The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
|
1.
|
Organization and Nature of Operations
|
Organization
WidePoint Corporation
(“WidePoint” or the “Company”) was incorporated in Delaware on May 30, 1997. The Company is a global provider
of information technology (IT) based products, services, and solutions. The Company offers secure, cloud-based, enterprise-wide
information technology-based solutions that enable commercial markets, and federal and state government organizations, to deploy
fully compliant IT services in accordance with government-mandated regulations and advanced system requirements. The Company has
sales and operational offices strategically located throughout the continental United States, Ireland, the Netherlands and the
United Kingdom. The Company’s principal executive and administrative headquarters is located in McLean, Virginia.
Nature of Operations
We provide secure,
cloud-based, enterprise-wide information technology (IT) solutions to commercial enterprises, federal state and foreign governments
in many different industry sectors. Our IT solutions are accessible on-demand through cloud computing and provide our customers
with a set of streamlined mobile communications management, identity management, and consulting solutions that provide our customers
with the ability to manage, analyze and protect their valuable communications assets, and deploy compliant identity management
solutions that provide secured virtual and physical access to restricted environments. We use proprietary software, analytical
tools and reporting solutions that enable our customers to actively manage their fixed and mobile communications assets and expenses
and identity management requirements in an efficient and cost-effective manner in a safe and secure environment anywhere in the
world.
The Company’s
operating results may vary significantly from quarter-to-quarter, due to revenues earned on contracts, the number of billable days
in a quarter, the timing of the pass-through of other direct costs, the commencement and completion of contracts during any particular
quarter, the schedule of the government agencies for awarding contracts, the term of each contract awarded and general economic
conditions. A significant portion of the Company’s expenses, such as personnel and facilities costs, are fixed in the short
term. Successful contract performance and variation in the volume of activity as well as in the number of contracts commenced or
completed during any quarter may cause significant variations in operating results from quarter to quarter.
|
2.
|
Basis of Presentation and Accounting Policies
|
Basis of Presentation
The unaudited condensed
consolidated financial statements as of September 30, 2016 and for each of the three and nine month periods ended September 30,
2016 and 2015, respectively, included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have
been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary
for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed
consolidated balance sheet as of December 31, 2015 was derived from the audited condensed consolidated financial statements included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for the three
and nine month periods ended September 30, 2016 are not indicative of the operating results for the full year.
Principles of Consolidation
The accompanying
condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and acquired entities
since their respective dates of acquisition. All significant inter-company amounts were eliminated in consolidation.
Reclassifications
The Company
reclassified amounts representing product development previously included in the caption “general and administrative expenses”
in the comparative statement of operations presentation as a separate line item to conform to the current year presentation.
Foreign Currency
Assets and liabilities
denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of each reporting
period. The resulting translation adjustments, along with any related tax effects, are included in accumulated other comprehensive
(loss) income, a component of stockholders’ equity. Translation adjustments are reclassified to earnings upon the sale or
substantial liquidation of investments in foreign operations. Revenues and expenses are translated at the average month-end exchange
rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations
outside the U.S. where the functional currency is the U.S. dollar, are reported net in the Company’s Consolidated Statements
of Operations, depending on the nature of the activity.
Use of Estimates
The preparation of
condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management
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 financial statements and the reported amounts of revenues and expenses during the reporting
period. The more significant areas requiring use of estimates and judgment relate to revenue recognition, accounts receivable valuation
reserves, ability to realize intangible assets and goodwill, ability to realize deferred income tax assets, fair value of certain
financial instruments and the evaluation of contingencies and litigation. Management bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those
estimates.
Significant Accounting Policies
There have been no
significant changes in the Company’s significant accounting policies during the first nine months of 2016 from those disclosed
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 15, 2016.
Segment Reporting
Our customers and the
industry view our market as a singular business and demand an integrated and scalable suite of information technology-based enterprise-wide
solutions. Our information technology service offerings comprise a single business from which the Company earns revenues and incurs
costs. The Company’s information technology service offerings are centrally managed and reported on that basis to its Chief
Operating Decision Maker who evaluates its business as a single segment. See Note 13 for detailed information regarding the composition
of information technology services.
Accounting Standards Update
In March 2016, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ASU 2016-08, Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amended certain existing illustrative
examples and adding additional illustrative examples to assist in the application of the guidance on principal versus agent considerations.
The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, Revenue
from Contracts with Customers (Topic 606). The new standard is effective for financial statements issued for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the effect that ASU
2016-08 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition
method, adoption date, or determined the effect of the standard on its ongoing financial reporting.
In August 2016, the
FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(Part 1), which included amendments to: 1) remove the requirement to defer recognition of excess tax benefits until such deduction
results in a reduction in tax expense, 2) exclude excess tax benefits when applying the treasury stock method to compute diluted
earnings per share, 3) clarify that excess tax benefits should be classified within the operating section of the statement of cash
flows, and 4) estimation of forfeitures when calculating compensation cost. The new standard is effective for financial statements
issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted
for financial statements that have not been previously issued. The standard should be applied on a retrospective basis as of the
beginning of the earliest comparative period presented and presented as a change in accounting principle with the cumulative effect
on retained earnings and other components of equity disclosed. The Company is currently evaluating the effect that ASU 2016-09
will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method,
adoption date, or determined the effect of the standard on its ongoing financial reporting.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The new guidance is intended to reduce
the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement
of cash flows. The core principle of the ASU requires the classification of eight specific cash flow issues identified under
ASC 230 to be presented as either financing, investing or operating, or some combination thereof, depending upon the nature
of the issue. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning
after December 15, 2017. However, early adoption is permitted. Entities are required to use a retrospective transition approach
for all of the issues identified to each period presented. We are currently evaluating the effect, if any, that the ASU will
have on our consolidated financial statements and related disclosures.
In October 2016, the
FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(Part 2), which included amendments to clarify statutory tax withholding requirements, classification of such taxes when paid by
the employer and simplification of certain disclosures for privately-held companies. The new standard is effective for financial
statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption
is permitted for financial statements that have not been previously issued. The standard should be applied on a retrospective basis
as of the beginning of the earliest comparative period presented and presented as a change in accounting principle with the cumulative
effect on retained earnings and other components of equity disclosed. The Company has elected to adopt this ASU ahead of the effective
date as permitted. The early adoption of this ASU will not have a material effect on the consolidated financial statements and
disclosures as the Company’s existing practices are similar to those included in this ASU.
There
were no business combinations during the nine month periods ended September 30, 2016 and 2015.
|
4.
|
Accounts Receivable and Significant Concentrations
|
Accounts receivable
consist of the following by customer type as of the periods presented below:
|
|
SEPTEMBER 30,
|
|
|
DECEMBER 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
Commercial
|
|
$
|
3,655,046
|
|
|
$
|
2,616,702
|
|
Government
|
|
|
8,460,436
|
|
|
|
8,021,789
|
|
Gross accounts receivable
|
|
|
12,115,482
|
|
|
|
10,638,491
|
|
Less: allowances for doubtful accounts
|
|
|
(76,235
|
)
|
|
|
(73,378
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
12,039,247
|
|
|
$
|
10,565,113
|
|
For the three and nine
month periods ended September 30, 2016 and 2015, respectively, the Company had no material recoveries of accounts receivable for
which an allowance had been previously established.
Significant Concentrations
Customers
representing ten percent or more of consolidated trade accounts receivable are set forth in the table below as of the periods
presented:
|
|
SEPTEMBER 30,
|
|
|
DECEMBER 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
As a % of
|
|
|
As a % of
|
|
Customer Name
|
|
Receivables
|
|
|
Receivables
|
|
|
|
(Unaudited)
|
|
Department of Homeland Security (“DHS”)
|
|
|
49%
|
|
|
|
51%
|
|
US Airforce
|
|
|
—
|
|
|
|
14%
|
|
Customers representing ten percent or more
of consolidated revenues are set forth in the table below for each of the periods presented:
|
|
THREE MONTHS ENDED
|
|
|
NINE MONTHS ENDED
|
|
|
|
SEPTEMBER 30,
|
|
|
SEPTEMBER 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
As a % of
|
|
|
As a % of
|
|
|
As a % of
|
|
|
As a % of
|
|
Customer Name
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
(Unaudited)
|
|
Department of Homeland Security (DHS)
|
|
|
62%
|
|
|
|
56%
|
|
|
|
63%
|
|
|
|
52%
|
|
|
5.
|
Unbilled Accounts Receivable
|
Unbilled accounts receivable
represents amount not yet billed for services delivered. Unbilled receivables consist of the following by customer type as
of the periods presented below:
|
|
SEPTEMBER 30,
|
|
|
DECEMBER 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
Commercial
|
|
$
|
409,597
|
|
|
$
|
422,138
|
|
Government
|
|
|
5,935,392
|
|
|
|
6,215,449
|
|
|
|
|
|
|
|
|
|
|
Unbilled accounts receivable
|
|
$
|
6,344,989
|
|
|
$
|
6,637,587
|
|
|
6.
|
Property and Equipment
|
Major classes of property and equipment
consisted of the following as of the periods presented below:
|
|
SEPTEMBER 30,
|
|
|
DECEMBER 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
Land and building
|
|
$
|
677,054
|
|
|
$
|
677,054
|
|
Computer hardware and software
|
|
|
2,826,376
|
|
|
|
2,698,577
|
|
Furniture and fixtures
|
|
|
326,124
|
|
|
|
303,691
|
|
Leasehold improvements
|
|
|
583,415
|
|
|
|
568,642
|
|
Automobile
|
|
|
229,051
|
|
|
|
247,405
|
|
Gross property and equipment
|
|
|
4,642,020
|
|
|
|
4,495,369
|
|
Less: accumulated depreciation and
amortization
|
|
|
(3,320,257
|
)
|
|
|
(2,982,062
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,321,763
|
|
|
$
|
1,513,307
|
|
Included in property
and equipment are certain equipment purchases acquired under capital lease arrangements. Total capitalized cost of equipment under
capital leases at September 30, 2016 and December 31, 2015 was approximately $63,500 and $372,600, respectively. For each of the three
and nine month periods ended September 30, 2016 and 2015, the Company did not enter into any capital lease arrangements. For each
of the three and nine month periods ended September 30, 2016 and 2015, there were no material sales or disposals of owned property
and equipment.
Property and equipment
depreciation expense (including amortization of capital lease property) was approximately as follows for the periods presented
below:
|
|
THREE MONTHS ENDED
|
|
|
NINE MONTHS ENDED
|
|
|
|
SEPTEMBER 30,
|
|
|
SEPTEMBER 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
Property and equipment depreciation expense
|
|
$
|
105,200
|
|
|
$
|
110,200
|
|
|
$
|
336,100
|
|
|
$
|
353,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease amortization (included in
property and equipment depreciation expense)
|
|
$
|
3,400
|
|
|
$
|
4,200
|
|
|
$
|
10,900
|
|
|
$
|
21,900
|
|
There were no changes
in the estimated useful lives used to depreciate property and equipment during the three and nine month periods ended September
30, 2016 and 2015.
Accumulated depreciation
for leased equipment at September 30, 2016 and December 31, 2015 was approximately $33,500 and $351,400, respectively. For the three
and nine month periods ended September 30, 2016 there were disposals of fully amortized leased equipment of approximately $309,100.
For the three and nine month periods ended September 30, 2015 there were no disposals of leased equipment. Total net book value
of assets under capital leases at September 30, 2016 and December 31, 2015 was approximately $30,100 and $21,200, respectively.
|
7.
|
Goodwill and Intangible Assets
|
The Company has recorded
goodwill of $18,555,578 as of September 30, 2016. There were no changes in the carrying amount of goodwill during the nine
month period ended September 30, 2016. The Company considered whether there were indicators of impairment during the nine month
period ended September 30, 2016.
The Company
has recorded intangible assets of $4,761,199, consisting of purchased intangibles and internally developed software used in
the conduct of business. For the three month period ended September 30, 2016, the Company capitalized internally
developed software costs of approximately $246,900, of which $127,300 related to Certificate-on-Device (CoD) credentialing
tools and applications and $119,600 related to costs associated with certification of our Public Key Infrastructure (PKI)
authority to operate and issue identity credentials. For the nine month period ended September 30, 2016, the Company
capitalized internally developed software costs of approximately $480,300, of which $343,900 related to CoD credentialing
tools and applications, $119,600 related to costs associated with our PKI authority to operate and issue identity
credentials and the remainder related to other software applications. There were no disposals of intangible assets for
the three and nine month periods ended September 30, 2016 and 2015.
The aggregate amortization
expense recorded for the three month periods ended September 30, 2016 and 2015 were approximately $286,800 and $272,700, respectively.
The aggregate amortization expense recorded for the nine month periods ended September 30, 2016 and 2015 were approximately $820,700
and $803,500, respectively. The total weighted remaining average life of purchased and internally developed intangible assets is
approximately 5.8 years at September 30, 2016.
|
8.
|
Line of Credit and Long Term Debt
|
Commercial Loan Agreement Facility
On April 28, 2016,
the Company entered into a Business Loan Agreement with Cardinal Bank (the “Loan Agreement”). On November 4, 2016, the Company entered into a modification of its Loan Agreement that: 1) decreased the Company’s borrowing
base as a percentage of qualified government and commercial receivables from 75% to 65% and 2) decreased the minimum after-tax
net income requirement from $200,000 to $1.00 for the fourth quarter of 2016.
The Loan Agreement
is for $6.0 million and extended the maturity date of the credit facility is April 30, 2017. The available amount under the revolving
line of credit is subject to a borrowing base, which is equal to the lesser of (i) $6.0 million or (ii) 65% of qualified government
and commercial accounts receivables, less any amounts outstanding on the Company’s $4.0 million term loan with Cardinal Bank.
The interest rate for the revolving line of credit is the Wall Street Journal prime rate plus 0.75%, with a floor of 4.25%.
The Loan Agreement
requires that the Company (i) maintain a minimum tangible net worth of at least $6.5 million at December 31, 2016; (ii) generate a minimum after-tax net income of at least $1.00 for the third and for the fourth quarter of 2016 and (iii) maintain a current ratio of 1.1:1 tested quarterly.
Under the credit
facility the Company was advanced approximately $18.2 million and repaid
approximately $18.1 million during the nine month period ended September 30, 2016. There was approximately $0.1 million
outstanding against the Company’s credit facility at September 30, 2016. As of September 30, 2016, the Company was not
in compliance with its minimum after tax net income requirement of at least $1.00 for the third quarter; however, the Company obtained a waiver for such
non-compliance from Cardinal Bank. As of September 30, 2016, the Company was eligible to borrow up to $5.6 million under the
borrowing base formula.
Long-Term Debt
Long-term debt consisted
of the following:
|
|
SEPTEMBER 30,
|
|
|
DECEMBER 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
Cardinal Bank mortgage dated December 17, 2010 (1)
|
|
$
|
437,109
|
|
|
$
|
450,770
|
|
Cardinal Bank term note dated December 31, 2011 (2)
|
|
|
222,649
|
|
|
|
874,692
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
659,758
|
|
|
|
1,325,462
|
|
Less: current portion
|
|
|
242,536
|
|
|
|
893,706
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$
|
417,222
|
|
|
$
|
431,756
|
|
(1) On December 17, 2010,
the Company entered into a real estate purchase agreement to acquire operations and call center facility in Columbus, Ohio for
approximately $677,000. In connection with the real estate purchase agreement, the Company entered into a $528,000 ten-year mortgage
with Cardinal Bank to fund the unpaid portion of the purchase price. The mortgage loan bears interest at 6.0% with monthly principal
and interest payments of approximately $3,800, and matures on December 17, 2020. The mortgage loan principal and interest payments
are based on a twenty-year amortization with the unpaid balance due at maturity. The mortgage loan is secured by the real estate.
(2) On December 31, 2011,
the Company entered into a $4.0 million 5-year term note with Cardinal Bank (“Cardinal Bank Term Note”) to fund a portion
of the purchase price paid in connection with the asset purchase agreement with Avalon Global Solutions, Inc. (“AGS”)
dated December 30, 2011. The term note bears interest at 4.5% with monthly principal and interest payments of approximately $74,694,
and matures on December 30, 2016. The term note is secured under a corporate security agreement.
Capital Lease Obligations
The Company has leased
certain equipment and automobiles under capital lease arrangements that expire in 2017. There were no changes
to existing lease arrangements during the nine month period ended September 30, 2016.
The Company files
U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as well as income tax returns in various
states and certain foreign countries. The Company may be subject to examination by the IRS or various state taxing jurisdictions
for tax years 2003 and forward. The Company may be subject to examination by various foreign countries for tax years 2014 forward.
As of September 30, 2016, the Company was not under examination by the IRS, any state or foreign tax jurisdiction. The Company
did not have any unrecognized tax benefits at either September 30, 2016 or December 31, 2015. In the future if applicable, any
interest and penalties related to uncertain tax positions will be recognized in income tax expense.
As of September 30,
2016, the Company had recorded a deferred tax asset of approximately $29.8 million reflecting the benefit of approximately $26.8
million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes,
net of the potential Section 382 limitations. These federal NOL carry forwards expire between 2017 and 2032. Included in the recorded
deferred tax asset, the Company had a benefit of approximately $29.8 million available to offset future taxable income for state
income tax purposes. These state NOL carry forwards expire between 2024 and 2032. Because of the change of ownership provisions
of the Tax Reform Act of 1986, use of a portion of our domestic NOL may be limited in future periods. Further, a portion of the
carryforwards may expire before being applied to reduce future income tax liabilities.
Management assesses
the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing
deferred tax assets. Under existing income tax accounting standards such objective evidence is more heavily weighted in comparison
to other subjective evidence such as our projections for future growth, tax planning and other tax strategies. A significant piece
of objective negative evidence considered in management’s evaluation of the realizability of its deferred tax assets was
the existence of cumulative losses over the latest three-year period. Management forecast future taxable income, but concluded
that there may not be enough of a recovery before the end of the fiscal year to overcome the negative objective evidence of three
years of cumulative losses. On the basis of this evaluation, management recorded a valuation allowance against all deferred tax
assets. If management’s assumptions change and we determine we will be able to realize these deferred tax assets, the tax
benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction of income
tax expense.
Preferred Stock
There
were no issuances of preferred stock during the three and nine month periods ended September 30, 2016 and 2015
.
Common Stock
The
Company is authorized to issue 110,000,000 shares of common stock, $.001 par value per share. As of September 30, 2016, there were
82,730,134 shares of common stock outstanding.
Employee Stock Issuances
The
Company issued 209,438 shares of common stock as a result of the vesting of Restricted Stock Awards (RSA) during the nine
month period ended September 30, 2016. See Note 11 for additional information regarding RSA activity. There was no vesting of
RSAs during the nine month period ended September 30, 2015.
There were no
exercises of non-qualified stock options during the nine month period ended September 30, 2016.
Shares
of common stock issued as a result of stock option exercises and realized gross proceeds during the nine month period ended
September 30, 2015 were 863,933 and $701,706, respectively, from the exercise of such stock options. See Note 11 for
additional information regarding the stock incentive plans.
Stock Incentive Plan
The Company adopted
the 2008 Stock Incentive Plan (the “2008 Plan”) on December 18, 2008. The 2008 Plan was amended and restated on December
15, 2009. The 2008 Plan will terminate on December 17, 2017. The 2008 Plan is administered by the Compensation Committee and authorizes
the grant or award of incentive stock options, non-qualified stock options, restricted stock awards, stock appreciation rights,
dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the
exercise of stock options. Any shares associated with forfeited awards are added back to the number of shares to be granted under
the stock incentive plan.
Under the 2008 Plan,
6,578,049 shares were reserved for issuance under equity incentive awards to be issued pursuant to the 2008 Plan. As of September
30, 2016, there were 3,402,211 shares available to be issued under the 2008 Plan. A summary of restricted stock and
non-qualified stock option award activity during the three and nine months ended September 30, 2016 and 2015 is described in more
detail below.
Restricted Stock Awards
On November 18, 2010,
the Company’s Compensation Committee granted Steve L. Komar and James T. McCubbin each an award of 250,000 shares of restricted
stock of the Company, the vesting of which is based upon the earlier to occur of (a) the seventh anniversary date of the grant,
or (b) an acceleration event set forth in the award agreement with respect to such grant.
A summary of RSA activity
as of September 30, 2016, and changes during nine month period ended September 30, 2016 is set forth below:
|
|
2016
|
|
|
2015
|
|
NON-VESTED AWARDS
|
|
Shares
|
|
|
Shares
|
|
|
|
(Unaudited)
|
|
Non-vested balances, January 1
|
|
|
500,000
|
|
|
|
500,000
|
|
Less: vested shares
|
|
|
250,000
|
(1)
|
|
|
—
|
|
Non-vested balances, September 30
|
|
|
250,000
|
|
|
|
500,000
|
|
|
(1)
|
The Company issued 209,438 shares of the Company’s common stock in connection with
this accelerated vesting event, of which
Mr. Komar received 125,000 shares and Mr. McCubbin received 84,438 shares. Mr. McCubbin received less than 125,000 shares
because he elected to have 40,562 of such
shares withheld in satisfaction of the corresponding tax liability of approximately $32,300. The
Company's payment of this tax liability was recorded as a cash flow from financing activity on the Condensed Consolidated
Statements of Cashflows.
|
At September 30, 2016, the Company had approximately $50,800 of total unamortized RSA
compensation expense, related to the remaining 250,000 unvested RSAs that will be recognized over the weighted average remaining
period of 1.2 years. The total intrinsic value of RSAs vested during the nine month period ended September 30, 2016 was approximately
$185,000. The intrinsic value of outstanding RSAs as of September 30, 2016 was approximately $107,500.
Stock Option Awards
The Company granted 650,000 stock options during the nine month period ended
September 30, 2016. The Company granted 180,000 stock options during the nine month period ended September 30, 2015. A summary
of stock option activity as of September 30, 2016 and 2015, and changes during nine month periods ended September 30, 2016 and
2015 is set forth below:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
NON-VESTED AWARDS
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(Unaudited)
|
|
Non-vested balances, January 1,
|
|
|
841,672
|
|
|
$
|
0.80
|
|
|
|
1,340,838
|
|
|
$
|
0.57
|
|
Granted (+)
|
|
|
650,000
|
|
|
$
|
0.40
|
|
|
|
180,000
|
|
|
$
|
0.70
|
|
Cancelled (-)
|
|
|
25,000
|
|
|
$
|
0.72
|
|
|
|
250,000
|
|
|
$
|
0.39
|
|
Vested (-)
|
|
|
534,172
|
|
|
$
|
0.69
|
|
|
|
416,666
|
|
|
$
|
0.27
|
|
Non-vested balances, September 30,
|
|
|
932,500
|
|
|
$
|
0.59
|
|
|
|
854,172
|
|
|
$
|
0.80
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
OUTSTANDING AND EXERCISABLE AWARDS
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
(Unaudited)
|
|
Awards outstanding, January 1,
|
|
|
1,857,668
|
|
|
$
|
0.91
|
|
|
|
2,791,601
|
|
|
$
|
0.83
|
|
Granted (+)
|
|
|
650,000
|
|
|
$
|
0.70
|
|
|
|
180,000
|
|
|
$
|
1.45
|
|
Cancelled (-)
|
|
|
392,000
|
|
|
$
|
0.62
|
|
|
|
250,000
|
|
|
$
|
0.74
|
|
Exercised (-)
|
|
|
-
|
|
|
|
-
|
|
|
|
863,933
|
|
|
$
|
0.81
|
|
Awards outstanding, September 30,
|
|
|
2,115,668
|
|
|
$
|
0.87
|
|
|
|
1,857,668
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards vested and expected to vest,
September 30,
|
|
|
1,989,739
|
|
|
$
|
0.88
|
|
|
|
1,857,668
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding and exercisable,
September 30,
|
|
|
1,183,168
|
|
|
$
|
0.82
|
|
|
|
1,003,496
|
|
|
$
|
0.67
|
|
During the nine month period ended September
30, 2016, there were stock options of 392,000 that were cancelled, of which 205,000 were cancelled due to termination of employment
and the remainder expired unexercised at the end of the option term.
The weighted-average
remaining contractual life and the aggregate intrinsic value (the amount by which the fair value of the Company’s stock exceeds
the exercise price of the option) of the stock options outstanding, exercisable, and vested and expected to vest as of September
30, 2016 are as follows:
|
|
|
|
|
Vested and
|
|
|
Outstanding
|
|
|
|
|
|
|
Expected to
|
|
|
and
|
|
|
|
Outstanding
|
|
|
Vest
|
|
|
Exercisable
|
|
|
|
(Unaudited)
|
|
Weighted-average remaining contractual life (in years)
|
|
|
3.4
|
|
|
|
2.6
|
|
|
|
2.6
|
|
Aggregate intrinsic value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Aggregate intrinsic value represents
total pretax intrinsic value (the difference between WidePoint’s closing stock price on September 30, 2016 and the
exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all
option holders exercised their options on September 30, 2016. There was no intrinsic value associated with options
outstanding, exercisable and expected to vest as of September 30, 2016 as the stock price was below the lowest option
exercise price. The intrinsic value will change based on the fair market value of WidePoint’s stock. The total
intrinsic value of options exercised during the nine months ended September 30, 2015 was approximately $713,400.
Share-based compensation
(including restricted stock awards) represents both stock options based expense and stock grant expense. For the three and nine
month periods ended September 30, 2016 and 2015, the Company recognized share-based compensation expense of approximately $68,100
and $89,200, $204,400 and $208,100, respectively. At September 30, 2016, the Company had approximately $320,700 of total unamortized
compensation expense, net of estimated forfeitures, related to stock option plans that will be recognized over the weighted average
remaining period of 2.2 years.
|
12.
|
Earnings Per Common
Share (EPS)
|
The computations of
basic and diluted EPS were as follows for the periods presented below:
|
|
THREE MONTHS ENDED
|
|
|
NINE MONTHS ENDED
|
|
|
|
SEPTEMBER 30,
|
|
|
SEPTEMBER 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
Basic EPS Computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(148,040
|
)
|
|
$
|
(1,763,280
|
)
|
|
$
|
(1,704,480
|
)
|
|
$
|
(4,330,667
|
)
|
Weighted average number of common shares
|
|
|
82,730,134
|
|
|
|
82,515,103
|
|
|
|
82,673,570
|
|
|
|
82,130,665
|
|
Basic EPS
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(148,040
|
)
|
|
$
|
(1,763,280
|
)
|
|
$
|
(1,704,480
|
)
|
|
$
|
(4,330,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
82,730,134
|
|
|
|
82,515,103
|
|
|
|
82,673,570
|
|
|
|
82,130,665
|
|
Incremental shares from assumed conversions of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted weighted average number of common shares
|
|
|
82,730,134
|
|
|
|
82,515,103
|
|
|
|
82,673,570
|
|
|
|
82,130,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
The dilutive effect
of unexercised stock options and restricted stock awards excludes 2,115,668 and 1,857,668 of options from the computation of EPS
for the three and nine month periods ended September 30, 2016 and 2015, respectively, because inclusion of the options would have
been anti-dilutive.
|
13.
|
Details of Consolidated Revenue and Revenue by Geographic
Region
|
The following table
was prepared to provide additional information about the composition of revenues based on broad service descriptions:
|
|
THREE MONTHS ENDED
|
|
|
NINE MONTHS ENDED
|
|
|
|
SEPTEMBER 30,
|
|
|
SEPTEMBER 30,
|
|
Service Mix
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
Carrier Services
|
|
$
|
13,532,617
|
|
|
$
|
9,126,605
|
|
|
$
|
35,721,245
|
|
|
$
|
27,422,307
|
|
Managed Services
|
|
|
8,582,222
|
|
|
|
7,868,253
|
|
|
|
24,441,900
|
|
|
|
24,700,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,114,839
|
|
|
$
|
16,994,858
|
|
|
$
|
60,163,145
|
|
|
$
|
52,123,171
|
|
The following table presents
our domestic and foreign revenue mix for the periods presented:
|
|
THREE MONTHS ENDED
|
|
|
NINE MONTHS ENDED
|
|
|
|
SEPTEMBER 30,
|
|
|
SEPTEMBER 30,
|
|
Geographic Region
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
North America
|
|
$
|
20,867,324
|
|
|
$
|
15,641,683
|
|
|
$
|
56,360,870
|
|
|
$
|
47,798,246
|
|
Europe
|
|
|
1,247,515
|
|
|
|
1,330,846
|
|
|
|
3,802,275
|
|
|
|
4,018,561
|
|
Middle East
|
|
|
-
|
|
|
|
22,329
|
|
|
|
-
|
|
|
|
306,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,114,839
|
|
|
$
|
16,994,858
|
|
|
$
|
60,163,145
|
|
|
$
|
52,123,171
|
|
|
14.
|
Commitments and Contingencies
|
Operating Lease Commitments
There were no leases
entered into or modifications of existing leases during the nine month periods ended September 30, 2016 and 2015.
Employment Agreements
The Company has employment
agreements with certain executives that set forth compensation levels and provide for severance payments in certain instances.