, generally vest over four years for employees and three years for an initial grant and one year for subsequent grants for directors and expire no more than ten years from the date of grant.  At March 31, 2017 and December 31, 2016, 27,000 and 0.3 million shares were available for grant under the 2016 Stock Plan, respectively.

During the three months ended March 31, 2017 542,000 shares of restricted stock were granted to members of our Board of Directors and senior management.  During the three months ended March 31, 2016 no shares of restricted stock were granted to members of our Board of Directors or senior management.  During the three months ended March 31, 2017 and 2016, 1,250 and 0 shares of restricted stock vested, respectively. No shares of restricted stock were forfeited during the three months ended March 31, 2017 and 2016.  The fair market value of restricted shares for share-based compensation expensing is equal to the closing price of our common stock on the date of grant.  Stock-based compensation expense includes $41,000 and $7,000 for the three months ended March 31, 2017 and 2016, respectively, of expense related to restricted stock grants. Of the restrictions on the stock awards granted during the three months ended March 31, 2017, 20% will be released in January 2018, and 10% annually beginning on the one year anniversary of their offering thereafter for four years.  The remaining 40%, will be released evenly over four years beginning in 2018 contingent upon the attainment of annual performance goals established by our Board of Directors.

The following is a summary of restricted stock option activity under the plans for the three months ended March 31, 2017:

	Restricted
	Stock
	Number of
	Shares
	(in thousands)
Shares outstanding at December 31, 2016	15
Options granted	542
Less options vested	(1	)
Shares outstanding at March 31, 2017	556

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The fair value of each option grant is estimated on the date of grant using the Black-Scholes model.  The Black-Scholes model uses four assumptions to calculate the fair value of each option grant.  The expected term of share options granted is derived using the simplified method, which we adopted in January 2008. The risk-free interest rate is based upon the rate currently available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of the stock options.  The expected volatility is based upon historical volatility of our common stock over a period equal to the expected term of the stock options.  The expected dividend yield is based upon anticipated payment of dividends.  The weighted-average assumptions used in the fair value calculations are as follows:

	For the Three Months Ended March 31,
	2017	2016
Expected term (years)	*	6.1
Risk-free interest rate	*	1.39	%
Expected volatility	*	36.90	%
Expected dividend yield	*	8.24	%

* None granted

The following is a summary of stock option activity under the plans for the three months ended March 31, 2017:

					Weighted-
					Average
			Weighted-		Remaining	Aggregate
	Number of		Average		Contractual	Intrinsic
	Shares		Exercise		Term	Value
	(in thousands)		Price		(Years)	(in thousands)
Options outstanding at December 31, 2016	684		$	6.17	7.30	$	139
Less options forfeited	(13	)	9.11
Less options cancelled	(71	)
Less options exercised	(15	)	3.61
Options outstanding at March 31, 2017	585		$	6.48	7.67	$	136
Options exercisable at March 31, 2017	306		$	6.78	6.82	$	136

No stock options were granted during the three months ended March 31, 2017.  There were 118,000 stock options granted during the three months ended March 31, 2016.  The weighted-average grant-date fair value of stock options granted were $0.74 during the three months ended March 31, 2016.  As of March 31, 2017, there were approximately $2.9 million of total unrecognized compensation costs related to unvested stock options and restricted stock.  These costs are expected to be recognized over a weighted average period of 3.77 years.  The total fair value of stock options vested during the three months ended March 31, 2017 and 2016 was approximately $0.1 million.

The deferred income tax benefits from stock option expense related to Evolving Systems U.K. totaled approximately $2,000 and $4,000 for the three months ended March 31, 2017 and 2016, respectively.

Cash received from stock option exercises for the three months ended March 31, 2017 and 2016 was $7,000 and $14,000, respectively.

During the three months ended March 31, 2017, we had net settlement exercises of stock options, whereby the optionee did not pay cash for the options but instead received the number of shares equal to the difference between the exercise price and the market price on the date of exercise. Net settlement exercises during the three months ended March 31, 2017, resulted in 13,112 shares issued and 70,352 options cancelled in settlement of shares issued.  There were no net settlement exercises during the three months ended March 31, 2016.

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Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), we are authorized to issue up to 550,000 shares.  Employees may elect to have up to 15% of their gross compensation withheld through payroll deductions to purchase our common stock, capped at $25,000 annually and no more than 10,000 shares per offering period. The purchase price of the stock is 85% of the lower of the market price at the beginning or end of each three-month participation period. As of March 31, 2017, there were approximately 51,000 shares available for purchase.  For the three months ended March 31, 2017 and 2016, we recorded compensation expense of $170 and $1,000, respectively, associated with grants under the ESPP which includes the fair value of the look-back feature of each grant as well as the 15% discount on the purchase price.  This expense fluctuates each period primarily based on the level of employee participation.

The fair value of each purchase made under our ESPP is estimated on the date of purchase using the Black-Scholes model.  The Black-Scholes model uses four assumptions to calculate the fair value of each purchase.  The expected term of each purchase is based upon the three-month participation period of each offering.  The risk-free interest rate is based upon the rate currently available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of each offering.  The expected volatility is based upon historical volatility of our common stock.  The expected dividend yield is based upon historical and anticipated payment of dividends.  The weighted average assumptions used in the fair value calculations are as follows:

	For the Three Months Ended March 31,
	2017		2016
Expected term (years)	0.25		0.25
Risk-free interest rate	0.78	%	0.20	%
Expected volatility	42.47	%	39.85	%
Expected dividend yield	0.00	%	7.67	%

Cash received from employee stock plan purchases for the three months ended March 31, 2017 and 2016 was $600 and $4,000, respectively.

We issued shares related to the ESPP of approximately 200 and 1,000 for the three months ended March 31, 2017 and 2016, respectively.

NOTE 5 — CONCENTRATION OF CREDIT RISK

For the three months ended March 31, 2017, one significant customer (defined as contributing at least 10%) accounted for 11% of revenue from operations.  The significant customer for the three months ended March 31, 2017 is a large telecommunications operator in Europe.  For the three months ended March 31, 2016, one significant customer accounted for 10% of revenue from operations.  The significant customer for the three months ended March 31, 2016 is a large telecommunications operator in India.

As of March 31, 2017, one significant customer accounted for approximately 11% of contract receivables and unbilled work-in-progress.  This customer is a large telecommunication operator in Africa.  As of December 31, 2016 no customers accounted for 10% of contract receivables and unbilled work-in-progress.

NOTE 6 — LONG-TERM DEBT

On February 29, 2016, we entered into the Fifth Amendment to the Loan and Security Agreement with East West Bank which provides for a Term Loan (the “Term Loan”) for $6.0 million.  The $6.0 million loan bears interest at a floating rate equal to the U.S.A. Prime Rate plus 1.0%. As of March 31, 2017, the U.S.A. Prime Rate was 4.0%.  The Term Loan is secured by substantially all of the assets of Evolving Systems, Inc., including a pledge, subject to certain limitations with respect to stock of foreign subsidiaries, of the stock of the existing and future direct subsidiaries of Evolving Systems, Inc.  Interest shall accrue from the date the Term Loan is made at the aforementioned rate and shall be payable monthly.  The Term Loan shall be repaid in 36 equal monthly installments of principal, plus accrued but unpaid interest, commencing on January 1, 2017 and continuing on the first day of each month thereafter through and including January 1, 2020.  On the Term Loan maturity date, the outstanding principal amount of the Term Loan and all accrued and unpaid interest thereon shall be immediately due and payable.  The Term Loan, once repaid, may not be reborrowed. We must maintain a minimum current ratio, a specified ratio of Total Liabilities to EBITDA and a minimum fixed charge coverage ratio which are as defined in the Term Loan. The Term Loan requires us to pay two annual credit facility fees of $18,750 and legal fee equal to $1,000. The Term Loan agreement required us to use the term loan’s proceeds and $4.0 million from our cash balances to pay off and terminate the Revolving Facilities totaling $10.0 million.  The Term Loan matures on January 1, 2020.

The Term Loan includes negative covenants that place restrictions on the Company’s ability to, among other things:  incur additional indebtedness; create liens or other encumbrances on assets; make loans, enter into letters of credit, guarantees, investments and acquisitions; sell or otherwise dispose of assets; cause or permit a change of control; merge or consolidate with another entity;

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make negative pledges; enter into affiliate transactions; limits the amount of cash distributions to our shareholders; and change the nature of our business materially. Outstanding amounts under the Term Loan may be accelerated by East West Bank upon the occurrence and continuance of certain events of default, including without limitation:  payment defaults, breach of covenants beyond applicable grace periods, 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 March 31, 2017, we are in compliance with the covenants and have a $5.5 million balance under the Term Loan net of approximately $17,000 of debt issuance costs.

NOTE 7 — INCOME TAXES

We recorded net income tax expense of $0.4 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively.  The net expense during the three months ended March 31, 2017 consisted of current income tax expense of $0.4 million and a deferred tax benefit of ($0.1) million. The current tax expense consists of income tax from our U.S., U.K. and India based operations.  The deferred tax benefit was related primarily to the increase of certain net deferred tax assets and amortization of deferred tax liabilities in the U.S.  The net expense during the three months ended March 31, 2016 consisted of current income tax expense of $0.2 million. The current tax expense consists of income tax from our U.K. and India based operations and unrecoverable foreign withholding taxes in the U.K.

Our effective tax rate was 27% and 29% for the three months ended March 31, 2017 and 2016, respectively.  The decrease in our effective tax rate relates to a higher proportion of our income being generated in the U.K., for which the statutory corporate tax rate is lower and the utilization of Foreign Tax Credits (“FTC”).

As of March 31, 2017 and December 31, 2016 we continued to maintain a valuation allowance on portions of our domestic net deferred tax asset.  Such assets primarily consist of Foreign Tax credit carry forwards (“FTC”), state Net Operating Loss (“NOL”) carryforwards, research and development tax credits and Alternative Minimum Tax (“AMT”) credits.  Our deferred tax assets and liabilities as of March 31, 2017 and December 31, 2016, were comprised of the following (in thousands):

	March 31, 2017			December 31, 2016
Deferred tax assets
Foreign tax credits carryforwards	$	4,626		$	4,360
Net operating loss carryforwards	602			544
Research & development credits	303			303
AMT credits	770			770
Stock compensation	583			561
Depreciable assets	78			71
Accrued liabilities and reserves	100			124
Total deferred tax assets	7,062			6,733
Deferred tax liabilities
Deferred revenue
Undistributed foreign earnings	$	(718	)	$	(662	)
Intangibles	(1,279		)	(1,339		)
Total deferred tax liability	(1,997		)	(2,001		)
Net deferred tax assets, before valuation allowance	$	5,065		$	4,732
Valuation allowance	(4,998		)	(4,732		)
Net deferred tax asset	$	67		$	—

In our U.S. Federal income tax returns we historically deducted income taxes paid to various countries. In our 2014 U.S. Federal income tax return we had $2.3 million of NOL carryforwards.  Our income tax calculations have historically been under the regular and AMT regulations found in U.S. tax laws.  The U.S. tax system contains rules to alleviate the burden of double taxation on income generated in foreign countries and subject to tax in such countries.  The U.S. allows for either a deduction or credit of such foreign taxes against U.S. taxable income.  An election to either claim a deduction or credit on such foreign income taxes can be made each tax year, independent from elections made in other years.  A credit reduces a company’s actual U.S. income tax on a dollar-for-dollar basis, while a deduction reduces only the company’s income subject to tax.  We made a comparison of our foreign dividends

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paid by our foreign subsidiary for which we deducted foreign taxes claimed versus claiming a Foreign Tax Credit (“FTC”) on the dividend paid by the foreign subsidiary.  The dividends received were grossed-up with its corresponding foreign taxes.  The U.S. law requires the offset of taxable income with NOL prior to applying the FTC rules.  We determined it was beneficial for the company to gross-up the foreign dividends paid by the foreign subsidiary for the years 2012 through 2014 and make the election to claim a FTC.  By doing so we fully utilized our December 31, 2014, $2.3 million balance of the federal NOL.  A similar comparison of benefits to either claim a deduction or a foreign tax credit for allowable foreign taxes has been made as of March 31, 2017. As the election to claim the foreign tax credit or deduction is made on an annual basis, the Company intends to compare benefits to either claim a deduction or foreign tax credit on a quarterly basis.  As a result, the company has approximately $4.6 million of FTC’s to carryforward through 2017 and subsequent years as a deferred tax asset.

Two Indian subsidiaries of SSM were acquired pursuant to the terms of the Agreement and Plan of Merger dated September 30, 2015.  We have reason to believe there is uncertainty related to the lack of historical US International reporting for these two foreign subsidiaries, and are in the process of determining whether either or both of these subsidiaries are controlled foreign corporations (“CFCs”) within the meaning of the Internal Revenue Code and related Regulations, or if a “check-the-box” election has taken place to effectively treat one or both of these subsidiaries as disregarded entities for US federal tax reporting purposes. The Company is in the process of obtaining pertinent information to assess the degree of uncertainty and to quantify related costs or liabilities.

As of March 31, 2017 and December 31, 2016 we had no liability for unrecognized tax benefits.

We conduct business globally and, as a result, Evolving Systems, Inc. or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  Throughout the world, in the normal course of business, we are subject to examination by taxing authorities up until, two years in the U.K. and four years in India, following the end of the accounting period.  As of the date of this report, none of our income tax returns are under examination.

NOTE 8 — STOCKHOLDERS’ EQUITY

Certain Anti-Takeover Provisions/Agreements with Stockholders

Our restated certificate of incorporation allows the board of directors to issue up to 2,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing desired flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of our outstanding voting stock. As of March 31, 2017 and December 31, 2016, no shares of preferred stock were outstanding.

In addition, we are subject to the anti-takeover provisions of Section 203 of Delaware General Corporation Law which prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in the prescribed manner. The application of Section 203 may have the effect of delaying or preventing changes in control of our management, which could adversely affect the market price of our common stock by discouraging or preventing takeover attempts that might result in the payment of a premium price to our stockholders.

NOTE 9 —GEOGRAPHICAL INFORMATION

We are headquartered in Englewood, a suburb of Denver, Colorado. We use customer locations as the basis for attributing revenues to individual countries. We provide products and services on a global basis through our headquarters, our London-based Evolving Systems U.K. subsidiary and our North Carolina based Evolving Systems NC, Inc. subsidiary. Additionally, personnel in Bangalore and Kolkata, India provide software development and support services to our global operations. Financial information relating to operations by geographic region is as follows (in thousands):

	For the Three Months Ended March 31,
	2017
Revenue	License		Services		Total
United Kingdom	$	31	$	998	$	1,029
Switzerland	—		613		613
Other	312		3,921		4,233
Total revenues	$	343	$	5,532	$	5,875

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	For the Three Months Ended March 31,
	2016
Revenue	License		Services		Total
United Kingdom	$	21	$	953	$	974
Switzerland	—		722		722
India	600		119		719
Other	192		3,873		4,065
Total revenues	$	813	$	5,667	$	6,480

	March 31,		December 31,
Long-lived assets, net	2017		2016
United States	$	12,127	$	12,347
United Kingdom	12,779		12,680
Other	320		318
	$	25,226	$	25,345

NOTE 10 — COMMITMENTS AND CONTINGENCIES

(a)          Other Commitments

As permitted under Delaware law, we have agreements with officers and directors under which we agree to indemnify them for certain events or occurrences while the officer or director is, or was, serving at our request in this capacity. The term of the indemnification period is indefinite. There is no limit on the amount of future payments we could be required to make under these indemnification agreements; however, we maintain Director and Officer insurance policies, as well as an Employment Practices Liability Insurance Policy, that may enable us to recover a portion of any amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of March 31, 2017 or December 31, 2016.

We enter into standard indemnification terms with customers and suppliers, in the ordinary course of business, for third party claims arising under our contracts. In addition, as we may subcontract the development of deliverables under customer contracts, we could be required to indemnify customers for work performed by subcontractors. Depending upon the nature of the indemnification, the potential amount of future payments we could be required to make under these indemnification agreements may be unlimited. We may be able to recover damages from a subcontractor or other supplier if the indemnification results from the subcontractor’s or supplier’s failure to perform. To the extent we are unable to recover damages from a subcontractor or other supplier, we could be required to reimburse the indemnified party for the full amount. We have never incurred costs to defend lawsuits or settle claims relating to an indemnification. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of March 31, 2017 or December 31, 2016.

Our standard license agreements contain product warranties that the software will be free of material defects and will operate in accordance with the stated requirements for a limited period of time.  The product warranty provisions require us to cure any defects through any reasonable means.  We believe the estimated fair value of the product warranty provisions in the license agreements in place with our customers is minimal.  Accordingly, there were no liabilities recorded for these product warranty provisions as of March 31, 2017 or December 31, 2016.

Our software arrangements generally include a product indemnification provision whereby we will indemnify and defend a customer in actions brought against the customer for claims that our products infringe upon a copyright, trade secret, or valid patent of a third party. We have not historically incurred any significant costs related to product indemnification claims. Accordingly, there were no liabilities recorded for these indemnification provisions as of March 31, 2017 or December 31, 2016.

In connection with our acquisition of Telespree on October 24, 2013, we agreed to make a cash payment of $0.5 million on the one year anniversary of the closing.  This payment was subject to reduction for certain claims and has not been paid to date.  We have made claims against this payment which are currently under dispute.  Once settled the final payment will be released.

19

In connection with our acquisition of SSM on September 30, 2015, we agreed to make a cash payment of $0.3 million on the one year anniversary of the closing.  This payment is subject to reduction for certain claims and has not been paid to date.  Once settled the final payment will be released.

(b)Litigation

From time to time, we are involved in various legal matters arising in the normal course of business.  We do not expect the outcome of such proceedings, either individually or in the aggregate, to have a material effect on our financial position, cash flows or results of operations.

NOTE 11 — RESTRUCTURING

During the first quarter of 2016, we undertook a reduction in workforce involving the termination of employees resulting in an expense of $0.9 million primarily related to severance for the affected employees. The reduction in workforce was related to the consolidations of duplicative functions and alignment of staff with ongoing business activity as a result of the acquisition of Evolving Systems NC, Inc. in the third quarter of 2015.  There was no restructuring expense for the three months ended March 31, 2017.

There was no restructuring liability as of March 31, 2017 and December 31, 2016.

NOTE 12 — SUBSEQUENT EVENT

On May 5, 2017, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) by BLS Limited (“EVOL BLS”), a wholly owned subsidiary of the Company, and Business Logic Systems Limited (“Seller”). EVOL BLS and Seller are both companies incorporated under the laws of England and Wales. Under the terms of the Purchase Agreement, the Seller will sell substantially all of its assets and transfer certain liabilities relating to Seller’s business of providing customer value management solutions and data driven marketing solutions for £1.2M in cash, plus (a) an additional sum of £100K, reduced by the sums paid by EVOL BLS for certain employee severance obligations paid by EVOL BLS (collectively, the “Cash Payments”); (b) a percentage of collections on certain receivables over a 24-month period; and (c) an amount equal to 50% of BLS-based revenue over defined threshold levels for a period of 3 years after the closing date.  The Company agreed to guarantee EVOL BLS’ obligations under the Purchase Agreement.

Consummation of the transactions contemplated by the Purchase Agreement is contingent upon satisfactory completion of defined activities to be carried out in an Interim Period following execution of the Purchase Agreement.

The Company issued a press release and filed a Form 8-K with the SEC announcing the transaction on May 11, 2017.

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

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on current expectations, estimates, and projections about Evolving Systems’ industry, management’s beliefs, and certain assumptions made by management.  Forward-looking statements include our expectations regarding product, services, and maintenance revenue, annual savings associated with the organizational changes effected in prior years, and short- and long-term cash needs.  In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements.  The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements.  Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, 2016 under “Item 1A. Risk Factors” as well as additional risks described in this Form 10-Q.  Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.  However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

OVERVIEW

We are a provider of software solutions and services to the wireless, wireline and cable markets. We maintain long-standing relationships with many of the largest wireless, wireline and cable companies worldwide. Our customers rely on us to develop, deploy, enhance and maintain software solutions including managed services that provide a variety of service activation and provisioning functions.  RLM enables carrier marketing departments to innovate, execute and manage highly-personalized and contextually-relevant, interactive campaigns that engage consumers in real time; our service activation solution, TSA is used to activate bundles of voice, video and data services for wireless, wireline and cable network operators; our SIM card activation solution, DSA is used to dynamically allocate and assign resources to MNOs devices that rely on SIM cards; our MDE solution provides a data consumption and policy management solution for wireless carriers and MVNOs that monitor the usage and consumption of data services; our 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 on premise or offered via a SaaS model.

We recognize revenue in accordance with the prescribed accounting standards for software revenue recognition under generally accepted accounting principles.  Our license fees and services revenues fluctuate from period to period as a result of the timing of revenue recognition on existing projects.

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RECENT DEVELOPMENTS

Consolidated revenue was $5.9 million and $6.5 million for the three months ended March 31, 2017 and 2016, respectively. The decrease in revenue for the three months ended is due primarily to a decline in prepaid license fees for First User Activations (“FUAs”) and the migration to a managed services business model.

We have operations in foreign countries where the local currency is used to prepare the financial statements which are translated into our reporting currency, U.S. Dollars. Changes in the exchange rates between these currencies and our reporting currency are partially responsible for some of the changes from period to period in our financial statement amounts. The chart below summarizes how our revenue and expenses would change had they been reported on a constant currency basis. The constant currency basis assumes that the exchange rate was constant for the periods presented (in thousands).

	For the Three Months Ended March 31,
	2016 vs. 2015
Revenue	$	(228	)
Costs of revenue and operating expenses	(241		)
Operating gain	$	13

The net effect of our foreign currency translations for the three months ended March 31, 2017 was a $0.2 million decrease in revenue and a $0.2 million decrease in operating expenses versus the three months ended March 31, 2016.

RESULTS OF OPERATIONS

The following table presents the unaudited consolidated statements of operations reflected as a percentage of total revenue.

	For the Three Months Ended March 31,
	2017		2016
REVENUE
License fees	6	%	13	%
Services	94	%	87	%
Total revenue	100	%	100	%
COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and amortization	26	%	22	%
Sales and marketing	18	%	21	%
General and administrative	17	%	15	%
Product development	8	%	15	%
Depreciation	1	%	1	%
Amortization	3	%	3	%
Restructuring	—		15	%
Total costs of revenue and operating expenses	73	%	92	%
Income from operations	27	%	8	%
Other income (expense)
Interest income	0	%	0	%
Interest expense	(1	)%	(2	)%
Foreign currency exchange gain (loss)	(3	)%	3	%
Other income (expense), net	(4	)%	1	%
Income from operations before income taxes	23	%	9	%
Income tax expense	6	%	2	%
Net income	17	%	7	%

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Revenue

Revenue is comprised of license fees and services.  License fees represent the fees we receive from the licensing of our software products. Services revenue are directly related to the delivery of the licensed product as well as integration services, managed services, SaaS services, time and materials work and customer support services.  Customer support services includes annual support fees, recurring maintenance fees, minor product upgrades and warranty fees.  Warranty fees are typically bundled with a license sale and the related revenue, based on Vendor Specific Objective Evidence (“VSOE”), is deferred and recognized ratably over the warranty period.

Revenue for the three months ended March 31, 2017 and 2016 was $5.9 million and $6.5 million respectively.  The license fees revenue decrease for the three months is primarily due to lower prepaid license fees for FUAs and the migration to a managed services business model.  Services revenue decreased for the three months due to a decline in customer support revenue offset by an increase in managed services.

License Fees

License fees revenue decreased $0.5 million, or 60%, to $0.3 million for the three months ended March 31, 2017 from $0.8 million for the three months ended March 31, 2016.  The decrease is due to a decline in prepaid license fees for FUAs and the migration to a managed services business model.

Services

Services revenue decreased $0.1 million, or 2%, to $5.5 million for the three months ended March 31, 2017 from $5.6 million for the three months ended March 31, 2016.  The decrease is due to lower customer support revenue offset by an increase in managed services.

Costs of Revenue, Excluding Depreciation and Amortization

Costs of revenue, excluding depreciation and amortization, consist primarily of personnel costs and other direct costs associated with these personnel, facilities costs, costs of third-party software and partner commissions. Costs of revenue includes Product Development expenses related to software features requested in advance of their scheduled availability which are funded by customers as part of a managed service offering.  Costs of revenue, excluding depreciation and amortization increased $0.1 million, or 6%, to $1.5 million for the three months ended March 31, 2017 from $1.4 million for the three months ended March 31, 2016.  The increase in costs of revenue is primarily attributable to higher service project hours.  As a percentage of revenue, costs of revenue, excluding depreciation and amortization, increased to 26% for the three months ended March 31, 2017 from 22% for the three months ended March 31, 2016.  The increase as a percentage of revenue is primarily due to the aforementioned higher costs and reduced revenue during the period.

Sales and Marketing

Sales and marketing expenses primarily consist of compensation costs, including incentive compensation and commissions, travel expenses, advertising, marketing and facilities expenses. Sales and marketing expenses decreased $0.3 million, or 23%, to $1.1 million for the three months ended March 31, 2017 from $1.4 million for the three months ended March 31, 2016.  The decrease in expenses is attributable to salary expense due to the restructuring in 2016 and travel expenses.  As a percentage of total revenue, sales and marketing expenses decreased to 18% for the three months ended March 31, 2017 from 21% for the three months ended March 31, 2016. The decrease in sales and marketing expenses as a percentage of revenue is primarily due to aforementioned reduction of sales and marketing costs.

General and Administrative

General and administrative expenses consist principally of employee related costs and professional fees for the following departments: facilities, finance, legal, human resources, and certain executive management.  General and administrative expenses remained at $1.0 million for the three months ended March 31, 2017 and 2016.  As a percentage of revenue, general and administrative expenses increased to 17% for the three months ended March 31, 2017 from 15% for the three months ended March 31, 2016.  The increase in general and administrative expenses as a percentage of revenue is primarily due to lower revenue during the period.

Product Development

Product development expenses consist primarily of employee related costs and subcontractor expenses.  Product development expenses decreased $0.5 million, or 50%, to $0.5 million for the three months ended March 31, 2017 from $1.0 million for the three months ended March 31, 2016.  The decrease in product development expenses was due to lower salary expense related to the restructuring in 2016 and lower hours utilized on product development projects.  In addition, Product Development expenses related to software features requested in advance of their scheduled availability which are funded by customers as part of a managed service offering are charged to cost of revenue.  As a percentage of revenue, product development expenses decreased to 8% for the three months ended March 31, 2017 from 15% for the three months ended March 31, 2016.  The

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decrease in product development expenses as a percentage of revenue is primarily due to the aforementioned decrease in costs during the period.

Depreciation

Depreciation expense consists of depreciation of long-lived property and equipment.  Depreciation expense was $0.1 million for the three months ended March 31, 2017 and 2016.  As a percentage of total revenue, depreciation expense for the three months ended March 31, 2017 and 2016 remained at 1%.

Amortization

Amortization expense consists of amortization of identifiable intangible assets acquired through our acquisition of Evolving Systems Labs, Inc. and Evolving Systems NC, Inc.  Amortization expense was $0.2 million for the three months ended March 31, 2017 and 2016.  As a percentage of total revenue, amortization expense remained at 3% for the three months ended March 31, 2017 and 2016.

Restructuring

Restructuring expense includes the costs associated with a reduction in workforce due to the consolidation of duplicative functions and alignment of staff with ongoing business activity as a result of the acquisition of Evolving Systems NC, Inc. in the third quarter of 2015.  There was no restructuring  expense for the three months ended March 31, 2017 and $0.9 million for the three months ended March 31, 2016.    As a percentage of revenue, restructuring expense was 0% and 15% for the three months ended March 31, 2017 and 2016, respectively.

Interest Income

Interest income includes interest income earned on cash and cash equivalents.  Interest income was $1,000 and $2,000 for the three months ended March 31, 2017 and 2016, respectively.

Interest Expense

Interest expense includes the amortization of debt issuance costs from our debt facility, interest expense from our term loan and interest expense from our capital lease obligations.  Interest expense was $0.1 million for the three months ended March 31, 2017 and 2016.  As a percent of revenue, interest expense was 1% and 2% for the three months ended March 31, 2017 and 2016, respectively.

Foreign Currency Exchange Loss

Foreign currency transaction (losses) gains resulted from transactions denominated in a currency other than the functional currency of the respective subsidiary and was ($0.2) million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively.  The losses were generated primarily through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our Evolving Systems U.K. and India subsidiaries.

Other Comprehensive Gain (Loss)

Other comprehensive loss refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive loss consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency. Other comprehensive gain was $0.4 million during the three months ended March 31, 2017 compared to ($0.6) million during the three months ended March 31, 2016.  The current period gain is related to a strengthening British Pound Sterling and the related translation of our U.K. subsidiary’s assets and liabilities to the United States Dollar for consolidation purposes.

Income Taxes

We recorded net income tax expense of $0.4 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively.  The net expense during the three months ended March 31, 2017 consisted of current income tax expense of $0.5 million and a deferred tax benefit of ($0.1) million. The current tax expense consists of income tax from our U.S., U.K. and India based operations.  The deferred tax benefit was related primarily to the increase of certain net deferred tax assets and amortization of deferred tax liabilities in the U.S.  The net expense during the three months ended March 31, 2016 consisted of current income tax

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expense of $0.2 million. The current tax expense consists of income tax from our U.K. and India based operations and unrecoverable foreign withholding taxes in the U.K.

Our effective tax rate was 27% and 29% for the three months ended March 31, 2017 and 2016, respectively.  The decrease in our effective tax rate relates to a higher proportion of our income being generated in the U.K., for which the statutory corporate tax rate is lower and the utilization of Foreign Tax Credits (“FTC”).

As of March 31, 2017 and December 31, 2016 we continued to maintain a valuation allowance on portions of our domestic net deferred tax asset.  Such assets primarily consist of FTC carryforwards, certain state NOL carryforwards, research and development tax credits and AMT credits.  See Note 7 to the financial statements for a summary of our deferred tax assets and liabilities.

FINANCIAL CONDITION

Our working capital position increased $1.0 million, or 12%, to $9.0 million as of March 31, 2017 from $8.0 million as of December 31, 2016.  The increase in working capital is related increases in unbilled work-in-progress, prepaid and other current assets and a decrease in unearned revenue.

CONTRACTUAL OBLIGATIONS

There have been no material changes to the contractual obligations as disclosed in our 2016 Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed operations through cash flows from operations and equity transactions.  At March 31, 2017, our principal source of liquidity was $7.5 million in cash and cash equivalents and $4.7 million in contract receivables, net of allowances.  Our anticipated uses of cash in the future will be to fund the expansion of our business through both organic growth as well as possible acquisition activities, the expansion of our customer base internationally and debt service payments on the Term Loan.  Other uses of cash may include quarterly dividends, capital expenditures and technology expansion.

Net cash provided by (used in) operating activities for the three months ended March 31, 2017 and 2016 was $0.3 million and ($0.7) million, respectively.  Cash provided by operating activities for the three months ended March 31, 2017 was primarily due to net income coupled with collection of contract receivables partially offset by the increase unbilled work-in-progress and prepaid and other assets.

Net cash used in investing activities during the three months ended March 31, 2017 was $3,000 due to the purchase of property and equipment.  No cash was used in investing activities for the three months ended March 31, 2016.

Net cash used in financing activities for the three months ended March 31, 2017 and 2016 was $0.1 million and $4.0 million, respectively.  The cash used in financing activities for the three months ended March 31, 2017 was primarily related to principal payment on our term loan and the payment for second year debt issuance costs.  The cash used in financing activities for the three months ended March 31, 2016 was primarily due to converting our debt by retiring our $10.0 million revolving line of credit with a $6.0 million term loan and a $4.0 million principal payment.

We believe that our current cash and cash equivalents, together with anticipated cash flow from operations will be sufficient to meet our working capital, capital expenditure and financing requirements for at least the next twelve months. In making this assessment we considered the following:

·Our cash and cash equivalents balance at March 31, 2017 of $7.5 million;

·Our working capital balance of $9.0 million;

·Our demonstrated ability to generate positive cash flows from operations;

·Our planned capital expenditures of less than $0.5 million during 2017; and

·The repayment of our long term debt facility of which the first principal payment began in January 2017.

We are exposed to foreign currency rate risks which impact the carrying amount of our foreign subsidiaries and our consolidated equity, as well as our consolidated cash position due to translation adjustments.  For the three months ended March 31, 2017 and 2016, the effect of exchange rate changes resulted in a $0.1 million increase and $0.1 million decrease to consolidated cash,

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

OFF-BALANCE SHEET ARRANGEMENTS

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES

In the ordinary course of business, we are exposed to certain market risks, including changes in interest rates and foreign currency exchange rates. Uncertainties that are either non-financial or non-quantifiable such as political, economic, tax, other regulatory, or credit risks are not included in the following assessment of market risks.

Interest Rate Risks

Our cash balances are subject to interest rate fluctuations and as a result, interest income amounts may fluctuate from current levels.

Foreign Currency Risk

We are exposed to favorable and unfavorable fluctuations of the U.S. dollar (our functional currency) against the currencies of our operating subsidiaries. Any increase (decrease) in the value of the U.S. dollar against any foreign currency that is the functional currency of one of our operating subsidiaries will cause the parent company to experience unrealized foreign currency translation losses (gains) with respect to amounts already invested in such foreign currencies.  In addition, we and our operating subsidiaries are exposed to foreign currency risk to the extent that we enter into transactions denominated in currencies other than our respective functional currencies, such as accounts receivable (including intercompany amounts) that are denominated in a currency other than their own functional currency. Changes in exchange rates with respect to these items will result in unrealized (based upon period-end exchange rates) or realized foreign currency transaction gains and losses upon settlement of the transactions. In addition, we are exposed to foreign exchange rate fluctuations related to our operating subsidiaries’ monetary assets and liabilities and the financial results of foreign subsidiaries and affiliates when their respective financial statements are translated into U.S. dollars for inclusion in our consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive income (loss) as a separate component of equity. As a result of foreign currency risk, we may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations.

The relationship between the British pound sterling, Indian rupee and the U.S. dollar, which is our functional currency, is shown below, per one U.S. dollar:

	March 31,	December 31,
Spot rates:	2017	2016
British pound sterling	0.80379	0.81103
Indian rupee	64.88612	67.95500

	For the Three Months Ended March 31,
Average rates:	2017	2016
British pound sterling	0.80790	0.69833
Indian rupee	67.00385	67.48460

At the present time, we do not hedge our foreign currency exposure or use derivative financial instruments that are designed to reduce our long-term exposure to foreign currency exchange risk.  To the extent that translation and transaction gain and losses become significant, we will consider various options to reduce this risk.

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ITEM 4.  CONTROLS AND PROCEDURES

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

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of such period.

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

During the three months ended March 31, 2017, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We are involved in various legal matters arising in the normal course of business.  Losses, including estimated costs to defend, are recorded for these matters to the extent they were probable of loss and the amount of loss could be reasonably estimated.

ITEM 1A.  RISK FACTORS

There have been no material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 28, 2017.

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors defined in our Annual Report on Form 10-K for the year ended December 31, 2016 under “Item 1A. Risk Factors.”

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

None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.  MINE SAFETY DISCLOSURES

None

ITEM 5.  OTHER INFORMATION

None

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ITEM 6.  EXHIBITS

(a)Exhibits

Exhibit 31.1 — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101 - The following financial information from the quarterly report on Form 10-Q of Evolving Systems, Inc. for the quarter ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 11, 2017	/s/ DANIEL J. MOORHEAD
	Daniel J. Moorhead
	Chief Financial Officer,
	Treasurer and Secretary
	(Principal Financial and Accounting Officer)

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Thomas Thekkethala, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Evolving Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 11, 2017

/s/ Thomas Thekkethala

Thomas Thekkethala

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Daniel J. Moorhead, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Evolving Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 11, 2017

/s/ Daniel J. Moorhead

Daniel J. Moorhead

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas Thekkethala, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Evolving Systems, Inc. on Form 10-Q for the quarterly period ended March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Evolving Systems, Inc.

/s/ THOMAS THEKKETHALA

Thomas Thekkethala

President and Chief Executive Officer

May 11, 2017

This certification is furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel J. Moorhead, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Evolving Systems, Inc. on Form 10-Q for the quarterly period ended March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Evolving Systems, Inc.

/s/ DANIEL J. MOORHEAD

Daniel J. Moorhead

Chief Financial Officer

(Principal Financial and Accounting Officer)

May 11, 2017

This certification is furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.

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Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 05, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2017
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2017
Entity Registrant Name	EVOLVING SYSTEMS INC
Trading Symbol	evol
Entity Central Index Key	0001052054
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		12,475,265

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 7,512	$ 7,614
Contract receivables, net of allowance for doubtful accounts of $222 at March 31, 2017 and $221 at December 31, 2016	4,693	5,867
Unbilled work-in-progress	4,767	3,376
Prepaid and other current assets	1,945	1,553
Total current assets	18,917	18,410
Property and equipment, net	504	546
Amortizable intangible assets, net	4,004	4,200
Goodwill	20,718	20,599
Long-term deferred income taxes	67
Total assets	44,210	43,755
Current liabilities:
Current portion of capital lease obligations		1
Term loan - current	1,982	1,997
Accounts payable and accrued liabilities	4,310	4,274
Income taxes payable	661	617
Unearned revenue	3,008	3,532
Total current liabilities	9,961	10,421
Long-term liabilities:
Term loan, net of current portion	3,500	4,000
Total liabilities	13,461	14,421
Commitments and contingencies:
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2017 and December 31, 2016
Common stock, $0.001 par value; 40,000,000 shares authorized; 12,101,629 shares issued and 11,922,740 outstanding as of March 31, 2017 and 12,086,280 shares issued and 11,907,391 outstanding as of December 31, 2016	12	12
Additional paid-in capital	97,832	97,744
Treasury stock 178,889 shares at March 31, 2017 and December 31, 2016, at cost	(1,253)	(1,253)
Accumulated other comprehensive loss	(9,638)	(9,992)
Accumulated deficit	(56,204)	(57,177)
Total stockholders' equity	30,749	29,334
Total liabilities and stockholders' equity	$ 44,210	$ 43,755

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Condensed Consolidated Balance Sheets [Abstract]
Allowance for doubtful accounts receivable	$ 222	$ 221
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	12,101,629	12,086,280
Common stock, shares outstanding	11,922,740	11,907,391
Treasury stock, shares	178,889	178,889

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Condensed Consolidated Statements Of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
REVENUE
License fees	$ 343	$ 813
Services	5,532	5,667
Total revenue	5,875	6,480
COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue, excluding depreciation and amortization	1,545	1,449
Sales and marketing	1,068	1,380
General and administrative	973	968
Product development	474	955
Depreciation	51	77
Amortization	196	196
Restructuring		941
Total costs of revenue and operating expenses	4,307	5,966
Income from operations	1,568	514
Other income (expense)
Interest income	1	2
Interest expense	(73)	(118)
Foreign currency exchange gain (loss)	(173)	199
Other income (expense), net	(245)	83
Income from operations before income taxes	1,323	597
Income tax expense	350	170
Net income	$ 973	$ 427
Basic income per common share	$ 0.08	$ 0.04
Diluted income per common share	$ 0.08	0.04
Cash dividends declared per common share		$ 0.11
Weighted average basic shares outstanding	11,921	11,795
Weighted average diluted shares outstanding	11,944	11,957

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Condensed Consolidated Statements Of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Condensed Consolidated Statements Of Comprehensive Income (Loss) [Abstract]
Net income	$ 973	$ 427
Other comprehensive loss:
Foreign currency translation gain (loss)	354	(593)
Comprehensive income (loss)	$ 1,327	$ (166)

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Condensed Consolidated Statement Of Changes In Stockholders' Equity - 3 months ended Mar. 31, 2017 - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Accumulated (Deficit) [Member]	Total
Balance at Dec. 31, 2016	$ 12	$ 97,744	$ (1,253)	$ (9,992)	$ (57,177)	$ 29,334
Balance, shares at Dec. 31, 2016	11,907,391					11,907,391
Stock option exercises		7				$ 7
Stock option exercises, shares	15,160
Common stock issued pursuant to the Employee Stock Purchase Plan, shares	189
Stock-based compensation expense		81				81
Net income					973	973
Foreign currency translation adjustment				354		354
Balance at Mar. 31, 2017	$ 12	$ 97,832	$ (1,253)	$ (9,638)	$ (56,204)	$ 30,749
Balance, shares at Mar. 31, 2017	11,922,740					11,922,740

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Condensed Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 973	$ 427
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	51	77
Amortization of intangible assets	196	196
Amortization of debt issuance costs	5	17
Stock based compensation	81	76
Unrealized foreign currency transaction loss, net	173	(199)
Benefit from deferred income taxes	(70)	(4)
Change in operating assets and liabilities:
Contract receivables	1,128	(798)
Unbilled work-in-progress	(1,343)	(978)
Prepaid and other assets	(341)	(37)
Accounts payable and accrued liabilities	29	(10)
Unearned revenue	(554)	578
Net cash provided by (used in) operating activities	328	(655)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(3)
Net cash used in investing activities	(3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease payments	(1)	(1)
Payments of the revolving line of credit		(10,000)
Proceeds from the term loan		6,000
Principal payments on the term loan	(500)
Payments for debt issuance costs	(19)	(18)
Proceeds from the issuance of stock	7	23
Net cash used in financing activities	(513)	(3,996)
Effect of exchange rate changes on cash	86	(85)
Net decrease in cash and cash equivalents	(102)	(4,736)
Cash and cash equivalents at beginning of period	7,614	8,400
Cash and cash equivalents at end of period	7,512	3,664
Supplemental disclosure of cash and non-cash investing and financing transactions:
Income taxes paid	$ 583	222
Common stock dividends declared, not yet paid		$ 1,298

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Basis Of Presentation

3 Months Ended

Mar. 31, 2017

Basis Of Presentation [Abstract]

Basis Of Presentation

NOTE 1 — BASIS OF PRESENTATION

Organization —We are a provider of software solutions and services to the wireless, wireline and cable markets. We maintain long-standing relationships with many of the largest wireless, wireline and cable companies worldwide. Our customers rely on us to develop, deploy, enhance and maintain software solutions that provide a variety of service activation and provisioning functions.  In 2016, we began a shift from selling technology to offering business solutions. The value proposition has moved from cost savings to revenue increases for the carrier and our business model has moved from classic capex license and services to opex models based on recurring managed services with performance fees.  Our software solution platform, Real-time Lifecycle Marketing™ (“RLM”), enables carriers’ marketing departments to innovate, execute and manage highly-personalized and contextually-relevant, interactive campaigns that engage consumers in real time.  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 on premise or as a Software-as-a-Service (“SaaS”).

Interim 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 (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 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 GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these consolidated financial statements are adequate to make the information presented not misleading. The unaudited 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 GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2017 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, 2016 included in our Annual Report on Form 10-K.

Reclassifications - Certain reclassifications have been made to the 2016 financial statements to conform to the consolidated 2017 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

Use of Estimates—The preparation of consolidated financial statements in conformity with 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 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 estimated hours to complete projects accounted for using the percentage-of-completion method, allowance for doubtful accounts, income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets and goodwill, useful lives for property, equipment and intangible assets, business combinations, capitalization of internal software development costs and fair value of stock-based compensation amounts.  Actual results could differ from these estimates.

Foreign Currency —Our functional currency is the U.S. dollar.  The functional currency of our foreign operations 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 statements of income 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 consolidated statements of operations 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.

Goodwill —Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired.  Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to the reporting unit, and determination of the fair value of the reporting unit.

Intangible Assets —Amortizable intangible assets consist primarily of purchased software and licenses, customer contracts and relationships, trademarks and tradenames, non-competition and business partnerships acquired in conjunction with our purchase of Telespree Communications (“Evolving Systems Labs, Inc.”) and RateIntegration, Inc. d/b/a Sixth Sense Media (“Evolving Systems NC, Inc.”).  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.   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. In these types of arrangements, we do not typically have vendor specific objective evidence (“VSOE”) of fair value on the license fee/services portion (services are related to customizing the software) of the arrangement due to the large amount of customization required by our customers; however, we do have VSOE for the warranty/maintenance services based on the renewal rate of the first year of maintenance in the arrangement. The license/services portion is recognized using the percentage-of-completion method of accounting and the warranty/maintenance services are separated based on the renewal rate in the contract and recognized ratably over the warranty or maintenance period. 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. If the arrangement includes a customer acceptance provision, the hours to complete the acceptance testing are included in the total estimated direct labor hours; therefore, the related revenue is recognized as the acceptance testing is performed. Revenue is not recognized in full until the customer has provided proof of acceptance on the arrangement.  Generally, our contracts are accounted for individually. However, when certain criteria are met, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts. 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. Where applicable, we unbundle and record as revenue fees from multiple element arrangements as the elements are delivered to the extent that VSOE of fair value of the undelivered elements exist. If VSOE for the undelivered elements does not exist, we defer fees from such arrangements until the earlier of the date that VSOE does exist on the undelivered elements or all of the elements have been delivered.

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 revenue from our managed services contracts primarily ratably over the service contract period.  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 proportional performance method of accounting.

We recognize revenue from our MDE contracts based on the number of transactions per month multiplied by a factor based on a unique table for transaction volumes relating to each account.

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.

We review and update our contract-related estimates regularly. The impact of an adjustment in estimate is recognized prospectively over the remaining contract term. No adjustment on any one contract was material to our unaudited Consolidated Financial Statements in the three months ended March 31, 2017 and 2016.

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

The fair market value of restricted shares for share-based compensation expensing is equal to the closing price of our common stock on the date of grant.  Of the restrictions on the stock awards granted during the three months ended March 31, 2017, 20% will be released in January 2018, and 10% annually beginning on the one year anniversary of their offering thereafter for four years.  The remaining 40%, will be released evenly over four years beginning in 2018 contingent upon the attainment of annual performance goals established by our Board of Directors.

Comprehensive Income (Loss) —Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

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

We use a recognition threshold and a measurement attribute for 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.

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 Chief Financial Officer as our chief operating decision-makers (“CODM”). 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 income).  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 service, managed services, annual support fees, recurring maintenance fees, fees for maintenance upgrades and warranty services.  Warranty services that are similar to software maintenance services are typically bundled with a license sale. Total assets by segment have not been disclosed as the information is not available to the chief operating decision-makers.

Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” Topic 606.  This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers,” Topic 606: “Identifying Performance Obligations and Licensing”.  This Update clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard.  The Update includes targeted improvements based on input the Board received from the Transition Resource Group for Revenue Recognition and other stakeholders.  The update seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis.  In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” Topic 606: “Narrow-Scope Improvements and Practical Expedients”.  The amendments in this Update address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. This ASU is the final version of Proposed Accounting Standards Update 2015-320, “Revenue from Contracts with Customers,” (Topic 606): “Narrow-Scope Improvements and Practical Expedients,” which has been deleted.  In December 2016, the FASB issued ASU No. 2016-20, “Revenue from Contracts with Customers,” Topic 606: “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”.  The amendments in this Update address narrow-scope improvements to the guidance on loan guarantee fees, contract cost-impairment testing, contract costs-interaction of impairment testing with guidance in other topics, provision for losses on construction-type and production-type contracts, scope of topic 606 to exclude all contracts that are within the scope of Topic 944, disclosure of remaining performance obligations, disclosure of prior-period performance obligations, contract modifications, contract asset versus receivable, refund liability, advertising costs, fixed-odds wagering contracts in the casino industry and cost capitalization for advisors to private funds and public funds. The Board decided to issue a separate Update for technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to Update 2014-09.  This ASU is effective retrospectively for fiscal years, and interim periods within those years beginning after December 15, 2017 for public companies and 2018 for non-public entities. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to put most leases on their balance sheets by recognizing a lessee’s rights and obligations, while expenses will continue to be recognized in a similar manner to today’s legacy lease accounting guidance. This ASU could also significantly affect the financial ratios used for external reporting and other purposes, such as debt covenant compliance. This ASU will be effective for us on January 1, 2019, with early adoption permitted. We are currently in the process of assessing the impact of this ASU on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation (Topic 718), which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The standard is effective for annual periods beginning after December 15, 2016. We have adopted this ASU during the first quarter 2017.  The key effects of the adoption on our financial statements include that the Company will now recognize windfall tax benefits as deferred tax assets instead of tracking the windfall pool and recording such benefits in equity. Additionally, we have elected to recognize forfeitures as they occur rather than estimating them at the time of grant.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions intended to simplify the test for goodwill impairment. The standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

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Goodwill And Intangible Assets

3 Months Ended

Mar. 31, 2017

Goodwill And Intangible Assets [Abstract]

Goodwill And Intangible Assets

NOTE 2 — GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by reporting unit were as follows (in thousands):

		Total
		Goodwill
Balance at December 31, 2016	$	20,599
Effects of changes in foreign
currency exchange rates (1)		119
Balance at March 31, 2017	$	20,718

(1) Represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income.

We performed our annual goodwill impairment test as of July 31, 2016, at which time we had $21.5 million of goodwill included in the following reporting units, License and Services (“L&S”) - U.S. of $6.3 million, U.K. of $6.1 million, India of $0.2 million and Customer Support (“CS”) — U.S. of $1.5 million and U.K. of $7.4 million. The fair value of each reporting unit was estimated using both market and income based approaches. Specifically, we incorporated observed market multiple data from selected guideline public companies and values arrived at through the application of discounted cash flow analyses, which in turn were based upon our financial projections as of the valuation date. We believe that a market participant would weigh both possibilities without a bias to one or the other. Consequently, we gave equal consideration to both. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. If the carrying value of a reporting unit were to exceed its fair value, we would then compare the fair value of the reporting unit’s goodwill to its carrying amount, and any excess of the carrying amount over the fair value would be charged to operations as an impairment loss. If the projected future performance of our segment as estimated in the income valuation approach is adjusted downward or is lower than expected in the future, we could be required to record a goodwill impairment charge.  As a result of the first step of the 2016 goodwill impairment analysis, the fair value of each reporting unit exceeded its carrying value.  Therefore the second step was not necessary.  Due to our transition of packaging our products and services into a managed service offering, we have determined we have one reporting unit.  We do not believe the aggregation of our reporting units impacts the value of our goodwill nor are there any events through the date this Form 10-Q was filed which impacts our assumptions on the determination of the fair value of our goodwill.

We amortized identifiable intangible assets for Evolving Systems Labs, Inc. and Evolving Systems NC, Inc. on a straight-line basis over their estimated lives ranging from one to eight years.  As of March 31, 2017 and December 31, 2016, identifiable intangibles were as follows (in thousands):

	March 31, 2017						December 31, 2016
		Gross Amount		Accumulated Amortization		Net Carrying Amount		Gross Amount		Accumulated Amortization		Net Carrying Amount	Weighted-Average Amortization Period
Purchased software	$	2,118	$	502	$	1,616	$	2,118	$	436	$	1,682	7.3 yrs
Trademarks and tradenames		185		135		50		185		116		69	2.6 yrs
Non-competition		33		25		8		33		21		12	2.0 yrs
Customer relationships		3,024		694		2,330		3,024		587		2,437	6.8 yrs
	$	5,360	$	1,356	$	4,004	$	5,360	$	1,160	$	4,200	6.8 yrs

Amortization expense of identifiable intangible assets was $0.2 million for the three months March 31, 2017 and 2016.  Expected future amortization expense related to identifiable intangibles based on our carrying amount as of March 31, 2017 was as follows (in thousands):

Twelve months ending March 31,
2018	$	744
2019		700
2020		693
2021		693
2022		659
Thereafter		515
	$	4,004

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Earnings Per Common Share

3 Months Ended

Mar. 31, 2017

Earnings Per Common Share [Abstract]

Earnings Per Common Share

NOTE 3 — EARNINGS PER COMMON SHARE

We compute basic earnings per share (“EPS”) by dividing net income or loss available to common stockholders by the weighted average number of shares outstanding during the period, including common stock issuable under participating securities. We compute diluted EPS using the weighted average number of shares outstanding, including participating securities, plus all potentially dilutive common stock equivalents. Common stock equivalents consist of stock options and restricted stock.

Our policy is to treatunvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, as participating securities, included in the computation of both basic and diluted earnings per share.  We exclude unvested restricted stock from our basic earnings per share.  Our restricted stock, which vests based on the passage of time are included in dilutive earnings per share.  Our restricted stock which vests contingent upon the attainment of annual performance goals are included in dilutive earnings per share as the performance goals are achieved.  The following is the reconciliation of the denominator of the basic and diluted EPS computations (in thousands, except per share data):

	For the Three Months Ended March 31,
		2017		2016
Basic income per share:
Net income available to common stockholders	$	973	$	427
Basic weighted average shares outstanding		11,921		11,795
Basic income per share:	$	0.08	$	0.04
Diluted income per share:
Net income available to common stockholders	$	973	$	427
Weighted average shares outstanding		11,921		11,795
Effect of dilutive securities - options and restricted stock		23		162
Diluted weighted average shares outstanding		11,944		11,957
Diluted income per share:	$	0.08	$	0.04

For the three months ended March 31, 2017 and 2016, 0.5 million and 0.2million shares, respectively, of common stock were excluded from the dilutive stock calculation because their exercise prices were greater than the average fair value of our common stock for the period. For the three months ended March 31, 2017, 0.5 million and 0.2 million shares of restricted stock were excluded from basic earnings per share and dilutive earnings per share, respectively.  No shares of restricted stock were excluded from basic or dilutive earnings per share for the three months ended March 31, 2016.

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Share-Based Compensation

3 Months Ended

Mar. 31, 2017

Share-Based Compensation [Abstract]

Share-Based Compensation

NOTE 4 — SHARE-BASED COMPENSATION

We account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions with employees and directors, and record compensation cost for all stock awards granted after January 1, 2006 and awards modified, repurchased, or cancelled after that date, using the modified prospective method. We record compensation costs associated with the vesting of unvested options on a straight-line basis over the vesting period. We recognized $0.1 million of compensation expense in the consolidated statements of operations, with respect to our stock-based compensation plans for the three months ended March 31, 2017 and 2016.  

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

	For the Three Months Ended March 31,
		2017		2016
Cost of revenue, excluding
depreciation and amortization	$	7	$	12
Sales and marketing		8		8
General and administrative		51		35
Product development		15		21
Total share based compensation	$	81	$	76

Stock Incentive Plans

In June 2007, our stockholders approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) with a maximum of 1,000,000 shares reserved for issuance. In June 2010, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 1,250,000. In June 2013, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 1,502,209.  In June 2015, our stockholders approved an amendment to the 2007 Stock Plan which increased the maximum shares that may be awarded under the plan to 2,002,209.  Awards permitted under the 2007 Stock Plan include:  Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards and Other Stock-Based Awards.  Awards issued under the 2007 Stock Plan are at the discretion of the Board of Directors.  As applicable, awards are granted with an exercise price equal to the closing price of our common stock on the date of grant, generally vest over four years for employees and three years for an initial grant and one year for subsequent grants for directors and expire no more than ten years from the date of grant.  At March 31, 2017, no shares were available for grant under the 2007 Stock Plan, as amended.  At March 31, 2017 and December 31, 2016, 0.6 million and 0.7 million were issued and outstanding under the 2007 Stock Plan as amended, respectively.

In June 2016, our stockholders approved the 2016 Stock Incentive Plan (the “2016 Stock Plan”) with a maximum of 250,000 shares reserved for issuance.  Awards permitted under the 2016 Stock Plan include: Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards and Other Stock-Based Awards.  Awards issued under the 2016 Stock Plan are at the discretion of the Board of Directors.  As applicable, awards are granted with an exercise price equal to the closing price of our common stock on the date of grant, generally vest over four years for employees and three years for an initial grant and one year for subsequent grants for directors and expire no more than ten years from the date of grant.  At March 31, 2017 and December 31, 2016, 27,000 and 0.3 million shares were available for grant under the 2016 Stock Plan, respectively.

During the three months ended March 31, 2017 542,000 shares of restricted stock were granted to members of our Board of Directors and senior management.  During the three months ended March 31, 2016 no shares of restricted stock were granted to members of our Board of Directors or senior management.  During the three months ended March 31, 2017 and 2016, 1,250 and 0 shares of restricted stock vested, respectively. No shares of restricted stock were forfeited during the three months ended March 31, 2017 and 2016.  The fair market value of restricted shares for share-based compensation expensing is equal to the closing price of our common stock on the date of grant.  Stock-based compensation expense includes $41,000 and $7,000 for the three months ended March 31, 2017 and 2016, respectively, of expense related to restricted stock grants. Of the restrictions on the stock awards granted during the three months ended March 31, 2017, 20% will be released in January 2018, and 10% annually beginning on the one year anniversary of their offering thereafter for four years.  The remaining 40%, will be released evenly over four years beginning in 2018 contingent upon the attainment of annual performance goals established by our Board of Directors.

The following is a summary of restricted stock option activity under the plans for the three months ended March 31, 2017:

	Restricted
	Stock
	Number of
	Shares
	(in thousands)
Shares outstanding at December 31, 2016	15
Options granted	542
Less options vested	(1)
Shares outstanding at March 31, 2017	556

The fair value of each option grant is estimated on the date of grant using the Black-Scholes model.  The Black-Scholes model uses four assumptions to calculate the fair value of each option grant.  The expected term of share options granted is derived using the simplified method, which we adopted in January 2008. The risk-free interest rate is based upon the rate currently available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of the stock options.  The expected volatility is based upon historical volatility of our common stock over a period equal to the expected term of the stock options.  The expected dividend yield is based upon anticipated payment of dividends.  The weighted-average assumptions used in the fair value calculations are as follows:

	For the Three Months Ended March 31,
	2017	2016
Expected term (years)	*	6.1
Risk-free interest rate	*	1.39	%
Expected volatility	*	36.90	%
Expected dividend yield	*	8.24	%

__________________________________

*  None granted

The following is a summary of stock option activity under the plans for the three months ended March 31, 2017:

				Weighted-
				Average
			Weighted-	Remaining		Aggregate
	Number of		Average	Contractual		Intrinsic
	Shares		Exercise	Term		Value
	(in thousands)		Price	(Years)		(in thousands)
Options outstanding at December 31, 2016	684	$	6.17	7.30	$	139
Less options forfeited	(13)		9.11
Less options cancelled	(71)
Less options exercised	(15)		3.61
Options outstanding at March 31, 2017	585	$	6.48	7.67	$	136
Options exercisable at March 31, 2017	306	$	6.78	6.82	$	136

No stock options were granted during the three months ended March 31, 2017.  There were 118,000 stock options granted during the three months ended March 31, 2016.  The weighted-average grant-date fair value of stock options granted were $0.74 during the three months ended March 31, 2016.  As of March 31, 2017, there were approximately $2.9 million of total unrecognized compensation costs related to unvested stock options and restricted stock.  These costs are expected to be recognized over a weighted average period of 3.77 years.  The total fair value of stock options vested during the three months ended March 31, 2017 and 2016 was approximately $0.1 million.   

The deferred income tax benefits from stock option expense related to Evolving Systems U.K. totaled approximately $2,000 and $4,000 for the three months ended March 31, 2017 and 2016, respectively. 

 Cash received from stock option exercises for the three months ended March 31, 2017 and 2016 was $7,000and $14,000, respectively. 

During the three months ended March 31, 2017, we had net settlement exercises of stock options, whereby the optionee did not pay cash for the options but instead received the number of shares equal to the difference between the exercise price and the market price on the date of exercise. Net settlement exercises during the three months ended March 31, 2017, resulted in 13,112 shares issued and 70,352 options cancelled in settlement of shares issued.  There were no net settlement exercises during the three months ended March 31, 2016.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), we are authorized to issue up to 550,000 shares.  Employees may elect to have up to 15% of their gross compensation withheld through payroll deductions to purchase our common stock, capped at $25,000 annually and no more than 10,000 shares per offering period. The purchase price of the stock is 85% of the lower of the market price at the beginning or end of each three-month participation period. As of March 31, 2017, there were approximately 51,000 shares available for purchase.  For the three months ended March 31, 2017 and 2016, we recorded compensation expense of $170 and $1,000, respectively, associated with grants under the ESPP which includes the fair value of the look-back feature of each grant as well as the 15% discount on the purchase price.  This expense fluctuates each period primarily based on the level of employee participation.

The fair value of each purchase made under our ESPP is estimated on the date of purchase using the Black-Scholes model.  The Black-Scholes model uses four assumptions to calculate the fair value of each purchase.  The expected term of each purchase is based upon the three-month participation period of each offering.  The risk-free interest rate is based upon the rate currently available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of each offering.  The expected volatility is based upon historical volatility of our common stock.  The expected dividend yield is based upon historical and anticipated payment of dividends.  The weighted average assumptions used in the fair value calculations are as follows:

	For the Three Months Ended March 31,
	2017		2016
Expected term (years)	0.25		0.25
Risk-free interest rate	0.78	%	0.20	%
Expected volatility	42.47	%	39.85	%
Expected dividend yield	0.00	%	7.67	%

Cash received from employee stock plan purchases for the three months ended March 31, 2017 and 2016 was $600 and $4,000, respectively.   

We issued shares related to the ESPP of approximately 200 and 1,000 for the three months ended March 31, 2017 and 2016, respectively. 

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Concentration Of Credit Risk

3 Months Ended

Mar. 31, 2017

Concentration Of Credit Risk [Abstract]

Concentration Of Credit Risk

NOTE 5 — CONCENTRATION OF CREDIT RISK

For the three months ended March 31, 2017, one significant customer (defined as contributing at least 10%) accounted for 11% of revenue from operations.  The significant customer for the three months ended March 31, 2017 is a large telecommunications operator in Europe.  For the three months ended March 31, 2016, one significant customer accounted for 10% of revenue from operations.  The significant customer for the three months ended March 31, 2016 is a large telecommunications operator in India.

As of March 31, 2017, one significant customer accounted for approximately 11% of contract receivables and unbilled work-in-progress.  This customer is a large telecommunication operator in Africa.  As of December 31, 2016 no customers accounted for 10% of contract receivables and unbilled work-in-progress.

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Long-Term Debt

3 Months Ended

Mar. 31, 2017

Long-Term Debt [Abstract]

Long-Term Debt

NOTE 6 — LONG-TERM DEBT

On February 29, 2016, we entered into the Fifth Amendment to the Loan and Security Agreement with East West Bank which provides for a Term Loan (the “Term Loan”) for $6.0 million.  The $6.0 million loan bears interest at a floating rate equal to the U.S.A. Prime Rate plus 1.0%.  As of March 31, 2017, the U.S.A. Prime Rate was 4.0%.The Term Loan is secured by substantially all of the assets of Evolving Systems, Inc., including a pledge, subject to certain limitations with respect to stock of foreign subsidiaries, of the stock of the existing and future direct subsidiaries of Evolving Systems, Inc.  Interest shall accrue from the date the Term Loan is made at the aforementioned rate and shall be payable monthly.  The Term Loan shall be repaid in 36 equal monthly installments of principal, plus accrued but unpaid interest, commencing on January 1, 2017 and continuing on the first day of each month thereafter through and including January 1, 2020.  On the Term Loan maturity date, the outstanding principal amount of the Term Loan and all accrued and unpaid interest thereon shall be immediately due and payable.  The Term Loan, once repaid, may not be reborrowed. We must maintain a minimum current ratio, a specified ratio of Total Liabilities to EBITDA and a minimum fixed charge coverage ratio which are as defined in the Term Loan. The Term Loan requires us to pay two annual credit facility fees of $18,750 and legal fee equal to $1,000. The Term Loan agreement required us to use the term loan’s proceeds and $4.0 million from our cash balances to pay off and terminate the Revolving Facilities totaling $10.0 million.  The Term Loan matures on January 1, 2020. 

The Term Loan includes negative covenants that place restrictions on the Company’s ability to, among other things:  incur additional indebtedness; create liens or other encumbrances on assets; make loans, enter into letters of credit, guarantees, investments and acquisitions; sell or otherwise dispose of assets; cause or permit a change of control; merge or consolidate with another entity; make negative pledges; enter into affiliate transactions; limits the amount of cash distributions to our shareholders; and change the nature of our business materially. Outstanding amounts under the Term Loan may be accelerated by East West Bank upon the occurrence and continuance of certain events of default, including without limitation:  payment defaults, breach of covenants beyond applicable grace periods, 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 March 31, 2017, we are in compliance with the covenants and have a $5.5 million balance under the Term Loan net of approximately $17,000 of debt issuance costs. 

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Income Taxes

3 Months Ended

Mar. 31, 2017

Income Taxes [Abstract]

Income Taxes

NOTE 7 — INCOME TAXES

We recorded net income tax expense of $0.4 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively.  The net expense during the three months ended March 31, 2017 consisted of current income tax expense of $0.4 million and a deferred tax benefit of ($0.1) million. The current tax expense consists of income tax from our U.S., U.K. and India based operations.  The deferred tax benefit was related primarily to the increase of certain net deferred tax assets and amortization of deferred tax liabilities in the U.S.The net expense during the three months ended March 31, 2016 consisted of current income tax expense of $0.2 million. The current tax expense consists of income tax from our U.K. and India based operations and unrecoverable foreign withholding taxes in the U.K.

Our effective tax rate was 27% and 29% for the three months ended March 31, 2017 and 2016, respectively.  The decrease in our effective tax rate relates to a higher proportion of our income being generated in the U.K., for which the statutory corporate tax rate is lower and the utilization of Foreign Tax Credits (“FTC”).

As of March 31, 2017 and December 31, 2016 we continued to maintain a valuation allowance on portions of our domestic net deferred tax asset.  Such assets primarily consist of Foreign Tax credit carry forwards (“FTC”), state Net Operating Loss (“NOL”) carryforwards, research and development tax credits and Alternative Minimum Tax (“AMT”) credits.  Our deferred tax assets and liabilities as of March 31, 2017 and December 31, 2016, were comprised of the following (in thousands):

		March 31, 2017		December 31, 2016
Deferred tax assets
Foreign tax credits carryforwards	$	4,626	$	4,360
Net operating loss carryforwards		602		544
Research & development credits		303		303
AMT credits		770		770
Stock compensation		583		561
Depreciable assets		78		71
Accrued liabilities and reserves		100		124
Total deferred tax assets		7,062		6,733
Deferred tax liabilities
Deferred revenue
Undistributed foreign earnings	$	(718)	$	(662)
Intangibles		(1,279)		(1,339)
Total deferred tax liability		(1,997)		(2,001)
Net deferred tax assets, before valuation allowance	$	5,065	$	4,732
Valuation allowance		(4,998)		(4,732)
Net deferred tax asset	$	67	$	-

In our U.S. Federal income tax returns we historically deducted income taxes paid to various countries. In our 2014 U.S. Federal income tax return we had $2.3 million of NOL carryforwards.  Our income tax calculations have historically been under the regular and AMT regulations found in U.S. tax laws.  The U.S. tax system contains rules to alleviate the burden of double taxation on income generated in foreign countries and subject to tax in such countries.  The U.S. allows for either a deduction or credit of such foreign taxes against U.S. taxable income.  An election to either claim a deduction or credit on such foreign income taxes can be made each tax year, independent from elections made in other years.  A credit reduces a company’s actual U.S. income tax on a dollar-for-dollar basis, while a deduction reduces only the company’s income subject to tax.  We made a comparison of our foreign dividends paid by our foreign subsidiary for which we deducted foreign taxes claimed versus claiming a Foreign Tax Credit (“FTC”) on the dividend paid by the foreign subsidiary.  The dividends received were grossed-up with its corresponding foreign taxes.  The U.S. law requires the offset of taxable income with NOL prior to applying the FTC rules.  We determined it was beneficial for the company to gross-up the foreign dividends paid by the foreign subsidiary for the years 2012 through 2014 and make the election to claim a FTC.  By doing so we fully utilized our December 31, 2014, $2.3 million balance of the federal NOL.  A similar comparison of benefits to either claim a deduction or a foreign tax credit for allowable foreign taxes has been made as of March 31, 2017. As the election to claim the foreign tax credit or deduction is made on an annual basis, the Company intends to compare benefits to either claim a deduction or foreign tax credit on a quarterly basis.  As a result, the company has approximately $4.6 million of FTC’s to carryforward through 2017 and subsequent years as a deferred tax asset.

Two Indian subsidiaries of SSM were acquired pursuant to the terms of the Agreement and Plan of Merger dated September 30, 2015.  We have reason to believe there is uncertainty related to the lack of historical US International reporting for these two foreign subsidiaries, and are in the process of determining whether either or both of these subsidiaries are controlled foreign corporations (“CFCs”) within the meaning of the Internal Revenue Code and related Regulations, or if a “check-the-box” election has taken place to effectively treat one or both of these subsidiaries as disregarded entities for US federal tax reporting purposes. The Company is in the process of obtaining pertinent information to assess the degree of uncertainty and to quantify related costs or liabilities.

As of March 31, 2017 and December 31, 2016 we had no liability for unrecognized tax benefits. 

We conduct business globally and, as a result, Evolving Systems, Inc. or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  Throughout the world, in the normal course of business, we are subject to examination by taxing authorities up until, two years in the U.K. and four years in India, following the end of the accounting period.  As of the date of this report, none of our income tax returns are under examination.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2017

Stockholders' Equity [Abstract]

Stockholders' Equity

NOTE 8 — STOCKHOLDERS’ EQUITY

CertainAnti-Takeover Provisions/Agreements with Stockholders

Our restated certificate of incorporation allows the board of directors to issue up to 2,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing desired flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of our outstanding voting stock. As of March 31, 2017 and December 31, 2016, no shares of preferred stock were outstanding.

In addition, we are subject to the anti-takeover provisions of Section 203 of Delaware General Corporation Law which prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in the prescribed manner. The application of Section 203 may have the effect of delaying or preventing changes in control of our management, which could adversely affect the market price of our common stock by discouraging or preventing takeover attempts that might result in the payment of a premium price to our stockholders.

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Geographical Information

3 Months Ended

Mar. 31, 2017

Geographical Information [Abstract]

Geographical Information

NOTE 9 —GEOGRAPHICAL INFORMATION

We are headquartered in Englewood, a suburb of Denver, Colorado. We use customer locations as the basis for attributing revenues to individual countries. We provide products and services on a global basis through our headquarters, our London-based Evolving Systems U.K. subsidiary and our North Carolina based Evolving Systems NC, Inc. subsidiary. Additionally, personnel in Bangalore and Kolkata, India provide software development and support services to our global operations. Financial information relating to operations by geographic region is as follows (in thousands):

	For the Three Months Ended March 31,
	2017
Revenue		License		Services		Total
United Kingdom	$	31	$	998	$	1,029
Switzerland		-		613		613
Other		312		3,921		4,233
Total revenues	$	343	$	5,532	$	5,875
	For the Three Months Ended March 31,
	2016
Revenue		License		Services		Total
United Kingdom	$	21	$	953	$	974
Switzerland		-		722		722
India		600		119		719
Other		192		3,873		4,065
Total revenues	$	813	$	5,667	$	6,480

		March 31,		December 31,
Long-lived assets, net		2017		2016
United States	$	12,127	$	12,347
United Kingdom		12,779		12,680
Other		320		318
	$	25,226	$	25,345

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Commitments And Contingencies

3 Months Ended

Mar. 31, 2017

Commitments And Contingencies [Abstract]

Commitments And Contingencies

NOTE 10 — COMMITMENTS AND CONTINGENCIES

(a)          Other Commitments

As permitted under Delaware law, we have agreements with officers and directors under which we agree to indemnify them for certain events or occurrences while the officer or director is, or was, serving at our request in this capacity. The term of the indemnification period is indefinite. There is no limit on the amount of future payments we could be required to make under these indemnification agreements; however, we maintain Director and Officer insurance policies, as well as an Employment Practices Liability Insurance Policy, that may enable us to recover a portion of any amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of March 31, 2017 or December 31, 2016.

We enter into standard indemnification terms with customers and suppliers, in the ordinary course of business, for third party claims arising under our contracts. In addition, as we may subcontract the development of deliverables under customer contracts, we could be required to indemnify customers for work performed by subcontractors. Depending upon the nature of the indemnification, the potential amount of future payments we could be required to make under these indemnification agreements may be unlimited. We may be able to recover damages from a subcontractor or other supplier if the indemnification results from the subcontractor’s or supplier’s failure to perform. To the extent we are unable to recover damages from a subcontractor or other supplier, we could be required to reimburse the indemnified party for the full amount. We have never incurred costs to defend lawsuits or settle claims relating to an indemnification. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, there were no liabilities recorded for these agreements as of March 31, 2017 or December 31, 2016.

Our standard license agreements contain product warranties that the software will be free of material defects and will operate in accordance with the stated requirements for a limited period of time.  The product warranty provisions require us to cure any defects through any reasonable means.  We believe the estimated fair value of the product warranty provisions in the license agreements in place with our customers is minimal.  Accordingly, there were no liabilities recorded for these product warranty provisions as of March 31, 2017 or December 31, 2016.

Our software arrangements generally include a product indemnification provision whereby we will indemnify and defend a customer in actions brought against the customer for claims that our products infringe upon a copyright, trade secret, or valid patent of a third party. We have not historically incurred any significant costs related to product indemnification claims. Accordingly, there were no liabilities recorded for these indemnification provisions as of March 31, 2017 or December 31, 2016.

In connection with our acquisition of Telespree on October 24, 2013, we agreed to make a cash payment of $0.5 million on the one year anniversary of the closing.  This payment was subject to reduction for certain claims and has not been paid to date.  We have made claims against this payment which are currently under dispute.  Once settled the final payment will be released.

In connection with our acquisition of SSM on September 30, 2015, we agreed to make a cash payment of $0.3 million on the one year anniversary of the closing.  This payment is subject to reduction for certain claims and has not been paid to date.  Once settled the final payment will be released.

(b)         Litigation

From time to time, we are involved in various legal matters arising in the normal course of business.  We do not expect the outcome of such proceedings, either individually or in the aggregate, to have a material effect on our financial position, cash flows or results of operations.

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Restructuring

3 Months Ended

Mar. 31, 2017

Restructuring [Abstract]

Restructuring

NOTE 11 – RESTRUCTURING

During the first quarter of 2016, we undertook a reduction in workforce involving the termination of employees resulting in an expense of $0.9 million primarily related to severance for the affected employees. The reduction in workforce was related to the consolidations of duplicative functions and alignment of staff with ongoing business activity as a result of the acquisition of Evolving Systems NC, Inc. in the third quarter of 2015.  There was no restructuring expense for the three months ended March 31, 2017.  

There was no restructuring liability as of March 31, 2017 and December 31, 2016.

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Subsequent Event

3 Months Ended

Mar. 31, 2017

Subsequent Event [Abstract]

Subsequent Event

NOTE 12 — SUBSEQUENT EVENT

On May 5, 2017, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) by BLS Limited (“EVOL BLS”), a wholly owned subsidiary of the Company, and Business Logic Systems Limited (“Seller”). EVOL BLS and Seller are both companies incorporated under the laws of England and Wales. Under the terms of the Purchase Agreement, the Seller will sell substantially all of its assets and transfer certain liabilities relating to Seller’s business of providing customer value management solutions and data driven marketing solutions for £1.2M in cash, plus (a) an additional sum of £100K, reduced by the sums paid by EVOL BLS for certain employee severance obligations paid by EVOL BLS (collectively, the “Cash Payments”); (b) a percentage of collections on certain receivables over a 24-month period; and (c) an amount equal to 50% of BLS-based revenue over defined threshold levels for a period of 3 years after the closing date.  The Company agreed to guarantee EVOL BLS’ obligations under the Purchase Agreement.

Consummation of the transactions contemplated by the Purchase Agreement is contingent upon satisfactory completion of defined activities to be carried out in an Interim Period following execution of the Purchase Agreement.

The Company issued a press release and filed a Form 8-K with the SEC announcing the transaction on May 11, 2017.

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Basis Of Presentation (Policy)

3 Months Ended

Mar. 31, 2017

Basis Of Presentation [Abstract]

Organization

Organization —We are a provider of software solutions and services to the wireless, wireline and cable markets. We maintain long-standing relationships with many of the largest wireless, wireline and cable companies worldwide. Our customers rely on us to develop, deploy, enhance and maintain software solutions that provide a variety of service activation and provisioning functions.  In 2016, we began a shift from selling technology to offering business solutions. The value proposition has moved from cost savings to revenue increases for the carrier and our business model has moved from classic capex license and services to opex models based on recurring managed services with performance fees.  Our software solution platform, Real-time Lifecycle Marketing™ (“RLM”), enables carriers’ marketing departments to innovate, execute and manage highly-personalized and contextually-relevant, interactive campaigns that engage consumers in real time.  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 on premise or as a Software-as-a-Service (“SaaS”).

Interim Consolidated Financial Statements

Interim 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 (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 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 GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these consolidated financial statements are adequate to make the information presented not misleading. The unaudited 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 GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2017 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, 2016 included in our Annual Report on Form 10-K.

Reclassifications

Reclassifications - Certain reclassifications have been made to the 2016 financial statements to conform to the consolidated 2017 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

Use Of Estimates

Use of Estimates—The preparation of consolidated financial statements in conformity with 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 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 estimated hours to complete projects accounted for using the percentage-of-completion method, allowance for doubtful accounts, income tax valuation allowance, fair values of long-lived assets, valuation of intangible assets and goodwill, useful lives for property, equipment and intangible assets, business combinations, capitalization of internal software development costs and fair value of stock-based compensation amounts.  Actual results could differ from these estimates.

Foreign Currency

Foreign Currency —Our functional currency is the U.S. dollar.  The functional currency of our foreign operations 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 statements of income 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 consolidated statements of operations in the period in which they occur.

Principles Of Consolidation

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.

Goodwill

Goodwill —Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired.  Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to the reporting unit, and determination of the fair value of the reporting unit.

Intangible Assets

Intangible Assets —Amortizable intangible assets consist primarily of purchased software and licenses, customer contracts and relationships, trademarks and tradenames, non-competition and business partnerships acquired in conjunction with our purchase of Telespree Communications (“Evolving Systems Labs, Inc.”) and RateIntegration, Inc. d/b/a Sixth Sense Media (“Evolving Systems NC, Inc.”).  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 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

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

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.   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. In these types of arrangements, we do not typically have vendor specific objective evidence (“VSOE”) of fair value on the license fee/services portion (services are related to customizing the software) of the arrangement due to the large amount of customization required by our customers; however, we do have VSOE for the warranty/maintenance services based on the renewal rate of the first year of maintenance in the arrangement. The license/services portion is recognized using the percentage-of-completion method of accounting and the warranty/maintenance services are separated based on the renewal rate in the contract and recognized ratably over the warranty or maintenance period. 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. If the arrangement includes a customer acceptance provision, the hours to complete the acceptance testing are included in the total estimated direct labor hours; therefore, the related revenue is recognized as the acceptance testing is performed. Revenue is not recognized in full until the customer has provided proof of acceptance on the arrangement.  Generally, our contracts are accounted for individually. However, when certain criteria are met, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts. 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. Where applicable, we unbundle and record as revenue fees from multiple element arrangements as the elements are delivered to the extent that VSOE of fair value of the undelivered elements exist. If VSOE for the undelivered elements does not exist, we defer fees from such arrangements until the earlier of the date that VSOE does exist on the undelivered elements or all of the elements have been delivered.

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 revenue from our managed services contracts primarily ratably over the service contract period.  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 proportional performance method of accounting.

We recognize revenue from our MDE contracts based on the number of transactions per month multiplied by a factor based on a unique table for transaction volumes relating to each account.

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.

We review and update our contract-related estimates regularly. The impact of an adjustment in estimate is recognized prospectively over the remaining contract term. No adjustment on any one contract was material to our unaudited Consolidated Financial Statements in the three months ended March 31, 2017 and 2016.

Stock-Based Compensation

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

The fair market value of restricted shares for share-based compensation expensing is equal to the closing price of our common stock on the date of grant.  Of the restrictions on the stock awards granted during the three months ended March 31, 2017, 20% will be released in January 2018, and 10% annually beginning on the one year anniversary of their offering thereafter for four years.  The remaining 40%, will be released evenly over four years beginning in 2018 contingent upon the attainment of annual performance goals established by our Board of Directors.

Comprehensive Income (Loss)

Comprehensive Income (Loss) —Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

Income Taxes

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

We use a recognition threshold and a measurement attribute for 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.

Segment Information

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 Chief Financial Officer as our chief operating decision-makers (“CODM”). 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 income).  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 service, managed services, annual support fees, recurring maintenance fees, fees for maintenance upgrades and warranty services.  Warranty services that are similar to software maintenance services are typically bundled with a license sale. Total assets by segment have not been disclosed as the information is not available to the chief operating decision-makers.

Recent Accounting Pronouncements

Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” Topic 606.  This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers,” Topic 606: “Identifying Performance Obligations and Licensing”.  This Update clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard.  The Update includes targeted improvements based on input the Board received from the Transition Resource Group for Revenue Recognition and other stakeholders.  The update seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis.  In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” Topic 606: “Narrow-Scope Improvements and Practical Expedients”.  The amendments in this Update address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. This ASU is the final version of Proposed Accounting Standards Update 2015-320, “Revenue from Contracts with Customers,” (Topic 606): “Narrow-Scope Improvements and Practical Expedients,” which has been deleted.  In December 2016, the FASB issued ASU No. 2016-20, “Revenue from Contracts with Customers,” Topic 606: “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”.  The amendments in this Update address narrow-scope improvements to the guidance on loan guarantee fees, contract cost-impairment testing, contract costs-interaction of impairment testing with guidance in other topics, provision for losses on construction-type and production-type contracts, scope of topic 606 to exclude all contracts that are within the scope of Topic 944, disclosure of remaining performance obligations, disclosure of prior-period performance obligations, contract modifications, contract asset versus receivable, refund liability, advertising costs, fixed-odds wagering contracts in the casino industry and cost capitalization for advisors to private funds and public funds. The Board decided to issue a separate Update for technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to Update 2014-09.  This ASU is effective retrospectively for fiscal years, and interim periods within those years beginning after December 15, 2017 for public companies and 2018 for non-public entities. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to put most leases on their balance sheets by recognizing a lessee’s rights and obligations, while expenses will continue to be recognized in a similar manner to today’s legacy lease accounting guidance. This ASU could also significantly affect the financial ratios used for external reporting and other purposes, such as debt covenant compliance. This ASU will be effective for us on January 1, 2019, with early adoption permitted. We are currently in the process of assessing the impact of this ASU on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation (Topic 718), which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The standard is effective for annual periods beginning after December 15, 2016. We have adopted this ASU during the first quarter 2017.  The key effects of the adoption on our financial statements include that the Company will now recognize windfall tax benefits as deferred tax assets instead of tracking the windfall pool and recording such benefits in equity. Additionally, we have elected to recognize forfeitures as they occur rather than estimating them at the time of grant.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions intended to simplify the test for goodwill impairment. The standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

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Goodwill And Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2017

Goodwill And Intangible Assets [Abstract]

Summary Of Changes In Carrying Amount Of Goodwill

		Total
		Goodwill
Balance at December 31, 2016	$	20,599
Effects of changes in foreign
currency exchange rates (1)		119
Balance at March 31, 2017	$	20,718

(1) Represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income.

Summary Of Identifiable Intangible Assets

	March 31, 2017						December 31, 2016
		Gross Amount		Accumulated Amortization		Net Carrying Amount		Gross Amount		Accumulated Amortization		Net Carrying Amount	Weighted-Average Amortization Period
Purchased software	$	2,118	$	502	$	1,616	$	2,118	$	436	$	1,682	7.3 yrs
Trademarks and tradenames		185		135		50		185		116		69	2.6 yrs
Non-competition		33		25		8		33		21		12	2.0 yrs
Customer relationships		3,024		694		2,330		3,024		587		2,437	6.8 yrs
	$	5,360	$	1,356	$	4,004	$	5,360	$	1,160	$	4,200	6.8 yrs

Summary Of Expected Future Amortization Expense Related To Identifiable Intangibles

Twelve months ending March 31,
2018	$	744
2019		700
2020		693
2021		693
2022		659
Thereafter		515
	$	4,004

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Earnings Per Common Share (Tables)

3 Months Ended

Mar. 31, 2017

Earnings Per Common Share [Abstract]

Summary Of Basic And Diluted Earnings Per Share

	For the Three Months Ended March 31,
		2017		2016
Basic income per share:
Net income available to common stockholders	$	973	$	427
Basic weighted average shares outstanding		11,921		11,795
Basic income per share:	$	0.08	$	0.04
Diluted income per share:
Net income available to common stockholders	$	973	$	427
Weighted average shares outstanding		11,921		11,795
Effect of dilutive securities - options and restricted stock		23		162
Diluted weighted average shares outstanding		11,944		11,957
Diluted income per share:	$	0.08	$	0.04

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Share-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2017

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Summary Of Stock-Based Compensation Expenses

	For the Three Months Ended March 31,
		2017		2016
Cost of revenue, excluding
depreciation and amortization	$	7	$	12
Sales and marketing		8		8
General and administrative		51		35
Product development		15		21
Total share based compensation	$	81	$	76

Summary Of Stock Option Activity

				Weighted-
				Average
			Weighted-	Remaining		Aggregate
	Number of		Average	Contractual		Intrinsic
	Shares		Exercise	Term		Value
	(in thousands)		Price	(Years)		(in thousands)
Options outstanding at December 31, 2016	684	$	6.17	7.30	$	139
Less options forfeited	(13)		9.11
Less options cancelled	(71)
Less options exercised	(15)		3.61
Options outstanding at March 31, 2017	585	$	6.48	7.67	$	136
Options exercisable at March 31, 2017	306	$	6.78	6.82	$	136

Stock Options [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Assumptions For Weighted Average Fair Value Of Stock Options

	For the Three Months Ended March 31,
	2017	2016
Expected term (years)	*	6.1
Risk-free interest rate	*	1.39	%
Expected volatility	*	36.90	%
Expected dividend yield	*	8.24	%

__________________________________

*  None granted

Employee Stock Purchase Plan [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Assumptions For Weighted Average Fair Value Of Stock Options

	For the Three Months Ended March 31,
	2017		2016
Expected term (years)	0.25		0.25
Risk-free interest rate	0.78	%	0.20	%
Expected volatility	42.47	%	39.85	%
Expected dividend yield	0.00	%	7.67	%

Restricted Stock [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Summary Of Stock Option Activity

	Restricted
	Stock
	Number of
	Shares
	(in thousands)
Shares outstanding at December 31, 2016	15
Options granted	542
Less options vested	(1)
Shares outstanding at March 31, 2017	556

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2017

Income Taxes [Abstract]

Components Of Deferred Tax Assets And Liabilities

		March 31, 2017		December 31, 2016
Deferred tax assets
Foreign tax credits carryforwards	$	4,626	$	4,360
Net operating loss carryforwards		602		544
Research & development credits		303		303
AMT credits		770		770
Stock compensation		583		561
Depreciable assets		78		71
Accrued liabilities and reserves		100		124
Total deferred tax assets		7,062		6,733
Deferred tax liabilities
Deferred revenue
Undistributed foreign earnings	$	(718)	$	(662)
Intangibles		(1,279)		(1,339)
Total deferred tax liability		(1,997)		(2,001)
Net deferred tax assets, before valuation allowance	$	5,065	$	4,732
Valuation allowance		(4,998)		(4,732)
Net deferred tax asset	$	67	$	-

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Geographical Information (Tables)

3 Months Ended

Mar. 31, 2017

Geographical Information [Abstract]

Financial Information Relating To Operations By Geographic Region

	For the Three Months Ended March 31,
	2017
Revenue		License		Services		Total
United Kingdom	$	31	$	998	$	1,029
Switzerland		-		613		613
Other		312		3,921		4,233
Total revenues	$	343	$	5,532	$	5,875
	For the Three Months Ended March 31,
	2016
Revenue		License		Services		Total
United Kingdom	$	21	$	953	$	974
Switzerland		-		722		722
India		600		119		719
Other		192		3,873		4,065
Total revenues	$	813	$	5,667	$	6,480

Summary Of Long-Lived Assets, Net

		March 31,		December 31,
Long-lived assets, net		2017		2016
United States	$	12,127	$	12,347
United Kingdom		12,779		12,680
Other		320		318
	$	25,226	$	25,345

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Basis Of Presentation (Narrative) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) item segment	Mar. 31, 2016 USD ($)
Number of operating segments | segment	1
Number of recognized sources for revenue | item	2
Time period for unearned revenue to be billed and collected	12 months
Adjustment on contract | $	$ 0	$ 0
Stock Options [Member]
Released period for restricted stock	4 years
Stock Options [Member] | January 2018 [Member]
Percentage of released stock awards granted	20.00%
Stock Options [Member] | One Year Anniversary [Member]
Percentage of released stock awards granted	10.00%
Stock Options [Member] | Evenly Over Four Years [Member]
Percentage of released stock awards granted	40.00%

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Goodwill And Intangible Assets (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Jul. 31, 2016
Goodwill And Intangible Assets [Line Items]
Goodwill	$ 20,718		$ 20,599
Amortization of intangible assets	$ 196	$ 196
Annual Goodwill Impairment Test [Member]
Goodwill And Intangible Assets [Line Items]
Goodwill				$ 21,500
License Fees And Services [Member] | United States [Member] | Annual Goodwill Impairment Test [Member]
Goodwill And Intangible Assets [Line Items]
Goodwill				6,300
License Fees And Services [Member] | United Kingdom [Member] | Annual Goodwill Impairment Test [Member]
Goodwill And Intangible Assets [Line Items]
Goodwill				6,100
License Fees And Services [Member] | India [Member] | Annual Goodwill Impairment Test [Member]
Goodwill And Intangible Assets [Line Items]
Goodwill				200
Customer Support [Member] | United States [Member] | Annual Goodwill Impairment Test [Member]
Goodwill And Intangible Assets [Line Items]
Goodwill				1,500
Customer Support [Member] | United Kingdom [Member] | Annual Goodwill Impairment Test [Member]
Goodwill And Intangible Assets [Line Items]
Goodwill				$ 7,400
Minimum [Member] | Evolving Systems Labs And Evolving Systems NC, Inc [Member]
Goodwill And Intangible Assets [Line Items]
Estimated useful life of intangible asset	1 year
Maximum [Member] | Evolving Systems Labs And Evolving Systems NC, Inc [Member]
Goodwill And Intangible Assets [Line Items]
Estimated useful life of intangible asset	8 years

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Goodwill And Intangible Assets (Summary Of Changes In Carrying Amount Of Goodwill) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($)
Goodwill And Intangible Assets [Line Items]
Balance as of the beginning of the period	$ 20,599
Effects of changes in foreign currency exchange rates	119	[1]
Balance as of the ending of the period	$ 20,718

[1] Represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income.

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Goodwill And Intangible Assets (Summary Of Identifiable Intangible Assets) (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Net Carrying Amount	$ 4,004	$ 4,200
Evolving Systems Labs And Evolving Systems NC, Inc [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	5,360	5,360
Accumulated Amortization	1,356	1,160
Net Carrying Amount	$ 4,004	$ 4,200
Weighted-Average Amortization Period	6 years 9 months 18 days	6 years 9 months 18 days
Evolving Systems Labs And Evolving Systems NC, Inc [Member] | Purchased Software [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 2,118	$ 2,118
Accumulated Amortization	502	436
Net Carrying Amount	$ 1,616	$ 1,682
Weighted-Average Amortization Period	7 years 3 months 18 days	7 years 3 months 18 days
Evolving Systems Labs And Evolving Systems NC, Inc [Member] | Trademarks And Tradenames [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 185	$ 185
Accumulated Amortization	135	116
Net Carrying Amount	$ 50	$ 69
Weighted-Average Amortization Period	2 years 7 months 6 days	2 years 7 months 6 days
Evolving Systems Labs And Evolving Systems NC, Inc [Member] | Non-competition [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 33	$ 33
Accumulated Amortization	25	21
Net Carrying Amount	$ 8	$ 12
Weighted-Average Amortization Period	2 years	2 years
Evolving Systems Labs And Evolving Systems NC, Inc [Member] | Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 3,024	$ 3,024
Accumulated Amortization	694	587
Net Carrying Amount	$ 2,330	$ 2,437
Weighted-Average Amortization Period	6 years 9 months 18 days	6 years 9 months 18 days

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Goodwill And Intangible Assets (Summary Of Expected Future Amortization Expense Related To Identifiable Intangibles) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Goodwill And Intangible Assets [Abstract]
2018	$ 744
2019	700
2020	693
2021	693
2022	659
Thereafter	515
Net Carrying Amount	$ 4,004	$ 4,200

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Earnings Per Common Share (Summary Of Basic And Diluted Earnings Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Basic income per share:
Net income	$ 973	$ 427
Basic weighted average shares outstanding	11,921	11,795
Basic income per share:	$ 0.08	$ 0.04
Diluted income per share:
Net income	$ 973	$ 427
Weighted average shares outstanding	11,921	11,795
Effect of dilutive securities - options and restricted stock	23	162
Diluted weighted average shares outstanding	11,944	11,957
Diluted income per share:	$ 0.08	$ 0.04
Restricted Stock [Member] | Basic [Member]
Diluted income per share:
Shares excluded from earnings per share calculation	500
Restricted Stock [Member] | Dilutive [Member]
Diluted income per share:
Shares excluded from earnings per share calculation	200
Restricted Stock [Member] | Basic Or Dilutive [Member]
Diluted income per share:
Shares excluded from earnings per share calculation		0
Common Stock [Member] | Dilutive [Member]
Diluted income per share:
Shares excluded from earnings per share calculation	500	200

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Share-Based Compensation (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2013	Jun. 30, 2010	Jun. 30, 2007
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense	$ 81,000	$ 76,000
Restricted stock-based compensation expense	41,000	7,000
Fair value of stock options vested	$ 100,000	$ 100,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options remained outstanding under option plan	556,000		15,000
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted	0	118,000
Number of shares restricted stock vested	1,250	0
Number of shares restricted stock forfeited	0	0
Released period for restricted stock	4 years
Options remained outstanding under option plan	585,000		684,000
Weighted-average grant-date fair value of stock options granted		$ 0.74
Total unrecognized compensation costs related to unvested stock options	$ 2,900,000
Weighted average recognition period	3 years 9 months 7 days
Cash received from exercise of stock options	$ 7,000	$ 14,000
Net settlement exercises shares issued	13,112
Net settlement exercises shares cancelled	70,352
Net settlement exercises shares		0
Stock Options [Member] | January 2018 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of released stock awards granted	20.00%
Stock Options [Member] | One Year Anniversary [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of released stock awards granted	10.00%
Stock Options [Member] | Evenly Over Four Years [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of released stock awards granted	40.00%
2007 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized					2,002,209	1,502,209	1,250,000	1,000,000
Shares available for grant	0
Shares issued and outstanding	600,000		700,000
2007 Stock Plan [Member] | Initial [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years
2016 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized				250,000
Shares available for grant	27,000		300,000
2016 Stock Plan [Member] | Initial [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense	$ 170	$ 1,000
Number of shares authorized	550,000
Cash received from exercise of stock options	$ 600	$ 4,000
Maximum employee subscription rate	15.00%
Maximum value of shares per employee	$ 25,000
Maximum number of shares per employee	10,000
Purchase price of stock	85.00%
Shares available for purchase under ESPP	51,000
Discount on the purchase price of stock option	15.00%
Issued shares related to the ESPP	200	1,000
Maximum [Member] | 2007 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option expiration period	10 years
Maximum [Member] | 2016 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option expiration period	10 years
Employees [Member] | 2007 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Employees [Member] | 2016 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Directors [Member] | 2007 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
Directors [Member] | 2016 Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
Board Members And Senior Management [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock granted in period	542,000	0
Evolving Systems U.K. [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Deferred income tax benefits from stock option expense	$ 2,000	$ 4,000

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Share-Based Compensation (Summary Of Stock-Based Compensation Expenses) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	$ 81	$ 76
Cost Of Revenue, Excluding Depreciation And Amortization [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	7	12
Sales And Marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	8	8
General And Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	51	35
Product Development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share based compensation	$ 15	$ 21

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Share-Based Compensation (Assumptions For Weighted Average Fair Value Of Stock Options) (Details)	3 Months Ended
	Mar. 31, 2017		Mar. 31, 2016
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (years)			6 years 1 month 6 days
Risk-free interest rate		[1]	1.39%
Expected volatility		[1]	36.90%
Expected dividend yield		[1]	8.24%
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (years)	3 months		3 months
Risk-free interest rate	0.78%		0.20%
Expected volatility	42.47%		39.85%
Expected dividend yield	0.00%		7.67%

[1] None granted

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Share-Based Compensation (Summary Of Stock Option Activity) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares, Options outstanding at beginning	15
Number of Shares, Options granted	542
Number of Shares, Less options vested/exercised	(1)
Number of Shares, Options outstanding at ending	556	15
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares, Options outstanding at beginning	684
Number of Shares, Less options forfeited	(13)
Number of Shares, Less options cancelled	(71)
Number of Shares, Less options vested/exercised	(15)
Number of Shares, Options outstanding at ending	585	684
Number of Shares, Option exercisable at March 31, 2017	306
Weighted-Average Exercise Price, Options outstanding at beginning	$ 6.17
Weighted-Average Exercise Price, Less options forfeited	9.11
Weighted-Average Exercise Price, Less options exercised	3.61
Weighted-Average Exercise Price, Options outstanding at ending	6.48	$ 6.17
Weighted-Average Exercise Price, Options exercisable at March 31, 2017	$ 6.78
Weighted-Average Remaining Contractual Term (Years), Options outstanding	7 years 8 months 1 day	7 years 3 months 18 days
Weighted-Average Remaining Contractual Term (Years), Option exercisable at March 31, 2017	6 years 9 months 26 days
Aggregate Intrinsic Value, Options outstanding	$ 136	$ 139
Aggregate Intrinsic Value, Options exercisable at March 31, 2017	$ 136

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Concentration Of Credit Risk (Narrative) (Details) - customer	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Sales Revenue Net [Member] | Customer Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	10.00%
Sales Revenue Net [Member] | Customer One [Member] | India [Member]
Concentration Risk [Line Items]
Number of significant customers		1
Concentration risk, percentage		10.00%
Sales Revenue Net [Member] | Customer One [Member] | Europe [Member]
Concentration Risk [Line Items]
Number of significant customers	1
Concentration risk, percentage	11.00%
Contract Receivables And Unbilled Work-In-Progress [Member] | Customer Concentration Risk [Member]
Concentration Risk [Line Items]
Number of significant customers			0
Concentration risk, percentage			10.00%
Contract Receivables And Unbilled Work-In-Progress [Member] | Customer One [Member] | Africa [Member]
Concentration Risk [Line Items]
Number of significant customers	1
Concentration risk, percentage	11.00%

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Long-Term Debt (Narrative) (Details)		3 Months Ended
	Feb. 29, 2016 USD ($)	Mar. 31, 2017 USD ($) item
Prime Rate [Member]
Debt Instrument [Line Items]
Interest rate		4.00%
Term Loan [Member]
Debt Instrument [Line Items]
Loan amount		$ 5,500,000
Term Loan [Member] | East West Bank [Member]
Debt Instrument [Line Items]
Loan amount	$ 6,000,000
Number of monthly installments of principal | item		36
Cash balances to pay off revolving facilities		$ 4,000,000
Maturity date		Jan. 01, 2020
Debt issuance cost		$ 17,000
Term Loan [Member] | East West Bank [Member] | Prime Rate [Member]
Debt Instrument [Line Items]
Rate plus prime rate		1.00%
Revolving Facility [Member]
Debt Instrument [Line Items]
Credit facility fees	18,750
Legal fee	1,000
Revolving facilities amount to pay off and terminate	$ 10,000,000

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Income Taxes (Narrative) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) item	Mar. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)	Sep. 30, 2015 entity	Dec. 31, 2014 USD ($)
Income Taxes [Line Items]
Net income tax expense	$ 350	$ 170
Deferred tax expense (benefit)	$ (100)
Effective tax rate	27.00%	29.00%
Net deferred tax liability	$ 1,279		$ 1,339
Deferred tax assets	67
Unrecognized tax benefits	$ 0		$ 0
Number of Indian subsidiaries acquired pursuant to the merger terms | entity				2
Number of income tax returns under examination | item	0
Federal [Member]
Income Taxes [Line Items]
Federal net operating loss carryforwards					$ 2,300
Foreign tax credit carryforwards as a deferred tax asset	$ 4,600
Indian Operations [Member]
Income Taxes [Line Items]
Number of years subject to income tax examination	4 years
U.K. Operations [Member]
Income Taxes [Line Items]
Number of years subject to income tax examination	2 years
U.K. Operations [Member] | Evolving Systems NC, Inc [Member]
Income Taxes [Line Items]
Deferred tax expense (benefit)	$ (100)
U.K. and India Operations [Member]
Income Taxes [Line Items]
Current income tax expense		$ 200
U.S., U.K. and India Operations [Member]
Income Taxes [Line Items]
Current income tax expense	$ 400

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Income Taxes (Components Of Deferred Tax Assets And Liabilities) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Deferred tax assets
Foreign tax credits carryforwards	$ 4,626	$ 4,360
Net operating loss carryforwards - State	602	544
Research & development credits	303	303
AMT credits	770	770
Stock compensation	583	561
Depreciable assets	78	71
Accrued liabilities and reserves	100	124
Total deferred tax assets	7,062	6,733
Deferred tax liabilities
Undistributed foreign earnings	(718)	(662)
Intangibles	(1,279)	(1,339)
Total deferred tax liability	(1,997)	(2,001)
Net deferred tax assets, before valuation allowance	5,065	4,732
Valuation allowance	(4,998)	(4,732)
Net deferred tax asset	$ 67

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Stockholders' Equity (Narrative) (Details) - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Stockholders' Equity [Abstract]
Cash dividend declared per common share		$ 0.11
Preferred stock, shares authorized	2,000,000		2,000,000
Preferred stock, shares outstanding	0		0
Anti-takeover provisions period	3 years

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Geographical Information (Financial Information Relating To Operations By Geographic Region) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Segment Reporting Information [Line Items]
Total revenues	$ 5,875	$ 6,480
United Kingdom [Member]
Segment Reporting Information [Line Items]
Total revenues	1,029	974
Switzerland [Member]
Segment Reporting Information [Line Items]
Total revenues	613	722
Other [Member]
Segment Reporting Information [Line Items]
Total revenues	4,233	4,065
India [Member]
Segment Reporting Information [Line Items]
Total revenues		719
License Fees [Member]
Segment Reporting Information [Line Items]
Total revenues	343	813
License Fees [Member] | United Kingdom [Member]
Segment Reporting Information [Line Items]
Total revenues	31	21
License Fees [Member] | Other [Member]
Segment Reporting Information [Line Items]
Total revenues	312	192
License Fees [Member] | India [Member]
Segment Reporting Information [Line Items]
Total revenues		600
Services [Member]
Segment Reporting Information [Line Items]
Total revenues	5,532	5,667
Services [Member] | United Kingdom [Member]
Segment Reporting Information [Line Items]
Total revenues	998	953
Services [Member] | Switzerland [Member]
Segment Reporting Information [Line Items]
Total revenues	613	722
Services [Member] | Other [Member]
Segment Reporting Information [Line Items]
Total revenues	$ 3,921	3,873
Services [Member] | India [Member]
Segment Reporting Information [Line Items]
Total revenues		$ 119

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Geographical Information (Summary Of Long-lived Assets, Net) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Segment Reporting Information [Line Items]
Long-lived assets, net	$ 25,226	$ 25,345
United States [Member]
Segment Reporting Information [Line Items]
Long-lived assets, net	12,127	12,347
United Kingdom [Member]
Segment Reporting Information [Line Items]
Long-lived assets, net	12,779	12,680
Other [Member]
Segment Reporting Information [Line Items]
Long-lived assets, net	$ 320	$ 318

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Commitments And Contingencies (Narrative) (Details) - USD ($) $ in Millions			3 Months Ended
	Sep. 30, 2015	Oct. 24, 2013	Mar. 31, 2017
Telespree [Member]
Other Commitments [Line Items]
Acquisition date			Oct. 24, 2013
Initial payment		$ 0.5
SSM [Member]
Other Commitments [Line Items]
Acquisition date			Sep. 30, 2015
Initial payment	$ 0.3

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Restructuring (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2017	Dec. 31, 2016
Restructuring [Abstract]
Restructuring expense	$ 941
Restructuring liability		$ 0	$ 0

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Subsequent Event (Narrative) (Details) - EVOL BLS [Member] - Subsequent Event [Member] £ in Thousands	May 05, 2017 GBP (£)
Subsequent Event [Line Items]
Cash from asset purchase agreement	£ 1,200
Percentage of revenue over defined threshold levels	50.00%
Period of revenue over defined threshold levels	3 years
Minimum [Member]
Subsequent Event [Line Items]
Period of percentage of collections on receivables	24 months
Additional Sum [Member]
Subsequent Event [Line Items]
Cash from asset purchase agreement	£ 100