DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2021

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

NOTE 2 — DISCONTINUED OPERATIONS

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

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

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

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

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

	For the Years Ended December 31,
	2021		2020
Revenue	$	26,898	$	26,352
Costs of revenue		(8,759)		(8,837)
Sales and marketing		(5,509)		(6,000)
General and administrative		(2,361)		(2,201)
Product development		(5,291)		(4,327)
Depreciation		(395)		(213)
Amortization		(941)		(940)
Restructuring		(61)		—
Interest expense		(5)		—
Interest income		10		14
Other income		301		175
Foreign currency exchange (loss) income		(350)		370
Income tax expense		(3,500)		(828)
Net income from discontinued operations	$	37	$	3,565
Gain on sale of discontinued operations	$	20,840	$	—

Proceeds from the sale of the business have been presented in the Consolidated Statement of Cash Flows under investing activities for the year ended December 31, 2021. In accordance with ASC Topic 205-20, additional disclosures relating to cash flow is required for discontinued operations. Cash flow information relating to the discontinued operations for the years ended December 31, 2021 and 2020 is as follows:

	For the Years Ended December 31,
	2021		2020
Operating cash flow data:
Depreciation	$	395	$	213
Amortization of operating leases — right of use assets		365		272
Amortization of intangible assets		941		940
Provision for deferred income taxes		42		(56)
Bad debt expense, net of recoveries		88		(92)
Investing cash flow data:
Purchases of property and equipment		(385)		(265)

	December 31, 2020
Cash and cash equivalents per balance sheet	$	241
Cash and cash equivalents classified within current assets of discontinued operations		2,522
Ending cash and cash equivalents balance per statement of cash flows	$	2,763

The carrying amounts of the assets and liabilities of the discontinued operations on the Consolidated Balance Sheets as of December 31, 2021 and 2020 was as follows:

	December 31,
	2021		2020
Assets of discontinued operations:
Current assets of discontinued operations:
Cash and cash equivalents	$	—	$	2,522
Contract receivables, net		—		5,681
Unbilled work in progress		—		3,365
Prepaid and other current assets		—		1,609
Income tax receivable		—		270
Total current assets of discontinued operations:		—		13,447
Non-current assets of discontinued operations:
Property and equipment, net		—		527
Operating leases - right of use asset, net				915
Amortizable intangible assets, net		—		2,769
Deferred income taxes		—		453
Total non-current assets of discontinued operations:		—		4,664
Total assets of discontinued operations	$	—	$	18,111
Liabilities of discontinued operations:
Current liabilities of discontinued operations:
Accounts payable and accrued liabilities and income taxes payable	$	—	$	3,267
Term loan		—		142
Lease obligations, current		—		294
Unearned revenue		—		3,713
Total current liabilities of discontinued operations:		—		7,416
Non-current liabilities of discontinued operations:
Lease obligations, net of current		—		613
Total non-current liabilities of discontinued operations:		—		613
Total liabilities of discontinued operations	$	—	$	8,029

The gain on sale of discontinued operations was determined as follows:

	Year Ended December 31, 2021
Purchase price	$	40,000
Closing adjustments		(1,467)
Net book value of assets sold		(6,461)
Transaction costs		(864)
Currency translation adjustment reclassified from accumulated other comprehensive loss		(10,368)
Gain on sale of discontinued operations	$	20,840