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 Symbolic Logic's 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. In addition, statements about the potential effects
of the COVID-19 pandemic on the Company's businesses, results of operations and
financial condition may constitute 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, 2021, as filed with the SEC on April 11, 2022, under "Item 1A. Risk
Factors" as well as additional risks in our other filings with the SEC. The
forward-looking statements are applicable only as of the date on which they are
made, and we do not assume any obligation to update any forward-looking
statements.
OVERVIEW
On December 31, 2021, the Company closed on the terms of the Equity Purchase
Agreement (the "Equity Purchase Agreement") and two Software Purchase Agreements
(the "Software Purchase Agreements" and, together with the Equity Purchase
Agreement and the other transaction documents described therein, the "Purchase
Agreements") dated as of October 15, 2021, with subsidiaries and affiliates of
PartnerOne Capital, Inc. (the "Purchasers"). The Purchase Agreements provided
for the sale and transfer of substantially all of the Company's operating
subsidiaries and all of its assets that provided real-time digital engagement
solutions and services in the areas of real-time analytics, customer acquisition
and activation, customer value management and loyalty for the telecom industry
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 included customary terms and conditions, including an adjustment to
the purchase price based on the Company's cash and cash equivalents on hand 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. 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.
Simultaneously with the approval by the board of directors of the Company to
execute the Purchase Agreements, the board formed a subcommittee of the board
(the "Investment Committee") to evaluate options to maximize the value of the
Company's assets, which, following the closing of the transactions contemplated
under the Purchase Agreements, will consist primarily of cash and cash
equivalents. The board of directors has authorized the Investment Committee to
retain such counsel, experts, consultants or other professionals as the
Investment Committee shall deem appropriate from time to time to aid the
Investment Committee in the performance of its duties.
Following the sale of its assets in real-time digital engagement solutions and
services in December 2021, the Company has decided to evaluate new areas of
business which included two initial areas of product focus. The two areas of
focus are in the application of self-learning algorithms as well as the symbolic
tagging and organizing of physical objects. Additionally, the Company maintains
an extensive background in mergers and acquisitions ("M&A") activity. The
Company plans to use cash assets, and network of relationships to acquire
businesses and/or assets, as well as consider strategic partnerships.
RECENT DEVELOPMENTS
We reported a net loss from continuing operations of $0.6 million and $0.7
million for the three months ended September 30, 2022 and 2021, respectively and
$3.3 million and $2.3 million for the nine months ended September 30, 2022 and
2021, respectively.
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COVID-19
The COVID-19 global outbreak caused instability and volatility in multiple
markets throughout the world. We have leveraged our ability to work remotely
resulting in limited effect on our day-to-day operations.
NAME CHANGE
On April 12, 2022, Evolving Systems, Inc. filed with the Secretary of State of
Delaware Certificate of Amendment to amend its Certificate of Incorporation to
change the Company's name from "Evolving Systems, Inc." to "Symbolic Logic,
Inc." effective as of April 12, 2022. The Company also amended and restated its
Bylaws to change all Company references from "Evolving Systems, Inc." to
"Symbolic Logic, Inc." No other amendments were made to the Certificate of
Incorporation or Bylaws.
NASDAQ
On December 9, 2021, we received a letter from the Nasdaq Capital Market
("NASDAQ") regarding the Equity Purchase Agreement and the two Software Purchase
Agreements entered into by the Company pursuant to which we sold all of our
assets. The staff requested certain information from the Company regarding its
on-going business. We provided a response to the staff on January 7, 2022. We
received a follow up request from the NASDAQ for additional information and we
provided a response to the staff on February 15, 2022.
On April 13, 2022, Symbolic Logic Inc. f/k/a Evolving Systems, Inc. notified the
NASDAQ of its intention to voluntarily withdraw its common stock, par value
$0.001 per share (the "Common Stock"), from listing on Nasdaq. The Company filed
a Form 25 with the Securities and Exchange Commission on Monday, April 25, 2022,
relating to delisting the Common Stock under Section 12(b) of the Securities
Exchange Act of 1934, as amended, to be effective ten days thereafter. After
delisting, the Common Stock may be quoted on the OTC Pink Open Market.
TENDER OFFERING
On May 23, 2022, the Company announced a modified Dutch auction tender offer to
purchase with cash up to $9.6 million of shares of its common stock which
expired on June 23, 2022. Based on the final count by the depository for the
tender offer, a total of 1,501,192 shares of common stock were validly tendered
and not validly withdrawn at or below the price of $1.55 per share. The Company
accepted all of these shares of common stock for purchase at the purchase price
of $1.55 per share, for a total cost of $2.3 million, excluding fees and
expenses. The total of 1,501,192 shares of common stock accepted for purchase
represents approximately 12.2 % of the Company's total shares of common stock
outstanding.
TREASURY STOCK
During the month of September 2022, the company through a direct purchase and an
open market purchase, which were not related to the tender offering conducted in
May, acquired an additional 263,000 shares at a purchase price of $1.55 per
share, for a total cost of $0.4 million. These shares are currently being held
as treasury stock.
DEPARTURE OF OFFICER
On August 26, 2022, Matthew Stecker resigned as the Company's Chief Executive
Officer. In connection with the resignation, the Company and Mr. Stecker entered
into an agreement that including a release of all claims and certain obligations
under his employment agreement and Mr. Stecker received a payment of $0.35
million and accelerated vesting of his 0.1 million shares of unvested restricted
stock awards. On the same day, the Company appointed Mr. Igor Volshteyn as its
Chief Executive Officer.
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SUSPENSION OF REPORTING OBLIGATIONS
On October 21, 2022, the Company's board of directors determined that "going
dark" it is in the best interests of the Company and its stockholders as a
result of the substantial cost savings from the elimination of accounting and
other expense related to maintaining its status as a public reporting company,
as well as the increased ability of management to focus on core business
activities, among other things. The company therefore plans to affect a
suspension of its reporting obligation under the Securities Exchange Act of
1934, as amended, and expects to file a Form 15 with the Securities and Exchange
Commission in early January 2023.
GOING CONCERN
We believe our current liquidity from the Purchase Agreements will be sufficient
to fund operations and meet the Company's cash needs for future working capital
and capital expenditure requirements for at least the next twelve months from
the date of issuance of these condensed consolidated financial statements. In
making this assessment, we considered our $16.8 million in cash and cash
equivalents and our $27.8 million in working capital at September 30, 2022.
RESULTS OF OPERATIONS
The following table presents our condensed consolidated statements of operations
in comparative format:
For the Three Months Ended September 30,
2022 2021 Change %
(in thousands, except percentages)
Revenue $ - $ - $ - 0.00 %
OPERATING EXPENSES
General and administrative 1,097 637 460 72.21 %
Depreciation 1 1 - 0.00 %
Total operating expenses 1,098 638 460 72.10 %
Loss from operations (1,098) (638) (460) 72.10 %
Other income (expense)
Interest income 517 - 517 100.00 %
Interest expense - (2) 2 100.00 %
Other income (expense), net 93 - 93 100.00 %
Realized gain on investments, net 127 - 127 100.00 %
Unrealized loss on investments, net (144) - (144) (100.00) %
Other income (expense), net 593 (2) 595 (29,750.00) %
Loss from continuing operations before
income taxes (505) (640) 135 (21.09) %
Income tax expense 55 15 40 266.67 %
Net loss from continuing operations (560) (655) 95 (14.50) %
Income from discontinued operations before
income taxes - 1,009 (1,009) (100.00) %
Income tax expense from discontinued
operations - 279 (279) (100.00) %
Net income from discontinued operations - 730 (730) (100.00) %
Net (loss) income $ (560) $ 75 $ (635) (846.67) %
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For the Nine Months Ended September 30,
2022 2021 Change %
(in thousands, except percentages)
Revenue $ - $ - $ - %
OPERATING EXPENSES
General and administrative 3,185 2,295 890 38.78 %
Depreciation 2 2 - 0.00 %
Total operating expenses 3,187 2,297 890 38.75 %
Loss from operations (3,187) (2,297) (890) 38.75 %
Other income (expense)
Interest income 1,096 2 1,094 54,700.00 %
Interest expense (2) (2) - 0.00 %
Other income (expense), net 2 (1) 3 300.00 %
Realized gain on investments, net 521 - 521 100.00 %
Unrealized loss on investments, net (1,702) - (1,702) (100.00) %
Other (expense), net (85) (1) (84) 8,400.00 %
Loss from continuing operations before
income taxes (3,272) (2,298) (974) 42.38 %
Income tax (benefit) expense (10) 23 (33) (143.48) %
Net loss from continuing operations (3,262) (2,321) (941) 40.54 %
Income from discontinued operations before
income taxes - 2,925 (2,925) (100.00) %
Income tax (benefit) expense from
discontinued operations (49) 492 (541) (109.96) %
Net income from discontinued operations 49 2,433 (2,384) (97.99) %
Net (loss) income $ (3,213) $ 112 $ (3,325) (2,968.75) %
Expenses from Continuing Operations
General and Administrative
General and administrative expenses consist principally of employee-related
costs for the following departments: finance, human resources, and certain
executive management; facilities costs; and professional and legal fees. General
and administrative expenses increased $0.5 million, or 83% to $1.1 million for
the three months ended September 30, 2022 from $0.6 million for the three months
ended September 30, 2021. There was an increase of $0.4 million of employee
costs and $0.1 million of equity compensation costs related to the separation of
our Chief Executive Officer. There was also an increase of $0.2 million of
professional fees in bookkeeping and preparation of SEC reports, and fees to our
third-party asset manager. These costs were partially offset by a $0.2 million
decrease of salaries and benefits related to employee departures.
General and administrative expenses increased $0.9 million, or 39% to $3.2
million for the nine months ended September 30, 2022 from $2.3 million for the
nine months ended September 30, 2021. There was an increase of $0.8 million of
professional fees related to use of third-party services in bookkeeping and
preparation of SEC reports, and fees to our third party asset manager, an
increase of $0.4 million of employee costs and $0.1 million of equity
compensation costs related to the separation of our Chief Executive Officer, and
$0.1 million in contractor fees and other various costs. These costs were
partially offset by a $0.5 million decrease of salaries and benefits related to
employee departures.
Depreciation
Depreciation expense consists of depreciation of long-lived property and
equipment. Depreciation expense remained constant at less than $0.1 million for
the three and nine months ended September 30, 2022 and 2021.
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Non-Operating Income and Expenses
Interest Expense
Interest expense remained constant at less than $0.1 million in interest expense
for the three and nine months ended September 30, 2022 and 2021.
Interest Income and Total Other Income (Expense), net
There was interest income and other income of $0.5 million for the three months
ended September 30, 2022. There was no interest and other income for the three
months ended September 30, 2021. The increase was the result of interest income
related to corporate bonds and dividend income from securities held by the
Company.
For the nine months ended September 30, 2022, there was interest income and
other income of $1.1 million. There was less than $0.1 million in interest
income or other income for the nine months ended September 30, 2021. The
increase was a result of interest earned and dividend income on investments
entered into during 2022, partially offset by $0.2 million in expense related to
a potential claim by the Purchaser on the escrow account.
Realized Gain on Investments, net
Realized gain on investments, net consists of available for sale and equity
securities. Realized gain on investments, net increased $0.1 million, or 100%
for the three months ended September 30, 2022, and $0.5 million for the nine
months ended September 30, 2022. The increase was a result of investments sold
by the Company during the three and nine months ended September 30, 2022.
Unrealized Loss on Investments, net
Unrealized loss on investments, net increased $0.1 million, or 100% for the
three months ended September 30, 2022 and $1.7 million for the nine months ended
September 30, 2022. Our unrealized gains and losses on investments each period
are a function of changes in the fair value of the investments that we hold as
of the current reporting period balance sheet date relative to the preceding
balance sheet date. Our unrealized losses during the current period were
attributable to decreases in the fair value of our investment holdings during
the period.
Income Taxes
We recorded net income tax expense from continuing operations of $0.1 million
and net income tax expense from continuing operations and less than $0.1 million
for the three months ended September 30, 2022 and 2021 respectively. We also
recorded net income tax benefit from continuing operations of less than $0.1
million and net income tax expense from continuing operations and less than $0.1
million for the nine months ended September 30, 2022 and 2021, respectively.
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.
As of September 30, 2022, and 2021, we had no liability for unrecognized tax
benefits. We do not believe there will be any material changes to our
unrecognized tax positions over the next twelve months.
Discontinued Operations
On December 31, 2021, the Company closed on the terms for the sale and transfer
of substantially all of the Company's operating subsidiaries and all of its
assets. The financial results of discontinued operations primarily reflect the
results of our foreign operating subsidiaries conducting business as provider of
real-time digital engagement solutions and services of software solutions and
services to the wireless carriers throughout the world. This included the
Company's portfolio of solutions and services for real-time analytics, customer
acquisition and activation, customer value management and loyalty for the
telecom industry promoting partnerships into retail and financial services.
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FINANCIAL CONDITION
Our working capital position decreased by $9.9 million to $27.8 million as of
September 30, 2022 from $37.7 million as of December 31, 2021. The decrease in
working capital is related to the loss from continuing operations, unrealized
losses on purchase of investments, and the completed tender offering and
purchasing of treasury stock.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed operations through cash flows from operations and
bank borrowings. On December 31, 2021, the Company closed on the terms of the
Purchase Agreements. Following the sale of its assets in December 2021, the
Company has been researching two initial areas of product focus; each are in
research-oriented pre-release mode. The two areas of focus are in the
application of self-learning algorithms as well as the symbolic tagging and
organizing of physical objects. At September 30, 2022, our principal source of
liquidity was $16.8 million in cash and cash equivalents. Our anticipated uses
of cash in the future will be to fund the expansion of our business through both
organic product development, as well as possible acquisition activities. Other
uses of cash may include investments, capital expenditures, and technology
expansion.
Net cash used in operating activities for the nine months ended September 30,
2022 was $1.9 million due to net loss of $3.2 million plus an increase in
prepaid and other assets of $0.4 million related primarily to accrued interest,
and a decrease in income taxes payable of $0.1 million, partially offset by
noncash charges of $1.5 million, an increase in accounts payable and accrued
liabilities of $0.1 million and increase of escrow liability of $0.2 million.
Net cash provided by operating activities for the nine months ended September
30, 2021 was $1.3 million due to the net income of less than $0.1 million,
noncash charges of $1.4 million, increase in unearned revenue of $1.0 million
and a decrease in contract receivable of $0.5 million, partially offset by the
increase in unbilled work in progress of $0.5 million and income taxes
receivable of $0.4 million and an increase in other assets long term of $0.3
million related to the foreign tax credit to be collected in a future period as
well as a decrease in accounts payable and accrued liabilities of $0.2 million
and a reduction in our lease obligations of $0.3 million
Net cash used in investing activities for the nine months ended September 30,
2022 of $17.9 million was primarily due to the purchase of investments of $21.5
million, transaction fees related to prior period disposition of $0.6 million,
offset by proceeds on sale of investments of $4.2 million. Net cash used in
investing activities for the nine months ended September 30, 2021 was $0.3
million and was due to the purchase of property and equipment.
Net cash used in financing activities for the nine months ended September 30,
2022 of $2.9 million was due to the retirement of common stock and purchase of
treasury stock. Net cash used in financing activities was $0.1 million for the
nine months ended September 30, 2021 and was primarily related to the final
principal payments on our term loan.
We believe that our current cash and cash equivalents will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
twelve months from the date of issuance of this Quarterly Report on Form 10-Q.
In making this assessment we considered the following:
? Our cash and cash equivalents balance at September 30, 2022 of $16.8 million;
and
? Our working capital balance at September 30, 2022 of $27.8 million
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.
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SYMBOLIC LOGIC, INC. 
