Widepoint Corp 10-Q for FY2022 Q1
Widepoint Corp (WYY)
About this 10-Q
Widepoint Corp filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $22.44M
- up 8.6% from $20.65M a year earlier
- Net loss
- $392.9K
- compared with net income of $585.42K a year earlier
- Diluted EPS
- -$0.04
- compared with $0.06 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended | |
or | |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the transition period from __________________ to ___________________ | |
Commission File Number:
(Exact name of Registrant as specified in its charter) |
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(State or other jurisdiction of |
| (I.R.S. employer |
incorporation or organization) |
| identification no.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(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 |
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:
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):
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 | ☐ |
☒ | Smaller reporting company | ||
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| 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
As of May 12, 2022, there were
WIDEPOINT CORPORATION
INDEX
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| Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (unaudited) |
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| Notes to Condensed Consolidated Financial Statements (unaudited) |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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CERTIFICATIONS |
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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REVENUES |
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COST OF REVENUES (including amortization and depreciation of $ |
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GROSS PROFIT |
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OPERATING EXPENSES |
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Sales and marketing |
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General and administrative expenses (including share-based compensation of $ |
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Depreciation and amortization |
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Total operating expenses |
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(LOSS) INCOME FROM OPERATIONS |
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OTHER INCOME (EXPENSE) |
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Interest income |
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Interest expense |
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Other income |
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Total other income (expense) |
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(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION |
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INCOME TAX (BENEFIT) PROVISION |
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NET (LOSS) INCOME |
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BASIC EARNINGS PER SHARE |
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BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING |
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DILUTED EARNINGS PER SHARE |
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DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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| Table of Contents |
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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NET (LOSS) INCOME |
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Other comprehensive (loss) income: |
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Foreign currency translation adjustments, net of tax |
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Other comprehensive (loss) income |
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COMPREHENSIVE (LOSS) INCOME |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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| Table of Contents |
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Unbilled accounts receivable |
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Other current assets |
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Total current assets |
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NONCURRENT ASSETS |
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Property and equipment, net |
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Lease right of use asset, net |
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Intangible assets, net |
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Goodwill |
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Deferred tax assets, net |
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Other long-term assets |
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Total assets |
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
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CURRENT LIABILITIES |
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Accounts payable |
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Accrued expenses |
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Deferred revenue |
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Current portion of lease liabilities |
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Current portion of contingent consideration |
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Total current liabilities |
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NONCURRENT LIABILITIES |
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Lease liabilities, net of current portion |
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Contingent consideration, net of current portion |
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Deferred revenue, net of current portion |
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Total liabilities |
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Commitments and contingencies (Note 17) |
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STOCKHOLDERS' EQUITY |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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| Table of Contents |
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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| THREE MONTHS ENDED |
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| 2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net (loss) income |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Deferred income tax benefit |
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Depreciation expense |
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(Recovery) provision for doubtful accounts |
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Amortization of intangibles |
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Share-based compensation expense |
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Warrants expense |
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Change in fair value of contingent consideration |
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Changes in assets and liabilities: |
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Accounts receivable and unbilled receivables |
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Inventories |
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Other current assets |
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Other assets |
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Accounts payable and accrued expenses |
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Income tax payable |
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Deferred revenue and other liabilities |
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Other liabilities |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property and equipment |
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Capitalized hardware and software development costs |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Principal repayments under finance lease obligations |
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Withholding taxes paid on behalf of employees on net settled restricted stock awards |
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Common stock repurchased |
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Issuance of common stock/At-the-market offering, net of issuance costs |
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Proceeds from exercise of stock options |
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Net cash (used in) provided by financing activities |
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Net effect of exchange rate on cash and equivalents |
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS, beginning of period |
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CASH AND CASH EQUIVALENTS, end of period |
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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)
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| MARCH 31, |
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| 2022 |
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| 2021 |
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SUPPLEMENTAL CASH FLOW INFORMATION |
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Cash paid for interest |
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Cash paid for income taxes |
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NONCASH INVESTING AND FINANCING ACTIVITIES |
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Capitalized hardware and software development costs in accounts payable |
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Leased assets and lease liabilities terminated |
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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
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| Capital |
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| Deficit |
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| Total |
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Balance, January 1, 2020 |
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Issuance of common stock — options exercises |
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Issuance of common stock — restricted |
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Issuance of common stock through at-the-market offering program, net of issuance costs of $333,305 |
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Stock compensation expense — restricted |
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Stock compensation expense — non-qualified stock options |
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Foreign currency translation — (loss) |
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Net income |
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Balance, March 31, 2021 |
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| Additional |
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| Common Stock |
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| Accumulated |
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| Share |
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| Amount |
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| Capital |
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| OCI |
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| Deficit |
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| Total |
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Balance, January 1, 2021 |
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| $ |
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| (241,586 | ) |
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Common stock repurchased |
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| ( | ) | ||
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Issuance of common stock — restricted |
|
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| ( | ) |
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| ( | ) | ||||
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Issuance of common stock warrants |
|
| - |
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| |||||
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Stock compensation expense — restricted |
|
| - |
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| |||||
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Foreign currency translation — (loss) |
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
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|
| ( | ) | ||
|
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Net loss |
|
| - |
|
|
|
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|
|
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|
| (392,897 | ) |
|
| ( | ) | |||
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Balance, March 31, 2022 |
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | (59,909,080 | ) |
| $ |
| ||||
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 Telecommunications Management System (ITMS™). The Company’s ITMS platform is SSAE 18 compliant and was granted an Authority to Operate by the U.S. Department of Homeland Security. Additionally, the Company was granted an Authority to Operate by the General Services Administration with regard to its identity credentialing component of its TMaaS platform. The Company’s TMaaS platform is internally hosted and accessible on-demand through a secure customer portal that is specially configured for each customer. The Company can deliver these solutions in a number of configurations ranging from utilizing the platform as a service to a full-service solution that includes full lifecycle support for all end users and the organization.
A significant portion of the Company’s expenses, such as personnel and facilities costs, are fixed in the short term and may not be easily modified to manage through changes in the Company’s market place that may create pressure on pricing and/or costs to deliver its services.
The Company has periodic capital expense requirements to maintain and upgrade its internal technology infrastructure tied to its hosted solutions and other such costs may be significant when incurred in any given quarter.
2. Basis of Presentation and Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements as of March 31, 2022 and for each of the three month periods ended March 31, 2022 and 2021, respectively, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three month period ended March 31, 2022 are not necessarily indicative of the operating results for the full year.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and acquired entities since their respective dates of acquisition. All significant inter-company amounts were eliminated in consolidation.
| 9 |
| 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 March 31, 2022.
Deferred payroll tax payments of $
Foreign Currency
Assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of each reporting period. The resulting translation adjustments, along with any related tax effects, are included in accumulated other comprehensive income, a component of stockholders’ equity. Translation adjustments are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Revenues and expenses are translated at the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations outside the U.S. where the functional currency is the U.S. dollar, are reported net in the Company’s condensed consolidated statements of operations, depending on the nature of the activity.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring use of estimates and judgment relate to revenue recognition, accounts receivable valuation reserves, ability to realize intangible assets and goodwill, ability to realize deferred income tax assets, fair value of certain financial instruments and the evaluation of contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. There were no significant changes in accounting estimates used by management during the quarter.
Segment Reporting
The Company’s TMaaS offerings are substantially managed service driven solutions that use our proprietary technology platform to deliver our services and reported on that basis to its Chief Operating Decision Maker who evaluates its business as a single segment. See Note 16 for detailed information regarding the composition of revenues.
Significant Accounting Policies
There were no significant changes in the Company’s significant accounting policies during the first three months of 2022 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 28, 2022.
Accounting Standards under Evaluation
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“Topic 326”). Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. This update is effective for the company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the pending adoption of this new standard on its consolidated financial statements.
| 10 |
| 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 acquisition was accounted for as a business combination. The closing purchase price paid by the Company consisted of $
Supplemental Unaudited Pro Forma Information
|
| THREE MONTHS ENDED |
| |
|
| MARCH 31, |
| |
|
| 2021 |
| |
|
| (a) |
| |
Revenues |
| $ |
| |
Net Income |
|
|
| |
| (a) | To reflect on a pro forma basis unaudited consolidated financial information for the year ended December 31, 2021 for the Company assuming we completed the acquisition on January 1, 2021. The unaudited financial information presented herein were derived from historical internally prepared financial statements with certain adjustments for ITA and WidePoint’s Form 10-K audited financial statements. |
| 11 |
| 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 Observable |
|
| Unobservable |
| ||||
|
| MARCH 31, |
|
| Active Markets |
|
| Inputs |
|
| Inputs |
| ||||
Description |
| 2022 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Liabilities: |
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||
Contingent consideration - cash settled |
| $ |
|
| $ | - |
|
| $ | - |
|
| $ |
| ||
Contingent consideration - warrants |
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Contingent consideration - cash settled, net of current portion |
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Contingent consideration - warrants, net of current portion |
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Total liabilities measured and recorded at fair value |
| $ |
|
| $ | - |
|
| $ | - |
|
| $ |
| ||
|
|
|
| Quoted Prices in |
|
| Significant Other Observable |
|
| Unobservable |
| |||||
|
| DECEMBER 31, |
|
| Active Markets |
|
| Inputs |
|
| Inputs |
| ||||
Description |
| 2021 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration - cash settled |
| $ |
|
| $ | - |
|
| $ | - |
|
| $ |
| ||
Contingent consideration - warrants |
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Contingent consideration - cash settled, net of current portion |
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Contingent consideration - warrants, net of current portion |
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Total liabilities measured and recorded at fair value |
| $ |
|
| $ | - |
|
| $ | - |
|
| $ |
| ||
The Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. The contingent consideration has been recorded at their fair value using a Monte Carlo simulation model. This model incorporates probability of achievement of certain milestones, risk-free rates and volatility. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.
Management estimates the fair value of the contingent consideration liability based on financial projections of ITA’s business and forecasted results, including revenue growth rates, costs and expenses, volatility, and discount rates. The Company evaluates, on a routine, periodic basis, the estimated fair value of the contingent consideration and quarterly changes in estimated fair value are reflected in other income in the consolidated statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in changes of any of the key assumptions that are used. Changes in the estimated fair value of contingent consideration liability may have a material impact on the Company’s operating results.
The following table presents a reconciliation of the change in fair value of contingent consideration for the three months ended March 31, 2022:
| Contingent consideration, December 31, 2021 |
| $ |
| |
|
|
|
|
|
| Change in fair value (gain) reported in the consolidated statement of operations |
|
| ( | ) |
|
|
|
|
|
| Contingent consideration settled - cash |
|
| ( | ) |
|
|
|
|
|
| Contingent consideration settled - warrants |
|
| ( | ) |
|
|
|
|
|
| Contingent consideration, March 31, 2022 |
| $ |
|
| 12 |
| Table of Contents |
5. Accounts Receivable and Significant Concentrations
A significant portion of the Company’s receivables are billed under firm fixed price contracts with agencies of the U.S. federal government and similar pricing structures with several corporations. Accounts receivable consist of the following by customer type in the table below as of the periods presented:
|
| MARCH 31, |
|
| DECEMBER 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
Government (1) |
| $ |
|
| $ |
| ||
Commercial (2) |
|
|
|
|
|
| ||
Gross accounts receivable |
|
|
|
|
|
| ||
Less: allowances for doubtful accounts (3) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
| $ |
|
| $ |
| ||
(1) Government contracts are generally firm fixed price not to exceed arrangements with a term of five (5) years, which consists of a base year and four (4) annual option year renewals. Government receivables are billed under a single consolidated monthly invoice and are billed approximately thirty (30) to sixty (60) days in arrears from the date of service and payment is generally due within thirty (30) days of the invoice date. Government accounts receivable payments could be delayed due to administrative processing delays by the government agency, continuing budget resolutions that may delay availability of contract funding, and/or administrative only invoice correction requests by contracting officers that may delay payment processing by our government customers.
(2) Commercial contracts are generally fixed price arrangements with contract terms ranging from two (2) to three (3) years. Commercial accounts receivables are billed based on the underlying contract terms and conditions which generally have repayment terms that range from thirty (30) to ninety (90) days. Commercial receivables are stated at amounts due from customers net of an allowance for doubtful accounts if deemed necessary.
(3) For the three months ended March 31, 2022, the Company did not recognize any material provisions of recoveries of existing provision for bad debt. The Company has not historically maintained a bad debt reserve for its government customers as it has not experienced material or recurring bad debt charges and the nature and size of the contracts has not necessitated the Company’s establishment of such a bad debt reserve.
Significant Concentrations
The following table presents revenue by customer for each of the periods presented:
|
| THREE MONTHS ENDED |
| |||||
|
| MARCH 31, |
| |||||
Customer Type |
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
U.S. Federal Government (1) |
|
| % |
|
| % | ||
U.S. State & Local and Foreign Governments |
|
| % |
|
| % | ||
Commercial |
|
| % |
|
| % | ||
(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.
| 13 |
| Table of Contents |
6. Unbilled Accounts Receivable
Unbilled accounts receivable represent revenues earned but not invoiced to the customer at the balance sheet date due to either timing of invoice processing or delays due to fixed contractual billing schedules. A significant portion of our unbilled accounts receivable consist of carrier services and hardware and software products delivered but not invoiced at the end of the reporting period.
The following table presents customers that represent ten (10) percent or more of consolidated unbilled accounts receivable as of the dates presented below:
|
| MARCH 31, |
|
| DECEMBER 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| As a % of |
|
| As a % of |
| ||
Customer Type |
| Receivables |
|
| Receivables |
| ||
|
| (Unaudited) |
| |||||
U.S. Federal Government |
|
| % |
|
| % | ||
Commercial |
|
| % |
|
| % | ||
7. Other Current Assets and Accrued Expenses
Other current assets consisted of the following as of the dates presented below:
|
| MARCH 31, |
|
| DECEMBER 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
Inventories |
| $ |
|
| $ |
| ||
Prepaid rent, insurance and other assets |
|
|
|
|
|
| ||
Qualified payroll credit receivable |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total other current assets |
| $ |
|
| $ |
| ||
Accrued expenses consisted of the following as of the dates presented below:
|
| MARCH 31, |
|
| DECEMBER 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
| Carrier service costs |
| $ |
|
| $ |
| ||
| Salaries and payroll taxes |
|
|
|
|
|
| ||
| Inventory purchases, consultants and other costs |
|
|
|
|
|
| ||
| Other |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
| 14 |
| Table of Contents |
8. Property and Equipment
Major classes of property and equipment consisted of the following as of the dates presented below:
|
| MARCH 31, |
|
| DECEMBER 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
Computer hardware and software |
| $ |
|
| $ |
| ||
Furniture and fixtures |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Automobiles |
|
|
|
|
|
| ||
Gross property and equipment |
|
|
|
|
|
| ||
Less: accumulated depreciation and amortization |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Property and equipment, net |
| $ |
|
| $ |
| ||
During the three month periods ended March 31, 2022 and 2021, property and equipment depreciation expense was approximately $
During the three month periods ended March 31, 2022 and 2021, there were no material disposals of owned property and equipment.
There were no changes in the estimated useful lives used to depreciate property and equipment during the three month periods ended March 31, 2022 and 2021.
9. Leases
On January 1, 2022, the Company entered into an amendment to its lease agreement for its Tampa office to amend the term and the extension option. The amendment updated the term of the lease from sixty (60) calendar months ending December 31, 2026 to the Company’s ability to terminate the lease on June 30, 2022. As a result of the amendment, the Company removed the lease right of use asset and lease liability for its Tampa office from its condensed consolidated balance sheet. The Company accounted for the lease as month to month and recorded the monthly rent expense in its condensed consolidated statement of operations.
| 15 |
| Table of Contents |
10. Goodwill and Intangible Assets
The Company has recorded goodwill of $
Intangible assets consists of the following:
|
| MARCH 31, 2022 |
| |||||||||
|
|
|
|
|
|
| ||||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net Book |
| |||
|
| Amount |
|
| Amortization |
|
| Value |
| |||
|
| (Unaudited) |
| |||||||||
Customer Relationships |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Channel Relationships |
|
|
|
|
| ( | ) |
|
|
| ||
Internally Developed Software |
|
|
|
|
| ( | ) |
|
|
| ||
Trade Name and Trademarks |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| ||
|
| DECEMBER 31, 2021 |
| |||||||||
|
|
|
|
|
|
|
|
| ||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net Book |
| |||
|
| Amount |
|
| Amortization |
|
| Value |
| |||
|
|
|
|
|
| |||||||
| Customer Relationships |
| $ |
|
| $ | ( | ) |
| $ |
| ||
| Channel Relationships |
|
|
|
|
| ( | ) |
|
|
| ||
| Internally Developed Software |
|
|
|
|
| ( | ) |
|
|
| ||
| Trade Name and Trademarks |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| ||
For the three month period ended March 31, 2022, the Company capitalized $
For the three month period ended March 31, 2021, the Company capitalized $
There were no disposals of intangible assets during the three month periods ended March 31, 2022 and 2021.
The aggregate amortization expense recorded for the three month periods ended March 31, 2022 and 2021 were approximately $
| 16 |
| Table of Contents |
As of March 31, 2022, estimated annual amortization for our intangible assets for each of the next five years is approximately:
Remainder of 2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Thereafter |
|
|
| |
Total |
| $ |
|
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 $
Effective, April 30, 2021, the Company entered into a sixth modification agreement (“Modification Agreement”) with Atlantic Union Bank to amend the existing Loan Agreement.
The Loan Agreement requires that the Company meet the following financial covenants on a quarterly basis: (i) maintain a minimum adjusted tangible net worth of at least $
The available amount under the working capital line of credit is subject to a borrowing base, which is equal to the lesser of (i) $
12. Income Taxes
The Company files U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as well as income tax returns in various states and certain foreign countries. The Company may be subject to examination by the IRS or various state taxing jurisdictions for tax years 2003 and forward. The Company may be subject to examination by various foreign countries for tax years 2014 forward. As of March 31, 2022, the Company was not under examination by the IRS, any state or foreign tax jurisdiction. The Company did not have any unrecognized tax benefits at either March 31, 2022 or December 31, 2021. In the future if applicable, any interest and penalties related to uncertain tax positions will be recognized in income tax expense.
As of March 31, 2022, the Company had approximately $
| 17 |
| Table of Contents |
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Under existing income tax accounting standards such objective evidence is more heavily weighted in comparison to other subjective evidence such as our projections for future growth, tax planning and other tax strategies. There were no changes to the valuation allowance as of March 31, 2022. In the future, changes in the Company’s valuation allowance may result from, among other things, additional pretax operating losses resulting in increases in its valuation allowance or pretax operating income resulting in decreases in its valuation allowance.
13. Stockholders’ Equity
Common Stock
The Company is authorized to issue
During the three month period ended March 31, 2021, there were
There were no stock option exercises during the three month period ended March 31, 2022. Shares of common stock issued as a result of stock option exercises and realized gross proceeds for the three month period ended March 31, 2021, were
Contingent Warrants
Liability-classified warrants consist of warrants to acquire common stock at an exercise price of $
Warrants Issued
On March 31, 2022, the Company issued a warrant to purchase
| 18 |
| Table of Contents |
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 $
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 $
The Sales Agreement will terminate upon the earlier of sale of all of the Shares under the Sales Agreement or termination of the Sales Agreement as permitted.
The Company has no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Sales Agreement or terminate the Sales Agreement. The Company did not sell any shares during the three month period ended March 31, 2022. During the three month period ended March 31, 2021, the Company sold
14. Share-based Compensation
Share-based compensation (including restricted stock awards) represents both stock option based expense and stock grant expense. The following table sets forth the composition of stock compensation expense included in general and administrative expense for the periods then ended:
|
| THREE MONTHS ENDED |
| |||||
|
| MARCH 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
Restricted stock compensation expense |
| $ |
|
| $ |
| ||
Non-qualified option stock compensation expense |
|
|
|
|
|
| ||
|
|
|
|
|
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|
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|
Total share-based compensation before taxes |
| $ |
|
| $ |
| ||
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.
| 19 |
| Table of Contents |
Restricted Stock
The Company records the fair value of all restricted stock awards based on the grant date fair value and amortizes stock compensation on a straight-line basis over the vesting period. Restricted stock award shares are issued when vested and included in the total number of common shares issued and outstanding. There were no RSAs granted during the three month period ended March 31, 2022. During the three month period ended March 31, 2021, the Company granted
Non-Qualified Stock Options
The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using the Black-Scholes model, which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. There were no non-qualified stock option awards granted during the three month periods ended March 31, 2022 and 2021.
At March 31, 2022, the Company had approximately $
15. Earnings Per Common Share (EPS)
The computations of basic and diluted earnings per share were as follows for the periods presented below:
|
| THREE MONTHS ENDED |
| |||||
|
| MARCH 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
Basic Earnings Per Share Computation: |
|
|
|
|
|
| ||
Net income |
| $ | ( | ) |
| $ |
| |
Weighted average number of common shares |
|
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| ||
Basic Earnings Per Share |
| $ | ( | ) |
| $ |
| |
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|
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|
|
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|
|
Diluted Earnings Per Share Computation: |
|
|
|
|
|
|
|
|
Net income |
| $ | ( | ) |
| $ |
| |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
|
|
|
|
| ||
Incremental shares from assumed conversions of dilutive securities |
|
| - |
|
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|
| |
Adjusted weighted average number of common shares |
|
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|
| ||
|
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|
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|
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|
|
|
Diluted Earnings Per Share |
| $ | ( | ) |
| $ |
| |
| 20 |
| Table of Contents |
16. Revenue from Contracts with Customers
The following table was prepared to provide additional information about the composition of revenues from contracts with customers for the periods presented:
|
| THREE MONTHS ENDED |
| |||||
|
| MARCH 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
Carrier Services |
| $ |
|
| $ |
| ||
Managed Services |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
The Company recognized revenues from contracts with customers for the following customer types as set forth below:
|
| THREE MONTHS ENDED |
| |||||
|
| MARCH 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
U.S. Federal Government |
| $ |
|
| $ |
| ||
U.S. State and Local Governments |
|
|
|
|
|
| ||
Foreign Governments |
|
|
|
|
|
| ||
Commercial Enterprises |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
The Company recognized revenues from contracts with customers in the following geographic regions:
|
| THREE MONTHS ENDED |
| |||||
|
| MARCH 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
North America |
| $ |
|
| $ |
| ||
Europe |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
During the three months ended March 31, 2022 and 2021, the Company recognized approximately $
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.
| 21 |
| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements. You can identify these statements by words such as “aim,” “anticipate,” “assume,” “believe,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “positioned,” “predict,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management's beliefs and assumptions. These statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
| · | The impact of the COVID-19 pandemic on our business and operations; |
| · | The impact of increasingly volatile public equity markets on our market capitalization; |
| · | The impact of supply chain issues; |
| · | Our ability to successfully execute our strategy; |
| · | Our ability to sustain profitability and positive cash flows; |
| · | Our ability to gain market acceptance for our products; |
| · | Our ability to win new contracts, execute contract extensions and expand scope of services on existing contracts; |
| · | Our ability to compete with companies that have greater resources than us; |
| · | Our ability to penetrate the commercial sector to expand our business; |
| · | Our ability to identify potential acquisition targets and close such acquisitions; |
| · | Our ability to successfully integrate acquired businesses with our existing operations; |
| · | Our ability to maintain a sufficient level of inventory necessary to meet our customers demand due to supply shortage and pricing; |
| · | Our ability to retain key personnel; |
| · | Our ability to mitigate the impact of inflation; and |
| · | The risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 28, 2022. |
The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Readers are cautioned not to put undue reliance on forward-looking statements. In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, the terms “Company” and “WidePoint,” as well as the words “we,” “our,” “ours” and “us,” refer collectively to WidePoint Corporation and its consolidated subsidiaries.
Business Overview
We are a leading provider of Technology Management as a Service (TMaaS) that consists of federally certified communications management, identity management, interactive bill presentment and analytics, and Information Technology as a Service solutions. We help our clients achieve their organizational missions for mobility management, information technology management, and cybersecurity objectives in this challenging and complex business environment.
We offer our TmaaS solutions through a flexible managed services model which includes both a scalable and comprehensive set of functional capabilities that can be used by any customer to meet the most common functional, technical and security requirements for mobility management. Our TmaaS solutions were designed and implemented with flexibility in mind such that it can accommodate a large variety of customer requirements through simple configuration settings rather than through costly software development. The flexibility of our TmaaS solutions enables our customers to be able to quickly expand or contract their mobility management requirements. Our TmaaS solutions are hosted and accessible on-demand through both a secure federal government certified proprietary portal and/or through a secure enterprise portal that provides our customers with the ability to manage, analyze and protect their valuable communications assets, and deploy identity management solutions that provide secured virtual and physical access to restricted environments.
| 22 |
| Table of Contents |
Revenue Mix
Our revenue mix fluctuates due to customer driven factors including: i) timing of technology and accessory refresh requirements from our customers; ii) onboarding of new customers that require carrier services; iii) subsequent decreases in carrier services as we optimize their data and voice usage; iv) delays in delivering products or services; and v) changes in control or leadership of our customers that lengthens our sales cycle, changes in laws or funding, among other circumstances that may unexpectedly change the revenue earned and/or duration of our services. As a result, our revenue will vary by quarter.
For additional information related to our business operations, see the description of our business set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 28, 2022.
Strategic Focus and Notable Events
We believe that demand for our TmaaS solutions will continue to grow as public and private sectors seek to address the additional requirements for supporting a mobile workforce. We also believe that the current post COVID-19 pandemic environment will increase the need for WidePoint’s services as our customers and potential customers seek to manage, secure and gain visibility into their mobility assets as a result of a larger number of employees working remotely. Our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives in order to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth.
In fiscal 2022, we will continue to focus on the following key goals:
| · | Continue to find additional avenues for capturing new sales opportunities given the pandemic environment, |
| · | Continue to provide unmatched level of services to our current customer base, |
| · | Attain full FedRAMP certification in 2022 and continued technology refresh of our delivery infrastructure, |
| · | Grow our recurring high margin managed services revenues, |
| · | Add incremental capabilities to our Technology Management solution set and develop and acquire new high margin business lines, |
| · | Enhance our software platforms to grow our SaaS revenues and take advantage of the opportunities emerging from the growth in remote working, |
| · | Expand our customer base organically and inorganically, |
| · | Continue to leverage the R2v3 Certification to further our ESG commitment |
| · | Executing cross-sell opportunities identified from ITA acquisition, including Identity Management (IdM), Telecommunications Lifecycle Management (TLM) and Digital Billing & Analytics (DB&A) solution, |
| · | Growing our sales pipeline by continuing to invest in our business development and sales team assets, |
| · | Pursuing additional opportunities with our key systems integrator and strategic partners, and |
| · | Expanding our solution offerings into the commercial space. |
Our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth. Our strategy for achieving our longer-term goals include:
| · | pursuing accretive and strategic acquisitions to expand our solutions and our customer base, |
| · | delivering new incremental offerings to add to our existing TMaaS offering, |
| · | developing and testing innovative new offerings that enhance our TMaaS offering, and |
| · | transitioning our data center and support infrastructure into a more cost-effective and federally approved cloud environment to comply with perceived future contract requirements. |
We believe these actions could drive a strategic repositioning our TMaaS offering and may include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of TMaaS offerings.
| 23 |
| Table of Contents |
Results of Operations
Three Months Ended March 31, 2022 as Compared to Three Months Ended March 31, 2021
Revenues. Revenues for the three month period ended March 31, 2022 were approximately $22.4 million, an increase of approximately $1.8 million (or 9%), as compared to approximately $20.6 million in 2021. Our mix of revenues for the periods presented is set forth below:
|
| THREE MONTHS ENDED |
|
|
|
| ||||||
|
| MARCH 31, |
|
| Dollar |
| ||||||
|
| 2022 |
|
| 2021 |
|
| Variance |
| |||
|
| (Unaudited) |
|
|
|
| ||||||
Carrier Services |
| $ | 12,932,059 |
|
| $ | 11,348,869 |
|
| $ | 1,583,190 |
|
Managed Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Managed Service Fees |
|
| 7,258,277 |
|
|
| 8,259,430 |
|
|
| (1,001,153 | ) |
Billable Service Fees |
|
| 1,120,106 |
|
|
| 1,021,517 |
|
|
| 98,589 |
|
Reselling and Other Services |
|
| 1,125,985 |
|
|
| 21,027 |
|
|
| 1,104,958 |
|
|
|
| 9,504,368 |
|
|
| 9,301,974 |
|
|
| 202,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 22,436,427 |
|
| $ | 20,650,843 |
|
| $ | 1,785,584 |
|
Our carrier services increased compared with the same period in 2021 primarily due to carrier credits of approximately $1.7 million reflected in the first quarter of 2021, but not in the first quarter of 2022, otherwise carrier services remained relatively constant from period to period.
Our managed service fees decreased by $1.0 million largely due to lower device recycling service volumes and accessory sales, which was partially offset by approximately $1.6 million of managed services revenue from our ITA acquisition which is not included in the first quarter of 2021.
Billable service fee revenue remained consistent with the same period in 2021
Reselling and other services increased as compared to last year due to product resales to federal government customers. Reselling and other services are transactional in nature and as a result the amount and timing of revenue will vary significantly from quarter to quarter.
Cost of Revenues. Cost of revenues for the three months period ended March 31, 2022 were approximately $18.5 million (or 83% of revenues), as compared to approximately $15.9 million (or 77% of revenues) in 2021. The increase in cost of revenues was driven by a reduction to cost of revenues of approximately $1.7 million related to carrier credits booked in the first quarter of 2021 but not in the first quarter of 2022, and incremental cost of revenue in the approximate amount of $1.7 million related to ITA, for which results were not included first quarter of 2021 results.
Gross Profit. Gross profit for the three months period ended March 31, 2022 was approximately $3.9 million (or 17% of revenues), as compared to approximately $4.7 million (or 23% of revenues) in 2021. Approximately two-percentage points (2%) of the decrease in gross profit percentage was driven by the impact of carrier credits being reduced from both revenues and cost of revenues in 2021 as well as the relative lower margin percentage of ITA in the first quarter of 2022. Our gross profit percentage will vary from quarter to quarter due to revenue mix between carrier services and managed services revenue.
| 24 |
| Table of Contents |
Sales and Marketing. Sales and marketing expense for the three month period ended March 31, 2022 was approximately $---0.6 million (or -2% of revenues), as compared to approximately $0.5 million (or 1% of revenues) in 2021. We continue to invest in our business development and sales team assets as identified as one of our key goals for 2022.
General and Administrative. General and administrative expenses for the three months period ended March 31, 2022 were approximately $3.7 million (or 9% of revenues), as compared to approximately $3.3 million (or 6% of revenues) in 2021. The increase in general and administrative expense is due in part to an additional $0.6 million of additional general and administrate expenses related to ITA and due to increased labor costs and data center costs.
Depreciation and Amortization. Depreciation and amortization expense for the three month period ended March 31, 2022 was approximately $264,400 as compared to approximately $250,900 in 2021. The increase in depreciation and amortization expense reflects the decrease in our depreciable asset base.
Other Income. Other income (expense) for the three month period ended March 31, 2022 was approximately $244,000 as compared to approximately an expense of $(66,100) in 2021. The income in 2022 is primarily driven by the fair value adjustments of contingent consideration.
Income Taxes. Income tax benefit for the three month period ended March 31, 2022 was approximately $51,100 as compared to income tax expense of $23,500 in 2021. Income taxes were accrued at an estimated effective tax rate of 28.7% for the three months ended March 31, 2022 compared to 27.1% for the three months ended March 31, 2021.
Net (Loss) Income. As a result of the cumulative factors annotated above, net loss for the three month period ended March 31, 2022 was approximately $392,900 as compared to net income of approximately $585,400 million in the same period last year.
Liquidity and Capital Resources
Our immediate sources of liquidity include cash and cash equivalents, accounts receivable, unbilled receivables and access to a working capital credit facility with Atlantic Union Bank for up to $5.0 million. In addition, we maintain an at-the-market (ATM) equity sales program (described below) that permits us to sell, from time to time, up to $24.0 million of our common stock through the sales agents under the program. There is no assurance that, if needed, we will be able to raise capital on favorable terms or at all.
At March 31, 2022, our net working capital was approximately $5.0 million as compared to $7.1 million at December 31, 2021. The decrease in net working capital was primarily driven by investments in computer hardware and software purchases and capitalized internally developed software costs and the repurchase of our common stock, which was partially offset by temporary receivable/payable timing differences. We may need to raise additional capital to fund major growth initiatives and/or acquisitions and there can be no assurance that additional capital will be available on acceptable terms or at all.
ATM Sales Program
On August 18, 2020, we entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc., The Benchmark Company, LLC and Spartan Capital Securities, LLC which establishes an ATM equity program pursuant to which we may offer and sell up to $24.0 million of shares of our common stock, par value $0.001 per share, from time to time as set forth in the Sales Agreement. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Sales Agreement or terminate the Sales Agreement. No shares were sold during the three months ended March 31, 2022. The Company had remaining capacity of $18.2 million as of March 31, 2022.
| 25 |
| Table of Contents |
Cash Flows from Operating Activities
Cash provided by operating activities provides an indication of our ability to generate sufficient cash flow from our recurring business activities. Our single largest cash operating expense is the cost of labor and company sponsored healthcare benefit programs. Our second largest cash operating expense is our facility costs and related technology communication costs to support delivery of our services to our customers. We lease most of our facilities under non-cancellable long term contracts that may limit our ability to reduce fixed infrastructure costs in the short term. Any changes to our fixed labor and/or infrastructure costs may require a significant amount of time to take effect depending on the nature of the change made and cash payments to terminate any agreements that have not yet expired. We experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control.
For the three months ended March 31, 2022, net cash provided by operations was approximately $2.8 million driven by collections of accounts receivable and temporary payable timing differences, as compared to approximately $1.0 million net cash provided for the three months ended March 31, 2021.
Cash Flows from Investing Activities
Cash used in investing activities provides an indication of our long term infrastructure investments. We maintain our own technology infrastructure and may need to make additional purchases of computer hardware, software and other fixed infrastructure assets to ensure our environment is properly maintained and can support our customer obligations. We typically fund purchases of long term infrastructure assets with available cash or capital lease financing agreements.
For the three months ended March 31, 2022, cash used in investing activities was approximately $1.0 million and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ platform, secure identity management technology and network operations center, and TDI™.
For the three months ended March 31, 2021, cash used in investing activities was approximately $641,200 and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ platform, secure identity management technology and network operations center.
Cash Flows from Financing Activities
Cash provided by (used in) financing activities provides an indication of our debt financing and proceeds from capital raise transactions and stock option exercises.
For the three months ended March 31, 2022, cash used in financing activities was approximately $1.0 million and reflects lease principal repayments of approximately $147,400, repurchases of common stock of $0.8 million and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200.
For the three months ended March 31, 2021, cash provided by financing activities was approximately $813,800 and reflects proceeds from issuance of common stock through ATM sales of $1.1 million, net of issuance costs, proceeds of approximately $10,250 from the exercise of stock options, offset by lease principal repayments of approximately $144,000 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $140,900.
Net Effect of Exchange Rate on Cash and Equivalents
For the three months ended March 31, 2022 and 2021, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $38,900 as compared to last year.
Off-Balance Sheet Arrangements
The Company has no existing off-balance sheet arrangements as defined under SEC regulations.
| 26 |
| Table of Contents |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the three month period ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 27 |
| Table of Contents |
PART II – OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceeding.
ITEM 1A RISK FACTORS
Our risk factors have not changed materially from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchase Plan
On October 7, 2019, the Company announced that its Board of Directors approved a stock repurchase plan (the “Repurchase Plan”) to purchase up to $2.5 million of the Company’s common stock. Any repurchases will be made in compliance with the SEC’s Rule 10b-18 if applicable, and may be made in the open market or in privately negotiated transactions, including the entry into derivatives transactions. During the three months ended March 31, 2020, we repurchased 2,416 shares for a total of $10,100 under the Repurchase Plan. This Repurchase Plan was suspended on March 9, 2020, as a precaution due to the COVID-19 pandemic, which suspension was removed on September 27, 2021. During November 2021, the Board increased the size of the Repurchase Plan to up to $5.0 million of the Company’s common stock, increasing the amount available for future purchases under the Repurchase Plan to $4.6 million. During the quarter ended March 31, 2022, we repurchased 196,586 shares of our common stock for a total of $818,200 and subsequently in March of 2022, the board suspended the repurchase plan in order to use the company’s excess funds to invest into the business.
Unregistered Sale of Equity Securities
On March 31, 2022, the Company issued a warrant to purchase 75,000 shares of its common stock at a strike price of $5.33 for a period of four years to ITA as part of the contingent consideration earned for the year ended December 31, 2021. The Warrants were issued in reliance on an exemption from registration under the Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation D and Section 4(a)(2) thereof.
ITEM 3 DEFAULT UPON SENIOR SECURITIES
None
ITEM 4 MINE SAFETY DISCLOSURES
None
ITEM 5 OTHER INFORMATION
None
| 28 |
| Table of Contents |
ITEM 6. EXHIBITS
EXHIBIT NO. |
| DESCRIPTION |
| ||
| ||
| ||
|
|
|
101. |
| Interactive Data Files |
|
|
|
101.INS+ |
| XBRL Instance Document |
|
|
|
101.SCH+ |
| XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL+ |
| XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF+ |
| XBRL Taxonomy Definition Linkbase Document |
|
|
|
101.LAB+ |
| XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE+ |
| XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104. |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
|
|
| 29 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WIDEPOINT CORPORATION | |||
| Date: May 16, 2022 | /s/ JIN H. KANG | ||
|
| Jin H. Kang | |
President and Chief Executive Officer | |||
Date: May 16, 2022 |
| /s/ ROBERT J. GEORGE |
|
|
| Robert J. George |
|
|
| Chief Financial Officer |
|
| 30 |
EXHIBIT 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934
I, Jin H. Kang, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of WidePoint Corporation; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a)
| Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
| |
| b)
| Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
| |
| c)
| Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and
| |
| d)
| Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| a)
| All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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| b)
| Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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| Date: May 16, 2022 | By: | /s/ JIN H. KANG | |
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| Jin H. Kang | |
| Chief Executive Officer |
EXHIBIT 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934
I, Robert J. George, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of WidePoint Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and
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| d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
| |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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| Date: May 16, 2022 | By: | /s/ ROBERT J. GEORGE | |
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| Robert J. George | |||
| Chief Financial Officer |
EXHIBIT 32
Written Statement of the Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. § 1350
Solely for the purposes of complying with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of WidePoint Corporation (the “Company”), respectively, hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2022 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ JIN H. KANG |
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| Jin H. Kang Chief Executive Officer |
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| /s/ ROBERT J. GEORGE |
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| Robert J. George Chief Financial Officer |
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| Date: May 16, 2022 |
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