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 September 30, 2023

or

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

 

 

For the transition period from __________________ to ___________________

 

 

 

Commission File Number: 001-33035

 

WidePoint Corporation

(Exact name of Registrant as specified in its charter)

 

Delaware

 

52-2040275

(State or other jurisdiction of

 

(I.R.S. employer

incorporation or organization)

 

identification no.)

 

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

 

22030

(Address of principal executive offices)

 

(Zip Code)

 

(703) 349-2577

(Registrant’s telephone number, including area code) Securities Registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Exchange on Which Registered

Common Stock, $0.001 par value per share

WYY

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yes ☒     No ☐

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐    No ☐

 

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

 

As of November 14, 2023, there were 8,843,673 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 nine month periods ended September 30, 2023 and 2022

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three and nine month periods ended September 30, 2023 and 2022

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2023 and 2022

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine month periods ended September 30, 2023 and 2022

 

8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

 

Item 2.

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

 

22

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

29

 

 

 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

30

 

 

 

 

 

 

Item 1A.

Risk Factors

 

30

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

 

 

 

 

 

Item 3.

Default Upon Senior Securities

 

30

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

30

 

 

 

 

 

 

Item 5.

Other Information

 

30

 

 

 

 

 

 

Item 6.

Exhibits

 

31

 

 

 

 

 

 

SIGNATURES

 

32

 

 

 

 

 

 

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

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

REVENUES

 

$25,733,657

 

 

$25,271,572

 

 

$77,770,195

 

 

$70,765,353

 

COST OF REVENUES (including amortization and depreciation of $528,298, $366,885, $1,538,883, and $961,341, respectively)

 

 

21,838,836

 

 

 

21,472,120

 

 

 

66,155,797

 

 

 

59,749,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

3,894,821

 

 

 

3,799,452

 

 

 

11,614,398

 

 

 

11,015,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

490,037

 

 

 

527,726

 

 

 

1,553,887

 

 

 

1,665,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses (including share-based compensation of $276,570, $115,141, $235,570 and $269,126, respectively

 

 

3,977,709

 

 

 

3,595,145

 

 

 

11,719,042

 

 

 

11,157,690

 

Goodiwll impairment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,277,000

 

Depreciation and amortization

 

 

259,804

 

 

 

272,203

 

 

 

789,331

 

 

 

810,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

4,727,550

 

 

 

4,395,074

 

 

 

14,062,260

 

 

 

29,910,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(832,729)

 

 

(595,622)

 

 

(2,447,862)

 

 

(18,895,039)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

27,681

 

 

 

6,398

 

 

 

39,122

 

 

 

17,126

 

Interest expense

 

 

(69,095)

 

 

(62,841)

 

 

(184,783)

 

 

(189,188)

Other (expense) income, net

 

 

(33,663)

 

 

(6,999)

 

 

(52,721)

 

 

964,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income (expense), net

 

 

(75,077)

 

 

(63,442)

 

 

(198,382)

 

 

791,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAX PROVISION (BENEFIT)

 

 

(907,806)

 

 

(659,064)

 

 

(2,646,244)

 

 

(18,103,097)

INCOME TAX PROVISION (BENEFIT)

 

 

13,308

 

 

 

(118,181)

 

 

68,422

 

 

 

(3,410,108)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$(921,114)

 

$(540,883)

 

$(2,714,666)

 

$(14,692,989)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE, BASIC AND DILUTED

 

$(0.10)

 

$(0.06)

 

$(0.31)

 

$(1.68)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED

 

 

8,893,220

 

 

 

8,725,476

 

 

 

8,809,644

 

 

 

8,734,471

 

 

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

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 (Unaudited)

 

NET LOSS

 

$(921,114)

 

$(540,883)

 

$(2,714,666)

 

$(14,692,989)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

 

(77,162)

 

 

(118,524)

 

 

(7,510)

 

 

(258,213)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

(77,162)

 

 

(118,524)

 

 

(7,510)

 

 

(258,213)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$(998,276)

 

$(659,407)

 

$(2,722,176)

 

$(14,951,202)

  

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

 

 

 

SEPTEMBER 30,

 

 

DECEMBER 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

ASSETS

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$8,458,048

 

 

$7,530,864

 

Accounts receivable, net of allowance for credit losses  of $72,398 and $51,666, respectively

 

 

8,911,875

 

 

 

9,277,109

 

Unbilled accounts receivable

 

 

9,956,194

 

 

 

10,244,101

 

Other current assets

 

 

1,402,845

 

 

 

935,978

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

28,728,962

 

 

 

27,988,052

 

 

 

 

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

857,867

 

 

 

978,218

 

Lease right of use asset, net

 

 

4,215,558

 

 

 

4,723,899

 

Intangible assets, net

 

 

7,133,845

 

 

 

7,398,160

 

Goodwill

 

 

5,811,578

 

 

 

5,811,578

 

Deferred tax assets, net

 

 

85,888

 

 

 

86,909

 

Other long-term assets

 

 

1,556,995

 

 

 

2,025,845

 

 

 

 

 

 

 

 

 

 

Total assets

 

$48,390,693

 

 

$49,012,661

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$13,855,297

 

 

$12,515,081

 

Accrued expenses

 

 

10,624,832

 

 

 

11,327,269

 

Current portion of deferred revenue

 

 

2,209,524

 

 

 

1,704,933

 

Current portion of lease liabilities

 

 

626,955

 

 

 

596,529

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

27,316,608

 

 

 

26,143,812

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

 

 

Lease liabilities, net of current portion

 

 

4,298,076

 

 

 

4,745,909

 

Contingent consideration

 

 

6,900

 

 

 

6,900

 

Deferred revenue, net of current portion

 

 

1,208,293

 

 

 

364,837

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

32,829,877

 

 

 

31,261,458

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 16)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

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; 8,893,220 and 8,725,476 shares issued and outstanding, respectively

 

 

8,894

 

 

 

8,726

 

Additional paid-in capital

 

 

101,725,806

 

 

 

101,194,185

 

Accumulated other comprehensive loss

 

 

(357,744)

 

 

(350,234)

Accumulated deficit

 

 

(85,816,140)

 

 

(83,101,474)

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

15,560,816

 

 

 

17,751,203

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$48,390,693

 

 

$49,012,661

 

 

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

 

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$(2,714,666)

 

$(14,692,989)

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

 

(used in) operating activities:

 

 

 

 

 

 

 

 

Deferred income tax benefit

 

 

-

 

 

 

(3,176,568)

Depreciation expense

 

 

794,344

 

 

 

813,624

 

Goodwill impairment charge

 

 

-

 

 

 

16,277,000

 

Provision for credit losses

 

 

39,979

 

 

 

244

 

Amortization of intangibles

 

 

1,533,870

 

 

 

958,369

 

Share-based compensation expense

 

 

535,417

 

 

 

384,267

 

Warrants expense

 

 

-

 

 

 

108,000

 

Change in fair value of contingent consideration

 

 

-

 

 

 

(960,000)

Loss on disposal of fixed assets

 

 

3,211

 

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable and unbilled receivables

 

 

1,208,899

 

 

 

2,804,675

 

Inventories

 

 

(271,869)

 

 

47,618

 

Other current assets

 

 

(198,992)

 

 

209,399

 

Other assets

 

 

27,161

 

 

 

27,966

 

Accounts payable and accrued expenses

 

 

(504,739)

 

 

1,080,368

 

Income tax payable

 

 

29,780

 

 

 

7,600

 

Deferred revenue and other liabilities

 

 

1,352,781

 

 

 

(314,226)

Other liabilities

 

 

-

 

 

 

(358,000)

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

1,835,176

 

 

 

3,217,347

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(166,210)

 

 

(239,233)

Capitalized hardware and software development costs

 

 

(810,219)

 

 

(2,823,887)

Proceeds from beneficial interest in sold receivables

 

 

469,104

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(507,325)

 

 

(3,063,120)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Advances on bank line of credit

 

 

6,493,284

 

 

 

4,455,523

 

Repayments of bank line of credit advances

 

 

(6,493,284)

 

 

(4,455,523)

Principal repayments under finance lease obligations

 

 

(420,139)

 

 

(446,691)

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

 

 

(3,628)

 

 

(49,224)

Common stock repurchased

 

 

-

 

 

 

(818,211)

 

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(423,767)

 

 

(1,314,126)

 

 

 

 

 

 

 

 

 

Net effect of exchange rate on cash

 

 

23,100

 

 

 

(258,761)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

927,184

 

 

 

(1,418,660)

 

 

 

 

 

 

 

 

 

CASH, beginning of period

 

 

7,530,864

 

 

 

6,479,980

 

 

 

 

 

 

 

 

 

 

CASH, end of period

 

$8,458,048

 

 

$5,061,320

 

 

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)

 

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$168,083

 

 

$141,924

 

Cash paid for income taxes

 

$-

 

 

$27,559

 

 

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Capitalized hardware and software development costs in accounts payable

 

$22,198

 

 

$90,854

 

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, 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 warrants in acquisition of IT Authorities, Inc.

 

 

-

 

 

 

-

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — restricted

 

 

-

 

 

 

-

 

 

 

115,141

 

 

 

-

 

 

 

-

 

 

 

115,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation —(loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(118,524)

 

 

-

 

 

 

(118,524)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(540,883)

 

 

(540,883)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2022

 

 

8,725,476

 

 

$8,726

 

 

$101,049,870

 

 

$(499,799)

 

$(74,209,172)

 

$26,349,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

     

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Accumulated

 

 

 

 

 

 

Issued

 

 

Amount

 

 

Capital

 

 

OCI

 

 

Deficit

 

 

Total

 

 

 

 (Unaudited)

 

Balance, January 1, 2023

 

 

8,725,476

 

 

$8,726

 

 

 

101,194,185

 

 

 

(350,234)

 

 

(83,101,474)

 

 

17,751,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock — restricted

 

 

13,841

 

 

 

14

 

 

 

(3,642)

 

 

-

 

 

 

-

 

 

 

(3,628)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — restricted

 

 

-

 

 

 

-

 

 

 

140,116

 

 

 

-

 

 

 

-

 

 

 

140,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation — gain

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37,248

 

 

 

-

 

 

 

37,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(951,479)

 

 

(951,479)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2023

 

 

8,739,317

 

 

$8,740

 

 

$101,330,659

 

 

$(312,986)

 

$(84,052,953)

 

$16,973,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock — restricted

 

 

153,903

 

 

 

154

 

 

 

(154)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — restricted

 

 

-

 

 

 

-

 

 

 

95,454

 

 

 

-

 

 

 

-

 

 

 

95,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation —gain

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,404

 

 

 

-

 

 

 

32,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(842,073)

 

 

(842,073)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2023

 

 

8,893,220

 

 

$8,894

 

 

$101,425,959

 

 

$(280,582)

 

$(84,895,026)

 

$16,259,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — restricted

 

 

-

 

 

 

-

 

 

 

276,570

 

 

 

-

 

 

 

-

 

 

 

276,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense — non-qualified stock options

 

 

-

 

 

 

-

 

 

 

23,277

 

 

 

-

 

 

 

-

 

 

 

23,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation — loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(77,162)

 

 

-

 

 

 

(77,162)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(921,114)

 

 

(921,114)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2023

 

 

8,893,220

 

 

$8,894

 

 

$101,725,806

 

 

$(357,744)

 

$(85,816,140)

 

$15,560,816

 

                 

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

 

 
8

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 September 30, 2023 and for each of the three and nine month periods ended September 30, 2023 and 2022, 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, 2022 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, 2022. The results of operations for the three and nine month periods ended September 30, 2023 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

 

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, allowance for credit losses, ability to realize intangible assets and goodwill, ability to realize deferred income tax assets, fair value of certain financial instruments and the evaluation of contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. There were no significant changes in accounting estimates used by management during the quarter.

 

Segment Reporting

 

The Company’s TMaaS offerings are substantially managed service driven solutions that use our proprietary technology platform to deliver our services and reported on that basis to its Chief Operating Decision Maker who evaluates its business as a single segment. See Note 15 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 nine months of 2023 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.

 

Recently Adopted Accounting Standards

 

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 requires that credit losses be presented as an allowance rather than as a write-down. The adoption of this standard on January 1, 2023, did not have a material impact on the consolidated financial statements.

 

 
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Table of Contents

 

3. 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

 

 

 

 

 

 

SEPTEMBER 30,

 

 

Active Markets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description

 

2023

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Liabilities:

 

 (Unaudited)

 

Contingent consideration - cash settled

 

$6,500

 

 

 

-

 

 

 

-

 

 

$6,500

 

Contingent consideration - warrants

 

 

400

 

 

 

-

 

 

 

-

 

 

 

400

 

Total liabilities measured and recorded at fair value

 

$6,900

 

 

$-

 

 

$-

 

 

$6,900

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant Other

 

 

 

 

 

 

DECEMBER 31,

 

 

Active Markets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description

 

2022

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration - cash settled

 

$6,500

 

 

 

-

 

 

 

-

 

 

$6,500

 

Contingent consideration - warrants

 

 

400

 

 

 

-

 

 

 

-

 

 

 

400

 

Total liabilities measured and recorded at fair value

 

$6,900

 

 

$-

 

 

$-

 

 

$6,900

 

  

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 IT Authorities, Inc.’s (ITA) 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.

 

There was no change in fair value of contingent consideration for the three and nine month periods ended September 30, 2023.

 

 
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4. 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:

 

 

 

SEPTEMBER 30,

 

 

DECEMBER 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

U.S. Federal, State, and Local Government (1)

 

$6,740,135

 

 

$7,272,993

 

Commercial (2)

 

 

2,244,138

 

 

 

2,055,782

 

Gross accounts receivable

 

 

8,984,273

 

 

 

9,328,775

 

Less: allowances for credit

 

 

 

 

 

 

 

 

losses (3)

 

 

72,398

 

 

 

51,666

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$8,911,875

 

 

$9,277,109

 

 

(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 or a government shutdown 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 credit losses if deemed necessary.

 

(3) For the nine month period ended September 30, 2023, the Company did not recognize any material provisions of recoveries of existing provision for credit losses. The Company has not historically maintained an allowance for credit losses for its government customers as it has not experienced material or recurring credit losses and the nature and size of the contracts has not necessitated the Company’s establishment of such an allowance for credit losses.

 

Significant Concentrations

 

The following table presents consolidated trade accounts receivable  by customer as of the periods presented below:

 

 

 

SEPTEMBER 30,

 

 

DECEMBER 31,

 

 

 

2023

 

 

2022

 

 

 

As a % of

 

 

As a % of

 

Customer Type

 

Receivables

 

 

Receivables

 

 

 

(Unaudited)

 

U.S. Federal Government

 

 

73%

 

 

78%

 

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

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

Customer Type

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

U.S. Federal Government (1)

 

 

78.8

%

 

 

78.5

%

 

 

79.9

%

 

 

78.9

%

 

(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.

 

 
12

Table of Contents

 

Credit Risk

 

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, the balances of which frequently exceed federally insured limits. If the financial institution with whom we do business were to be placed into receivership, we may be unable to access to the cash we have on deposit with such institutions. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our business could be adversely affected. At September 30, 2023, the Company had deposits in excess of FDIC limits of approximately $7.1 million. The Company also maintains deposits with a financial institution in Ireland that are insured by the Central Bank of Ireland up to a maximum of €100,000 per financial institution. At September 30, 2023, the Company had foreign bank deposits in excess of insured limits of approximately €560,000.

 

5. 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:

  

 

 

SEPTEMBER 30,

 

 

DECEMBER 31,

 

 

 

2023

 

 

2022

 

 

 

As a % of

 

 

As a % of

 

Customer Type

 

Receivables

 

 

Receivables

 

 

 

(Unaudited)

 

U.S. Federal Government

 

 

96%

 

 

97%

 

6. Other Current Assets and Accrued Expenses

 

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

 

 

 

SEPTEMBER 30,

 

 

DECEMBER 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Inventories

 

$494,101

 

 

$222,279

 

Prepaid insurance and other assets

 

 

908,744

 

 

 

713,699

 

 

 

 

 

 

 

 

 

 

Total other current assets

 

$1,402,845

 

 

$935,978

 

 

 
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Table of Contents

 

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

 

 

 

SEPTEMBER 30,

 

 

DECEMBER 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Carrier service costs

 

$7,845,150

 

 

$8,402,770

 

Salaries and payroll taxes

 

 

1,665,088

 

 

 

1,637,628

 

Inventory purchases, consultants and other costs

 

 

1,004,362

 

 

 

1,205,209

 

Severance costs

 

 

7,612

 

 

 

7,612

 

U.S. income tax payable

 

 

46,720

 

 

 

61,490

 

Foreign income tax payable

 

 

55,900

 

 

 

12,560

 

 

 

 

 

 

 

 

 

 

Total accrued expenses

 

$10,624,832

 

 

$11,327,269

 

 

7. Property and Equipment

 

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

 

 

 

SEPTEMBER 30,

 

 

DECEMBER 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Computer hardware and software

 

$3,277,478

 

 

$3,158,428

 

Furniture and fixtures

 

 

498,461

 

 

 

502,391

 

Leasehold improvements

 

 

318,320

 

 

 

284,321

 

Automobiles

 

 

124,214

 

 

 

122,524

 

Gross property and equipment

 

 

4,218,473

 

 

 

4,067,664

 

Less: accumulated depreciation and

 

 

 

 

 

 

 

 

amortization

 

 

3,360,606

 

 

 

3,089,446

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

$857,867

 

 

$978,218

 

  

During the three and nine month periods ended September 30, 2023, property and equipment depreciation expense was approximately $91,900 and $281,900, respectively. During the three and nine month periods ended September 30, 2022, property and equipment depreciation expense was approximately $102,000 and $305,100, respectively.

 

During the three and nine month periods ended September 30, 2023 and 2022, 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 nine month periods ended September 30, 2023 and 2022.

 

 
14

Table of Contents

 

8. 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.

 

9. Goodwill and Intangible Assets

 

The Company has recorded goodwill of $5,811,578 as of September 30, 2023 and December 31, 2022. There were no changes in the carrying amount of goodwill during the nine month period ended September 30, 2023.

 

Intangible assets consists of the following:

 

 

 

 

 

SEPTEMBER 30, 2023

 

 

 

 

 

 

 

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Amount

 

 

Amortization

 

 

Value

 

 

 

(Unaudited)

 

Customer Relationships

 

$2,392,000

 

 

$(478,400)

 

$1,913,600

 

Channel Relationships

 

 

2,628,080

 

 

 

(1,649,850)

 

 

978,230

 

Internally Developed Software

 

 

6,929,439

 

 

 

(3,696,876)

 

 

3,232,563

 

Trade Name and Trademarks

 

 

1,330,472

 

 

 

(321,020)

 

 

1,009,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$13,279,991

 

 

$(6,146,146)

 

$7,133,845

 

 

 

 

DECEMBER 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Amount

 

 

Amortization

 

 

Value

 

 

 

 

 

 

 

Customer Relationships

 

$2,392,000

 

 

$(299,000)

 

$2,093,000

 

Channel Relationships

 

 

2,628,080

 

 

 

(1,518,446)

 

 

1,109,634

 

Internally Developed Software

 

 

5,665,957

 

 

 

(2,546,407)

 

 

3,119,550

 

Trade Name and Trademarks

 

 

1,330,472

 

 

 

(254,496)

 

 

1,075,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$12,016,509

 

 

$(4,618,349)

 

$7,398,160

 

  

For the three and nine month periods ended September 30, 2023, the Company capitalized $139,600 and $832,400, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Technology Management System), secure identity management technology and secure network operations center of which $509,700 was transferred from capital work in progress to internally developed software during the nine month period. Capital work in progress is included in other long-term assets in the consolidated balance sheet.

 

For the three and nine month periods ended September 30, 2022, the Company capitalized $1.1 million and $2.9 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 $1.3 million 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 nine month period. Capital work in progress is included in other long-term assets in the consolidated balance sheet.

 

 
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There were no disposals of intangible assets during the three and nine month period ended September 30, 2023.

 

The aggregate amortization expense recorded for the three month periods ended September 30, 2023 and 2022 were approximately $526,300 and $365,800,  respectively. The aggregate amortization expense recorded for the nine month periods ended September 30, 2023 and 2022 were approximately $1,533,900 and $958,400,  respectively

 

As of September 30, 2023, estimated annual amortization for our intangible assets is approximately:

 

Remainder of 2023

 

$566,031

 

2024

 

 

2,123,820

 

2025

 

 

1,450,258

 

2026

 

 

727,570

 

2027

 

 

503,106

 

Thereafter

 

 

1,763,060

 

Total

 

$7,133,845

 

  

10. Line of Credit and Factoring Agreement

 

From June 15, 2017 to June 2023, the Company had a Loan and Security Agreement with Atlantic Union Bank (the “Loan Agreement”). The available amount under the working capital line of credit was subject to a borrowing base, which was 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 was secured by a first lien security interest on all of the Company’s assets in the United States. The Loan Agreement with Atlantic Union Bank matured in June 2023 and was not renewed.

 

On April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement (the “Purchase Agreement”) with Republic Capital Access, LLC (the “Buyer”) for the non-recourse sale of eligible accounts receivable relating to U.S. Government prime contracts or subcontracts of the Company (collectively, the “Purchased Receivables”) to replace the Company’s matured Loan and Security Agreement with Atlantic Union Bank. Upon purchase, Buyer becomes the absolute owner of any such Purchased Receivables, which are payable directly to the Buyer. The total amount of Purchased Receivables is subject to a maximum limit of $4 million outstanding Purchased Receivables at any time, with an available increase to $14 million, subject to adequate receivables. The Purchase Agreement contains customary fees, covenants and representations.

 

Pursuant to the Purchase Agreement, the Company may from time to time offer and sell eligible accounts receivable to the Buyer. The Buyer pays the sales proceed of the purchase of the receivable invoices in two installments; first installment is Initial Purchase Price, which is 90% if the debtor is an agency of the U.S. Government, and 85% if the debtor is not an agency of the U.S. Government, of the invoice amount. The second and final installment is the residual purchase price that is the invoice amount less the initial purchase price less applicable discount factor and fees.

 

During the three month and nine month periods ended September 30, 2023, the Company sold a total of $3.6 million and $5.2 million, respectively, of receivables for proceeds net of fees of $3.5 million and $5.1 million, respectively. As of September 30, 2023, there is no outstanding residual payment balance and availability under the Purchase Agreement of $4 million.

 

 
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11. Income Taxes

 

The Company’s effective tax rate was (1.5)% and (2.6)% for the three and nine month periods ended September 30, 2023, respectively. The Company’s effective tax rate was 18% and 19% for the three and nine month periods ended September 30, 2022, respectively. The difference in the effective tax rate and the U.S. federal statutory rate was primarily due to the full valuation allowance the Company maintains against its deferred tax assets and state minimum taxes in the United States. The effective tax rate is calculated by dividing the Provision (benefit) for income taxes by the loss before provision (benefit) for income taxes.

 

12. Stockholders’ Equity

 

Common Stock

 

The Company is authorized to issue 30,000,000 shares of common stock, $0.001 par value per share. As of September 30, 2023, there were 8,893,220 shares issued and outstanding.

 

On June 22, 2023, the stockholders of the Company approved an amendment and restatement of the 2017 WidePoint Omnibus Incentive Plan (the “Plan”) to increase the number of shares authorized for issuance by one million three hundred thousand shares (1,300,000).

 

There were no shares of common stock vested under the vesting terms of the RSAs during the three month period ended September 30, 2023. During the nine month period ended September 30, 2023, there were 169,737 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 1,993 shares withheld in satisfaction of the employees corresponding tax liability of approximately $3,600. 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 shares of common stock vested under the vesting terms of the RSAs during the three month period ended September 30, 2022. During the nine month period ended September 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.

 

There were no stock option exercises during the three and nine month periods ended September 30, 2023 and 2022.

 

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 in 2021, 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 other income (expense). Refer to Note 3 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 on 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. The Company retired all common stock it repurchased.

 

At The Market Offering Agreement

 

On August 18, 2020, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”).

 

Effective March 27, 2023, the Company provided notice to the sales agents under its At the Market Sales Agreement that it was terminating the agreement. Accordingly, no additional sales of shares of common stock will be made pursuant to such agreement.

 

13. 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

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Restricted share-based compensation expense

 

$276,570

 

 

$115,141

 

 

$512,140

 

 

$384,267

 

Non-qualified option share-based compensation expense

 

 

23,277

 

 

 

-

 

 

 

23,277

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total share-based compensation before taxes

 

$299,847

 

 

$115,141

 

 

$535,417

 

 

$384,267

 

 

 

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 (ISO), nonqualified stock options (NQSO), restricted stock awards (RSA), restricted stock units, 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 shares based on the grant date fair value and amortizes stock compensation on a straight-line basis over the vesting period. Restricted stock shares are issued when vested and included in the total number of common shares issued and outstanding. During the three and nine month period ended September 30, 2023, the Company granted 628,572 restricted stock shares. During the three and nine month periods ended September 30,  2022, the Company granted 153,903 RSAs.

 

 
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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, 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 calculated using the simplified method. The Company recognizes forfeitures as they occur. There were 288,570 stock option awards granted during the three and nine month period ended September 30, 2023. There were no stock option awards granted during the three and nine month period September 30, 2022.

 

Option pricing model assumptions for NQSO awards granted were valued using the following assumptions for the years then ended as set forth below:

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options granted

 

 

288,570

 

 

 

--

 

 

 

288,570

 

 

 

--

 

Expected dividend yield

 

 

0%

 

 

 

--

 

 

 

0%

 

 

 

--

 

Expected volatility

 

61.6%-62.2%

 

 

 

--

 

 

61.6%-62.2%

 

 

 

--

 

Risk-free interest rate

 

 

4.1%

 

 

 

--

 

 

 

4.1%

 

 

 

--

 

Term

 

4 years

 

 

 

--

 

 

4years

 

 

 

--

 

 

At September 30, 2023, the Company had approximately $1.2 million 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 1.0 years.

 

Long-Term Incentive Plan

 

The Company maintains a long-term incentive plan (LTIP) that covers the period of January 1, 2023 through January 1, 2026. The plan was approved by the Board of Directors in August 2023. The LTIP has two components of equity-based compensation. The first is 250,000 RSUs that will be awarded to management, of which 83,333 will be issued on January 1 of the years 2024, 2025, and 2026. The second is 250,000 performance based restricted stock units (PSRUs) that would vest upon meeting, by January 1, 2026, certain revenue and adjusted EBITDA performance targets. As of September 30, 2023, the Company has not awarded the RSUs or PRSUs under this plan.

 

14. 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

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Basic and Diluted Earnings Per Share Computation:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(921,114)

 

$(540,883)

 

$(2,714,666)

 

$(14,692,989)

Weighted average number of common shares

 

 

8,893,220

 

 

 

8,725,476

 

 

 

8,809,644

 

 

 

8,734,471

 

Basic and Diluted Loss Per Share

 

$(0.10)

 

$(0.06)

 

$(0.31)

 

$(1.68)

  

 
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For the three month ended September 30, 2023 and 2022, the Company had unexercised stock options and RSAs of 55,117 and 43,058, respectively, and warrants to purchase 150,000 and 150,000, respectively, shares of common stock, outstanding, that were anti-dilutive.

 

For the nine month ended September 30, 2023 and 2022, the Company had unexercised stock options and RSAs of 43,103 and 64,012, respectively, and warrants to purchase 150,000 and 150,000, respectively, shares of common stock, outstanding, that were anti-dilutive.

 

15. 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

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Carrier Services

 

$14,648,545

 

 

$14,062,700

 

 

$42,487,301

 

 

$39,495,108

 

Managed Services

 

 

11,085,112

 

 

 

11,208,872

 

 

 

35,282,894

 

 

 

31,270,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$25,733,657

 

 

$25,271,572

 

 

$77,770,195

 

 

$70,765,353

 

 

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

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

U.S. Federal Government

 

$20,285,569

 

 

$19,840,322

 

 

$62,160,270

 

 

$55,846,663

 

U.S. State and Local Governments

 

 

113,814

 

 

 

86,091

 

 

 

318,528

 

 

 

313,112

 

Foreign Governments

 

 

22,364

 

 

 

17,787

 

 

 

61,942

 

 

 

74,253

 

Commercial Enterprises

 

 

5,311,910

 

 

 

5,327,372

 

 

 

15,229,455

 

 

 

14,531,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$25,733,657

 

 

$25,271,572

 

 

$77,770,195

 

 

$70,765,353

 

 

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

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

North America

 

$24,817,014

 

 

$24,552,201

 

 

$74,712,967

 

 

$68,222,879

 

Europe

 

 

916,643

 

 

 

719,371

 

 

 

3,057,228

 

 

 

2,542,474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$25,733,657

 

 

$25,271,572

 

 

$77,770,195

 

 

$70,765,353

 

 

During the three months ended September 30, 2023 and 2022, the Company recognized approximately $352,100 and $485,400, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2022 and 2021, respectively.

 

During the nine months ended September 30, 2023 and 2022, the Company recognized approximately $1.6 million and $2.1 million, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2022 and 2021, respectively.

 

16. Commitments and Contingencies

 

Employment Agreements

 

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

 

Litigation

 

The Company is not involved in any material legal proceedings.

 

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

 

Cautionary Note Regarding Forward-Looking Statements

 

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

 

 

·

The impact of 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;

 

·

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

 

·

The impact and outcome of negotiations around the Federal budget;

 

·

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, 2022 filed with the SEC on March 31, 2023.

 

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, 2022 filed with the SEC on March 31, 2023. 

 

 
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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.

 

During 2023, 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 and, if necessary, make strategic investments in our delivery infrastructure,

 

Grow our recurring high margin managed services revenues,

 

Add incremental capabilities to our Technology Management solution set and develop or 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,

 

Continue to leverage the R2v3 Certification to further our ESG commitment

 

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

 

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

 

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

 

Expanding our solution offerings into the commercial space.

 

Our strategy for achieving our longer-term goals include:

 

 

Establishing a market leadership position in the trusted mobility management (TM2) 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 of 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.

 

We continue to experience ongoing supply chain issues and have changed from just-in-time inventory for accessory items to keeping sufficient stock on hand and having to locate alternative sources if traditional suppliers cannot fulfill in a timely manner. In addition, we continue to experience supply price increases that we seek to mitigate by seeking volume discounts. Overall, the customers are understanding that these supply chain issues are a global and not just impacting orders they place with us and have been willing to work with us to find alternative solutions or delay the purchases until the requested products are available. It is difficult to forecast when and if the supply chain will normalize.

 

 
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Table of Contents

 

Results of Operations

Three Months Ended September 30, 2023 as Compared to Three Months Ended September 30, 2022

 

Revenues.  Revenues for the three month period ended September 30, 2023 were approximately $25.7 million, an increase of approximately $0.5 million (or 2%), as compared to approximately $25.3 million in the same period in 2022.  Our mix of revenues for the periods presented is set forth below:

 

 

 

THREE MONTHS ENDED

 

 

 

 

 

 

SEPTEMBER 30,

 

 

Dollar

 

 

 

2023

 

 

2022

 

 

Variance

 

 

 

(Unaudited)

 

 

 

 

Carrier Services

 

$14,648,540

 

 

$14,062,700

 

 

$585,840

 

Managed Services:

 

 

 

 

 

 

 

 

 

 

 

 

Managed Service Fees

 

 

8,094,912

 

 

 

7,513,642

 

 

 

581,270

 

Billable Service Fees

 

 

1,560,177

 

 

 

909,943