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 June 30, 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

incorporation or organization)

 

(I.R.S. employer

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 August 15, 2022, there were 8,733,938 shares of the registrant’s Common Stock issued and outstanding.

 

 

 

 

WIDEPOINT CORPORATION

 

INDEX

 

Part I.

FINANCIAL INFORMATION

 

Page No.

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2022 and 2021

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six month periods ended June 30, 2022 and 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three and six month periods ended June 30, 2022 and 2021

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six month periods ended June 30, 2022 and 2021

 

8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

10

 

 

 

 

 

 

Item 2.

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

 

25

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

33

 

 

 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

34

 

 

 

 

 

 

Item 1A.

Risk Factors

 

34

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

 

 

 

Item 3.

Default Upon Senior Securities

 

34

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

34

 

 

 

 

 

 

Item 5.

Other Information

 

35

 

 

 

 

 

 

Item 6.

Exhibits

 

37

 

 

 

 

 

 

SIGNATURES

 

38

 

 

 

 

 

 

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

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

REVENUES

 

$ 23,057,354

 

 

$ 19,983,420

 

 

$ 45,493,781

 

 

$ 40,634,263

 

COST OF REVENUES (including amortization and depreciation of $306,938, $120,250, $594,456, and $239,333, respectively)

 

 

19,737,710

 

 

 

15,991,159

 

 

 

38,277,412

 

 

 

31,926,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

3,319,644

 

 

 

3,992,261

 

 

 

7,216,369

 

 

 

8,708,140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

562,623

 

 

 

533,528

 

 

 

1,137,792

 

 

 

1,015,827

 

General and administrative expenses (including share-based compensation of $89,385, $243,821, $269,126 and $426,663, respectively)

 

 

3,817,316

 

 

 

3,267,587

 

 

 

7,562,545

 

 

 

6,575,249

 

Goodiwll impairment

 

 

16,277,000

 

 

 

-

 

 

 

16,277,000

 

 

-

 

Depreciation and amortization

 

 

274,088

 

 

 

253,857

 

 

 

538,449

 

 

 

504,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

20,931,027

 

 

 

4,054,972

 

 

 

25,515,786

 

 

 

8,095,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(LOSS) INCOME FROM OPERATIONS

 

 

(17,611,383 )

 

 

(62,711 )

 

 

(18,299,417 )

 

 

612,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

4,158

 

 

 

192

 

 

 

10,728

 

 

 

2,567

 

Interest expense

 

 

(62,826 )

 

 

(69,290 )

 

 

(126,347 )

 

 

(140,306 )

Other income

 

 

669,990

 

 

 

2

 

 

 

971,003

 

 

 

2,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

611,322

 

 

 

(69,096 )

 

 

855,384

 

 

 

(135,241 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION

 

 

(17,000,061 )

 

 

(131,807 )

 

 

(17,444,033 )

 

 

477,075

 

INCOME TAX (BENEFIT) PROVISION

 

 

(3,240,852 )

 

 

72,924

 

 

 

(3,291,927 )

 

 

96,382

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) INCOME

 

$ (13,759,209 )

 

$ (204,731 )

 

$ (14,152,106 )

 

$ 380,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

$ (1.58 )

 

$ (0.02 )

 

$ (1.62 )

 

$ 0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING

 

 

8,696,111

 

 

 

9,072,281

 

 

 

8,739,043

 

 

 

9,033,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE

 

$ (1.58 )

 

$ (0.02 )

 

$ (1.62 )

 

$ 0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING

 

 

8,696,111

 

 

 

9,072,281

 

 

 

8,739,043

 

 

 

9,191,532

 

 

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 (LOSS) INCOME

 

 

 

THREE MONTHS ENDED

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

NET (LOSS) INCOME

 

$ (13,759,209 )

 

$ (204,731 )

 

$ (14,152,106 )

 

$ 380,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

 

(134,854 )

 

 

19,633

 

 

 

(139,689 )

 

 

(35,316 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income

 

 

(134,854 )

 

 

19,633

 

 

 

(139,689 )

 

 

(35,316 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE (LOSS) INCOME

 

$ (13,894,063 )

 

$ (185,098 )

 

$ (14,291,795 )

 

$ 345,377

 

 

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

 

 

 

JUNE 30,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

ASSETS

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$ 7,192,085

 

 

$ 6,479,980

 

Accounts receivable, net of allowance for doubtful accounts of $45,023 and $62,988 in 2022 and 2021, respectively

 

 

12,424,600

 

 

 

12,536,584

 

Unbilled accounts receivable

 

 

7,883,179

 

 

 

10,937,415

 

Other current assets

 

 

2,789,387

 

 

 

3,194,009

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

30,289,251

 

 

 

33,147,988

 

 

 

 

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,152,890

 

 

 

841,133

 

Lease right of use asset, net

 

 

5,059,331

 

 

 

6,273,211

 

Intangible assets, net

 

 

6,360,252

 

 

 

6,228,886

 

Goodwill

 

 

5,811,578

 

 

 

22,088,578

 

Deferred tax assets, net

 

 

8,295,569

 

 

 

5,127,482

 

Other long-term assets

 

 

2,787,302

 

 

 

1,782,060

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 59,756,173

 

 

$ 75,489,338

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$ 14,691,477

 

 

$ 10,263,015

 

Accrued expenses

 

 

9,810,349

 

 

 

12,344,426

 

Deferred revenue

 

 

1,963,276

 

 

 

2,280,894

 

Current portion of lease liabilities

 

 

634,479

 

 

 

794,175

 

Current portion of contingent consideration

 

 

-

 

 

 

358,000

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

27,099,581

 

 

 

26,040,510

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

 

 

Lease liabilities, net of current portion

 

 

5,015,198

 

 

 

6,025,691

 

Contingent consideration, net of current portion

 

 

380,000

 

 

 

1,347,000

 

Deferred revenue, net of current portion

 

 

367,503

 

 

 

400,142

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

32,862,282

 

 

 

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; 8,725,476 and 8,842,026 shares issued and outstanding, respectively

 

 

8,726

 

 

 

8,842

 

Additional paid-in capital

 

 

100,934,729

 

 

 

101,424,922

 

Accumulated other comprehensive loss

 

 

(381,275 )

 

 

(241,586 )

Accumulated deficit

 

 

(73,668,289 )

 

 

(59,516,183 )

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

26,893,891

 

 

 

41,675,995

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$ 59,756,173

 

 

$ 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

 

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net (loss) income

 

$ (14,152,107 )

 

$ 380,693

 

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

 

 

 

 

 

 

 

 

Deferred income tax benefit

 

 

(3,176,568 )

 

 

(20,298 )

Depreciation expense

 

 

540,361

 

 

 

504,798

 

Goodwill impairment charge

 

 

16,277,000

 

 

 

-

 

(Recovery) provision for doubtful accounts

 

 

(311 )

 

 

(24,544 )

Amortization of intangibles

 

 

592,544

 

 

 

239,333

 

Share-based compensation expense

 

 

269,126

 

 

 

426,663

 

Warrants expense

 

 

108,000

 

 

 

-

 

Change in fair value of contingent consideration

 

 

(967,000 )

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable and unbilled receivables

 

 

3,118,288

 

 

 

28,567,676

 

Inventories

 

 

(134,346 )

 

 

(110,791 )

Other current assets

 

 

532,882

 

 

 

(22,415 )

Other assets

 

 

28,272

 

 

 

27,160

 

Accounts payable and accrued expenses

 

 

1,968,727

 

 

 

(30,488,525 )

Income tax payable

 

 

(154,418 )

 

 

40,017

 

Deferred revenue and other liabilities

 

 

(312,606 )

 

 

(177,159 )

Other liabilities

 

 

(358,000 )

 

 

246,037

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

4,179,844

 

 

 

(411,355 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(214,096 )

 

 

(90,302 )

Capitalized hardware and software development costs

 

 

(1,936,687 )

 

 

(1,159,583 )

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(2,150,783 )

 

 

(1,249,885 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Principal repayments under finance lease obligations

 

 

(297,132 )

 

 

(285,755 )

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

 

 

(49,224 )

 

 

(140,865 )

Common stock repurchased

 

 

(818,211 )

 

 

-

 

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

 

 

-

 

 

 

1,071,045

 

Proceeds from exercise of stock options

 

 

-

 

 

 

10,250

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

 

(1,164,567 )

 

 

654,675

 

 

 

 

 

 

 

 

 

 

Net effect of exchange rate on cash and equivalents

 

 

(152,389 )

 

 

(42,812 )

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

712,105

 

 

 

(1,049,377 )

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of period

 

 

6,479,980

 

 

 

15,996,749

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, end of period

 

$ 7,192,085

 

 

$ 14,947,372

 

 

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)

 

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$ 124,854

 

 

$ 140,242

 

Cash paid for income taxes

 

$ 27,559

 

 

$ 159,335

 

 

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Capitalized hardware and software development costs in accounts payable

 

$ 151,995

 

 

$ 76,245

 

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

 

 

 

 

 

Issued

 

 

Amount

 

 

Capital

 

 

OCI

 

 

Deficit

 

 

Total

 

 

 

(Unaudited)

 

Balance, January 1, 2021

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

restricted

 

 

28,208

 

 

 

29

 

 

 

(29 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — restricted

 

 

-

 

 

 

-

 

 

 

214,852

 

 

 

-

 

 

 

-

 

 

 

214,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — non-qualified stock options

 

 

-

 

 

 

-

 

 

 

28,969

 

 

 

-

 

 

 

-

 

 

 

28,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offering costs for the Issuance of common stock /

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At-the-market offering

 

 

-

 

 

 

-

 

 

 

(17,324 )

 

 

-

 

 

 

-

 

 

 

(17,324 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation — gain

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,633

 

 

 

-

 

 

 

19,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(204,731 )

 

 

(204,731 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

9,099,560

 

 

$ 9,100

 

 

$ 101,871,610

 

 

$ (139,931 )

 

$ (59,476,586 )

 

$ 42,264,193

 

 

 
8

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Accumulated

 

 

 

 

 

Issued

 

 

Amount

 

 

Capital

 

 

OCI

 

 

Deficit

 

 

Total

 

 

 

(Unaudited)

 

Balance, January 1, 2022

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock — restricted

 

 

29,691

 

 

 

30

 

 

 

(30 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — restricted

 

 

-

 

 

 

-

 

 

 

89,385

 

 

 

-

 

 

 

-

 

 

 

89,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation — (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(134,854 )

 

 

-

 

 

 

(134,854 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,759,209 )

 

 

(13,759,209 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2022

 

 

8,725,476

 

 

$ 8,726

 

 

$ 100,934,729

 

 

$ (381,275 )

 

$ (73,668,289 )

 

$ 26,893,891

 

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 Technology 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 June 30, 2022 and for each of the three and six month periods ended June 30, 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 and six month periods ended June 30, 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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Table of Contents

 

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 June 30, 2022 and December 31, 2021

 

Deferred payroll tax payments of $246,000 was included in accrued liabilities on our condensed consolidated balance sheets as of June 30, 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, except for the goodwill impairment adjustment discussed below.

 

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 six 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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Table of Contents

 

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 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 first quarter of 2022, the Company issued 75,000 warrants and paid cash of approximately $250,000 related to ITA achieving EBITDA target for 2021.

 

The following supplemental unaudited pro forma information sets forth unaudited consolidated financial information for the year ended December 31, 2021 for the Company assuming we completed the acquisition on January 1, 2021:

 

 

 

THREE MONTHS ENDED

 

 

SIX MONTHS

ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

 

 

2021

 

 

2021

 

 

 

(a)

 

 

(a)

 

Revenues

 

$ 22,493

 

 

$ 45,360

 

Net (Loss) Income

 

 

(148 )

 

 

442

 

 

 

 

(a)

To reflect on a pro forma basis unaudited consolidated financial information 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 audited financial statements.

 

 
12

Table of Contents

 

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

 

 

 

 

 

 

JUNE 30,

 

 

Active Markets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description

 

2022

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

(Unaudited)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration - cash settled

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Contingent consideration - warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Contingent consideration - cash settled, net of current portion

 

 

338,000

 

 

 

-

 

 

 

-

 

 

 

338,000

 

Contingent consideration - warrants, net of current portion

 

 

42,000

 

 

 

-

 

 

 

-

 

 

 

42,000

 

Total liabilities measured and recorded at fair value

 

$ 380,000

 

 

$ -

 

 

$ -

 

 

$ 380,000

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant Other

 

 

 

 

 

 

DECEMBER 31,

 

 

Active Markets

 

 

Observable Inputs

 

 

Unobservable 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.

 

 
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Table of Contents

 

The following table presents a reconciliation of the change in fair value of contingent consideration for the three and six months ended June 30, 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

 

 

 

 

 

 

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

 

 

(666,000 )

 

 

 

 

 

Contingent consideration settled - cash

 

 

(79,000 )

 

 

 

 

 

Contingent consideration, June 30, 2022

 

$ 380,000

 

 

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:

 

 

 

JUNE 30,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Government (1)

 

$ 10,485,480

 

 

$ 11,010,794

 

Commercial (2)

 

 

1,984,143

 

 

 

1,588,778

 

Gross accounts receivable

 

 

12,469,623

 

 

 

12,599,572

 

Less: allowances for doubtful

 

 

 

 

 

 

 

 

accounts (3)

 

 

45,023

 

 

 

62,988

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$ 12,424,600

 

 

$ 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 six month period ended June 30, 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.

 

 
14

Table of Contents

 

Significant Concentrations

 

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

 

 

 

THREE MONTHS ENDED

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

Customer Type

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

U.S. Federal Government (1)

 

 

80.5 %

 

 

83.3 %

 

 

79.1 %

 

 

82.6 %

U.S. State & Local and Foreign Governments

 

 

0.5 %

 

 

0.4 %

 

 

0.6 %

 

 

0.4 %

Commercial

 

 

18.9 %

 

 

16.3 %

 

 

20.2 %

 

 

17.0 %

  

(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.

 

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:

 

 

 

JUNE 30,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

As a % of

 

 

As a % of

 

Customer Type

 

Receivables

 

 

Receivables

 

 

 

(Unaudited)

 

U.S. Federal Government

 

 

96 %

 

 

97 %

Commercial

 

 

4 %

 

 

3 %

 

7. Other Current Assets and Accrued Expenses

 

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

 

 

 

JUNE 30,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Inventories

 

$ 724,037

 

 

$ 590,065

 

Prepaid rent, insurance and other assets

 

 

920,985

 

 

 

1,307,548

 

Qualified payroll credit receivable

 

 

1,144,365

 

 

 

1,296,396

 

 

 

 

 

 

 

 

 

 

Total other current assets

 

$ 2,789,387

 

 

$ 3,194,009

 

  

 
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Table of Contents

 

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

 

 

 

JUNE 30,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Carrier service costs

 

$ 6,808,710

 

 

$ 8,771,660

 

Salaries and payroll taxes

 

 

2,071,688

 

 

 

2,213,356

 

Inventory purchases, consultants and other costs

 

 

1,073,639

 

 

 

1,345,900

 

U.S. Income tax payable

 

 

(188,370 )

 

 

(23,562 )

Other

 

 

44,682

 

 

 

37,072

 

 

 

 

 

 

 

 

 

 

 

 

$ 9,810,349

 

 

$ 12,344,426

 

  

8. Property and Equipment

 

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

 

 

 

JUNE 30,

 

 

DECEMBER 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Computer hardware and software

 

$ 3,106,774

 

 

$ 2,700,807

 

Furniture and fixtures

 

 

501,175

 

 

 

454,401

 

Leasehold improvements

 

 

278,892

 

 

 

298,352

 

Automobiles

 

 

123,678

 

 

 

137,105

 

Gross property and equipment

 

 

4,010,519

 

 

 

3,590,665

 

Less: accumulated depreciation and

 

 

 

 

 

 

 

 

amortization

 

 

2,857,629

 

 

 

2,749,532

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

$ 1,152,890

 

 

$ 841,133

 

  

During the three month and six month periods ended June 30, 2022, property and equipment depreciation expense was approximately $110,000 and $204,200, respectively. During the three month and six month periods ended June 30, 2021, property and equipment depreciation expense was approximately $104,140 and $206,500, respectively.

 

During the six month periods ended June 30, 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 and six month periods ended June 30, 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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10. Goodwill and Intangible Assets

 

Goodwill consisted of the following:

 

 

 

JUNE 30,

 

 

 

2022

 

 

 

 

 

Balances, January 1

 

$ 22,088,578

 

Impairment charge

 

 

(16,277,000 )

 

 

 

 

 

Balances, June 30

 

$ 5,811,578

 

 

As a result of the significant decrease in the Company’s publicly quoted share price and market capitalization during the second quarter of 2022, the Company conducted additional testing of its goodwill, definite-lived intangibles, and other long-lived assets as of June 30, 2022. As a result of this review and additional testing, the Company did not identify an impairment to its definite-lived intangible assets or other long lived assets, but the Company did identify an impairment to goodwill resulting in recording a $16.3 million non-cash goodwill impairment charge for the three month period ended June 30, 2022.

 

For the June 30, 2022, the Company performed its additional goodwill impairment test with support from an external consultant and estimated the fair value of its single reporting unit based on a combination of the income (estimates of future discounted cash flows) and the market approach (market multiples for similar companies). The income approach uses a discounted cash flow (DCF) method that utilizes the present value of cash flows to estimate fair value of our reporting unit. The future cash flows for the reporting unit were projected based upon our estimates of future revenue, operating income and other factors such as working capital and capital expenditures. As part of our DCF analysis, the Company projected revenue and operating profits, and assumed a long-term revenue growth rates in the terminal year. The market approach utilizes multiples of revenues and earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of our reporting unit. The market multiples used for our single reporting unit were based on a group of comparable companies’ market multiples applied to the Company’s revenue and EBITDA.

 

As compared to the Company’s impairment testing on December 31, 2021, for the June 30, 2022 testing the Company updated certain inputs into the valuation models, including the discount rate used in the DCF analysis which increased reflecting, in part, higher interest rates and market volatility, and also the market factors used in the market approach. In addition, the Company reviewed its estimated future cash flows used in the impairment assessment and due to updated business conditions made reductions to those estimates, including revenues, margin, and capital expenditures, to reflect its best estimates as of such date..

 

 
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Intangible assets consists of the following as of June 30, 2022:

 

 

 

JUNE 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Amount

 

 

Amortization

 

 

Value

 

 

 

(Unaudited)

 

Customer Relationships

 

$ 2,392,000

 

 

$ (184,950 )

 

$ 2,207,050

 

Channel Relationships

 

 

2,628,080

 

 

 

(1,430,844 )

 

 

1,197,236

 

Internally Developed Software

 

 

3,767,380

 

 

 

(1,931,239 )

 

 

1,836,141

 

Trade Name and Trademarks

 

 

1,330,472

 

 

 

(210,647 )

 

 

1,119,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 10,117,932

 

 

$ (3,757,680 )

 

$ 6,360,252

 

 

 

 

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 and six month periods ended June 30, 2022, the Company capitalized $1.1 million and $1.9 million, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Technology Management System), next generation TDITM application, secure identity management technology and secure network operations center of which $699,360 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 and six month periods ended June 30, 2021, the Company capitalized $178,000 and $519,000, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ secure identity management technology and secure 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 six month period ended June 30, 2022. During the six month period ended June 30, 2021, the Company disposed of fully amortized intangible assets with a historical cost and accumulated amortization of $1,980,000.

 

The aggregate amortization expense recorded for the three month periods ended June 30, 2022 and 2021 were approximately $305,900 and $120,300 respectively. The aggregate amortization expense recorded for the six month periods ended June 30, 2022 and 2021 were approximately $592,500 and $239,300 respectively.

 

 
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As of June 30, 2022, estimated annual amortization for our intangible assets for each of the next five years is approximately:

 

Remainder of 2022

 

$ 664,399

 

2023

 

 

1,293,569

 

2024

 

 

1,065,112

 

2025

 

 

602,153

 

2026

 

 

511,170

 

Thereafter

 

 

2,223,849

 

Total

 

$ 6,360,252

 

 

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 as described below.

 

Effective, June 15, 2022, the Company entered into a seventh modification agreement (“Modification Agreement”) with Atlantic Union Bank to amend the existing Loan Agreement. The Modification Agreement (i) extended the maturity date of the facility from June 15, 2022 through June 15, 2023, (ii) removed the current ratio and interest coverage ratio financial covenants, (iii) increased the tangible net worth covenant from $2,000,000 to $6,500,000, (iv) added a minimum EBITDA covenant that requires that the Company’s Adjusted EBITDA to not be less than $1,000,000 on a trailing 12-month basis as of the last day of each quarter (See Note 18) and (v) modified the definition of Borrowing Base.

 

Effective, June 27, 2022, the Company entered into an eighth Modification Agreement with Atlantic Union Bank to amend the existing Loan Agreement to increase the working capital revolving line of credit from $5.0 million to $7.0 million.

 

The available amount under the working capital line of credit is subject to a borrowing base, which is equal to the lesser of (i) $7.0 million or (ii) sum of 90% of the net unpaid balance of the Company’s eligible government accounts receivable and 80% of the net unpaid balance of the Company’s eligible commercial 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 June 30, 2022, the Company was eligible to borrow up to $7.0 million under the borrowing base formula and was in compliance with all covenants under the Loan Agreement.

 

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 June 30, 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 June 30, 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 June 30, 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 June 30, 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, $.001 par value per share. As of June 30, 2022, there were 8,725,476 shares issued and outstanding. During the six month period ended June 30, 2022, there were 83,728 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 six month period ended June 30, 2021, there were 132,384 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 six month period ended June 30, 2022. Shares of common stock issued as a result of stock option exercises and realized gross proceeds for the six month period ended June 30, 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. 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 three month period 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 six months ended June 30, 2022. The Company did not sell any shares during the three month period ended June 30, 2021. During the three month period ended March 31, 2021, the Company sold 100,687 shares for gross proceeds of $1.1 million and incurred $62,700 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

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Restricted stock compensation expense

 

$ 89,385

 

 

$ 214,852

 

 

$ 269,126

 

 

$ 371,959

 

Non-qualified option stock compensation expense

 

 

-

 

 

 

28,969

 

 

 

-

 

 

 

54,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total share-based compensation before taxes

 

$ 89,385

 

 

$ 243,821

 

 

$ 269,126

 

 

$ 426,663

 

 

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.

 

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. During the six month period ended June 30, 2022, the Company granted 56,300 RSAs. During the six month period ended June 30, 2021, the Company granted 83,326 RSAs.

 

 
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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 six month periods ended June 30, 2022 and 2021.

 

At June 30, 2022, the Company had approximately $239,700 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 years.

 

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

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Basic Earnings Per Share Computation:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$ (13,759,209 )

 

$ (204,731 )

 

$ (14,152,106 )

 

$ 380,693

 

Weighted average number of common shares

 

 

8,696,111

 

 

 

9,072,281

 

 

 

8,739,043

 

 

 

9,033,905

 

Basic Earnings Per Share

 

$ (1.58 )

 

$ (0.02 )

 

$ (1.62 )

 

$ 0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share Computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$ (13,759,209 )

 

$ (204,731 )

 

$ (14,152,106 )

 

$ 380,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares

 

 

8,696,111

 

 

 

9,072,281

 

 

 

8,739,043

 

 

 

9,033,905

 

Incremental shares from assumed conversions of dilutive securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

157,627

 

Adjusted weighted average number of common shares

 

 

8,696,111

 

 

 

9,072,281

 

 

 

8,739,043

 

 

 

9,191,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share

 

$ (1.58 )

 

$ (0.02 )

 

$ (1.62 )

 

$ 0.04

 

 

 
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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

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Carrier Services

 

$ 12,500,358

 

 

$ 11,898,302

 

 

$ 25,432,413

 

 

$ 23,247,174

 

Managed Services

 

 

10,556,996

 

 

 

8,085,118

 

 

 

20,061,368

 

 

 

17,387,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 23,057,354

 

 

$ 19,983,420

 

 

$ 45,493,781

 

 

$ 40,634,263

 

 

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

 

 

 

THREE MONTHS ENDED

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

U.S. Federal Government

 

$ 18,572,618

 

 

$ 16,649,566

 

 

$ 36,006,341

 

 

$ 33,581,297

 

U.S. State and Local Governments

 

 

100,879

 

 

 

64,705

 

 

 

227,021

 

 

 

118,088

 

Foreign Governments

 

 

24,059

 

 

 

12,993

 

 

 

56,466

 

 

 

39,089

 

Commercial Enterprises

 

 

4,359,798

 

 

 

3,256,156

 

 

 

9,203,953

 

 

 

6,895,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 23,057,354

 

 

$ 19,983,420

 

 

$ 45,493,781

 

 

$ 40,634,263

 

 

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

 

 

 

THREE MONTHS ENDED

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

JUNE 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

North America

 

$ 22,236,044

 

 

$ 18,763,660

 

 

$ 43,670,678

 

 

$ 38,173,804

 

Europe

 

 

821,310

 

 

 

1,219,760

 

 

 

1,823,103

 

 

 

2,460,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 23,057,354

 

 

$ 19,983,420

 

 

$ 45,493,781

 

 

$ 40,634,263

 

 

During the three months ended June 30, 2022 and 2021, the Company recognized approximately $580,100 and $568,000, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2021 and 2020, respectively.

 

During the six months ended June 30, 2022 and 2021, the Company recognized approximately $1,660,000 and $1,510,000, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2021 and 2020, respectively.

 

 
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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.

 

18. Subsequent Events

 

As a result of the impairment charge described in Note 10, the Company received from Atlantic Union Bank a clarification to its covenant calculation indicating for the impairment charge to be added to net (loss) income to arrive at Adjusted EBITDA.

 

 
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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 increases in interest rates;

 

·

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.

 

 
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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.

 

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

 

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 continue to focus on the following key goals:

 

 

Continue to find additional avenues for capturing new sales opportunities in the post 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

 

 
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■ 

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 strategy for achieving our longer-term goals include:

 

 

Establishing a market leadership position in the trusted management sector,

 

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

 

delivering new incremental offerings to add to our existing TM2 offering,

 

developing and testing innovative new offerings that enhance our TM2 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 TM2 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 TM2 offerings.

 

Results of Operations

 

Three Months Ended June 30, 2022 as Compared to Three Months Ended June 30, 2021

 

Revenues. Revenues for the three month period ended June 30, 2022 were approximately $23.1 million, an increase of approximately $3.1 million (or 15%), as compared to approximately $20.0 million in 2021. Our mix of revenues for the periods presented is set forth below:

 

 

 

THREE MONTHS ENDED

 

 

 

 

 

JUNE 30,

 

 

Dollar

 

 

 

2022

 

 

2021

 

 

Variance

 

 

 

(Unaudited)

 

 

 

Carrier Services

 

$ 12,500,350

 

 

$ 11,898,300

 

 

$ 602,050

 

Managed Services:

 

 

 

 

 

 

 

 

 

 

 

 

Managed Service Fees

 

 

6,698,122

 

 

 

6,634,033

 

 

 

64,089

 

Billable Service Fees

 

 

986,697

 

 

 

1,017,669

 

 

 

(30,972 )

Reselling and Other Services

 

 

2,872,185

 

 

 

433,418

 

 

 

2,438,767

 

 

 

 

10,557,004

 

 

 

8,085,120

 

 

 

2,471,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 23,057,354

 

 

$ 19,983,420

 

 

$ 3,073,934

 

 

Our carrier services increased compared with the same period in 2021 primarily due to a large federal government customer increasing the number of phone lines we manage by approximately 75% otherwise carrier services remained relatively constant from period to period.

 

Our managed service fees remained relatively constant year over year however, decreases in our recycling service volumes and accessory sales business of approximately $1.5 million largely due to lower device recycling service volumes and accessory sales, were offset by approximately $1.6 million of managed services revenue from our ITA acquisition which is not included in the second quarter of 2021.

 

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

 

 
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Reselling and other services increased by $2.4 million or 600% from $0.4 million as compared to last year due to product resales to federal government customers.  In particular, during the three months ended June 30, 2022, we completed a large resale of Unified Endpoint Management (UEM) software licenses to a single federal government customer in the amount of $1.7 million. Additionally, the increase was bolstered by approximately $450,000 of reselling to mostly commercial customers from our ITA acquisition which was not included in our 2021 results. 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 June 30, 2022 were approximately $19.7 million (or 86% of revenues), as compared to approximately $16.0 million (or 80% of revenues) in 2021. The increase in cost of revenues was driven by incremental cost of revenue in the approximate amount of $1.7 million related to ITA, for which results were not included second quarter of 2021 results.                       

 

Gross Profit. Gross profit for the three months period ended June 30, 2022 was approximately $3.3 million (or 14% of revenues), as compared to approximately $3.9 million (or 20% of revenues) in 2021. The lower gross margin is related to the relative lower margin percentage of ITA in the second quarter of 2022 which was a result of increased labor costs experienced in our commercial business. Our gross profit percentage will vary from quarter to quarter due to revenue mix between carrier services and managed services revenue.  

 

Sales and Marketing. Sales and marketing expense for the three month period ended June 30, 2022 was approximately $---0.6 million (or -2% of revenues), as compared to approximately $0.5 million (or 3% 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 month period ended June 30, 2022 were approximately $3.8 million (or 17% of revenues), as compared to approximately $3.3 million (or 16% of revenues) in 2021. The increase in general and administrative expense is due in part to an additional $0.7 million of additional general and administrate expenses related to ITA and due to increased labor costs and data center costs.

 

Goodwill Impairment. We recorded non-cash goodwill impairment charge of $16.3 million for the three month period ended June 30, 2022 following goodwill impairment testing performed as a result of sustained decreases in our publicly quoted share price and market capitalization. There was no goodwill impairment during the same period in 2021. Refer to Critical Accounting Estimates and Policies: Goodwill Impairment Charge and Note 10, Goodwill, to our condensed consolidated financial statements.

 

Depreciation and Amortization. Depreciation and amortization expense for the three month period ended June 30, 2022 was approximately $274,000 as compared to approximately $254,000 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 June 30, 2022 was approximately $611,300 as compared to an expense of approximately $(69,100) in 2021. The income in 2022 is primarily driven by the fair value adjustments of contingent consideration related to ITA.    

 

Income Taxes. Income tax benefit for the three month period ended June 30, 2022 was approximately $3.2 million as compared to income tax expense of $72,900 in 2021. The increase in income tax benefit was primarily due to the effect of the goodwill impairment charge of $16.3 million. Income taxes were accrued at an estimated effective tax rate of 28.2% for the three months ended June 30, 2022 compared to 27.3% for the three months ended June 30, 2021.

 

Net Loss. As a result of the goodwill impairment of $16.3 million in 2022 and the other cumulative factors annotated above, net loss for the three month period ended June 30, 2022 was approximately $13.8 million as compared to net loss of approximately $204,700 million in the same period last year.

 

 
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Six Months Ended June 30, 2022 as Compared to Six Months Ended June 30, 2021

 

Revenues. Revenues for the six month period ended June 30, 2022 were approximately $45.5 million, an increase of approximately $4.9 million (or 12%), as compared to approximately $40.6 million in 2021. Our mix of revenues for the periods presented is set forth below:

 

 

 

SIX MONTHS ENDED

 

 

 

 

 

JUNE 30,

 

 

Dollar

 

 

 

2022

 

 

2021

 

 

Variance

 

 

 

(Unaudited)

 

 

 

Carrier Services

 

$ 25,432,409

 

 

$ 23,247,170

 

 

$ 2,185,239

 

Managed Services:

 

 

 

 

 

 

 

 

 

 

 

 

Managed Service Fees

 

 

13,956,399

 

 

 

14,893,462

 

 

 

(937,063 )

Billable Service Fees

 

 

2,106,803

 

 

 

2,039,186

 

 

 

67,617

 

Reselling and Other Services

 

 

3,998,170

 

 

 

454,445

 

 

 

3,543,725

 

 

 

 

20,061,372

 

 

 

17,387,093

 

 

 

2,674,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 45,493,781

 

 

$ 40,634,263

 

 

$ 4,859,518

 

 

In the six months ended June 30, 2022 our carrier services increased by $2.2 million, or 9% to $25.4 million from $23.2 million in the same period in 2021 primarily due to carrier credits of approximately $1.7 million included in the first quarter of 2021 that did not occur during the first six months of 2022, and a large federal government customer increasing the number of phone lines we manage by approximately 75% during 2022.

 

Our managed service fees decreased by $0.9 million, or (6%) to $14 million from $14.9 million in the same period of 202largely due to lower device recycling service volumes and accessory sales, which was partially offset by approximately $3.2 million of managed services revenue from our ITA acquisition which is not included in the first half of 2021.

 

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

 

Reselling and other services increased by $3.5 million, or 770% to $4 million as compared to $0.5 million last year due to product resales to federal government customers.  In particular, during the six months ended June 30, 2022, we completed a large resale of Unified Endpoint Management (UEM) software licenses to a single federal government customer in the amount of $1.7 million occurring in the second quarter of 2022. Additionally, the increase was bolstered by approximately $1.1 million of reselling to mostly commercial customers from our ITA acquisition which was not included in our 2021 results. 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 six month period ended June 30, 2022 were approximately $38.3 million (or 84% of revenues), as compared to approximately $31.9 million (or 79% 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 $3.5 million related to ITA, for which results were not included first half of 2021 results.                       

 

Gross Profit. Gross profit for the six month period ended June 30, 2022 was approximately $7.2 million (or 16% of revenues), as compared to approximately $8.7 million (or 21% of revenues) in 2021. The lower gross margin is related to the relative lower margin percentage of ITA in the second quarter of 2022 which was a result of increased labor costs experienced in our commercial business. Our gross profit percentage will vary from quarter to quarter due to revenue mix between carrier services and managed services revenue.  

 

Sales and Marketing. Sales and marketing expense for the six month period ended June 30, 2022 was approximately $1.1 million (or -3% of revenues), as compared to approximately $1.0 million (or 2% 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.

 

 
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General and Administrative. General and administrative expenses for the six month period ended June 30, 2022 were approximately $7.6 million (or 17% of revenues), as compared to approximately $6.6 million (or 16% of revenues) in 2021. The increase in general and administrative expense is due in part to an additional $1.5 million of additional general and administrative expenses related to ITA and due to increased labor costs.

 

Goodwill Impairment. We recorded non-cash goodwill impairment charge of $16.3 million for the six month period ended June 30, 2022 following goodwill impairment testing performed as a result of sustained decreases in our publicly quoted share price and market capitalization. There was no goodwill impairment during the same period in 2021. Refer to Critical Accounting Estimates and Policies: Goodwill Impairment Charge and Note 10, Goodwill, to our condensed consolidated financial statements.

 

Depreciation and Amortization. Depreciation and amortization expense for the six month period ended June 30, 2022 was approximately $538,450 as compared to approximately $504,700 in 2021. The increase in depreciation and amortization expense reflects the decrease in our depreciable asset base.

 

Other Income (Expense). Other income (expense) for the six month period ended June 30, 2022 was approximately $855,400 as compared to approximately an expense of $(135,200) in 2021. The income in 2022 is primarily driven by the fair value adjustments of contingent consideration.    

 

Income Taxes. Income tax benefit for the six month period ended June 30, 2022 was approximately $3.3 million as compared to income tax expense of $96,400 in 2021. The increase in income tax benefit was primarily due to the effect of the goodwill impairment charge of $16.3 million. Income taxes were accrued at an estimated effective tax rate of 28.2% for the six month period ended June 30, 2022 compared to 27.0% for the six month period ended June 30, 2021.

 

Net (Loss) Income. As a result of the goodwill impairment of $16.3 million in 2022 and the other cumulative factors annotated above, net loss for the six month period ended June 30, 2022 was approximately $14.29 million as compared to net income of approximately $380,700 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 $7.0 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 June 30, 2022, our net working capital was approximately $3.2 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 during the first quarter of 2022, which was partially offset by temporary receivable/payable timing differences. We believe that our existing cash, cash equivalents and investment balances and our anticipated cash flows from operations will be sufficient to meet our working capital, expenditure, and contractual obligation requirements for the next 12 months and the foreseeable future.

 

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 six month period ended June 30, 2022. The Company had remaining capacity of $18.2 million as of June 30, 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 six months ended June 30, 2022, net cash provided by operations was approximately $4.2 million driven by collections of accounts receivable and temporary payable timing differences, as compared to approximately $0.4 million net cash used in operations for the six months ended June 30, 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 six months ended June 30, 2022, cash used in investing activities was approximately $2.2 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 six months ended June 30, 2021, cash used in investing activities was approximately $1.2 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.

 

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 six months ended June 30, 2022, cash used in financing activities was approximately $1.2 million and reflects lease principal repayments of approximately $297,100, repurchases of common stock of $818,200 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200.

 

For the six months ended June 30, 2021, cash provided by financing activities was approximately $654,700 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 $285,600 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 six months ended June 30, 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 $152,400 as compared to last year.

 

Inflation

 

The Company has seen impacts of wage inflation across the Company, especially in its commercial ITA business. Due to the on-going conditions, however, there is the possibility that we will face additional inflationary pressures in certain aspects of our business operations, such as equipment and labor costs, in the future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.

 

 
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Critical Accounting Estimates and Policies

 

Other than as described below, our critical accounting policies and estimates have not changed from those reported in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2021 Form 10-K.

 

Goodwill

 

Goodwill represents the excess of acquisition cost of an acquired company over the fair value of assets acquired and liabilities assumed. In accordance with GAAP, goodwill is not amortized but is tested for impairment at the reporting unit level annually at December 31 and between annual tests if events or circumstances arise, such as adverse changes in the business climate, that would more likely than not reduce the fair value of the reporting unit below its carrying value.

 

A reporting unit is defined as either an operating segment or a business one level below an operating segment for which discrete financial information is available that management regularly reviews. The Company has a single reporting unit for the purpose of impairment testing. 

 

Goodwill impairment testing involves management judgment, requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value. As of December 31, 2021, we performed our annual goodwill impairment test and concluded that goodwill was no impaired. During the 2nd quarter of 2022, we concluded that substantial and sustained decreases in our share price was a triggering event prompting impairment assessments of goodwill and long-lived assets, including definite-lived intangibles, as of June 30, 2022.

 

As compared to the Company’s impairment testing on December 31, 2021, for the June 30, 2022 testing the Company updated certain inputs into the valuation models, including the discount rate used in the DCF analysis which increased reflecting, in part, higher interest rates and market volatility, and also the market factors used in the market approach. In addition, the Company reviewed its estimated future cash flows used in the impairment assessment and due to updated business conditions made reductions to those estimates, including revenues, margin, and capital expenditures, to reflect its best estimates as of such date..

 

Off-Balance Sheet Arrangements

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

 
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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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
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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 November 2021, the Board increased the size of the Repurchase Plan to up to $5.0 million of the Company’s common stock. 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.

 

ITEM 3 DEFAULT UPON SENIOR SECURITIES

 

None

 

ITEM 4 MINE SAFETY DISCLOSURES

 

None

 

 
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ITEM 5 OTHER INFORMATION

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Management Changes

 

On August 12, 2022, WidePoint Corporation (the “Company”) promoted Todd Dzyak to the position of Chief Operating Officer and Ian Sparling to the position of Chief Operating Officer, International and CEO of Soft-Ex effective immediately. In addition, Jason Holloway transitioned from Executive Vice President, Chief Sales and Marketing Officer, and President of WidePoint Cybersecurity Solutions Corporation to Chief Revenue Officer, effective immediately.

 

Todd Dzyak

 

Prior to his appointment as the Company’s Chief Operating Officer, Mr. Dzyak, age 49, has served as the President of the Company’s subsidiary, WidePoint Integrated Solutions Corp., a position held since 2017. Prior to such time, Mr. Dzyak served as Sr. Vice President, Telecom Expense Management Operations from 2007 to 2017. Mr. Dzyak has a Bachelor of Science in Psychology from Bowling Green State University.  

 

The Company has an employment agreement with Mr. Dzyak with an initial term until December 31, 2023 providing the following: (i) an annual base salary of $275,000; (ii) an annual target bonus opportunity equal to 50% of the base salary (with a maximum of 100% of base salary) based on the Company achieving performance goals determined by the Compensation Committee of the Board of Directors (payable one-half in cash and one-half in common stock of the Company); (iii) participation in the Company’s employee benefit plans and (iv) four (4) weeks of vacation. The employment agreement contains severance provisions which provide that upon the termination of his employment without Cause (as described in the employment agreement) or his voluntary resignation for a Good Reason (as described in the employment agreement). If Mr. Dzyak is terminated without Cause or for Good Reason prior to the first anniversary of the employment agreement, he will receive severance compensation payable in a lump-sum of cash equal to six (6) months of base salary and a pro rata bonus amount. If Mr. Dzyak is terminated without Cause or for Good Reason after the first anniversary of the employment agreement, he will receive severance compensation payable in a lump-sum of cash equal to twelve (12) months of base salary and a pro rata bonus amount. Any severance payments are conditioned the execution of a general release in favor of the Company.

 

There are no family relationships between Mr. Dzyak and any director, executive officer or person nominated or chosen by the Company to become a director or executive officer. Additionally, there have been no transactions involving Mr. Dzyak that would require disclosure under Item 404(a) of Regulation S-K.

 

A copy of the employment agreement with Mr. Dzyak is filed herewith as Exhibits 10.1 and 10.2, respectively, and the foregoing description is qualified by reference to the full text thereof.

 

Ian Sparling

 

Prior to his appointment as the Company’s Chief Operating Officer, International and CEO of Soft-ex, Mr. Sparling, age 56, served as the CEO of Soft-ex a position held since 2006 having previously held the position of CFO 2001 to 2005. Prior to such time. Mr. Sparling served as Group Financial Controller of Fitzwilton Plc from 1993 to 2001 and qualified as a chartered accountant with PWC in 2000. He is a Fellow of the Institute of Chartered Accountants, holds a with a keen interest in both Strategy and Leadership, Mr. Sparling is a guest lecturer for a number of MBA programs. Mr. Sparling has a Bachelor of Commerce degree along with a post graduate in finance, from University College Dublin. He also holds a Diploma in International Selling from the Technological University Dublin’ .

 

 
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The Company has an employment agreement with Mr. Sparling for a current term ending December 31, 2023. Under the employment agreement, Mr. Sparling shall be eligible to receive bonus compensation of up to 100% of his annual salary (currently €250,000). Mr. Sparling will also receive an annual automobile allowance in the amount €16,500 and we will contribute up to €15,000 to his pension scheme. The employment period will continue unless terminated earlier by (i) Mr. Sparling upon not less than 3 months’ advance written notice or us upon not less than 9 months’ advance written notice, (ii) us or Mr. Sparling with Good Reason (as defined therein), immediately, provided that the remuneration to which Mr. Sparling is entitled under the Employment Agreement shall continue for a period of 9 months following such termination (which shall be increased to 12 months if within a specified period of a change in control), or (iii) us upon the occurrence of certain events or actions by Mr. Sparling, including Mr. Sparling being declared bankrupt or being found guilty of fraud, serious misconduct or willful neglect to carry out his duties under the employment agreement.

 

There are no family relationships between Mr. Sparling and any director, executive officer or person nominated or chosen by the Company to become a director or executive officer. Additionally, there have been no transactions involving Mr. Sparling that would require disclosure under Item 404(a) of Regulation S-K.

 

A copy of the employment agreement with Mr. Sparling is filed herewith as Exhibits 10.3 and 10.4, respectively, and the foregoing description is qualified by reference to the full text thereof.

 

Long-term Incentive Plan

 

On August 12, 2022, the Compensation Committee of the Board of Directors approved a Long-¬Term Incentive Plan (the “Plan”) designed to increase long-¬term stockholder value, align the Company’s plan with the objectives of key executives and to retain key executives in a competitive environment over a three year performance period. The Plan is a performance based plan over a term a three years (2023¬2025), with the performance goals being (i) to increase revenue; and (ii) to increase Adjusted EBITDA as a percentage of revenue. The Plan establishes a pool of 500,000 shares of the Company’s common stock to be awarded as performance share units and restricted share units to be allocated among the participants. The restricted share units would vest annually over the three year period and the performance share units would vest, if earned, after the completion of the three year performance period. The shares of common stock to be awarded pursuant to the Plan will be subject to stockholder approval of a new or amended omnibus incentive plan in order to increase the number of shares available for award. Upon a termination of a participating executive without cause (or by the executive for good reason), a pro rata portion of the shares awarded would be deemed earned. Upon a change of control occurring after December 31, 2023, the shares would be deemed earned (subject to time vesting). The Compensation Committee of the Board has discretion with respect to the vesting of any awards upon a change of control occurring prior to December 31, 2023.

  

 
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ITEM 6. EXHIBITS

 

EXHIBIT

NO.

 

DESCRIPTION

Exhibit 10.1*

Employment Agreement with Todd Dzyak (filed herewith)

Exhibit 10.2*

Employment Modification Agreement with Todd Dzyak (filed herewith)

Exhibit 10.3*

Employment Agreement with Ian Sparling (filed herewith)

Exhibit 10.4*

Employment Modification Agreement with Ian Sparling (filed herewith)

Exhibit 10.5*

Employment Modification Agreement with Jason Holloway (filed herewith)

Exhibit 10.6

Modification Agreement with Access National Bank (incorporated by reference from Form 8-K filed on June 22, 2022)

Exhibit 10.7

Modification Agreement with Access National Bank (incorporated by reference from Form 8-K filed on June 30, 2022)

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)

  

* Management contract or compensatory plan.

 

 
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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:      August 15, 2022    /s/ JIN H. KANG

 

 

Jin H. Kang  
     President and Chief Executive Officer  

 

 

 

 

 

 

 

Date:      August 15, 2022

 

/s/ ROBERT J. GEORGE

 

 

 

Robert J. George

 

 

 

Chief Financial Officer

 

 

 
38

 

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