wyy_10q
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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☑
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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 March 31, 2020
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or
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☐
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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
___________________
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Commission
File Number: 001-33035
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WidePoint Corporation
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(Exact name of Registrant as specified in its charter)
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Delaware
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52-2040275
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. employer identification
no.)
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11250 Waples
Mill Road, South Tower 210, Fairfax, Virginia 22030
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(Address of principal executive offices) (Zip Code)
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(703)
349-2577
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(Registrant’s
telephone number, including area code)
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Securities Registered pursuant to Section 12(b)
of the Act:
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Title of
Each Class
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Trading
Symbol
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Name of
Exchange on Which Registered
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Common
Stock, $0.001 par value per share
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WYY
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NYSE
American
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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.
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company ☑
Emerging
growth company ☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. Yes ☐ No
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐ No ☑
As of
May 14, 2020, there were 83,837,289 shares of the
registrant’s Common Stock issued and
outstanding.
WIDEPOINT CORPORATION
INDEX
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Part I
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FINANCIAL INFORMATION
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Page No.
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Condensed
Consolidated Financial Statements
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2
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|
Condensed
Consolidated Statements of Operations for the three
month
periods ended March 31, 2020 and 2019 (unaudited)
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2
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Condensed
Consolidated Statements of Comprehensive Income for the
three month periods ended
March 31, 2020 and 2019 (unaudited)
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3
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Condensed
Consolidated Balance Sheets as of March 31, 2020
and
December 31, 2019 (unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows for the three month periods
ended March 31, 2020 and 2019 (unaudited)
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5
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Condensed
Consolidated Statements of Changes in Stockholders’
Equity for the three month
periods ended March 31, 2020 and 2019 (unaudited)
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7
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Notes to Condensed
Consolidated Financial Statements (unaudited)
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8
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Item
2.
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Management's
Discussion and Analysis of Financial Condition and
Results
of Operations
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17
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Item
3.
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Quantitative and
Qualitative Disclosures About Market Risk
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21
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Item
4.
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Controls and
Procedures
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21
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Part II.
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OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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22
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Item
1A.
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Risk
Factors
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22
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Item
2.
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Unregistered Sales
of Equity Securities and Use of Proceeds
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22
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Item
3.
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Default Upon Senior
Securities
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22
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Item
4.
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Mine Safety
Disclosures
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22
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Item
5.
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Other
Information
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22
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Item
6.
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Exhibits
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23
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SIGNATURES
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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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|
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REVENUES
|
$39,665,356
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$21,916,902
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COST OF REVENUES
(including amortization and depreciation of
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$159,618 and
$232,191, respectively)
|
34,700,024
|
17,663,059
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GROSS
PROFIT
|
4,965,332
|
4,253,843
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OPERATING
EXPENSES
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Sales and
marketing
|
492,231
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393,411
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General and
administrative expenses (including share-based
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|
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compensation of
$281,441 and $89,266, respectively)
|
3,470,092
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3,134,709
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Depreciation and
amortization
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263,228
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240,548
|
|
|
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Total operating
expenses
|
4,225,551
|
3,768,668
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|
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INCOME FROM
OPERATIONS
|
739,781
|
485,175
|
|
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OTHER (EXPENSE)
INCOME
|
|
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Interest
income
|
3,093
|
4,462
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|
Interest
expense
|
(82,117)
|
(77,545)
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|
Other
income
|
331
|
9
|
|
|
|
|
|
Total other
expense
|
(78,693)
|
(73,074)
|
|
|
|
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|
INCOME BEFORE
INCOME TAX PROVISION
|
661,088
|
412,101
|
|
INCOME TAX
PROVISION
|
177,200
|
28,000
|
|
|
|
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NET
INCOME
|
$483,888
|
$384,101
|
|
|
|
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|
BASIC EARNINGS PER
SHARE
|
$0.01
|
$0.00
|
|
|
|
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BASIC
WEIGHTED-AVERAGE SHARES OUTSTANDING
|
83,840,079
|
83,812,448
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DILUTED EARNINGS
PER SHARE
|
$0.01
|
$0.00
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DILUTED
WEIGHTED-AVERAGE SHARES OUTSTANDING
|
84,428,065
|
83,814,670
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
|
|
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|
|
|
|
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NET
INCOME
|
$483,888
|
$384,101
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
Foreign
currency translation adjustments, net of tax
|
(37,330)
|
(29,282)
|
|
|
|
|
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Other
comprehensive income (loss)
|
(37,330)
|
(29,282)
|
|
|
|
|
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COMPREHENSIVE
INCOME
|
$446,558
|
$354,819
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
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CURRENT
ASSETS
|
|
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Cash
and cash equivalents
|
$9,323,673
|
$6,879,627
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Accounts
receivable, net of allowance for doubtful accounts
|
|
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|
of
$123,097 and $126,235 in 2020 and 2019, respectively
|
11,715,126
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14,580,928
|
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Unbilled
accounts receivable
|
20,982,875
|
13,976,958
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Other
current assets
|
814,233
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1,094,847
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|
|
|
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Total
current assets
|
42,835,907
|
36,532,360
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|
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NONCURRENT
ASSETS
|
|
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Property
and equipment, net
|
594,293
|
681,575
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Operating
lease right of use asset, net
|
5,768,669
|
5,932,769
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Intangibles,
net
|
2,320,924
|
2,450,770
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Goodwill
|
18,555,578
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18,555,578
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Other
long-term assets
|
463,062
|
140,403
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|
|
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Total
assets
|
$70,538,433
|
$64,293,455
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|
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LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
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CURRENT
LIABILITIES
|
|
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Accounts
payable
|
$12,218,629
|
$13,581,822
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Accrued
expenses
|
22,070,191
|
14,947,981
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Deferred
revenue
|
2,052,361
|
2,265,067
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Current
portion of operating lease liabilities
|
581,389
|
599,619
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|
Current
portion of other term obligations
|
79,298
|
133,777
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|
|
|
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Total
current liabilities
|
37,001,868
|
31,528,266
|
|
|
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NONCURRENT
LIABILITIES
|
|
|
|
Operating
lease liabilities, net of current portion
|
5,466,798
|
5,593,649
|
|
Deferred
revenue, net of current portion
|
362,567
|
363,560
|
|
Deferred
tax liability
|
2,049,896
|
1,868,562
|
|
|
|
|
|
Total
liabilities
|
44,881,129
|
39,354,037
|
|
|
|
|
|
Commitments
and contingencies
|
-
|
-
|
|
|
|
|
|
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; 110,000,000 shares
|
|
|
|
authorized;
83,837,289 and 83,861,453 shares
|
|
|
|
issued
and outstanding, respectively
|
83,837
|
83,861
|
|
Additional
paid-in capital
|
95,550,466
|
95,279,114
|
|
Accumulated
other comprehensive loss
|
(279,924)
|
(242,594)
|
|
Accumulated
deficit
|
(69,697,075)
|
(70,180,963)
|
|
|
|
|
|
Total
stockholders’ equity
|
25,657,304
|
24,939,418
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
$70,538,433
|
$64,293,455
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
|
Net
income
|
$483,888
|
$384,101
|
|
Adjustments to
reconcile net income to net cash provided by
|
|
|
|
(used in) operating
activities:
|
|
|
|
Deferred income tax
expense
|
179,544
|
34,652
|
|
Depreciation
expense
|
297,190
|
273,923
|
|
(Recovery)
provision for doubtful accounts
|
(2,954)
|
7,610
|
|
Amortization of
intangibles
|
125,656
|
198,816
|
|
Amortization of
deferred financing costs
|
1,250
|
1,250
|
|
Share-based
compensation expense
|
281,441
|
89,266
|
|
Changes in assets
and liabilities:
|
|
|
|
Accounts receivable
and unbilled receivables
|
(4,144,206)
|
1,151,421
|
|
Inventories
|
76,130
|
(104,992)
|
|
Prepaid expenses
and other current assets
|
201,026
|
(45,286)
|
|
Other
assets
|
17,913
|
(29,710)
|
|
Accounts payable
and accrued expenses
|
5,722,287
|
961,804
|
|
Income tax
payable
|
(9,411)
|
(8,339)
|
|
Deferred revenue
and other liabilities
|
(202,821)
|
(486,385)
|
|
|
|
|
|
Net cash provided
by operating activities
|
3,026,933
|
2,428,131
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
Purchases of
property and equipment
|
(52,463)
|
(83,797)
|
|
Software
development costs
|
(340,576)
|
(58,461)
|
|
|
|
|
|
Net cash used in
investing activities
|
(393,039)
|
(142,258)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
Advances on bank
line of credit
|
1,796,920
|
6,192,656
|
|
Repayments of bank
line of credit advances
|
(1,796,920)
|
(6,192,656)
|
|
Principal
repayments under finance lease obligations
|
(143,637)
|
(122,300)
|
|
Common stock
repurchased
|
(10,113)
|
-
|
|
|
|
|
|
Net cash used in
financing activities
|
(153,750)
|
(122,300)
|
|
|
|
|
|
Net
effect of exchange rate on cash and equivalents
|
(33,265)
|
(28,297)
|
|
|
|
|
|
NET INCREASE IN
CASH AND CASH EQUIVALENTS
|
2,446,879
|
2,135,276
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
6,876,794
|
2,431,892
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
$9,323,673
|
$4,567,168
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
|
|
THREE MONTHS
ENDED
|
|
|
MARCH
31,
|
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
Cash
paid for interest
|
$ 82,655
|
|
$
63,309
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1,
2019
|
84,112,446
|
$84,113
|
$94,926,560
|
$(186,485)
|
$(70,407,218)
|
$24,416,970
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock —
|
|
|
|
|
|
|
|
options
exercises
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock —
|
|
|
|
|
|
|
|
restricted
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Stock compensation
expense —
|
|
|
|
|
|
|
|
restricted
|
-
|
-
|
16,737
|
-
|
-
|
16,737
|
|
|
|
|
|
|
|
|
|
Stock compensation
expense —
|
|
|
|
|
|
|
|
non-qualified stock
options
|
-
|
-
|
72,529
|
-
|
-
|
72,529
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation —
|
|
|
|
|
|
|
|
(loss)
|
-
|
-
|
-
|
(29,282)
|
-
|
(29,282)
|
|
|
|
|
|
|
|
|
|
Net
income
|
-
|
-
|
-
|
-
|
384,101
|
384,101
|
|
|
|
|
|
|
|
|
|
Balance, March 31,
2019
|
84,112,446
|
$84,113
|
$95,015,826
|
$(215,767)
|
$(70,023,117)
|
$24,861,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Balance,
January 1, 2020
|
83,861,453
|
$83,861
|
$95,279,114
|
$(242,594)
|
$(70,180,963)
|
$24,939,418
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
(24,164)
|
(24)
|
(10,089)
|
-
|
-
|
(10,113)
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense —
|
|
|
|
|
|
|
|
restricted
|
-
|
-
|
254,499
|
-
|
-
|
254,499
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense —
|
|
|
|
|
|
|
|
non-qualified
stock options
|
-
|
-
|
26,942
|
-
|
-
|
26,942
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation —
|
|
|
|
|
|
|
|
(loss)
|
-
|
-
|
-
|
(37,330)
|
-
|
(37,330)
|
|
|
|
|
|
|
|
|
|
Net
income
|
-
|
-
|
-
|
-
|
483,888
|
483,888
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2020
|
83,837,289
|
$83,837
|
$95,550,466
|
$(279,924)
|
$(69,697,075)
|
$25,657,304
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
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 trusted mobility management (TM2).
The Company’s TM2 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 TM2 platform. The Company’s
TM2 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.
The
Company derives a significant amount of its revenues from contracts
funded by federal government agencies for which WidePoint’s
subsidiaries act in the capacity as the prime contractor, or as a
subcontractor. The Company believes that contracts with federal
government agencies will be the primary source of revenues for the
foreseeable future. External factors outside of the Company’s
control such as delays and/or a change in government
administrations, budgets and other political matters that may
impact the timing and commencement of such work could result in
variations in operating results and directly affect the
Company’s financial performance. Successful contract
performance and variation in the volume of activity as well as in
the number of contracts commenced or completed during any quarter
may cause significant variations in operating results from quarter
to quarter.
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.
The coronavirus
(“COVID-19”) pandemic has created significant
macroeconomic uncertainty, volatility and disruption. The
assessment of how COVID-19 will impact our business is on-going and
encompasses all aspects our business, including how COVID-19 will
impact our customers, employees, subcontractors, business partners
and the capital markets. Although the Company did not experience
significant disruptions during the three months ended March 31,
2020, we are unable to fully predict the impact the COVID-19
pandemic will have on our future financial position, results of
operations, or cash flows.
Additionally, changes in
spending policies, budget priorities and funding levels are a key
factor influencing the purchasing levels of government customers.
With the current COVID-19 pandemic, future budget priorities and
funding levels for these customers may be adversely
affected.
2.
Basis
of Presentation and Accounting Policies
Basis of Presentation
The
unaudited condensed consolidated financial statements as of March
31, 2020 and for each of the three month periods ended March 31,
2020 and 2019, 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, 2019 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, 2019. The results of
operations for the three month periods ended March 31, 2020 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.
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
Our TM2
solution offerings comprise an overall single business from which
the Company earns revenues and incurs costs. The Company’s
TM2 solution offerings are centrally managed and reported on that
basis to its Chief Operating Decision Maker who evaluates its
business as a single segment. See Note 13 for detailed information
regarding the composition of revenues.
Significant Accounting Policies
There
were no significant changes in the Company’s significant
accounting policies during the first three months of 2020 from
those disclosed in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2019 filed with the SEC on March
24, 2020.
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.
3.
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:
|
|
|
|
|
|
|
|
|
|
|
|
Government
(1)
|
$9,421,484
|
$12,604,582
|
|
Commercial
(2)
|
2,416,739
|
2,102,581
|
|
Gross accounts
receivable
|
11,838,223
|
14,707,163
|
|
Less: allowances
for doubtful
|
|
|
|
accounts
(3)
|
123,097
|
126,235
|
|
|
|
|
|
Accounts
receivable, net
|
$11,715,126
|
$14,580,928
|
(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
customer.
(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, 2020, the Company did not recognize any material provisions for bad
debt, write-offs or recoveries of existing provisions 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 customers that represent ten (10) percent
or more of consolidated trade accounts receivable as of the periods
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
Name
|
|
|
|
|
|
|
U.S.
Immigration and Customs Enforcement
|
11%
|
--
|
|
National
Aeronautics and Space Administration
|
10%
|
21%
|
|
U.S. Census
Bureau
|
37%
|
18%
|
The
following table presents customers that represent ten (10) percent
or more of consolidated revenues in the current and/or comparative
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
Name
|
|
|
|
|
|
|
U.S. Immigration
and Customs Enforcement
|
11%
|
15%
|
|
U.S. Customs Border
Patrol
|
--
|
14%
|
|
U.S. Census
Bureau
|
37%
|
--
|
4.
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
periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
Name
|
|
|
|
|
|
|
U.S.
Department of Homeland Security Headquarters
|
11%
|
--%
|
|
U.S.
Immigration and Customs Enforcement
|
12%
|
24%
|
|
U.S. Census
Bureau
|
50%
|
23%
|
5.
Other
Current Assets and Accrued Expenses
Other
current assets consisted of the following as of the periods
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
$137,502
|
$213,713
|
|
Prepaid rent,
insurance and other assets
|
676,731
|
881,134
|
|
|
|
|
|
Total other current
assets
|
$814,233
|
$1,094,847
|
Accrued
expenses consisted of the following as of the periods presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
Carrier service
costs
|
$18,965,100
|
$12,274,440
|
|
Salaries and
payroll taxes
|
1,839,868
|
1,781,628
|
|
Inventory
purchases, consultants and other costs
|
1,217,612
|
834,131
|
|
Severance
costs
|
7,612
|
7,612
|
|
U.S. income tax
payable
|
8,850
|
8,850
|
Foreign income tax
payable
|
31,150
|
41,320
|
|
|
|
|
|
Total accrued
expenses
|
$22,070,192
|
$14,947,981
|
6.
Property
and Equipment
Major
classes of property and equipment consisted of the following as of
the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Computer hardware
and software
|
$2,076,942
|
$2,041,978
|
|
Furniture and
fixtures
|
396,770
|
399,521
|
|
Leasehold
improvements
|
297,369
|
299,340
|
|
Automobiles
|
54,494
|
56,800
|
|
Gross property and
equipment
|
2,825,575
|
2,797,639
|
|
Less: accumulated
depreciation and
|
|
|
|
amortization
|
2,231,282
|
2,116,064
|
|
|
|
|
|
Property and
equipment, net
|
$594,293
|
$681,575
|
During
the three month periods ended March 31, 2020 and 2019, property and
equipment depreciation expense was approximately $137,000 and
$135,000, respectively.
During
the three month periods ended March 31, 2020 and 2019, 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, 2020 and 2019.
7.
Goodwill
and Intangible Assets
The
Company has goodwill of $18,555,578 as of March 31, 2020. There
were no changes in the carrying amount of goodwill during the three
month period ended March 31, 2020.
Intangible assets
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
Relationships
|
$1,980,000
|
$(1,980,000)
|
$-
|
|
Channel
Relationships
|
2,628,080
|
(1,036,632)
|
1,591,448
|
|
Internally
Developed Software
|
1,620,311
|
(1,066,731)
|
553,580
|
|
Trade
Name and Trademarks
|
290,472
|
(114,576)
|
175,896
|
|
|
|
|
|
|
|
$6,518,863
|
$(4,197,939)
|
$2,320,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
Relationships
|
$1,980,000
|
$(1,980,000)
|
$-
|
|
Channel
Relationships
|
2,628,080
|
(992,830)
|
1,635,250
|
|
Internally
Developed Software
|
1,623,122
|
(988,340)
|
634,782
|
|
Trade
Name and Trademarks
|
290,472
|
(109,734)
|
180,738
|
|
|
|
|
|
|
|
$6,521,674
|
$(4,070,904)
|
$2,450,770
|
For the
three month period ended March 31, 2020, the Company capitalized
$341,000 of internally developed software costs, primarily
associated with upgrading our secure identity management technology
and network operations center. For the three month periods ended
March 31, 2019, the Company capitalized internally developed
software costs of approximately $58,500 related to costs associated
with our next generation TDI Optimiser™ application. There
were no disposals of intangible assets during the three month
periods ended March 31, 2020 and 2019.
The
aggregate amortization expense recorded for the three month periods
ended March 31, 2020 and 2019 were approximately $125,700 and
$198,800, respectively. The total weighted remaining average life
of all purchased intangible assets and internally developed
software costs was approximately 5.0 years and 1.0 year,
respectively, at March 31, 2020.
As of
March 31, 2020, estimated annual amortization for our intangible
assets for each of the next five years is
approximately:
|
Remainder
of 2020
|
$328,535
|
|
2021
|
333,714
|
|
2022
|
349,341
|
|
2023
|
194,570
|
|
2024
|
194,570
|
|
Thereafter
|
920,195
|
|
Total
|
$2,320,924
|
On June
15, 2017, the Company entered into a Loan and Security Agreement
with Atlantic Union Bank (formerly known as Access National Bank)
(the “Loan Agreement”). The Loan Agreement provides for
a $5.0 million working capital revolving line of
credit.
Effective, April
30, 2020, the Company entered into a fifth modification agreement
(“Modification Agreement”) with Atlantic Union Bank to
amend the existing Loan Agreement. The Modification Agreement
extended the maturity date of the facility from April 30, 2020
through April 30, 2021 and changed the variable interest rate to
the Wall Street Journal prime rate plus 0.25%.
The
Loan Agreement requires that the Company meet the following
financial covenants on a quarterly basis: (i) maintain a minimum
adjusted tangible net worth of at least $2.0 million, (ii) maintain
minimum consolidated EBITDA of at least two times interest expense
and (iii) maintain a current ratio of 1.10:1 (excluding finance
lease liabilities reported under recently adopted lease accounting
standards).
The
available amount under the working capital line of credit is
subject to a borrowing base, which is equal to the lesser of (i)
$5.0 million or (ii) 70% of the net unpaid balance of the
Company’s eligible accounts receivable. The facility is
secured by a first lien security interest on all of the
Company’s personal property, including its accounts
receivable, general intangibles, inventory and equipment maintained
in the United States. As of March 31, 2020, the Company was
eligible to borrow up to $4.9 million under the borrowing base
formula.
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, 2020, 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, 2020 or December 31, 2019. 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, 2020, the Company had approximately $37.5 million in net
operating loss (NOL) carry forwards available to offset future
taxable income for federal income tax purposes, net of the
potential Section 382 limitations. These federal NOL carry forwards
expire between 2020 and 2037. Included in the recorded deferred tax
asset, the Company had a benefit of approximately $39.5 million
available to offset future taxable income for state income tax
purposes. These state NOL carry forwards expire between 2024 and
2036. Because of the change of ownership provisions of the Tax
Reform Act of 1986, use of a portion of our domestic NOL may be
limited in future periods. Further, a portion of the carryforwards
may expire before being applied to reduce future income tax
liabilities.
Management assesses
the available positive and negative evidence to estimate if
sufficient future taxable income will be generated to use the
existing deferred tax assets. Under existing income tax accounting
standards such objective evidence is more heavily weighted in
comparison to other subjective evidence such as our projections for
future growth, tax planning and other tax strategies. A significant
piece of objective negative evidence considered in
management’s evaluation of the realizability of its deferred
tax assets was the existence of cumulative losses over the latest
three-year period. Management forecast future taxable income, but
concluded that there may not be enough of a recovery before the end
of the fiscal year to overcome the negative objective evidence of
three years of cumulative losses. On the basis of this evaluation,
management has recorded a valuation allowance against all deferred
tax assets. If management’s assumptions change and we
determine we will be able to realize these deferred tax assets, the
tax benefits relating to any reversal of the valuation allowance on
deferred tax assets will be accounted for as a reduction of income
tax expense.
Common Stock
The
Company is authorized to issue 110,000,000 shares of common stock,
$.001 par value per share. As of March 31, 2020, there were
83,837,289 shares issued and outstanding (including 1,897,154
restricted shares not vested). During the three month periods ended
March 31, 2020 and 2019, 83,331 and 99,990 shares of common stock
vested in accordance with the vesting terms of restricted stock
awards (RSA). See Note 11 for additional information regarding RSA
activity.
11.
Share-based
Compensation
Share-based
compensation (including restricted stock awards) represents both
stock options 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
compensation expense
|
$254,499
|
$16,737
|
|
Non-qualified
option stock compensation expense
|
26,942
|
72,529
|
|
|
|
|
|
Total share-based
compensation before taxes
|
$281,441
|
$89,266
|
At
March 31, 2020, the Company had approximately $548,200 of total
unamortized share-based compensation expense, net of estimated
forfeitures, related to stock option plans that will be recognized
over the weighted average remaining period of 1.0
year.
12.
Earnings
Per Common Share (EPS)
The
computations of basic and diluted earnings per share were as
follows for the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share Computation:
|
|
|
|
Net
income
|
$483,888
|
$384,101
|
|
Weighted average
number of common shares
|
83,840,079
|
83,812,448
|
|
Basic Earnings Per
Share
|
$0.01
|
$0.00
|
|
|
|
|
|
Diluted
Earnings Per Share Computation:
|
|
|
|
Net
income
|
$483,888
|
$384,101
|
|
|
|
|
|
Weighted average
number of common shares
|
83,840,079
|
83,812,448
|
|
Incremental shares
from assumed conversions
|
|
|
|
of stock
options
|
587,986
|
2,222
|
|
Adjusted weighted
average number of
|
|
|
|
common
shares
|
84,428,065
|
83,814,670
|
|
Diluted Earnings Per Share
|
$0.01
|
$0.00
|
13.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrier
Services
|
$28,143,269
|
$14,343,011
|
|
Managed
Services:
|
|
|
|
Managed
Service Fees
|
7,475,440
|
6,207,960
|
|
Billable
Service Fees
|
1,304,541
|
1,080,617
|
|
Reselling
and Other Services
|
2,742,106
|
285,314
|
|
|
11,522,087
|
7,573,891
|
|
|
|
|
|
|
$39,665,356
|
$21,916,902
|
The
Company recognized revenues from contracts with customers for the
following customer types as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Federal Government
|
$33,535,685
|
$18,162,498
|
|
U.S.
State and Local Governments
|
25,513
|
115,839
|
|
Foreign
Governments
|
6,169
|
44,544
|
|
Commercial
Enterprises
|
6,097,989
|
3,594,021
|
|
|
|
|
|
|
$39,665,356
|
$21,916,902
|
The
Company recognized revenues from contracts with customers in the
following geographic regions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$38,542,381
|
$20,780,311
|
|
Europe
|
1,122,975
|
1,136,591
|
|
|
|
|
|
|
$39,665,356
|
$21,916,902
|
During the three
months ended March 31, 2020 and 2019, we recognized
approximately $801,690 and $795,420, respectively, of
revenue related to amounts that were included in deferred revenue
as of December 31, 2019 and 2018,
respectively.
14.
Commitments
and Contingencies
The
Company has employment agreements with certain senior executives
that set forth compensation levels and provide for severance
payments in certain instances.
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;
●
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 expansion of
services of existing contracts;
●
Our ability to
re-win our Blanket Purchase Agreement with the Department of
Homeland Security;
●
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
borrow funds against our credit facility and renew or replace our
credit facility on favorable terms or at all;
●
Our ability to
raise additional capital on favorable terms or at all;
and
●
Our ability to
retain key personnel.
●
The risk factors
set forth in our Annual Report on Form 10-K for the year ended
December 31, 2019 filed with the SEC on March 24,
2020.
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 Trusted Mobility Management (TM2) that
consists of federally certified communications management, identity
management, and interactive bill presentment and analytics
solutions. We help our clients achieve their organizational
missions for mobility management and security objectives in this
challenging and complex business environment.
We
offer our TM2 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 TM2 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
TM2 solutions enables our customers to be able to quickly expand or
contract their mobility management requirements. Our TM2 solutions
are hosted and accessible on-demand through a secure federal
government certified proprietary 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 the Company's Annual
Report on Form 10-K for the year ended December 31, 2019 filed with
the SEC on March 24, 2020.
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 fiscal 2020,
we are focused on the following key goals:
■
continued focus on
selling high margin managed services,
■
growing our sales
pipeline by investing in our business development and sales team
assets,
■
pursuing additional
opportunities with our key systems integrator
partners,
■
improving our
proprietary platform and products, which includes pursuing FedRAMP
certification for ITMS™ and maintaining our ATOs with our
federal government agencies, as well as upgrading our secure
identity management technology,
■
working to
successfully renew our existing U.S. Department of Homeland
Security Blanket Purchase Agreement (DHS BPA), and
■
expanding our
solution offerings into the commercial space.
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 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.
During
the three months ended March 31, 2020, we accomplished the
following:
●
Generated strong
double-digit growth in revenue and GAAP net income in the three
months ended March 31, 2020, compared to the same quarter a year
ago.
●
U.S. Department of
Commerce – 2020 Census: Successfully completed the Address
Canvassing Program, with approximately 60,000 mobile devices
deployed, returned, and decommissioned.
●
Recorded 39
contractual actions with value of approximately $20 million during
the quarter, including new contract wins as well as exercised
option periods and contract extensions with current
clients
●
Signed a strategic
vendor agreement with a leading business process services
company.
●
Transitioned
seamlessly to a work-from-home environment for majority of our
employees in mid-March.
●
The
U.S. Department of Homeland Security issued a notice of intent to
solicit and award an interim Sole Service Indefinite Delivery
Indefinite Quantity Contract to us for the procurement of
cellularmanaged services for twelve months to serve as an interim
contract until the DHS plans for a competitive process in the
future.
Results of Operations
Three Months Ended March 31, 2020 as Compared to Three Months Ended
March 31, 2019
Revenues. Revenues for the three month
period ended March 31, 2020 were approximately $39.6 million, an
increase of approximately $17.7 million (or 81%), as compared to
approximately $21.9 million in 2019. Our mix of revenues for the
periods presented is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrier
Services
|
$28,143,269
|
$14,343,011
|
$13,800,258
|
|
Managed
Services:
|
|
|
|
|
Managed
Service Fees
|
7,475,440
|
6,207,960
|
1,267,480
|
|
Billable
Service Fees
|
1,304,541
|
1,080,617
|
223,924
|
|
Reselling
and Other Services
|
2,742,106
|
285,314
|
2,456,792
|
|
|
11,522,087
|
7,573,891
|
3,948,196
|
|
|
|
|
|
|
|
$39,665,356
|
$21,916,902
|
$17,748,454
|
Our
carrier services increased primarily due to activities of the
U.S. Department of Commerce contract supporting the 2020 Census, as
well as U.S. Coast Guard, U.S. Immigration and Customs Enforcement
and U.S. Federal Air Marshall Service. The activities supporting
the 2020 Census are scheduled to wind down in the fourth quarter of
2020
Our
managed service fees increased due to expansion of managed services
for existing government and commercial customers, as well as
increases in sales of accessories to our government customers as
compared to last year.
Billable service
fee revenue increased as compared to last year due to ramp up of
the Census program, partially offsete by the impact of
discontinuation of lower margin commercial billable
projects.
Reselling and other
services increased as compared to last due to timing of large
product resales. 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 month period ended March 31, 2020 were approximately
$34.7 million (or 87% of revenues), as compared to approximately
$17.7 million (or 81% of revenues) in 2019. The increase was driven
by higher carrier services related to the U.S. Department of
Commerce contract, accessories cost of sale and cost of product
resale as compared to last year.
Gross Profit. Gross profit for the three
month period ended March 31, 2020 was approximately $4.9 million
(or 13% of revenues), as compared to approximately $4.3 million (or
19% of revenues) in 2019. The decrease in gross profit percentage
was driven by the increase in carrier services and lower margin
reselling services during the quarter. Our gross profit percentage
will vary from quarter to quarter and could be negatively impacted
due to recognition of low margin reselling transactions and
expansion of carrier services with our U.S. federal government
customers.
Sales and Marketing. Sales and marketing
expense for the three month period ended March 31, 2020 was
approximately $0.5 million (or 1% of revenues), as compared to
approximately $0.4 million (or 2% of revenues) in
2019.
General and Administrative. General and
administrative expenses for the three month period ended March 31,
2020 were approximately $3.5 million (or 9% of revenues), as
compared to approximately $3.1 million (or 14% of revenues) in
2019. The increase in general and administrative expense reflects
overhead and administrative costs to support the increased business
as well as an increase in share-based compensation expense compared
to last year.
Depreciation and Amortization.
Depreciation and amortization expense for the three month period
ended March 31, 2020 was approximately $263,200 as compared to
approximately $240,500 in 2019. The increase in
depreciation and amortization expense reflects the increase in our
depreciable asset base.
Other (Expense) Income. Net other
expense for the three month period ended March 31, 2020 was
approximately $78,700, as compared to approximately $73,100 in
2019. The increase in net expense substantially reflects
higher interest expense related to an increase in lease liabilities
compared to prior year.
Income
Taxes. Income tax
expense for the three month period ended March 31, 2020 was
approximately $177,200, as compared to $28,000 in 2019.
Income taxes were accrued
at an estimated effective tax rate of 26.8% for the three
months ended March 31, 2020 compared to 6.8% for the three
month period ended March 31, 2019.
Net Income. As a result of the cumulative
factors annotated above, net income for the three month period
ended March 31, 2020 was approximately $483,888, as compared to net
income of approximately $384,100 in the same period last
year.
Liquidity
and Capital Resources
We
have, since inception, financed operations and capital expenditures
through our operations, credit facilities and the sale of
securities. 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.
At
March 31, 2020, our net working capital was approximately $5.8
million as compared to $5.0 million at December 31, 2019. The
increase in net working capital was primarily driven by increases
in revenue, strong receivable collections, and temporary payable timing differences.
We utilized our credit facility to manage short term cash flow
requirements during the quarter. 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.
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, 2020, net cash provided by operations
was approximately $3.0 million driven by collections of accounts receivable and temporary
payable timing differences, as compared to approximately $2.4 million for the three months
ended March 31, 2019.
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, 2020, cash used in investing
activities was approximately $393,000 and consisted of computer
hardware and software purchases and capitalized internally
developed software costs, primarily associated with upgrading our
secure identity management technology and network operations
center.
For the
three months ended March 31, 2019, cash used in investing activities was
approximately $142,300 and consisted computer hardware and software
purchases and capitalized internally developed software costs
related to our TDI Optimiser™ solutions.
Cash Flows from Financing Activities
Cash
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, 2020, cash used in financing
activities was approximately $153,800 and reflects line of credit
advances and payments of approximately $1.8 million, and finance
lease principal repayments of approximately $143,600.
For the
three months ended March 31, 2019, cash used in financing activities was
approximately $122,300 and reflects line of credit advances and
payments of approximately $6.1 million, and finance lease principal
repayments of approximately $122,300.
Off-Balance Sheet Arrangements
The
Company has no existing off-balance sheet arrangements as defined
under SEC regulations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not
required.
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 interim 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,
2020 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
PART II – OTHER
INFORMATION
The
Company is not currently involved in any material legal
proceeding.
Other
than the additional risk factor set forth below, our risk factors
have not changed materially from those disclosed in our Annual
Report on Form 10-K for the year ended December 31,
2019.
The COVID-19
Pandemic could have a material adverse impact on our business and
operations.
We are
monitoring the global outbreak of the COVID-19 and taking steps to
mitigate the risks to us posed by its spread, including by working
with our customers, employees, suppliers and other stakeholders.
The pandemic could adversely affect certain elements of our
business and our operations due to quarantines, government orders
and guidance, facility closures, illness, travel restrictions,
implementation of precautionary measures and other restrictions.
Furthermore, the pandemic has impacted and may further impact the
broader economies of affected countries, including negatively
impacting economic growth, the proper functioning of financial and
capital markets, foreign currency exchange rates and interest
rates. Due to the speed with which the situation is developing, the
global breadth of its spread and the range of governmental and
community reactions thereto, there is uncertainty around its
duration, ultimate impact and the timing of recovery. Employees
whose tasks can be done offsite have been instructed to work from
home. Our offices remain operational, and we are maintaining social
distancing and enhanced cleaning protocols and usage of personal
protective equipment, where appropriate. However, the pandemic
could lead to an extended disruption of economic activity, and
disruption of the global supply chain, and as such, the impact on
our consolidated results of operations, financial position and cash
flows could be material.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
On
October 7, 2019, the Company announced that its Board of Directors
approved a stock repurchase plan (the “2019 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 24,174 shares for a total of $10,100 under
the stock repurchase plan. This plan was suspended on March 9,
2020.
ITEM 3 DEFAUTLT UPON SENIOR
SECURITIES
None
ITEM 4 MINE SAFETY DISCLOSURES
None
None
|
EXHIBIT NO.
|
DESCRIPTION
|
|
|
Fifth
Modification Agreement with Access National Bank (incorporated by
reference from Exhibit 10.1 to Form 8-K filed on April 29,
2020)
|
|
|
Employment
Agreement with Jin Kang (incorporated by reference from Exhibit
10.1 to Form 8-K filed on May 1, 2020)
|
|
|
Employment
Agreement with Jason Holloway (incorporated by reference from
Exhibit 10.2 to Form 8-K filed on May 1, 2020)
|
|
|
Employment
Agreement with Kellie Kim (incorporated by reference from Exhibit
10.3 to Form 8-K filed on May 1, 2020)
|
|
|
Certification of
Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Filed herewith).
|
|
|
Certification of
Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Filed herewith).
|
|
|
Certification of
Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Filed
herewith).
|
|
101.
|
Interactive Data
Files
|
|
101.INS+
|
XBRL Instance
Document
|
|
101.SCH+
|
XBRL Taxonomy
Extension Schema Document
|
|
101.CAL+
|
XBRL Taxonomy
Extension Calculation Linkbase Document
|
|
101.DEF+
|
XBRL Taxonomy
Definition Linkbase Document
|
|
101.LAB+
|
XBRL Taxonomy
Extension Label Linkbase Document
|
|
101.PRE+
|
XBRL Taxonomy
Extension Presentation Linkbase Document
|
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 14, 2020
|
By:
|
/s/
Jin H.
Kang
|
|
|
|
|
Jin H. Kang
|
|
|
|
|
President and Chief
Executive Officer
|
|
|
|
|
|
|
|
Date:
May 14,
2020
|
By:
|
/s/ Kellie H.
Kim
|
|
|
|
|
Kellie H.
Kim
|
|
|
|
|
Chief Financial
Officer
|
|