UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

 

 

For the quarterly period ended March 31, 2022

or

 

 

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

 

 

For the transition period from __________________ to ___________________

 

Commission File Number: 001-33035

 

WidePoint Corporation

(Exact name of Registrant as specified in its charter)

 

Delaware

 

52-2040275

(State or other jurisdiction of

 

(I.R.S. employer

incorporation or organization)

 

identification no.)

 

11250 Waples Mill Road, South Tower 210, Fairfax, Virginia

 

22030

(Address of principal executive offices)

 

(Zip Code)

 

(703) 349-2577

(Registrant’s telephone number, including area code)

 

Securities Registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading

Symbol

Name of Exchange on

Which Registered

Common Stock, $0.001 par value per share

WYY

NYSE American

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files): Yes ☒ No ☐

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

 

 

Emerging growth company

 

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. Yes ☐     No ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

As of May 12, 2022, there were 8,695,784 shares of the registrant’s Common Stock issued and outstanding.

 

 

 

 

WIDEPOINT CORPORATION

 

INDEX

 

 

 

 

Page No.

 

Part I. FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2022 and 2021 (unaudited)

 

 3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2022 and 2021 (unaudited)

 

 4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (unaudited)

 

 5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2022 and 2021 (unaudited)

 

 6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three month periods ended March 31, 2022 and 2021 (unaudited)

 

 8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 9

 

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 22

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 27

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

27 

 

 

 

 

 

 

Part II. OTHER INFORMATION

 

28

 

 

 

 

 

Item 1.

Legal Proceedings

 

 28

 

Item 1A.

Risk Factors

 

 28

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 28

 

Item 3.

Default Upon Senior Securities

 

 28

 

Item 4.

Mine Safety Disclosures

 

 28

 

Item 5.

Other Information

 

 28

 

Item 6.

Exhibits

 

 29

 

 

 

 

 

 

SIGNATURES

 

 

 30

 

 

 

 

 

 

CERTIFICATIONS

 

 

 

 

 

2

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

REVENUES

 

$ 22,436,427

 

 

$ 20,650,843

 

COST OF REVENUES (including amortization and depreciation of $287,518 and $119,083, respectively)

 

 

18,539,702

 

 

 

15,934,964

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

3,896,725

 

 

 

4,715,879

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Sales and marketing

 

 

575,169

 

 

 

482,299

 

General and administrative expenses (including share-based compensation of $179,741 and $182,842, respectively)

 

 

3,745,229

 

 

 

3,307,662

 

Depreciation and amortization

 

 

264,361

 

 

 

250,891

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

4,584,759

 

 

 

4,040,852

 

 

 

 

 

 

 

 

 

 

(LOSS) INCOME FROM OPERATIONS

 

 

(688,034 )

 

 

675,027

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest income

 

 

6,570

 

 

 

2,375

 

Interest expense

 

 

(63,521 )

 

 

(71,016 )

Other income

 

 

301,013

 

 

 

2,496

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

244,062

 

 

 

(66,145 )

 

 

 

 

 

 

 

 

 

(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION

 

 

(443,972 )

 

 

608,882

 

INCOME TAX (BENEFIT) PROVISION

 

 

(51,075 )

 

 

23,458

 

 

 

 

 

 

 

 

 

 

NET (LOSS) INCOME

 

$ (392,897 )

 

$ 585,424

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

$ (0.04 )

 

$ 0.07

 

 

 

 

 

 

 

 

 

 

BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING

 

 

8,782,452

 

 

 

8,995,103

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE

 

$ (0.04 )

 

$ 0.06

 

 

 

 

 

 

 

 

 

 

DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING

 

 

8,782,452

 

 

 

9,103,160

 

 

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

 

 
3

Table of Contents

 

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

NET (LOSS) INCOME

 

$ (392,897 )

 

$ 585,424

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

 

(4,835 )

 

 

(54,949 )

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income

 

 

(4,835 )

 

 

(54,949 )

 

 

 

 

 

 

 

 

 

COMPREHENSIVE (LOSS) INCOME

 

$ (397,732 )

 

$ 530,475

 

 

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

 

 
4

Table of Contents

 

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

MARCH 31,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

ASSETS

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$ 7,267,743

 

 

$ 6,479,980

 

Accounts receivable, net of allowance for doubtful accounts of $58,460 and $62,988 in 2022 and 2021, respectively

 

 

13,095,286

 

 

 

12,536,584

 

Unbilled accounts receivable

 

 

5,959,766

 

 

 

10,937,415

 

Other current assets

 

 

2,776,789

 

 

 

3,194,009

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

29,099,584

 

 

 

33,147,988

 

 

 

 

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,259,612

 

 

 

841,133

 

Lease right of use asset, net

 

 

5,227,920

 

 

 

6,273,211

 

Intangible assets, net

 

 

6,222,449

 

 

 

6,228,886

 

Goodwill

 

 

22,088,578

 

 

 

22,088,578

 

Deferred tax assets, net

 

 

5,125,315

 

 

 

5,127,482

 

Other long-term assets

 

 

2,206,981

 

 

 

1,782,060

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 71,230,439

 

 

$ 75,489,338

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$ 12,779,236

 

 

$ 10,263,015

 

Accrued expenses

 

 

8,528,170

 

 

 

12,344,426

 

Deferred revenue

 

 

1,912,100

 

 

 

2,280,894

 

Current portion of lease liabilities

 

 

623,923

 

 

 

794,175

 

Current portion of contingent consideration

 

 

540,345

 

 

 

358,000

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

24,383,774

 

 

 

26,040,510

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

 

 

Lease liabilities, net of current portion

 

 

5,172,603

 

 

 

6,025,691

 

Contingent consideration, net of current portion

 

 

585,000

 

 

 

1,347,000

 

Deferred revenue, net of current portion

 

 

390,493

 

 

 

400,142

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

30,531,870

 

 

 

33,813,343

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 17)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; 2,045,714 shares issued and none outstanding

 

 

-

 

 

 

-

 

Common stock, $0.001 par value; 30,000,000 shares authorized; 8,695,785 and 8,842,026 shares issued and outstanding, respectively

 

 

8,696

 

 

 

8,842

 

Additional paid-in capital

 

 

100,845,374

 

 

 

101,424,922

 

Accumulated other comprehensive loss

 

 

(246,421 )

 

 

(241,586 )

Accumulated deficit

 

 

(59,909,080 )

 

 

(59,516,183 )

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

40,698,569

 

 

 

41,675,995

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$ 71,230,439

 

 

$ 75,489,338

 

 

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

 

 
5

Table of Contents

 

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net (loss) income

 

$ (392,897 )

 

$ 585,424

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Deferred income tax benefit

 

 

-

 

 

 

(20,303 )

Depreciation expense

 

 

265,185

 

 

 

250,899

 

(Recovery) provision for doubtful accounts

 

 

-

 

 

 

(209 )

Amortization of intangibles

 

 

286,653

 

 

 

119,083

 

Share-based compensation expense

 

 

179,741

 

 

 

182,842

 

Warrants expense

 

 

108,000

 

 

 

-

 

Change in fair value of contingent consideration

 

 

(301,000 )

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable and unbilled receivables

 

 

4,413,557

 

 

 

20,467,818

 

Inventories

 

 

104,365

 

 

 

332,201

 

Other current assets

 

 

311,218

 

 

 

(266,393 )

Other assets

 

 

1,112

 

 

 

-

 

Accounts payable and accrued expenses

 

 

(1,509,330 )

 

 

(20,897,329 )

Income tax payable

 

 

7,111

 

 

 

30,567

 

Deferred revenue and other liabilities

 

 

(369,633 )

 

 

(75,693 )

Other liabilities

 

 

(278,655 )

 

 

246,037

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

2,825,426

 

 

 

954,944

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(203,274 )

 

 

(71,292 )

Capitalized hardware and software development costs

 

 

(780,599 )

 

 

(569,947 )

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(983,873 )

 

 

(641,239 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Principal repayments under finance lease obligations

 

 

(147,405 )

 

 

(143,916 )

Withholding taxes paid on behalf of employees on net settled restricted stock awards

 

 

(49,224 )

 

 

(140,894 )

Common stock repurchased

 

 

(818,211 )

 

 

-

 

Issuance of common stock/At-the-market offering, net of issuance costs

 

 

-

 

 

 

1,088,398

 

Proceeds from exercise of stock options

 

 

-

 

 

 

10,250

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

 

(1,014,840 )

 

 

813,838

 

 

 

 

 

 

 

 

 

 

Net effect of exchange rate on cash and equivalents

 

 

(38,950 )

 

 

(65,929 )

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

787,763

 

 

 

1,061,614

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of period

 

 

6,479,980

 

 

 

15,996,749

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, end of period

 

$ 7,267,743

 

 

$ 17,058,363

 

 

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

 

 
6

Table of Contents

 

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$ 63,521

 

 

$ 70,951

 

Cash paid for income taxes

 

$ 27,559

 

 

$ -

 

 

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Capitalized hardware and software development costs in accounts payable

 

$ 213,770

 

 

$ -

 

Leased assets and lease liabilities terminated

 

$ 876,281

 

 

$ -

 

 

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

 

 
7

Table of Contents

 

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Accumulated

 

 

 

 

 

Share

 

 

Amount

 

 

Capital

 

 

OCI

 

 

Deficit

 

 

Total

 

 

 

(Unaudited)

 

Balance, January 1, 2020

 

 

8,876,515

 

 

$ 8,876

 

 

$ 100,504,741

 

 

$ (104,615 )

 

$ (59,857,279 )

 

$ 40,551,723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock — options exercises

 

 

2,500

 

 

 

2

 

 

 

10,248

 

 

 

-

 

 

 

-

 

 

 

10,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock — restricted

 

 

91,650

 

 

 

92

 

 

 

(140,986 )

 

 

-

 

 

 

-

 

 

 

(140,894 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock through at-the-market offering program, net of issuance costs of $333,305

 

 

100,687

 

 

 

101

 

 

 

1,088,297

 

 

 

-

 

 

 

-

 

 

 

1,088,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — restricted

 

 

-

 

 

 

-

 

 

 

157,107

 

 

 

-

 

 

 

-

 

 

 

157,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — non-qualified stock options

 

 

-

 

 

 

-

 

 

 

25,735

 

 

 

-

 

 

 

-

 

 

 

25,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation — (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(54,949 )

 

 

-

 

 

 

(54,949 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

585,424

 

 

 

585,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

9,071,352

 

 

$ 9,071

 

 

$ 101,645,142

 

 

$ (159,564 )

 

$ (59,271,855 )

 

$ 42,222,794

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Accumulated

 

 

 

 

 

 

Share

 

 

Amount

 

 

Capital

 

 

OCI

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2021

 

 

8,842,026

 

 

$ 8,842

 

 

 

101,424,922

 

 

 

(241,586 )

 

 

(59,516,183 )

 

 

41,675,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

(196,586 )

 

 

(197 )

 

 

(818,014 )

 

 

-

 

 

 

-

 

 

 

(818,211 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock — restricted

 

 

50,345

 

 

 

51

 

 

 

(49,275 )

 

 

-

 

 

 

-

 

 

 

(49,224 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock warrants

 

 

-

 

 

 

-

 

 

 

108,000

 

 

 

-

 

 

 

-

 

 

 

108,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — restricted

 

 

-

 

 

 

-

 

 

 

179,741

 

 

 

-

 

 

 

-

 

 

 

179,741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation —

(loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,835 )

 

 

-

 

 

 

(4,835 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(392,897 )

 

 

(392,897 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2022

 

 

8,695,785

 

 

$ 8,696

 

 

$ 100,845,374

 

 

$ (246,421 )

 

$ (59,909,080 )

 

$ 40,698,569

 

 

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

 

 
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Table of Contents

 

WIDEPOINT CORPORATION AND SUBSIDIARIES

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 and conducts operations through its wholly-owned operating subsidiaries throughout the continental United States, Ireland, the Netherlands and the United Kingdom. The Company’s principal executive and administrative headquarters is located in Fairfax, Virginia.

 

Nature of Operations

 

The Company is a leading provider of Technology Management as a Service (TMaaS). The Company’s TMaaS platform and service solutions enable its customers to efficiently secure, manage and analyze the entire lifecycle of their mobile communications assets through its federally compliant platform Intelligent Telecommunications Management System (ITMS™). The Company’s ITMS platform is SSAE 18 compliant and was granted an Authority to Operate by the U.S. Department of Homeland Security. Additionally, the Company was granted an Authority to Operate by the General Services Administration with regard to its identity credentialing component of its TMaaS platform. The Company’s TMaaS platform is internally hosted and accessible on-demand through a secure customer portal that is specially configured for each customer. The Company can deliver these solutions in a number of configurations ranging from utilizing the platform as a service to a full-service solution that includes full lifecycle support for all end users and the organization.

 

A significant portion of the Company’s expenses, such as personnel and facilities costs, are fixed in the short term and may not be easily modified to manage through changes in the Company’s market place that may create pressure on pricing and/or costs to deliver its services.

 

The Company has periodic capital expense requirements to maintain and upgrade its internal technology infrastructure tied to its hosted solutions and other such costs may be significant when incurred in any given quarter.

 

2. Basis of Presentation and Accounting Policies

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements as of March 31, 2022 and for each of the three month periods ended March 31, 2022 and 2021, 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 accounting principles generally accepted in the United States (“U.S. 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, 2021 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three month period ended March 31, 2022 are not necessarily 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.

 

 
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Government Subsidies

 

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for qualified wages and options to defer payroll tax payments for a limited period. Based on our evaluation of the CARES Act, in certain circumstances, we qualify for certain employer payroll tax credits as well as the deferral of payroll tax payments in the future. The Company recorded the payroll tax credit as a receivable in other current assets on the consolidated balance sheet as of March 31, 2022.

 

Deferred payroll tax payments of $246,000 was included in accrued liabilities on our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

 

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 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 condensed 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. There were no significant changes in accounting estimates used by management during the quarter.

 

Segment Reporting

 

The Company’s TMaaS offerings are substantially managed service driven solutions that use our proprietary technology platform to deliver our services and reported on that basis to its Chief Operating Decision Maker who evaluates its business as a single segment. See Note 16 for detailed information regarding the composition of revenues.

 

Significant Accounting Policies

 

There were no significant changes in the Company’s significant accounting policies during the first three months of 2022 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 28, 2022.

 

Accounting Standards under Evaluation

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“Topic 326”). Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. This update is effective for the company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the pending adoption of this new standard on its consolidated financial statements.

 

 
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3. Business Combination

 

On October 1, 2021, the Company completed the acquisition of specified assets of IT Authorities, Inc. (ITA) to increase its capabilities and broaden its footprint in the commercial sector. The acquisition was accounted for as a business combination. The closing purchase price paid by the Company consisted of $4.75 million in cash and 75,000 fully vested warrants to purchase an equal number of shares of the Company’s common stock at an exercise price of $5.33 per share (“Warrants”) exercisable for a period of four years. In addition, the Company agreed to pay contingent consideration to the seller as follows: (i) up to an additional $250,000 and 75,000 Warrants exercisable for four years depending on the EBITDA of the business in 2021; (ii) up to an additional $1.0 million and 150,000 Warrants exercisable for three years depending on the EBITDA of the business in 2022; (iii) up to an additional $1.0 million and 125,000 Warrants exercisable for three years depending on the EBITDA of the business in 2023; and (iv) up to an additional $1.0 million and 125,000 Warrants exercisable for three years depending on the EBITDA of the Business in 2024. In addition, the Company entered into employment agreements with two of the founders of the seller and in the event of the termination of either employee without cause (or by the employee for good reason), the contingent consideration payable under the purchase agreement will be deemed earned and payable for earn-out periods that have not been completed at the time of termination. During the three month period ended March 31, 2022, the Company issued 75,000 warrants and paid cash of approximately $171,000 related to ITA achieving EBITDA target for 2021.

 

Supplemental Unaudited Pro Forma Information

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2021

 

 

 

(a)

 

Revenues

 

$ 22,867

 

Net Income

 

 

590

 

 

 

(a)

To reflect on a pro forma basis unaudited consolidated financial information for the year ended December 31, 2021 for the Company assuming we completed the acquisition on January 1, 2021. The unaudited financial information presented herein were derived from historical internally prepared financial statements with certain adjustments for ITA and WidePoint’s Form 10-K audited financial statements.

 

 
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4. Fair Value Measurements

 

The following tables present information about the Company's liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets:

   

 

 

 

 

 

Quoted Prices in

 

 

Significant Other

Observable

 

 

 Unobservable

 

 

 

MARCH 31,

 

 

Active Markets

 

 

Inputs

 

 

Inputs

 

Description

 

2022

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Liabilities:

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Contingent consideration - cash settled

 

$ 462,000

 

 

$ -

 

 

$ -

 

 

$ 462,000

 

Contingent consideration - warrants

 

 

78,000

 

 

 

-

 

 

 

-

 

 

 

78,000

 

Contingent consideration - cash settled, net of current portion

 

 

474,000

 

 

 

-

 

 

 

-

 

 

 

474,000

 

Contingent consideration - warrants, net of current portion

 

 

111,000

 

 

 

-

 

 

 

-

 

 

 

111,000

 

Total liabilities measured and recorded at fair value

 

$ 1,125,000

 

 

$ -

 

 

$ -

 

 

$ 1,125,000

 

 

 

 

 

 

Quoted Prices in

 

 

Significant Other

Observable

 

 

 Unobservable

 

 

 

DECEMBER 31,

 

 

Active Markets

 

 

 Inputs

 

 

 Inputs

 

Description

 

2021

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration - cash settled

 

$ 250,000

 

 

$ -

 

 

$ -

 

 

$ 250,000

 

Contingent consideration - warrants

 

 

108,000

 

 

 

-

 

 

 

-

 

 

 

108,000

 

Contingent consideration - cash settled, net of current portion

 

 

1,095,000

 

 

 

-

 

 

 

-

 

 

 

1,095,000

 

Contingent consideration - warrants, net of current portion

 

 

252,000

 

 

 

-

 

 

 

-

 

 

 

252,000

 

Total liabilities measured and recorded at fair value

 

$ 1,705,000

 

 

$ -

 

 

$ -

 

 

$ 1,705,000

 

 

The Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. The contingent consideration has been recorded at their fair value using a Monte Carlo simulation model. This model incorporates probability of achievement of certain milestones, risk-free rates and volatility. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

 

Management estimates the fair value of the contingent consideration liability based on financial projections of ITA’s business and forecasted results, including revenue growth rates, costs and expenses, volatility, and discount rates. The Company evaluates, on a routine, periodic basis, the estimated fair value of the contingent consideration and quarterly changes in estimated fair value are reflected in other income in the consolidated statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in changes of any of the key assumptions that are used. Changes in the estimated fair value of contingent consideration liability may have a material impact on the Company’s operating results.

 

The following table presents a reconciliation of the change in fair value of contingent consideration for the three months ended March 31, 2022:

 

Contingent consideration, December 31, 2021

 

$ 1,705,000

 

 

 

 

 

 

Change in fair value (gain) reported in the consolidated statement of operations

 

 

(301,000 )

 

 

 

 

 

Contingent consideration settled - cash

 

 

(171,000 )

 

 

 

 

 

Contingent consideration settled - warrants

 

 

(108,000 )

 

 

 

 

 

Contingent consideration, March 31, 2022

 

$ 1,125,000

 

 

 
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5. Accounts Receivable and Significant Concentrations

 

A significant portion of the Company’s receivables are billed under firm fixed price contracts with agencies of the U.S. federal government and similar pricing structures with several corporations. Accounts receivable consist of the following by customer type in the table below as of the periods presented:

 

 

 

MARCH 31,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Government (1)

 

$ 10,885,429

 

 

$ 11,010,794

 

Commercial (2)

 

 

2,268,317

 

 

 

1,588,778

 

Gross accounts receivable

 

 

13,153,746

 

 

 

12,599,572

 

Less: allowances for doubtful accounts (3)

 

 

58,460

 

 

 

62,988

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$ 13,095,286

 

 

$ 12,536,584

 

 

(1) Government contracts are generally firm fixed price not to exceed arrangements with a term of five (5) years, which consists of a base year and four (4) annual option year renewals. Government receivables are billed under a single consolidated monthly invoice and are billed approximately thirty (30) to sixty (60) days in arrears from the date of service and payment is generally due within thirty (30) days of the invoice date. Government accounts receivable payments could be delayed due to administrative processing delays by the government agency, continuing budget resolutions that may delay availability of contract funding, and/or administrative only invoice correction requests by contracting officers that may delay payment processing by our government customers.

 

(2) Commercial contracts are generally fixed price arrangements with contract terms ranging from two (2) to three (3) years. Commercial accounts receivables are billed based on the underlying contract terms and conditions which generally have repayment terms that range from thirty (30) to ninety (90) days. Commercial receivables are stated at amounts due from customers net of an allowance for doubtful accounts if deemed necessary.

 

(3) For the three months ended March 31, 2022, the Company did not recognize any material provisions of recoveries of existing provision for bad debt. The Company has not historically maintained a bad debt reserve for its government customers as it has not experienced material or recurring bad debt charges and the nature and size of the contracts has not necessitated the Company’s establishment of such a bad debt reserve.

 

Significant Concentrations

 

The following table presents revenue by customer for each of the periods presented:

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

Customer Type

 

2022

 

 

2021

 

 

 

(Unaudited)

 

U.S. Federal Government (1)

 

 

77.7 %

 

 

82.0 %

U.S. State & Local and Foreign Governments

 

 

0.7 %

 

 

0.4 %

Commercial

 

 

21.6 %

 

 

17.6 %

 

(1) Sales to the U.S. federal government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government.

 

 
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6. Unbilled Accounts Receivable

 

Unbilled accounts receivable represent revenues earned but not invoiced to the customer at the balance sheet date due to either timing of invoice processing or delays due to fixed contractual billing schedules. A significant portion of our unbilled accounts receivable consist of carrier services and hardware and software products delivered but not invoiced at the end of the reporting period.

 

The following table presents customers that represent ten (10) percent or more of consolidated unbilled accounts receivable as of the dates presented below:

 

 

 

MARCH 31,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

As a % of

 

 

As a % of

 

Customer Type

 

Receivables

 

 

Receivables

 

 

 

(Unaudited)

 

U.S. Federal Government

 

 

94 %

 

 

97 %

Commercial

 

 

6 %

 

 

3 %

 

7. Other Current Assets and Accrued Expenses

 

Other current assets consisted of the following as of the dates presented below:

   

 

 

MARCH 31,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Inventories

 

$ 485,601

 

 

$ 590,065

 

Prepaid rent, insurance and other assets

 

 

994,792

 

 

 

1,307,548

 

Qualified payroll credit receivable

 

 

1,296,396

 

 

 

1,296,396

 

 

 

 

 

 

 

 

 

 

Total other current assets

 

$ 2,776,789

 

 

$ 3,194,009

 

 

Accrued expenses consisted of the following as of the dates presented below:

   

 

 

MARCH 31,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Carrier service costs

 

$ 5,249,610

 

 

$ 8,771,660

 

Salaries and payroll taxes

 

 

2,381,048

 

 

 

2,213,356

 

Inventory purchases, consultants and other costs

 

 

877,550

 

 

 

1,345,900

 

Other

 

 

19,962

 

 

 

13,510

 

 

 

 

 

 

 

 

 

 

 

 

$ 8,528,170

 

 

$ 12,344,426

 

     

 
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Table of Contents

 

8. Property and Equipment

 

Major classes of property and equipment consisted of the following as of the dates presented below:

   

 

 

MARCH 31,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Computer hardware and software

 

$ 3,147,041

 

 

$ 2,700,807

 

Furniture and fixtures

 

 

507,537

 

 

 

454,401

 

Leasehold improvements

 

 

293,380

 

 

 

298,352

 

Automobiles

 

 

133,448

 

 

 

137,105

 

Gross property and equipment

 

 

4,081,406

 

 

 

3,590,665

 

Less: accumulated depreciation and amortization

 

 

2,821,794

 

 

 

2,749,532

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

$ 1,259,612

 

 

$ 841,133

 

 

During the three month periods ended March 31, 2022 and 2021, property and equipment depreciation expense was approximately $93,700 and $102,300, respectively.

 

During the three month periods ended March 31, 2022 and 2021, there were no material disposals of owned property and equipment.

 

There were no changes in the estimated useful lives used to depreciate property and equipment during the three month periods ended March 31, 2022 and 2021.

 

9. Leases

 

On January 1, 2022, the Company entered into an amendment to its lease agreement for its Tampa office to amend the term and the extension option. The amendment updated the term of the lease from sixty (60) calendar months ending December 31, 2026 to the Company’s ability to terminate the lease on June 30, 2022. As a result of the amendment, the Company removed the lease right of use asset and lease liability for its Tampa office from its condensed consolidated balance sheet. The Company accounted for the lease as month to month and recorded the monthly rent expense in its condensed consolidated statement of operations.

 

 
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Table of Contents

 

10. Goodwill and Intangible Assets

 

The Company has recorded goodwill of $22,088,578 as of March 31, 2022. There were no changes in the carrying amount of goodwill during the three month period ended March 31, 2022.

 

Intangible assets consists of the following:

 

 

 

MARCH 31, 2022

 

 

 

 

 

 

 

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Amount

 

 

Amortization

 

 

Value

 

 

 

(Unaudited)

 

Customer Relationships

 

$ 2,392,000

 

 

$ (123,300 )

 

$ 2,268,700

 

Channel Relationships

 

 

2,628,080

 

 

 

(1,387,042 )

 

 

1,241,038

 

Internally Developed Software

 

 

3,323,179

 

 

 

(1,752,635 )

 

 

1,570,544

 

Trade Name and Trademarks

 

 

1,330,472

 

 

 

(188,305 )

 

 

1,142,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 9,673,731

 

 

$ (3,451,282 )

 

$ 6,222,449

 

 

 

 

DECEMBER 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Amount

 

 

Amortization

 

 

Value

 

 

 

 

 

 

 

Customer Relationships

 

$ 2,392,000

 

 

$ (61,650 )

 

$ 2,330,350

 

Channel Relationships

 

 

2,628,080

 

 

 

(1,343,241 )

 

 

1,284,839

 

Internally Developed Software

 

 

3,082,705

 

 

 

(1,633,516 )

 

 

1,449,189

 

Trade Name and Trademarks

 

 

1,330,472

 

 

 

(165,964 )

 

 

1,164,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 9,433,257

 

 

$ (3,204,371 )

 

$ 6,228,886

 

 

For the three month period ended March 31, 2022, the Company capitalized $820,000 of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Telecommunications Management System), next generation TDITM application, secure identity management technology and network operations center of which $243,500 was transferred from capital work in progress to internally developed software and $316,900 was transferred from capital work in progress to property and equipment during the period. Capital work in progress is included in other long-term assets in the consolidated balance sheet

 

For the three month period ended March 31, 2021, the Company capitalized $569,900 of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Telecommunications Management System), secure identity management technology and network operations center of which $38,500 was transferred from capital work in progress to internally developed software during the quarter.

 

There were no disposals of intangible assets during the three month periods ended March 31, 2022 and 2021.

 

The aggregate amortization expense recorded for the three month periods ended March 31, 2022 and 2021 were approximately $283,200 and $119,000, respectively.

 

 
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As of March 31, 2022, estimated annual amortization for our intangible assets for each of the next five years is approximately:

 

Remainder of 2022

 

$ 900,179

 

2023

 

 

1,141,613

 

2024

 

 

934,457

 

2025

 

 

511,170

 

2026

 

 

511,170

 

Thereafter

 

 

2,223,860

 

Total

 

$ 6,222,449

 

 

11. Line of Credit

 

On June 15, 2017, the Company entered into a Loan and Security Agreement with Atlantic Union Bank (formerly known as Access National Bank) (the “Loan Agreement”). The Loan Agreement provides for a $5.0 million working capital revolving line of credit.

 

Effective, April 30, 2021, the Company entered into a sixth modification agreement (“Modification Agreement”) with Atlantic Union Bank to amend the existing Loan Agreement.  The Modification Agreement extended the maturity date of the facility from April 30, 2021 through June 15, 2022.

 

The Loan Agreement requires that the Company meet the following financial covenants on a quarterly basis: (i) maintain a minimum adjusted tangible net worth of at least $2.0 million, (ii) maintain minimum consolidated EBITDA of at least two times interest expense and (iii) maintain a current ratio of 1.1 to 1.0 (excluding finance lease liabilities reported under lease accounting standards).

 

The available amount under the working capital line of credit is subject to a borrowing base, which is equal to the lesser of (i) $5.0 million or (ii) 50% of the net unpaid balance of the Company’s eligible accounts receivable. The facility is secured by a first lien security interest on all of the Company’s personal property, including its accounts receivable, general intangibles, inventory and equipment maintained in the United States. As of March 31, 2022, the Company was eligible to borrow up to $4.9 million under the borrowing base formula.

 

12. Income Taxes

 

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 March 31, 2022, 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 March 31, 2022 or December 31, 2021. In the future if applicable, any interest and penalties related to uncertain tax positions will be recognized in income tax expense.

 

As of March 31, 2022, the Company had approximately $34.4 million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes. These federal NOL carry forwards expire between 2022 and 2038. Included in the recorded deferred tax asset, the Company had a benefit of approximately $38.4 million available to offset future taxable income for state income tax purposes. These state NOL carry forwards expire between 2024 and 2036. Under the provisions of the Internal Revenue Code, the net operating losses (“NOL”) and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, respectively, as well as similar state tax provisions. This could limit the amount of tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. This annual limitation may result in the expiration of the net operating losses and credits before utilization.

 

 
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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. There were no changes to the valuation allowance as of March 31, 2022. In the future, changes in the Company’s valuation allowance may result from, among other things, additional pretax operating losses resulting in increases in its valuation allowance or pretax operating income resulting in decreases in its valuation allowance.

 

13. Stockholders’ Equity

 

Common Stock

 

The Company is authorized to issue 30,000,000 shares of common stock, $0.001 par value per share. As of March 31, 2022, there were 8,695,785 shares issued and outstanding. During the three month period ended March 31, 2022, there were 50,345 shares of common stock vested in accordance with the vesting terms of the RSAs. Three employees received less than the shares vested because they elected to have a total of 11,280 shares withheld in satisfaction of the employees corresponding tax liability of approximately $49,300. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows.

 

During the three month period ended March 31, 2021, there were 104,176 shares of common stock vested in accordance with the vesting terms of the RSAs. Two employees received less than the shares vested because they elected to have a total of 12,526 shares withheld in satisfaction of each of the employees corresponding tax liability of approximately $140,900. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows.

 

There were no stock option exercises during the three month period ended March 31, 2022. Shares of common stock issued as a result of stock option exercises and realized gross proceeds for the three month period ended March 31, 2021, were 2,500 and $10,250, respectively.

 

Contingent Warrants

 

Liability-classified warrants consist of warrants to acquire common stock at an exercise price of $5.33 per share as part of the consideration for the acquisition of ITA, during the earn-out period from 2021 to 2024. Based on our consideration of the ASC 815-40 guidance, we account for these contingent warrants as a liability. The estimated fair value of outstanding contingent warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the consolidated statement of operations as a other income (expense). Refer to Notes 3 and 4 for more information about the warrants. 

 

Warrants Issued

 

On March 31, 2022, the Company issued a warrant to purchase 75,000 shares of common stock as part of the contingent consideration earned by ITA for 2021 EBITDA achievement. The warrant contains a strike price of $5.33 and has a four-year contractual term. The warrant is classified within stockholders’ equity at its fair value. The fair value of the warrant was determined to be $108,000 utilizing the Black-Scholes-Merton option-pricing model at the time of issuance. Following such issuance, the Company has outstanding warrants to acquire  150,000 shares of common stock at a strike price of $5.33 that expire at terms through October 1, 2025.

 

 
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Stock Repurchase Program

 

On October 7, 2019, the Company announced that its Board of Directors approved a stock repurchase plan (the “Repurchase Plan”) to purchase up to $2.5 million of the Company’s common stock. Any repurchases will be made in compliance with the SEC’s Rule 10b-18 if applicable, and may be made in the open market or in privately negotiated transactions, including the entry into derivatives transactions. This Repurchase Plan was suspended on March 9, 2020, as a precaution due to the COVID-19 pandemic, which suspension was removed on September 27, 2021. During November 2021, the Board increased the size of the Repurchase Plan to up to $5.0 million of the Company’s common stock, increasing the amount available for future purchases under the Repurchase Plan to $4.6 million. During the quarter ended March 31, 2022, we repurchased 196,586 shares of our common stock for a total of $818,200 and subsequently in March of 2022, the Board suspended the repurchase plan in order to use the company’s excess funds to invest into the business.

 

At The Market Offering Agreement

 

On August 18, 2020, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (“B. Riley FBR”), The Benchmark Company, LLC (“Benchmark”) and Spartan Capital Securities, LLC (“Spartan”, and together with B. Riley FBR and Benchmark, the “Sales Agents”) which establishes an at-the-market equity program pursuant to which the Company may offer and sell shares of our common stock, par value $0.001 per share, from time to time as set forth in the Sales Agreement. The Sales Agreement provides for the sale of shares of the Company’s common stock (“Shares”) having an aggregate offering price of up to $24,000,000.

 

The Sales Agreement will terminate upon the earlier of sale of all of the Shares under the Sales Agreement or termination of the Sales Agreement as permitted.

 

The Company has no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Sales Agreement or terminate the Sales Agreement. The Company did not sell any shares during the three month period ended March 31, 2022. During the three month period ended March 31, 2021, the Company sold 100,687 shares for gross proceeds of $1.1 million and incurred $45,400 of offering costs.

 

14. Share-based Compensation

 

Share-based compensation (including restricted stock awards) represents both stock option based expense and stock grant expense. The following table sets forth the composition of stock compensation expense included in general and administrative expense for the periods then ended:

  

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Restricted stock compensation expense

 

$ 179,741

 

 

$ 157,107

 

Non-qualified option stock compensation expense

 

 

-

 

 

 

25,735

 

 

 

 

 

 

 

 

 

 

Total share-based compensation before taxes

 

$ 179,741

 

 

$ 182,842

 

 

The Company’s stock incentive plan is administered by the Compensation Committee of the Board of Directors and authorizes the grant or award of incentive stock options, nonqualified stock options (NQSO), restricted stock awards (RSA), 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.

 

 
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Restricted Stock

 

The Company records the fair value of all restricted stock awards based on the grant date fair value and amortizes stock compensation on a straight-line basis over the vesting period. Restricted stock award shares are issued when vested and included in the total number of common shares issued and outstanding. There were no RSAs granted during the three month period ended March 31, 2022. During the three month period ended March 31, 2021, the Company granted 50,261 RSAs.

 

 Non-Qualified Stock Options 

 

The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using the Black-Scholes model, which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. There were no non-qualified stock option awards granted during the three month periods ended March 31, 2022 and 2021.

 

At March 31, 2022, the Company had approximately $158,523 of total unrecognized share-based compensation expense, net of estimated forfeitures, related to share-based compensation that will be recognized over the weighted average remaining period of 1.3 year.

 

15. Earnings Per Common Share (EPS)

 

The computations of basic and diluted earnings per share were as follows for the periods presented below:

   

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Basic Earnings Per Share Computation:

 

 

 

 

 

 

Net income

 

$ (392,897 )

 

$ 585,424

 

Weighted average number of common shares

 

 

8,782,452

 

 

 

8,995,103

 

Basic Earnings Per Share

 

$ (0.04 )

 

$ 0.07

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share Computation:

 

 

 

 

 

 

 

 

Net income

 

$ (392,897 )

 

$ 585,424

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares

 

 

8,782,452

 

 

 

8,995,103

 

Incremental shares from assumed conversions of dilutive securities

 

 

-

 

 

 

108,057

 

Adjusted weighted average number of common shares

 

 

8,782,452

 

 

 

9,103,160

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$ (0.04 )

 

$ 0.06

 

   

 
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16. Revenue from Contracts with Customers

 

The following table was prepared to provide additional information about the composition of revenues from contracts with customers for the periods presented:

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Carrier Services

 

$ 12,932,055

 

 

$ 11,348,872

 

Managed Services

 

 

9,504,372

 

 

 

9,301,971

 

 

 

 

 

 

 

 

 

 

 

 

$ 22,436,427

 

 

$ 20,650,843

 

 

The Company recognized revenues from contracts with customers for the following customer types as set forth below:

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

U.S. Federal Government

 

$ 17,433,723

 

 

$ 16,931,731

 

U.S. State and Local Governments

 

 

126,142

 

 

 

53,383

 

Foreign Governments

 

 

32,407

 

 

 

26,096

 

Commercial Enterprises

 

 

4,844,155

 

 

 

3,639,633

 

 

 

 

 

 

 

 

 

 

 

 

$ 22,436,427

 

 

$ 20,650,843

 

    

The Company recognized revenues from contracts with customers in the following geographic regions:

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

North America

 

$ 21,434,634

 

 

$ 19,410,144

 

Europe

 

 

1,001,793

 

 

 

1,240,699

 

 

 

 

 

 

 

 

 

 

 

 

$ 22,436,427

 

 

$ 20,650,843

 

   

During the three months ended March 31, 2022 and 2021, the Company recognized approximately $1,079,900 and $942,400, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2022 and 2021, respectively.

 

17. Commitments and Contingencies

 

Employment Agreements

 

The Company has employment agreements with certain executives that set forth compensation levels and provide for severance payments in certain instances.

 

Litigation

 

The Company is not involved in any material legal proceedings.

 

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

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements. You can identify these statements by words such as “aim,” “anticipate,” “assume,” “believe,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “positioned,” “predict,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management's beliefs and assumptions. These statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

 

 

·

The impact of the COVID-19 pandemic on our business and operations;

 

·

The impact of increasingly volatile public equity markets on our market capitalization;

 

·

The impact of supply chain issues;

 

·

Our ability to successfully execute our strategy;

 

·

Our ability to sustain profitability and positive cash flows;

 

·

Our ability to gain market acceptance for our products;

 

·

Our ability to win new contracts, execute contract extensions and expand scope of services on existing contracts;

 

·

Our ability to compete with companies that have greater resources than us;

 

·

Our ability to penetrate the commercial sector to expand our business;

 

·

Our ability to identify potential acquisition targets and close such acquisitions;

 

·

Our ability to successfully integrate acquired businesses with our existing operations;

 

·

Our ability to maintain a sufficient level of inventory necessary to meet our customers demand due to supply shortage and pricing;

 

·

Our ability to retain key personnel;

 

·

Our ability to mitigate the impact of inflation; and

 

·

The risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 28, 2022.

 

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.  Readers are cautioned not to put undue reliance on forward-looking statements.  In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, the terms “Company” and “WidePoint,” as well as the words “we,” “our,” “ours” and “us,” refer collectively to WidePoint Corporation and its consolidated subsidiaries.

 

Business Overview

 

We are a leading provider of Technology Management as a Service (TMaaS) that consists of federally certified communications management, identity management, interactive bill presentment and analytics, and Information Technology as a Service solutions. We help our clients achieve their organizational missions for mobility management, information technology management, and cybersecurity objectives in this challenging and complex business environment.  

 

We offer our TmaaS solutions through a flexible managed services model which includes both a scalable and comprehensive set of functional capabilities that can be used by any customer to meet the most common functional, technical and security requirements for mobility management. Our TmaaS solutions were designed and implemented with flexibility in mind such that it can accommodate a large variety of customer requirements through simple configuration settings rather than through costly software development.  The flexibility of our TmaaS solutions enables our customers to be able to quickly expand or contract their mobility management requirements.  Our TmaaS solutions are hosted and accessible on-demand through both a secure federal government certified proprietary portal and/or through a secure enterprise portal that provides our customers with the ability to manage, analyze and protect their valuable communications assets, and deploy identity management solutions that provide secured virtual and physical access to restricted environments.  

 

 
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Revenue Mix

 

Our revenue mix fluctuates due to customer driven factors including: i) timing of technology and accessory refresh requirements from our customers; ii) onboarding of new customers that require carrier services; iii) subsequent decreases in carrier services as we optimize their data and voice usage; iv) delays in delivering products or services; and v) changes in control or leadership of our customers that lengthens our sales cycle, changes in laws or funding, among other circumstances that may unexpectedly change the revenue earned and/or duration of our services.  As a result, our revenue will vary by quarter.

 

For additional information related to our business operations, see the description of our business set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 28, 2022. 

 

Strategic Focus and Notable Events

 

We believe that demand for our TmaaS solutions will continue to grow as public and private sectors seek to address the additional requirements for supporting a mobile workforce.  We also believe that the current post COVID-19 pandemic environment will increase the need for WidePoint’s services as our customers and potential customers seek to manage, secure and gain visibility into their mobility assets as a result of a larger number of employees working remotely.  Our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives in order to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth.

 

In fiscal 2022, we will continue to focus on the following key goals:

 

 

·

Continue to find additional avenues for capturing new sales opportunities given the pandemic environment,

 

·

Continue to provide unmatched level of services to our current customer base,

 

·

Attain full FedRAMP certification in 2022 and continued technology refresh of our delivery infrastructure,

 

·

Grow our recurring high margin managed services revenues,

 

·

Add incremental capabilities to our Technology Management solution set and develop and acquire new high margin business lines,

 

·

Enhance our software platforms to grow our SaaS revenues and take advantage of the opportunities emerging from the growth in remote working,

 

·

Expand our customer base organically and inorganically,

 

·

Continue to leverage the R2v3 Certification to further our ESG commitment

 

·

Executing cross-sell opportunities identified from ITA acquisition, including Identity Management (IdM), Telecommunications Lifecycle Management (TLM) and Digital Billing & Analytics (DB&A) solution,

 

·

Growing our sales pipeline by continuing to invest in our business development and sales team assets,

 

·

Pursuing additional opportunities with our key systems integrator and strategic partners, and

 

·

Expanding our solution offerings into the commercial space.

 

Our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth. Our strategy for achieving our longer-term goals include:

 

 

·

pursuing accretive and strategic acquisitions to expand our solutions and our customer base,

 

·

delivering new incremental offerings to add to our existing TMaaS offering,

 

·

developing and testing innovative new offerings that enhance our TMaaS offering, and

 

·

transitioning our data center and support infrastructure into a more cost-effective and federally approved cloud environment to comply with perceived future contract requirements.

 

We  believe these actions could drive a strategic repositioning our TMaaS offering and may include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of TMaaS offerings.

 

 
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Results of Operations

 

Three Months Ended March 31, 2022 as Compared to Three Months Ended March 31, 2021

 

Revenues.  Revenues for the three month period ended March 31, 2022 were approximately $22.4 million, an increase of approximately $1.8 million (or 9%), as compared to approximately $20.6 million in 2021.  Our mix of revenues for the periods presented is set forth below:

  

 

 

THREE MONTHS ENDED

 

 

 

 

 

 

MARCH 31,

 

 

Dollar

 

 

 

2022

 

 

2021

 

 

Variance

 

 

 

(Unaudited)

 

 

 

 

Carrier Services

 

$ 12,932,059

 

 

$ 11,348,869

 

 

$ 1,583,190

 

Managed Services:

 

 

 

 

 

 

 

 

 

 

 

 

Managed Service Fees

 

 

7,258,277

 

 

 

8,259,430

 

 

 

(1,001,153 )

Billable Service Fees

 

 

1,120,106

 

 

 

1,021,517

 

 

 

98,589

 

Reselling and Other Services

 

 

1,125,985

 

 

 

21,027

 

 

 

1,104,958

 

 

 

 

9,504,368

 

 

 

9,301,974

 

 

 

202,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 22,436,427

 

 

$ 20,650,843

 

 

$ 1,785,584

 

 

Our carrier services increased compared with the same period in 2021 primarily due to carrier credits of approximately $1.7 million reflected in the first quarter of 2021, but not in the first quarter of  2022, otherwise carrier services remained relatively constant from period to period.  

 

Our managed service fees decreased by $1.0 million largely due to lower device recycling service volumes and accessory sales,  which was partially offset by approximately $1.6 million of managed services revenue from our ITA acquisition which is not included in the first quarter of 2021.

 

Billable service fee revenue remained consistent with the same period in 2021

 

Reselling and other services increased as compared to last year due to product resales to federal government customers.   Reselling and other services are transactional in nature and as a result the amount and timing of revenue will vary significantly from quarter to quarter.   

 

Cost of Revenues. Cost of revenues for the three months period ended March 31, 2022 were approximately $18.5 million (or 83% of revenues), as compared to approximately $15.9 million (or 77% of revenues) in 2021.  The increase in cost of revenues was driven by a reduction to cost of revenues of approximately  $1.7 million related to  carrier credits booked in the first quarter of 2021 but not in the first quarter of  2022, and incremental cost of revenue in the approximate amount of  $1.7 million related to ITA, for which results were not included first quarter of 2021 results.                                                

 

Gross Profit.  Gross profit for the three months period ended March 31, 2022 was approximately $3.9 million (or 17% of revenues), as compared to approximately $4.7 million (or 23% of revenues) in 2021.  Approximately two-percentage points (2%) of the decrease in gross profit percentage was driven by the impact of carrier credits being reduced from both revenues and cost of revenues in 2021 as well as the relative lower margin percentage of ITA in the first quarter of 2022.  Our gross profit percentage will vary from quarter to quarter due to revenue mix between carrier services and managed services revenue.   

 

 
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Sales and Marketing.  Sales and marketing expense for the three month period ended March 31, 2022 was approximately $---0.6 million (or -2% of revenues), as compared to approximately $0.5 million (or 1% of revenues) in 2021.  We continue to invest in our business development and sales team assets as identified as one of our key goals for 2022.

 

General and Administrative.  General and administrative expenses for the three months period ended March 31, 2022 were approximately $3.7 million (or 9% of revenues), as compared to approximately $3.3 million (or 6% of revenues) in 2021.  The increase in general and administrative expense is due in part to an additional $0.6 million of additional general and administrate expenses related to ITA and due to increased labor costs and  data center costs.  

 

Depreciation and Amortization.  Depreciation and amortization expense for the three month period ended March 31, 2022 was approximately $264,400 as compared to approximately $250,900 in 2021.  The increase in depreciation and amortization expense reflects the decrease in our depreciable asset base.

 

Other Income.  Other income (expense) for the three month period ended March 31, 2022 was approximately $244,000 as compared to approximately an expense of $(66,100) in 2021.  The income in 2022 is primarily driven by the fair value adjustments of contingent consideration.        

 

Income Taxes.  Income tax benefit for the three month period ended March 31, 2022 was approximately $51,100 as compared to income tax expense of $23,500 in 2021.  Income taxes were accrued at an estimated effective tax rate of 28.7% for the three months ended March 31, 2022 compared to 27.1% for the three months ended March 31, 2021.

 

Net (Loss) Income.  As a result of the cumulative factors annotated above, net loss for the three month period ended March 31, 2022 was approximately $392,900 as compared to net income of approximately $585,400 million in the same period last year.  

 

 

Liquidity and Capital Resources

 

Our immediate sources of liquidity include cash and cash equivalents, accounts receivable, unbilled receivables and access to a working capital credit facility with Atlantic Union Bank for up to $5.0 million. In addition, we maintain an at-the-market (ATM) equity sales program (described below) that permits us to sell, from time to time, up to $24.0 million of our common stock through the sales agents under the program. There is no assurance that, if needed, we will be able to raise capital on favorable terms or at all.

 

At March 31, 2022, our net working capital was approximately $5.0 million as compared to $7.1 million at December 31, 2021.  The decrease in net working capital was primarily driven by investments in computer hardware and software purchases and capitalized internally developed software costs and the repurchase of our common stock, which was partially offset by temporary receivable/payable timing differences. We may need to raise additional capital to fund major growth initiatives and/or acquisitions and there can be no assurance that additional capital will be available on acceptable terms or at all.

 

ATM Sales Program

 

On August 18, 2020, we entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc., The Benchmark Company, LLC and Spartan Capital Securities, LLC which establishes an ATM equity program pursuant to which we may offer and sell up to $24.0 million of shares of our common stock, par value $0.001 per share, from time to time as set forth in the Sales Agreement. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Sales Agreement or terminate the Sales Agreement. No shares were sold during the three months ended March 31, 2022. The Company had remaining capacity of $18.2 million as of March 31, 2022.

    

 
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Cash Flows from Operating Activities

 

Cash provided by operating activities provides an indication of our ability to generate sufficient cash flow from our recurring business activities. Our single largest cash operating expense is the cost of labor and company sponsored healthcare benefit programs.  Our second largest cash operating expense is our facility costs and related technology communication costs to support delivery of our services to our customers.  We lease most of our facilities under non-cancellable long term contracts that may limit our ability to reduce fixed infrastructure costs in the short term. Any changes to our fixed labor and/or infrastructure costs may require a significant amount of time to take effect depending on the nature of the change made and cash payments to terminate any agreements that have not yet expired. We experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control.

 

For the three months ended March 31, 2022, net cash provided by operations was approximately $2.8 million driven by collections of accounts receivable and temporary payable timing differences, as compared to approximately $1.0 million net cash provided for the three months ended March 31, 2021.

  

Cash Flows from Investing Activities

 

Cash used in investing activities provides an indication of our long term infrastructure investments. We maintain our own technology infrastructure and may need to make additional purchases of computer hardware, software and other fixed infrastructure assets to ensure our environment is properly maintained and can support our customer obligations. We typically fund purchases of long term infrastructure assets with available cash or capital lease financing agreements.

 

For the three months ended March 31, 2022, cash used in investing activities was approximately $1.0 million and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™  platform, secure identity management technology and network operations center, and TDI™.    

 

For the three months ended March 31, 2021,  cash used in investing activities was approximately $641,200 and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™  platform, secure identity management technology and network operations center.

 

Cash Flows from Financing Activities

 

Cash provided by (used in) financing activities provides an indication of our debt financing and proceeds from capital raise transactions and stock option exercises.

 

For the three months ended March 31, 2022, cash used in financing activities was approximately $1.0 million and reflects lease principal repayments of approximately $147,400, repurchases of common stock of $0.8 million and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200.

 

For the three months ended March 31, 2021, cash provided by financing activities was approximately $813,800 and reflects proceeds from issuance of common stock through ATM sales of $1.1 million, net of issuance costs, proceeds of approximately $10,250 from the exercise of stock options, offset by lease principal repayments of approximately $144,000 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $140,900.

 

Net Effect of Exchange Rate on Cash and Equivalents

 

For the three months ended March 31, 2022 and 2021, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $38,900 as compared to last year. 

 

Off-Balance Sheet Arrangements

 

The Company has no existing off-balance sheet arrangements as defined under SEC regulations.

 

 
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the three month period ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
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Table of Contents

 

PART II – OTHER INFORMATION

 

ITEM 1 LEGAL PROCEEDINGS

 

The Company is not currently involved in any material legal proceeding.

 

ITEM 1A RISK FACTORS

 

Our risk factors have not changed materially from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Stock Repurchase Plan

 

On October 7, 2019, the Company announced that its Board of Directors approved a stock repurchase plan (the “Repurchase Plan”) to purchase up to $2.5 million of the Company’s common stock.  Any repurchases will be made in compliance with the SEC’s Rule 10b-18 if applicable, and may be made in the open market or in privately negotiated transactions, including the entry into derivatives transactions.  During the three months ended March 31, 2020, we repurchased 2,416 shares for a total of $10,100 under the Repurchase Plan. This Repurchase Plan was suspended on March 9, 2020, as a precaution due to the COVID-19 pandemic, which suspension was removed on September 27, 2021. During November 2021, the Board increased the size of the Repurchase Plan to up to $5.0 million of the Company’s common stock, increasing the amount available for future purchases under the Repurchase Plan to $4.6 million. During the quarter ended March 31, 2022, we repurchased 196,586 shares of our common stock for a total of $818,200 and subsequently in March of 2022, the board suspended the repurchase plan in order to use the company’s excess funds to invest into the business.

 

Unregistered Sale of Equity Securities

 

On March 31, 2022, the Company issued a warrant to purchase 75,000 shares of its common stock at a strike price of $5.33 for a period of four years to ITA as part of the contingent consideration earned for the year ended December 31, 2021.  The Warrants were issued in reliance on an exemption from registration under the Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation D and Section 4(a)(2) thereof.

 

ITEM 3 DEFAULT UPON SENIOR SECURITIES

 

None

 

ITEM 4 MINE SAFETY DISCLOSURES

 

None

 

ITEM 5 OTHER INFORMATION

 

None

 

 
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Table of Contents

 

ITEM 6.  EXHIBITS

 

EXHIBIT NO.

 

DESCRIPTION

31.1

 

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

31.2

 

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

32

 

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith).

 

 

 

101.

 

Interactive Data Files

 

 

 

101.INS+

 

XBRL Instance Document

 

 

 

101.SCH+

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL+

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF+

 

XBRL Taxonomy Definition Linkbase Document

 

 

 

101.LAB+

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE+

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104.

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

 

 

 

 
29

Table of Contents

 

SIGNATURES

 

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.

 

 

WIDEPOINT CORPORATION

       
Date: May 16, 2022 /s/ JIN H. KANG

 

 

Jin H. Kang  
   

President and Chief Executive Officer

 
       

Date: May 16, 2022

 

/s/ ROBERT J. GEORGE

 

 

 

Robert J. George

 

 

 

Chief Financial Officer

 

 

 
30

 

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