10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q 

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

For the quarterly period ended September 30, 2022 

or

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

For the transition period from ______________ to ______________

Commission File Number: 001-33035

WidePoint Corporation

(Exact name of Registrant as specified in its charter)

Delaware	52-2040275
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)
11250 Waples Mill Road, South Tower 210, Fairfax, Virginia	22030
(Address of principal executive offices)	(Zip Code)

(703) 349-2577

(Registrant’s telephone number, including area code)

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

Title of Each Class	Trading Symbol	Name of Exchange on Which Registered
Common Stock, $0.001 par value per share	WYY	NYSE American

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of November 14, 2022, there were 8,725,476 shares of the registrant’s Common Stock issued and outstanding.

WIDEPOINT CORPORATION

INDEX

		Page No.
Part I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine month periods ended September 30, 2022 and 2021	4
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine month periods ended September 30, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Part II.	OTHER INFORMATION	33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Default Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
SIGNATURES		35
CERTIFICATIONS

2

PART I.  FINANCIAL INFORMATION

ITEM 1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2022			2021			2022			2021
	(Unaudited)
REVENUES	$	25,271,572		$	22,251,282		$	70,765,353		$	62,885,545
COST OF REVENUES (including amortization and depreciation of
$366,885, $133,756, $961,341, and $373,089, respectively)		21,472,120			18,588,268			59,749,532			50,514,391
GROSS PROFIT		3,799,452			3,663,014			11,015,821			12,371,154
OPERATING EXPENSES
Sales and marketing		527,726			489,721			1,665,518			1,505,548
General and administrative expenses (including share-based
compensation of $115,141, $235,469, $384,267 and $662,132, respectively)		3,595,145			2,101,083			11,157,690			8,676,332
Goodwill impairment		-			-			16,277,000			-
Depreciation and amortization		272,203			263,192			810,652			767,940
Total operating expenses		4,395,074			2,853,996			29,910,860			10,949,820
(LOSS) INCOME FROM OPERATIONS		(595,622	)		809,018			(18,895,039	)		1,421,334
OTHER INCOME (EXPENSE)
Interest income		6,398			968			17,126			3,535
Interest expense		(62,841	)		(67,372	)		(189,188	)		(207,678	)
Other (expense) income		(6,999	)		25,158			964,004			27,656
Total other income (expense)		(63,442	)		(41,246	)		791,942			(176,487	)
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION		(659,064	)		767,772			(18,103,097	)		1,244,847
INCOME TAX (BENEFIT) PROVISION		(118,181	)		232,888			(3,410,108	)		329,270
NET (LOSS) INCOME	$	(540,883	)	$	534,884		$	(14,692,989	)	$	915,577
BASIC EARNINGS PER SHARE	$	(0.06	)	$	0.06		$	(1.68	)	$	0.10
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING		8,725,476			9,129,406			8,734,471			9,066,088
DILUTED EARNINGS PER SHARE	$	(0.06	)	$	0.06		$	(1.68	)	$	0.10
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING		8,725,476			9,158,396			8,734,471			9,182,190

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

3

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2022			2021			2022			2021
	(Unaudited)
NET (LOSS) INCOME	$	(540,883	)	$	534,884		$	(14,692,989	)	$	915,577
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax		(118,524	)		(49,979	)		(258,213	)		(85,295	)
Other comprehensive (loss) income		(118,524	)		(49,979	)		(258,213	)		(85,295	)
COMPREHENSIVE (LOSS) INCOME	$	(659,407	)	$	484,905		$	(14,951,202	)	$	830,282

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

4

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	SEPTEMBER 30,			DECEMBER 31,
	2022			2021
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	5,061,320		$	6,479,980
Accounts receivable, net of allowance for doubtful accounts
of $41,313 and $62,988 in 2022 and 2021, respectively		13,559,112			12,536,584
Unbilled accounts receivable		7,024,861			10,937,415
Other current assets		2,927,804			3,194,009
Total current assets		28,573,097			33,147,988
NONCURRENT ASSETS
Property and equipment, net		1,062,614			841,133
Lease right of use asset, net		4,892,349			6,273,211
Intangible assets, net		6,637,747			6,228,886
Goodwill		5,811,578			22,088,578
Deferred tax assets, net		8,289,372			5,127,482
Other long-term assets		2,931,994			1,782,060
Total assets	$	58,198,751		$	75,489,338
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	15,103,368		$	10,263,015
Accrued expenses		8,548,396			12,344,426
Deferred revenue		1,934,162			2,280,894
Current portion of lease liabilities		645,019			794,175
Current portion of contingent consideration		-			358,000
Total current liabilities		26,230,945			26,040,510
NONCURRENT LIABILITIES
Lease liabilities, net of current portion		4,860,381			6,025,691
Contingent consideration, net of current portion		387,000			1,347,000
Deferred revenue, net of current portion		370,800			400,142
Total liabilities		31,849,126			33,813,343
Commitments and contingencies (Note 17)		-			-
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 2,045,714 shares issued and none outstanding		-			-
Common stock, $0.001 par value; 30,000,000 shares authorized; 8,725,476 and 8,842,026 shares issued and outstanding, respectively		8,726			8,842
Additional paid-in capital		101,049,870			101,424,922
Accumulated other comprehensive loss		(499,799	)		(241,586	)
Accumulated deficit		(74,209,172	)		(59,516,183	)
Total stockholders equity		26,349,625			41,675,995
Total liabilities and stockholders equity	$	58,198,751		$	75,489,338

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

5

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	NINE MONTHS ENDED
	SEPTEMBER 30,
	2022			2021
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(14,692,989	)	$	915,577
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax benefit		(3,176,568	)		(20,150	)
Depreciation expense		813,624			767,856
Goodwill impairment charge		16,277,000			-
(Recovery) provision for doubtful accounts		244			(24,544	)
Amortization of intangibles		958,369			373,089
Share-based compensation expense		384,267			662,132
Warrants expense		108,000			-
Change in fair value of contingent consideration		(960,000	)		-
Changes in assets and liabilities:
Accounts receivable and unbilled receivables		2,804,675			30,807,310
Inventories		47,618			(207,823	)
Other current assets		209,399			(1,755,636	)
Other assets		27,966			27,161
Accounts payable and accrued expenses		1,080,368			(30,169,455	)
Income tax payable		7,600			272,523
Deferred revenue and other liabilities		(314,226	)		1,566,000
Other liabilities		(358,000	)		246,037
Net cash provided by operating activities		3,217,347			3,460,077
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(239,233	)		(163,031	)
Capitalized hardware and software development costs		(2,823,887	)		(1,776,382	)
Net cash used in investing activities		(3,063,120	)		(1,939,413	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on bank line of credit		4,455,523			-
Repayments of bank line of credit advances		(4,455,523	)		-
Principal repayments under finance lease obligations		(446,691	)		(428,415	)
Withholding taxes paid on behalf of employees on net settled restricted stock awards		(49,224	)		(140,865	)
Common stock repurchased		(818,211	)		-
Issuance of common stock/At-the-market offering, net of issuance costs		-			1,071,045
Proceeds from exercise of stock options		-			179,273
Net cash (used in) provided by financing activities		(1,314,126	)		681,038
Net effect of exchange rate on cash and equivalents		(258,761	)		(96,110	)
NET (DECREASE) INCREASE IN CASH		(1,418,660	)		2,105,592
CASH AND CASH EQUIVALENTS, beginning of period		6,479,980			15,996,749
CASH AND CASH EQUIVALENTS, end of period	$	5,061,320		$	18,102,341

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

6

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	NINE MONTHS ENDED
	SEPTEMBER 30,
	2022		2021
	(Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	141,924	$	207,613
Cash paid for income taxes	$	27,559	$	186,063
NONCASH INVESTING AND FINANCING ACTIVITIES
Capitalized hardware and software development costs in accounts payable	$	90,854	$	75,558
Leased assets and lease liabilities terminated	$	876,281	$	-

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

7

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

					Additional
	Common Stock				Paid-In			Accumulated			Accumulated
	Issued		Amount		Capital			OCI			Deficit			Total
					(Unaudited)
Balance, January 1, 2021		8,876,515	$	8,876	$	100,504,741		$	(104,615	)	$	59,857,279	)	$	40,551,723
Issuance of common stock options exercises		2,500		2		10,248			-			-			10,250
Issuance of common stock restricted		91,650		92		(140,986	)		-			-			(140,894	)
Issuance of common stock through at-the-market offering program, net of issuance costs of $333,305		100,687		101		1,088,297			-			-			1,088,398
Share-based compensation expense restricted		-		-		157,107			-			-			157,107
Share-based compensation expense non-qualified stock options		-		-		25,735			-			-			25,735
Foreign currency translation —
loss		-		-					(54,949	)		-			(54,949	)
Net income		-		-		-			-			585,424			585,424
Balance, March 31, 2021		9,071,352	$	9,071	$	101,645,142		$	(159,564	)	$	(59,271,855	)	$	42,222,794
Issuance of common stock —
restricted		28,208		29		29			-			-			-
Share-based compensation expense —
restricted		-		-		214,852			-			-			214,852
Share-based compensation expense —
non-qualified stock options		-		-		28,969			-			-			28,969
Offering costs for the Issuance of common stock /
At-the-market offering		-		-		17,324			-			-			(17,324	)
Foreign currency translation —
gain		-		-		-			19,633			-			19,633
Net loss		-		-		-			-			204,731			(204,731	)
Balance, June 30, 2021		9,099,560	$	9,100	$	101,871,610		$	(139,931	)	$	(59,476,586	)	$	42,264,193
Issuance of common stock —
options exercises		38,586		38		168,985			-			-			169,023
Share-based compensation expense —
restricted		-		-		210,602			-			-			210,602
Share-based compensation expense —
non-qualified stock options		-		-		24,867			-			-			24,867
Foreign currency translation —
gain		-		-		-			(49,979	)		-			(49,979	)
Net income		-		-		-			-			534,884			534,884
Balance, September 30, 2021		9,138,146	$	9,138	$	102,276,064		$	(189,910	)	$	(5,891,702	)	$	43,153,590

							Additional
	Common Stock						Paid-In			Accumulated			Accumulated
	Issued			Amount			Capital			OCI			Deficit			Total
	(Unaudited)
Balance, January 1, 2022		8,842,026		$	8,842		$	101,424,922		$	(241,586	)	$	(59,516,183	)	$	41,675,995
Common stock repurchased		(196,586	)		(197	)		(818,014	)								(818,211	)
Issuance of common stock restricted		50,345			51			(49,275	)		-			-			(49,224	)
Issuance of common stock warrants		-			-			108,000			-			-			108,000
Share-based compensation expense —
restricted		-			-			179,741			-			-			179,741
Foreign currency translation —
(loss)		-			-			-			(4,835	)		-			(4,835	)
Net loss		-			-			-						(392,897	)		(392,897	)
Balance, March 31, 2022		8,695,785		$	8,696		$	100,845,374		$	(246,421	)	$	(59,909,080	)	$	40,698,569
Issuance of common stock —
restricted		29,691			30			(30	)		-			-			-
Share-based compensation expense —
restricted		-			-			89,385			-			-			89,385
Foreign currency translation —
(loss)		-			-			-			(134,854	)					(134,854	)
Net loss		-			-			-			-			(13,759,209	)		(13,759,209	)
Balance, June 30, 2022		8,725,476		$	8,726		$	100,934,729		$	(381,275	)	$	(73,668,289	)	$	26,893,891
Share-based compensation expense —
restricted		-			-			115,141			-			-			115,141
Foreign currency translation —
(loss)		-			-			-			(118,524	)		-			(118,524	)
Net loss		-			-			-			-			(540,883	)		(540,883	)
Balance, September 30, 2022		8,725,476		$	8,726		$	101,049,870		$	(499,799	)	$	(74,209,172	)	$	26,349,625

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

8

WIDEPOINT CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Nature of Operations

Organization

WidePoint Corporation (“WidePoint” or the “Company”) was incorporated in Delaware on May 30, 1997 and conducts operations through its wholly-owned operating subsidiaries throughout the continental United States, Ireland, the Netherlands and the United Kingdom. The Company’s principal executive and administrative headquarters is located in Fairfax, Virginia.  

Nature of Operations

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

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

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

2. Basis of Presentation and Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements as of September 30, 2022 and for each of the three and nine month periods ended September 30, 2022 and 2021, respectively, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the operating results for the full year.

Principles of Consolidation  

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and acquired entities since their respective dates of acquisition. All significant inter-company amounts were eliminated in consolidation.

9

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 September 30, 2022 and December 31, 2021

Deferred payroll tax payments of $246,000 was included in accrued liabilities on our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.

Foreign Currency

Assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of each reporting period. The resulting translation adjustments, along with any related tax effects, are included in accumulated other comprehensive income, a component of stockholders’ equity. Translation adjustments are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Revenues and expenses are translated at the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations outside the U.S. where the functional currency is the U.S. dollar, are reported net in the Company’s condensed consolidated statements of operations, depending on the nature of the activity.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring use of estimates and judgment relate to revenue recognition, accounts receivable valuation reserves, ability to realize intangible assets and goodwill, ability to realize deferred income tax assets, fair value of certain financial instruments and the evaluation of contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results could differ from those estimates.  There were no significant changes in accounting estimates used by management during the quarter, except for the goodwill impairment adjustment discussed below. 

Segment Reporting

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

Software Development Costs

The Company applies the principles of FASB ASC 350-40, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use (“ASC 350-40”). ASC 350-40 requires that software development costs incurred before the preliminary project stage be expensed as incurred. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed, and the software will be used to perform the function intended.

The Company also applies the principles of FASB ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (“ASC 985-20”). ASC 985-20 requires that software development costs incurred in conjunction with development of computer software to be sold to be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, development costs of computer software to be sold are capitalized and reported at the lower of unamortized cost or net realizable value of the related product.

10

Significant Accounting Policies

There were no significant changes in the Company’s significant accounting policies during the first nine 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.

3. Business Combination

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

The following supplemental unaudited pro forma information sets forth unaudited consolidated financial information for the three and nine months ended September 20, 2021 for the Company assuming we completed the acquisition on January 1, 2021:

	THREE MONTHS ENDED		NINE MONTHS ENDED
	SEPTEMBER 30,		SEPTEMBER 30,
	2021		2021
	(a)		(a)
Revenues	$	25,026	$	70,386
Net Income		981		1,423

(a)    To reflect on a pro forma basis unaudited consolidated financial information for the three and nine months ended September 30, 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 audited financial statements.

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4. Fair Value Measurements

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

			Quoted Prices in		Significant Other		Unobservable
	SEPTEMBER 30,		Active Markets		Observable 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		356,000		-		-		356,000
Contingent consideration - warrants, net of current portion		31,000		-		-		31,000
Total liabilities measured and recorded at fair value	$	387,000	$	-	$	-	$	387,000

			Quoted Prices in		Significant Other		Unobservable
	DECEMBER 31,		Active Markets		Observable Inputs		Inputs
Description	2021		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Contingent consideration - cash settled	$	250,000	$	-	$	-	$	250,000
Contingent consideration - warrants		108,000		-		-		108,000
Contingent consideration - cash settled, net of current portion		1,095,000		-		-		1,095,000
Contingent consideration - warrants, net of current portion		252,000		-		-		252,000
Total liabilities measured and recorded at fair value	$	1,705,000	$	-	$	-	$	1,705,000

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

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

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The following table presents a reconciliation of the change in fair value of contingent consideration for the three and nine months ended September 30, 2022:

Contingent consideration, December 31, 2021	$	1,705,000
Change in fair value (gain) reported in the consolidated statement of operations		(301,000	)
Contingent consideration settled - cash		(171,000	)
Contingent consideration settled - warrants		(108,000	)
Contingent consideration, March 31, 2022		1,125,000
Change in fair value (gain) reported in the consolidated statement of operations		(666,000	)
Contingent consideration settled - cash		(79,000	)
Contingent consideration, June 30, 2022		380,000
Change in fair value (loss) reported in the consolidated statement of operations		7,000
Contingent consideration, September 30, 2022	$	387,000

5. Accounts Receivable and Significant Concentrations

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

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Government (1)	$	11,063,168	$	11,010,794
Commercial (2)		2,537,257		1,588,778
Gross accounts receivable		13,600,425		12,599,572
Less: allowances for doubtful
accounts (3)		41,313		62,988
Accounts receivable, net	$	13,559,112	$	12,536,584

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

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

(3) For the nine month period ended September 30, 2022, the Company did not recognize any material provisions of recoveries of existing provision for bad debt. The Company has not historically maintained a bad debt reserve for its government customers as it has not experienced material or recurring bad debt charges and the nature and size of the contracts has not necessitated the Company’s establishment of such a bad debt reserve.

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Significant Concentrations

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

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
Customer Type	2022			2021			2022			2021
	(Unaudited)
U.S. Federal Government (1)		78.4	%		87.1	%		78.9	%		84.2	%
U.S. State & Local and Foreign Governments		0.4	%		0.3	%		0.5	%		0.4	%
Commercial		21.2	%		12.6	%		20.6	%		15.4	%

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

6. Unbilled Accounts Receivable

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

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

	SEPTEMBER 30,			DECEMBER 31,
	2022			2021
	As a % of			As a % of
Customer Type	Receivables			Receivables
	(Unaudited)
U.S. Federal Government		96	%		99	%
Commercial		4	%		1	%

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7. Other Current Assets and Accrued Expenses

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

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Inventories	$	541,798	$	590,065
Prepaid rent, insurance and other assets		1,241,641		1,307,548
Qualified payroll credit receivable		1,144,365		1,296,396
Total other current assets	$	2,927,804	$	3,194,009

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

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Carrier service costs	$	5,387,210	$	8,771,660
Salaries and payroll taxes		2,099,958		2,213,356
Inventory purchases, consultants and other costs		1,042,920		1,345,900
U.S. Income tax (receivable) payable		-		(23,562	)
Other		18,308		37,072
	$	8,548,396	$	12,344,426

8. Property and Equipment

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

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Computer hardware and software	$	3,084,769	$	2,700,807
Furniture and fixtures		491,772		454,401
Leasehold improvements		264,675		298,352
Automobiles		112,704		137,105
Gross property and equipment		3,953,920		3,590,665
Less: accumulated depreciation and
amortization		2,891,306		2,749,532
Property and equipment, net	$	1,062,614	$	841,133

During the three month and nine month periods ended September 30, 2022, property and equipment depreciation expense was approximately $102,000 and $305,100, respectively. During the three month and nine month periods ended September 30, 2021, property and equipment depreciation expense was approximately $89,200 and $248,900, respectively.

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During the nine month periods ended September 30, 2022 and 2021, there were no material disposals of owned property and equipment. 

There were no changes in the estimated useful lives used to depreciate property and equipment during the three and nine month periods ended September 30, 2022 and 2021.      

9. Leases

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

10. Goodwill and Intangible Assets

Goodwill consisted of the following:

	SEPTEMBER 30,
	2022
Balances, January 1	$	22,088,578
Impairment		(16,277,000	)
Balances, September 30	$	5,811,578

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

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

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

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Intangible assets consists of the following:

	SEPTEMBER 30, 2022
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
	(Unaudited)
Customer Relationships	$	2,392,000	$	(239,200	)	$	2,152,800
Channel Relationships		2,628,080		(1,474,645	)		1,153,435
Internally Developed Software		4,399,752		(2,166,391	)		2,233,361
Trade Name and Trademarks		1,330,472		(232,321	)		1,098,151
	$	10,750,304	$	(4,112,557	)	$	6,637,747

	DECEMBER 31, 2021
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
Customer Relationships	$	2,392,000	$	(61,650	)	$	2,330,350
Channel Relationships		2,628,080		(1,343,241	)		1,284,839
Internally Developed Software		3,082,705		(1,633,516	)		1,449,189
Trade Name and Trademarks		1,330,472		(165,964	)		1,164,508
	$	9,433,257	$	(3,204,371	)	$	6,228,886

For the three and nine month periods ended September 30, 2022, the Company capitalized $1.1 million and $2.9 million, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Technology Management System), next generation TDI^TM application, secure identity management technology and secure network operations center of which $1.3 million was transferred from capital work in progress to internally developed software and $316,900 was transferred from capital work in progress to property and equipment during the period. Capital work in progress is included in other long-term assets in the consolidated balance sheet

For the three and nine month periods ended September 30, 2021, the Company capitalized $607,900 and $1.8 million, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ secure identity management technology and secure network operations center of which $531,600 was transferred from capital work in progress to internally developed software during the quarter.

There were no disposals of intangible assets during the nine month period ended September 30, 2022. During the nine month period ended September 30, 2021, the Company disposed of fully amortized intangible assets with a historical cost and accumulated amortization of $1,980,000.

The aggregate amortization expense recorded for the three month periods ended September 30, 2022 and 2021 were approximately $365,800 and $133,800 respectively. The aggregate amortization expense recorded for the nine month periods ended September 30, 2022 and 2021 were approximately $958,400 and $373,100, respectively.

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As of September 30, 2022, estimated annual amortization for our intangible assets is approximately:

Remainder of 2022	$	396,224
2023		1,504,122
2024		1,285,557
2025		716,824
2026		511,170
Thereafter		2,223,850
Total	$	6,637,747

11. Line of Credit

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

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

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

The available amount under the working capital line of credit is subject to a borrowing base, which is equal to the lesser of (i) $7.0 million or (ii) sum of 90% of the net unpaid balance of the Company’s eligible government accounts receivable and 80% of the net unpaid balance of the Company’s eligible commercial accounts receivable. The facility is secured by a first lien security interest on all of the Company’s personal property, including its accounts receivable, general intangibles, inventory and equipment maintained in the United States.  As of September 30, 2022, the Company was eligible to borrow up to $7.0 million under the borrowing base formula and was in compliance with all covenants under the Loan Agreement.

12. Income Taxes

The Company files U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as well as income tax returns in various states and certain foreign countries. The Company may be subject to examination by the IRS or various state taxing jurisdictions for tax years 2003 and forward. The Company may be subject to examination by various foreign countries for tax years 2014 forward.  As of September 30, 2022, the Company was not under examination by the IRS, any state or foreign tax jurisdiction.  The Company did not have any unrecognized tax benefits at either September 30, 2022 or December 31, 2021. In the future if applicable, any interest and penalties related to uncertain tax positions will be recognized in income tax expense.

18

As of September 30, 2022, the Company had approximately $34.4 million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes. These federal NOL carry forwards expire between 2022 and 2038. Included in the recorded deferred tax asset, the Company had a benefit of approximately $38.4 million available to offset future taxable income for state income tax purposes. These state NOL carry forwards expire between 2024 and 2036. Under the provisions of the Internal Revenue Code, the net operating losses (“NOL”) and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, respectively, as well as similar state tax provisions. This could limit the amount of tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. This annual limitation may result in the expiration of the net operating losses and credits before utilization.

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 September 30, 2022. In the future, changes in the Company’s valuation allowance may result from, among other things, additional pretax operating losses resulting in increases in its valuation allowance or pretax operating income resulting in decreases in its valuation allowance.

13. Stockholders’ Equity

Common Stock

The Company is authorized to issue 30,000,000 shares of common stock, $.001 par value per share. As of September 30, 2022, there were 8,725,476 shares issued and outstanding. During the nine month period ended September 30, 2022, there were 83,728 shares of common stock vested in accordance with the vesting terms of the RSAs. Three employees received less than the shares vested because they elected to have a total of 11,280 shares withheld in satisfaction of the employees corresponding tax liability of approximately $49,300. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows. During the nine month period ended September 30, 2021, there were 132,384 shares of common stock vested in accordance with the vesting terms of the RSAs. Two employees received less than the shares vested because they elected to have a total of 12,526 shares withheld in satisfaction of each of the employees corresponding tax liability of approximately $140,900. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows.

There were no stock option exercises during the nine month period ended September 30, 2022. Shares of common stock issued as a result of stock option exercises and realized gross proceeds for the nine month period ended September 30, 2021, were 41,500 and $179,233, respectively.

Contingent Warrants

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

Warrants Issued

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

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Stock Repurchase Program

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

At The Market Offering Agreement

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

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

The Company has no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Sales Agreement or terminate the Sales Agreement. The Company did not sell any shares during the three month period ended September 30, 2022. During the three month period ended March 31, 2021, the Company sold 100,687 shares for gross proceeds of $1.1 million and incurred $62,700 of offering costs.

14. Share-based Compensation

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

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
Restricted share-based compensation expense	$	115,141	$	210,602	$	384,267	$	582,561
Non-qualified option share-based compensation expense		-		24,867		-		79,571
Total share-based compensation before taxes	$	115,141	$	235,469	$	384,267	$	662,132

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), restricted stock units, stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options.

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Restricted Stock 

The Company records the fair value of all restricted stock shares based on the grant date fair value and amortizes stock compensation on a straight-line basis over the vesting period. Restricted stock shares are issued when vested and included in the total number of common shares issued and outstanding. During the nine month period ended September 30, 2022, the Company granted 153,903 RSAs. During the nine month period ended September 30, 2021, the Company granted 83,326 RSAs.

 Non-Qualified Stock Options 

The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using the Black-Scholes model, which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. There were no non-qualified stock option awards granted during the nine month periods ended September 30, 2022 and 2021.

At September 30, 2022, the Company had approximately $424,800 of total unrecognized share-based compensation expense, net of estimated forfeitures, related to share-based compensation that will be recognized over the weighted average remaining period of 1.0 years.

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					NINE MONTHS ENDED
	SEPTEMBER 30,					SEPTEMBER 30,
	2022			2021		2022			2021
	(Unaudited)
Basic Earnings Per Share Computation:
Net (loss) income	$	(540,883	)	$	534,884	$	(14,692,989	)	$	915,577
Weighted average number of common shares		8,725,476			9,129,406		8,734,471			9,066,088
Basic Earnings Per Share	$	(0.06	)	$	0.06	$	(1.68	)	$	0.10
Diluted Earnings Per Share Computation:
Net (loss) income	$	(540,883	)	$	534,884	$	(14,692,989	)	$	915,577
Weighted average number of common shares		8,725,476			9,129,406		8,734,471			9,066,088
Incremental shares from assumed conversions of dilutive securities		-			28,990		-			116,102
Adjusted weighted average number of common shares		8,725,476			9,158,396		8,734,471			9,182,190
Diluted Earnings Per Share	$	(0.06	)	$	0.06	$	(1.68	)	$	0.10

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16. Revenue from Contracts with Customers

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

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
Carrier Services	$	14,062,695	$	13,100,499	$	39,495,108	$	36,347,673
Managed Services		11,240,821		9,150,783		31,302,189		26,537,872
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

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

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
U.S. Federal Government	$	19,840,322	$	19,377,818	$	55,846,663	$	52,959,115
U.S. State and Local Governments		86,091		50,196		313,112		168,284
Foreign Governments		17,787		14,840		74,253		53,929
Commercial Enterprises		5,359,316		2,808,428		14,563,269		9,704,217
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

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

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
North America	$	24,584,145	$	21,286,194	$	68,254,823	$	59,459,998
Europe		719,371		965,088		2,542,474		3,425,547
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

During the three months ended September 30, 2022 and 2021, the Company recognized approximately $485,400 and $344,700, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2021 and 2020, respectively.

During the nine months ended September 30, 2022 and 2021, the Company recognized approximately $2.1 million and $1.8 million, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2021 and 2020, respectively.

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17. Commitments and Contingencies

Employment Agreements

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

Litigation

The Company is not involved in any material legal proceedings.

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

Cautionary Note Regarding Forward-Looking Statements

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

· The impact of supply chain issues;

· Our ability to successfully execute our strategy;

· Our ability to sustain profitability and positive cash flows; including maintaining sufficient adjusted EBITDA

· Our ability to maintain access to our credit facility;

· Our ability to gain market acceptance for our products;

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

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

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

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

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

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

· Our ability to retain key personnel;

· Our ability to mitigate the impact of increases in interest rates;

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

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

· 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.

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Business Overview

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

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

Revenue Mix

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

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

Strategic Focus and Notable Events

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

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

· Continue to find additional avenues for capturing new sales opportunities in the post pandemic environment,

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

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

· Grow our recurring high margin managed services revenues,

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

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

· Expand our customer base organically and inorganically,

· Continue to leverage the R2v3 Certification to further our ESG commitment,

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

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

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

· Expanding our solution offerings into the commercial space.

Our strategy for achieving our longer-term goals include:

· Establishing a market leadership position in the trusted management sector,

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

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

· developing and testing innovative new offerings that enhance our TM2 offering, and

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

We believe these actions could drive a strategic repositioning our TM2 offering and may include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of TM2 offerings.

We have seen the following impacts from the ongoing supply chain issues, such as moving form just-in-time inventory for accessory items to keeping sufficient stock on hand, price increases, though we are managing increases by seeking volume discounts, delays in fulfillment, and having to locate alternative sources if traditional suppliers cannot fulfill in a timely manner. Overall, the customers are understanding that these supply chain issues are a global and not just impacting orders they place with us and have been willing to work with us to find alternative solutions or delay the purchases until the requested products are available.

Results of Operations

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

Revenues.  Revenues for the three month period ended September 30, 2022 were approximately $25.3 million, an increase of approximately $3.1 million (or 14%), as compared to approximately $22.2 million in 2021.  Our mix of revenues for the periods presented is set forth below:

	THREE MONTHS ENDED
	SEPTEMBER 30,				Dollar
	2022		2021		Variance
	(Unaudited)
Carrier Services	$	14,062,700	$	13,100,500	$	962,200
Managed Services:
Managed Service Fees		7,545,586		5,347,641		2,197,945
Billable Service Fees		909,943		885,114		24,829
Reselling and Other Services		2,785,287		2,918,027		(132,740	)
		11,240,816		9,150,782		2,090,034
	$	25,303,516	$	22,251,282	$	3,052,234

Our carrier services revenue was $14.1 million, an increase of $1.0 million, as compared with the same period in 2021. The increase is primarily due to a large federal government customer increasing the number of phone lines we manage by approximately 75% otherwise carrier services remained relatively constant from period to period.

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Our managed service fees were $7.6 million, an increase of $2.2 million from $5.4 million in 2021. The increase was driven by $1.8 million of managed service revenue from our ITA acquisition, for which there are no revenues reported for the same period in 2021, and  $0.4 million of increased recycling service volumes and accessory sales over the same period in 2022. 

Billable service fees, reselling and other revenues remained consistent with the same period in 2021

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 September 30, 2022 were approximately $21.5 million (or 85% of revenues), as compared to approximately $18.6 million (or 84% of revenues) in 2021.  The increase in cost of revenues was primarily driven by incremental cost of revenue in the approximate amount of $2.2 million related to ITA, for which results were not included third quarter of 2021 results.                                                

Gross Profit.  Gross profit for the three months period ended September 30, 2022 was approximately $3.8 million (or 15% of revenues), as compared to approximately $3.7 million (or 16% of revenues) in 2021.  The lower gross margin percentage of revenue is related to the increase to lower margin Carrier Services relative to the same period in 2021.  Our gross profit percentage will vary from quarter to quarter due to revenue mix between carrier services and managed services revenue.   

Sales and Marketing.  Sales and marketing expense for the three month period ended September 30, 2022 was approximately $---0.5 million (or -2% of revenues), as compared to approximately $0.5 million (or 2% of revenues) in 2021.  We continue to invest in our business development and sales team assets as identified as one of our key goals for 2022.

General and Administrative.  General and administrative expenses for the three month period ended September 30, 2022 were approximately $3.6 million (or 14% of revenues), as compared to approximately $2.1 million (or 9% of revenues) in 2021.  The increase in general and administrative expense relative to 2021, is primarily a result of the Employee Retention Tax Credit (ERTC)  of approximately $1.3 million that was recorded in the third quarter of 2021and not 2022, and an additional $0.6 million of additional general and administrative expenses related to ITA.  

Depreciation and Amortization.  Depreciation and amortization expense for the three month period ended September 30, 2022 was approximately $272,200 as compared to approximately $263,200 in 2021.  The change in depreciation and amortization expense was not significant.

Other Income (Expense).  Other income (expense) for the three month period ended September 30, 2022 was an expense of approximately $(63,400) as compared to an expense of approximately $(41,250) in 2021.          

Income Taxes.  Income tax benefit for the three month period ended September 30, 2022 was approximately $118,200 as compared to income tax expense of $232,900 in 2021.  Income taxes were accrued at an estimated effective tax rate of 19.2% for the three months ended September 30, 2022 compared to 27.4% for the three months ended September 30, 2021.

Net (Loss) Income.  As a result of the cumulative factors annotated above, net loss for the three month period ended September 30, 2022 was approximately $540,900, as compared to net income of approximately $534,900 in the same period last year.

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Nine Months Ended September 30, 2022 as Compared to Nine Months Ended September 30, 2021

Revenues.  Revenues for the nine month period ended September 30, 2022 were approximately $70.8 million, an increase of approximately $7.9 million (or 13%), as compared to approximately $62.9 million in 2021.  Our mix of revenues for the periods presented is set forth below:

	NINE MONTHS ENDED
	SEPTEMBER 30,				Dollar
	2022		2021		Variance
	(Unaudited)
Carrier Services	$	39,495,109	$	36,347,669	$	3,147,440
Managed Services:
Managed Service Fees		21,501,985		20,241,104		1,260,881
Billable Service Fees		3,016,746		2,924,300		92,446
Reselling and Other Services		6,783,457		3,372,472		3,410,985
		31,302,188		26,537,876		4,764,312
	$	70,797,297	$	62,885,545	$	7,911,752

In the nine months ended September 30, 2022 our carrier services increased by $3.1 million, or 9% to $39.5 million from $36.3 million in the same period in 2021 primarily due a large federal government customer increasing the number of phone lines we manage by approximately 75% during 2022. This increase was offset by carrier credits of approximately $1.7 million included in the first quarter of 2021 that did not occur during the first nine months of 2022. 

Our managed service fees increased by $1.3 million, or (6%) to $21.5 million from $20.2 million in the same period of 2022, largely due $5 million of managed services revenue from our ITA acquisition which is not included in the first nine-months of 2021, which was partially offset by lower managed services and accessories sales in our legacy Technology Lifecycle Management (TLM) business.

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

Reselling and other services increased by $3.4 million, or 101% to $6.8 million as compared to $3.4 million last year.   In particular, during the nine months ended September 30, 2022, we completed a large resale of Unified Endpoint Management (UEM) software licenses to a single federal government customer in the amount of $1.7 million occurring in the second quarter of 2022. Additionally, the increase was bolstered by $2.3 million of reselling to mostly commercial customers from our ITA acquisition which was not included in our 2021 results. These two distinct increases were partially offset by slightly lower reselling in other areas of the business.  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 nine month period ended September 30, 2022 were approximately $59.8 million (or 84% of revenues), as compared to approximately $50.5 million (or 80% 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  $5.6 million related to ITA, for which results were not included first half of 2021 results.                                                

Gross Profit.  Gross profit for the nine month period ended September 30, 2022 was approximately $11.0 million (or 16% of revenues), as compared to approximately $12.4 million (or 20% of revenues) in 2021.  The lower gross margin is related to the increase in lower margin Carrier Services relative to the same period in 2021, and relative lower margin in the ITA business experienced in the first half of 2022 which was a result of increased labor costs experienced in our commercial business.  Our gross profit percentage will vary from quarter to quarter due to revenue mix between carrier services and managed services revenue.   

Sales and Marketing.  Sales and marketing expense for the nine month period ended September 30, 2022 was approximately $1.7 million (or -2% of revenues), as compared to approximately $1.5 million (or 2% of revenues) in 2021.  We continue to invest in our business development and sales team assets as identified as one of our key goals for 2022.

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General and Administrative.  General and administrative expenses for the nine month period ended September 30, 2022 were approximately $11.2 million (or 23% of revenues), as compared to approximately $8.7 million (or 14% of revenues) in 2021.  The increase in general and administrative expense is due in part to an additional $1.8 million of additional general and administrative expenses related to ITA and the absence of the ERTC of approximately $1.3 million reflected in the nine-months ended 2021. 

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

Depreciation and Amortization.  Depreciation and amortization expense for the nine month period ended September 30, 2022 was approximately $810,700 as compared to approximately $768,000 in 2021.  The change in depreciation and amortization expense was not significant .

Other Income (Expense).  Other income (expense) for the nine month period ended September 30, 2022 was approximately $791,900 as compared to approximately an expense of $(176,500) in 2021.  The income in 2022 is primarily driven by fair value adjustments of contingent consideration.        

Income Taxes.  Income tax benefit for the nine month period ended September 30, 2022 was approximately $3.4 million  as compared to income tax expense of $329,300 in 2021.  The increase in income tax benefit was primarily due to the effect on deferred tax liabilities of the goodwill impairment charge of $16.3 million. Income taxes were accrued at an estimated effective tax rate of 19.24% for the nine month period ended September 30, 2022 compared to 26.5% for the nine month period ended September 30, 2021.

Net (Loss) Income.  As a result of the goodwill impairment of $16.3 million in 2022 and the other cumulative factors annotated above, net loss for the nine month period ended September 30, 2022 was approximately $14.7 million as compared to net income of approximately $916,000 in the same period last year.  

Liquidity and Capital Resources

Our immediate sources of liquidity include cash and cash equivalents, accounts receivable, unbilled receivables and access to a working capital credit facility with Atlantic Union Bank for up to $7.0 million. Access to the credit facility depends on our ability to maintain a minimum EBITDA over trailing twelve months from each quarter end. 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 September 30, 2022, our net working capital was approximately $2.3 million as compared to $7.1 million at December 31, 2021.  The decrease in net working capital was primarily driven by investments in computer hardware and software purchases and capitalized internally developed software costs and the repurchase of our common stock during the first quarter of 2022, which was partially offset by temporary receivable/payable timing differences. We believe that our existing cash, cash equivalents and investment balances and our anticipated cash flows from operations will be sufficient to meet our working capital, expenditure, and contractual obligation requirements for the next 12 months and the foreseeable future.

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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 nine month period ended September 30, 2022. The Company had remaining capacity of $18.2 million as of September 30, 2022.

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 nine months ended September 30, 2022, net cash provided by operations was approximately $3.3 million driven by collections of accounts receivable and temporary payable timing differences, as compared to approximately $3.5 million net cash used in operations for the nine months ended September 30, 2021.

Cash Flows from Investing Activities

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

For the nine months ended September 30, 2022, cash used in investing activities was approximately $3.0 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 nine months ended September 30, 2021,  cash used in investing activities was approximately $1.9 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™.

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 nine months ended September 30, 2022, cash used in financing activities was approximately $1.3 million and reflects line of credit advances and payments of approximately $4.5 million, lease principal repayments of approximately $446,700, repurchases of common stock of $818,200 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200.

For the nine months ended September 30, 2021, cash provided by financing activities was approximately $681,000 and reflects proceeds from issuance of common stock through ATM sales of $1.1 million, net of issuance costs, proceeds of approximately $179,300 from the exercise of stock options, offset by lease principal repayments of approximately $428,400 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 nine months ended September 30, 2022 and 2021, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $258,800 as compared to last year. 

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Inflation

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

Critical Accounting Estimates and Policies

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

Goodwill

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

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

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

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

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

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchase Plan

On October 7, 2019, the Company announced that its Board of Directors approved a stock repurchase plan (the “Repurchase Plan”) to purchase up to $2.5 million of the Company’s common stock. Any repurchases will be made in compliance with the SEC’s Rule 10b-18 if applicable, and may be made in the open market or in privately negotiated transactions, including the entry into derivatives transactions. During November 2021, the Board increased the size of the Repurchase Plan to up to $5.0 million of the Company’s common stock. During the quarter ended March 31, 2022, we repurchased 196,586 shares of our common stock for a total of $818,200 and subsequently in March of 2022, the board suspended the repurchase plan in order to use the company’s excess funds to invest into the business.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

EXHIBIT NO.	DESCRIPTION
Exhibit 10.1*	Employment Agreement with Todd Dzyak (filed herewith)
Exhibit 10.2*	Employment Modification Agreement with Todd Dzyak (filed herewith)
Exhibit 10.3*	Employment Agreement with Ian Sparling (filed herewith)
Exhibit 10.4*	Employment Modification Agreement with Ian Sparling (filed herewith)
Exhibit 10.5*	Employment Modification Agreement with Jason Holloway (filed herewith)
Exhibit 10.6	Modification Agreement with Access National Bank (incorporated by reference from Form 8-K filed on June 22, 2022)
Exhibit 10.7	Modification Agreement with Access National Bank (incorporated by reference from Form 8-K filed on June 30, 2022)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith).
101.	Interactive Data Files
101.INS+ XBRL Instance Document
101.SCH+ XBRL Taxonomy Extension Schema Document
101.CAL+ XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+ XBRL Taxonomy Definition Linkbase Document
101.LAB+ XBRL Taxonomy Extension Label Linkbase Document
101.PRE+ XBRL Taxonomy Extension Presentation Linkbase Document
104. Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

34

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:  November 14, 2022	By:	/s/ JIN H. KANG
		Jin H. Kang
		President and Chief Executive Officer
Date:  November 14, 2022		/s/ ROBERT J. GEORGE
		Robert J. George
		Chief Financial Officer

35

EX-31.1

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):

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.

Date: November 14, 2022	By:	/s/ JIN H. KANG
		Jin H. Kang
		Chief Executive Officer

EX-31.2

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;
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):

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.

Date: November 14, 2022	By:	/s/ ROBERT J. GEORGE
		Robert J. George
		Chief Financial Officer

EX-32

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 September 30, 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

Jin H. Kang

Chief Executive Officer

/s/ ROBERT J. GEORGE

Robert J. George

Chief Financial Officer

Date: November 14, 2022

XML

Cover - shares	9 Months Ended
	Sep. 30, 2022	Nov. 14, 2022
Cover [Abstract]
Entity Registrant Name	WidePoint Corporation
Entity Central Index Key	0001034760
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Sep. 30, 2022
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2022
Entity Common Stock Shares Outstanding		8,725,476
Entity File Number	001-33035
Entity Incorporation State Country Code	DE
Entity Tax Identification Number	52-2040275
Entity Interactive Data Current	Yes
Entity Address Address Line 1	11250 Waples Mill Road
Entity Address Address Line 2	South Tower 210
Entity Address City Or Town	Fairfax
Entity Address State Or Province	VA
Entity Address Postal Zip Code	22030
City Area Code	703
Local Phone Number	349-2577
Security 12b Title	Common Stock, $0.001 par value per share
Trading Symbol	WYY
Security Exchange Name	NYSE
Document Quarterly Report	true
Document Transition Report	false

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
REVENUES	$ 25,271,572	$ 22,251,282	$ 70,765,353	$ 62,885,545
COST OF REVENUES (including amortization and depreciation of $366,885, $133,756, $961,341, and $373,089, respectively)	21,472,120	18,588,268	59,749,532	50,514,391
GROSS PROFIT	3,799,452	3,663,014	11,015,821	12,371,154
OPERATING EXPENSES
Sales and marketing	527,726	489,721	1,665,518	1,505,548
General and administrative expenses (including share-based compensation of $115,141, $235,469, $384,267 and $662,132, respectively)	3,595,145	2,101,083	11,157,690	8,676,332
Goodwill impairment	0	0	16,277,000	0
Depreciation and amortization	272,203	263,192	810,652	767,940
Total operating expenses	4,395,074	2,853,996	29,910,860	10,949,820
(LOSS) INCOME FROM OPERATIONS	(595,622)	809,018	(18,895,039)	1,421,334
OTHER INCOME (EXPENSE)
Interest income	6,398	968	17,126	3,535
Interest expense	(62,841)	(67,372)	(189,188)	(207,678)
Other (expense) income	(6,999)	25,158	964,004	27,656
Total other income (expense)	(63,442)	(41,246)	791,942	(176,487)
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION	(659,064)	767,772	(18,103,097)	1,244,847
INCOME TAX (BENEFIT) PROVISION	(118,181)	232,888	(3,410,108)	329,270
NET (LOSS) INCOME	$ (540,883)	$ 534,884	$ (14,692,989)	$ 915,577
BASIC EARNINGS PER SHARE	$ (0.06)	$ 0.06	$ (1.68)	$ 0.10
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING	8,725,476	9,129,406	8,734,471	9,066,088
DILUTED EARNINGS PER SHARE	$ (0.06)	$ 0.06	$ (1.68)	$ 0.10
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING	8,725,476	9,158,396	8,734,471	9,182,190

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Parenthetical) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
COST OF REVENUES , Depreciation and Amortization	$ 366,885	$ 133,756	$ 961,341	$ 373,089
Share-Based Compensation Expense	$ 115,141	$ 235,469	$ 384,267	$ 662,132

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
NET (LOSS) INCOME	$ (540,883)	$ 534,884	$ (14,692,989)	$ 915,577
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax	(118,524)	(49,979)	(258,213)	(85,295)
Other comprehensive (loss) income	(118,524)	(49,979)	(258,213)	(85,295)
COMPREHENSIVE (LOSS) INCOME	$ (659,407)	$ 484,905	$ (14,951,202)	$ 830,282

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2022	Dec. 31, 2021
CURRENT ASSETS
Cash and cash equivalents	$ 5,061,320	$ 6,479,980
Accounts receivable, net of allowance for doubtful accounts of $41,313 and $62,988 in 2022 and 2021, respectively	13,559,112	12,536,584
Unbilled accounts receivable	7,024,861	10,937,415
Other current assets	2,927,804	3,194,009
Total current assets	28,573,097	33,147,988
NONCURRENT ASSETS
Property and equipment, net	1,062,614	841,133
Lease right of use asset, net	4,892,349	6,273,211
Intangible assets, net	6,637,747	6,228,886
Goodwill	5,811,578	22,088,578
Deferred tax assets, net	8,289,372	5,127,482
Other long-term assets	2,931,994	1,782,060
Total assets	58,198,751	75,489,338
CURRENT LIABILITIES
Accounts payable	15,103,368	10,263,015
Accrued expenses	8,548,396	12,344,426
Deferred revenue	1,934,162	2,280,894
Current portion of lease liabilities	645,019	794,175
Current portion of contingent consideration	0	358,000
Total current liabilities	26,230,945	26,040,510
NONCURRENT LIABILITIES
Lease liabilities, net of current portion	4,860,381	6,025,691
Contingent consideration, net of current portion	387,000	1,347,000
Deferred revenue, net of current portion	370,800	400,142
Total liabilities	31,849,126	33,813,343
Commitments and contingencies (Note 17)	0	0
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 2,045,714 shares issued and none outstanding	0	0
Common stock, $0.001 par value; 30,000,000 shares authorized; 8,725,476 and 8,842,026 shares issued and outstanding, respectively	8,726	8,842
Additional paid-in capital	101,049,870	101,424,922
Accumulated other comprehensive loss	(499,799)	(241,586)
Accumulated deficit	(74,209,172)	(59,516,183)
Total stockholders equity	26,349,625	41,675,995
Total liabilities and stockholders equity	$ 58,198,751	$ 75,489,338

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts receivable	$ 41,313	$ 62,988
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	2,045,714	2,045,714
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	30,000,000	30,000,000
Common stock, shares issued	8,725,476	8,842,026
Common stock, shares outstanding	8,725,476	8,842,026

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$ (14,692,989)	$ 915,577
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax benefit	(3,176,568)	(20,150)
Depreciation expense	813,624	767,856
Goodwill impairment charge	16,277,000	0
(Recovery) provision for doubtful accounts	244	(24,544)
Amortization of intangibles	958,369	373,089
Share-based compensation expense	384,267	662,132
Warrants expense	108,000	0
Change in fair value of contingent consideration	(960,000)	0
Changes in assets and liabilities:
Accounts receivable and unbilled receivables	2,804,675	30,807,310
Inventories	47,618	(207,823)
Other current assets	209,399	(1,755,636)
Other assets	27,966	27,161
Accounts payable and accrued expenses	1,080,368	(30,169,455)
Income tax payable	7,600	272,523
Deferred revenue and other liabilities	(314,226)	1,566,000
Other liabilities	(358,000)	246,037
Net cash provided by operating activities	3,217,347	3,460,077
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(239,233)	(163,031)
Capitalized hardware and software development costs	(2,823,887)	(1,776,382)
Net cash used in investing activities	(3,063,120)	(1,939,413)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on bank line of credit	(4,455,523)	0
Repayments of bank line of credit advances	(4,455,523)	0
Principal repayments under finance lease obligations	(446,691)	(428,415)
Withholding taxes paid on behalf of employees on net settled restricted stock awards	(49,224)	(140,865)
Common stock repurchased	(818,211)	0
Issuance of common stock/At-the-market offering, net of issuance costs	0	1,071,045
Proceeds from exercise of stock options	0	179,273
Net cash (used in) provided by financing activities	(1,314,126)	681,038
Net effect of exchange rate on cash and equivalents	(258,761)	(96,110)
NET (DECREASE) INCREASE IN CASH	(1,418,660)	2,105,592
CASH AND CASH EQUIVALENTS, beginning of period	6,479,980	15,996,749
CASH AND CASH EQUIVALENTS, end of period	5,061,320	18,102,341
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	141,924	207,613
Cash paid for income taxes	27,559	186,063
NONCASH INVESTING AND FINANCING ACTIVITIES
Capitalized hardware and software development costs in accounts payable	90,854	75,558
Leased assets and lease liabilities terminated	$ 876,281	$ 0

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($)	Total	Additional Paid-In Capital	Accumulated other comprehensive loss	Retained Earnings (Accumulated Deficit)	Common Stock
Balance, amount at Dec. 31, 2020	$ 40,551,723	$ 100,504,741	$ (104,615)	$ (59,857,279)	$ 8,876
Balance, Shares at Dec. 31, 2020					8,876,515
Issuance of common stock - options exercises, Shares	2,500
Issuance of common stock - options exercises, Amount	$ 10,250	10,248	0	0	$ 2
Issuance of common stock -restricted, Shares	91,650
Issuance of common stock -restricted, Amount	$ (140,894)	(140,986)	0	0	92
Issuance of common stock through at-the-market offering program, net of issuance costs of $333,305, Shares	100,687
Issuance of common stock through at-the-market offering program, net of issuance costs of $333,305, Amount	$ 1,088,398	1,088,297	0	0	101
Share-based compensation expense - restricted	157,107	157,107	0	0
non-qualified stock options	25,735	25,735	0	0
loss	(54,949)		(54,949)	0	0
Net income	585,424	0	0	585,424	0
Balance, amount at Mar. 31, 2021	42,222,794	101,645,142	(159,564)	(59,271,855)	$ 9,071
Balanc, Shares at Mar. 31, 2021					9,071,352
Balance, amount at Dec. 31, 2020	40,551,723	100,504,741	(104,615)	(59,857,279)	$ 8,876
Balance, Shares at Dec. 31, 2020					8,876,515
Net loss	915,577
Balance, amount at Sep. 30, 2021	43,153,590	102,276,064	(189,910)	(5,891,702)	$ 9,138
Balanc, Shares at Sep. 30, 2021					9,138,146
Balance, amount at Mar. 31, 2021	$ 42,222,794	101,645,142	(159,564)	(59,271,855)	$ 9,071
Balance, Shares at Mar. 31, 2021					9,071,352
Issuance of common stock - options exercises, Shares	28,208
Issuance of common stock - options exercises, Amount	$ 0	(29)	0	0	$ 29
Share-based compensation expense - restricted	214,852	214,852	0	0	0
Share-based compensation expense - non-qualified stock options	28,969	28,969	0	0	0
Offering costs for the Issuance of common stock / At-the-market offering	(17,324)	(17,324)	0	0	0
Foreign currency translation - gain	19,633	0	19,633	0	0
Net loss	(204,731)	0	0	(204,731)	0
Balance, amount at Jun. 30, 2021	42,264,193	101,871,610	(139,931)	(59,476,586)	$ 9,100
Balanc, Shares at Jun. 30, 2021					9,099,560
Share-based compensation expense - restricted	210,602	210,602	0	0	$ 0
Net income	534,884	0	0	534,884	0
Share-based compensation expense - non-qualified stock options	24,867	24,867	0	0	0
Foreign currency translation - gain	(49,979)	0	(49,979)	0	$ 0
Net loss	534,884
Issuance of common stock - restricted options exercises, Shares					38,586
Issuance of common stock - restricted options exercises, Amount	169,023	168,985	0	0	$ 38
Balance, amount at Sep. 30, 2021	43,153,590	102,276,064	(189,910)	(5,891,702)	$ 9,138
Balanc, Shares at Sep. 30, 2021					9,138,146
Balance, amount at Dec. 31, 2021	41,675,995	101,424,922	(241,586)	(59,516,183)	$ 8,842
Balance, Shares at Dec. 31, 2021					8,842,026
Issuance of common stock -restricted, Shares					50,345
Issuance of common stock -restricted, Amount	(49,224)	(49,275)	0	0	$ 51
Share-based compensation expense - restricted	179,741	179,741	0	0	0
Net loss	(392,897)	0		(392,897)	$ 0
Common stock repurchased, Shares					(196,586)
Common stock repurchased, Amount	(818,211)	(818,014)			$ (197)
Issuance of common stock - warrants	108,000	108,000	0	0	0
Foreign currency translation - (loss)	(4,835)	0	(4,835)	0	0
Balance, amount at Mar. 31, 2022	40,698,569	100,845,374	(246,421)	(59,909,080)	$ 8,696
Balanc, Shares at Mar. 31, 2022					8,695,785
Balance, amount at Dec. 31, 2021	41,675,995	101,424,922	(241,586)	(59,516,183)	$ 8,842
Balance, Shares at Dec. 31, 2021					8,842,026
Net loss	(14,692,989)
Balance, amount at Sep. 30, 2022	26,349,625	101,049,870	(499,799)	(74,209,172)	$ 8,726
Balanc, Shares at Sep. 30, 2022					8,725,476
Balance, amount at Mar. 31, 2022	40,698,569	100,845,374	(246,421)	(59,909,080)	$ 8,696
Balance, Shares at Mar. 31, 2022					8,695,785
Issuance of common stock -restricted, Amount	0	(30)	0	0	$ 30
Share-based compensation expense - restricted	89,385	89,385	0	0	0
Net loss	(13,759,209)	0	0	(13,759,209)	0
Foreign currency translation - (loss)	(134,854)	0	(134,854)		$ 0
Issuance of common stock - restricted,Amount, Shares					29,691
Balance, amount at Jun. 30, 2022	26,893,891	100,934,729	(381,275)	(73,668,289)	$ 8,726
Balanc, Shares at Jun. 30, 2022					8,725,476
Share-based compensation expense - restricted	115,141	115,141	0	0	$ 0
Net loss	(540,883)	0	0	(540,883)	0
Foreign currency translation - (loss)	(118,524)	0	(118,524)	0	0
Balance, amount at Sep. 30, 2022	$ 26,349,625	$ 101,049,870	$ (499,799)	$ (74,209,172)	$ 8,726
Balanc, Shares at Sep. 30, 2022					8,725,476

XML

Organization and Nature of Operations (Unaudited)

9 Months Ended

Sep. 30, 2022

Organization and Nature of Operations (Unaudited)

Organization and Nature of Operations

1. Organization and Nature of Operations

Organization

WidePoint Corporation (“WidePoint” or the “Company”) was incorporated in Delaware on May 30, 1997 and conducts operations through its wholly-owned operating subsidiaries throughout the continental United States, Ireland, the Netherlands and the United Kingdom. The Company’s principal executive and administrative headquarters is located in Fairfax, Virginia.  

Nature of Operations

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

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

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

XML

Basis of Presentation and Accounting Policies

9 Months Ended

Sep. 30, 2022

Basis of Presentation and Accounting Policies

Basis of Presentation and Accounting Policies

2. Basis of Presentation and Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements as of September 30, 2022 and for each of the three and nine month periods ended September 30, 2022 and 2021, respectively, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the operating results for the full year.

Principles of Consolidation  

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and acquired entities since their respective dates of acquisition. All significant inter-company amounts were eliminated in consolidation.

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 September 30, 2022 and December 31, 2021

Deferred payroll tax payments of $246,000 was included in accrued liabilities on our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.

Foreign Currency

Assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of each reporting period. The resulting translation adjustments, along with any related tax effects, are included in accumulated other comprehensive income, a component of stockholders’ equity. Translation adjustments are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Revenues and expenses are translated at the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations outside the U.S. where the functional currency is the U.S. dollar, are reported net in the Company’s condensed consolidated statements of operations, depending on the nature of the activity.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring use of estimates and judgment relate to revenue recognition, accounts receivable valuation reserves, ability to realize intangible assets and goodwill, ability to realize deferred income tax assets, fair value of certain financial instruments and the evaluation of contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results could differ from those estimates.  There were no significant changes in accounting estimates used by management during the quarter, except for the goodwill impairment adjustment discussed below. 

Segment Reporting

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

Software Development Costs

The Company applies the principles of FASB ASC 350-40, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use (“ASC 350-40”). ASC 350-40 requires that software development costs incurred before the preliminary project stage be expensed as incurred. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed, and the software will be used to perform the function intended.

The Company also applies the principles of FASB ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (“ASC 985-20”). ASC 985-20 requires that software development costs incurred in conjunction with development of computer software to be sold to be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, development costs of computer software to be sold are capitalized and reported at the lower of unamortized cost or net realizable value of the related product.

Significant Accounting Policies

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

Accounting Standards under Evaluation

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

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Business Combinations

9 Months Ended

Sep. 30, 2022

Business Combinations

Business Combination

3. Business Combination

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

The following supplemental unaudited pro forma information sets forth unaudited consolidated financial information for the three and nine months ended September 20, 2021 for the Company assuming we completed the acquisition on January 1, 2021:

	THREE MONTHS ENDED		NINE MONTHS ENDED
	SEPTEMBER 30,		SEPTEMBER 30,
	2021		2021
	(a)		(a)
Revenues	$	25,026	$	70,386
Net Income		981		1,423

(a)    To reflect on a pro forma basis unaudited consolidated financial information for the three and nine months ended September 30, 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 audited financial statements.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Fair Value Measurements

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		Unobservable
	SEPTEMBER 30,		Active Markets		Observable 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		356,000		-		-		356,000
Contingent consideration - warrants, net of current portion		31,000		-		-		31,000
Total liabilities measured and recorded at fair value	$	387,000	$	-	$	-	$	387,000

			Quoted Prices in		Significant Other		Unobservable
	DECEMBER 31,		Active Markets		Observable Inputs		Inputs
Description	2021		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Contingent consideration - cash settled	$	250,000	$	-	$	-	$	250,000
Contingent consideration - warrants		108,000		-		-		108,000
Contingent consideration - cash settled, net of current portion		1,095,000		-		-		1,095,000
Contingent consideration - warrants, net of current portion		252,000		-		-		252,000
Total liabilities measured and recorded at fair value	$	1,705,000	$	-	$	-	$	1,705,000

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

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

The following table presents a reconciliation of the change in fair value of contingent consideration for the three and nine months ended September 30, 2022:

Contingent consideration, December 31, 2021	$	1,705,000
Change in fair value (gain) reported in the consolidated statement of operations		(301,000	)
Contingent consideration settled - cash		(171,000	)
Contingent consideration settled - warrants		(108,000	)
Contingent consideration, March 31, 2022		1,125,000
Change in fair value (gain) reported in the consolidated statement of operations		(666,000	)
Contingent consideration settled - cash		(79,000	)
Contingent consideration, June 30, 2022		380,000
Change in fair value (loss) reported in the consolidated statement of operations		7,000
Contingent consideration, September 30, 2022	$	387,000

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Accounts Receivable and Significant Concentrations

9 Months Ended

Sep. 30, 2022

Accounts Receivable and Significant Concentrations

Accounts Receivable and Significant Concentrations

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:

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Government (1)	$	11,063,168	$	11,010,794
Commercial (2)		2,537,257		1,588,778
Gross accounts receivable		13,600,425		12,599,572
Less: allowances for doubtful
accounts (3)		41,313		62,988
Accounts receivable, net	$	13,559,112	$	12,536,584

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

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

(3) For the nine month period ended September 30, 2022, the Company did not recognize any material provisions of recoveries of existing provision for bad debt. The Company has not historically maintained a bad debt reserve for its government customers as it has not experienced material or recurring bad debt charges and the nature and size of the contracts has not necessitated the Company’s establishment of such a bad debt reserve.

Significant Concentrations

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

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
Customer Type	2022			2021			2022			2021
	(Unaudited)
U.S. Federal Government (1)		78.4	%		87.1	%		78.9	%		84.2	%
U.S. State & Local and Foreign Governments		0.4	%		0.3	%		0.5	%		0.4	%
Commercial		21.2	%		12.6	%		20.6	%		15.4	%

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

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Unbilled Accounts Receivable

9 Months Ended

Sep. 30, 2022

Accounts Receivable and Significant Concentrations

Unbilled Accounts Receivable

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:

	SEPTEMBER 30,			DECEMBER 31,
	2022			2021
	As a % of			As a % of
Customer Type	Receivables			Receivables
	(Unaudited)
U.S. Federal Government		96	%		99	%
Commercial		4	%		1	%

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Other Current Assets and Accrued Expenses

9 Months Ended

Sep. 30, 2022

Other Current Assets and Accrued Expenses

Other Current Assets and Other Long Term Assets

7. Other Current Assets and Accrued Expenses

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

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Inventories	$	541,798	$	590,065
Prepaid rent, insurance and other assets		1,241,641		1,307,548
Qualified payroll credit receivable		1,144,365		1,296,396
Total other current assets	$	2,927,804	$	3,194,009

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

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Carrier service costs	$	5,387,210	$	8,771,660
Salaries and payroll taxes		2,099,958		2,213,356
Inventory purchases, consultants and other costs		1,042,920		1,345,900
U.S. Income tax (receivable) payable		-		(23,562	)
Other		18,308		37,072
	$	8,548,396	$	12,344,426

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Property and Equipment

9 Months Ended

Sep. 30, 2022

Property and Equipment

Property and Equipment

8. Property and Equipment

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

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Computer hardware and software	$	3,084,769	$	2,700,807
Furniture and fixtures		491,772		454,401
Leasehold improvements		264,675		298,352
Automobiles		112,704		137,105
Gross property and equipment		3,953,920		3,590,665
Less: accumulated depreciation and
amortization		2,891,306		2,749,532
Property and equipment, net	$	1,062,614	$	841,133

During the three month and nine month periods ended September 30, 2022, property and equipment depreciation expense was approximately $102,000 and $305,100, respectively. During the three month and nine month periods ended September 30, 2021, property and equipment depreciation expense was approximately $89,200 and $248,900, respectively.

During the nine month periods ended September 30, 2022 and 2021, there were no material disposals of owned property and equipment. 

There were no changes in the estimated useful lives used to depreciate property and equipment during the three and nine month periods ended September 30, 2022 and 2021.      

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Leases

9 Months Ended

Sep. 30, 2022

Leases

Leases

9. Leases

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

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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets

Goodwill and Intangible Assets

10. Goodwill and Intangible Assets

Goodwill consisted of the following:

	SEPTEMBER 30,
	2022
Balances, January 1	$	22,088,578
Impairment		(16,277,000	)
Balances, September 30	$	5,811,578

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

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

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

Intangible assets consists of the following:

	SEPTEMBER 30, 2022
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
	(Unaudited)
Customer Relationships	$	2,392,000	$	(239,200	)	$	2,152,800
Channel Relationships		2,628,080		(1,474,645	)		1,153,435
Internally Developed Software		4,399,752		(2,166,391	)		2,233,361
Trade Name and Trademarks		1,330,472		(232,321	)		1,098,151
	$	10,750,304	$	(4,112,557	)	$	6,637,747

	DECEMBER 31, 2021
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
Customer Relationships	$	2,392,000	$	(61,650	)	$	2,330,350
Channel Relationships		2,628,080		(1,343,241	)		1,284,839
Internally Developed Software		3,082,705		(1,633,516	)		1,449,189
Trade Name and Trademarks		1,330,472		(165,964	)		1,164,508
	$	9,433,257	$	(3,204,371	)	$	6,228,886

For the three and nine month periods ended September 30, 2022, the Company capitalized $1.1 million and $2.9 million, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Technology Management System), next generation TDI^TM application, secure identity management technology and secure network operations center of which $1.3 million was transferred from capital work in progress to internally developed software and $316,900 was transferred from capital work in progress to property and equipment during the period. Capital work in progress is included in other long-term assets in the consolidated balance sheet

For the three and nine month periods ended September 30, 2021, the Company capitalized $607,900 and $1.8 million, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ secure identity management technology and secure network operations center of which $531,600 was transferred from capital work in progress to internally developed software during the quarter.

There were no disposals of intangible assets during the nine month period ended September 30, 2022. During the nine month period ended September 30, 2021, the Company disposed of fully amortized intangible assets with a historical cost and accumulated amortization of $1,980,000.

The aggregate amortization expense recorded for the three month periods ended September 30, 2022 and 2021 were approximately $365,800 and $133,800 respectively. The aggregate amortization expense recorded for the nine month periods ended September 30, 2022 and 2021 were approximately $958,400 and $373,100, respectively.

As of September 30, 2022, estimated annual amortization for our intangible assets is approximately:

Remainder of 2022	$	396,224
2023		1,504,122
2024		1,285,557
2025		716,824
2026		511,170
Thereafter		2,223,850
Total	$	6,637,747

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Line of Credit

9 Months Ended

Sep. 30, 2022

Line of Credit

Line of Credit

11. Line of Credit

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

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

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

The available amount under the working capital line of credit is subject to a borrowing base, which is equal to the lesser of (i) $7.0 million or (ii) sum of 90% of the net unpaid balance of the Company’s eligible government accounts receivable and 80% of the net unpaid balance of the Company’s eligible commercial accounts receivable. The facility is secured by a first lien security interest on all of the Company’s personal property, including its accounts receivable, general intangibles, inventory and equipment maintained in the United States.  As of September 30, 2022, the Company was eligible to borrow up to $7.0 million under the borrowing base formula and was in compliance with all covenants under the Loan Agreement.

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Income Taxes

9 Months Ended

Sep. 30, 2022

Income Taxes

Income Taxes

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 September 30, 2022, the Company was not under examination by the IRS, any state or foreign tax jurisdiction.  The Company did not have any unrecognized tax benefits at either September 30, 2022 or December 31, 2021. In the future if applicable, any interest and penalties related to uncertain tax positions will be recognized in income tax expense.

As of September 30, 2022, the Company had approximately $34.4 million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes. These federal NOL carry forwards expire between 2022 and 2038. Included in the recorded deferred tax asset, the Company had a benefit of approximately $38.4 million available to offset future taxable income for state income tax purposes. These state NOL carry forwards expire between 2024 and 2036. Under the provisions of the Internal Revenue Code, the net operating losses (“NOL”) and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, respectively, as well as similar state tax provisions. This could limit the amount of tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. This annual limitation may result in the expiration of the net operating losses and credits before utilization.

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 September 30, 2022. In the future, changes in the Company’s valuation allowance may result from, among other things, additional pretax operating losses resulting in increases in its valuation allowance or pretax operating income resulting in decreases in its valuation allowance.

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Stockholders Equity

9 Months Ended

Sep. 30, 2022

Stockholders Equity

Stockholders' Equity

13. Stockholders’ Equity

Common Stock

The Company is authorized to issue 30,000,000 shares of common stock, $.001 par value per share. As of September 30, 2022, there were 8,725,476 shares issued and outstanding. During the nine month period ended September 30, 2022, there were 83,728 shares of common stock vested in accordance with the vesting terms of the RSAs. Three employees received less than the shares vested because they elected to have a total of 11,280 shares withheld in satisfaction of the employees corresponding tax liability of approximately $49,300. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows. During the nine month period ended September 30, 2021, there were 132,384 shares of common stock vested in accordance with the vesting terms of the RSAs. Two employees received less than the shares vested because they elected to have a total of 12,526 shares withheld in satisfaction of each of the employees corresponding tax liability of approximately $140,900. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows.

There were no stock option exercises during the nine month period ended September 30, 2022. Shares of common stock issued as a result of stock option exercises and realized gross proceeds for the nine month period ended September 30, 2021, were 41,500 and $179,233, respectively.

Contingent Warrants

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

Warrants Issued

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

Stock Repurchase Program

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

At The Market Offering Agreement

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

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

The Company has no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Sales Agreement or terminate the Sales Agreement. The Company did not sell any shares during the three month period ended September 30, 2022. During the three month period ended March 31, 2021, the Company sold 100,687 shares for gross proceeds of $1.1 million and incurred $62,700 of offering costs.

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Share-based Compensation

9 Months Ended

Sep. 30, 2022

Stockholders Equity

Share-based Compensation

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				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
Restricted share-based compensation expense	$	115,141	$	210,602	$	384,267	$	582,561
Non-qualified option share-based compensation expense		-		24,867		-		79,571
Total share-based compensation before taxes	$	115,141	$	235,469	$	384,267	$	662,132

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), restricted stock units, stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options.

Restricted Stock 

The Company records the fair value of all restricted stock shares based on the grant date fair value and amortizes stock compensation on a straight-line basis over the vesting period. Restricted stock shares are issued when vested and included in the total number of common shares issued and outstanding. During the nine month period ended September 30, 2022, the Company granted 153,903 RSAs. During the nine month period ended September 30, 2021, the Company granted 83,326 RSAs.

 Non-Qualified Stock Options 

The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using the Black-Scholes model, which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. There were no non-qualified stock option awards granted during the nine month periods ended September 30, 2022 and 2021.

At September 30, 2022, the Company had approximately $424,800 of total unrecognized share-based compensation expense, net of estimated forfeitures, related to share-based compensation that will be recognized over the weighted average remaining period of 1.0 years.

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Earnings Per Common Share (EPS)

9 Months Ended

Sep. 30, 2022

Earnings Per Common Share (EPS)

Earnings Per Common Share (EPS)

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					NINE MONTHS ENDED
	SEPTEMBER 30,					SEPTEMBER 30,
	2022			2021		2022			2021
	(Unaudited)
Basic Earnings Per Share Computation:
Net (loss) income	$	(540,883	)	$	534,884	$	(14,692,989	)	$	915,577
Weighted average number of common shares		8,725,476			9,129,406		8,734,471			9,066,088
Basic Earnings Per Share	$	(0.06	)	$	0.06	$	(1.68	)	$	0.10
Diluted Earnings Per Share Computation:
Net (loss) income	$	(540,883	)	$	534,884	$	(14,692,989	)	$	915,577
Weighted average number of common shares		8,725,476			9,129,406		8,734,471			9,066,088
Incremental shares from assumed conversions of dilutive securities		-			28,990		-			116,102
Adjusted weighted average number of common shares		8,725,476			9,158,396		8,734,471			9,182,190
Diluted Earnings Per Share	$	(0.06	)	$	0.06	$	(1.68	)	$	0.10

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Revenue from Contracts with Customers

9 Months Ended

Sep. 30, 2022

Revenue from Contracts with Customers

Revenue from Contracts with Customers

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				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
Carrier Services	$	14,062,695	$	13,100,499	$	39,495,108	$	36,347,673
Managed Services		11,240,821		9,150,783		31,302,189		26,537,872
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

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

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
U.S. Federal Government	$	19,840,322	$	19,377,818	$	55,846,663	$	52,959,115
U.S. State and Local Governments		86,091		50,196		313,112		168,284
Foreign Governments		17,787		14,840		74,253		53,929
Commercial Enterprises		5,359,316		2,808,428		14,563,269		9,704,217
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

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

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
North America	$	24,584,145	$	21,286,194	$	68,254,823	$	59,459,998
Europe		719,371		965,088		2,542,474		3,425,547
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

During the three months ended September 30, 2022 and 2021, the Company recognized approximately $485,400 and $344,700, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2021 and 2020, respectively.

During the nine months ended September 30, 2022 and 2021, the Company recognized approximately $2.1 million and $1.8 million, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2021 and 2020, respectively.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies

Commitments and Contingencies

17. Commitments and Contingencies

Employment Agreements

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

Litigation

The Company is not involved in any material legal proceedings.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

Basis of Presentation and Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements as of September 30, 2022 and for each of the three and nine month periods ended September 30, 2022 and 2021, respectively, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the operating results for the full year.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and acquired entities since their respective dates of acquisition. All significant inter-company amounts were eliminated in consolidation.

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 September 30, 2022 and December 31, 2021

Deferred payroll tax payments of $246,000 was included in accrued liabilities on our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.

Foreign Currency

Assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of each reporting period. The resulting translation adjustments, along with any related tax effects, are included in accumulated other comprehensive income, a component of stockholders’ equity. Translation adjustments are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Revenues and expenses are translated at the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations outside the U.S. where the functional currency is the U.S. dollar, are reported net in the Company’s condensed consolidated statements of operations, depending on the nature of the activity.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring use of estimates and judgment relate to revenue recognition, accounts receivable valuation reserves, ability to realize intangible assets and goodwill, ability to realize deferred income tax assets, fair value of certain financial instruments and the evaluation of contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results could differ from those estimates.  There were no significant changes in accounting estimates used by management during the quarter, except for the goodwill impairment adjustment discussed below. 

Segment Reporting

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

Software Development Costs

The Company applies the principles of FASB ASC 350-40, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use (“ASC 350-40”). ASC 350-40 requires that software development costs incurred before the preliminary project stage be expensed as incurred. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed, and the software will be used to perform the function intended.

The Company also applies the principles of FASB ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (“ASC 985-20”). ASC 985-20 requires that software development costs incurred in conjunction with development of computer software to be sold to be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, development costs of computer software to be sold are capitalized and reported at the lower of unamortized cost or net realizable value of the related product.

Significant Accounting Policies

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

Accounting Standards under Evaluation

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

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Business Combinations (Tables)

9 Months Ended

Sep. 30, 2022

Business Combinations

Schedule of unaudited pro forma

	THREE MONTHS ENDED		NINE MONTHS ENDED
	SEPTEMBER 30,		SEPTEMBER 30,
	2021		2021
	(a)		(a)
Revenues	$	25,026	$	70,386
Net Income		981		1,423

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Schedule of liabilities measured at fair value on a recurring basis

			Quoted Prices in		Significant Other		Unobservable
	SEPTEMBER 30,		Active Markets		Observable 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		356,000		-		-		356,000
Contingent consideration - warrants, net of current portion		31,000		-		-		31,000
Total liabilities measured and recorded at fair value	$	387,000	$	-	$	-	$	387,000

			Quoted Prices in		Significant Other		Unobservable
	DECEMBER 31,		Active Markets		Observable Inputs		Inputs
Description	2021		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Contingent consideration - cash settled	$	250,000	$	-	$	-	$	250,000
Contingent consideration - warrants		108,000		-		-		108,000
Contingent consideration - cash settled, net of current portion		1,095,000		-		-		1,095,000
Contingent consideration - warrants, net of current portion		252,000		-		-		252,000
Total liabilities measured and recorded at fair value	$	1,705,000	$	-	$	-	$	1,705,000

Fair value of contingent consideration

Contingent consideration, December 31, 2021	$	1,705,000
Change in fair value (gain) reported in the consolidated statement of operations		(301,000	)
Contingent consideration settled - cash		(171,000	)
Contingent consideration settled - warrants		(108,000	)
Contingent consideration, March 31, 2022		1,125,000
Change in fair value (gain) reported in the consolidated statement of operations		(666,000	)
Contingent consideration settled - cash		(79,000	)
Contingent consideration, June 30, 2022		380,000
Change in fair value (loss) reported in the consolidated statement of operations		7,000
Contingent consideration, September 30, 2022	$	387,000

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Accounts Receivable and Significant Concentrations (Tables)

9 Months Ended

Sep. 30, 2022

Accounts Receivable and Significant Concentrations

Schedule of accounts receivable

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Government (1)	$	11,063,168	$	11,010,794
Commercial (2)		2,537,257		1,588,778
Gross accounts receivable		13,600,425		12,599,572
Less: allowances for doubtful
accounts (3)		41,313		62,988
Accounts receivable, net	$	13,559,112	$	12,536,584

Schedule of presents revenue by customer

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
Customer Type	2022			2021			2022			2021
	(Unaudited)
U.S. Federal Government (1)		78.4	%		87.1	%		78.9	%		84.2	%
U.S. State & Local and Foreign Governments		0.4	%		0.3	%		0.5	%		0.4	%
Commercial		21.2	%		12.6	%		20.6	%		15.4	%

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Unbilled Accounts Receivable (Tables)

9 Months Ended

Sep. 30, 2022

Accounts Receivable and Significant Concentrations

Schedule of concentration of risk

	SEPTEMBER 30,			DECEMBER 31,
	2022			2021
	As a % of			As a % of
Customer Type	Receivables			Receivables
	(Unaudited)
U.S. Federal Government		96	%		99	%
Commercial		4	%		1	%

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Other Current Assets and Other Long Term Assets (Tables)

9 Months Ended

Sep. 30, 2022

Other Current Assets and Accrued Expenses

Schedule of Other current assets

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Inventories	$	541,798	$	590,065
Prepaid rent, insurance and other assets		1,241,641		1,307,548
Qualified payroll credit receivable		1,144,365		1,296,396
Total other current assets	$	2,927,804	$	3,194,009

Schedule of other long term assets

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Carrier service costs	$	5,387,210	$	8,771,660
Salaries and payroll taxes		2,099,958		2,213,356
Inventory purchases, consultants and other costs		1,042,920		1,345,900
U.S. Income tax (receivable) payable		-		(23,562	)
Other		18,308		37,072
	$	8,548,396	$	12,344,426

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2022

Property and Equipment

Property, plant and equipment

	SEPTEMBER 30,		DECEMBER 31,
	2022		2021
	(Unaudited)
Computer hardware and software	$	3,084,769	$	2,700,807
Furniture and fixtures		491,772		454,401
Leasehold improvements		264,675		298,352
Automobiles		112,704		137,105
Gross property and equipment		3,953,920		3,590,665
Less: accumulated depreciation and
amortization		2,891,306		2,749,532
Property and equipment, net	$	1,062,614	$	841,133

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets

Schedule of goodwill

	SEPTEMBER 30,
	2022
Balances, January 1	$	22,088,578
Impairment		(16,277,000	)
Balances, September 30	$	5,811,578

Schedule of Intangible assets

	SEPTEMBER 30, 2022
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
	(Unaudited)
Customer Relationships	$	2,392,000	$	(239,200	)	$	2,152,800
Channel Relationships		2,628,080		(1,474,645	)		1,153,435
Internally Developed Software		4,399,752		(2,166,391	)		2,233,361
Trade Name and Trademarks		1,330,472		(232,321	)		1,098,151
	$	10,750,304	$	(4,112,557	)	$	6,637,747

	DECEMBER 31, 2021
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
Customer Relationships	$	2,392,000	$	(61,650	)	$	2,330,350
Channel Relationships		2,628,080		(1,343,241	)		1,284,839
Internally Developed Software		3,082,705		(1,633,516	)		1,449,189
Trade Name and Trademarks		1,330,472		(165,964	)		1,164,508
	$	9,433,257	$	(3,204,371	)	$	6,228,886

Schedule of Estimated annual amortization of Intangible assets

Remainder of 2022	$	396,224
2023		1,504,122
2024		1,285,557
2025		716,824
2026		511,170
Thereafter		2,223,850
Total	$	6,637,747

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Sharebased Compensation (Table)

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets

Share-based Compensation (table)

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
Restricted share-based compensation expense	$	115,141	$	210,602	$	384,267	$	582,561
Non-qualified option share-based compensation expense		-		24,867		-		79,571
Total share-based compensation before taxes	$	115,141	$	235,469	$	384,267	$	662,132

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Earnings Per Common Share (EPS) (Tables)

9 Months Ended

Sep. 30, 2022

Earnings Per Common Share (EPS)

Schedule of earnings per share, basic and diluted

	THREE MONTHS ENDED					NINE MONTHS ENDED
	SEPTEMBER 30,					SEPTEMBER 30,
	2022			2021		2022			2021
	(Unaudited)
Basic Earnings Per Share Computation:
Net (loss) income	$	(540,883	)	$	534,884	$	(14,692,989	)	$	915,577
Weighted average number of common shares		8,725,476			9,129,406		8,734,471			9,066,088
Basic Earnings Per Share	$	(0.06	)	$	0.06	$	(1.68	)	$	0.10
Diluted Earnings Per Share Computation:
Net (loss) income	$	(540,883	)	$	534,884	$	(14,692,989	)	$	915,577
Weighted average number of common shares		8,725,476			9,129,406		8,734,471			9,066,088
Incremental shares from assumed conversions of dilutive securities		-			28,990		-			116,102
Adjusted weighted average number of common shares		8,725,476			9,158,396		8,734,471			9,182,190
Diluted Earnings Per Share	$	(0.06	)	$	0.06	$	(1.68	)	$	0.10

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Revenue from Contracts with Customers (Tables)

9 Months Ended

Sep. 30, 2022

Revenue from Contracts with Customers

Schedule of consolidated revenues

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
Carrier Services	$	14,062,695	$	13,100,499	$	39,495,108	$	36,347,673
Managed Services		11,240,821		9,150,783		31,302,189		26,537,872
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

Revenue from external customers by customers type

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
U.S. Federal Government	$	19,840,322	$	19,377,818	$	55,846,663	$	52,959,115
U.S. State and Local Governments		86,091		50,196		313,112		168,284
Foreign Governments		17,787		14,840		74,253		53,929
Commercial Enterprises		5,359,316		2,808,428		14,563,269		9,704,217
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

Revenue from external customers by geographic areas

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2022		2021		2022		2021
	(Unaudited)
North America	$	24,584,145	$	21,286,194	$	68,254,823	$	59,459,998
Europe		719,371		965,088		2,542,474		3,425,547
	$	25,303,516	$	22,251,282	$	70,797,297	$	62,885,545

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Basis of Presentation and Accounting Policies (Details Narrative) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Basis of Presentation and Accounting Policies
Deferred payroll tax payments	$ 246,000	$ 246,000

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Business Combination (Details) - Pro Forma - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2021
Revenues	$ 25,026	$ 70,386
Net income	$ 981	$ 1,423

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Business Combination (Details Narrative) - USD ($)		9 Months Ended
	Oct. 01, 2021	Sep. 30, 2022
Acquisition of specified assets purchase price paid in cash	$ 4,750,000
Warrants to purchase common stock, shares	75,000
Warrants, exercise price	$ 5.33
Warrants, exercisable period	four years
Warrants issued during period, shares		75,000
Contingent consideration paid, cash		$ 250,000
2021
Contingent consideration payable	$ 250,000
Additional warrants issued, shares	75,000
Additional warrants issued, exercisable period	four years
2022
Contingent consideration payable	$ 1,000,000.0
Additional warrants issued, shares	150,000
Additional warrants issued, exercisable period	three years
2023
Contingent consideration payable	$ 100,000.0
Additional warrants issued, shares	125,000
Additional warrants issued, exercisable period	three years
2024
Contingent consideration payable	$ 100,000.0
Additional warrants issued, shares	125,000
Additional warrants issued, exercisable period	three years

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Fair Value Measurements (Details) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Contingent consideration - cash settled		$ 250,000
Contingent consideration - warrants	$ 0	108,000
Contingent consideration - cash settled, net of current portion	56,000	1,095,000
Contingent consideration - warrants, net of current portion	31,000	252,000
Total liabilities measured and recorded at fair value	387,000	1,705,000
Fair Value, Inputs, Level 3 [Member]
Contingent consideration - cash settled	0	250,000
Contingent consideration - warrants	0	108,000
Contingent consideration - cash settled, net of current portion	356,000	1,095,000
Contingent consideration - warrants, net of current portion	31,000	252,000
Total liabilities measured and recorded at fair value	$ 387,000	$ 1,705,000

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Fair Value Measurements (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2022
Fair Value Measurements
Contingent consideration, beginning	$ 1,125,000	$ 1,705,000	$ 1,705,000
Change in fair value (gain) reported in the consolidated statement of operations	(666,000)	(301,000)	7,000
Contingent consideration settled - cash	79,000	171,000
Contingent consideration settled - warrants	0	108,000
Contingent consideration, ending	$ 380,000	$ 1,125,000	$ 387,000

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Accounts Receivable and Significant Concentrations (Details) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Accounts Receivable Gross	$ 13,600,425	$ 12,599,572
Less: allowances for doubtful accounts	41,313	62,988
Accounts receivable, net	13,559,112	12,536,584
Commercial
Accounts Receivable Gross	2,537,257	1,588,778
Government
Accounts Receivable Gross	$ 11,063,168	$ 11,010,794

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Accounts Receivable and Significant Concentrations (Details 1)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Commercial
Concentration risk	21.20%	12.60%	20.60%	15.40%
U.S Federal Government
Concentration risk	78.40%	87.10%	78.90%	84.20%
U.S. State and Local and Foreign Governments
Concentration risk	0.40%	0.30%	0.50%	0.40%

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Unbilled Accounts Receivable (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Commercial
Concentration Risk	4.00%	1.00%
U.S Federal Government
Concentration Risk	96.00%	99.00%

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Other Current Assets and Accrued Expenses (Details) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Other Current Assets and Accrued Expenses
Inventories	$ 541,798	$ 590,065
Prepaid rent, insurance and other assets	1,241,641	1,307,548
Qualified payroll credit receivable	1,144,365	1,296,396
Total other current assets	$ 2,927,804	$ 3,194,009

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Other Current Assets and Accrued Expenses (Details 1) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Other Current Assets and Accrued Expenses
Carrier service costs	$ 5,387,210	$ 8,771,660
Salaries and payroll taxes	2,099,958	2,213,356
Inventory purchases, consultants and other costs	1,042,920	1,345,900
U.S. Income tax payable	0	(23,562)
Other	18,308	37,072
Accrued expenses	$ 8,548,396	$ 12,344,426

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Property and Equipment (Details) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Less: accumulated depreciation and amortization	$ 2,891,306	$ 2,749,532
Property and equipment, net	1,062,614	841,133
Gross property and equipment	3,953,920	3,590,665
Computer Hardware Software
Gross property and equipment	3,084,769	2,700,807
Furniture and Fixtures
Gross property and equipment	491,772	454,401
Leasehold Improvements
Gross property and equipment	264,675	298,352
Automobiles
Gross property and equipment	$ 112,704	$ 137,105

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Property and Equipment (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Property and Equipment
Depreciation expense	$ 102,000	$ 89,200	$ 305,100	$ 248,900

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Goodwill and Intangible Assets (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Goodwill and Intangible Assets
Beginning balance of Goodwill	$ 5,811,578		$ 22,088,578
Ending balance	5,811,578		5,811,578
Impairment charge	$ 0	$ 0	$ 16,277,000	$ 0

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Goodwill and Intangible Assets (Details 1) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Gross carrying amount	$ 10,750,304	$ 9,433,257
Accumulated amortization	4,112,557	3,204,371
Net book value	6,637,747	6,228,886
Trade Name and Trademarks
Gross carrying amount	1,330,472	1,330,472
Accumulated amortization	(232,321)	(165,964)
Net book value	1,098,151	1,164,508
Customer Relationships
Gross carrying amount	2,392,000	2,392,000
Accumulated amortization	(239,200)	(61,650)
Net book value	2,152,800	2,330,350
Channel Relationships
Gross carrying amount	2,628,080	2,628,080
Accumulated amortization	(1,474,645)	(1,343,241)
Net book value	1,153,435	1,284,839
Internally Developed Software
Gross carrying amount	4,399,752	3,082,705
Accumulated amortization	2,166,391	1,633,516
Net book value	$ 2,233,361	$ 1,449,189

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Goodwill and Intangible Assets (Details 2) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Goodwill and Intangible Assets
Remainder of 2022	$ 396,224
2023	1,504,122
2024	1,285,557
2025	716,824
2026	511,170
Thereafter	2,223,850
Total	$ 6,637,747	$ 6,228,886

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Goodwill and Intangible Assets (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Capitalized software cost			$ 130,000
Aggregate amortization expense	$ 316,900	$ 133,800	958,400	$ 373,100
Cost and accumulated amortization				1,980,000
Impairment charges	16,300,000.0		16,300,000
Internally Developed Software
Capitalized software cost	$ 1,100,000		$ 2,900,000	1,800,000
Property Plant Equipment
Capitalized software cost		$ 607,900		$ 531,600

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Line of Credit (Details Narrative) - USD ($)	1 Months Ended	9 Months Ended
	Jun. 15, 2022	Sep. 30, 2022	Jun. 27, 2022	Jun. 15, 2017
Line of credit borrowing capacity		$ 700,000.0
Net paid percentage		90.00%
Loan Agreement
Line of credit borrowing capacity		$ 700,000.0
Borrowing base amount	$ 1,000,000
Working capital revolving line of credit			$ 500,000.0	$ 500,000.0
Borrowing term	12 years
Description of date of maturity extention	The Modification Agreement (i) extended the maturity date of the facility from June 15, 2022 through June 15, 2023
Quarterly minimum tangible net worth				200,000,000,000
Percentage of unpaid balance of eligible accounts receivable		80.00%
Loan Agreement | Maximum
Working capital revolving line of credit			$ 7,000,000.0	$ 650,000,000,000

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Income Taxes (Details Narrative) $ in Millions	9 Months Ended
	Sep. 30, 2022 USD ($)
Income Taxes
Deferred tax assets, operating loss carryforwards, Federal	$ 34.4
Deferred tax assets, operating loss carryforwards, State	$ 38.4
Deferred tax assets percentage	50.00%

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Stockholders Equity (Details Narrative) - USD ($)	3 Months Ended	9 Months Ended
	Mar. 31, 2022	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021	Nov. 30, 2021	Oct. 01, 2021	Aug. 18, 2020	Oct. 07, 2019
Common stock, shares authorized		30,000,000		30,000,000
Common stock, par value per share		$ 1
Common stock, shares issued		8,725,476		8,842,026
Common stock, shares outstanding		8,725,476		8,842,026
Proceeds from issuance of stock options			$ 41,500
Proceeds from stock options exercised			$ 179,233
Warrants, exercise price						$ 5.33
Common stock, par value per share		$ 0.001		$ 0.001
RSAs
Common stock, vested in period		83,728	132,384
Shares withheld for tax withholding obligation		11,280	12,526
RSAs vested, tax liability		$ 49,300	$ 140,900
At The Market Offering Agreement
Common stock, par value per share							$ 0.001
Sale of stock, number of shares issued	100,687
Proceeds from issuance or sale of equity	$ 11,000
Payments of stock offering costs	$ 62,700
Aggregate offering price							$ 24,000,000
Repurchase Plan
Stock repurchase program, authorized amount					$ 5,000,000.0			$ 250,000
Remaining authorized repurchase amount					$ 4,600,000
Stock repurchased during period, shares	196,586
Stock repurchased during period, amount	$ 818,200
Conigent Warrants
Warrants, exercise price		$ 5.33
Warrants
Warrants, exercise price	$ 5.33
Number of securities called by warrants	75,000
Warrants, contractual term	5.33
Warrants, fair value	$ 108,000
Warrants, outstanding	150,000

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Share-based Compensation (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Total share based	$ 115,141	$ 235,469	$ 384,267	$ 662,132
Non-qualified Stock Options
Total share based	0	24,867	0	79,571
RSAs
Total share based	$ 115,141	$ 210,602	$ 384,267	$ 582,561

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Share-based Compensation (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cost not yet recognized, weighted average period for recognition	1 year
Total unrecognized share-based compensation expense	$ 424,800
RSAs
Awards granted	153,903	83,326

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Earnings Per Common Share (EPS) (Details) - USD ($)	3 Months Ended					9 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Basic EPS Computation:
Net (loss) income	$ (540,883)	$ (13,759,209)	$ (392,897)	$ 534,884	$ (204,731)	$ (14,692,989)	$ 915,577
Weighted average number of common shares	8,725,476			9,129,406		8,734,471	9,066,088
Basic EPS	$ (0.06)			$ (0.06)		$ (1.68)	$ 0.10
Diluted EPS Computation:
Net (loss) income	$ (540,883)			$ 534,884		$ (14,692,989)	$ 915,577
Weighted average number of common shares	8,725,476			9,129,406		8,734,471	9,066,088
Incremental shares from assumed conversions of stock options				28,990			116,102
Adjusted weighted average number of common shares	8,725,476			9,158,396		8,734,471	9,182,190
Diluted EPS	$ (0.06)			$ 0.06		$ (1.68)	$ 0.10

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Revenue from Contracts with Customers (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Revenues	$ 25,303,516	$ 22,251,282	$ 70,797,297	$ 62,885,545
Revenues	25,271,572	22,251,282	70,765,353	62,885,545
Carrier Services
Revenues	14,062,695	13,100,499	39,495,108	36,347,673
Managed Services
Revenues	$ 11,240,821	$ 9,150,783	$ 31,302,189	$ 26,537,872

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Revenue from Contracts with Customers (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Revenues,net	$ 25,303,516	$ 22,251,282	$ 70,797,297	$ 62,885,545
Revenues,net	25,271,572	22,251,282	70,765,353	62,885,545
U.S Federal Government
Revenues,net	19,840,322	19,377,818	55,846,663	52,959,115
U.S. State and Local Governments
Revenues,net	86,091	50,196	313,112	168,284
Foreign Governments
Revenues,net	17,787	14,840	74,253	53,929
Commercial Enterprises
Revenues,net	$ 5,359,316	$ 2,808,428	$ 14,563,269	$ 9,704,217

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Revenue from Contracts with Customers (Details 2) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Deferred revenue	$ 25,303,516	$ 22,251,282	$ 70,797,297	$ 62,885,545
North America
Deferred revenue	24,584,145	21,286,194	68,254,823	59,459,998
Europe
Deferred revenue	$ 719,371	$ 965,088	$ 2,542,474	$ 3,425,547

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Revenue from Contracts with Customers (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Revenue from Contracts with Customers
Deferred revenue	$ 485,400	$ 344,700
Revenue related Approximately	$ 2,100,000	$ 1,800,000